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Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 152613 & No. 152628 June 23, 2006
APEX MINING CO., INC., petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication board, provincial mining regulatory board (PMRB-
DAVAO), MONKAYO INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR, BALITE COMMUNAL
PORTAL MINING COOPERATIVE, DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD
MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS GALANG, RENATO BASMILLO, FRANCISCO
YOBIDO, EDUARDO GLORIA, EDWIN ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY
ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and joel brillantes
management mining corporation, Respondents
D E C I S I O N
CHICO-NAZARIO, J .:
On 27 February 1931, Governor General Dwight F. Davis issued Proclamation No. 369, establishing the Agusan-Davao-Surigao Forest
Reserve consisting of approximately 1,927,400 hectares.
1

The disputed area, a rich tract of mineral land, is inside the forest reserve located at Monkayo, Davao del Norte, and Cateel , Davao
Oriental, consisting of 4,941.6759 hectares.
2
This mineral land is encompassed by Mt. Diwata, which is situated in the municipalities of
Monkayo and Cateel. It later became known as the "Diwalwal Gold Rush Area." It has since the early 1980’s been stormed by conflicts
brought about by the numerous mining claimants scrambling for gold that lies beneath its bosom.
On 21 November 1983, Camilo Banad and his group, who claimed to have first discovered traces of gold in Mount Diwata, filed a
Declaration of Location (DOL) for six mining claims in the area.
Camilo Banad and some other natives pooled their skills and resources and organized the Balite Communal Portal Mining Cooperative
(Balite).
3

On 12 December 1983, Apex Mining Corporation (Apex) entered into operating agreements with Banad and his group.
From November 1983 to February 1984, several individual applications for mining locations over mineral land covering certain parts of
the Diwalwal gold rush area were filed with the Bureau of Mines and Geo-Sciences (BMG).
On 2 February 1984, Marcopper Mining Corporation (MMC) filed 16 DOLs or mining claims for areas adjacent to the area covered by
the DOL of Banad and his group. After realizing that the area encompassed by its mining claims is a forest reserve within the coverage
of Proclamation No. 369 issued by Governor General Davis, MMC abandoned the same and instead applied for a prospecting permit
with the Bureau of Forest Development (BFD).
On 1 July 1985, BFD issued a Prospecting Permit to MMC covering an area of 4,941.6759 hectares traversing the municipalities of
Monkayo and Cateel, an area within the forest reserve under Proclamation No. 369. The permit embraced the areas claimed by Apex
and the other individual mining claimants.
On 11 November 1985, MMC filed Exploration Permit Application No. 84-40 with the BMG. On 10 March 1986, the BMG issued to MCC
Exploration Permit No. 133 (EP 133).
Discovering the existence of several mining claims and the proliferation of small-scale miners in the area covered by EP 133, MMC thus
filed on 11 April 1986 before the BMG a Petition for the Cancellation of the Mining Claims of Apex and Small Scale Mining Permit Nos.
(x-1)-04 and (x-1)-05 which was docketed as MAC No. 1061. MMC alleged that the areas covered by its EP 133 and the mining claims
of Apex were within an established and existing forest reservation (Agusan-Davao-Surigao Forest Reserve) under Proclamation No.
369 and that pursuant to Presidential Decree No. 463,
4
acquisition of mining rights within a forest reserve is through the application for
a permit to prospect with the BFD and not through registration of a DOL with the BMG.
On 23 September 1986, Apex filed a motion to dismiss MMC’s petition alleging that its mining claims are not within any establ ished or
proclaimed forest reserve, and as such, the acquisition of mining rights thereto must be undertaken via registration of DOL with the
BMG and not through the filing of application for permit to prospect with the BFD.
On 9 December 1986, BMG dismissed MMC’s petition on the ground that the area covered by the Apex mining claims and MMC’s
permit to explore was not a forest reservation. It further declared null and void MMC’s EP 133 and sustained the validity of Apex mining
claims over the disputed area.
MMC appealed the adverse order of BMG to the Department of Environment and Natural Resources (DENR).
On 15 April 1987, after due hearing, the DENR reversed the 9 December 1996 order of BMG and declared MMC’s EP 133 valid and
subsisting.
Apex filed a Motion for Reconsideration with the DENR which was subsequently denied. Apex then filed an appeal before the Office of
the President. On 27 July 1989, the Office of the President, through Assistant Executive Secretary for Legal Affairs, Cancio C.
Garcia,
5
dismissed Apex’s appeal and affirmed the DENR ruling.
Apex filed a Petition for Certiorari before this Court. The Petition was docketed as G.R. No. 92605 entitled, "Apex Mining Co., Inc. v.
Garcia."
6
On 16 July 1991, this Court rendered a Decision against Apex holding that the disputed area is a forest reserve; hence, the
proper procedure in acquiring mining rights therein is by initially applying for a permit to prospect with the BFD and not through a
registration of DOL with the BMG.
On 27 December 1991, then DENR Secretary Fulgencio Factoran, Jr. issued Department Administrative Order No. 66 (DAO No. 66)
declaring 729 hectares of the areas covered by the Agusan-Davao-Surigao Forest Reserve as non-forest lands and open to small-scale
mining purposes.
As DAO No. 66 declared a portion of the contested area open to small scale miners, several mining entities filed applications for
Mineral Production Sharing Agreement (MPSA).
On 25 August 1993, Monkayo Integrated Small Scale Miners Association (MISSMA) filed an MPSA application which was denied by the
BMG on the grounds that the area applied for is within the area covered by MMC EP 133 and that the MISSMA was not qualified to
apply for an MPSA under DAO No. 82,
7
Series of 1990.
On 5 January 1994, Rosendo Villaflor and his group filed before the BMG a Petition for Cancellation of EP 133 and for the admission of
their MPSA Application. The Petition was docketed as RED Mines Case No. 8-8-94. Davao United Miners Cooperative (DUMC) and
Balite intervened and likewise sought the cancellation of EP 133.
On 16 February 1994, MMC assigned EP 133 to Southeast Mindanao Gold Mining Corporation (SEM), a domestic corporation which is
alleged to be a 100% -owned subsidiary of MMC.
On 14 June 1994, Balite filed with the BMG an MPSA application within the contested area that was later on rejected.
On 23 June 1994, SEM filed an MPSA application for the entire 4,941.6759 hectares under EP 133, which was also denied by reason
of the pendency of RED Mines Case No. 8-8-94. On 1 September 1995, SEM filed another MPSA application.
On 20 October 1995, BMG accepted and registered SEM’s MPSA application and the Deed of Assignment over EP 133 executed in its
favor by MMC. SEM’s application was designated MPSA Application No. 128 (MPSAA 128). After publication of SEM’s application, the
following filed before the BMG their adverse claims or oppositions:
a) MAC Case No. 004 (XI) – JB Management Mining Corporation;
b) MAC Case No. 005(XI) – Davao United Miners Cooperative;
c) MAC Case No. 006(XI) – Balite Integrated Small Scale Miner’s Cooperative;
d) MAC Case No. 007(XI) – Monkayo Integrated Small Scale Miner’s Association, Inc. (MISSMA);
e) MAC Case No. 008(XI) – Paper Industries Corporation of the Philippines;
f) MAC Case No. 009(XI) – Rosendo Villafor, et al.;
g) MAC Case No. 010(XI) – Antonio Dacudao;
h) MAC Case No. 011(XI) – Atty. Jose T. Amacio;
i) MAC Case No. 012(XI) – Puting-Bato Gold Miners Cooperative;
j) MAC Case No. 016(XI) – Balite Communal Portal Mining Cooperative;
k) MAC Case No. 97-01(XI) – Romeo Altamera, et al.
8

To address the matter, the DENR constituted a Panel of Arbitrators (PA) to resolve the following:
(a) The adverse claims on MPSAA No. 128; and
(b) The Petition to Cancel EP 133 filed by Rosendo Villaflor docketed as RED Case No. 8-8-94.
9

On 13 June 1997, the PA rendered a resolution in RED Mines Case No. 8-8-94. As to the Petition for Cancellation of EP 133 issued to
MMC, the PA relied on the ruling in Apex Mining Co., Inc. v. Garcia,
10
and opined that EP 133 was valid and subsisting. It also declared
that the BMG Director, under Section 99 of the Consolidated Mines Administrative Order implementing Presidential Decree No. 463,
was authorized to issue exploration permits and to renew the same without limit.
With respect to the adverse claims on SEM’s MPSAA No. 128, the PA ruled that adverse claimants’ petitions were not filed in
accordance with the existing rules and regulations governing adverse claims because the adverse claimants failed to submit the sketch
plan containing the technical description of their respective claims, which was a mandatory requirement for an adverse claim that would
allow the PA to determine if indeed there is an overlapping of the area occupied by them and the area applied for by SEM. It added that
the adverse claimants were not claim owners but mere occupants conducting illegal mining activities at the contested area since only
MMC or its assignee SEM had valid mining claims over the area as enunciated in Apex Mining Co., Inc. v. Garcia.
11
Also, it maintained
that the adverse claimants were not qualified as small-scale miners under DENR Department Administrative Order No. 34 (DAO No.
34),
12
or the Implementing Rules and Regulation of Republic Act No. 7076 (otherwise known as the "People’s Small-Scale Mining Act of
1991"), as they were not duly licensed by the DENR to engage in the extraction or removal of minerals from the ground, and that they
were large-scale miners. The decretal portion of the PA resolution pronounces:
VIEWED IN THE LIGHT OF THE FOREGOING, the validity of Expoloration Permit No. 133 is hereby reiterated and all the adverse
claims against MPSAA No. 128 are DISMISSED.
13

Undaunted by the PA ruling, the adverse claimants appealed to the Mines Adjudication Board (MAB). In a Decision dated 6 January
1998, the MAB considered erroneous the dismissal by the PA of the adverse claims filed against MMC and SEM over a mere
technicality of failure to submit a sketch plan. It argued that the rules of procedure are not meant to defeat substantial justice as the
former are merely secondary in importance to the latter. Dealing with the question on EP 133’s validity, the MAB opined that said issue
was not crucial and was irrelevant in adjudicating the appealed case because EP 133 has long expired due to its non-renewal and that
the holder of the same, MMC, was no longer a claimant of the Agusan-Davao-Surigao Forest Reserve having relinquished its right to
SEM. After it brushed aside the issue of the validity of EP 133 for being irrelevant, the MAB proceeded to treat SEM’s MPSA application
over the disputed area as an entirely new and distinct application. It approved the MPSA application, excluding the area segregated by
DAO No. 66, which declared 729 hectares within the Diwalwal area as non-forest lands open for small-scale mining. The MAB resolved:
WHEREFORE, PREMISES CONSIDERED, the decision of the Panel of Arbitrators dated 13 June 1997 is hereby VACATED and a
new one entered in the records of the case as follows:
1. SEM’s MPSA application is hereby given due course subject to the full and strict compliance of the provisions of the Mining
Act and its Implementing Rules and Regulations;
2. The area covered by DAO 66, series of 1991, actually occupied and actively mined by the small-scale miners on or before
August 1, 1987 as determined by the Provincial Mining Regulatory Board (PMRB), is hereby excluded from the area applied
for by SEM;
3. A moratorium on all mining and mining-related activities, is hereby imposed until such time that all necessary procedures,
licenses, permits, and other requisites as provided for by RA 7076, the Mining Act and its Implementing Rules and Regulations
and all other pertinent laws, rules and regulations are complied with, and the appropriate environmental protection measures
and safeguards have been effectively put in place;
4. Consistent with the spirit of RA 7076, the Board encourages SEM and all small-scale miners to continue to negotiate in
good faith and arrive at an agreement beneficial to all. In the event of SEM’s strict and full compliance with all the requirements
of the Mining Act and its Implementing Rules and Regulations, and the concurrence of the small-scale miners actually
occupying and actively mining the area, SEM may apply for the inclusion of portions of the areas segregated under paragraph
2 hereof, to its MPSA application. In this light, subject to the preceding paragraph, the contract between JB [JB Management
Mining Corporation] and SEM is hereby recognized.
14

Dissatisfied, the Villaflor group and Balite appealed the decision to this Court. SEM, aggrieved by the exclusion of 729 hectares from its
MPSA application, likewise appealed. Apex filed a Motion for Leave to Admit Petition for Intervention predicated on its right to stake its
claim over the Diwalwal gold rush which was granted by the Court. These cases, however, were remanded to the Court of Appeals for
proper disposition pursuant to Rule 43 of the 1997 Rules of Civil Procedure. The Court of Appeals consolidated the remanded cases as
CA-G.R. SP No. 61215 and No. 61216.
In the assailed Decision
15
dated 13 March 2002, the Court of Appeals affirmed in toto the decision of the PA and declared null and void
the MAB decision.
The Court of Appeals, banking on the premise that the SEM is the agent of MMC by virtue of its assignment of EP 133 in favor of SEM
and the purported fact that SEM is a 100% subsidiary of MMC, ruled that the transfer of EP 133 was valid. It argued that since SEM is
an agent of MMC, the assignment of EP 133 did not violate the condition therein prohibiting its transfer except to MMC’s duly
designated agent. Thus, despite the non-renewal of EP 133 on 6 July 1994, the Court of Appeals deemed it relevant to declare EP 133
as valid since MMC’s mining rights were validly transferred to SEM prior to its expiration.
The Court of Appeals also ruled that MMC’s right to explore under EP 133 is a property right which the 1987 Constitution protects and
which cannot be divested without the holder’s consent. It stressed that MMC’s failure to proceed with the extraction and utilization of
minerals did not diminish its vested right to explore because its failure was not attributable to it.
Reading Proclamation No. 369, Section 11 of Commonwealth Act 137, and Sections 6, 7, and 8 of Presidential Decree No. 463, the
Court of Appeals concluded that the issuance of DAO No. 66 was done by the DENR Secretary beyond his power for it is the President
who has the sole power to withdraw from the forest reserve established under Proclamation No. 369 as non-forest land for mining
purposes. Accordingly, the segregation of 729 hectares of mining areas from the coverage of EP 133 by the MAB was unfounded.
The Court of Appeals also faulted the DENR Secretary in implementing DAO No. 66 when he awarded the 729 hectares segregated
from the coverage area of EP 133 to other corporations who were not qualified as small-scale miners under Republic Act No. 7076.
As to the petitions of Villaflor and company, the Court of Appeals argued that their failure to submit the sketch plan to the PA, which is a
jurisdictional requirement, was fatal to their appeal. It likewise stated the Villaflor and company’s mining claims, which were based on
their alleged rights under DAO No. 66, cannot stand as DAO No. 66 was null and void. The dispositive portion of the Decision decreed:
WHEREFORE, premises considered, the Petition of Southeast Mindanao Gold Mining Corporation is GRANTED while the Petition of
Rosendo Villaflor, et al., is DENIED for lack of merit. The Decision of the Panel of Arbitrators dated 13 June 1997 is AFFIRMED in toto
and the assailed MAB Decision is hereby SET ASIDE and declared as NULL and VOID.
16

Hence, the instant Petitions for Review on Certiorari under Rule 45 of the Rules of Court filed by Apex, Balite and MAB.
During the pendency of these Petitions, President Gloria Macapagal-Arroyo issued Proclamation No. 297 dated 25 November 2002.
This proclamation excluded an area of 8,100 hectares located in Monkayo, Compostela Valley, and proclaimed the same as mineral
reservation and as environmentally critical area. Subsequently, DENR Administrative Order No. 2002-18 was issued declaring an
emergency situation in the Diwalwal gold rush area and ordering the stoppage of all mining operations therein. Thereafter, Executive
Order No. 217 dated 17 June 2003 was issued by the President creating the National Task Force Diwalwal which is tasked to address
the situation in the Diwalwal Gold Rush Area.
In G.R. No. 152613 and No. 152628, Apex raises the following issues:
I
WHETHER OR NOT SOUTHEAST MINDANAO GOLD MINING’S [SEM] E.P. 133 IS NULL AND VOID DUE TO THE FAILURE OF
MARCOPPER TO COMPLY WITH THE TERMS AND CONDITIONS PRESCRIBED IN EP 133.
II
WHETHER OR NOT APEX HAS A SUPERIOR AND PREFERENTIAL RIGHT TO STAKE IT’S CLAIM OVER THE ENTIRE 4,941
HECTARES AGAINST SEM AND THE OTHER CLAIMANTS PURSUANT TO THE TIME-HONORED PRINCIPLE IN MINING LAW
THAT "PRIORITY IN TIME IS PRIORITY IN RIGHT."
17

In G.R. No. 152619-20, Balite anchors its petition on the following grounds:
I
WHETHER OR NOT THE MPSA OF SEM WHICH WAS FILED NINE (9) DAYS LATE (JUNE 23, 1994) FROM THE FILING OF THE
MPSA OF BALITE WHICH WAS FILED ON JUNE 14, 1994 HAS A PREFERENTIAL RIGHT OVER THAT OF BALITE.
II
WHETHER OR NOT THE DISMISSAL BY THE PANEL OF ARBITRATORS OF THE ADVERSE CLAIM OF BALITE ON THE
GROUND THAT BALITE FAILED TO SUBMIT THE REQUIRED SKETCH PLAN DESPITE THE FACT THAT BALITE, HAD IN FACT
SUBMITTED ON TIME WAS A VALID DISMISSAL OF BALITE’S ADVERSE CLAIM.
III
WHETHER OR NOT THE ACTUAL OCCUPATION AND SMALL-MINING OPERATIONS OF BALITE PURSUANT TO DAO 66 IN THE
729 HECTARES WHICH WAS PART OF THE 4,941.6759 HECTARES COVERED BY ITS MPSA WHICH WAS REJECTED BY THE
BUREAU OF MINES AND GEOSCIENCES WAS ILLEGAL.
18

In G.R. No. 152870-71, the MAB submits two issues, to wit:
I
WHETHER OR NOT EP NO. 133 IS STILL VALID AND SUBSISTING.
II
WHETHER OR NOT THE SUBSEQUENT ACTS OF THE GOVERNMENT SUCH AS THE ISSUANCE OF DAO NO. 66,
PROCLAMATION NO. 297, AND EXECUTIVE ORDER 217 CAN OUTWEIGH EP NO. 133 AS WELL AS OTHER ADVERSE CLAIMS
OVER THE DIWALWAL GOLD RUSH AREA.
19

The common issues raised by petitioners may be summarized as follows:
I. Whether or not the Court of Appeals erred in upholding the validity and continuous existence of EP 133 as well as its transfer
to SEM;
II. Whether or not the Court of Appeals erred in declaring that the DENR Secretary has no authority to issue DAO No. 66; and
III. Whether or not the subsequent acts of the executive department such as the issuance of Proclamation No. 297, and DAO
No. 2002-18 can outweigh Apex and Balite’s claims over the Diwalwal Gold Rush Area.
On the first issue, Apex takes exception to the Court of Appeals’ ruling upholding the validity of MMC’s EP 133 and its subsequent
transfer to SEM asserting that MMC failed to comply with the terms and conditions in its exploration permit, thus, MMC and its
successor-in-interest SEM lost their rights in the Diwalwal Gold Rush Area. Apex pointed out that MMC violated four conditions in its
permit. First, MMC failed to comply with the mandatory work program, to complete exploration work, and to declare a mining feasibility.
Second, it reneged on its duty to submit an Environmental Compliance Certificate. Third, it failed to comply with the reportorial
requirements. Fourth, it violated the terms of EP 133 when it assigned said permit to SEM despite the explicit proscription against its
transfer.
Apex likewise emphasizes that MMC failed to file its MPSA application required under DAO No. 82
20
which caused its exploration
permit to lapse because DAO No. 82 mandates holders of exploration permits to file a Letter of Intent and a MPSA application not later
than 17 July 1991. It said that because EP 133 expired prior to its assignment to SEM, SEM’s MPSA application should have been
evaluated on its own merit.
As regards the Court of Appeals recognition of SEM’s vested right over the disputed area, Apex bewails the same to be lacking in
statutory bases. According to Apex, Presidential Decree No. 463 and Republic Act No. 7942 impose upon the claimant the obligation of
actually undertaking exploration work within the reserved lands in order to acquire priority right over the area. MMC, Apex claims, failed
to conduct the necessary exploration work, thus, MMC and its successor-in-interest SEM lost any right over the area.
In its Memorandum, Balite maintains that EP 133 of MMC, predecessor-in-interest of SEM, is an expired and void permit which cannot
be made the basis of SEM’s MPSA application.
Similarly, the MAB underscores that SEM did not acquire any right from MMC by virtue of the transfer of EP 133 because the transfer
directly violates the express condition of the exploration permit stating that "it shall be for the exclusive use and benefit of the permittee
or his duly authorized agents." It added that while MMC is the permittee, SEM cannot be considered as MMC’s duly designated agent
as there is no proof on record authorizing SEM to represent MMC in its business dealings or undertakings, and neither did SEM pursue
its interest in the permit as an agent of MMC. According to the MAB, the assignment by MMC of EP 133 in favor of SEM did not make
the latter the duly authorized agent of MMC since the concept of an agent under EP 133 is not equivalent to the concept of assignee. It
finds fault in the assignment of EP 133 which lacked the approval of the DENR Secretary in contravention of Section 25 of Republic Act
No. 7942
21
requiring his approval for a valid assignment or transfer of exploration permit to be valid.
SEM, on the other hand, counters that the errors raised by petitioners Apex, Balite and the MAB relate to factual and evidentiary
matters which this Court cannot inquire into in an appeal by certiorari.
The established rule is that in the exercise of the Supreme Court’s power of review, the Court not being a trier of facts, does not
normally embark on a re-examination of the evidence presented by the contending parties during the trial of the case considering that
the findings of facts of the Court of Appeals are conclusive and binding on the Court.
22
This rule, however, admits of exceptions as
recognized by jurisprudence, to wit:
(1) [w]hen the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on misapprehension of
facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the
case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial
court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in
the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the fi ndings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different
conclusion.
23

Also, in the case of Manila Electric Company v. Benamira,
24
the Court in a Petition for Review on Certiorari, deemed it proper to look
deeper into the factual circumstances of the case since the Court of Appeal’s findings are at odds to those of the National Labor
Relations Commission (NLRC). Just like in the foregoing case, it is this Court’s considered view that a re-evaluation of the attendant
facts surrounding the present case is appropriate considering that the findings of the MAB are in conflict with that of the Court of
Appeals.
I
At the threshold, it is an undisputed fact that MMC assigned to SEM all its rights under EP 133 pursuant to a Deed of Assignment dated
16 February 1994.
25

EP 133 is subject to the following terms and conditions
26
:
1. That the permittee shall abide by the work program submitted with the application or statements made later in support
thereof, and which shall be considered as conditions and essential parts of this permit;
2. That permittee shall maintain a complete record of all activities and accounting of all expenditures incurred therein subject to
periodic inspection and verification at reasonable intervals by the Bureau of Mines at the expense of the applicant;
3. That the permittee shall submit to the Director of Mines within 15 days after the end of each calendar quarter a report under
oath of a full and complete statement of the work done in the area covered by the permit;
4. That the term of this permit shall be for two (2) years to be effective from this date, renewable for the same period at the
discretion of the Director of Mines and upon request of the applicant;
5. That the Director of Mines may at any time cancel this permit for violation of its provision or in case of trouble or breach of
peace arising in the area subject hereof by reason of conflicting interests without any responsibility on the part of the
government as to expenditures for exploration that might have been incurred, or as to other damages that might have been
suffered by the permittee; and
6. That this permit shall be for the exclusive use and benefit of the permittee or his duly authorized agents and shall be used
for mineral exploration purposes only and for no other purpose.
Under Section 90
27
of Presidential Decree No. 463, the applicable statute during the issuance of EP 133, the DENR Secretary, through
Director of BMG, is charged with carrying out the said law. Also, under Commonwealth Act No. 136, also known as "An Act Creating
The Bureau of Mines," which was approved on 7 November 1936, the Director of Mines has the direct charge of the administration of
the mineral lands and minerals, and of the survey, classification, lease or any other form of concession or disposition thereof under the
Mining Act.
28
This power of administration includes the power to prescribe terms and conditions in granting exploration permits to
qualified entities. Thus, in the grant of EP 133 in favor of the MMC, the Director of the BMG acted within his power in laying down the
terms and conditions attendant thereto.
Condition number 6 categorically states that the permit shall be for the exclusive use and benefit of MMC or its duly authori zed agents.
While it may be true that SEM, the assignee of EP 133, is a 100% subsidiary corporation of MMC, records are bereft of any evidence
showing that the former is the duly authorized agent of the latter. For a contract of agency to exist, it is essential that the principal
consents that the other party, the agent, shall act on its behalf, and the agent consents so as to act.
29
In the case of Yu Eng Cho v. Pan
American World Airways, Inc.,
30
this Court had the occasion to set forth the elements of agency, viz:
(1) consent, express or implied, of the parties to establish the relationship;
(2) the object is the execution of a juridical act in relation to a third person;
(3) the agent acts as a representative and not for himself;
(4) the agent acts within the scope of his authority.
The existence of the elements of agency is a factual matter that needs to be established or proven by evidence. The burden of proving
that agency is extant in a certain case rests in the party who sets forth such allegation. This is based on the principle that he who
alleges a fact has the burden of proving it.
31
It must likewise be emphasized that the evidence to prove this fact must be clear, positive
and convincing.
32

In the instant Petitions, it is incumbent upon either MMC or SEM to prove that a contract of agency actually exists between them so as
to allow SEM to use and benefit from EP 133 as the agent of MMC. SEM did not claim nor submit proof that it is the designated agent
of MMC to represent the latter in its business dealings or undertakings. SEM cannot, therefore, be considered as an agent of MMC
which can use EP 133 and benefit from it. Since SEM is not an authorized agent of MMC, it goes without saying that the assignment or
transfer of the permit in favor of SEM is null and void as it directly contravenes the terms and conditions of the grant of EP 133.
Furthermore, the concept of agency is distinct from assignment. In agency, the agent acts not on his own behalf but on behalf of his
principal.
33
While in assignment, there is total transfer or relinquishment of right by the assignor to the assignee.
34
The assignee takes
the place of the assignor and is no longer bound to the latter. The deed of assignment clearly stipulates:
1. That for ONE PESO (P1.00) and other valuable consideration received by the ASSIGNOR from the ASSIGNEE, the ASSIGNOR
hereby ASSIGNS, TRANSFERS and CONVEYS unto the ASSIGNEE whatever rights or interest the ASSIGNOR may have in the area
situated in Monkayo, Davao del Norte and Cateel, Davao Oriental, identified as Exploration Permit No. 133 and Application for a Permit
to Prospect in Bunawan, Agusan del Sur respectively.
35

