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 is 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 right 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 Fostervs. 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.

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, vs. FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.

BRIEF BACKGROUND OF THE FACTS: 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.

FACTS: Concepcion and Gerundia both surnamed Rallos were sisters and registered co-owners of a parcel of land in Cebu. They executed a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in their behalf. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia to Felix Go Chan & Sons Realty Corporation. The deed of sale was then registered.

ISSUES:1) Whether sale was valid although it was executed after the death of the principal, Concepcion.2) Whether the sale fall under the exception to the general rule that death extinguishes the authority of the agent3) Whether agent’s knowledge of the principal’s death is a material factor.

Or*** Whether the contention of the CA in holding that there is no provision in the code that whatever done by tan agent having knowledge of the death of principal is void even when there is a third person in good faith.

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

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

ART. 1403. The following contracts are unenforceable, unless they are justified:(1) Those entered into in the name of another person by one who hi - been given no authority or legal representation or who has acted beyond his powers;

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

Agency is basically personal representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself". As to the Extinguishment of Agency:Generally: among others1, By the death, civil interdiction, insanity or insolvency of the principal or of the agent

- Death of the principal effects instantaneous and absolute revocation of the authority of the agentExceptions:

(Art. 1930) 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) agent acted without knowledge of the pricipal’s death and that the third person was in good faith (both these reqs should be present)

Applying these principles in this case, the Court ruled:1) SALE WAS VOID.

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 (Art. 1317 of the Civil Code). 

Simon’s authority as agent was extinguished upon Concepcion’s death

2) The sale did not fall under the exceptions to the general rule that death ipso jure extinguishes the authority of the agent

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. It also follows that absence of good faith on the part of the respondent in this case should therefore not be treated parallel to that of an innocent purchaser for a value of a land.

3) YES, agent’s knowledge of principal’s death is material.Respondent asserts 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

1

Court says: this contention ignored the existence of the general rule enunciated in Article 1919 that the death of the principal extinguishes the agency. Article 1931, being an exception to the general rule, is to be strictly construed.

**** 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.

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.

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner, vs.COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.

G.R. No. 76933             May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner, vs.COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, INCORPORATED,respondents.

Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives, Inc.Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc

PADILLA, J.:

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.

x x x           x x x          x x x

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.

x x x           x x x          x x x

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.

x x x           x x x          x x x

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.

x x x           x x x          x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing to promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of US $254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold originally by Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against Orient Air with the Court of First Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining 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 itssub-agents. (Emphasis supplied)

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

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

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

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

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

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

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

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

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

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

It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the trial court.1âwphi1We refer particularly to the lower court's decision ordering American Air to "reinstate defendant as its general sales agent for passenger transportation in the Philippines in accordance with said GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to extend its personality to Orient Air. Such would be violative of the principles and essence of agency, defined by law as a contract whereby "a person binds himself to render some service or to do something in representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE LATTER . 17 (emphasis supplied) In an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court. The Agreement itself between the parties states that "either party may terminate the Agreementwithout cause by giving the other 30 days' notice by letter, telegram or cable." (emphasis supplied) We, therefore, set aside the portion of the ruling of the respondent appellate court reinstating Orient Air as general sales agent of American Air.

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

SO ORDERED.

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,  vs. ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.

FACTS: The Eternit Corporation (EC) is a corporation registered in Philippine laws engaged in the manufacture of roofing materials and pipe products. Jack Glanville, an Australian citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of ESAC.

ESAC wanted to stop its operations in the country and decided to sell their properties. They engaged the services of realtor/broker Lauro G. Marquez. Consequently, Marquez and Litonjua have agreed on the sale of the lot. The Litonjua brothers deposited the payment. Meanwhile, the political situation in the Philippines had improved (Cory Aquino as president). Marquez received a telephone call from Glanville, advising that the sale would no longer proceed. Glanville followed it up with a Letter confirming that he had been instructed by his principal to inform Marquez that the sale would no longer proceed.

The Litonjuas then filed a complaint for specific performance and damages against EC and the Far East Bank & Trust Company, and ESAC in the RTC. The trial court rendered judgment in favor of defendants, declaring that since the authority of the agents/realtors was not in writing, the sale is void and not merely unenforceable, and as such, could not have been ratified by the principal. They could not assume that defendants had agreed to sell the property without a clear authorization from the corporation concerned, that is, through resolutions of the Board of Directors and stockholders. The trial court also pointed out that the supposed sale involves substantially all the assets of defendant EC which would result in the eventual total cessation of its operation.

The Litonjuas appealed the decision to the CA, alleging that Marquez acted merely as a broker or go-between and not as agent of the corporation; hence, it was not necessary for him to be empowered as such by any written authority. In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were Glanville and Delsaux authorized by its board of directors to offer the property for sale.

The CA rendered judgment affirming the decision of the RTC. The Litonjuas filed a motion for reconsideration, which was also denied by the appellate court.

Petitioners asserted that what is important and decisive was that Marquez was able to communicate both the offer and counter-offer and their acceptance of respondent EC’s counter-offer, resulting in a perfected contract of sale. Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who was the President and General Manager of respondent EC, and Delsaux, who was the Managing Director for ESAC Asia, had the necessary authority to sell the subject property or, at least, had been allowed by respondent EC to hold themselves out in the public as having the power to sell the subject properties. Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly permitted by respondent EC to sell the properties within the scope of an apparent authority.

ISSUES: 1. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as its agents relative to the sale of the properties of respondent EC in the absence of express written terms thereof.

2. Whether an agency by estoppel was created.

RULING: 1. It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove that their counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It must be stressed that when specific performance is sought of a contract made with an agent, the agency must be established by clear, certain and specific proof. Under Sec. 23 of the Corporation Code, a corporation has a separate and distinct personality from its stockholders and is not affected by transactions of the latter. Under Sec. 36 of the same code, it authorizes the corporation to dispose of their properties. However, these acts such as offering a property for sale and accepting a counter-offer may not be done without the authority of corporate by-laws or specific acts of the board of directors. Absent this authority, the rule is that the declaration of one director conferring such is not binding on the corporation. Any act of an agent of a corporation must be ratified by the Board of Directors, therefore it has to have written authority. Written authority is also necessary because in this case, real rights over immoveable property are conveyed, with which agency is required to be in writing or else the sale is void.

Facts also showed that the final offer made by Delsaux was only from the Belgian/Swiss component but not from the management or Board of Directors of ESAC, thus it is not binding upon EC because they were officers of ESAC but not EC. Though it is true that they owned majority of the stocks of EC, the Court held that even if it owned all of the stocks, it does not merge them into one corporation. Thus, they could not act to bind EC without a Board resolution from the Board of Directors of EC itself. A Board resolution is not a mere formality but is a condition sine qua non to the validity of the sale.

The Litonjuas had the responsibility to exercise due diligence in confirming the authority of the agent. The rule is that anyone who deals with an assumed does so at his own peril.

Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are not binding on the corporation.29

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be with the board of directors through its officers and agents as authorized by a board resolution or by its by-laws.30 An unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a corporation by a person purporting to be an agent thereof but without written authority from the corporation is null and void. The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority.31

It bears stressing that 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.

2. There was no agency by estoppels. The following are the requisites for agency by estoppel: (1) the principal manifested a representation of the agent’s authority or knowingly allowed the agent to assume such authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon such representation, such third person has changed his position to his detriment. Proof of reliance on such representation was lacking in this case because in the communications between the Litonjuas and Glanville, Delsaux and Marquez, the latter parties clearly stated that they were acting in the behalf of ESAC only. It cannot be said also that EC ratified the acts of the latter parties. There is no showing that the communications between them were forwarded to EC’s Board of Directors for ratification.

JOCELYN B. DOLES, Petitioner,vs.MA. AURA TINA ANGELES, Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning the Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed the Decision dated July 29, 1998 of the

Regional Trial Court (RTC), Branch 21, City of Manila; and the CA Resolution2 dated August 6, 2001 which denied petitioner’s Motion for Reconsideration.

The antecedents of the case follow:

On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 97-82716. Respondent alleged that petitioner was indebted to the former in the concept of a personal loan amounting to P405,430.00 representing the principal amount and interest; that on October 5, 1996, by virtue of a "Deed of Absolute Sale",3 petitioner, as seller, ceded to respondent, as buyer, a parcel of land, as well as the improvements thereon, with an area of 42 square meters, covered by Transfer Certificate of Title No. 382532,4 and located at a subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite, in order to satisfy her personal loan with respondent; that this property was mortgaged to National Home Mortgage Finance Corporation (NHMFC) to secure petitioner’s loan in the sum ofP337,050.00 with that entity; that as a condition for the foregoing sale, respondent shall assume the undue balance of the mortgage and pay the monthly amortization of P4,748.11 for the remainder of the 25 years which began on September 3, 1994; that the property was at that time being occupied by a tenant paying a monthly rent ofP3,000.00; that upon verification with the NHMFC, respondent learned that petitioner had incurred arrearages amounting to P26,744.09, inclusive of penalties and interest; that upon informing the petitioner of her arrears, petitioner denied that she incurred them and refused to pay the same; that despite repeated demand, petitioner refused to cooperate with respondent to execute the necessary documents and other formalities required by the NHMFC to effect the transfer of the title over the property; that petitioner collected rent over the property for the month of January 1997 and refused to remit the proceeds to respondent; and that respondent suffered damages as a result and was forced to litigate.

Petitioner, then defendant, while admitting some allegations in the Complaint, denied that she borrowed money from respondent, and averred that from June to September 1995, she referred her friends to respondent whom she knew to be engaged in the business of lending money in exchange for personal checks through her capitalist Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed money from respondent and issued personal checks in payment of the loan; that the checks bounced for insufficiency of funds; that despite her efforts to assist respondent to collect from the borrowers, she could no longer locate them; that, because of this, respondent became furious and threatened petitioner that if the accounts were not settled, a criminal case will be filed against her; that she was forced to issue eight checks amounting to P350,000 to answer for the bounced checks of the borrowers she referred; that prior to the issuance of the checks she informed respondent that they were not sufficiently funded but the latter nonetheless deposited the checks and for which reason they were subsequently dishonored; that respondent then threatened to initiate a criminal case against her for violation of Batas Pambansa Blg. 22; that she was forced by respondent to execute an "Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid criminal prosecution; that the said deed had no valid consideration; that she did not appear before a notary public; that the Community Tax Certificate number on the deed was not hers and for which respondent may be prosecuted for falsification and perjury; and that she suffered damages and lost rental as a result.