Bearing in mind the just articulated distinctions and the language of the Deed of Assignment, it is readily obvious that the assignment by
MMC of EP 133 in favor of SEM did not make the latter the former’s agent. Such assignment involved actual transfer of all rights and
obligations MMC have under the permit in favor of SEM, thus, making SEM the permittee. It is not a mere grant of authority to SEM, as
an agent of MMC, to use the permit. It is a total abdication of MMC’s rights over the permit. Hence, the assignment in question did not
make SEM the authorized agent of MMC to make use and benefit from EP 133.
The condition stipulating that the permit is for the exclusive use of the permittee or its duly authorized agent is not without any reason.
Exploration permits are strictly granted to entities or individuals possessing the resources and capability to undertake mining
operations. Without such a condition, non-qualified entities or individuals could circumvent the strict requirements under the law by the
simple expediency acquiring the permit from the original permittee.
We cannot lend recognition to the Court of Appeals’ theory that SEM, being a 100% subsidiary of MMC, is automatically an agent of
MMC.
A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties
expressly authorized by law or incident to its existence.
36
It is an artificial being invested by law with a personality separate and distinct
from those of the persons composing it as well as from that of any other legal entity to which it may be related.
37
Resultantly, absent
any clear proof to the contrary, SEM is a separate and distinct entity from MMC.
The Court of Appeals pathetically invokes the doctrine of piercing the corporate veil to legitimize the prohibited transfer or assignment of
EP 133. It stresses that SEM is just a business conduit of MMC, hence, the distinct legal personalities of the two entities should not be
recognized. True, the corporate mask may be removed when the corporation is just an alter ego or a mere conduit of a person or of
another corporation.
38
For reasons of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it
becomes a shield for fraud, illegality or inequity committed against a third person.
39
However, this Court has made a caveat in the
application of the doctrine of piercing the corporate veil. Courts should be mindful of the milieu where it is to be applied. Only in cases
where the corporate fiction was misused to such an extent that injustice, fraud or crime was committed against another, in di sregard of
its rights may the veil be pierced and removed. Thus, a subsidiary corporation may be made to answer for the liabilities and/or
illegalities done by the parent corporation if the former was organized for the purpose of evading obligations that the latter may have
entered into. In other words, this doctrine is in place in order to expose and hold liable a corporation which commits illegal acts and use
the corporate fiction to avoid liability from the said acts. The doctrine of piercing the corporate veil cannot therefore be used as a vehicle
to commit prohibited acts because these acts are the ones which the doctrine seeks to prevent.
To our mind, the application of the foregoing doctrine is unwarranted. The assignment of the permit in favor of SEM is utilized to
circumvent the condition of non-transferability of the exploration permit. To allow SEM to avail itself of this doctrine and to approve the
validity of the assignment is tantamount to sanctioning illegal act which is what the doctrine precisely seeks to forestall.
Quite apart from the above, a cursory consideration of the mining law pertinent to the case, will, indeed, demonstrate the infraction
committed by MMC in its assignment of EP 133 to SEM.
Presidential Decree No. 463, enacted on 17 May 1974, otherwise known as the Mineral Resources Development Decree, which
governed the old system of exploration, development, and utilization of mineral resources through "license, concession or lease"
prescribed:
SEC. 97. Assignment of Mining Rights. – A mining lease contract or any interest therein shall not be transferred, assigned, or
subleased without the prior approval of the Secretary: Provided, That such transfer, assignment or sublease may be made only to a
qualified person possessing the resources and capability to continue the mining operations of the lessee and that the assignor has
complied with all the obligations of the lease: Provided, further, That such transfer or assignment shall be duly registered with the office
of the mining recorder concerned. (Emphasis supplied.)
The same provision is reflected in Republic Act No. 7942, otherwise known as the Philippine Mining Act of 1995, which is the new law
governing the exploration, development and utilization of the natural resources, which provides:
SEC. 25. Transfer or Assignment. - An exploration permit may be transferred or assigned to a qualified person subject to the approval
of the Secretary upon the recommendation of the Director.
The records are bereft of any indication that the assignment bears the imprimatur of the Secretary of the DENR. Presidential Decree
No. 463, which is the governing law when the assignment was executed, explicitly requires that the transfer or assignment of mining
rights, including the right to explore a mining area, must be with the prior approval of the Secretary of DENR. Quite conspicuously, SEM
did not dispute the allegation that the Deed of Assignment was made without the prior approval of the Secretary of DENR. Absent the
prior approval of the Secretary of DENR, the assignment of EP 133, was, therefore, without legal effect for violating the mandatory
provision of Presidential Decree No. 463.
An added significant omission proved fatal to MMC/SEM’s cause. While it is true that the case of Apex Mining Co., Inc. v.
Garcia
40
settled the issue of which between Apex and MMC validly acquired mining rights over the disputed area, such rights, though,
had been extinguished by subsequent events. Records indicate that on 6 July 1993, EP 133 was extended for 12 months or until 6 July
1994.
41
MMC never renewed its permit prior and after its expiration. Thus, EP 133 expired by non-renewal.
With the expiration of EP 133 on 6 July 1994, MMC lost any right to the Diwalwal Gold Rush Area. SEM, on the other hand, has not
acquired any right to the said area because the transfer of EP 133 in its favor is invalid. Hence, both MMC and SEM have not acquired
any vested right over the 4,941.6759 hectares which used to be covered by EP 133.
II
The Court of Appeals theorizes that DAO No. 66 was issued beyond the power of the DENR Secretary since the power to withdraw
lands from forest reserves and to declare the same as an area open for mining operation resides in the President.
Under Proclamation No. 369 dated 27 February 1931, the power to convert forest reserves as non-forest reserves is vested with the
DENR Secretary. Proclamation No. 369 partly states:
From this reserve shall be considered automatically excluded all areas which had already been certified and which in the future may be
proclaimed as classified and certified lands and approved by the Secretary of Agriculture and Natural Resources.
42

However, a subsequent law, Commonwealth Act No. 137, otherwise known as "The Mining Act" which was approved on 7 November
1936 provides:
Sec. 14. Lands within reservations for purposes other than mining, which, after such reservation is made, are found to be more valuable
for their mineral contents than for the purpose for which the reservation was made, may be withdrawn from such reservations by the
President with the concurrence of the National Assembly, and thereupon such lands shall revert to the public domain and be subject to
disposition under the provisions of this Act.
Unlike Proclamation No. 369, Commonwealth Act No. 137 vests solely in the President, with the concurrence of the National Assembly,
the power to withdraw forest reserves found to be more valuable for their mineral contents than for the purpose for which the
reservation was made and convert the same into non-forest reserves. A similar provision can also be found in Presidential Decree No.
463 dated 17 May 1974, with the modifications that (1) the declaration by the President no longer requires the concurrence of the
National Assembly and (2) the DENR Secretary merely exercises the power to recommend to the President which forest reservations
are to be withdrawn from the coverage thereof. Section 8 of Presidential Decree No. 463 reads:
SEC. 8. Exploration and Exploitation of Reserved Lands. – When lands within reservations, which have been established for purposes
other than mining, are found to be more valuable for their mineral contents, they may, upon recommendation of the Secretary be
withdrawn from such reservation by the President and established as a mineral reservation.
Against the backdrop of the applicable statutes which govern the issuance of DAO No. 66, this Court is constrained to rule that said
administrative order was issued not in accordance with the laws. Inescapably, DAO No. 66, declaring 729 hectares of the areas
covered by the Agusan-Davao-Surigao Forest Reserve as non-forest land open to small-scale mining operations, is null and void as,
verily, the DENR Secretary has no power to convert forest reserves into non-forest reserves.
III
It is the contention of Apex that its right over the Diwalwal gold rush area is superior to that of MMC or that of SEM because it was the
first one to occupy and take possession of the area and the first to record its mining claims over the area.
For its part, Balite argues that with the issuance of DAO No. 66, its occupation in the contested area, particularly in the 729 hectares
small-scale mining area, has entitled it to file its MPSA. Balite claims that its MPSA application should have been given preference over
that of SEM because it was filed ahead.
The MAB, on the other hand, insists that the issue on who has superior right over the disputed area has become moot and academic by
the supervening events. By virtue of Proclamation No. 297 dated 25 November 2002, the disputed area was declared a mineral
reservation.
Proclamation No. 297 excluded an area of 8,100 hectares located in Monkayo, Compostela Valley, and proclaimed the same as
mineral reservation and as environmentally critical area, viz:
WHEREAS, by virtue of Proclamation No. 369, series of 1931, certain tracts of public land situated in the then provinces of Davao,
Agusan and Surigao, with an area of approximately 1,927,400 hectares, were withdrawn from settlement and disposition, excludi ng,
however, those portions which had been certified and/or shall be classified and certified as non-forest lands;
WHEREAS, gold deposits have been found within the area covered by Proclamation No. 369, in the Municipality of Monkayo,
Compostela Valley Province, and unregulated small to medium-scale mining operations have, since 1983, been undertaken therein,
causing in the process serious environmental, health, and peace and order problems in the area;
WHEREAS, it is in the national interest to prevent the further degradation of the environment and to resolve the health and peace and
order problems spawned by the unregulated mining operations in the said area;
WHEREAS, these problems may be effectively addressed by rationalizing mining operations in the area through the establishment of a
mineral reservation;
WHEREAS, after giving due notice, the Director of Mines and Geoxciences conducted public hearings on September 6, 9 and 11, 2002
to allow the concerned sectors and communities to air their views regarding the establishment of a mineral reservation in the place in
question;
WHEREAS, pursuant to the Philippine Mining Act of 1995 (RA 7942), the President may, upon the recommendation of the Director of
Mines and Geosciences, through the Secretary of Environment and Natural Resources, and when the national interest so requires,
establish mineral reservations where mining operations shall be undertaken by the Department directly or thru a contractor;
WHEREAS, as a measure to attain and maintain a rational and orderly balance between socio-economic growth and environmental
protection, the President may, pursuant to Presidential Decree No. 1586, as amended, proclaim and declare certain areas in the
country as environmentally critical;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Philippines, upon recommendation of the Secretary of the
Department of Environment and Natural Resources (DENR), and by virtue of the powers vested in me by law, do hereby exclude
certain parcel of land located in Monkayo, Compostela Valley, and proclaim the same as mineral reservation and as environmentally
critical area, with metes and bound as defined by the following geographical coordinates;
x x x x
with an area of Eight Thousand One Hundred (8,100) hectares, more or less. Mining operations in the area may be undertaken either
by the DENR directly, subject to payment of just compensation that may be due to legitimate and existing claimants, or thru a qualified
contractor, subject to existing rights, if any.
The DENR shall formulate and issue the appropriate guidelines, including the establishment of an environmental and social fund, to
implement the intent and provisions of this Proclamation.
Upon the effectivity of the 1987 Constitution, the State assumed a more dynamic role in the exploration, development and utilization of
the natural resources of the country.
43
With this policy, the State may pursue full control and supervision of the exploration,
development and utilization of the country’s natural mineral resources. The options open to the State are through direct undertaking or
by entering into co-production, joint venture, or production-sharing agreements, or by entering into agreement with foreign-owned
corporations for large-scale exploration, development and utilization.
44
Thus, Article XII, Section 2, of the 1987 Constitution, specifically
states:
SEC. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries,
forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands,
all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the
full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint
venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose
capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may be provided by law. x x x
x x x x
The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-
scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and
conditions provided by law, based on real contributions to the economic growth and general welfare of the country. x x x (Underscoring
supplied.)
Recognizing the importance of the country’s natural resources, not only for national economic development, but also for its security and
national defense, Section 5 of Republic Act No. 7942 empowers the President, when the national interest so requires, to establish
mineral reservations where mining operations shall be undertaken directly by the State or through a contractor.
To implement the intent and provisions of Proclamation No. 297, the DENR Secretary issued DAO No. 2002-18 dated 12 August 2002
declaring an emergency situation in the Diwalwal Gold Rush Area and ordering the stoppage of all mining operations therein.
The issue on who has priority right over the disputed area is deemed overtaken by the above subsequent developments particularly
with the issuance of Proclamation 297 and DAO No. 2002-18, both being constitutionally-sanctioned acts of the Executive Branch.
Mining operations in the Diwalwal Mineral Reservation are now, therefore, within the full control of the State through the executive
branch. Pursuant to Section 5 of Republic Act No. 7942, the State can either directly undertake the exploration, development and
utilization of the area or it can enter into agreements with qualified entities, viz:
SEC 5. Mineral Reservations. – When the national interest so requires, such as when there is a need to preserve strategic raw
materials for industries critical to national development, or certain minerals for scientific, cultural or ecological value, the President may
establish mineral reservations upon the recommendation of the Director through the Secretary. Mining operations in existing mineral
reservations and such other reservations as may thereafter be established, shall be undertaken by the Department or through a
contractor x x x .
It is now up to the Executive Department whether to take the first option, i.e., to undertake directly the mining operations of the Diwalwal
Gold Rush Area. As already ruled, the State may not be precluded from considering a direct takeover of the mines, if it is the only
plausible remedy in sight to the gnawing complexities generated by the gold rush. The State need be guided only by the demands of
public interest in settling on this option, as well as its material and logistic feasibility.
45
The State can also opt to award mining
operations in the mineral reservation to private entities including petitioners Apex and Balite, if it wishes. The exercise of this
prerogative lies with the Executive Department over which courts will not interfere.
WHEREFORE, premises considered, the Petitions of Apex, Balite and the MAB are PARTIALLY GRANTED, thus:
1. We hereby REVERSE and SET ASIDE the Decision of the Court of Appeals, dated 13 March 2002, and hereby declare that
EP 133 of MMC has EXPIRED on 7 July 1994 and that its subsequent transfer to SEM on 16 February 1994 is VOID.
2. We AFFIRM the finding of the Court of Appeals in the same Decision declaring DAO No. 66 illegal for having been issued in
excess of the DENR Secretary’s authority.
Consequently, the State, should it so desire, may now award mining operations in the disputed area to any qualified entity it may
determine. No costs.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 76931 May 29, 1991
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
PADILLA, J .:p
This case is a consolidation of two (2) petitions for review on certiorari of a decision
1
of the Court of Appeals in CA-G.R. No. CV-04294,
entitled "American Airlines, Inc. vs. Orient Air Services and Hotel Representatives, Inc." which affirmed, with modification, the
decision
2
of the Regional Trial Court of Manila, Branch IV, which dismissed the complaint and granted therein defendant's counterclaim
for agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier offering passenger and air cargo
transportation in the Philippines, and Orient Air Services and Hotel Representatives (hereinafter referred to as Orient Air), entered into a
General Sales Agency Agreement (hereinafter referred to as the Agreement), whereby the former authorized the latter to act as its
exclusive general sales agent within the Philippines for the sale of air passenger transportation. Pertinent provisions of the agreement
are reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the Philippines, including
any United States military installation therein which are not serviced by an Air Carrier Representation Office (ACRO),
for the sale of air passenger transportation. The services to be performed by Orient Air Services shall include:
(a) soliciting and promoting passenger traffic for the services of American and, if necessary,
employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be used exclusively for the
transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and promotional material to sales
agents and the general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may be appointed by
Orient Air Services with the prior written consent of American) in the assigned territory including if
required by American the control of remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public in the
assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within the United States, neither Orient
Air Services nor its sub-agents will perform services for any other air carrier similar to those to be performed
hereunder for American without the prior written consent of American. Subject to periodic instructions and continued
consent from American, Orient Air Services may sell air passenger transportation to be performed within the United
States by other scheduled air carriers provided American does not provide substantially equivalent schedules
between the points involved.
xxx xxx xxx
4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders, less
commissions to which Orient Air Services is entitled hereunder, not less frequently than semi-monthly, on the 15th
and last days of each month for sales made during the preceding half month.
All monies collected by Orient Air Services for transportation sold hereunder on American's ticket stock or on
exchange orders, less applicable commissions to which Orient Air Services is entitled hereunder, are the property of
American and shall be held in trust by Orient Air Services until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder by Orient Air Services or its sub-
agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient Air Services
or its sub-agents over American's services and any connecting through air transportation, when made on American's
ticket stock, equal to the following percentages of the tariff fares and charges:
(i) For transportation solely between points within the United States and between such points and
Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America.
(ii) For transportation included in a through ticket covering transportation between points other than
those described above: 8% or such other rate(s) as may be prescribed by the International Air
Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an overriding commission of 3% of the
tariff fares and charges for all sales of transportation over American's service by Orient Air Service or its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing or performing any of the provisions of this Agreement or
shall become bankrupt or make any assignment for the benefit of or enter into any agreement or promise with its
creditors or go into liquidation, or suffer any of its goods to be taken in execution, or if it ceases to be in business, this
Agreement may, at the option of American, be terminated forthwith and American may, without prejudice to any of its
rights under this Agreement, take possession of any ticket forms, exchange orders, traffic material or other property
or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions of the International Air Transport
Association and the Air Traffic Conference of America, and such rules or resolutions shall control in the event of any
conflict with the provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in the event Orient Air Services is unable to transfer to
the United States the funds payable by Orient Air Services to American under this Agreement. Either party may
terminate the Agreement without cause by giving the other 30 days' notice by letter, telegram or cable.
xxx xxx xxx
3

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

In its Answer
6
with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations of the complaint with respect to
plaintiff's entitlement to alleged unremitted amounts, contending that after application thereof to the commissions due it under the
Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding commissions. Further, the defendant contended that the
actions taken by American Air in the course of terminating the Agreement as well as the termination itself were untenable, Orient Air
claiming that American Air's precipitous conduct had occasioned prejudice to its business interests.
Finding that the record and the evidence substantiated the allegations of the defendant, the trial court ruled in its favor, rendering a
decision dated 16 July 1984, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of defendant and against
plaintiff dismissing the complaint and holding the termination made by the latter as affecting the GSA agreement
illegal and improper and order the plaintiff to reinstate defendant as its general sales agent for passenger
tranportation in the Philippines in accordance with said GSA agreement; plaintiff is ordered to pay defendant the
balance of the overriding commission on total flown revenue covering the period from March 16, 1977 to December
31, 1980 in the amount of US$84,821.31 plus the additional amount of US$8,000.00 by way of proper 3% overriding
commission per month commencing from January 1, 1981 until such reinstatement or said amounts in its Philippine
peso equivalent legally prevailing at the time of payment plus legal interest to commence from the filing of the
counterclaim up to the time of payment. Further, plaintiff is directed to pay defendant the amount of One Million Five
Hundred Thousand (Pl,500,000.00) pesos as and for exemplary damages; and the amount of Three Hundred
Thousand (P300,000.00) pesos as and by way of attorney's fees.
Costs against plaintiff.
7

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27 January 1986, affirmed the
findings of the court a quo on their material points but with some modifications with respect to the monetary awards granted. The
dispositive portion of the appellate court's decision is as follows:
WHEREFORE, with the following modifications —
1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the latter's overriding
commission covering the period March 16, 1977 to December 31, 1980, or its Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on July 10, 1981, the date the counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding commission per month starting
January 1, 1981 until date of termination, May 9, 1981 or its Philippine peso equivalent in accordance with the official
rate of exchange legally prevailing on July 10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the answer with
counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.
8

American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof and arguing for its reversal.
The appellate court's decision was also the subject of a Motion for Partial Reconsideration by Orient Air which prayed for the restoration
of the trial court's ruling with respect to the monetary awards. The Court of Appeals, by resolution promulgated on 17 December 1986,
denied American Air's motion and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial court's award of
exemplary damages and attorney's fees, but granted insofar as the rate of exchange is concerned. The decision of
January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the payment of the sums
mentioned therein shall be at their Philippine peso equivalent in accordance with the official rate of exchange legally
prevailing on the date of actual payment.
9

Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as petitioner in G.R. No. 76931 and
American Air as petitioner in G.R. No. 76933. By resolution
10
of this Court dated 25 March 1987 both petitions were consolidated,
hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding commission. It is the stand of
American Air that such commission is based only on sales of its services actually negotiated or transacted by Orient Air, otherwise
referred to as "ticketed sales." As basis thereof, primary reliance is placed upon paragraph 5(b) of the Agreement which, in reiteration,
is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an overriding commission of 3% of the
tariff fees and charges for all sales of transportation over American's services by Orient Air Services or its sub-
agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having opted to appoint any sub-agents,
it is American Air's contention that Orient Air can claim entitlement to the disputed overriding commission based only on ticketed sales.
This is supposed to be the clear meaning of the underscored portion of the above provision. Thus, to be entitled to the 3% overriding
commission, the sale must be made by Orient Air and the sale must be done with the use of American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission covers the total revenue of
American Air and not merely that derived from ticketed sales undertaken by Orient Air. The latter, in justification of its submission,
invokes its designation as the exclusive General Sales Agent of American Air, with the corresponding obligations arising from such
agency, such as, the promotion and solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all sales of
transportation over American Air's services are necessarily by Orient Air."
11

It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be taken into consideration to ascertain
the meaning of its provisions.
12
The various stipulations in the contract must be read together to give effect to all.
13
After a careful
examination of the records, the Court finds merit in the contention of Orient Air that the Agreement, when interpreted in accordance with
the foregoing principles, entitles it to the 3% overriding commission based on total revenue, or as referred to by the parties, "total flown
revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the promotion and marketing of
American Air's services for air passenger transportation, and the solicitation of sales therefor. In return for such efforts and services,
Orient Air was to be paid commissions of two (2) kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and charges
from sales by Orient Air when made on American Air ticket stock; and second, an overriding commission of 3% of tariff fares and
charges for all sales of passenger transportation over American Air services. It is immediately observed that the precondition attached
to the first type of commission does not obtain for the second type of commissions. The latter type of commissions would accrue for
sales of American Air services made not on its ticket stock but on the ticket stock of other air carriers sold by such carriers or other
authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such overriding commissions to sales from
American Air ticket stock would erase any distinction between the two (2) types of commissions and would lead to the absurd
conclusion that the parties had entered into a contract with meaningless provisions. Such an interpretation must at all times be avoided
with every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that American Air was the party responsible for the
preparation of the Agreement. Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra proferentem", i.e.,
construed against the party who caused the ambiguity and could have avoided it by the exercise of a little more care. Thus, Article 1377
of the Civil Code provides that the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity.
14
To put it differently, when several interpretations of a provision are otherwise equally proper, that interpretation or
construction is to be adopted which is most favorable to the party in whose favor the provision was made and who did not cause the
ambiguity.
15
We therefore agree with the respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read against the party
who drafted it.
16

We now turn to the propriety of American Air's termination of the Agreement. The respondent appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of the Agreement,
Exh. F, which provides for remittances to American less commissions to which Orient is entitled, and from paragraph
5(d) which specifically allows Orient to retain the full amount of its commissions. Since, as stated ante, Orient is
entitled to the 3% override. American's premise, therefore, for the cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established, Orient Air was entitled to an overriding commission
based on total flown revenue. American Air's perception that Orient Air was remiss or in default of its obligations under the Agreement
was, in fact, a situation where the latter acted in accordance with the Agreement—that of retaining from the sales proceeds its accrued
commissions before remitting the balance to American Air. Since the latter was still obligated to Orient Air by way of such commissions.
Orient Air was clearly justified in retaining and refusing to remit the sums claimed by American Air. The latter's termination of the
Agreement was, therefore, without cause and basis, for which it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial court's award of exemplary damages and
attorney's fees. This Court sees no error in such modification and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the trial court. We refer particularly
to the lower court's decision ordering American Air to "reinstate defendant as its general sales agent for passenger transportation in the
Philippines in accordance with said GSA Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to extend its personality to Orient
Air. Such would be violative of the principles and essence of agency, defined by law as a contract whereby "a person binds himself to
render some service or to do something in representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE
LATTER .
17
(emphasis supplied) In an agent-principal relationship, the personality of the principal is extended through the facility of the
agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do.
Such a relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any
court. The Agreement itself between the parties states that "either party may terminate the Agreement without cause by giving the other
30 days' notice by letter, telegram or cable." (emphasis supplied) We, therefore, set aside the portion of the ruling of the respondent
appellate court reinstating Orient Air as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the respondent Court of Appeals,
dated 27 January 1986 and 17 December 1986, respectively. Costs against petitioner American Air.
SO ORDERED.
Melencio-Herrera, and Regalado, JJ., concur.
Paras, J., took no part. Son is a partner in one of the counsel.
Sarmiento, J., is on leave.