The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid; second; if valid, whether petitioner is obliged to sign and execute the necessary documents to effect the transfer of her rights over the property to the respondent; and third, whether petitioner is liable for damages.

On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:

WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint for insufficiency of evidence. With costs against plaintiff.

SO ORDERED.

The RTC held that the sale was void for lack of cause or consideration:5

Plaintiff Angeles’ admission that the borrowers are the friends of defendant Doles and further admission that the checks issued by these borrowers in payment of the loan obligation negates [sic] the cause or consideration of the contract of sale executed by and between plaintiff and defendant. Moreover, the property is not solely owned by defendant as appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532 (Annex A, Complaint), thus:

"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of Teodorico Doles on the parcel of land described in this certificate of title by virtue of the special power of attorney to mortgage, executed before the notary public, etc."

The rule under the Civil Code is that contracts without a cause or consideration produce no effect whatsoever. (Art. 1352, Civil Code).

Respondent appealed to the CA. In her appeal brief, respondent interposed her sole assignment of error:

THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF EVIDENCE.6

On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:

WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new one is entered ordering defendant-appellee to execute all necessary documents to effect transfer of subject property to plaintiff-appellant with the arrearages of the former’s loan with the NHMFC, at the latter’s expense. No costs.

SO ORDERED.

The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale was supported by a valid consideration, which is the sum of money petitioner owed respondent amounting to P405,430.00, representing both principal and interest.

The CA took into account the following circumstances in their entirety: the supposed friends of petitioner never presented themselves to respondent and that all transactions were made by and between petitioner and respondent;7 that the money borrowed was deposited with the bank account of the petitioner, while payments made for the loan were deposited by the latter to respondent’s bank account;8 that petitioner herself admitted in open court that she was "re-lending" the money loaned from respondent to other individuals for profit;9 and that the documentary evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the respondent.10

Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate consent, since the same is considered just or legal if made to enforce one’s claim through competent authority under Article 133511 of the Civil Code;12 that with respect to the arrearages of petitioner on her monthly amortization with the NHMFC in the sum of P26,744.09, the same shall be deemed part of the balance of petitioner’s loan with the NHMFC which respondent agreed to assume; and that the amount of P3,000.00 representing the rental for January 1997 supposedly collected by petitioner, as well as the claim for damages and attorney’s fees, is denied for insufficiency of evidence.13

On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that respondent categorically admitted in open court that she acted only as agent or representative of Arsenio Pua, the principal financier and, hence, she had no legal capacity to sue petitioner; and that the CA failed to consider the fact that petitioner’s father, who co-owned the subject property, was not impleaded as a defendant nor was he indebted to the respondent and, hence, she cannot be made to sign the documents to effect the transfer of ownership over the entire property.

On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the foregoing matters had already been passed upon.

On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001, petitioner filed the present Petition and raised the following issues:

I.

WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE RESPONDENT.

II.

WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE DEBTOR.

III.

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

Although, as a rule, it is not the business of this Court to review the findings of fact made by the lower courts, jurisprudence has recognized several exceptions, at least three of which are present in the instant case, namely: when the judgment is based on a misapprehension of facts; when the findings of facts of the courts a quo are conflicting; and when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, could justify a different conclusion.15 To arrive at a proper judgment, therefore, the Court finds it necessary to re-examine the evidence presented by the contending parties during the trial of the case.

The Petition is meritorious.

The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration.

1. Petitioner argues that since she is merely the agent or representative of the alleged debtors, then she is not a party to the loan; and that the Deed of Sale executed between her and the respondent in their own names, which was predicated on that pre-existing debt, is void for lack of consideration.

Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain in money16 and that this sum indisputably pertains to the debt in issue. This Court has consistently held that a contract of sale is null and void and produces no effect whatsoever where the same is without cause or consideration.17 The question that has to be resolved for the moment is whether this debt can be considered as a valid cause or consideration for the sale.

To restate, the CA cited four instances in the record to support its holding that petitioner "re-lends" the amount borrowed from respondent to her friends: first, the friends of petitioner never presented themselves to respondent and that all transactions were made by and between petitioner and respondent;18 second; the money passed through the bank accounts of petitioner and respondent;19 third, petitioner herself admitted that she was "re-lending" the money loaned to other individuals for profit;20 and fourth, the documentary evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the respondent.21

On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant, during her cross-examination:22

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

This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is representation.25 The question of whether an agency has been created is ordinarily a question which may be established in the same way as any other fact, either by direct or circumstantial evidence. The question is ultimately one of intention.26 Agency may even be implied from the words and conduct of the parties and the circumstances of the particular case.27Though the fact or extent of authority of the agents may not, as a general rule, be established from the declarations of the agents alone, if one professes to act as agent for another, she may be estopped to deny her agency both as against the asserted principal and the third persons interested in the transaction in which he or she is engaged.28

In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that the borrowers are friends of petitioner.

The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the actual borrowers, did not present themselves to [respondent]" as evidence that negates the agency relationship—it is sufficient that petitioner disclosed to respondent that the former was acting in behalf of her principals, her friends whom she referred to respondent. For an agency to arise, it is not necessary that the principal personally encounter the third person with whom the agent interacts. The law in fact contemplates, and to a great degree, impersonal dealings where the principal need not personally know or meet the third person with whom her agent transacts: precisely, the purpose of agency is to extend the personality of the principal through the facility of the agent.29

In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they are representing someone else, and so both of them are estopped to deny the same. It is evident from the record that petitioner merely refers actual borrowers and then collects and disburses the amounts of the loan upon which she received a commission; and that respondent transacts on behalf of her "principal financier", a certain Arsenio Pua. If their respective principals do not actually

and personally know each other, such ignorance does not affect their juridical standing as agents, especially since the very purpose of agency is to extend the personality of the principal through the facility of the agent.

With respect to the admission of petitioner that she is "re-lending" the money loaned from respondent to other individuals for profit, it must be stressed that the manner in which the parties designate the relationship is not controlling. If an act done by one person in behalf of another is in its essential nature one of agency, the former is the agent of the latter notwithstanding he or she is not so called.30 The question is to be determined by the fact that one represents and is acting for another, and if relations exist which will constitute an agency, it will be an agency whether the parties understood the exact nature of the relation or not.31

That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner issued checks in payment of the loan in the name of Pua. If it is true that petitioner was "re-lending", then the checks should have been drawn in her name and not directly paid to Pua.

With respect to the second point, particularly, the finding of the CA that the disbursements and payments for the loan were made through the bank accounts of petitioner and respondent,

suffice it to say that in the normal course of commercial dealings and for reasons of convenience and practical utility it can be reasonably expected that the facilities of the agent, such as a bank account, may be employed, and that a sub-agent be appointed, such as the bank itself, to carry out the task, especially where there is no stipulation to the contrary.32

In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan between their principals. Since the sale is predicated on that loan, then the sale is void for lack of consideration.

2. A further scrutiny of the record shows, however, that the sale might have been backed up by another consideration that is separate and distinct from the debt: respondent averred in her complaint and testified that the parties had agreed that as a condition for the conveyance of the property the respondent shall assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC.33 This Court in the recent past has declared that an assumption of a mortgage debt may constitute a valid consideration for a sale.34

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

In view of these anomalies, the Court cannot entertain the

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

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

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

SO ORDERED.

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,  vs. EDWIN CUIZON and ERWIN CUIZON, Respondents.

FACTS: Eurotech is engaged in the business of importation and distribution of various European industrial equipment. Impact Systems Sales which is a sole proprietorship owned by Erwin Cuizon is one of its customers. Petitioner 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. Respondents, despite the existence of the Deed of Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29. upon learning this, Eurotech made several demands upon Cuizons to pay their obligations. As a result, Cuizons were able to make partial payments to Eurotech. Cuizons’ total obligations stood at P295,000.00. 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: Whether or not Edwin exceeded his authority when he signed the Deed of Assignment thereby binding himself personally to pay the obligations to Eurotech.

RULING: 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.

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. 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 down payment 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

PHILEX MINING CORPORATION, petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, respondent.

D E C I S I O N

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the June 30, 2000 Decision1 of the Court of Appeals in CA-G.R. SP No. 49385, which affirmed the Decision2 of the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is the April 3, 2001 Resolution3 denying the motion for reconsideration.

The facts of the case are as follows:

On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an agreement4 with Baguio Gold Mining Company ("Baguio Gold") for the former to manage and operate the latter’s mining claim, known as the Sto. Nino mine, located in Atok and Tublay, Benguet Province. The parties’ agreement was denominated as "Power of Attorney" and provided for the following terms:

4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available to the MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as from time to time may be required by the MANAGERS within the said 3-year period, for use in the MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS (P11,000,000.00) shall be deemed, for internal audit purposes, as the owner’s account in the Sto. Nino PROJECT. Any part of any income of the PRINCIPAL from the STO. NINO MINE, which is left with the Sto. Nino PROJECT, shall be added to such owner’s account.

5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property to the Sto. Nino PROJECT, in accordance with the following arrangements:

(a) The properties shall be appraised and, together with the cash, shall be carried by the Sto. Nino PROJECT as a special fund to be known as the MANAGERS’ account.

(b) The total of the MANAGERS’ account shall not exceed P11,000,000.00, except with prior approval of the PRINCIPAL; provided, however, that if the compensation of the MANAGERS as herein provided cannot be paid in cash from the Sto. Nino PROJECT, the amount not so paid in cash shall be added to the MANAGERS’ account.

(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT until termination of this Agency.

(d) The MANAGERS’ account shall not accrue interest. Since it is the desire of the PRINCIPAL to extend to the MANAGERS the benefit of subsequent appreciation of property, upon a projected termination of this Agency, the ratio which the MANAGERS’ account has to the owner’s account will be determined, and the corresponding proportion of the entire assets of the STO. NINO MINE, excluding the claims, shall be transferred to the MANAGERS, except that such transferred assets shall not include mine development, roads, buildings, and similar property which will be valueless, or of slight value, to the MANAGERS. The MANAGERS can, on the other hand, require at their option that property originally transferred by them to the Sto. Nino PROJECT be re-transferred to them. Until such assets are transferred to the MANAGERS, this Agency shall remain subsisting.

x x x x

12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto. Nino PROJECT before income tax. It is understood that the MANAGERS shall pay income tax on their compensation, while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino PROJECT after deduction therefrom of the MANAGERS’ compensation.

x x x x

16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the future, may incur other obligations in favor of the MANAGERS. This Power of Attorney has been executed as security for the payment and satisfaction of all such obligations of the PRINCIPAL in favor of the MANAGERS and as a means to fulfill the same. Therefore, this Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS’ account. After all obligations of the PRINCIPAL in favor of the MANAGERS have been paid and satisfied in full, this Agency shall be revocable by the PRINCIPAL upon 36-month notice to the MANAGERS.

17. Notwithstanding any agreement or understanding between the PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may withdraw from this Agency by giving 6-month notice to the PRINCIPAL. The MANAGERS shall not in any manner be held liable to the PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d) hereof shall be operative in case of the MANAGERS’ withdrawal.

x x x x5

In the course of managing and operating the project, Philex Mining made advances of cash and property in accordance with paragraph 5 of the agreement. However, the mine suffered continuing losses over the years which resulted to petitioner’s withdrawal as manager of the mine on January 28, 1982 and in the eventual cessation of mine operations on February 20, 1982.6

Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in Payment"7 wherein Baguio Gold admitted an indebtedness to petitioner in the amount of P179,394,000.00 and agreed to pay the same in three segments by first assigning Baguio Gold’s tangible assets to petitioner, transferring to the latter Baguio Gold’s equitable title in its Philodrill assets and finally settling the remaining liability through properties that Baguio Gold may acquire in the future.

On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in Payment"8 where the parties determined that Baguio Gold’s indebtedness to petitioner actually amounted to P259,137,245.00, which sum included liabilities of Baguio Gold to other creditors that petitioner had assumed as guarantor. These liabilities pertained to long-term loans amounting to US$11,000,000.00 contracted by Baguio Gold from the Bank of America NT & SA and Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two segments by first assigning its tangible assets for P127,838,051.00 and then transferring its equitable title in its Philodrill assets for P16,302,426.00. The parties then ascertained that Baguio Gold had a remaining outstanding indebtedness to petitioner in the amount of P114,996,768.00.

Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding indebtedness of Baguio Gold by charging P112,136,000.00 to allowances and reserves that were set up in 1981 and P2,860,768.00 to the 1982 operations.

In its 1982 annual income tax return, petitioner deducted from its gross income the amount of P112,136,000.00 as "loss on settlement of receivables from Baguio Gold against reserves and allowances."9 However, the Bureau of Internal Revenue (BIR) disallowed the amount as deduction for bad debt and assessed petitioner a deficiency income tax of P62,811,161.39.

Petitioner protested before the BIR arguing that the deduction must be allowed since all requisites for a bad debt deduction were satisfied, to wit: (a) there was a valid and existing debt; (b) the debt was ascertained to be worthless; and (c) it was charged off within the taxable year when it was determined to be worthless.

Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio Gold. The bad debt deduction represented advances made by petitioner which, pursuant to the management contract, formed part of Baguio Gold’s "pecuniary obligations" to petitioner. It also included payments made by petitioner as guarantor of Baguio Gold’s long-term loans which legally entitled petitioner to be subrogated to the rights of the original creditor.

Petitioner also asserted that due to Baguio Gold’s irreversible losses, it became evident that it would not be able to recover the advances and payments it had made in behalf of Baguio Gold. For a debt to be considered worthless, petitioner claimed that it was neither required to institute a judicial action for collection against the debtor nor to sell or dispose of collateral assets in satisfaction of the debt. It is enough that a taxpayer exerted diligent efforts to enforce collection and exhausted all reasonable means to collect.

On October 28, 1994, the BIR denied petitioner’s protest for lack of legal and factual basis. It held that the alleged debt was not ascertained to be worthless since Baguio Gold remained existing and had not filed a petition for bankruptcy; and that the deduction did not consist of a valid and subsisting debt considering that, under the management contract, petitioner was to be paid fifty percent (50%) of the project’s net profit.10

Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:

WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of merit. The assessment in question, viz: FAS-1-82-88-003067 for deficiency income tax in the amount of P62,811,161.39 is hereby AFFIRMED.

ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent Commissioner of Internal Revenue the amount of P62,811,161.39, plus, 20% delinquency interest due computed from February 10, 1995, which is the date after the 20-day grace period given by the respondent within which petitioner has to pay the deficiency amount x x x up to actual date of payment.

SO ORDERED.11

The CTA rejected petitioner’s assertion that the advances it made for the Sto. Nino mine were in the nature of a loan. It instead characterized the advances as petitioner’s investment in a partnership with Baguio Gold for the development and exploitation of the Sto. Nino mine. The CTA held that the "Power of Attorney" executed by petitioner and Baguio Gold was actually a partnership agreement. Since the advanced amount partook of the nature of an investment, it could not be deducted as a bad debt from petitioner’s gross income.

The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of Baguio Gold could not be allowed as a bad debt deduction. At the time the payments were made, Baguio Gold was not in default since its loans were not yet due and demandable. What petitioner did was to pre-pay the loans as evidenced by the notice sent by Bank of America showing that it was merely demanding payment of the installment and interests due. Moreover, Citibank imposed and collected a "pre-termination penalty" for the pre-payment.

The Court of Appeals affirmed the decision of the CTA.12 Hence, upon denial of its motion for reconsideration,13petitioner took this recourse under Rule 45 of the Rules of Court, alleging that:

I.

The Court of Appeals erred in construing that the advances made by Philex in the management of the Sto. Nino Mine pursuant to the Power of Attorney partook of the nature of an investment rather than a loan.

II.

The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto. Nino Mine indicates that Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine notwithstanding the clear absence of any intent on the part of Philex and Baguio Gold to form a partnership.

III.

The Court of Appeals erred in relying only on the Power of Attorney and in completely disregarding the Compromise Agreement and the Amended Compromise Agreement when it construed the nature of the advances made by Philex.

IV.

The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts write-off.14

Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we should not only rely on the "Power of Attorney", but also on the subsequent "Compromise with Dation in Payment" and "Amended Compromise with Dation in Payment" that the parties executed in 1982. These documents, allegedly evinced the parties’ intent to treat the advances and payments as a loan and establish a creditor-debtor relationship between them.

The petition lacks merit.

The lower courts correctly held that the "Power of Attorney" is the instrument that is material in determining the true nature of the business relationship between petitioner and Baguio Gold. Before resort may be had to the two compromise agreements, the parties’ contractual intent must first be discovered from the expressed language of the primary contract under which the parties’ business relations were founded. It should be noted that the compromise agreements were mere collateral documents executed by the parties pursuant to the termination of their business relationship created under the "Power of Attorney". On the other hand, it is the latter which established the juridical relation of the parties and defined the parameters of their dealings with one another.

The execution of the two compromise agreements can hardly be considered as a subsequent or contemporaneous act that is reflective of the parties’ true intent. The compromise agreements were executed eleven years after the "Power of Attorney" and merely laid out a plan or procedure by which petitioner could recover the advances and payments it made under the "Power of Attorney". The parties entered into the compromise agreements as a consequence of the dissolution of their business relationship. It did not define that relationship or indicate its real character.

An examination of the "Power of Attorney" reveals that a partnership or joint venture was indeed intended by the parties. Under a contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a

common fund, with the intention of dividing the profits among themselves.15 While a corporation, like petitioner, cannot generally enter into a contract of partnership unless authorized by law or its charter, it has been held that it may enter into a joint venture which is akin to a particular partnership:

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally understood to mean an organization formed for some temporary purpose. x x x It is in fact hardly distinguishable from the partnership, since their elements are similar – community of interest in the business, sharing of profits and losses, and a mutual right of control. x x x The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. x x x This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. x x x It would seem therefore that under Philippine law, a joint venture is a form of partnership and should be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. x x x (Citations omitted) 16

Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties had intended to create a partnership and establish a common fund for the purpose. They also had a joint interest in the profits of the business as shown by a 50-50 sharing in the income of the mine.

Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute money, property and industry to the common fund known as the Sto. Niño mine.17 In this regard, we note that there is a substantive equivalence in the respective contributions of the parties to the development and operation of the mine. Pursuant to paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold were to contribute equally to the joint venture assets under their respective accounts. Baguio Gold would contribute P11M under its owner’s account plus any of its income that is left in the project, in addition to its actual mining claim. Meanwhile, petitioner’s contribution would consist of itsexpertise in the management and operation of mines, as well as the manager’s account which is comprised ofP11M in funds and property and petitioner’s "compensation" as manager that cannot be paid in cash.

However, petitioner asserts that it could not have entered into a partnership agreement with Baguio Gold because it did not "bind" itself to contribute money or property to the project; that under paragraph 5 of the agreement, it was only optional for petitioner to transfer funds or property to the Sto. Niño project "(w)henever the MANAGERS shall deem it necessary and convenient in connection with the MANAGEMENT of the STO. NIÑO MINE."18

The wording of the parties’ agreement as to petitioner’s contribution to the common fund does not detract from the fact that petitioner transferred its funds and property to the project as specified in paragraph 5, thus rendering effective the other stipulations of the contract, particularly paragraph 5(c) which prohibits petitioner from withdrawing the advances until termination of the parties’ business relations. As can be seen, petitioner became bound by its contributions once the transfers were made. The contributions acquired an obligatory nature as soon as petitioner had chosen to exercise its option under paragraph 5.