DIGEST:
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES v. COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED
Facts:
American Airlines, Inc. (American Air), an air carrier offering passenger and air cargo transportation in the Philippines, and Orient Air
Services and Hotel Representatives (Orient Air), entered into a General Sales Agency Agreement (Agreement), whereby the former
authorized the latter to act as its exclusive general sales agent within the Philippines for the sale of air passenger transportation.
In the agreement, Orient Air shall remit in United States dollars to American the ticket stock or exchange orders, less commissions to
which Orient Air Services is entitled, not less frequently than semi-monthly. On the other hand, American will pay Orient Air Services
commission on transportation sold by Orient Air Services or its sub-agents.
Thereafter, American alleged that Orient Air had reneged on its obligations under the Agreement by failing to promptly remit the net
proceeds of sales for the months of January to March 1981 in the amount of US $254,400.40, American Air by itself undertook the
collection of the proceeds of tickets sold originally by Orient Air and terminated forthwith the Agreement in accordance with paragraph
13 which authorize the termination of the thereof in case Orient Air is unable to transfer to the United States the funds payable by Orient
Air Services to American.
American Air instituted suit against Orient Air with the Court of First Instance of Manila ―for Accounting with Preliminary Attachment or
Garnishment, Mandatory Injunction and Restraining Order‖ averring the aforesaid basis for the termination of the Agreement as well as
therein defendant's previous record of failures "to promptly settle past outstanding refunds of which there were available funds in the
possession of the defendant, . . . to the damage and prejudice of plaintiff."
Orient Air denied the material allegations of the complaint with respect to plaintiff's entitlement to alleged unremitted amounts,
contending that after application thereof to the commissions due it under the Agreement, plaintiff in fact still owed Orient Air a balance
in unpaid overriding commissions.
Further, the defendant contended that the actions taken by American Air in the course of terminating the Agreement as well as the
termination itself were untenable. The trial court ruled in its favor which decision was affirmed with modification by Court of Appeals. It
held the termination made by the latter as affecting the GSA agreement illegal and improper and ordered the plaintiff to reinstate
defendant as its general sales agent for passenger transportation in the Philippines in accordance with said GSA agreement.
Issue:
WON the Court of Appeals erred in ordering the reinstatement of the defendant as its general sales agent for passenger transportation
in the Philippines in accordance with said GSA Agreement
Held:
Yes. By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to extend its personality to
Orient Air. Such would be violative of the principles and essence of agency, defined by law as a contract whereby "a person binds
himself to render some service or to do something in representation or on behalf of another, WITH THE CONSENT OR AUTHORITY
OF THE LATTER.
In an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by
legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be
effected with the consent of the principal, which must not, in any way, be compelled by law or by any court. The Agreement itself
between the parties states that "either party may terminate the Agreement without cause by giving the other 30 days' notice by letter,
telegram or cable." (emphasis supplied) We, therefore, set aside the portion of the ruling of the respondent appellate court reinstating
Orient Air as general sales agent of American Air.









Republic of the Philippines
SUPREME COURT
Manila
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.
MUÑOZ PALMA, J .:
This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion Rallos, sold the latter's
undivided share in a parcel of land pursuant to a power of attorney which the principal had executed in favor. The administrator of the
estate of the went to court to have the sale declared uneanforceable and to recover the disposed share. The trial court granted the relief
prayed for, but upon appeal the Court of Appeals uphold the validity of the sale and the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and registered co-owners of a
parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11116 of the Registry
of Cebu. On April 21, 1954, the sisters executed a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to
sell for and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the
undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation for the sum of
P10,686.90. The deed of sale was registered in the Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer
certificate of Title No. 12989 was issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint docketed as Civil Case
No. R-4530 of the Court of First Instance of Cebu, praying (1) that the sale of the undivided share of the deceased Concepcion Rallos
in lot 5983 be d unenforceable, and said share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix
Go Chan & Sons Realty Corporation be cancelled and another title be issued in the names of the corporation and the "Intestate estate
of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by way of attorney's fees and payment of costs of suit.
Named party defendants were Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but
subsequently, the latter was dropped from the complaint. The complaint was amended twice; defendant Corporation's Answer
contained a crossclaim against its co-defendant, Simon Rallos while the latter filed third-party complaint against his sister, Gerundia
Rallos While the case was pending in the trial court, both Simon and his sister Gerundia died and they were substituted by the
respective administrators of their estates.
After trial the court a quo rendered judgment with the following dispositive portion:
A. On Plaintiffs Complaint —
(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-indiviso share of
Concepcion Rallos in the property in question, — Lot 5983 of the Cadastral Survey of Cebu — is
concerned;
(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title No. 12989
covering Lot 5983 and to issue in lieu thereof another in the names of FELIX GO CHAN & SONS
REALTY CORPORATION and the Estate of Concepcion Rallos in the proportion of one-half (1/2)
share each pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an undivided
one-half (1/2) share of Lot 5983 to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to
pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00; and
(5) Ordering both defendants to pay the costs jointly and severally.
B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos,
to pay to defendant Felix Co Chan & Sons Realty Corporation the sum of P5,343.45, representing
the price of one-half (1/2) share of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay
in concept of reasonable attorney's fees to Felix Go Chan & Sons Realty Corporation the sum of
P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of Simeon Rallos, against
Josefina Rallos special administratrix of the Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to filing either a complaint against the regular administrator
of the Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia Rallos, covering the same subject-
matter of the third-party complaint, at bar. (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the foregoing judgment insofar as it set
aside the sale of the one-half (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to earlier, resolved the appeal on
November 20, 1964 in favor of the appellant corporation sustaining the sale in question.
1
The appellee administrator, Ramon Rallos,
moved for a reconsider of the decision but the same was denied in a resolution of March 4, 1965.
2

What is the legal effect of an act performed by an agent after the death of his principal? Applied more particularly to the instant case,
We have the query. is the sale of the undivided share of Concepcion Rallos in lot 5983 valid although it was executed by the agent after
the death of his principal? What is the law in this jurisdiction as to the effect of the death of the principal on the authority of the agent to
act for and in behalf of the latter? Is the fact of knowledge of the death of the principal a material factor in determining the legal effect of
an act performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter tinder consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of another without being authorized
by the latter, or unless he has by law a right to represent him.
3
A contract entered into in the name of another by one who has no
authority or the legal representation or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party.
4
Article 1403 (1) of
the same Code also provides:
ART. 1403. The following contracts are unenforceable, unless they are justified:
(1) Those entered into in the name of another person by one who hi - been given no authority or legal representation
or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby one party, caged the
principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons.
The essential elements of agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the object
is the execution of a juridical act in relation to a third person; (3) the agents acts as a representative and not for himsel f, and (4) the
agent acts within the scope of his authority.
5

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

2. There are various ways of extinguishing agency,
7
but her We are concerned only with one cause — death of the principal Paragraph
3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent, agency is extinguished by the death of the principal or the
agent. This is the law in this jurisdiction.
8

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

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

3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent extinguishes the agency, subject to any
exception, and if so, is the instant case within that exception? That is the determinative point in issue in this litigation. It is the contention
of respondent corporation which was sustained by respondent court that notwithstanding the death of the principal Concepcion Rallos
the act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the property is valid and enforceable inasmuch as the
corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has been
constituted in the common interest of the latter and of the agent, or in the interest of a third person who has accepted
the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any other cause which
extinguishes the agency, is valid and shall be fully effective with respect to third persons who may have contracted
with him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon Rallos was not coupled with
an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his principal is valid and effective
only under two conditions, viz: (1) that the agent acted without knowledge of the death of the principal and (2) that the third person who
contracted with the agent himself acted in good faith. Good faith here means that the third person was not aware of the death of the
principal at the time he contracted with said agent. These two requisites must concur the absence of one will render the act of the agent
invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at the time he sold the
latter's share in Lot No. 5983 to respondent corporation. The knowledge of the death is clearly to be inferred from the pleadings filed by
Simon Rallos before the trial court.
12
That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of the court
a quo
13
and of respondent appellate court when the latter stated that Simon Rallos 'must have known of the death of his sister, and yet
he proceeded with the sale of the lot in the name of both his sisters Concepcion and Gerundia Rallos without informing appellant (the
realty corporation) of the death of the former.
14

On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion Rallos, Article 1931 of the
Civil Code is inapplicable. The law expressly requires for its application lack of knowledge on the part of the agent of the death of his
principal; it is not enough that the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738
of the old Civil rode now Art. 1931 of the new Civil Code sustained the validity , of a sale made after the death of the principal because
it was not shown that the agent knew of his principal's demise.
15
To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et
al., 1961, where in the words of Justice Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is no indication
in the record, that the agent Luy Kim Guan was aware of the death of his principal at the time he sold the property.
The death 6f the principal does not render the act of an agent unenforceable, where the latter had no knowledge of
such extinguishment of the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that there is no provision in the
Code which provides that whatever is done by an agent having knowledge of the death of his principal is void even with respect to third
persons who may have contracted with him in good faith and without knowledge of the death of the principal.
16

We cannot see the merits of the foregoing argument as it ignores the existence of the general rule enunciated in Article 1919 that the
death of the principal extinguishes the agency. That being the general rule it follows a fortiorithat any act of an agent after the death of
his principal is void ab initio unless the same fags under the exception provided for in the aforementioned Articles 1930 and 1931.
Article 1931, being an exception to the general rule, is to be strictly construed, it is not to be given an interpretation or application
beyond the clear import of its terms for otherwise the courts will be involved in a process of legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the power of attorney which was
duly registered on the original certificate of title recorded in the Register of Deeds of the province of Cebu, that no notice of the death
was aver annotated on said certificate of title by the heirs of the principal and accordingly they must suffer the consequences of such
omission.
17

To support such argument reference is made to a portion in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of contracting with certain persons, the revocation must be made
known to them. But if the agency is general iii nature, without reference to particular person with whom the agent is to
contract, it is sufficient that the principal exercise due diligence to make the revocation of the agency publicity known.
In case of a general power which does not specify the persons to whom represents' on should be made, it is the
general opinion that all acts, executed with third persons who contracted in good faith, Without knowledge of the
revocation, are valid. In such case, the principal may exercise his right against the agent, who, knowing of the
revocation, continued to assume a personality which he no longer had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16,
rollo)
The above discourse however, treats of revocation by an act of the principal as a mode of terminating an agency which is to be
distinguished from revocation by operation of law such as death of the principal which obtains in this case. On page six of this Opinion
We stressed that by reason of the very nature of the relationship between principal and agent, agency is extinguished ipso jure upon
the death of either principal or agent. Although a revocation of a power of attorney to be effective must be communicated to the parties
concerned,
18
yet a revocation by operation of law, such as by death of the principal is, as a rule, instantaneously effective inasmuch as
"by legal fiction the agent's exercise of authority is regarded as an execution of the principal's continuing will.
19
With death, the
principal's will ceases or is the of authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What the Code provides i n Article
1932 is that, if the agent die his heirs must notify the principal thereof, and in the meantime adopt such measures as the circumstances
may demand in the interest of the latter. Hence, the fact that no notice of the death of the principal was registered on the certificate of
title of the property in the Office of the Register of Deeds, is not fatal to the cause of the estate of the principal
6. Holding that the good faith of a third person in said with an agent affords the former sufficient protection, respondent court drew a
"parallel" between the instant case and that of an innocent purchaser for value of a land, stating that if a person purchases a registered
land from one who acquired it in bad faith — even to the extent of foregoing or falsifying the deed of sale in his favor — the registered
owner has no recourse against such innocent purchaser for value but only against the forger.
20

To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v. Nano and Vallejo, 61 Phil.
625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a co-owner of lands with
Agustin Nano. The latter had a power of attorney supposedly executed by Vallejo Nano in his favor. Vallejo delivered
to Nano his land titles. The power was registered in the Office of the Register of Deeds. When the lawyer-husband of
Angela Blondeau went to that Office, he found all in order including the power of attorney. But Vallejo denied having
executed the power The lower court sustained Vallejo and the plaintiff Blondeau appealed. Reversing the decision of
the court a quo, the Supreme Court, quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of the defendant- appellee must be
overruled. Agustin Nano had possession of Jose Vallejo's title papers. Without those title papers
handed over to Nano with the acquiescence of Vallejo, a fraud could not have been perpetuated.
When Fernando de la Canters, a member of the Philippine Bar and the husband of Angela
Blondeau, the principal plaintiff, searched the registration record, he found them in due form
including the power of attorney of Vallajo in favor of Nano. If this had not been so and if thereafter
the proper notation of the encumbrance could not have been made, Angela Blondeau would not
have sent P12,000.00 to the defendant Vallejo.' An executed transfer of registered lands placed by
the registered owner thereof in the hands of another operates as a representation to a third party
that the holder of the transfer is authorized to deal with the land.
As between two innocent persons, one of whom must suffer the consequence of a breach of trust,
the one who made it possible by his act of coincidence bear the loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because here We are confronted with one who admittedly
was an agent of his sister and who sold the property of the latter after her death with full knowledge of such death. The situation is
expressly covered by a provision of law on agency the terms of which are clear and unmistakable leaving no room for an interpretation
contrary to its tenor, in the same manner that the ruling in Blondeau and the cases cited therein found a basis in Section 55 of the Land
Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any voluntary instrument is presented for registration
shall be conclusive authority from the registered owner to the register of deeds to enter a new certificate or to make a
memorandum of registration in accordance with such instruments, and the new certificate or memorandum Shall be
binding upon the registered owner and upon all persons claiming under him in favor of every purchaser for value and
in good faith: Provided however, That in all cases of registration provided by fraud, the owner may pursue all his legal
and equitable remedies against the parties to such fraud without prejudice, however, to the right, of any innocent
holder for value of a certificate of title. ... (Act No. 496 as amended)
7. One last point raised by respondent corporation in support of the appealed decision is an 1842 ruling of the Supreme Court of
Pennsylvania in Cassiday v. McKenzie wherein payments made to an agent after the death of the principal were held to be "good", "the
parties being ignorant of the death". Let us take note that the Opinion of Justice Rogers was premised on the statement that the parties
were ignorant of the death of the principal. We quote from that decision the following:
... Here the precise point is, whether a payment to an agent when the Parties are ignorant of the death is a good
payment. in addition to the case in Campbell before cited, the same judge Lord Ellenboruogh, has decided in 5 Esp.
117, the general question that a payment after the death of principal is not good. Thus, a payment of sailor's wages to
a person having a power of attorney to receive them, has been held void when the principal was dead at the time of
the payment. If, by this case, it is meant merely to decide the general proposition that by operation of law the death of
the principal is a revocation of the powers of the attorney, no objection can be taken to it. But if it intended to say that
his principle applies where there was 110 notice of death, or opportunity of twice I must be permitted to dissent from
it.
... That a payment may be good today, or bad tomorrow, from the accident circumstance of the death of the principal,
which he did not know, and which by no possibility could he know? It would be unjust to the agent and unjust to the
debtor. In the civil law, the acts of the agent, done bona fide in ignorance of the death of his principal are held valid
and binding upon the heirs of the latter. The same rule holds in the Scottish law, and I cannot believe the common
law is so unreasonable... (39 Am. Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be made that the above
represents the minority view in American jurisprudence. Thus in Clayton v. Merrett, the Court said.—
There are several cases which seem to hold that although, as a general principle, death revokes an agency and
renders null every act of the agent thereafter performed, yet that where a payment has been made in ignorance of the
death, such payment will be good. The leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S. (Pa)
282, 39 Am. 76, where, in an elaborate opinion, this view ii broadly announced. It is referred to, and seems to have
been followed, in the case of Dick v. Page,17 Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate
of the deceased principal had received the benefit of the money paid, and therefore the representative of the estate
might well have been held to be estopped from suing for it again. . . . These cases, in so far, at least, as they
announce the doctrine under discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4
Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite, alone in announcing the principle in its broadest
scope. (52, Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except so far as it related to the
particular facts, was a mere dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial indication of his views on the
general subject, than as the adjudication of the Court upon the point in question. But accordingly all power weight to
this opinion, as the judgment of a of great respectability, it stands alone among common law authorities and is
opposed by an array too formidable to permit us to following it. (15 Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no such conflict exists in our own
for the simple reason that our statute, the Civil Code, expressly provides for two exceptions to the general rule that death of the
principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with an interest (Art 1930), and (2) that the act of the agent
was executed without knowledge of the death of the principal and the third person who contracted with the agent acted also in good
faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress the indispensable requirement that the
agent acted without knowledge or notice of the death of the principal In the case before Us the agent Ramon Rallos executed the sale
notwithstanding notice of the death of his principal Accordingly, the agent's act is unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We affirm en toto the judgment
rendered by then Hon. Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs
against respondent realty corporation at all instances.
So Ordered. Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.
DIGEST:
RALLOS v GO CHAN
G.R. No. L-24332
January 31, 1978

Petitioner: RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS
Respodents: FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS
Ponente: MUÑOZ PALMA

FACTS:
BACKGROUND OF CASE
 This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion Rallos, sold the latter's
undivided share in a parcel of land pursuant to a power of attorney which the principal had executed in favor. The
administrator of the estate went to court to have the sale declared uneanforceable and to recover the disposed share.
 TC granted the relief prayed for, but upon appeal CA uphold the validity of the sale and the complaint. Hence, this Petition for
Review on certiorari.

FACTS OF THE CASE
 Concepcion and Gerundia both surnamed Rallos were sisters and registered co-owners of a parcel of land known as Lot No.
5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11116 of the Registry of Cebu.
 April 21, 1954: the sisters executed a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell
for and in their behalf lot 5983.
 March 3, 1955: Concepcion Rallos died.
 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.

FILING OF ACTION
 May 18, 1956: Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint praying that:
1. Sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be unenforceable, and said share be
reconveyed to her estate
2. Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be cancelled and another title be
issued in the names of the corporation and the "Intestate estate of Concepcion Rallos" in equal undivided and
3. Plaintiff be indemnified by way of attorney's fees and payment of costs of suit.
 Named party defendants were Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu,
but subsequently, the latter was dropped from the complaint.
 The complaint was amended twice; defendant Corporation's Answer contained a crossclaim against its co-defendant, Simon
Rallos while the latter filed third-party complaint against his sister, Gerundia Rallos.
 While the case was pending in the trial court, both Simon and his sister Gerundia died and they were substituted by the
respective administrators of their estates.

TC RULING (later on was affirmed by SC)
 On Plaintiffs Complaint —
1. Declaring the deed of sale null and void insofar as the one-half pro-indiviso share of Concepcion Rallos in the
property in question, — Lot 5983 of the Cadastral Survey of Cebu — is concerned;
2. Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title No.12989 covering Lot 5983 and to
issue in lieu thereof another in the names of FELIX GO CHAN & SONS REALTY CORPORATION and the Estate of
Concepcion Rallos in the proportion of one-half (1/2) share each pro-indiviso;
3. Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an undivided one-half (1/2) share of
Lot 5983 to the herein plaintiff;
4. Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to plaintiff in
concept of reasonable attorney's fees the sum of P1,000.00; and
5. Ordering both defendants to pay the costs jointly and severally.
 On GO CHANTS Cross-Claim:
1. Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to defendant
Felix Co Chan & Sons Realty Corporation P5,343.45, representing the price of one-half (1/2) share of lot 5983;
2. Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay in concept of
reasonable attorney's fees to Felix Go Chan & Sons Realty Corporation P500.00
 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:
o Dismissing the third-party complaint without prejudice to filing either a complaint against the regular administrator of
the Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia Rallos, covering the same subject-matter
of the third-party complaint, at bar.

CA RULING
 Felix Go Chan & Sons Realty Corporation appealed to CA from the TC judgment insofar as it set aside the sale of the one-half
(1/2) share of Concepcion Rallos. The appellate tribunal, resolved the appeal in favor of the appellant corporation sustaining
the sale in question. The appellee administrator, Ramon Rallos, moved for a reconsider of the decision but the same was
denied

ISSUE:
Is the sale of the undivided share of Concepcion Rallos in lot 5983 valid although it was executed by the agent after the death of his
principal? – NO

HELD:
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 with costs against respondent realty corporation at all
instances.

RATIO:
CERTAIN PRINCIPLES OF LAW RELEVANT TO AGENCY
 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.
 A contract entered into in the name of another by one who has no authority or the legal representation or who has acted
beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting party.
 Agency is basically personal representative, and derivative in nature. The authority of the agent to act emanates from the
powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. Qui facit per
alium facit se. "He who acts through another acts himself".
 There are various ways of extinguishing agency, 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:
ART. 1919. Agency is extinguished.
3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ...
 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.
 Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is found in the juridical
basis of agency, which is representation, them being an integration of the personality of the principal and that of the agent.
It is not possible for the representation to continue to exist once the death of either is establish.
 Pothier agrees with Manresa that by reason of the nature of agency, death is a necessary cause for its extinction. Laurent
says that the juridical tie between the principal and the agent is severed ipso jure upon the death of either without necessity for
the heirs of the fact to notify the agent of the fact of death of the former
 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 afterward is not binding on the heirs or representatives of the deceased.

CASE AT BAR
 Is the general rule provided for in Article 1919 that the death of the principal or of the agent extinguishes the agency, subject to
any exception, and if so, is the instant case within that exception? That is the determinative point in issue in this litigation.
 It is the contention of respondent corporation which was sustained by respondent court that notwithstanding the death of the
principal Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the property is valid
and enforceable inasmuch as the corporation acted in good faith in buying the property in question.
 Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned. 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
1. That the agent acted without knowledge of the death of the principal and
2. That the third person who contracted with the agent himself acted in good faith.
 Good faith here means that the third person was not aware of the death of the principal at the time he contracted with said
agent.
 These two requisites must concur the absence of one will render the act of the agent invalid and unenforceable.
 Article 1931, being an exception to the general rule, is to be strictly construed, it is not to be given an interpretation or
application beyond the clear import of its terms for otherwise the courts will be involved in a process of legislation outside of
their judicial function.

On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion Rallos, Article
1931 of the Civil Code is inapplicable
 In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at the time he sold
the latter's share in Lot No. 5983 to respondent corporation. The knowledge of the death is clearly to be inferred from the
pleadings filed by Simon Rallos before the trial court.
 That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of the court a quo and of respondent
appellate court when the latter stated that Simon Rallos 'must have known of the death of his sister, and yet he proceeded wi th
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.
 On the basis of the established knowledge concerning the death of principal, Article 1931 of CC 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.
 Buason & Reyes v. Panuyas: 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.
 Herrera, et al., v. Luy Kim Guan, et al.: 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.

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
 Another argument advanced by respondent court is that the vendee acting in good faith relied on the power of attorney which
was duly registered on the original certificate of title recorded in the Register of Deeds of the province of Cebu, that no notice
of the death was aver annotated on said certificate of title by the heirs of the principal and accordingly they must suffer t he
consequences of such omission.
 A revocation by an act of the principal as a mode of terminating an agency is distinctive from revocation by operation of law
such as death of the principal, which is similar to the case at bar.
 Revocation by an act of principal as mode of termination (quoting Manresa):
o 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 publicity known.
In this case, all acts, executed with third persons who contracted in good faith, without knowledge of the revocation,
are valid.
 Revocation by operation of law (applicable to case):
o 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.
o 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.
o With death, the principal's will ceases or is the of authority is extinguished.
o The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal. What the
Code provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and in the
meantime adopt such measures as the circumstances may demand in the interest of the latter.

Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no such conflict exists
in our own
 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".
 Cassiday v McKenzie: that a payment may be good today, or bad tomorrow, from the accident circumstance of the death of
the principal, which he did not know, and which by no possibility could he know? It would be unjust to the agent and unjust to
the debtor. In the civil law, the acts of the agent, done bona fide in ignorance of the death of his principal are held valid and
binding upon the heirs of the latter. The same rule holds in the Scottish law, and I cannot believe the common law is so
unreasonable...
 The above-cited case represents the minority view in American jurisprudence and stands alone among common law
authorities as later on stated in Clayton v Merrett and Travers v Crane
 Our statute, the Civil Code, expressly provides for two exceptions to the general rule that death of the principal revokes ipso
jure the agency, to wit: (1) that the agency is coupled with an interest (Art 1930), and (2) that the act of the agent was
executed without knowledge of the death of the principal and the third person who contracted with the agent acted also in
good faith (Art. 1931).
 Exception No. 2 is the doctrine followed in Cassiday, and again we stress the indispensable requirement that the agent acted
without knowledge or notice of the death of the principal. In the case before Us, the agent Ramon Rallos executed the sale
notwithstanding notice of the death of his principal. Accordingly, the agent's act is unenforceable against the estate
of his principal.
The case is covered expressly by a provision of law on agency and cannot be interpreted contrary to its tenor or paralleled to
that of laws on land registration
 Holding that the good faith of a third person in said with an agent affords the former sufficient protection, respondent court
drew a "parallel" between the instant case and that of an innocent purchaser for value of a land, stating that if a person
purchases a registered land from one who acquired it in bad faith — even to the extent of foregoing or falsifying the deed of
sale in his favor — the registered owner has no recourse against such innocent purchaser for value but only against the forger.
 Respondent cites case of Blondeau, et al., v. Nano and Vallejo which stated that an executed transfer of registered lands
placed by the registered owner thereof in the hands of another operates as a representation to a third party that the holder of
the transfer is authorized to deal with the land. As between two innocent persons, one of whom must suffer the consequence
of a breach of trust, the one who made it possible by his act of coincidence bear the loss.
 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, This is in the same manner that the ruling in Blondeau found a basis in Section
55 of the Land Registration Law.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 130148 December 15, 1997
JOSE BORDADOR and LYDIA BORDADOR, petitioners,
vs.
BRIGIDA D. LUZ, ERNESTO M. LUZ and NARCISO DEGANOS, respondents.