There is no merit to petitioner’s claim that the prohibition in paragraph 5(c) against withdrawal of advances should not be taken as an indication that it had entered into a partnership with Baguio Gold; that the stipulation only showed that what the parties entered into was actually a contract of agency coupled with an interest which is not revocable at will and not a partnership.

In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due to an interest of a third party that depends upon it, or the mutual interest of both principal and agent.19 In this case, the non-revocation or non-withdrawal under paragraph 5(c) applies to the advances made by petitioner who is supposedly the agent and not the principal under the contract. Thus, it cannot be inferred from the stipulation that the parties’ relation under the agreement is one of agency coupled with an interest and not a partnership.

Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties was one of agency and not a partnership. Although the said provision states that "this Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS’ account," it does not necessarily follow that the parties entered into an agency contract coupled with an interest that cannot be withdrawn by Baguio Gold.

It should be stressed that the main object of the "Power of Attorney" was not to confer a power in favor of petitioner to contract with third persons on behalf of Baguio Gold but to create a business relationship between petitioner and Baguio Gold, in which the former was to manage and operate the latter’s mine through the parties’ mutual contribution of material resources and industry. The essence of an agency, even one that is coupled with interest, is the agent’s ability to represent his principal and bring about business relations between the latter and third persons.20 Where representation for and in behalf of the principal is merely incidental or necessary for the proper discharge of one’s paramount undertaking under a contract, the latter may not necessarily be a contract of agency, but some other agreement depending on the ultimate undertaking of the parties.21

In this case, the totality of the circumstances and the stipulations in the parties’ agreement indubitably lead to the conclusion that a partnership was formed between petitioner and Baguio Gold.

First, it does not appear that Baguio Gold was unconditionally obligated to return the advances made by petitioner under the agreement. Paragraph 5 (d) thereof provides that upon termination of the parties’ business relations, "the ratio which the MANAGER’S account has to the owner’s account will be determined, and the corresponding proportion of the entire assets of the STO. NINO MINE, excluding the claims" shall be transferred to petitioner.22 As pointed out by the Court of Tax Appeals, petitioner was merely entitled to a proportionate return of the mine’s assets upon dissolution of the parties’ business relations. There was nothing in the agreement that would require Baguio Gold to make payments of the advances to petitioner as would be recognized as an item of obligation or "accounts payable" for Baguio Gold.

Thus, the tax court correctly concluded that the agreement provided for a distribution of assets of the Sto. Niño mine upon termination, a provision that is more consistent with a partnership than a creditor-debtor relationship. It should be pointed out that in a contract of loan, a person who receives a loan or money or any fungible thing acquires ownership thereof and is bound to pay the creditor an equal amount of the same kind and quality.23 In this case, however, there was no stipulation for Baguio Gold to actually repay petitioner the cash and property that it had advanced, but only the return of an amount pegged at a ratio which the manager’s account had to the owner’s account.

In this connection, we find no contractual basis for the execution of the two compromise agreements in which Baguio Gold recognized a debt in favor of petitioner, which supposedly arose from the termination of their business relations over the Sto. Nino mine. The "Power of Attorney" clearly provides that petitioner would only be entitled to the return of a proportionate share of the mine assets to be computed at a ratio that the manager’s account had to the owner’s account. Except to provide a basis for claiming the advances as a bad debt deduction, there is no reason for Baguio Gold to hold itself liable to petitioner under the compromise agreements, for any amount over and above the proportion agreed upon in the "Power of Attorney".

Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of millions of pesos to another corporation with neither security, or collateral, nor a specific deed evidencing the terms and conditions of such loans. The parties also did not provide a specific maturity date for the advances to become due and demandable, and the manner of payment was unclear. All these point to the inevitable conclusion that the advances were not loans but capital contributions to a partnership.

The strongest indication that petitioner was a partner in the Sto Niño mine is the fact that it would receive 50% of the net profits as "compensation" under paragraph 12 of the agreement. The entirety of the parties’ contractual stipulations simply leads to no other conclusion than that petitioner’s "compensation" is actually its share in the income of the joint venture.

Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a share in the profits of a business is prima facie evidence that he is a partner in the business." Petitioner asserts, however, that no such inference can be drawn against it since its share in the profits of the Sto Niño project was in the nature of compensation or "wages of an employee", under the exception provided in Article 1769 (4) (b).24

On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold who will be paid "wages" pursuant to an employer-employee relationship. To begin with, petitioner was the manager of the project and had put substantial sums into the venture in order to ensure its viability and profitability. By pegging its compensation to profits, petitioner also stood not to be remunerated in case the mine had no income. It is hard to believe that petitioner would take the risk of not being paid at all for its services, if it were truly just an ordinary employee.

Consequently, we find that petitioner’s "compensation" under paragraph 12 of the agreement actually constitutes its share in the net profits of the partnership. Indeed, petitioner would not be entitled to an equal share in the income of the mine if it were just an employee of Baguio Gold.25 It is not surprising that petitioner was to receive a 50% share in the net profits, considering that the "Power of Attorney" also provided for an almost equal contribution of the parties to the St. Nino mine. The

"compensation" agreed upon only serves to reinforce the notion that the parties’ relations were indeed of partners and not employer-employee.

All told, the lower courts did not err in treating petitioner’s advances as investments in a partnership known as the Sto. Nino mine. The advances were not "debts" of Baguio Gold to petitioner inasmuch as the latter was under no unconditional obligation to return the same to the former under the "Power of Attorney". As for the amounts that petitioner paid as guarantor to Baguio Gold’s creditors, we find no reason to depart from the tax court’s factual finding that Baguio Gold’s debts were not yet due and demandable at the time that petitioner paid the same. Verily, petitioner pre-paid Baguio Gold’s outstanding loans to its bank creditors and this conclusion is supported by the evidence on record.26

In sum, petitioner cannot claim the advances as a bad debt deduction from its gross income. Deductions for income tax purposes partake of the nature of tax exemptions and are strictly construed against the taxpayer, who must prove by convincing evidence that he is entitled to the deduction claimed.27 In this case, petitioner failed to substantiate its assertion that the advances were subsisting debts of Baguio Gold that could be deducted from its gross income. Consequently, it could not claim the advances as a valid bad debt deduction.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 49385 dated June 30, 2000, which affirmed the decision of the Court of Tax Appeals in C.T.A. Case No. 5200 is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY the deficiency tax on its 1982 income in the amount of P62,811,161.31, with 20% delinquency interest computed from February 10, 1995, which is the due date given for the payment of the deficiency income tax, up to the actual date of payment.

SO ORDERED.

MANILA MEMORIAL PARK CEMETERY, INC., petitioner, vs. PEDRO L. LINSANGAN, respondent.

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

Later on, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for reasons known only to him. For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a Complaint for Breach of Contract and Damages against them.

MMPCI alleged that Contract No. 28660 was cancelled conformably with the terms of the contract because of non-payment of arrearages. MMPCI stated that Baluyot was not an agent but an independent contractor, and as such was not authorized to represent MMPCI or to use its name except as to the extent expressly stated in the Agency Manager Agreement. Moreover, MMPCI was not aware of the arrangements entered into by Atty. Linsangan and Baluyot, as it in fact received a down payment and monthly installments as indicated in the contract.

The trial court held MMPCI and Baluyot jointly and severally liable. The Court of Appeals affirmed the decision of the trial court

ISSUES: 1. Was there a contract of agency between Baluyot and MMPCI?2. Whether or not MMPCI should be liable for Baluyot’s act?

RULING: 1. YES. 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 (See elements of Agency).

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

it in her dealings with its clients/prospective buyers. The terms of the offer to purchase, therefore, are contained in such forms and, when signed by the buyer and an authorized officer of MMPCI, becomes binding on both parties.

2. NO. Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principal's ratification.

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

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

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

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

Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf by another without authority. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority. No ratification can be implied in the instant case.

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

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

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

JOSE BORDADOR and LYDIA BORDADOR, petitioners, vs. BRIGIDA D. LUZ, ERNESTO M. LUZ and NARCISO DEGANOS, respondents.

D E C I S I O N

REGALADO, J.:

In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in CA-G.R. CV No. 49175 affirming the adjudication of the Regional Trial Court of Malolos, Bulacan which found private respondent Narciso Deganos liable to petitioners for actual damages, but absolved respondent spouses Brigida D. Luz and Ernesto M. Luz of liability. Petitioners likewise belabor the subsequent resolution of the Court of Appeals which denied their motion for reconsideration of its challenged decision.

Petitioners were engaged in the business of purchase and sale of jewelry and respondent Brigida D. Luz, also known as Aida D. Luz, was their regular customer. On several occasions during the period from April 27, 1987 to September 4, 1987, respondent Narciso Deganos, the brother of Brigida D. Luz, received several pieces of gold and jewelry from petitioners amounting to P382,816.00. [1] These items and their prices were indicated in seventeen receipts covering the same. Eleven of the receipts stated that they were received for a certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated that they were received for Brigida D. Luz. [2]

Deganos was supposed to sell the items at a profit and thereafter remit the proceeds and return the unsold items to petitioners.Deganos remitted only the sum of P53,207.00. He neither paid the balance of the sales proceeds, nor did he return any unsold item to petitioners. By January 1990, the total of his unpaid account to petitioners, including interest, reached the sum of P725,463.98. [3]Petitioners eventually filed a complaint in the barangay court against Deganos to recover said amount.

In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case, appeared as a witness for Deganos and ultimately, she and her husband, together with Deganos, signed a compromise agreement with petitioners. In that compromise agreement, Deganos obligated himself to pay petitioners, on installment basis, the balance of his account plus interest thereon.However, he failed to comply with his aforestated undertakings.

On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial Court of Malolos, Bulacan against Deganos and Brigida D. Luz for recovery of a sum of money and damages, with an application for preliminary attachment.[4] Ernesto Luz was impleaded therein as the spouse of Brigida.

Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with estafa[5] in the Regional Trial Court of Malolos, Bulacan, which was docketed as Criminal Case No. 785-M-94. That criminal case appears to be still pending in said trial court.

During the trial of the civil case, petitioners claimed that Deganos acted as the agent of Brigida D. Luz when he received the subject items of jewelry and, because he failed to pay for the same, Brigida, as principal, and her spouse are solidarily liable with him therefor.

On the other hand, while Deganos admitted that he had an unpaid obligation to petitioners, he claimed that the same was only in the sum of P382,816.00 and not P725,463.98. He further asserted that it was he alone who was involved in the transaction with the petitioners; that he neither acted as agent for nor was he authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that six of the receipts indicated that the items were received by him for the latter. He further claimed that he never delivered any of the items he received from petitioners to Brigida.

Brigida, on her part, denied that she had anything to do with the transactions between petitioners and Deganos. She claimed that she never authorized Deganos to receive any item of jewelry in her behalf and, for that matter, neither did she actually receive any of the articles in question.

After trial, the court below found that only Deganos was liable to petitioners for the amount and damages claimed. It held that while Brigida D. Luz did have transactions with petitioners in the past, the items involved were already paid for and all that Brigida owed petitioners was the sum of P21,483.00 representing interest on the principal account which she had previously paid for.[6]

The trial court also found that it was petitioner Lydia Bordador who indicated in the receipts that the items were received by Deganos for Evelyn Aquino and Brigida D. Luz. [7] Said court was persuaded that Brigida D. Luz was behind Deganos, but because there was no memorandum to this effect, the agreement between the parties was unenforceable under the Statute of Frauds. [8] Absent the required memorandum or any written document connecting the respondent Luz spouses with the subject receipts, or authorizing Deganos to act on their behalf, the alleged agreement between petitioners and Brigida D. Luz was unenforceable.

Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest thereon from June 25, 1990, and attorneys fees. Brigida D. Luz was ordered to pay P21,483.00 representing the interest on her own personal loan. She and her co-defendant spouse were absolved from any other or further liability. [9]

As stated at the outset, petitioners appealed the judgment of the court a quo to the Court of Appeals which affirmed said judgment. [10] The motion for reconsideration filed by petitioners was subsequently dismissed, [11] hence the present recourse to this Court.

The primary issue in the instant petition is whether or not herein respondent spouses are liable to petitioners for the latters claim for money and damages in the sum of P725,463.98, plus interests and attorneys fees, despite the fact that the evidence does not show that they signed any of the subject receipts or authorized Deganos to receive the items of jewelry on their behalf.

Petitioners argue that the Court of Appeals erred in adopting the findings of the court a quo that respondent spouses are not liable to them, as said conclusion of the trial court is contradicted by the finding of fact of the appellate court that (Deganos) acted as agent of his sister (Brigida Luz). [12] In support of this contention, petitioners quoted several letters sent to them by Brigida D. Luz wherein the latter acknowledged her obligation to petitioners and requested for more time to fulfill the same. They likewise aver that Brigida testified in the trial court that Deganos took some gold articles from petitioners and delivered the same to her.

Both the Court of Appeals and the trial court, however, found as a fact that the aforementioned letters concerned the previous obligations of Brigida to petitioners, and had nothing to do with the money sought to be recovered in the instant case. Such concurrent factual findings are entitled to great weight, hence, petitioners cannot plausibly claim in this appellate review that the letters were in the nature of acknowledgments by Brigida that she was the principal of Deganos in the subject transactions.

On the other hand, with regard to the testimony of Brigida admitting delivery of the gold to her, there is no showing whatsoever that her statement referred to the items which are the subject matter of this case. It cannot, therefore, be validly said that she admitted her liability regarding the same.

Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him with apparent authority as her agent and held him out to the public as such, hence Brigida can not be permitted to deny said authority to innocent third parties who dealt with Deganos under such belief. [13] Petitioners further represent that the Court of Appeals recognized in its decision that Deganos was an agent of Brigida.[14]

The evidence does not support the theory of petitioners that Deganos was an agent of Brigida D. Luz and that the latter should consequently be held solidarily liable with Deganos in his obligation to petitioners. While the quoted statement in the findings of fact of the assailed appellate decision mentioned that Deganos ostensibly acted as an agent of Brigida, the actual conclusion and ruling of the Court of Appeals categorically stated that, (Brigida Luz) never authorized her brother (Deganos) to act for and in her behalf in any transaction with Petitioners x x x. [15] It is clear, therefore, that even assuming arguendo that Deganos acted as an agent of Brigida, the latter never authorized him to act on her behalf with regard to the transactions subject of this case.

The Civil Code provides:

Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.

The basis for agency is representation. Here, there is no showing that Brigida consented to the acts of Deganos or authorized him to act on her behalf, much less with respect to the particular transactions involved. Petitioners attempt to foist liability on respondent spouses through the supposed agency relation with Deganos is groundless and ill-advised.

Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once or twice but on at least six occasions as evidenced by six receipts, several pieces of jewelry of substantial value without requiring a written authorization from his alleged principal. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. [16]

The records show that neither an express nor an implied agency was proven to have existed between Deganos and Brigida D. Luz.Evidently, petitioners, who were negligent in their transactions with Deganos, cannot seek relief from the effects of their negligence by conjuring a supposed agency relation between the two respondents where no evidence supports such claim.

Petitioners next allege that the Court of Appeals erred in ignoring the fact that the decision of the court below, which it affirmed, is null and void as it contradicted its ruling in CA-G.R. SP No. 39445 holding that there is sufficient evidence/proof against Brigida D. Luz and Deganos for estafa in the pending criminal case. They further aver that said appellate court erred in ruling against them in this civil action since the same would result in an inevitable conflict of decisions should the trial court convict the accused in the criminal case.

By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz and Deganos had filed a demurrer to evidence and a motion for reconsideration in the aforestated criminal case, both of which were denied by the trial court. They then filed a petition for certiorari in the Court of Appeals to set aside the denial of their demurrer and motion for reconsideration but, as just stated, their petition therefor was dismissed.[17]

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

Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that in cases involving alleged fraudulent acts, a civil action for damages, entirely separate and distinct from the criminal action, may be brought by the injured party. Such civil action shall proceed independently of the criminal prosecution and shall require only a preponderance of evidence.

It is worth noting that this civil case was instituted four years before the criminal case for estafa was filed, and that although there was a move to consolidate both cases, the same was denied by the trial court. Consequently, it was the duty of the two branches of the Regional Trial Court concerned to independently proceed with the civil and criminal cases. It will also be observed that a final judgment rendered in a civil action absolving the defendant from civil liability is no bar to a criminal action. [19]

It is clear, therefore, that this civil case may proceed independently of the criminal case [20] especially because while both cases are based on the same facts, the quantum of proof required for holding the parties liable therein differ. Thus, it is improvident of petitioners to claim that the decision and resolution of the Court of Appeals in the present case would be preemptive of the outcome of the criminal case. Their fancied fear of possible conflict between the disposition of this civil case and the outcome of the pending criminal case is illusory.

Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to issue the denial resolution dated August 18, 1997, as the same was tainted with irregularities and badges of fraud perpetrated by its court officers. [21] They charge that said appellate court, through conspiracy and fraud on the part of its officers, gravely abused its discretion in issuing that resolution denying their motion for reconsideration. They claim that said resolution was drafted by the ponente, then signed and issued by the members of the Eleventh Division of said court within one and a half days from the elevation thereof by the division clerk of court to the office of the ponente.

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

These lamentable allegation of irregularities in the Court of Appeals and in the conduct of its officers strikes us as a desperate attempt of petitioners to induce this Court to give credence to their arguments which, as already found by both the trial and

intermediate appellate courts, are devoid of factual and legal substance. The regrettably irresponsible attempt to tarnish the image of the intermediate appellate tribunal and its judicial officers through ad hominem imputations could well be contumacious, but we are inclined to let that pass with a strict admonition that petitioners refrain from indulging in such conduct in litigations.

On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial courts decision. [23] Petitioners moved for reconsideration and the Court of Appeals ordered respondents to file a comment. Respondents filed the same on August 5, 1997 [24]and petitioners filed their reply to said comment on August 15, 1997. [25] The Eleventh Division of said court issued the questioned resolution denying petitioners motion for reconsideration on August 18, 1997.[26]

It is ironic that while some litigants malign the judiciary for being supposedly slothful in disposing of cases, petitioners are making a show of calling out for justice because the Court of Appeals issued a resolution disposing of a case sooner than expected of it. They would even deny the exercise of discretion by the appellate court to prioritize its action on cases in line with the procedure it has adopted in disposing thereof and in declogging its dockets. It is definitely not for the parties to determine and dictate when and how a tribunal should act upon those cases since they are not even aware of the status of the dockets and the internal rules and policies for acting thereon.

The fact that a resolution was issued by said court within a relatively short period of time after the records of the case were elevated to the office of the ponente cannot, by itself, be deemed irregular. There is no showing whatsoever that the resolution was issued without considering the reply filed by petitioners. In fact, that brief pleading filed by petitioners does not exhibit any esoteric or ponderous argument which could not be analyzed within an hour. It is a legal presumption, born of wisdom and experience, that official duty has been regularly performed; [27] that the proceedings of a judicial tribunal are regular and valid, and that judicial acts and duties have been and will be duly and properly performed. [28] The burden of proving irregularity in official conduct is on the part of petitioners and they have utterly failed to do so. It is thus reprehensible for them to cast aspersions on a court of law on the bases of conjectures or surmises, especially since one of the petitioners appears to be a member of the Philippine Bar.