REGALADO, J .:
In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in CA-G.R. CV No. 49175 affirming the adjudication
of the Regional Trial Court of Malolos, Bulacan which found private respondent Narciso Deganos liable to petitioners for actual
damages, but absolved respondent spouses Brigida D. Luz and Ernesto M. Luz of liability. Petitioners likewise belabor the subsequent
resolution of the Court of Appeals which denied their motion for reconsideration of its challenged decision.
Petitioners were engaged in the business of purchase and sale of jewelry and respondent Brigida D. Luz, also known as Aida D. Luz,
was their regular customer. On several occasions during the period from April 27, 1987 to September 4, 1987, respondent Narciso
Deganos, the brother to Brigida D. Luz, received several pieces of gold and jewelry from petitioner amounting to P382,816.00.
1
These
items and their prices were indicated in seventeen receipts covering the same. Eleven of the receipts stated that they were received for
a certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated that they were received for Brigida D. Luz.
2

Deganos was supposed to sell the items at a profit and thereafter remit the proceeds and return the unsold items to petitioners.
Deganos remitted only the sum of P53,207.00. He neither paid the balance of the sales proceeds, nor did he return any unsold item to
petitioners. By January 1990, the total of his unpaid account to petitioners, including interest, reached the sum of
P725,463.98.
3
Petitioners eventually filed a complaint in the barangay court against Deganos to recover said amount.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case, appeared as a witness for Deganos and ultimately,
she and her husband, together with Deganos, signed a compromise agreement with petitioners. In that compromise agreement,
Deganos obligated himself to pay petitioners, on installment basis, the balance of his account plus interest thereon. However, he failed
to comply with his aforestated undertakings.
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial Court of Malolos, Bulacan against Deganos and
Brigida, D. Luz for recovery of a sum of money and damages, with an application for preliminary attachment.
4
Ernesto Luz was
impleaded therein as the spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with estafa
5
in the Regional Trial Court of Malolos,
Bulacan, which was docketed as Criminal Case No. 785-M-94. That criminal case appears to be still pending in said trial court.
During the trial of the civil case, petitioners claimed that Deganos acted as the agent of Brigida D. Luz when he received the subject
items of jewelry and, because he failed to pay for the same, Brigida, as principal, and her spouse are solidarily liable wi th him therefor.
On the other hand, while Deganos admitted that he had an unpaid obligation to petitioners, he claimed that the same was only in the
sum of P382,816.00 and not P725,463.98. He further asserted that it was he alone who was involved in the transaction with the
petitioners; that he neither acted as agent for nor was he authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that
six of the receipts indicated that the items were received by him for the latter. He further claimed that he never delivered any of the
items he received from petitioners to Brigida.
Brigida, on her part, denied that she had anything to do with the transactions between petitioners and Dangerous. She claimed that she
never authorized Deganos to receive any item of jewelry in her behalf and, for that matter, neither did she actually receive any of the
articles in question.
After trial, the court below found that only Deganos was liable to petitioners for the amount and damages claimed. It held that while
Brigida D. Luz did have transactions with petitioners in the past, the items involved were already paid for and all that Brigida owed
petitioners was the sum of P21,483.00 representing interest on the principal account which she had previously paid for.
6

The trial court also found that it was petitioner Lydia Bordador who indicated in the receipts that the items were received by Deganos for
Evelyn Aquino and Brigida D. Luz.
7
Said court was "persuaded that Brigida D. Luz was behind Deganos," but because there was no
memorandum to this effect, the agreement between the parties was unenforceable under the Statute of Frauds.
8
Absent the required
memorandum or any written document connecting the respondent Luz spouses with the subject receipts, or authorizing Deganos to act
on their behalf, the alleged agreement between petitioners and Brigida D. Luz was unenforceable.
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest thereon June 25, 1990, and attorney's fees.
Brigida D. Luz was ordered to pay P21,483.00 representing the interest on her own personal loan. She and her co-defendant spouse
were absolved from any other or further liability.
9

As stated at the outset, petitioners appealed the judgment of the court a quo to the Court Appeals which affirmed said judgment.
10
The
motion for reconsideration filed by petitioners was subsequently dismissed,
11
hence the present recourse to this Court.
The primary issue in the instant petition is whether or not herein respondent spouses are liable to petitioners for the latter's claim for
money and damages in the sum of P725,463.98, plus interests and attorney's fees, despite the fact that the evidence does not show
that they signed any of the subject receipts or authorized Deganos to received the items of jewelry on their behalf.
Petitioners argue that the Court of Appeals erred in adopting the findings of the court a quo that respondent spouses are not liable to
them, as said conclusion of the trial court is contradicted by the finding of fact of the appellate court that "(Deganos) acted as agent of
his sister (Brigida Luz)."
12
In support of this contention, petitioners quoted several letters sent to them by Brigida D. Luz wherein the
latter acknowledged her obligation to petitioners and requested for more time to fulfill the same. They likewise aver that Brigida testified
in the trial court that Deganos took some gold articles from petitioners and delivered the same to her.
Both the Court of Appeals and the trial court, however, found as a fact that the aforementioned letters concerned the previous
obligations of Brigida to petitioners, and had nothing to do with the money sought to be recovered in the instant case. Such concurrent
factual findings are entitled to great weight, hence, petitioners cannot plausibly claim in this appellate review that the letters were in the
nature of acknowledgments by Brigida that she was the principal of Deganos in the subject transactions.
On the other hand, with regard to the testimony of Brigida admitting delivery of the gold to her, there is no showing whatsoever that her
statement referred to the items which are the subject matter of this case. It cannot, therefore, be validly said that she admitted her
liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him with apparent authority as her agent and held
him out to the public as such, hence Brigida can not be permitted to deny said authority to innocent third parties who dealt with
Deganos under such belief.
13
Petitioners further represent that the Court of Appeals recognized in its decision that Deganos was an
agent of Brigida.
14

The evidence does not support the theory of petitioners that Deganos was an agent of Brigida D. Luz and that the latter should
consequently be held solidarily liable with Deganos in his obligation to petitioners. While the quoted statement in the findi ngs of fact of
the assailed appellate decision mentioned that Deganos ostensibly acted as an agent of Brigida, the actual conclusion and ruling of the
Court of Appeals categorically stated that, "(Brigida Luz) never authorized her brother (Deganos) to act for and in her behal f in any
transaction with Petitioners . . . .
15
It is clear, therefore, that even assuming arguendo that Deganos acted as an agent of Brigida, the
latter never authorized him to act on her behalf with regard to the transaction subject of this case.
The Civil Code provides:
Art. 1868. By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
The basis for agency is representation. Here, there is no showing that Brigida consented to the acts of Deganos or authorized
him to act on her behalf, much less with respect to the particular transactions involved. Petitioners' attempt to foist liability on
respondent spouses through the supposed agency relation with Deganos is groundless and ill-advised.
Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once or twice but on at least six occasions as
evidenced by six receipts, several pieces of jewelry of substantial value without requiring a written authorization from his alleged
principal. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.
16

The records show that neither an express nor an implied agency was proven to have existed between Deganos and Brigida D. Luz.
Evidently, petitioners, who were negligent in their transactions with Deganos, cannot seek relief from the effects of their negligence by
conjuring a supposed agency relation between the two respondents where no evidence supports such claim.
Petitioners next allege that the Court of Appeals erred in ignoring the fact that the decision of the court below, which it affirmed, is "null
and void" as it contradicted its ruling in CA-G.R. SP No. 39445 holding that there is "sufficient evidence/proof" against Brigida D. Luz
and Deganos for estafa in the pending criminal case. They further aver that said appellate court erred in ruling against them in this civil
action since the same would result in an inevitable conflict of decisions should be trial court convict the accused in the criminal case.
By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz and Deganos had filed a demurrer to evidence
and a motion for reconsideration in the aforestated criminal case, both of which were denied by the trial court. They then filed a petition
for certiorari in the Court of Appeals to set aside the denial of their demurrer and motion for reconsideration but, as just stated, their
petition therefor was dismissed.
17

Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the petition in CA-G.R. SP No. 39445 with respect to the
criminal case is equivalent to a finding that there is sufficient evidence in the estafa case against Brigida D. Luz and Deganos. Hence,
as already stated, petitioners theorize that the decision and resolution of the Court of Appeals now being impugned in the case at bar
would result in a possible conflict with the prospective decision in the criminal case. Instead of promulgating the present decision and
resolution under review, so they suggest, the Court of Appeals should have awaited the decision in the criminal case, so as not to
render academic or preempt the same or, worse, create two conflicting rulings.
18

Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that in cases involving alleged fraudulent acts, a civil
action for damages, entirely separate and distinct from the criminal action, may be brought by the injured party. Such civil action shall
proceed independently of the criminal prosecution and shall require only a preponderance of evidence.
It is worth noting that this civil case was instituted four years before the criminal case for estafa was filed, and that although there was a
move to consolidate both cases, the same was denied by the trial court. Consequently, it was the duty of the two branches of the
Regional Trial Court concerned to independently proceed with the civil and criminal cases. It will also be observed that a final judgment
rendered in a civil action absolving the defendant from civil liability is no bar to a criminal action.
19

It is clear, therefore, that this civil case may proceed independently of the criminal case
20
especially because while both cases are
based on the same facts, the quantum of proof required for holding the parties liable therein differ. Thus, it is improvident of petitioners
to claim that the decision and resolution of the Court of Appeals in the present case would be preemptive of the outcome of the criminal
case. Their fancied fear of possible conflict between the disposition of this civil case and the coutcome of the pending criminal case is
illusory.
Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to issue the denial resolution dated August 18, 1997,
as the same was tainted with irregularities and badges of fraud perpetrated by its court officers.
21
They charge that said appellate
court, through conspiracy and fraud on the part of its officers, gravely abused its discretion in issuing that resolution denying their
motion for reconsideration. They claim that said resolution was drafted by the ponente, then signed and issued by the members of the
Eleventh Division of said court within one and a half days from the elevation thereof by the division clerk of court to the office of
the ponente.
It is the thesis of petitioners that there was undue haste in issuing the resolution as the same was made without waiting for the lapse of
the ten-day period for respondents to file their comment and for petitioners to file their reply. It was allegedly impossible for the Court of
Appeals to resolve the issue in just one and a half days, especially because its ponente, the late Justice Maximiano C. Asuncion, was
then recuperating from surgery and, that, additionally, "hundreds of more important cases were pending."
22

These lamentable allegation of irregularities in the Court of Appeals and in the conduct of its officers strikes us as a desperate attempt
of petitioners to induce this Court to give credence to their arguments which, as already found by both the trial and intermediate
appellate courts, are devoid of factual and legal substance. The regrettably irresponsible attempt to tarnish the image of the
intermediate appellate tribunal and its judicial officers through ad hominem imputations could well be contumacious, but we are inclined
to let that pass with a strict admonition that petitioners refrain from indulging in such conduct in litigations.
On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial court's decision.
23
Petitioners moved for
reconsideration and the Court of Appeals ordered respondents to file a comment. Respondents filed the same on August 5, 1997
24
and
petitioners filed their reply to said comment on August 15, 1997.
25
The Eleventh Division of said court issued the questioned resolution
denying petitioner's motion for reconsideration on August 18, 1997.
26

It is ironic that while some litigants malign the judiciary for being supposedly slothful in disposing of cases, petitioners are making a
show of calling out for justice because the Court of Appeals issued a resolution disposing of a case sooner than expected of it. They
would even deny the exercise of discretion by the appellate court to prioritize its action on cases in line with the procedure it has
adopted in disposing thereof and in declogging its dockets. It is definitely not for the parties to determine and dictate when and how a
tribunal should act upon those cases since they are not even aware of the status of the dockets and the internal rules and policies for
acting thereon.
The fact that a resolution was issued by said court within a relatively short period of time after the records of the case were elevated to
the office of the ponente cannot, by itself, be deemed irregular. There is no showing whatsoever that the resolution was issued without
considering the reply filed by petitioners. In fact, that brief pleading filed by petitioners does not exhibit any esoteric or ponderous
argument which could not be analyzed within an hour. It is a legal presumption, born of wisdom and experience, that official duty has
been regularly performed;
27
that the proceedings of a judicial tribunal are regular and valid, and that judicial acts and duties have been
and will be duly and properly performed.
28
The burden of proving irregularity in official conduct is on the part of petitioners and they
have utterly failed to do so. It is thus reprehensible for them to cast aspersions on a court of law on the bases of conjectures or
surmises, especially since one of the petitioners appears to be a member of the Philippine Bar.
Lastly, petitioners fault the trial court's holding that whatever contract of agency was established between Brigida D. Luz and Narciso
Deganos is unenforceable under the Statute of Frauds as that aspect of this case allegedly is not covered thereby.
29
They proceed on
the premise that the Statute of Frauds applies only to executory contracts and not to executed or to partially executed ones. From there,
they move on to claim that the contract involved in this case was an executed contract as the items had already been delivered by
petitioners to Brigida D. Luz, hence, such delivery resulted in the execution of the contract and removed the same from the coverage of
the Statute of Frauds.
Petitioners' claim is speciously unmeritorious. It should be emphasized that neither the trial court nor the appellate court categorically
stated that there was such a contractual relation between these two respondents. The trial court merely said that if there was such an
agency existing between them, the same is unenforceable as the contract would fall under the Statute of Frauds which requires the
presentation of a note or memorandum thereof in order to be enforceable in court. That was merely a preparatory statement of a
principle of law. What was finally proven as a matter of fact is that there was no such contract between Brigida D. Luz and Narciso
Deganos, executed or partially executed, and no delivery of any of the items subject of this case was ever made to the former.
WHEREFORE, no error having been committed by the Court of Appeals in affirming the judgment of the court a quo, its challenged
decision and resolution are hereby AFFIRMED and the instant petition is DENIED, with double costs against petitioners.
SO ORDERED.
Puno, Mendoza and Martinez, JJ., concur.























Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 167552 April 23, 2007
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,
vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.
D E C I S I O N
CHICO-NAZARIO, J .:
Before Us is a petition for review by certiorari assailing the Decision
1
of the Court of Appeals dated 10 August 2004 and its
Resolution
2
dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio T.
Echavez." The assailed Decision and Resolution affirmed the Order
3
dated 29 January 2002 rendered by Judge Antonio T. Echavez
ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and distribution of various European industrial equipment for customers here in the
Philippines. It has as one of its customers Impact Systems Sales ("Impact Systems") which is a sole proprietorship owned by
respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the court a
quo in said capacity.
From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to ninety-one thousand three
hundred thirty-eight (P91,338.00) pesos. Subsequently, respondents sought to buy from petitioner one unit of sludge pump valued
at P250,000.00 with respondents making a down payment of fifty thousand pesos (P50,000.00).
4
When the sludge pump arrived from
the United Kingdom, petitioner refused to deliver the same to respondents without their having fully settled their indebtedness to
petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner, the pertinent part of which states:
1.) That ASSIGNOR
5
has an outstanding receivables from Toledo Power Corporation in the amount of THREE HUNDRED
SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment for the purchase of one unit of Selwood Spate 100D Sludge
Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the ASSIGNEE
6
the said receivables from
Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which
receivables the ASSIGNOR is the lawful recipient;
3.) That the ASSIGNEE does hereby accept this assignment.
7

Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump as shown by Invoice No.
12034 dated 30 June 1995.
8

Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment, proceeded to collect from Toledo
Power Company the amount of P365,135.29 as evidenced by Check Voucher No. 0933
9
prepared by said power company and an
official receipt dated 15 August 1995 issued by Impact Systems.
10
Alarmed by this development, petitioner made several demands upon
respondents to pay their obligations. As a result, respondents were able to make partial payments to petitioner. On 7 October 1996,
petitioner’s counsel sent respondents a final demand letter wherein it was stated that as of 11 June 1996, respondents’ total obligations
stood at P295,000.00 excluding interests and attorney’s fees.
11
Because of respondents’ failure to abide by said final demand letter,
petitioner instituted a complaint for sum of money, damages, with application for preliminary attachment against herein respondents
before the Regional Trial Court of Cebu City.
12

On 8 January 1997, the trial court granted petitioner’s prayer for the issuance of writ of preliminary attachment.
13

On 25 June 1997, respondent EDWIN filed his Answer
14
wherein he admitted petitioner’s allegations with respect to the sale
transactions entered into by Impact Systems and petitioner between January and April 1995.
15
He, however, disputed the total amount
of Impact Systems’ indebtedness to petitioner which, according to him, amounted to only P220,000.00.
16

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in interest in this case. According to
him, he was acting as mere agent of his principal, which was the Impact Systems, in his transaction with petitioner and the l atter was
very much aware of this fact. In support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioner’s Complaint stating –
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the proprietor of a single proprietorship
business known as Impact Systems Sales ("Impact Systems" for brevity), with office located at 46-A del Rosario Street, Cebu
City, where he may be served summons and other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the Sales Manager of Impact
Systems and is sued in this action in such capacity.
17

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for Summary Judgment. The trial court
granted petitioner’s motion to declare respondent ERWIN in default "for his failure to answer within the prescribed period despite the
opportunity granted"
18
but it denied petitioner’s motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-trial
of the case on 16 October 2001.
19
However, the conduct of the pre-trial conference was deferred pending the resolution by the trial court
of the special and affirmative defenses raised by respondent EDWIN.
20

After the filing of respondent EDWIN’s Memorandum
21
in support of his special and affirmative defenses and petitioner’s
opposition
22
thereto, the trial court rendered its assailed Order dated 29 January 2002 dropping respondent EDWIN as a party
defendant in this case. According to the trial court –
A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B. Cuizon acted in behalf of or
represented [Impact] Systems Sales; that [Impact] Systems Sale is a single proprietorship entity and the complaint shows that
defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is represented by its general manager Alberto de Jesus in the
contract which is dated June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact] Systems Sales which is owned
solely by defendant Erwin H. Cuizon, made a down payment of P50,000.00 that Annex "H" is dated June 30, 1995 or two days after the
execution of Annex "G", thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further show that
plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted the down
payment of P50,000.00. Plaintiff, therefore, cannot say that it was deceived by defendant Edwin B. Cuizon, since in the instant case the
principal has ratified the act of its agent and plaintiff knew about said ratification. Plaintiff could not say that the subj ect contract was
entered into by Edwin B. Cuizon in excess of his powers since [Impact] Systems Sales made a down payment of P50,000.00 two days
later.
In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party defendant.
23

Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals which, however, affirmed the 29
January 2002 Order of the court a quo. The dispositive portion of the now assailed Decision of the Court of Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the public respondent in his Order dated
January 29, 2002, it is hereby AFFIRMED.
24

Petitioner’s motion for reconsideration was denied by the appellate court in its Resolution promulgated on 17 March 2005. Hence, the
present petition raising, as sole ground for its allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT EDWIN CUIZON, AS
AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED
BEYOND THE SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.
25

To support its argument, petitioner points to Article 1897 of the New Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWIN’s act of collecting the receivables from the Toledo
Power Corporation notwithstanding the existence of the Deed of Assignment signed by EDWIN on behalf of Impact Systems. While
said collection did not revoke the agency relations of respondents, petitioner insists that ERWIN’s action repudiated EDWIN’s power to
sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an agent, petitioner clai ms that he
should be made personally liable for the obligations of his principal.
26

Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into selling the one unit of sludge
pump to Impact Systems and signing the Deed of Assignment. Petitioner directs the attention of this Court to the fact that respondents
are bound not only by their principal and agent relationship but are in fact full-blooded brothers whose successive contravening acts
bore the obvious signs of conspiracy to defraud petitioner.
27

In his Comment,
28
respondent EDWIN again posits the argument that he is not a real party in interest in this case and it was proper for
the trial court to have him dropped as a defendant. He insists that he was a mere agent of Impact Systems which is owned by ERWIN
and that his status as such is known even to petitioner as it is alleged in the Complaint that he is being sued in his capaci ty as the sales
manager of the said business venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly states that he was
acting as a representative of Impact Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another with
the latter’s consent.
29
The underlying principle of the contract of agency is to accomplish results by using the services of others – to do
a great variety of things like selling, buying, manufacturing, and transporting.
30
Its purpose is to extend the personality of the principal or
the party for whom another acts and from whom he or she derives the authority to act.
31
It is said that the basis of agency is
representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have
the same legal effect as if they were personally executed by the principal.
32
By this legal fiction, the actual or real absence of the
principal is converted into his legal or juridical presence – qui facit per alium facit per se.
33

The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is
the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts
within the scope of his authority.
34

In this case, the parties do not dispute the existence of the agency relationship between respondents ERWIN as principal and EDWIN
as agent. The only cause of the present dispute is whether respondent EDWIN exceeded his authority when he signed the Deed of
Assignment thereby binding himself personally to pay the obligations to petitioner. Petitioner firmly believes that respondent EDWIN
acted beyond the authority granted by his principal and he should therefore bear the effect of his deed pursuant to Article 1897 of the
New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the party with whom he contracts.
The same provision, however, presents two instances when an agent becomes personally liable to a third person. The first is when he
expressly binds himself to the obligation and the second is when he exceeds his authority. In the last instance, the agent can be held
liable if he does not give the third party sufficient notice of his powers. We hold that respondent EDWIN does not fall within any of the
exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact Systems. As discussed
elsewhere, the position of manager is unique in that it presupposes the grant of broad powers with which to conduct the business of the
principal, thus:
The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such a position presupposes a
degree of confidence reposed and investiture with liberal powers for the exercise of judgment and discretion in transactions and
concerns which are incidental or appurtenant to the business entrusted to his care and management. In the absence of an agreement
to the contrary, a managing agent may enter into any contracts that he deems reasonably necessary or requisite for the protection of
the interests of his principal entrusted to his management. x x x.
35

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he signed the Deed of
Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless it received, in full, the payment for Impact
Systems’ indebtedness.
36
We may very well assume that Impact Systems desperately needed the sludge pump for its business since
after it paid the amount of fifty thousand pesos (P50,000.00) as down payment on 3 March 1995,
37
it still persisted in negotiating with
petitioner which culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28 June
1995.
38
The significant amount of time spent on the negotiation for the sale of the sludge pump underscores Impact Systems’
perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind that respondent EDWIN’s participati on in the
Deed of Assignment was "reasonably necessary" or was required in order for him to protect the business of his principal. Had he not
acted in the way he did, the business of his principal would have been adversely affected and he would have violated his fiduciary
relation with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents ERWIN, the principal, and
EDWIN, the agent. It is well to state here that Article 1897 of the New Civil Code upon which petitioner anchors its claim against
respondent EDWIN "does not hold that in case of excess of authority, both the agent and the principal are liable to the other contracting
party."
39
To reiterate, the first part of Article 1897 declares that the principal is liable in cases when the agent acted within the bounds of
his authority. Under this, the agent is completely absolved of any liability. The second part of the said provision presents the situations
when the agent himself becomes liable to a third party when he expressly binds himself or he exceeds the limits of his authority without
giving notice of his powers to the third person. However, it must be pointed out that in case of excess of authority by the agent, like
what petitioner claims exists here, the law does not say that a third person can recover from both the principal and the agent.
40

As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any right nor incur any liabi lity arising
from the Deed of Assignment, it follows that he is not a real party in interest who should be impleaded in this case. A real party in
interest is one who "stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit."
41
In this
respect, we sustain his exclusion as a defendant in the suit before the court a quo.
WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August 2004 and Resolution dated 17
March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming the Order dated 29 January 2002 of the Regional Trial Court,
Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the continuation of the proceedings
against respondent Erwin Cuizon.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice



























DIGEST:
Eurotech Industrial Technologies, Inc. v. Edwin Cuizon and Erwin Cuizon
G.R. No. 167552 April 23, 2007
Chico-Nazario, J.

FACTS:
 Eurotech is engaged in the business of importation and distribution of various European industrial equipment. It has as one of its
customers Impact Systems Sales which is a sole proprietorship owned by Erwin Cuizon.

 Eurotech sold to Impact Systems various products allegedly amounting to P91,338.00. Cuizons sought to buy from Eurotech 1 unit of
sludge pump valued at P250,000.00 with Cuizons making a down payment of P50,000.00. When the sludge pump arrived from the
United Kingdom, Eurotech refused to deliver the same to Cuizons without their having fully settled their indebtedness to Eurotech.
Thus, Edwin Cuizon and Alberto de Jesus, general manager of Eurotech, executed a Deed of Assignment of receivables in favor of
Eurotech.


 Cuizons, despite the existence of the Deed of Assignment, proceeded to collect from Toledo Power Company the amount of
P365,135.29. Eurotech made several demands upon Cuizons to pay their obligations. As a result, Cuizons were able to make parti al
payments to Eurotech. Cuizons’ total obligations stood at P295,000.00 excluding interests and attorney’s fees.

 Edwin Cuizon alleged that he is not a real party in interest in this case. According to him, he was acting as mere agent of his
principal, which was the Impact Systems, in his transaction with Eurotech and the latter was very much aware of this fact.

ISSUE: WON Edwin exceeded his authority when he signed the Deed of Assignment thereby binding himself personally to pay the
obligations to Eurotech

HELD: No.
 Edwin insists that he was a mere agent of Impact Systems which is owned by Erwin and that his status as such is known even to
Eurotech as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the said business venture.
Likewise, Edwin points to the Deed of Assignment which clearly states that he was acting as a representative of Impact Systems in
said transaction.

 Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself
or exceeds the limits of his authority without giving such party sufficient notice of his powers.

 In a contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another
with the latter’s consent. Its purpose is to extend the personality of the principal or the party for whom another acts and from whom he
or she derives the authority to act. The basis of agency is representation, that is, the agent acts for and on behalf of the principal on
matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal.

 elements of the contract of agency: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the
execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) t he agent acts
within the scope of his authority

 An agent, who acts as such, is not personally liable to the party with whom he contracts. There are 2 instances when an agent
becomes personally liable to a third person. The first is when he expressly binds himself to the obligation and the second is when he
exceeds his authority. In the last instance, the agent can be held liable if he does not give the third party sufficient notice of his
powers. Edwin does not fall within any of the exceptions contained in Art. 1897.

 In the absence of an agreement to the contrary, a managing agent may enter into any contracts that he deems reasonably necessary
or requisite for the protection of the interests of his principal entrusted to his management.

 Edwin Cuizon acted well-within his authority when he signed the Deed of Assignment. Eurotech refused to deliver the 1 unit of sludge
pump unless it received, in full, the payment for Impact Systems’ indebtedness. Impact Systems desperately needed the sludge
pump for its business since after it paid the amount of P50,000.00 as downpayment it still persisted in negotiating with Eurotech
which culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company. The significant amount
of time spent on the negotiation for the sale of the sludge pump underscores Impact Systems’ perseverance to get hold of the said
equipment. Edwin’s participation in the Deed of Assignment was ―reasonably necessary‖ or was required in order for him to protect
the business of his principal.





Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28740 February 24, 1981
FERMIN Z. CARAM, JR., petitioner,
vs.
CLARO L. LAURETA, respondent.
FERNANDEZ, J .:
This is a petition for certiorari to review the decision of the Court of Appeals promulgated on January 29, 1968 in CA-G. R. NO. 35721-
R entitled "Claro L. Laureta, plaintiff-appellee versus Marcos Mata, Codidi Mata and Fermin Caram, Jr., defendants- appellants;
Tampino (Mansaca), et al. Intervenors-appellants," affirming the decision of the Court of First Instance of Davao in Civil Case No.
3083.
1

On June 25, 1959, Claro L. Laureta filed in the Court of First Instance of Davao an action for nullity, recovery of ownership and/or
reconveyance with damages and attorney's fees against Marcos Mata, Codidi Mata, Fermin Z. Caram, Jr. and the Register of Deeds of
Davao City.
2

On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land covered by Original Certificate of Title No. 3019 i n favor of
Claro Laureta, plaintiff, the respondent herein. The deed of absolute sale in favor of the plaintiff was not registered because it was not
acknowledged before a notary public or any other authorized officer. At the time the sale was executed, there was no authorized officer
before whom the sale could be acknowledged inasmuch as the civil government in Tagum, Davao was not as yet organized. However,
the defendant Marcos Mata delivered to Laureta the peaceful and lawful possession of the premises of the land together with the
pertinent papers thereof such as the Owner's Duplicate Original Certificate of Title No. 3019, sketch plan, tax declaration, tax receipts
and other papers related thereto.
3
Since June 10, 1945, the plaintiff Laureta had been and is stin in continuous, adverse and notorious
occupation of said land, without being molested, disturbed or stopped by any of the defendants or their representatives. In fact, Laureta
had been paying realty taxes due thereon and had introduced improvements worth not less than P20,000.00 at the time of the filing of
the complaint.
4

On May 5, 1947, the same land covered by Original Certificate of Title No. 3019 was sold by Marcos Mata to defendant Fermin Z.
Caram, Jr., petitioner herein. The deed of sale in favor of Caram was acknowledged before Atty. Abelardo Aportadera. On May 22,
1947, Marcos Mata, through Attys. Abelardo Aportadera and Gumercindo Arcilla, filed with the Court of First Instance of Davao a
petition for the issuance of a new Owner's Duplicate of Original Certificate of Title No. 3019, alleging as ground therefor the loss of said
title in the evacuation place of defendant Marcos Mata in Magugpo, Tagum, Davao. On June 5, 1947, the Court of First Instance of
Davao issued an order directing the Register of Deeds of Davao to issue a new Owner's Duplicate Certificate of Title No. 3019 in favor
of Marcos Mata and declaring the lost title as null and void. On December 9, 1947, the second sale between Marcos Mata and Fermin
Caram, Jr. was registered with the Register of Deeds. On the same date, Transfer Certificate of Title No. 140 was issued in favor of
Fermin Caram Jr.
5

On August 29, 1959, the defendants Marcos Mata and Codidi Mata filed their answer with counterclaim admitting the existence of a
private absolute deed of sale of his only property in favor of Claro L. Laureta but alleging that he signed the same as he was subjected
to duress, threat and intimidation for the plaintiff was the commanding officer of the 10th division USFIP operating in the unoccupied
areas of Northern Davao with its headquarters at Project No. 7 (Km. 60, Davao Agusan Highways), in the Municipality of Tagum,
Province of Davao; that Laureta's words and requests were laws; that although the defendant Mata did not like to sell his property or
sign the document without even understanding the same, he was ordered to accept P650.00 Mindanao Emergency notes; and that due
to his fear of harm or danger that will happen to him or to his family, if he refused he had no other alternative but to sign the document.
6

The defendants Marcos Mata and Codidi Mata also admit the existence of a record in the Registry of Deeds regarding a document
allegedly signed by him in favor of his co-defendant Fermin Caram, Jr. but denies that he ever signed the document for he knew before
hand that he had signed a deed of sale in favor of the plaintiff and that the plaintiff was in possession of the certificate of title; that if ever
his thumb mark appeared in the document purportedly alienating the property to Fermin Caram, did his consent was obtained through
fraud and misrepresentation for the defendant Mata is illiterate and ignorant and did not know what he was signing; and that he did not
receive a consideration for the said sale.
7

The defendant Fermin Caram Jr. filed his answer on October 23, 1959 alleging that he has no knowledge or information about the
previous encumbrances, transactions, and alienations in favor of plaintiff until the filing of the complaints.
8

The trial court rendered a decision dated February 29, 1964, the dispositive portion of which reads:
9

1. Declaring that the deed of sale, Exhibit A, executed by Marcos Mata in favor of Claro L. Laureta stands and
prevails over the deed of sale, Exhibit F, in favor of Fermin Caram, Jr.;
2. Declaring as null and void the deed of sale Exhibit F, in favor of Fermin Caram, Jr.;
3. Directing Marcos Mata to acknowledge the deed of sale, Exhibit A, in favor of Claro L. Laureta;
4. Directing Claro L. Laureta to secure the approval of the Secretary of Agriculture and Natural Resources on the
deed, Exhibit A, after Marcos Mata shall have acknowledged the same before a notary public;
5. Directing Claro L. Laureta to surrender to the Register of Deeds for the City and Province of Davao the Owner's
Duplicate of Original Certificate of Title No. 3019 and the latter to cancel the same;
6. Ordering the Register of Deeds for the City and Province of Davao to cancel Transfer Certificate of Title No. T-140
in the name of Fermin Caram, Jr.;
7. Directing the Register of Deeds for the City and Province of Davao to issue a title in favor of Claro L. Laureta,
Filipino, resident of Quezon City, upon presentation of the deed executed by Marcos Mata in his favor, Exhibit A, duly
acknowledged by him and approved by the Secretary of Agriculture and Natural Resources, and
8. Dismissing the counterclaim and cross claim of Marcos Mata and Codidi Mata, the counterclaim of Caram, Jr., the
answer in intervention, counterclaim and cross-claim of the Mansacas.
The Court makes no pronouncement as to costs.
SO ORDERED.
The defendants appealed from the judgment to the Court of Appeals.
10
The appeal was docketed as CA-G.R. NO. 35721- R.
The Court of Appeals promulgated its decision on January 29, 1968 affirming the judgment of the trial court.
In his brief, the petitioner assigns the following errors:
11

I
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT IRESPE AND APORTADERA WERE
ATTORNEYS-IN-FACT OF PETITIONER CARAM FOR THE PURPOSE OF BUYING THE PROPERTY IN
QUESTION.
II
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE EVIDENCE ADDUCED IN THE
TRIAL COURT CONSTITUTE LEGAL EVIDENCE OF FRAUD ON THE PART OF IRESPE AND APORTADERA AT
TRIBUTABLE TO PETITIONER.
III
THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT
KNOWLEDGE OF IRESPE AND APORTADERA OF A PRIOR UNREGISTERED SALE OF A TITLED PROPERTY
ATTRIBUTABLE TO PETITIONER AND EQUIVALENT IN LAW OF REGISTRATION OF SAID SALE.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT AN ACTION FOR RECONVEYANCE
ON THE GROUND OF FRAUD PRESCRIBES WITHIN FOUR (4) YEARS.
The petitioner assails the finding of the trial court that the second sale of the property was made through his representatives, Pedro
Irespe and Atty. Abelardo Aportadera. He argues that Pedro Irespe was acting merely as a broker or intermediary with the specific task
and duty to pay Marcos Mata the sum of P1,000.00 for the latter's property and to see to it that the requisite deed of sale covering the
purchase was properly executed by Marcos Mata; that the Identity of the property to be bought and the price of the purchase had
already been agreed upon by the parties; and that the other alleged representative, Atty. Aportadera, merely acted as a notary public in
the execution of the deed of sale.
The contention of the petitioner has no merit. The facts of record show that Mata, the vendor, and Caram, the second vendee had
never met. During the trial, Marcos Mata testified that he knows Atty. Aportadera but did not know Caram.
12
Thus, the sale of the
property could have only been through Caram's representatives, Irespe and Aportadera. The petitioner, in his answer, admitted that
Atty. Aportadera acted as his notary public and attorney-in-fact at the same time in the purchase of the property.
13

The petitioner contends that he cannot be considered to have acted in bad faith because there is no direct proof showing that Irespe
and Aportadera, his alleged agents, had knowledge of the first sale to Laureta. This contention is also without merit.
The Court of Appeals, in affirming the decision of the trial court, said:
14

The trial court, in holding that appellant Caram. Jr. was not a purchaser in good faith, at the time he bought the same
property from appellant Mata, on May 5, 1947, entirely discredited the testimony of Aportadera. Thus it stated in its
decision:
The testimony of Atty. Aportadera quoted elsewhere in this decision is hollow. There is every reason to believe that
Irespe and he had known of the sale of the property in question to Laureta on the day Mata and Irespe, accompanied
by Leaning Mansaca, went to the office of Atty. Aportadera for the sale of the same property to Caram, Jr.,
represented by Irespe as attorney-in-fact. Ining Mansaca was with the two — Irespe and Mata — to engage the
services 6f Atty. Aportadera in the annulment of the sale of his land to Laureta. When Leaning Mansaca narrated to
Atty. Aportadera the circumstances under which his property had been sold to Laureta, he must have included in the
narration the sale of the land of Mata, for the two properties had been sold on the same occassion and under the
same circumstances. Even as early as immediately after liberation, Irespe, who was the witness in most of the cases
filed by Atty. Aportadera in his capacity as Provincial Fiscal of Davao against Laureta, must have known of the
purchases of lands made by Laureta when he was regimental commander, one of which was the sale made by Mata.
It was not a mere coincidence that Irespe was made guardian ad litem of Leaning Mansaca, at the suggestion of Atty.
Aportadera and attorney-in-fact of Caram, Jr.
The Court cannot help being convinced that Irespe, attorney-in-fact of Caram, Jr. had knowledge of the prior existing
transaction, Exhibit A, between Mata and Laureta over the land, subject matter of this litigation, when the deed,
Exhibit F, was executed by Mata in favor of Caram, Jr. And this knowledge has the effect of registration as to Caram,
Jr. RA pp. 123-124)
We agree with His Honor's conclusion on this particular point, on two grounds — the first, the same concerns matters
affecting the credibility of a witness of which the findings of the trial court command great weight, and second, the
same is borne out by the testimony of Atty. Aportadera himself. (t.s.n., pp. 187-190, 213-215, Restauro).
Even if Irespe and Aportadera did not have actual knowledge of the first sale, still their actions have not satisfied the requirement of
good faith. Bad faith is not based solely on the fact that a vendee had knowledge of the defect or lack of title of his vendor. In the case
of Leung Yee vs. F. L. Strong Machinery Co. and Williamson, this Court held:
15

One who purchases real estate with knowledge of a defect or lack of title in his vendor can not claim that he has
acquired title thereto in good faith, as against the true owner of the land or of an interest therein, and the same rule
must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as
might be necessary to acquaint him with the defects in the title of his vendor.
In the instant case, Irespe and Aportadera had knowledge of circumstances which ought to have put them an inquiry. Both of them
knew that Mata's certificate of title together with other papers pertaining to the land was taken by soldiers under the command of Col.
Claro L. Laureta.
16
Added to this is the fact that at the time of the second sale Laureta was already in possession of the land. Irespe
and Aportadera should have investigated the nature of Laureta's possession. If they failed to exercise the ordinary care expected of a
buyer of real estate they must suffer the consequences. The rule of caveat emptor requires the purchaser to be aware of the supposed
title of the vendor and one who buys without checking the vendor's title takes all the risks and losses consequent to such failure.
17

The principle that a person dealing with the owner of the registered land is not bound to go behind the certificate and inquire into
transactions the existence of which is not there intimated
18
should not apply in this case. It was of common knowledge that at the time
the soldiers of Laureta took the documents from Mata, the civil government of Tagum was not yet established and that there were no
officials to ratify contracts of sale and make them registerable. Obviously, Aportadera and Irespe knew that even if Mata previously had
sold t he Disputed such sale could not have been registered.
There is no doubt then that Irespe and Aportadera, acting as agents of Caram, purchased the property of Mata in bad faith. Applying
the principle of agency, Caram as principal, should also be deemed to have acted in bad faith.
Article 1544 of the New Civil Code provides that:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first
recordered it in the Registry of Property.
Should there be no inscription, the ownership shag pertain to the person who in good faith was first in the possession;
and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (1473)
Since Caram was a registrant in bad faith, the situation is as if there was no registration at all.
19

The question to be determined now is, who was first in possession in good faith? A possessor in good faith is one who is not aware that
there exists in his title or mode of acquisition any flaw which invalidates it.
20
Laureta was first in possession of the property. He is also a
possessor in good faith. It is true that Mata had alleged that the deed of sale in favor of Laureta was procured by force.
21
Such defect,
however, was cured when, after the lapse of four years from the time the intimidation ceased, Marcos Mata lost both his rights to file an
action for annulment or to set up nullity of the contract as a defense in an action to enforce the same.
Anent the fourth error assigned, the petitioner contends that the second deed of sale, Exhibit "F", is a voidable contract. Being a
voidable contract, the action for annulment of the same on the ground of fraud must be brought within four (4) years from the discovery
of the fraud. In the case at bar, Laureta is deemed to have discovered that the land in question has been sold to Caram to his prejudice
on December 9, 1947, when the Deed of Sale, Exhibit "F" was recorded and entered in the Original Certificate of Title by the Register of
Deeds and a new Certificate of Title No. 140 was issued in the name of Caram. Therefore, when the present case was filed on June 29,
1959, plaintiff's cause of action had long prescribed.
The petitioner's conclusion that the second deed of sale, "Exhibit F", is a voidable contract is not correct. I n order that fraud can be a
ground for the annulment of a contract, it must be employed prior to or simultaneous to the, consent or creation of the contract. The
fraud or dolo causante must be that which determines or is the essential cause of the contract. Dolo causante as a ground for the
annulment of contract is specifically described in Article 1338 of the New Civil Code of the Philippines as "insidious words or
machinations of one of the contracting parties" which induced the other to enter into a contract, and "without them, he would not have
agreed to".
The second deed of sale in favor of Caram is not a voidable contract. No evidence whatsoever was shown that through insidious words
or machinations, the representatives of Caram, Irespe and Aportadera had induced Mata to enter into the contract.
Since the second deed of sale is not a voidable contract, Article 1391, Civil Code of the Philippines which provides that the action for
annulment shall be brought within four (4) years from the time of the discovery of fraud does not apply. Moreover, Laureta has been in
continuous possession of the land since he bought it in June 1945.
A more important reason why Laureta's action could not have prescribed is that the second contract of sale, having been registered in
bad faith, is null and void. Article 1410 of the Civil Code of the Philippines provides that any action or defense for the declaration of the
inexistence of a contract does not prescribe.
In a Memorandum of Authorities
22
submitted to this Court on March 13, 1978, the petitioner insists that the action of Laureta against
Caram has prescribed because the second contract of sale is not void under Article 1409
23
of the Civil Code of the Philippines which
enumerates the kinds of contracts which are considered void. Moreover, Article 1544 of the New Civil Code of the Philippines does not
declare void a second sale of immovable registered in bad faith.
The fact that the second contract is not considered void under Article 1409 and that Article 1544 does not declare void a deed of sale
registered in bad faith does not mean that said contract is not void. Article 1544 specifically provides who shall be the owner in case of
a double sale of an immovable property. To give full effect to this provision, the status of the two contracts must be declared valid so
that one vendee may contract must be declared void to cut off all rights which may arise from said contract. Otherwise, Article 1544 win
be meaningless.
The first sale in favor of Laureta prevails over the sale in favor of Caram.
WHEREFORE, the petition is hereby denied and the decision of the Court of Appeals sought to be reviewed is affirmed, without
pronouncement as to costs.
SO ORDERED.


DIGEST:
Caram vs. Laureta
G.R. No. L-28740 February 24, 1981
FERNANDEZ, J .:
FACTS:
On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land covered by OCT No. 3019 in favor of Claro Laureta, plaintiff,
the respondent herein. The deed of absolute sale in favor of the plaintiff was not registered because it was not acknowledged before a
notary public or any other authorized officer. Since June 10, 1945, the plaintiff Laureta had been and is in continuous, adverse and
notorious occupation of said land, without being molested, disturbed or stopped by any of the defendants or their representatives.
In fact, Laureta had been paying realty taxes due thereon and had introduced improvements worth not less than P20,000.00 at t he time
of the filing of the complaint. On May 5, 1947, the same land covered by OCT No. 3019 was sold by Marcos Mata to defendant Fermin
Z. Caram, Jr., petitioner herein.
The deed of sale in favor of Caram was acknowledged before Atty. Abelardo Aportadera. On December 9, 1947, the second sale
between Marcos Mata and Fermin Caram, Jr. was registered with the Register of Deeds. On the same date, Transfer Certificate of Title
No. 140 was issued in favor of Fermin Caram Jr.The defendant Fermin Caram Jr. claimed that he has no knowledge or information
about the previous encumbrances, transactions, and alienations in favor of plaintiff until the filing of the complaints.
ISSUE: Whether or not the knowledge petitioner of a prior unregistered sale of a titled property attributable to petitioner and equi valent
in law of registration of sale.
HELD: Yes. There is no doubt then that Irespe and Aportadera, acting as agents of Caram, purchased the property of Mata in bad faith.
Applying the principle of agency, Caram as principal, should also be deemed to have acted in bad faith.Since Caram was a registrant in
bad faith, the situation is as if there was no registration at all.
A possessor in good faith is one who is not aware that there exists in his title or mode of acquisition any flaw which invali dates it.
Laureta was first in possession of the property. He is also a possessor in good faith. It is true that Mata had alleged that the deed of
sale in favor of Laureta was procured by force. Such defect, however, was cured when, after the lapse of four years from the time the
intimidation ceased, Marcos Mata lost both his rights to file an action for annulment or to set up nullity of the contract as a defense in an
action to enforce the same.



















Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. 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.
Benjamin S. Valte for petitioner.
Napoleon Garcia for private respondents.

MELENCIO-HERRERA, J .:
In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of then respondent Court of Appeals
1
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 valuable apres de (meaning, "not valid after the").
The GANAS did not depart on 8 May 1970.
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 i n 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 informed 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 "Reevaluated by: the Philippine Travel Bureau, Branch No. 2" (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
GANAS 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 Frights 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 sti ckers on the
tickets 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 wen 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 affirmative 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 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. ) ... That is the time allowed a passenger to begin and to complete his trip (parags. 3.2 and 3.3.). ...
A ticket can no longer be used for travel if its validity has expired before the passenger completes his trip (parag. 3.5.1.) ... 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
7. 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 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 Reno, 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 the reason why they accepted again the tickets when we returned the
tickets spin, that they could not be extended. They could be extended by paying the additional fare,
additional tax and additional exchange during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ...
5

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 Era 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
6
was 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 GANAS would make other arrangements.
Q Referring you to page 33 of the transcript of the last 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 am the one who asked her. At that time I told her if the tickets being used ... I was
telling her what about their bookings on 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 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, but they could take care of
that when they arrived in Osaka.
Q What 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 expire on May 7, and they insisted on
leaving. I asked Mrs. Manucdoc what about the return onward portion because they would be
travelling to Osaka, and her answer was, it is up to for the Ganas to make the arrangement.
Q Exactly what were the words of Mrs. 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. ...
7

The circumstances 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 in 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.
The conclusion is inevitable that the GANAS 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.
DIGEST:
AIR FRANCE VS CA
Facts:
In February, 1970, the late Jose G. Gana and his family, (the GANAS), purchased from AIR FRANCE through Imperial Travels,
Incorporated, a duly authorized travel agent, nine "open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila route.
On April 24, 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 May 8, 1970, and for the Tokyo/Manila return
trip on AIR FRANCE Flight 187 on May 22, 1970. The aforesaid tickets were valid until May 8, 1971.The GANAS did not depart on 8
May 1970.
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 May 8, 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. Ella then returned the tickets to Teresita and
informed her of the impossibility of extension.
In the meantime, the GANAS had scheduled their departure on May 7, 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 onMay 7,
1971, the tickets would no longer be valid for the rest of their trip because the tickets would then have expired on May 8,1971. Teresita
replied that it will be up to the GANAS to make the arrangements. Notwithstanding the warnings, the GANAS departed from Manil a in
the afternoon of May 7, 1971 on board AIR FRANCE Flight 184 for Osaka, Japan.
However, for the Osaka/Tokyo flight on May 17, 1971, Japan Airlines refused to honor the tickets because of their expiration, and the
GANAS 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 Frights.
Issue:
Whether or not Teresita was the agent of the GANAS and notice to of the rejection of the request of the validity of the tickets was notice
to the GANAS, her principals.
Held:
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 Reno, 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.
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.
WHEREFORE, the judgment under review is hereby reversed and set aside, and the Amended Complaint filed by private respondents
hereby dismissed.










Republic of the Philippines
SUPREME COURT
THIRD DIVISION
G.R. No. 156262 July 14, 2005
MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses ANASTACIO and MARY T.
BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.
D E C I S I O N
PANGANIBAN, J .:
Stripped of nonessentials, the present case involves the collection of a sum of money. Specifically, this case arose from the failure of
petitioners to pay respondents’ predecessor-in-interest. This fact was shown by the non-encashment of checks issued by a third
person, but indorsed by herein Petitioner Maria Tuazon in favor of the said predecessor. Under these circumstances, to enable
respondents to collect on the indebtedness, the check drawer need not be impleaded in the Complaint. Thus, the suit is directed, not
against the drawer, but against the debtor who indorsed the checks in payment of the obligation.
The Case
Before us is a Petition for Review
1
under Rule 45 of the Rules of Court, challenging the July 31, 2002 Decision
2
of the Court of Appeals
(CA) in CA-GR CV No. 46535. The decretal portion of the assailed Decision reads:
"WHEREFORE, the appeal is DISMISSED and the appealed decision is AFFIRMED."
On the other hand, the affirmed Decision
3
of Branch 34 of the Regional Trial Court (RTC) of Gapan, Nueva Ecija, disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, ordering the defendants spouses
Leonilo Tuazon and Maria Tuazon to pay the plaintiffs, as follows:
"1. The sum of P1,750,050.00, with interests from the filing of the second amended complaint;
"2. The sum of P50,000.00, as attorney’s fees;
"3. The sum of P20,000.00, as moral damages
"4. And to pay the costs of suit.
x x x x x x x x x"
4

The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988, spouses Leonilo and Maria Tuazon purchased a
total of 8,326 cavans of rice from [the deceased Bartolome] Ramos [predecessor-in-interest of respondents]. That of this [quantity,] x x
x only 4,437 cavans [have been paid for so far], leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment therefor, the
spouses Tuazon issued x x x [several] Traders Royal Bank checks.
x x x x x x x x x
[B]ut when these [checks] were encashed, all of the checks bounced due to insufficiency of funds. [Respondents] advanced that before
issuing said checks[,] spouses Tuazon already knew that they had no available fund to support the checks, and they failed to provide
for the payment of these despite repeated demands made on them.
"[Respondents] averred that because spouses Tuazon anticipated that they would be sued, they conspired with the other [defendants]
to defraud them as creditors by executing x x x fictitious sales of their properties. They executed x x x simulated sale[s] [of three lots] in
favor of the x x x spouses Buenaventura x x x[,] as well as their residential lot and the house thereon[,] all located at Nueva Ecija, and
another simulated deed of sale dated July 12, 1988 of a Stake Toyota registered with the Land Transportation Office of Cabanatuan
City on September 7, 1988. [Co-petitioner] Melecio Tuazon, a son of spouses Tuazon, registered a fictitious Deed of Sale on July 19,
1988 x x x over a residential lot located at Nueva Ecija. Another simulated sale of a Toyota Willys was executed on January 25, 1988 in
favor of their other son, [co-petitioner] Alejandro Tuazon x x x. As a result of the said sales, the titles of these properties issued in the
names of spouses Tuazon were cancelled and new ones were issued in favor of the [co-]defendants spouses Buenaventura, Alejandro
Tuazon and Melecio Tuazon. Resultantly, by the said ante-dated and simulated sales and the corresponding transfers there was no
more property left registered in the names of spouses Tuazon answerable to creditors, to the damage and prejudice of [respondents].
"For their part, defendants denied having purchased x x x rice from [Bartolome] Ramos. They alleged that it was Magdalena Ramos,
wife of said deceased, who owned and traded the merchandise and Maria Tuazon was merely her agent. They argued that it was
Evangeline Santos who was the buyer of the rice and issued the checks to Maria Tuazon as payments therefor. In good faith[,] the
checks were received [by petitioner] from Evangeline Santos and turned over to Ramos without knowing that these were not funded.
And it is for this reason that [petitioners] have been insisting on the inclusion of Evangeline Santos as an indispensable party, and her
non-inclusion was a fatal error. Refuting that the sale of several properties were fictitious or simulated, spouses Tuazon contended that
these were sold because they were then meeting financial difficulties but the disposals were made for value and in good faith and done
before the filing of the instant suit. To dispute the contention of plaintiffs that they were the buyers of the rice, they argued that there
was no sales invoice, official receipts or like evidence to prove this. They assert that they were merely agents and should not be held
answerable."
5

The corresponding civil and criminal cases were filed by respondents against Spouses Tuazon. Those cases were later consolidated
and amended to include Spouses Anastacio and Mary Buenaventura, with Alejandro Tuazon and Melecio Tuazon as additional
defendants. Having passed away before the pretrial, Bartolome Ramos was substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the case, petitioners moved to file a third-party complaint against her.
Allegedly, she was primarily liable to respondents, because she was the one who had purchased the merchandise from their
predecessor, as evidenced by the fact that the checks had been drawn in her name. The RTC, however, denied petitioners’ Motion.
Since the trial court acquitted petitioners in all three of the consolidated criminal cases, they appealed only its decision finding them
civilly liable to respondents.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioners had failed to prove the existence of an agency between respondents and Spouses
Tuazon. The appellate court disbelieved petitioners’ contention that Evangeline Santos should have been impleaded as an
indispensable party. Inasmuch as all the checks had been indorsed by Maria Tuazon, who thereby became liable to subsequent
holders for the amounts stated in those checks, there was no need to implead Santos.
Hence, this Petition.
6

Issues
Petitioners raise the following issues for our consideration:
"1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners are not agents of the respondents.
"2. Whether or not the Honorable Court of Appeals erred in rendering judgment against the petitioners despite x x x the failure of the
respondents to include in their action Evangeline Santos, an indispensable party to the suit."
7

The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Agency
Well-entrenched is the rule that the Supreme Court’s role in a petition under Rule 45 is limited to reviewing errors of law allegedly
committed by the Court of Appeals. Factual findings of the trial court, especially when affirmed by the CA, are conclusive on the parties
and this Court.
8
Petitioners have not given us sufficient reasons to deviate from this rule.
In a contract of agency, one binds oneself to render some service or to do something in representation or on behalf of another, with the
latter’s consent or authority.
9
The following are the elements of agency: (1) the parties’consent, express or implied, to establish the
relationship; (2) the object, which is the execution of a juridical act in relation to a third person; (3) the representation, by which the one
who acts as an agent does so, not for oneself, but as a representative; (4) the limitation that the agent acts within the scope of his or
her authority.
10
As the basis of agency is representation, there must be, on the part of the principal, an actual intention to appoint, an
intention naturally inferable from the principal’s words or actions. In the same manner, there must be an intention on the part of the
agent to accept the appointment and act upon it. Absent such mutual intent, there is generally no agency.
11

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

The declarations of agents alone are generally insufficient to establish the fact or extent of their authority.
13
The law makes no
presumption of agency; proving its existence, nature and extent is incumbent upon the person alleging it.
14
In the present case,
petitioners raise the fact of agency as an affirmative defense, yet fail to prove its existence.
The Court notes that petitioners, on their own behalf, sued Evangeline Santos for collection of the amounts represented by the bounced
checks, in a separate civil case that they sought to be consolidated with the current one. If, as they claim, they were mere agents of
respondents, petitioners should have brought the suit against Santos for and on behalf of their alleged principal, in accordance with
Section 2 of Rule 3 of the Rules on Civil Procedure.
15
Their filing a suit against her in their own names negates their claim that they
acted as mere agents in selling the rice obtained from Bartolome Ramos.
Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be impleaded as an indispensable party. They insist
that respondents’ Complaint against them is based on the bouncing checks she issued; hence, they point to her as the person primarily
liable for the obligation.
We hold that respondents’ cause of action is clearly founded on petitioners’ failure to pay the purchase price of the rice. The trial court
held that Petitioner Maria Tuazon had indorsed the questioned checks in favor of respondents, in accordance with Sections 31 and 63
of the Negotiable Instruments Law.
16
That Santos was the drawer of the checks is thus immaterial to the respondents’ cause of action.
As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks were to be accepted or paid, or both, according
to their tenor; and that in case they were dishonored, she would pay the corresponding amount.
17
After an instrument is dishonored by
nonpayment, indorsers cease to be merely secondarily liable; they become principal debtors whose liability becomes identical to that of
the original obligor. The holder of a negotiable instrument need not even proceed against the maker before suing the
indorser.
18
Clearly, Evangeline Santos -- as the drawer of the checks -- is not an indispensable party in an action against Maria Tuazon,
the indorser of the checks.
Indispensable parties are defined as "parties in interest without whom no final determination can be had."
19
The instant case was
originally one for the collection of the purchase price of the rice bought by Maria Tuazon from respondents’ predecessor. In this case, it
is clear that there is no privity of contract between respondents and Santos. Hence, a final determination of the rights and interest of the
parties may be made without any need to implead her.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioners.
SO ORDERED.
ARTEMIO V. PANGANIBAN








Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 150128 August 31, 2006
LAUREANO T. ANGELES, Petitioner,
vs.
PHILIPPINE NATIONAL RAILWAYS (PNR) AND RODOLFO FLORES,
1
Respondents.
D E C I S I O N
GARCIA, J .:
Under consideration is this petition for review under Rule 45 of the Rules of Court assailing and seeking to set aside the following
issuances of the Court of Appeals (CA) in CA-G.R. CV No. 54062, to wit:
1. Decision
2
dated June 4, 2001, affirming an earlier decision of the Regional Trial Court (RTC) of Quezon City, Branch 79, which
dismissed the complaint for specific performance and damages thereat commenced by the petitioner against the herein respondents;
and
2. Resolution
3
dated September 17, 2001, denying the petitioner's motion for reconsideration.
The facts:
On May 5, 1980, the respondent Philippine National Railways (PNR) informed a certain Gaudencio Romualdez (Romualdez,
hereinafter) that it has accepted the latter’s offer to buy, on an "AS IS, WHERE IS" basis, the PNR’s scrap/unserviceable rails located in
Del Carmen and Lubao, Pampanga at P1,300.00 and P2,100.00 per metric ton, respectively, for the total amount of P96,600.00. After
paying the stated purchase price, Romualdez addressed a letter to Atty. Cipriano Dizon, PNR’s Acting Purchasing Agent. Bearing date
May 26, 1980, the letter reads:
Dear Atty. Dizon:
This is to inform you as President of San Juanico Enterprises, that I have authorized the bearer, LIZETTE R. WIJANCO of No. 1606
Aragon St., Sta. Cruz, Manila, to be my lawful representative in the withdrawal of the scrap/unserviceable rails awarded to me.
For this reason, I have given her the original copy of the award, dated May 5, 1980 and O.R. No. 8706855 dated May 20, 1980 which
will indicate my waiver of rights, interests and participation in favor of LIZETTE R. WIJANCO.
Thank you for your cooperation.
Very truly yours,
(Sgd.) Gaudencio Romualdez
The Lizette R. Wijanco mentioned in the letter was Lizette Wijanco- Angeles, petitioner's now deceased wife. That very same day –
May 26, 1980 – Lizette requested the PNR to transfer the location of withdrawal for the reason that the scrap/unserviceable rails
located in Del Carmen and Lubao, Pampanga were not ready for hauling. The PNR granted said request and allowed Lizette to
withdraw scrap/unserviceable rails in Murcia, Capas and San Miguel, Tarlac instead. However, the PNR subsequently suspended the
withdrawal in view of what it considered as documentary discrepancies coupled by reported pilferages of over P500,000.00 worth of
PNR scrap properties in Tarlac.
Consequently, the spouses Angeles demanded the refund of the amount of P96,000.00. The PNR, however, refused to pay, alleging
that as per delivery receipt duly signed by Lizette, 54.658 metric tons of unserviceable rails had already been withdrawn whi ch,
at P2,100.00 per metric ton, were worth P114,781.80, an amount that exceeds the claim for refund.
On August 10, 1988, the spouses Angeles filed suit against the PNR and its corporate secretary, Rodolfo Flores, among others, for
specific performance and damages before the Regional Trial Court of Quezon City. In it, they prayed that PNR be directed to deliver 46
metric tons of scrap/unserviceable rails and to pay them damages and attorney's fees.
Issues having been joined following the filing by PNR, et al., of their answer, trial ensued. Meanwhile, Lizette W. Angeles passed away
and was substituted by her heirs, among whom is her husband, herein petitioner Laureno T. Angeles.
On April 16, 1996, the trial court, on the postulate that the spouses Angeles are not the real parties-in-interest, rendered judgment
dismissing their complaint for lack of cause of action. As held by the court, Lizette was merely a representative of Romualdez in the
withdrawal of scrap or unserviceable rails awarded to him and not an assignee to the latter's rights with respect to the award.
Aggrieved, the petitioner interposed an appeal with the CA, which, as stated at the threshold hereof, in its decision of June 4, 2001,
dismissed the appeal and affirmed that of the trial court. The affirmatory decision was reiterated by the CA in its resolution of
September 17, 2001, denying the petitioner’s motion for reconsideration.
Hence, the petitioner’s present recourse on the submission that the CA erred in affirming the trial court's holding that petitioner and his
spouse, as plaintiffs a quo, had no cause of action as they were not the real parties-in-interest in this case.
We DENY the petition.
At the crux of the issue is the matter of how the aforequoted May 26, 1980 letter of Romualdez to Atty. Dizon of the PNR should be
taken: was it meant to designate, or has it the effect of designating, Lizette W. Angeles as a mere agent or as an assignee of his
(Romualdez's) interest in the scrap rails awarded to San Juanico Enterprises? The CA’s conclusion, affirmatory of that of the trial court,
is that Lizette was not an assignee, but merely an agent whose authority was limited to the withdrawal of the scrap rails, hence, without
personality to sue.
Where agency exists, the third party's (in this case, PNR's) liability on a contract is to the principal and not to the agent and the
relationship of the third party to the principal is the same as that in a contract in which there is no agent. Normally, the agent has neither
rights nor liabilities as against the third party. He cannot thus sue or be sued on the contract. Since a contract may be violated only by
the parties thereto as against each other, the real party-in-interest, either as plaintiff or defendant in an action upon that contract must,
generally, be a contracting party.
The legal situation is, however, different where an agent is constituted as an assignee. In such a case, the agent may, in hi s own
behalf, sue on a contract made for his principal, as an assignee of such contract. The rule
requiring every action to be prosecuted in the name of the real party-in-interest recognizes the assignment of rights of action and also
recognizes
that when one has a right assigned to him, he is then the real party-in-interest and may maintain an action upon such claim or right.
4

Upon scrutiny of the subject Romualdez's letter to Atty. Cipriano Dizon dated May 26, 1980, it is at once apparent that Lizette was to
act just as a "representative" of Romualdez in the "withdrawal of rails," and not an assignee. For perspective, we reproduce the
contents of said letter:
This is to inform you as President of San Juanico Enterprises, that I have authorized the bearer, LIZETTE R. WIJANCO x x x to be my
lawful representative in the withdrawal of the scrap/unserviceable rails awarded to me.
For this reason, I have given her the original copy of the award, dated May 5, 1980 and O.R. No. 8706855 dated May 20, 1980 which
will indicate my waiver of rights, interests and participation in favor of LIZETTE R. WIJANCO. (Emphasis added)
If Lizette was without legal standing to sue and appear in this case, there is more reason to hold that her petitioner husband, either as
her conjugal partner or her heir, is also without such standing.
Petitioner makes much of the fact that the terms "agent" or "attorney-in-fact" were not used in the Romualdez letter aforestated. It bears
to stress, however, that the words "principal" and "agent," are not the only terms used to designate the parties in an agency relation.
The agent may also be called an attorney, proxy, delegate or, as here, representative.
It cannot be over emphasized that Romualdez's use of the active verb "authorized," instead of "assigned," indicated an intent on his
part to keep and retain his interest in the subject matter. Stated a bit differently, he intended to limit Lizette’s role in the scrap
transaction to being the representative of his interest therein.
Petitioner submits that the second paragraph of the Romualdez letter, stating - "I have given [Lizette] the original copy of the award x x
x which will indicate my waiver of rights, interests and participation in favor of Lizette R. Wijanco" - clarifies that Lizette was intended to
be an assignee, and not a mere agent.
We are not persuaded. As it were, the petitioner conveniently omitted an important phrase preceding the paragraph which would have
put the whole matter in context. The phrase is "For this reason," and the antecedent thereof is his (Romualdez) having appointed
Lizette as his representative in the matter of the withdrawal of the scrap items. In fine, the key phrase clearly conveys the idea that
Lizette was given the original copy of the contract award to enable her to withdraw the rails as Romualdez’s authorized representative.
Article 1374 of the Civil Code provides that the various stipulations of a contract shall be read and interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly. In fine, the real intention of the parties is primarily to be
determined from the language used and gathered from the whole instrument. When put into the context of the letter as a whole, it is
abundantly clear that the rights which Romualdez waived or ceded in favor of Lizette were those in furtherance of the agency relation
that he had established for the withdrawal of the rails.
At any rate, any doubt as to the intent of Romualdez generated by the way his letter was couched could be clarified by the acts of the
main players themselves. Article 1371 of the Civil Code provides that to judge the intention of the contracting parties, thei r
contemporaneous and subsequent acts shall be principally considered. In other words, in case of doubt, resort may be made to the
situation, surroundings, and relations of the parties.
The fact of agency was, as the trial court aptly observed,
5
confirmed in subsequent letters from the Angeles spouses in which they
themselves refer to Lizette as "authorized representative" of San Juanico Enterprises. Mention may also be made that the withdrawal
receipt which Lizette had signed indicated that she was doing so in a representative capacity. One professing to act as agent for
another is estopped to deny his agency both as against his asserted principal and third persons interested in the transaction which he
engaged in.
Whether or not an agency has been created is a question to be determined by the fact that one represents and is acting for another.
The appellate court, and before it, the trial court, had peremptorily determined that Lizette, with respect to the withdrawal of the scrap in
question, was acting for Romualdez. And with the view we take of this case, there were substantial pieces of evidence adduced to
support this determination. The desired reversal urged by the petitioner cannot, accordingly, be granted. For, factual findings of the trial
court, adopted and confirmed by the CA, are, as a rule, final and conclusive and may not be disturbed on appeal.
6
So it must be here.
Petitioner maintains that the Romualdez letter in question was not in the form of a special power of attorney, implying that the latter had
not intended to merely authorize his wife, Lizette, to perform an act for him (Romualdez). The contention is specious. In the absence of
statute, no form or method of execution is required for a valid power of attorney; it may be in any form clearly showing on its face the
agent’s authority.
7

A power of attorney is only but an instrument in writing by which a person, as principal, appoints another as his agent and confers upon
him the authority to perform certain specified acts on behalf of the principal. The written authorization itself is the power of attorney, and
this is clearly indicated by the fact that it has also been called a "letter of attorney." Its primary purpose is not to define the authority of
the agent as between himself and his principal but to evidence the authority of the agent to third parties with whom the agent
deals.
8
The letter under consideration is sufficient to constitute a power of attorney. Except as may be required by statute, a power of
attorney is valid although no notary public intervened in its execution.
9

A power of attorney must be strictly construed and pursued. The instrument will be held to grant only those powers which are specified
therein, and the agent may neither go beyond nor deviate from the power of attorney.
10
Contextually, all that Lizette was authorized to
do was to withdraw the unserviceable/scrap railings. Allowing her authority to sue therefor, especially in her own name, would be to
read something not intended, let alone written in the Romualdez letter.
Finally, the petitioner's claim that Lizette paid the amount of P96,000.00 to the PNR appears to be a mere afterthought; it ought to be
dismissed outright under the estoppel principle. In earlier proceedings, petitioner himself admitted in his complaint that it was
Romualdez who paid this amount.
WHEREFORE, the petition is DENIED and the assailed decision of the CA is AFFIRMED.
Costs against the petitioner.
SO ORDERED.
CANCIO C. GARCIA
Associate Justice





Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 120465 September 9, 1999
WILLIAM UY and RODEL ROXAS, petitioners,
vs.
COURT OF APPEALS, HON. ROBERT BALAO and NATIONAL HOUSING AUTHORITY, respondents.

KAPUNAN, J .:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of land by the owners thereof. By virtue of such
authority, petitioners offered to sell the lands, located in Tuba, Tadiangan, Benguet to respondent National Housing Authority (NHA) to
be utilized and developed as a housing project.
On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the acquisition of said lands, with an area of 31.8231
hectares, at the cost of P23.867 million, pursuant to which the parties executed a series of Deeds of Absolute Sale covering the subject
lands. Of the eight parcels of land, however, only five were paid for by the NHA because of the report
1
it received from the Land
Geosciences Bureau of the Department of Environment and Natural Resources (DENR) that the remaining area is located at an active
landslide area and therefore, not suitable for development into a housing project.
On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale over the three parcels of land. The NHA, through
Resolution No. 2394, subsecguently offered the amount of P1.225 million to the landowners asdaños perjuicios.
On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon City a Complaint for Damages against NHA and its
General Manager Robert Balao.
After trial, the RTC rendered a decision declaring the cancellation of the contract to be justified. The trial court nevertheless awarded
damages to plaintiffs in the sum of P1.255 million, the same amount initially offered by NHA to petitioners as damages.1âwphi1.nêt
Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court and entered a new one dismissing the
complaint. It held that since there was "sufficient justifiable basis" in cancelling the sale, "it saw no reason" for the award of damages.
The Court of Appeals also noted that petitioners were mere attorneys-in-fact and, therefore, not the real parties-in-interest in the action
before the trial court.
. . . In paragraph 4 of the complaint, plaintiffs alleged themselves to be "sellers' agents" for the several
owners of the 8 lots subject matter of the case. Obsviously, William Uy and Rodel Roxas in filing this case
acted as attorneys-in-fact of the lot owners who are the real parties in interest but who were omitted to be
pleaded as party-plaintiffs in the case. This omission is fatal. Where the action is brought by an attorney-in-
fact of a land owner in his name, (as in our present action) and not in the name of his principal, the action
was properly dismissed (Ferrer vs. Villamor, 60 SCRA 406 [1974]; Marcelo vs. de Leon, 105 Phil. 1175)
because the rule is that every action must be prosecuted in the name of the real parties-in-interest (Section
2, Rule 3, Rules of Court).
When plaintiffs UY and Roxas sought payment of damages in their favor in view of the partial rescission of
Resolution No. 1632 and the Deed of Absolute Sale covering TCT Nos. 10998, 10999 and 11292 (Prayer
complaint, page 5, RTC records), it becomes obviously indispensable that the lot owners be included,
mentioned and named as party-plaintiffs, being the real party-in-interest. UY and Roxas, as attorneys-in-fact
or apoderados, cannot by themselves lawfully commence this action, more so, when the supposed special
power of attorney, in their favor, was never presented as an evidence in this case. Besides, even if herein
plaintiffs Uy and Roxas were authorized by the lot owners to commence this action, the same must still be
filed in the name of the principal, (Filipino Industrial Corporation vs. San Diego, 23 SCRA 706 [1968]). As
such indispensable party, their joinder in the action is mandatory and the complaint may be dismissed if not
so impleaded (NDC vs. CA, 211 SCRA 422 [1992]).
2

Their motion for reconsideration having been denied, petitioners seek relief from this Court contending that:
I. THE RESPONDENT CA ERRED IN DECLARING THAT RESPONDENT NHA HAD ANY LEGAL BASIS
FOR RESCINDING THE SALE INVOLVING THE LAST THREE (3) PARCELS COVERED BY NHA
RESOLUTION NO. 1632.
II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL BASIS TO RESCIND THE
SUBJECT SALE, THE RESPONDENT CA NONETHELESS ERRED IN DENYING HEREIN PETITIONERS'
CLAIM TO DAMAGES, CONTRARY TO THE PROVISIONS OF ART. 1191 OF THE CIVIL CODE.
III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT COMPLAINT FINDING THAT THE
PETITIONERS FAILED TO JOIN AS INDISPENSABLE PARTY PLAINTIFF THE SELLING LOT-
OWNERS.
3

We first resolve the issue raised in the the third assignment of error.
Petitioners claim that they lodged the complaint not in behalf of their principals but in their own name as agents directly damaged by the
termination of the contract. The damages prayed for were intended not for the benefit of their principals but to indemnify petitioners for
the losses they themselves allegedly incurred as a result of such termination. These damages consist mainly of "unearned income" and
advances.
4
Petitioners, thus, attempt to distinguish the case at bar from those involving agents or apoderedos instituting actions in their
own name but in behalf of their principals.
5
Petitioners in this case purportedly brought the action for damages in their own name and in
their own behalf.
We find this contention unmeritorious.
Sec. 2, Rule 3 of the Rules of Court requires that every action must be prosecuted and defended in the name of the real party-in-
interest. The real party-in-interest is the party who stands to be benefited or injured by the judgment or the party entitled to the avails of
the suit. "Interest, within the meaning of the rule, means material interest, an interest in the issue and to be affected by the decree, as
distinguished from mere interest in the question involved, or a mere incidental interest.
6
Cases construing the real party-in-interest
provision can be more easily understood if it is borne in mind that the true meaning of real party-in-interest may be summarized as
follows: An action shall be prosecuted in the name of the party who, by the substantive law, has the right sought to be enforced.
7

Do petitioners, under substantive law, possess the right they seek to enforce? We rule in the negative.
The applicable substantive law in this case is Article 1311 of the Civil Code, which states:
Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of
law. . . .
If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person. (Emphasis supplied.)
Petitioners are not parties to the contract of sale between their principals and NHA. They are mere agents of the owners of the land
subject of the sale. As agents, they only render some service or do something in representation or on behalf of their principals.
8
The
rendering of such service did not make them parties to the contracts of sale executed in behalf of the latter. Since a contract may be
violated only by the parties thereto as against each other, the real parties-in-interest, either as plaintiff or defendant, in an action upon
that contract must, generally, either be parties to said contract.
9

Neither has there been any allegation, much less proof, that petitioners are the heirs of their principals.
Are petitioners assignees to the rights under the contract of sale? In McMicking vs. Banco Español-Filipino,
10
we held that the rule
requiring every action to be prosecuted in the name of the real party-in-interest.
. . . recognizes the assignments of rights of action and also recognizes that when one has a right of action
assigned to him he is then the real party in interest and may maintain an action upon such claim or right.
The purpose of [this rule] is to require the plaintiff to be the real party in interest, or, in other words, he must
be the person to whom the proceeds of the action shall belong, and to prevent actions by persons who have
no interest in the result of the same. . . .
Thus, an agent, in his own behalf, may bring an action founded on a contract made for his principal, as an assignee of such contract.
We find the following declaration in Section 372 (1) of the Restatement of the Law on Agency (Second):
11

Sec. 372. Agent as Owner of Contract Right
(1) Unless otherwise agreed, an agent who has or who acquires an interest in a contract which he makes on
behalf of his principal can, although not a promisee, maintain such action thereon maintain such action
thereon as might a transferee having a similar interest.
The Comment on subsection (1) states:
a. Agent a transferee. One who has made a contract on behalf of another may become an assignee of the
contract and bring suit against the other party to it, as any other transferee. The customs of business or the
course of conduct between the principal and the agent may indicate that an agent who ordinarily has merely
a security interest is a transferee of the principals rights under the contract and as such is permitted to bring
suit. If the agent has settled with his principal with the understanding that he is to collect the claim against
the obligor by way of reimbursing himself for his advances and commissions, the agent is in the position of
an assignee who is the beneficial owner of the chose in action. He has an irrevocable power to sue in his
principal's name. . . . And, under the statutes which permit the real party in interest to sue, he can maintain
an action in his own name. This power to sue is not affected by a settlement between the principal and the
obligor if the latter has notice of the agent's interest. . . . Even though the agent has not settled with his
principal, he may, by agreement with the principal, have a right to receive payment and out of the proceeds
to reimburse himself for advances and commissions before turning the balance over to the principal. In such
a case, although there is no formal assignment, the agent is in the position of a transferee of the whole claim
for security; he has an irrevocable power to sue in his principal's name and, under statutes which permit the
real party in interest to sue, he can maintain an action in his own name.
Petitioners, however, have not shown that they are assignees of their principals to the subject contracts. While they alleged that they
made advances and that they suffered loss of commissions, they have not established any agreement granting them "the right to
receive payment and out of the proceeds to reimburse [themselves] for advances and commissions before turning the balance over to
the principal[s]."
Finally, it does not appear that petitioners are beneficiaries of a stipulation pour autrui under the second paragraph of Article 1311 of the
Civil Code. Indeed, there is no stipulation in any of the Deeds of Absolute Sale "clearly and deliberately" conferring a favor to any third
person.
That petitioners did not obtain their commissions or recoup their advances because of the non-performance of the contract did not
entitle them to file the action below against respondent NHA. Section 372 (2) of the Restatement of the Law on Agency (Second)
states:
(2) An agent does not have such an interest in a contract as to entitle him to maintain an action at law upon it in his
own name merely because he is entitled to a portion of the proceeds as compensation for making it or because he is
liable for its breach.
The following Comment on the above subsection is illuminating:
The fact that an agent who makes a contract for his principal will gain or suffer loss by the performance or
nonperformance of the contract by the principal or by the other party thereto does not entitle him to maintain an action
on his own behalf against the other party for its breach. An agent entitled to receive a commission from his principal
upon the performance of a contract which he has made on his principal's account does not, from this fact alone, have
any claim against the other party for breach of the contract, either in an action on the contract or otherwise. An agent
who is not a promisee cannot maintain an action at law against a purchaser merely because he is entitled to have his
compensation or advances paid out of the purchase price before payment to the principal. . . .
Thus, in Hopkins vs. Ives,
12
the Supreme Court of Arkansas, citing Section 372 (2) above, denied the claim of a real estate broker to
recover his alleged commission against the purchaser in an agreement to purchase property.
In Goduco vs. Court of appeals,
13
this Court held that:
. . . granting that appellant had the authority to sell the property, the same did not make the buyer liable for
the commission she claimed. At most, the owner of the property and the one who promised to give her a
commission should be the one liable to pay the same and to whom the claim should have been directed. . . .
As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour autrui under the contracts of sale, they do not,
under substantive law, possess the right they seek to enforce. Therefore, they are not the real parties-in-interest in this case.
Petitioners not being the real parties-in-interest, any decision rendered herein would be pointless since the same would not bind the
real parties-in-
interest.
14

Nevertheless, to forestall further litigation on the substantive aspects of this case, we shall proceed to rule on me merits.
15

Petitioners submit that respondent NHA had no legal basis to "rescind" the sale of the subject three parcels of land. The existence of
such legal basis, notwithstanding, petitioners argue that they are still entitled to an award of damages.
Petitioners confuse the cancellation of the contract by the NHA as a rescission of the contract under Article 1191 of the Civil Code. The
right of rescission or, more accurately, resolution, of a party to an obligation under Article 1191 is predicated on a breach of faith by the
other party that violates the reciprocity between them.
16
The power to rescind, therefore, is given to the injured party.
17
Article 1191
states:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what
is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
In this case, the NHA did not rescind the contract. Indeed, it did not have the right to do so for the other parties to the contract, the
vendors, did not commit any breach, much less a substantial breach,
18
of their obligation. Their obligation was merely to deliver the
parcels of land to the NHA, an obligation that they fulfilled. The NHA did not suffer any injury by the performance thereof.
The cancellation, therefore, was not a rescission under Article 1191. Rather, the cancellation was based on the negation of the cause
arising from the realization that the lands, which were the object of the sale, were not suitable for housing.1âwphi1.nêt
Cause is the essential reason which moves the contracting parties to enter into it.
19
In other words, the cause is the immediate, direct
and proximate reason which justifies the creation of an obligation through the will of the contracting parties.
20
Cause, which is the
essential reason for the contract, should be distinguished from motive, which is the particular reason of a contracting party which does
not affect the other party.
21