Lastly, petitioners fault the trial courts holding that whatever contract of agency was established between Brigida D. Luz and Narciso Deganos is unenforceable under the Statute of Frauds as that aspect of this case allegedly is not covered thereby. [29] They proceed on the premise that the Statute of Frauds applies only to executory contracts and not to executed or to partially executed ones. From there, they move on to claim that the contract involved in this case was an executed contract as the items had already been delivered by petitioners to Brigida D. Luz, hence, such delivery resulted in the execution of the contract and removed the same from the coverage of the Statute of Frauds.

Petitioners claim is speciously unmeritorious. It should be emphasized that neither the trial court nor the appellate court categorically stated that there was such a contractual relation between these two respondents. The trial court merely said that if there was such an agency existing between them, the same is unenforceable as the contract would fall under the Statute of Frauds which requires the presentation of a note or memorandum thereof in order to be enforceable in court. That was merely a preparatory statement of a principle of law. What was finally proven as a matter of fact is that there was no such contract between Brigida D. Luz and Narciso Deganos, executed or partially executed, and no delivery of any of the items subject of this case was ever made to the former.

WHEREFORE, no error having been committed by the Court of Appeals in affirming the judgment of the court a quo, its challenged decision and resolution are hereby AFFIRMED and the instant petition is DENIED, with double costs against petitioners

SO ORDERED.

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BLAZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs.COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents.

FACTS: Private respondent Overland Express Lines, Inc entered into a Contract of Lease with Option to Buy with petitioners. Private respondent paid P300,000.00 to Alice A. Dizon as partial payment for the leased property. Thereafter, the lease shall be on a per month basis with a monthly rental of P3,000.00. For failure of private respondent to pay the increased rental of P8,000.00 per month effective June 1976, petitioners filed an action for ejectment. Trial court ruled against private respondent. Private respondent filed a petition for Certiorari for lack of jurisdiction.

On review, the Court dismissed the petition in a resolution and likewise denied private respondent's subsequent motion for reconsideration.

Private respondent filed before the RTC an action for Specific Performance and Fixing of Period for Obligation with prayer for the issuance of a restraining order pending hearing on the prayer for a writ of preliminary injunction. (Barred by Res Judicata, writ of preliminary injunction – dissolved). Subsequently, private respondent filed before the RTC a complaint for Annulment of and Relief from Judgment with injunction and damages. The motion for reconsideration of said decision was likewise denied.

On appeal, respondent Court of Appeals rendered a decision upholding the jurisdiction of the City Court of Quezon City in the ejectment case. It also concluded that there was a perfected contract of sale between the parties on the leased premises and that pursuant to the option to buy agreement, private respondent had acquired the rights of a vendee in a contract of sale. Moreover, CA ruled that private respondent can assume that Alice A. Dizon, acting as agent of petitioners, was authorized by them to receive the money in their behalf. The Court of Appeals went further by stating that in fact, what was entered into was a "conditional contract of sale" wherein ownership over the leased property shall not pass to the private respondent until it has fully paid the purchase price. Hence, CA tasked the Private respondents to pay the remaining balance.

ISSUE: Whether there is a perfected contract of sale on the premise that Alice Dizon, acting as an alleged agent received the payment from the private respondents

RULING: NO. There was no perfected contract of sale between petitioners and private respondent. Under Article 1475 of the New Civil Code, "the contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts." Thus, the elements of a contract of sale are consent, object, and price in money or its equivalent. It bears stressing that the absence of any of these essential elements negates the existence of a perfected contract of sale. Sale is a consensual contract and he who alleges it must show its existence by competent proof.

In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous presumption that the said amount tendered would constitute a perfected contract of sale pursuant to the contract of lease with option to buy. There was no valid consent by the petitioners (as co-owners of the leased premises) on the supposed sale entered into by Alice A. Dizon, as petitioners' alleged agent, and private respondent. The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. As provided in Article 1868 of the New Civil Code, there was no showing that petitioners consented to the act of Alice A. Dizon nor authorized her to act on their behalf with regard to her transaction with private respondent. The most prudent thing private respondent should have done was to ascertain the extent of the authority of Alice A. Dizon. Being negligent in this regard, private respondent cannot seek relief on the basis of a supposed agency.

WHEREFORE, the Court of Appeals are hereby REVERSED and SET ASIDE. Petitioners are ordered to REFUND to private respondent the amount of P300,000.00 which they received through Alice A. Dizon on June 20, 1975.

VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents.

D E C I S I O NQUISUMBING, J.:Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the respondent court's resolution of September 30, 1994 modifying said decision. Both decision and resolution amended the judgment dated February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil Case No. 90-118.The facts of this case as found by both the trial and appellate courts are as follows:

St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co., Inc., (VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M, which gave rise to the instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained 50 kilograms and priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated October 16, 1989."[1] The transaction it covered was a "direct sale."[2] The SLDR also contains an additional note which reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)."[3]

On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989 and three checks postdated November 13, 1989 in payment. That same day, CSC wrote petitioner that it had been authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter were a copy of SLDR No. 1214M and a letter of authority from STM authorizing CSC "to withdraw for and in our behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000 bags."[4]

On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also covered SLDR No. 1213.Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to allow further withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a letter dated January 23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it had been refused further withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags had been withdrawn.[5] CSC thus inquired when it would be allowed to withdraw the remaining 23,000 bags.On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar against SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the cleared checks.[6]

On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000 bags.Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared checks had been fully withdrawn and hence, there would be no more deliveries of the commodity to STM's account. Petitioner also noted that CSC had represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under the name of St. Therese Merchandising) and herein petitioner. Since the former could not be served with summons, the case proceeded only against the latter. During the trial, it was discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy who could not be reached through summons.[7] CSC, however, did not bother to pursue its case against her, but instead used her as its witness.CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M. Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that petitioner be ordered to deliver the 23,000 bags covered by SLDR No. 1214M and sought the award of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and litigation expenses.Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags.[8] Since STM had already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with CSC.Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery receipts issued pursuant to a series of transactions entered into between it and STM. The SLDRs prescribed delivery of the sugar to the party specified therein and did not authorize the transfer of said party's rights and interests.Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator to defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good faith. Petitioner then prayed that CSC be ordered to pay it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees.Since no settlement was reached at pre-trial, the trial court heard the case on the merits.As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:

"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against defendant Victorias Milling Company:"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of refined sugar due under SLDR No. 1214;"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as unrealized profits, the amount of P800,000.00 as exemplary damages and the amount of P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of refined sugar in the amount of P13,570,000.00, as attorney's fees, plus the costs."SO ORDERED."[9]

It made the following observations:

"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for the 25,000 bags of sugar bought by her covered by SLDR No. 1213 on the same date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15 inclusive which are post-dated checks dated October 27, 1989 issued by St. Therese Merchandising in favor of Victorias Milling Company at the time it purchased the 50,000 bags of sugar covered by SLDR No. 1213 and 1214. Said checks appear to have been honored and duly credited to the account of Victorias Milling Company because on October 27, 1989 Victorias Milling Company issued official receipt no. 34734 in favor of St. Therese Merchandising for the amount of P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita Ng Go is further supported by Exhibit F, which is a computer printout of defendant Victorias Milling Company showing the quantity and value of the purchases made by St. Therese Merchandising, the SLDR no. issued to cover the purchase, the official reciept no. and the status of payment. It is clear in Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same has been fully paid as indicated by the word 'cleared' appearing under the column of 'status of payment.'"On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the 25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not been fully paid is supported only by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling Company. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren assertion that the purchase price has not been fully paid and is not corroborated by any positive evidence. There is an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by the buyer in payment of the purchased price were dishonored. However, said witness failed to present in Court any dishonored check or any replacement check. Said witness likewise failed to present any bank record showing that the checks issued by the buyer, Teresita Ng Go, in payment of the purchase price of the sugar covered by SLDR No. 1214 were dishonored."[10]

Petitioner appealed the trial courts decision to the Court of Appeals.On appeal, petitioner averred that the dealings between it and STM were part of a series of transactions involving only one account or one general contract of sale. Pursuant to this contract, STM or any of its authorized agents could withdraw bags of sugar only against cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM and since the latter had already withdrawn its full quota of sugar under the said SLDR, CSC was already precluded from seeking delivery of the 23,000 bags of sugar.Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were separate and independent transactions and that the details of the series of purchases were contained in a single statement with a consolidated summary of cleared check payments and sugar stock withdrawals because this a more convenient system than issuing separate statements for each purchase.The appellate court considered the following issues: (a) Whether or not the transaction between petitioner and STM involving SLDR No. 1214M was a separate, independent, and single transaction; (b) Whether or not CSC had the capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M could compel petitioner to deliver 23,000 bags allegedly unwithdrawn.On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's judgment, to wit:

"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-appellant to:"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags of refined sugar, as attorneys fees;"3) Pay the costs of suit."SO ORDERED."[11]

Both parties then seasonably filed separate motions for reconsideration.In its resolution dated September 30, 1994, the appellate court modified its decision to read:

"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-appellant to:"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;"(2) Pay costs of suit."SO ORDERED."[12]

The appellate court explained the rationale for the modification as follows:"There is merit in plaintiff-appellee's position."Exhibit F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12,586 cannot be made the basis for such a finding. The rule is explicit that courts should consider the evidence only for the purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to afford the party against whom the evidence is presented to object thereto if he deems it necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit F' which was offered to prove that checks in the total amount of P15,950,000.00 had been cleared. (Formal Offer of Evidence for Plaintiff, Records p. 58) cannot be used to prove the proposition that 12,586 bags of sugar remained undelivered.

"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect that it had withdrawn only 2,000 bags of sugar from SLDR after which it was not allowed to withdraw anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to defendant-appellant asking the latter to allow it to withdraw the remaining 23,000 bags of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that sugar delivery to the STM corresponded only to the value of cleared checks; and that all sugar corresponded to cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It did not present evidence to show how many bags of sugar had been withdrawn against SLDR No. 1214M, precisely because of its theory that all sales in question were a series of one single transaction and withdrawal of sugar depended on the clearing of checks paid therefor."After a second look at the evidence, We see no reason to overturn the findings of the trial court on this point."[13]

Hence, the instant petition, positing the following errors as grounds for review:"1. The Court of Appeals erred in not holding that STM's and private respondent's specially informing petitioner that respondent was authorized by buyer STM to withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf," (emphasis in the original) private respondent's withdrawing 2,000 bags of sugar for STM, and STM's empowering other persons as its agents to withdraw sugar against the same SLDR No. 1214M, rendered respondent like the other persons, an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA 252, and precluded it from subsequently claiming and proving being an assignee of SLDR No. 1214M and from suing by itself for its enforcement because it was conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431, Civil Code)." 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain relevant and undisputed facts which, had they been considered, would have shown that petitioner was not liable, except for 69 bags of sugar, and which would justify review of its conclusion of facts by this Honorable Court." 3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and 1626 of the Civil Code when it ruled that compensation applied only to credits from one SLDR or contract and not to those from two or more distinct contracts   between the same parties; and erred in denying petitioner's right to setoff all its credits arising prior to notice of assignment from other sales or SLDRs against private respondent's claim as assignee under SLDR No. 1214M, so as to extinguish or reduce its liability to 69 bags, because the law on compensation applies precisely to two or more distinct contracts between   the same parties (emphasis in the original)."4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in Exh. F between petitioner and STM, respondent's admission of its balance, and STM's acquiescence thereto by silence for almost one year did not render Exh. `F' an account stated and its balance binding."5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No. 1214, namely, (a) its subject matter being generic, and (b) the sale of sugar being subject to its availability at the Nawaco warehouse, made the sale conditional and prevented STM or private respondent from acquiring title to the sugar; and the non-availability of sugar freed petitioner from further obligation."6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being against its assignor."[14]

Simply stated, the issues now to be resolved are:(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence, estopped to sue upon SLDR No. 1214M as an assignee.(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on the other SLDRs.(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR No. 1214M was a conditional sale or a contract to sell and hence freed petitioner from further obligations.(4)....Whether or not the Court of Appeals committed an error of law in not applying the "clean hands doctrine" to preclude CSC from seeking judicial relief.

The issues will be discussed in seriatim.Anent the first issue, we find from the records that petitioner raised this issue for the first time on appeal. It is settled that an issue which was not raised during the trial in the court below could not be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play, justice, and due process.[15] Nonetheless, the Court of Appeals opted to address this issue, hence, now a matter for our consideration.Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion of said letter reads:

"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our behalf   (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25, 000 bags."[16]

The Civil Code defines a contract of agency as follows:

"Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter."

It is clear from Article 1868 that the basis of agency is representation.[17] On the part of the principal, there must be an actual intention to appoint[18] or an intention naturally inferable from his words or actions;[19] and on the part of the agent, there must be an intention to accept the appointment and act on it,[20] and in the absence of such intent, there is generally no agency.[21] One factor which most clearly distinguishes agency from other legal concepts is control; one person - the agent - agrees to act under the control or direction of another - the principal. Indeed, the very word "agency" has come to connote control by the principal.

JULIAN T. AGUNA, plaintiff-appellant, vs. ANTONIO LARENA, judicial administrator of the intestate estate of the deceased Mariano Larena, defendant-appellee.Decided under the Old Civil Code as to the rule on CONSDERATION.

FACTS: This action is brought to recover the sum of P29,600 on two causes against the administrator of the estate of the deceased Mariano Larena.

Upon his first cause of action, plaintiff claims the sum of P9,600, the alleged value of services (collecting rentals) rendered by him to said deceased as his agent in charge of the deceased’s houses situated in Manila.

Under the second cause of action, plaintiff alleges that one of the buildings belonging to the deceased and described in his complaint was built by him with the consent of the deceased, and for that reason he is entitled to recover the sum disbursed by him in its construction, amounting to P20,000

Evidence shows that plaintiff rendered services to the deceased, consisting in the collection of the rents due from the tenants occupying the deceased’s houses in Manila and attending to the repair of said houses when necessary. He also took such steps as were necessary to enforce the payment of rents and all that was required to protect the interests of the deceased in connection with said houses

Evidence also shows that at the time he rendered his services, he did not receive any compensation, however it is a fact that during said period, plaintiff occupied a house belonging to the deceased without paying any rent at all.

ISSUE: Was there a valid consideration in the part of the said agent?

RULING: (Old Civil Code) YES. The services rendered by the said agent were deemed by the court to be gratuitous, apart from the occupation of some of the house of the deceased by the plaintiff and his family.’ For if it were true that the agent and the deceased principal had an understanding to the effect that the agent was to receive compensation aside from the use and occupation of the house of the deceased, it cannot be explained how the agent could have rendered services as he did for eight years without receiving and claiming any compensation from the deceased.

If it were decided by the New Civil Code, Compensation is INVALID – Article 1875 Agency is presumed to be for a compensation, unless there is proof to the contrary

DOMINION INSURANCE CORPORATION, petitioner, vs.COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents.

The Case

This is an appeal via certiorari1 from the decision of the Court of Appeals2 affirming the decision3 of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the total amount advanced by Guevarra in the payment of the claims of Dominion’s clients.

The Facts

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

"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money against defendant Dominion Insurance Corporation. Plaintiff sought to recover thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as manager of defendant to satisfy certain claims filed by defendant’s clients.

"In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for P249,672.53, representing premiums that plaintiff allegedly failed to remit.

"On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at the time relevant to the case, was its Regional Manager for Central Luzon area.

"In due time, third-party defendant Austria filed his answer.

"Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial conference was held. The record shows that except for the settings on October 18, 1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon joint request of the parties.

"On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel were present. Despite due notice, defendant and counsel did not appear, although a messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by defendant’s counsel which instructed him to request for postponement. Plaintiff’s counsel objected to the desired postponement and moved to have defendant declared as in default. This was granted by the trial court in the following order:

"ORDER

"When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty. Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain Roy who was requested to ask for postponement, Atty. Maglalang vigorously objected to any postponement on the ground that the note is but a mere scrap of paper and moved that the defendant corporation be declared as in default for its failure to appear in court despite due notice.

"Finding the verbal motion of plaintiff’s counsel to be meritorious and considering that the pre-trial conference has been repeatedly postponed on motion of the defendant Corporation, the defendant Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is allowed to present his evidence on June 16, 1992 at 9:00 o’clock in the morning.

"The plaintiff and his counsel are notified of this order in open court.

"SO ORDERED.

"Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13, 1992. The exhibits were admitted in evidence in an order dated July 17, 1992.

"On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT ORDER OF DEFAULT.’ It alleged therein that the failure of counsel to attend the pre-trial conference was ‘due to an unavoidable circumstance’ and that counsel had sent his representative on that date to inform the trial court of his inability to appear. The Motion was vehemently opposed by plaintiff.

"On August 25, 1992 the trial court denied defendant’s motion for reasons, among others, that it was neither verified nor supported by an affidavit of merit and that it further failed to allege or specify the facts constituting his meritorious defense.

"On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first time counsel revealed to the trial court that the reason for his nonappearance at the pre-trial conference was his illness. An Affidavit of Merit executed by its Executive Vice-President purporting to explain its meritorious defense was attached to the said Motion. Just the same, in an Order dated November 13, 1992, the trial court denied said Motion.

"On November 18, 1992, the court a quo rendered judgment as follows:

"WHEREFORE, premises considered, judgment is hereby rendered ordering:

"1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90 representing the total amount advanced by plaintiff in the payment of the claims of defendant’s clients;

"2. The defendant to pay plaintiff P10,000.00 as and by way of attorney’s fees;

"3. The dismissal of the counter-claim of the defendant and the third-party complaint;

"4. The defendant to pay the costs of suit."4

On December 14, 1992, Dominion appealed the decision to the Court of Appeals.5

On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial court.6 On September 3, 1996, Dominion filed with the Court of Appeals a motion for reconsideration.7 On July 16, 1997, the Court of Appeals denied the motion.8

Hence, this appeal.9

The Issues

The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of amounts he paid out of his personal money in settling the claims of several insured.

The Court's Ruling

The petition is without merit.

By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.10 The basis for agency is representation.11 On the part of the principal, there must be an actual intention to appoint12 or an intention naturally inferrable from his words or actions;13 and on the part of the agent, there must be an intention to accept the appointment and act on it,14 and in the absence of such intent, there is generally no agency.15

A perusal of the Special Power of Attorney16 would show that petitioner (represented by third-party defendant Austria) and respondent Guevarra intended to enter into a principal-agent relationship. Despite the word "special" in the title of the document, the contents reveal that what was constituted was actually a general agency. The terms of the agreement read:

"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,17 a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, xxx represented by the undersigned as Regional Manager, xxx do hereby appoint RSG Guevarra Insurance Services represented by Mr. Rodolfo Guevarra xxx to be our Agency Manager in San Fdo., for our place and stead, to do and perform the following acts and things:

"1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents and sub-agents.

"2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for and on our behalf.

"3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and receive and give effectual receipts and discharge for all money to which the FIRST CONTINENTAL ASSURANCE COMPANY, INC.,18 may hereafter become due, owing payable or transferable to said Corporation by reason of or in connection with the above-mentioned appointment.

"4. To receive notices, summons, and legal processes for and in behalf of the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all legal proceedings against the said Corporation."19 [Emphasis supplied]

The agency comprises all the business of the principal,20 but, couched in general terms, it is limited only to acts of administration.21

A general power permits the agent to do all acts for which the law does not require a special power.22 Thus, the acts enumerated in or similar to those enumerated in the Special Power of Attorney do not require a special power of attorney.

Article 1878, Civil Code, enumerates the instances when a special power of attorney is required. The pertinent portion that applies to this case provides that:

"Article 1878. Special powers of attorney are necessary in the following cases:

"(1) To make such payments as are not usually considered as acts of administration;

"x x x x x x x x x

"(15) Any other act of strict dominion."

The payment of claims is not an act of administration. The settlement of claims is not included among the acts enumerated in the Special Power of Attorney, neither is it of a character similar to the acts enumerated therein. A special power of attorney is required before respondent Guevarra could settle the insurance claims of the insured.