For example, in a contract of sale of a piece of land, such as in this case, the cause of the vendor (petitioners' principals) in entering
into the contract is to obtain the price. For the vendee, NHA, it is the acquisition of the land.
22
The motive of the NHA, on the other
hand, is to use said lands for housing. This is apparent from the portion of the Deeds of Absolute Sale
23
stating:
WHEREAS, under the Executive Order No. 90 dated December 17, 1986, the VENDEE is mandated to focus and
concentrate its efforts and resources in providing housing assistance to the lowest thirty percent (30%) of urban
income earners, thru slum upgrading and development of sites and services projects;
WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by Letter of Instruction No. 630, prescribed slum
improvement and upgrading, as well as the development of sites and services as the principal housing strategy for
dealing with slum, squatter and other blighted communities;
xxx xxx xxx
WHEREAS, the VENDEE, in pursuit of and in compliance with the above-stated purposes offers to buy and the
VENDORS, in a gesture of their willing to cooperate with the above policy and commitments, agree to sell the
aforesaid property together with all the existing improvements there or belonging to the VENDORS;
NOW, THEREFORE, for and in consideration of the foregoing premises and the terms and conditions hereinbelow
stipulated, the VENDORS hereby, sell, transfer, cede and convey unto the VENDEE, its assigns, or successors-in-
interest, a parcel of land located at Bo. Tadiangan, Tuba, Benguet containing a total area of FIFTY SIX THOUSAND
EIGHT HUNDRED NINETEEN (56,819) SQUARE METERS, more or less . . . .
Ordinarily, a party's motives for entering into the contract do not affect the contract. However, when the motive predetermines the
cause, the motive may be regarded as the cause. In Liguez vs. Court of Appeals,
24
this Court, speaking through Justice J.B.L. REYES,
HELD:
. . . it is well to note, however, that Manresa himself (Vol. 8, pp. 641-642), while maintaining the distinction
and upholding the inoperativeness of the motives of the parties to determine the validity of the contract,
expressly excepts from the rule those contracts that are conditioned upon the attainment of the motives of
either party.
The same view is held by the Supreme Court of Spain, in its decisions of February 4, 1941, and December
4, 1946, holding that the motive may be regarded as causa when it predetermines the purpose of the
contract.
In this case, it is clear, and petitioners do not dispute, that NHA would not have entered into the contract were the lands not suitable for
housing. In other words, the quality of the land was an implied condition for the NHA to enter into the contract. On the part of the NHA,
therefore, the motive was the cause for its being a party to the sale.
Were the lands indeed unsuitable for housing as NHA claimed?
We deem the findings contained in the report of the Land Geosciences Bureau dated 15 July 1991 sufficient basis for the cancellation
of the sale, thus:
In Tadiangan, Tuba, the housing site is situated in an area of moderate topography. There [are] more areas
of less sloping ground apparently habitable. The site is underlain by . . . thick slide deposits (4-45m)
consisting of huge conglomerate boulders (see Photo No. 2) mix[ed] with silty clay materials. These clay
particles when saturated have some swelling characteristics which is dangerous for any civil structures
especially mass housing development.
25

Petitioners contend that the report was merely "preliminary," and not conclusive, as indicated in its title:
MEMORANDUM
TO: EDWIN G. DOMINGO
Chief, Lands Geology Division
FROM: ARISTOTLE A. RILLON
Geologist II
SUBJECT: Preliminary Assessment of
Tadiangan Housing Project in Tuba, Benguet
26

Thus, page 2 of the report states in part:
xxx xxx xxx
Actually there is a need to conduct further geottechnical [sic] studies in the NHA property. Standard
Penetration Test (SPT) must be carried out to give an estimate of the degree of compaction (the relative
density) of the slide deposit and also the bearing capacity of the soil materials. Another thing to consider is
the vulnerability of the area to landslides and other mass movements due to thick soil cover. Preventive
physical mitigation methods such as surface and subsurface drainage and regrading of the slope must be
done in the area.
27

We read the quoted portion, however, to mean only that further tests are required to determine the "degree of compaction," "the bearing
capacity of the soil materials," and the "vulnerability of the area to landslides," since the tests already conducted were inadequate to
ascertain such geological attributes. It is only in this sense that the assessment was "preliminary."
Accordingly, we hold that the NHA was justified in canceling the contract. The realization of the mistake as regards the quality of the
land resulted in the negation of the motive/cause thus rendering the contract inexistent.
28
Article 1318 of the Civil Code states that:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (Emphasis supplied.)
Therefore, assuming that petitioners are parties, assignees or beneficiaries to the contract of sale, they would not be entitled to any
award of damages.
WHEREFORE, the instant petition is hereby DENIED.
SO ORDERED.
Puno, Pardo and Ynares-Santiago, JJ., concur.
DIGEST:
UY V. COURT OF APPEALS
G.R. No. 120465, 09 September 1999

FACTS:
Petitioners Uy and Roxas are agents authorized to sell eight parcels of land by the owners thereof. By virtue of such authority,
petitioners offered to sell the lands located in Benguet to respondent NHA to be utilized and developed as a housing project. On
February 14, 1989, the NHA Board approved the acquisition of said lands, at the cost of P23.87M, pursuant to which the parties
executed a series of Deeds of Absolute Sale covering the subject lands. Of the eight parcels, however, only five were paid for by the
NHA because of the report it received from the Land Geosciences Bureau of the DENR that the remaining area is located at an active
landslide area and therefore, not suitable for development into a housing project.

In 1991, the NHA cancelled the sale of the 3 parcels of land and subsequently offered the amount of P1.225 million to the landowners
as daños perjuicios. On 9 March 1992, petitioners filed before the QC RTC a Complaint for Damages.

The RTC rendered a decision declaring the cancellation of the contract to be justified. The trial court nevertheless awarded damages to
plaintiffs in the same amount offered by NHA to petitioners as damages. Upon appeal by petitioners, the CA held that since there was
"sufficient justifiable basis" in cancelling the sale, "it saw no reason" for the award of damages. Hence, this petition.

ISSUES:
(1) Was there a legal basis for the rescission of the sale of the 3 parcels of land? And granting arguendo that NHA has legal basis to
rescind, does the petitioner have the right to claim for damages?
(2) [Irrelevant] Were the petitioners allowed to lodge a complaint as agents?

HELD:
(1) There was no ―rescission‖ per se. What is involved is a cancellation based on the negation of the cause of the contract.
(2) [Irrelevant] No. Petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour autrui under the contracts of sale,
they do not, under substantive law, possess the right they seek to enforce.

RATIO:
(1) Petitioners confuse the cancellation of the contract by the NHA as a rescission of the contract under Art. 1191. The right of
rescission or, more accurately, resolution, is predicated on a breach of faith by the other party.

NHA did not have the right to rescind for the other parties to the contract, the vendors, did not commit any breach of their obligati on.
The cancellation was based on the negation of the cause arising from the realization that the lands, which were the object of the sale,
were not suitable for housing. Cause, which is the essential reason for the contract, should be distinguished from motive, which is the
particular reason of a party which does not affect the other party.

In a contract of sale of a piece of land, such as in this case, the cause of the vendor (petitioners' principals) in entering into the contract
is to obtain the price. For the vendee, NHA, it is the acquisition of the land. The motive of the NHA, on the other hand, is to use said
lands for housing.

Ordinarily, a party's motives for entering into the contract do not affect the contract. However, when the motive predetermines the
cause, the motive may be regarded as the cause. In this case, it is clear, and petitioners do not dispute, that NHA would not have
entered into the contract were the lands not suitable for housing. In other words, the quality of the land was an implied condition
for the NHA to enter into the contract. On NHA’s part, therefore, the motive was the cause for its being a party to the sale. The
findings of the Land Geosciences Bureau were sufficient for the cancellation of the sale

NHA was justified in canceling the contract. The realization of the mistake as regards the quality of the land resulted in the negation of
the motive/cause thus rendering the contract inexistent. Article 1318 of the Civil Code enumerates the essential requisites of a
contract: (1) Consent of the parties; (2) Subject matter; and (3) Cause of the obligation which is established. Therefore, assuming that
petitioners are parties, assignees or beneficiaries to the contract of sale, they would not be entitled to any award of damages.

(2) [Irrelevant, but again, this is worth knowing ] Sec. 2, Rule 3 of the Rules of Court requires that every action must be
prosecuted and defended in the name of the real party-in-interest. An action shall be prosecuted in the name of the party who, by the
substantive law, has the right sought to be enforced.

Do petitioners, under substantive law, possess such right? No. Contracts take effect only between the parties, their assigns, and heirs,
except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipul ation, or by
provision of law. . . Article 1311 of the Civil Code.

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not
sufficient.

Petitioners are mere agents of the owners of the land subject of the sale. As agents, they only render some service or do something in
representation or on behalf of their principals. The rendering of such service did not make them parties to the contracts of sale
executed in behalf of the latter.

An agent, in his own behalf, may bring as an assignee of such contract. Section 372 (1) of the Restatement of the Law on Agency.
Petitioners, however, were not able to show that they were assignees of their principal. They were not able to establish any
agreement granting them "the right to receive payment and out of the proceeds to reimburse [themselves] for advances and
commissions before turning the balance over to the principal[s]."

Finally, it did not appear that petitioners were beneficiaries of a stipulation pour autrui under the second paragraph of Article
1311 of the Civil Code. That petitioners did not obtain their commissions or recoup their advances because of the non-performance of
the contract did not entitle them to file the action against respondent NHA. Section 372 (2) of the Restatement of the Law on Agency
(Second).

WHEREFORE, the instant petition is hereby DENIED.




























Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 142616 July 31, 2001
PHILIPPINE NATIONAL BANK, petitioner,
vs.
RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISE,respondents.
KAPUNAN, J .:
In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to annul and set aside the Court of
Appeals' decision in C.A. CV G.R. S.P. No. 55374 dated March 27, 2000, affirming the Order issuing a writ of preliminary injunction of
the Regional Trial Court of Makati, Branch 147 dated June 30, 1999, and its Order dated October 4, 1999, which denied petitioner's
motion to dismiss.
The antecedents of this case are as follows:
Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law. Meanwhile, respondents
Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise are domestic corporations, likewise, organized and
existing under Philippine law.
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doing business in Hong
Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00 secured by real estate mortgages
constituted over four (4) parcels of land in Makati City. This credit facility was later increased successively to US$1,140,000.00 in
September 1996; to US$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in
April 1998. Respondents made repayments of the loan incurred by remitting those amounts to their loan account with PNB-IFL in Hong
Kong.
However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the terms of the real estate
mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosure of all the real estate mortgages and
that the properties subject thereof were to be sold at a public auction on May 27, 1999 at the Makati City Hall.
On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or
temporary restraining order before the Regional Trial Court of Makati. The Executive Judge of the Regional Trial Court of Makati issued
a 72-hour temporary restraining order. On May 28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati. The
trial judge then set a hearing on June 8, 1999. At the hearing of the application for preliminary injunction, petitioner was given a period
of seven days to file its written opposition to the application. On June 15, 1999, petitioner filed an opposition to the application for a writ
of preliminary injunction to which the respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismiss on the grounds of
failure to state a cause of action and the absence of any privity between the petitioner and respondents. On June 30, 1999, the trial
court judge issued an Order for the issuance of a writ of preliminary injunction, which writ was correspondingly issued on July 14, 1999.
On October 4, 1999, the motion to dismiss was denied by the trial court judge for lack of merit.
Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of preliminary injunction before the Court
of Appeals. In the impugned decision,
1
the appellate court dismissed the petition. Petitioner thus seeks recourse to this Court and
raises the following errors:
1.
THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO, CONSIDERING THAT BY
THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION EXISTS AGAINST PETITIONER, WHICH IS NOT A
REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT AUTHORIZED TO ENFORCE AN ANCILLARY
CONTRACT.
2.
THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESS OR LACK OF
JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN THE
COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR., 101 SCRA 827.
2

Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the trial court's Orders dated June 30, 1999
and October 4, 1999 be set aside and the dismissal of the complaint in the instant case.
3

In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL are two separate entities, petitioner is
still the party-in-interest in the application for preliminary injunction because it is tasked to commit acts of foreclosing respondents'
properties.
4
Respondents maintain that the entire credit facility is void as it contains stipulations in violation of the principle of mutuality
of contracts.
5
In addition, respondents justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate
Identity" by stating that petitioner is merely an alter ego or a business conduit of PNB-IFL.
6

The petition is impressed with merit.
Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the contract:
GROUNDS
I
THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF THE DEFENDANT PNB
CONTRAVENES THE PRINCIPAL OF MUTUALITY OF CONTRACTS.
II
THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST AGREED UPON MAY BE
UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO STIPULATION THAT THE RATE OF INTEREST SHALL BE
REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF INTEREST IS REDUCED BY LAW OR BY THE
MONETARY BOARD.
7

Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from the foreclosure and eventual sale of the
property in order to protect their rights to said property by reason of void credit facilities as bases for the real estate mortgage over the
said property.
8

The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their complaint, respondents admit that
petitioner is a mere attorney-in-fact for the PNB-IFL with full power and authority to, inter alia, foreclose on the properties mortgaged to
secure their loan obligations with PNB-IFL. In other words, herein petitioner is an agent with limited authority and specific duties under a
special power of attorney incorporated in the real estate mortgage. It is not privy to the loan contracts entered into by respondents and
PNB-IFL.
The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the party to the loan contracts,
and the respondents. Yet, despite the recognition that petitioner is a mere agent, the respondents in their complaint prayed that the
petitioner PNB be ordered to re-compute the rescheduling of the interest to be paid by them in accordance with the terms and
conditions in the documents evidencing the credit facilities, and crediting the amount previously paid to PNB by herein respondents.
9

Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the contract. Respondents,
therefore, do not have any cause of action against petitioner.
The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly owned subsidiary of defendant
Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL.
10
In justifying its ruling, the trial court, citing the
case of Koppel Phil. Inc. vs. Yatco,
11
reasoned that the corporate entity may be disregarded where a corporation is the mere alter ego,
or business conduit of a person or where the corporation is so organized and controlled and its affairs are so conducted, as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation.
12

We disagree.
The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or
members, and is not affected by the personal rights, obligations and transactions of the latter.
13
The mere fact that a corporation owns
all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform
legitimate functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation as well as the
subsidiary will be confined to those arising in their respective business. The courts may in the exercise of judicial discretion step in to
prevent the abuses of separate entity privilege and pierce the veil of corporate entity.
We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court disregarded the separate
existence of the parent and the subsidiary on the ground that the latter was formed merely for the purpose of evading the payment of
higher taxes. In the case at bar, respondents fail to show any cogent reason why the separate entities of the PNB and PNB-IFL should
be disregarded.
While there exists no definite test of general application in determining when a subsidiary may be treated as a mere instrumentality of
the parent corporation, some factors have been identified that will justify the application of the treatment of the doctrine of the piercing
of the corporate veil. The case of Garrett vs. Southern Railway Co.
14
is enlightening. The case involved a suit against the Southern
Railway Company. Plaintiff was employed by Lenoir Car Works and alleged that he sustained injuries while working for Lenoir. He,
however, filed a suit against Southern Railway Company on the ground that Southern had acquired the entire capital stock of Lenoir
Car Works, hence, the latter corporation was but a mere instrumentality of the former. The Tennessee Supreme Court stated that as a
general rule the stock ownership alone by one corporation of the stock of another does not thereby render the dominant corporation
liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of
the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation. Said Court then outlined the circumstances
which may be useful in the determination of whether the subsidiary is but a mere instrumentality of the parent-corporation:
The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible to catalogue the infinite variations of
fact that can arise but there are certain common circumstances which are important and which, if present in the proper
combination, are controlling.
These are as follows:
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or
by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or
division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders
from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
The Tennessee Supreme Court thus ruled:
In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most of the capital stock of Lenoir by
Southern, and possibly subscription to the capital stock of Lenoir. . . The complaint must be dismissed.
Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrine developed to address
situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. The doctrine applies
when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime, or when it is made as a
shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation.
15

In Concept Builders, Inc. v. NLRC,
16
we have laid the test in determining the applicability of the doctrine of piercing the veil of corporate
fiction, to wit:
1. Control, not mere majority or complete control, but complete domination, not only of finances but of policy and business
practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own.
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or
other positive legal duty, or dishonest and, unjust act in contravention of plaintiffs legal rights; and,
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego"
doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant' s
relationship to the operation.
17

Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the
former corporation is a mere instrumentality of the latter are present. Neither is there a demonstration that any of the evils sought to be
prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil based
on the alter ego or instrumentality doctrine finds no application in the case at bar.
In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case
since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an
attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be
considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or defended in the name of the real
party-in-interest, unless otherwise authorized by law or these Rules.
18
In mandatory terms, the Rules require that "parties-in-interest
without whom no final determination can be had, an action shall be joined either as plaintiffs or defendants."
19
In the case at bar, the
injunction suit is directed only against the agent, not the principal.
Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere provisional remedy but adjunct to the main
suit.
20
A writ of preliminary injunction is an ancillary or preventive remedy that may only be resorted to by a litigant to protect or preserve
his rights or interests and for no other purpose during the pendency of the principal action. The dismissal of the principal action thus
results in the denial of the prayer for the issuance of the writ. Further, there is no showing that respondents are entitled to the issuance
of the writ. Section 3, Rule 58, of the 1997 Rules of Civil Procedure provides:
SECTION 3. Grounds for issuance of preliminary injunction. — A preliminary injunction may be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the
commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a
limited period or perpetually,
(b) That the commission, continuance or non-performance of the acts or acts complained of during the litigation would
probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done,
some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and
tending to render the judgment ineffectual.
Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot
be remedied under any standard compensation.
21
Respondents do not deny their indebtedness. Their properties are by their own
choice encumbered by real estate mortgages. Upon the non-payment of the loans, which were secured by the mortgages sought to be
foreclosed, the mortgaged properties are properly subject to a foreclosure sale. Moreover, respondents questioned the alleged void
stipulations in the contract only when petitioner initiated the foreclosure proceedings. Clearly, respondents have failed to prove that they
have a right protected and that the acts against which the writ is to be directed are violative of said right.
22
The Court is not unmindful of
the findings of both the trial court and the appellate court that there may be serious grounds to nullify the provisions of the loan
agreement. However, as earlier discussed, respondents committed the mistake of filing the case against the wrong party, thus, they
must suffer the consequences of their error.
All told, respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions of which
respondents seek to declare void. Accordingly, the case before the Regional Trial Court must be dismissed and the preliminary
injunction issued in connection therewith, must be lifted.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is hereby
REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of the Regional Trial Court of Makati, Branch 147 in Civil Case No.
99-1037 are hereby ANNULLED and SET ASIDE and the complaint in said case DISMISSED.
SO ORDERED.
DIGEST:
PNB V. RITRATTO – G.R. NO. 142616 – 362 SCRA 216

Facts:

PNB-IFL, a subsidiary company of PNB extended credit to Ritratto and secured by the real estate mortgages on four parcels of land.
Since there was default, PNB-IFL thru PNB, foreclosed the property and were subject to public auction. Ritratto Group filed a complaint
for injunction. PNB filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between
respondents and petitioner.

Issue:

Is PNB privy to the loan contracts entered into by respondent & PNB-IFL being that PNB-IFL is owned by PNB?

Held:

No. The contract questioned is one entered into between Ritratto and PNB-IFL. PNB was admittedly an agent of the latter who acted as
an agent with limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage.
The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated
as one entity.

If used to perform legitimate functions, a subsidiary’s separate existence may be respected, and the liability of the parent corporation as
well as the subsidiary will be confined to those arising in their respective business. The courts may, in the exercise of judicial discretion,
step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity.


































Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. 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., respondents-appellees.
Segundo C. Mastrili for petitioner-appellant.
Manuel Calleja Rafael S. Lucila and Jose T. Rubio for respondents-appellees.
CONCEPCION, J .:
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 ½ undivided portion and Lorenzo Bon and Santiago Bon to the
extent of the other ½ (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 or participation which Atty. Tecla San Andres Ziga 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
Buenconsejo, Elena Buenconsejo and Azucena Buenconsejo (Exh. C).
It would appear, also, that petitioner Santos had redeemed the aforementioned share of Anatolio Buenconsejo, upon the authori ty 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 at 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 own name; (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 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 cost 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, Barrera and Paredes, JJ., took no part.


Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-15568 November 8, 1919
W. G. PHILPOTTS, petitioner,
vs.
PHILIPPINE MANUFACTURING COMPANY and F. N. BERRY, respondents.
Lawrence and Ross for petitioner.
Crossfield and O'Brien for defendants.

STREET, J .:
The petitioner, W. G. Philpotts, a stockholder in the Philippine Manufacturing Company, one of the respondents herein, seeks by this
proceeding to obtain a writ of mandamus to compel the respondents to permit the plaintiff, in person or by some authorized agent or
attorney, to inspect and examine the records of the business transacted by said company since January 1, 1918. The petition i s filed
originally in this court under the authority of section 515 of the Code of Civil Procedure, which gives to this tribunal concurrent
jurisdiction with the Court of First Instance in cases, among others, where any corporation or person unlawfully excludes the plaintiff
from the use and enjoyment of some right to which he is entitled. The respondents interposed a demurrer, and the controversy is now
before us for the determination of the questions thus presented.
The first point made has reference to a supposed defect of parties, and it is said that the action can not be maintained jointly against the
corporation and its secretary without the addition of the allegation that the latter is the custodian of the business records of the
respondent company.
By the plain language of sections 515 and 222 of our Code of Civil Procedure, the right of action in such a proceeding as this is given
against the corporation; and the respondent corporation in this case was the only absolutely necessary party. In the Ohio case of
Cincinnati Volksblatt Co. vs. Hoffmister (61 Ohio St., 432; 48 L. R. A., 735), only the corporation was named as defendant, while the
complaint, in language almost identical with that in the case at bar, alleged a demand upon and refusal by the corporation.
Nevertheless the propriety of naming the secretary of the corporation as a codefendant cannot be questioned, since such official is
customarily charged with the custody of all documents, correspondence, and records of a corporation, and he is presumably the person
against whom the personal orders of the court would be made effective in case the relief sought should be granted. Certainly there is
nothing in the complaint to indicate that the secretary is an improper person to be joined. The petitioner might have named the
president of the corporation as a respondent also; and this official might be brought in later, even after judgment rendered, if necessary
to the effectuation of the order of the court.
Section 222 of our Code of Civil Procedure is taken from the California Code, and a decision of the California Supreme Court —
Barber vs. Mulford (117 Cal., 356) — is quite clear upon the point that both the corporation and its officers may be joined as
defendants.
The real controversy which has brought these litigants into court is upon the question argued in connection with the second ground of
demurrer, namely, whether the right which the law concedes to a stockholder to inspect the records can be exercised by a proper agent
or attorney of the stockholder as well as by the stockholder in person. There is no pretense that the respondent corporation or any of its
officials has refused to allow the petitioner himself to examine anything relating to the affairs of the company, and the petition prays for
a peremptory order commanding the respondents to place the records of all business transactions of the company, during a specified
period, at the disposal of the plaintiff or his duly authorized agent or attorney, it being evident that the petitioner desires to exercise said
right through an agent or attorney. In the argument in support of the demurrer it is conceded by counsel for the respondents that there
is a right of examination in the stockholder granted under section 51 of the Corporation Law, but it is insisted that this ri ght must be
exercised in person.
The pertinent provision of our law is found in the second paragraph of section 51 of Act No. 1459, which reads as follows: "The record
of all business transactions of the corporation and the minutes of any meeting shall be open to the inspection of any director, member
or stockholder of the corporation at reasonable hours."
This provision is to be read of course in connecting with the related provisions of sections 51 and 52, defining the duty of the
corporation in respect to the keeping of its records.
Now it is our opinion, and we accordingly hold, that the right of inspection given to a stockholder in the provision above quoted can be
exercised either by himself or by any proper representative or attorney in fact, and either with or without the attendance of the
stockholder. This is in conformity with the general rule that what a man may do in person he may do through another; and we find
nothing in the statute that would justify us in qualifying the right in the manner suggested by the respondents.
This conclusion is supported by the undoubted weight of authority in the United States, where it is generally held that the provisions of
law conceding the right of inspection to stockholders of corporations are to be liberally construed and that said right may be exercised
through any other properly authorized person. As was said in Foster vs. White (86 Ala., 467), "The right may be regarded as personal,
in the sense that only a stockholder may enjoy it; but the inspection and examination may be made by another. Otherwise it would be
unavailing in many instances." An observation to the same effect is contained in Martin vs. Bienville Oil Works Co. (28 La., 204), where
it is said: "The possession of the right in question would be futile if the possessor of it, through lack of knowledge necessary to exercise
it, were debarred the right of procuring in his behalf the services of one who could exercise it." In Deadreck vs. Wilson (8 Baxt. [Tenn.],
108), the court said: "That stockholders have the right to inspect the books of the corporation, taking minutes from the same, at all
reasonable times, and may be aided in this by experts and counsel, so as to make the inspection valuable to them, is a principle too
well settled to need discussion." Authorities on this point could be accumulated in great abundance, but as they may be found cited in
any legal encyclopedia or treaties devoted to the subject of corporations, it is unnecessary here to refer to other cases announcing the
same rule.
In order that the rule above stated may not be taken in too sweeping a sense, we deem it advisable to say that there are some things
which a corporation may undoubtedly keep secret, notwithstanding the right of inspection given by law to the stockholder; as for
instance, where a corporation, engaged in the business of manufacture, has acquired a formula or process, not generally known, which
has proved of utility to it in the manufacture of its products. It is not our intention to declare that the authorities of the corporation, and
more particularly the Board of Directors, might not adopt measures for the protection of such process form publicity. There is, however,
nothing in the petition which would indicate that the petitioner in this case is seeking to discover anything which the corporation is
entitled to keep secret; and if anything of the sort is involved in the case it may be brought out at a more advanced stage of the
proceedings.lawphil.net
The demurrer is overruled; and it is ordered that the writ of mandamus shall issue as prayed, unless within 5 days from notification
hereof the respondents answer to the merits. So ordered.
Arellano, C.J., Torres, Johnson, Araullo, Malcolm and Avanceña, JJ., concur.


































Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 136433 December 6, 2006
ANTONIO B. BALTAZAR, petitioner,
vs.
HONORABLE OMBUDSMAN, EULOGIO M. MARIANO, JOSE D. JIMENEZ, JR., TORIBIO E. ILAO, JR. and ERNESTO R.
SALENGA, respondents.


D E C I S I O N


VELASCO, JR., J .:
The Case
Ascribing grave abuse of discretion to respondent Ombudsman, this Petition for Review on Certiorari,
1
under Rule 45 pursuant to
Section 27 of RA 6770,
2
seeks to reverse and set aside the November 26, 1997 Order
3
of the Office of the Special Prosecutor (OSP) in
OMB-1-94-3425 duly approved by then Ombudsman Aniano Desierto on August 21, 1998, which recommended the dismissal of the
Information
4
in Criminal Case No. 23661 filed before the Sandiganbayan against respondents Pampanga Provincial Adjudicator Toribio
E. Ilao, Jr., Chief Legal Officer Eulogio M. Mariano and Legal Officer Jose D. Jimenez, Jr. (both of the DAR Legal Division in San
Fernando, Pampanga), and Ernesto R. Salenga. The petition likewise seeks to set aside the October 30, 1998 Memorandum
5
of the
OSP duly approved by the Ombudsman on November 27, 1998 which denied petitioner's Motion for Reconsideration.
6
Previously, the
filing of the Information against said respondents was authorized by the May 10, 1996 Resolution
7
and October 3, 1996 Order
8
of the
Ombudsman which found probable cause that they granted unwarranted benefits, advantage, and preference to respondent Salenga in
violation of Section 3 (e) of RA 3019.
9

The Facts
Paciencia Regala owns a seven (7)-hectare fishpond located at Sasmuan, Pampanga. Her Attorney-in-Fact Faustino R. Mercado
leased the fishpond for PhP 230,000.00 to Eduardo Lapid for a three (3)-year period, that is, from August 7, 1990 to August 7,
1993.
10
Lessee Eduardo Lapid in turn sub-leased the fishpond to Rafael Lopez for PhP 50,000.00 during the last seven (7) months of
the original lease, that is, from January 10, 1993 to August 7, 1993.
11
Respondent Ernesto Salenga was hired by Eduardo Lapid as
fishpond watchman (bante-encargado). In the sub-lease, Rafael Lopez rehired respondent Salenga.
Meanwhile, on March 11, 1993, respondent Salenga, through a certain Francis Lagman, sent his January 28, 1993 demand letter
12
to
Rafael Lopez and Lourdes Lapid for unpaid salaries and non-payment of the 10% share in the harvest.
On June 5, 1993, sub-lessee Rafael Lopez wrote a letter to respondent Salenga informing the latter that for the last two (2) months of
the sub-lease, he had given the rights over the fishpond to Mario Palad and Ambit Perez for PhP 20,000.00.
13
This prompted
respondent Salenga to file a Complaint
14
before the Provincial Agrarian Reform Adjudication Board (PARAB), Region III, San Fernando,
Pampanga docketed as DARAB Case No. 552-P’93 entitled Ernesto R. Salenga v. Rafael L. Lopez and Lourdes L. Lapid for
Maintenance of Peaceful Possession, Collection of Sum of Money and Supervision of Harvest. The Complaint was signed by
respondent Jose D. Jimenez, Jr., Legal Officer of the Department of Agrarian Reform (DAR) Region III Office in San Fernando,
Pampanga, as counsel for respondent Salenga; whereas respondent Eulogio M. Mariano was the Chief Legal Officer of DAR Region III.
The case was assigned to respondent Toribio E. Ilao, Jr., Provincial Adjudicator of DARAB, Pampanga.
On May 10, 1993, respondent Salenga amended his complaint.
15
The amendments included a prayer for the issuance of a temporary
restraining order (TRO) and preliminary injunction. However, before the prayer for the issuance of a TRO could be acted upon, on June
16, 1993, respondent Salenga filed a Motion to Maintain Status Quo and to Issue Restraining Order
16
which was set for hearing on
June 22, 1993. In the hearing, however, only respondent Salenga with his counsel appeared despite notice to the other parties.
Consequently, the ex-partepresentation of respondent Salenga’s evidence in support of the prayer for the issuance of a restraining
order was allowed, since the motion was unopposed, and on July 21, 1993, respondent Ilao, Jr. issued a TRO.
17

Thereafter, respondent Salenga asked for supervision of the harvest, which the board sheriff did. Accordingly, defendants Lopez and
Lapid received their respective shares while respondent Salenga was given his share under protest. In the subsequent hearing for the
issuance of a preliminary injunction, again, only respondent Salenga appeared and presented his evidence for the issuance of the writ.
Pending resolution of the case, Faustino Mercado, as Attorney-in-Fact of the fishpond owner Paciencia Regala, filed a motion to
intervene which was granted by respondent Ilao, Jr. through the November 15, 1993 Order. After the trial, respondent Ilao, Jr. rendered
a Decision on May 29, 1995 dismissing the Complaint for lack of merit; but losing plaintiff, respondent Salenga, appealed the decision
before the DARAB Appellate Board.
Complaint Before the Ombudsman
On November 24, 1994, pending resolution of the agrarian case, the instant case was instituted by petitioner Antonio Baltazar, an
alleged nephew of Faustino Mercado, through a Complaint-Affidavit
18
against private respondents before the Office of the Ombudsman
which was docketed as OMB-1-94-3425 entitled Antonio B. Baltazar v. Eulogio Mariano, Jose Jimenez, Jr., Toribio Ilao, Jr. and Ernesto
Salenga for violation of RA 3019. Petitioner charged private respondents of conspiracy through the issuance of the TRO in allowing
respondent Salenga to retain possession of the fishpond, operate it, harvest the produce, and keep the sales under the safekeeping of
other private respondents. Moreover, petitioner maintains that respondent Ilao, Jr. had no jurisdiction to hear and act on DARAB Case
No. 552-P’93 filed by respondent Salenga as there was no tenancy relation between respondent Salenga and Rafael L. Lopez, and
thus, the complaint was dismissible on its face.
Through the December 14, 1994 Order,
19
the Ombudsman required private respondents to file their counter-affidavits, affidavits of their
witnesses, and other controverting evidence. While the other respondents submitted their counter-affidavits, respondent Ilao, Jr. instead
filed his February 9, 1995 motion to dismiss, February 21, 1995 Reply, and March 24, 1995 Rejoinder.
Ombudsman’s Determination of Probable Cause
On May 10, 1996, the Ombudsman issued a Resolution
20
finding cause to bring respondents to court, denying the motion to dismiss of
respondent Ilao, Jr., and recommending the filing of an Information for violation of Section 3 (e) of RA 3019. Subsequently, respondent
Ilao, Jr. filed his September 16, 1996 Motion for Reconsideration and/or Re-investigation
21
which was denied through the October 3,
1996 Order.
22
Consequently, the March 17, 1997 Information
23
was filed against all the private respondents before the Sandiganbayan
which was docketed as Criminal Case No. 23661.
Before the graft court, respondent Ilao, Jr. filed his May 19, 1997 Motion for Reconsideration and/or Re-investigation which was granted
through the August 29, 1997 Order.
24
On September 8, 1997, respondent Ilao, Jr. subsequently filed his Counter-Affidavit
25
with
attachments while petitioner did not file any reply-affidavit despite notice to him. The OSP of the Ombudsman conducted the re-
investigation; and the result of the re-investigation was embodied in the assailed November 26, 1997 Order
26
which recommended the
dismissal of the complaint in OMB-1-94-3425 against all private respondents. Upon review, the Ombudsman approved the OSP’s
recommendation on August 21, 1998.
Petitioner’s Motion for Reconsideration
27
was likewise denied by the OSP through the October 30, 1998 Memorandum
28
which was
approved by the Ombudsman on November 27, 1998. Consequently, the trial prosecutor moved orally before the Sandiganbayan for
the dismissal of Criminal Case No. 23661 which was granted through the December 11, 1998 Order.
29

Thus, the instant petition is before us.
The Issues
Petitioner raises two assignments of errors, to wit:
THE HONORABLE OMBUDSMAN ERRED IN GIVING DUE COURSE A MISPLACED COUNTER-AFFIDAVIT FILED AFTER
THE TERMINATION OF THE PRELIMINARY INVESTIGATION AND/OR THE CASE WAS ALREADY FILED BEFORE THE
SANDIGANBAYAN.
ASSUMING OTHERWISE, THE HONORABLE OMBUDSMAN LIKEWISE ERRED IN REVERSING HIS OWN RESOLUTION
WHERE IT WAS RESOLVED THAT ACCUSED AS PROVINCIAL AGRARIAN ADJUDICATOR HAS NO JURISDICTION
OVER A COMPLAINT WHERE THERE EXIST [sic] NO TENANCY RELATIONSHIP CONSIDERING [sic] COMPLAINANT IS
NOT A TENANT BUT A "BANTE-ENCARGADO" OR WATCHMAN-OVERSEER HIRED FOR A SALARY OF P3,000.00 PER
MONTH AS ALLEGED IN HIS OWN COMPLAINT.
30

Before delving into the errors raised by petitioner, we first address the preliminary procedural issue of the authority and locus standi of
petitioner to pursue the instant petition.
Preliminary Issue: Legal Standing
Locus standi is defined as "a right of appearance in a court of justice x x x on a given question."
31
In private suits, standing is governed
by the "real-parties-in interest" rule found in Section 2, Rule 3 of the 1997 Rules of Civil Procedure which provides that "every action
must be prosecuted or defended in the name of the real party in interest." Accordingly, the "real-party-in interest" is "the party who
stands to be benefited or injured by the judgment in the suit or the party entitled to the avails of the suit."
32
Succinctly put, the plaintiffs’
standing is based on their own right to the relief sought.
The records show that petitioner is a non-lawyer appearing for himself and conducting litigation in person. Petitioner instituted the
instant case before the Ombudsman in his own name. In so far as the Complaint-Affidavit filed before the Office of the Ombudsman is
concerned, there is no question on his authority and legal standing. Indeed, the Office of the Ombudsman is mandated to "investigate
and prosecute on its own or on complaint by any person, any act or omission of any public officer or employee, office or agency, when
such act or omission appears to be illegal, unjust, improper or inefficient (emphasis supplied)."
33
The Ombudsman can act on
anonymous complaints and motu proprio inquire into alleged improper official acts or omissions from whatever source, e.g., a
newspaper.
34
Thus, any complainant may be entertained by the Ombudsman for the latter to initiate an inquiry and investigation for
alleged irregularities.
However, filing the petition in person before this Court is another matter. The Rules allow a non-lawyer to conduct litigation in person
and appear for oneself only when he is a party to a legal controversy. Section 34 of Rule 138 pertinently provides, thus:
SEC. 34. By whom litigation conducted. – In the court of a justice of the peace a party may conduct his litigation in person, with
the aid of an agent or friend appointed by him for that purpose, or with the aid of an attorney. In any other court, a party may
conduct his litigation personally or by aid of an attorney, and hisappearance must be either personal or by a duly authorized
member of the bar (emphases supplied).
Petitioner has no legal standing
Is petitioner a party or a real party in interest to have the locus standi to pursue the instant petition? We answer in the negative.
While petitioner may be the complainant in OMB-1-94-3425, he is not a real party in interest. Section 2, Rule 3 of the 1997 Rules of
Civil Procedure stipulates, thus:
SEC. 2. Parties in interest. – A real party in interest is the party who stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be
prosecuted or defended in the name of the real party in interest.
The same concept is applied in criminal and administrative cases.
In the case at bar which involves a criminal proceeding stemming from a civil (agrarian) case, it is clear that petitioner is not a real party
in interest. Except being the complainant, the records show that petitioner is a stranger to the agrarian case. It must be recalled that the
undisputed owner of the fishpond is Paciencia Regala, who intervened in DARAB Case No. 552-P’93 through her Attorney-in-Fact
Faustino Mercado in order to protect her interest. The motion for intervention filed by Faustino Mercado, as agent of Paciencia Regala,
was granted by respondent Provincial Adjudicator Ilao, Jr. through the November 15, 1993 Order in DARAB Case No. 552-P’93.
Agency cannot be further delegated
Petitioner asserts that he is duly authorized by Faustino Mercado to institute the suit and presented a Special Power of
Attorney
35
(SPA) from Faustino Mercado. However, such SPA is unavailing for petitioner. For one, petitioner’s principal, Faustino
Mercado, is an agent himself and as such cannot further delegate his agency to another. Otherwise put, an agent cannot delegate to
another the same agency. The legal maxim potestas delegata non delegare potest; a power once delegated cannot be re-delegated,
while applied primarily in political law to the exercise of legislative power, is a principle of agency.
36
For another, a re-delegation of the
agency would be detrimental to the principal as the second agent has no privity of contract with the former. In the instant case,
petitioner has no privity of contract with Paciencia Regala, owner of the fishpond and principal of Faustino Mercado.
Moreover, while the Civil Code under Article 1892
37
allows the agent to appoint a substitute, such is not the situation in the instant case.
The SPA clearly delegates the agency to petitioner to pursue the case and not merely as a substitute. Besides, it is clear in the
aforecited Article that what is allowed is a substitute and not a delegation of the agency.
Clearly, petitioner is neither a real party in interest with regard to the agrarian case, nor is he a real party in interest in the criminal
proceedings conducted by the Ombudsman as elevated to the Sandiganbayan. He is not a party who will be benefited or injured by the
results of both cases.
Petitioner: a stranger and not an injured private complainant
Petitioner only surfaced in November 1994 as complainant before the Ombudsman. Aside from that, not being an agent of the parties in
the agrarian case, he has no locus standi to pursue this petition. He cannot be likened to an injured private complainant in a criminal
complaint who has direct interest in the outcome of the criminal case.
More so, we note that the petition is not pursued as a public suit with petitioner asserting a "public right" in assailing an allegedly illegal
official action, and doing so as a representative of the general public. He is pursuing the instant case as an agent of an ineffective
agency.
Petitioner has not shown entitlement to judicial protection
Even if we consider the instant petition as a public suit, where we may consider petitioner suing as a "stranger," or in the category of a
"citizen," or "taxpayer," still petitioner has not adequately shown that he is entitled to seek judicial protection. In other words, petitioner
has not made out a sufficient interest in the vindication of the public order and the securing of relief as a "citizen" or "taxpayer"; more so
when there is no showing that he was injured by the dismissal of the criminal complaint before the Sandiganbayan.
Based on the foregoing discussion, petitioner indubitably does not have locus standi to pursue this action and the instant petition must
be forthwith dismissed on that score. Even granting arguendo that he has locus standi, nonetheless, petitioner fails to show grave
abuse of discretion of respondent Ombudsman to warrant a reversal of the assailed November 26, 1997 Order and the October 30,
1998 Memorandum.
First Issue: Submission of Counter-Affidavit
The Sandiganbayan, not the Ombudsman, ordered re-investigation
On the substantive aspect, in the first assignment of error, petitioner imputes grave abuse of discretion on public respondent
Ombudsman for allowing respondent Ilao, Jr. to submit his Counter-Affidavit when the preliminary investigation was already concluded
and an Information filed with the Sandiganbayan which assumed jurisdiction over the criminal case. This contention is utterly erroneous.
The facts clearly show that it was not the Ombudsman through the OSP who allowed respondent Ilao, Jr. to submit his Counter-
Affidavit. It was the Sandiganbayan who granted the prayed for re-investigation and ordered the OSP to conduct the re-investigation
through its August 29, 1997 Order, as follows:
Considering the manifestation of Prosecutor Cicero Jurado, Jr. that accused Toribio E. Ilao, Jr. was not able to file his counter-
affidavit in the preliminary investigation, there appears to be some basis for granting the motion of said accused for
reinvestigation.
WHEREFORE, accused Toribio E. Ilao, Jr. may file his counter-affidavit, with documentary evidence attached, if any, with the
Office of the Special Prosecutor within then (10) days from today. Theprosecution is ordered to conduct a
reinvestigation within a period of thirty (30) days.
38
(Emphases supplied.)
As it is, public respondent Ombudsman through the OSP did not exercise any discretion in allowing respondent Ilao, Jr. to submit his
Counter-Affidavit. The OSP simply followed the graft court’s directive to conduct the re-investigation after the Counter-Affidavit of
respondent Ilao, Jr. was filed. Indeed, petitioner did not contest nor question the August 29, 1997 Order of the graft court. Moreover,
petitioner did not file any reply-affidavit in the re-investigation despite notice.
Re-investigation upon sound discretion of graft court
Furthermore, neither can we fault the graft court in granting the prayed for re-investigation as it can readily be seen from the antecedent
facts that respondent Ilao, Jr. was not given the opportunity to file his Counter-Affidavit. Respondent Ilao, Jr. filed a motion to dismiss
with the Ombudsman but such was not resolved before the Resolution—finding cause to bring respondents to trial—was issued. In fact,
respondent Ilao, Jr.’s motion to dismiss was resolved only through the May 10, 1996 Resolution which recommended the filing of an
Information. Respondent Ilao, Jr.’s Motion for Reconsideration and/or Re-investigation was denied and the Information was filed with
the graft court.
Verily, courts are given wide latitude to accord the accused ample opportunity to present controverting evidence even before trial as
demanded by due process. Thus, we held in Villaflor v. Vivar that "[a] component part of due process in criminal justice, preliminary
investigation is a statutory and substantive right accorded to the accused before trial. To deny their claim to a preliminary investigation
would be to deprive them of the full measure of their right to due process."
39

Second Issue: Agrarian Dispute
Anent the second assignment of error, petitioner contends that DARAB Case No. 552-P’93 is not an agrarian dispute and therefore
outside the jurisdiction of the DARAB. He maintains that respondent Salenga is not an agricultural tenant but a mere watchman of the
fishpond owned by Paciencia Regala. Moreover, petitioner further argues that Rafael Lopez and Lourdes Lapid, the respondents in the
DARAB case, are not the owners of the fishpond.
Nature of the case determined by allegations in the complaint
This argument is likewise bereft of merit. Indeed, as aptly pointed out by respondents and as borne out by the antecedent facts,
respondent Ilao, Jr. could not have acted otherwise. It is a settled rule that jurisdiction over the subject matter is determined by the
allegations of the complaint.
40
The nature of an action is determined by the material averments in the complaint and the character of the
relief sought,
41
not by the defenses asserted in the answer or motion to dismiss.
42
Given that respondent Salenga’s complaint and its
attachment clearly spells out the jurisdictional allegations that he is an agricultural tenant in possession of the fishpond and is about to
be ejected from it, clearly, respondent Ilao, Jr. could not be faulted in assuming jurisdiction as said allegations characterize an
agricultural dispute. Besides, whatever defense asserted in an answer or motion to dismiss is not to be considered in resolving the
issue on jurisdiction as it cannot be made dependent upon the allegations of the defendant.
Issuance of TRO upon the sound discretion of hearing officer
As regards the issuance of the TRO, considering the proper assumption of jurisdiction by respondent Ilao, Jr., it can be readily culled
from the antecedent facts that his issuance of the TRO was a proper exercise of discretion. Firstly, the averments with evidence as to
the existence of the need for the issuance of the restraining order were manifest in respondent Salenga’s Motion to Maintain Status
Quo and to Issue Restraining Order,
43
the attached Police Investigation Report,
44
and Medical Certificate.
45
Secondly, only respondent
Salenga attended the June 22, 1993 hearing despite notice to parties. Hence, Salenga’s motion was not only unopposed but his
evidence adduced ex-parte also adequately supported the issuance of the restraining order.
Premises considered, respondent Ilao, Jr. has correctly assumed jurisdiction and properly exercised his discretion in issuing the TRO—
as respondent Ilao, Jr. aptly maintained that giving due course to the complaint and issuing the TRO do not reflect the final
determination of the merits of the case. Indeed, after hearing the case, respondent Ilao, Jr. rendered a Decision on May 29, 1995
dismissing DARAB Case No. 552-P’93 for lack of merit.
Court will not review prosecutor’s determination of probable cause
Finally, we will not delve into the merits of the Ombudsman’s reversal of its initial finding of probable cause or cause to bring
respondents to trial. Firstly, petitioner has not shown that the Ombudsman committed grave abuse of discretion in rendering such
reversal. Secondly, it is clear from the records that the initial finding embodied in the May 10, 1996 Resolution was arrived at before the
filing of respondent Ilao, Jr.’s Counter-Affidavit. Thirdly, it is the responsibility of the public prosecutor, in this case the Ombudsman, to
uphold the law, to prosecute the guilty, and to protect the innocent. Lastly, the function of determining the existence of probable cause
is proper for the Ombudsman in this case and we will not tread on the realm of this executive function to examine and assess evidence
supplied by the parties, which is supposed to be exercised at the start of criminal proceedings. In Perez v. Hagonoy Rural Bank,
Inc.,
46
as cited in Longos Rural Waterworks and Sanitation Association, Inc. v. Hon. Desierto,
47
we had occasion to rule that we cannot
pass upon the sufficiency or insufficiency of evidence to determine the existence of probable cause.
48

WHEREFORE, the instant petition is DENIED for lack of merit, and the November 26, 1997 Order and the October 30, 1998
Memorandum of the Office of the Special Prosecutor in Criminal Case No. 23661 (OMB-1-94-3425) are hereby AFFIRMED IN TOTO,
with costs against petitioner.
SO ORDERED.




















ANTONIO B. BALTAZAR v. HONORABLE OMBUDSMAN, EULOGIO M. MARIANO, JOSE D. JIMENEZ, JR., TORIBIO E. ILAO,
JR. and ERNESTO R. SALENGA 510 SCRA 74 December 6, 2006 (How subject matter or nature of the action determined)
FACTS:
Paciencia Regala owns a seven (7)-hectare fishpond located at Sasmuan, Pampanga. Her Attorney-in-Fact Faustino R. Mercado
leased the fishpond to Eduardo Lapid for a three (3)-year period. Lessee Eduardo Lapid in turn sub-leased the fishpond to Rafael
Lopez during the last seven (7) months of the original lease. Ernesto Salenga was hired by Eduardo Lapid as fishpond watchman
(bante-encargado). In the sub-lease, Rafael Lopez rehired respondent Salenga. Ernesto Salenga Salenga, sent the demand letter to
Rafael Lopez and Lourdes Lapid for unpaid salaries and non-payment of the 10% share in the harvest. Salenga was promted to file a
Complaint

before the Provincial Agrarian Reform Adjudication Board (PARAB), Region III, San Fernando, Pampanga docketed as
DARAB Case No. 552-P’93 entitled Ernesto R. Salenga v. Rafael L. Lopez and Lourdes L. Lapid for Maintenance of Peaceful
Possession, Collection of Sum of Money and Supervision of Harvest.
Pending resolution of the agrarian case, the instant case was instituted by petitioner Antonio Baltazar, an alleged nephew of Faustino
Mercado, through a Complaint-Affidavit

against private respondents before the Office of the Ombudsman which was docketed as OMB-
1-94-3425 entitled Antonio B. Baltazar v. Eulogio Mariano, Jose Jimenez, Jr., Toribio Ilao, Jr. and Ernesto Salenga for violation of RA
3019. Petitioner maintains that respondent Ilao, Jr. had no jurisdiction to hear and act on DARAB Case No. 552-P’93 filed by
respondent Salenga as there was no tenancy relation between respondent Salenga and Rafael L. Lopez, and thus, the complaint was
dismissible on its face.
ISSUE:
Whether or not the petitioner has legal standing to pursue the instant petition?
Whether or not the Ombudsman likewise erred in reversing his own resolution where it was resolved that accused as
Provincial Agrarian Adjudicator has no jurisdiction over a complaint where there exist no tenancy relationship?
HELD:
The "real-party-in interest" is "the party who stands to be benefited or injured by the judgment in the suit or the party entitled to the
avails of the suit. The Complaint-Affidavit filed before the Office of the Ombudsman, there is no question on his authority and legal
standing. The Ombudsman can act on anonymous complaints and motu proprio inquire into alleged improper official acts or omissions
from whatever source, e.g., a newspaper.
Faustino Mercado, is an agent himself and as such cannot further delegate his agency to another. An agent cannot delegate to another
the same agency. Re-delegation of the agency would be detrimental to the principal as the second agent has no privity of contract with
the former. In the instant case, petitioner has no privity of contract with Paciencia Regala, owner of the fishpond and principal of
Faustino Mercado.
The facts clearly show that it was not the Ombudsman through the OSP who allowed respondent Ilao, Jr. to submit his Counter-
Affidavit. It was the Sandiganbayan who granted the prayed for re-investigation and ordered the OSP to conduct the re-investigation .
The OSP simply followed the graft court’s directive to conduct the re-investigation after the Counter-Affidavit of respondent Ilao, Jr. was
filed. Indeed, petitioner did not contest nor question the August 29, 1997 Order of the graft court. Moreover, petitioner did not file any
reply-affidavit in the re-investigation despite notice.
The nature of the case is determined by the settled rule that jurisdiction over the subject matter is determined by the
allegations of the complaint. The nature of an action is determined by the material averments in the complaint and the
character of the relief sought not by the defenses asserted in the answer or motion to dismiss.
Respondent Salenga’s complaint and its attachment clearly spells out the jurisdictional allegations that he is an agricultural
tenant in possession of the fishpond and is about to be ejected from it, clearly, respondent Ilao, Jr. could not be faulted in
assuming jurisdiction as said allegations characterize an agricultural dispute. Besides, whatever defense asserted in an
answer or motion to dismiss is not to be considered in resolving the issue on jurisdiction as it cannot be made dependent
upon the allegations of the defendant.
WHEREFORE, the instant petition is DENIED for lack of merit, and the Order and the October 30, 1998 Memorandum of the Office of
the Special Prosecutor in Criminal Case No. 23661 (OMB-1-94-3425) are hereby AFFIRMED IN TOTO, with costs against petitioner.







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