Respondent Guevarra’s authority to settle claims is embodied in the Memorandum of Management Agreement23 dated February 18, 1987 which enumerates the scope of respondent Guevarra’s duties and responsibilities as agency manager for San Fernando, Pampanga, as follows:

"x x x x x x x x x

"1. You are hereby given authority to settle and dispose of all motor car claims in the amount of P5,000.00 with prior approval of the Regional Office.

"2. Full authority is given you on TPPI claims settlement.

" x x x x x x x x x "24

In settling the claims mentioned above, respondent Guevarra’s authority is further limited by the written standard authority to pay,25 which states that the payment shall come from respondent Guevarra’s revolving fund or collection. The authority to pay is worded as follows:

"This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS __________________ (P ) representing the payment on the _________________ claim of assured _______________ under Policy No. ______ in that accident of ___________ at ____________.

"It is further expected, release papers will be signed and authorized by the concerned and attached to the corresponding claim folder after effecting payment of the claim.

"(sgd.) FERNANDO C. AUSTRIARegional Manager"26

[Emphasis supplied]

The instruction of petitioner as the principal could not be any clearer.1âwphi1 Respondent Guevarra was authorized to pay the claim of the insured, but the payment shall come from the revolving fund or collection in his possession.

Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in the settlement of the claims of the insured may not be reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code, which states that:

"The principal is not liable for the expenses incurred by the agent in the following cases:

"(1) If the agent acted in contravention of the principal’s instructions, unless the latter should wish to avail himself of the benefits derived from the contract;

" x x x x x x x x x "

However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right to recover may still be justified under the general law on obligations and contracts.

Article 1236, second paragraph, Civil Code, provides:

"Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor."

In this case, when the risk insured against occurred, petitioner’s liability as insurer arose.1âwphi1 This obligation was extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss and Subrogation Receipts from the insured who were paid.

Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may demand for reimbursement from his principal. To rule otherwise would result in unjust enrichment of petitioner.

The extent to which petitioner was benefited by the settlement of the insurance claims could best be proven by the Release of Claim Loss and Subrogation Receipts27 which were attached to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the total amount of P116,276.95.

However, the amount of the revolving fund/collection that was then in the possession of respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be deducted from the above amount.

The outstanding balance and the production/remittance for the period corresponding to the claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the amount that may be reimbursed to respondent Guevarra.

The Fallo

IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the Court of Appeals28 and that of the Regional Trial Court, Branch 44, San Fernando, Pampanga,29 in that petitioner is ordered to pay respondent Guevarra the amount of P112,672.11 representing the total amount advanced by the latter in the payment of the claims of petitioner’s clients.

No costs in this instance.

SO ORDERED.

INLAND REALTY INVESTMENT SERVICE, INC. and ROMAN M. DE LOS REYES, petitioners, vs. HON. COURT OF APPEALS, GREGORIO ARANETA, INC. and J. ARMANDO EDUQUE, respondents.

FACTS: Private Respondent (Duque), authorized R.M. de los Reyes of Inland Realty Investment Service Inc, to sell on a first come first served basis the total holdings of Gregorio Araneta, Inc. in Architects' [Bldg.], Inc. at the price of P1,500.00 per share for a period of 30 days.

Araneta Counter-proposed to buy 9,800 shares offered at P1,000.00 per share. Duque finds the offer too low and suggested that plaintiffs see if the price and terms of payment can be improved upon by Stanford.

On July 8, 1977, plaintiffs finally sold the 9,800 shares of stock[in] Architects' [Bldg.], Inc. to Stanford Microsystems, Inc. for P13,500,000.00. Plaintiffs demanded formally [from] defendants, through a letter of demand, for payment of their 5% broker['s] commission at P13,500,000.00. This was declined by [defendants] on the ground that the claim has no factual or legal basis. Ascribing merit to private respondents' defense that, after their authority to sell expired thirty (30) days from December 2, 1975, or on January 1, 1976, petitioners abandoned the sales transaction and were no longer privy to the consummation and documentation thereof, the trial court dismissed petitioners' complaint for collection of unpaid broker's commission.

Petitioners appealed, but the Court of Appeals dismissed the appeal.

ISSUE: Whether the petitioners are entitled to commission

RULING: NO. Petitioners did not succeed in outrightly selling said shares under the predetermined terms and conditions set out by Araneta Inc. Petitioners also admit that they could not dissuade Standford from haggling for the price of P1,000 per share with the balance of 50% of the total purchase price payable in five years at 12% per annum. The Court of Appeals cannot be faulted for emphasizing the lapse of more than one (1) year and five (5) months between the expiration of petitioners' authority to sell and the consummation of the sale to Stanford, to be a significant index of petitioners' non-participation in the really critical events leading to the consummation of said sale, i.e., the negotiations to convince Stanford to sell at Araneta, Inc.'s asking price, the finalization of the terms and conditions of the sale, the drafting of the deed of sale, the processing of pertinent documents, and the delivery of the shares of stock to Stanford. Certainly, when the lapse of the period of more than one (1) year and five (5) months between the expiration of petitioners' authority to sell and the consummation of the sale, is viewed in the context of the utter lack of evidence of petitioners' involvement in the negotiations between Araneta, Inc. and

Stanford during that period and in the subsequent processing of the documents pertinent to said sale, it becomes undeniable that the respondent Court of Appeals did not at all err in affirming the trial court's dismissal of petitioners' claim for unpaid brokerage commission.

Petitioners were not the efficient procuring cause in bringing about the sale in question an July 8, 1977 and are, therefore, not entitled to the stipulated broker's commission of "5% on the total price."MANOTOK BROTHERS, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, THE HONORABLE JUDGE OF THE REGIONAL TRIAL COURT OF MANILA (Branch VI), and SALVADOR SALIGUMBA, respondents.

SYLLABUS

1. CIVIL LAW; AGENCY; AGENT'S COMMISSION; WHEN ENTITLED' RULE; APPLICATION IN CASE AT BAR. — In an earlier case, this Court ruled that when there is a close, proximate and causal connection between the agent's efforts and labor and the principal's sale of his property, the agent is entitled to a commission. We agree with respondent Court that the City of Manila ultimately became the purchaser of petitioner's property mainly through the efforts of private respondent. Without discounting the fact that when Municipal Ordinance No. 6603 was signed by the City Mayor on May 17, 1968, private respondent's authority had already expired, it is to be noted that the ordinance was approved on April 26, 1968 when private respondent's authorization was still in force. Moreover, the approval by the City Mayor came only three days after the expiration of private respondent's authority. It is also worth emphasizing that from the records, the only party given a written authority by petitioner to negotiate the sale from July 5, 1966 to May 14, 1968 was private respondent.

D E C I S I O N

CAMPOS, JR., J p:

Petitioner Manotok Brothers., Inc., by way of the instant Petition docketed as G.R. No. 94753 sought relief from this Court's Resolution dated May 3, 1989, which reads:

"G.R. No. 78898 (Manotok Brothers, Inc. vs. Salvador Saligumba and Court of Appeals). — Considering the manifestation of compliance by counsel for petitioner dated April 14, 1989 with the resolution of March 13, 1989 which required the petitioner to locate private respondent and to inform this Court of the present address of said private respondent, the Court Resolved to DISMISS this case, as the issues cannot be joined as private respondent's and counsel's addresses cannot be furnished by the petitioner to this court." 1

In addition, petitioner prayed for the issuance of a preliminary injunction to prevent irreparable injury to itself pending resolution by this Court of its cause. Petitioner likewise urged this Court to hold in contempt private respondent for allegedly adopting sinister ploy to deprive petitioner of its constitutional right to due process.

Acting on said Petition, this Court in a Resolution 2 dated October 1, 1990 set aside the entry of judgment made on May 3, 1989 in case G.R. No. 78898; admitted the amended petition; and issued a temporary restraining order to restrain the execution of the judgment appealed from.

The amended petition 3 admitted, by this Court sought relief from this Court's Resolution abovequoted. In the alternative, petitioner begged leave of court to re-file its Petition for Certiorari 4 (G.R. No. 78898) grounded on the allegation that petitioner was deprived of its opportunity to be heard.

The facts as found by the appellate court, revealed that petitioner herein (then defendant-appellant) is the owner of a certain parcel of land and building which were formerly leased by the City of Manila and used by the Claro M. Recto High School, at M.F. Jhocson Street, Sampaloc Manila.

By means of a letter 5 dated July 5, 1966, petitioner authorized herein private respondent Salvador Saligumba to negotiate with the City of Manila the sale of the aforementioned property for not less than P425,000.00. In the same writing, petitioner agreed to pay private respondent a five percent (5%) commission in the event the sale is finally consummated and paid.

Petitioner, on March 4, 1967, executed another letter 6 extending the authority of private respondent for 120 days. Thereafter, another extension was granted to him for 120 more days, as evidenced by another letter 7 dated June 26, 1967.

Finally, through another letter 8 dated November 16, 1967, the corporation with Rufino Manotok, its President, as signatory, authorized private respondent to finalize and consummate the sale of the property to the City of Manila for not less than P410,000.00. With this letter came another extension of 180 days.

The Municipal Board of the City of Manila eventually, on April 26, 1968, passed Ordinance No. 6603, appropriating the sum of P410,816.00 for the purchase of the property which private respondent was authorized to sell. Said ordinance however, was signed by the City Mayor only on May 17, 1968, one hundred eighty three (183) days after the last letter of authorization.

On January 14, 1969, the parties signed the deed of sale of the subject property. The initial payment of P200,000.00 having been made, the purchase price was fully satisfied with a second payment on April 8, 1969 by a check in the amount of P210,816.00.

Notwithstanding the realization of the sale, private respondent never received any commission, which should have amounted to P20,554.50. This was due to the refusal of petitioner to pay private respondent said amount as the former does not recognize the latter's role as agent in the transaction.

Consequently, on June 29, 1969, private respondent filed a complaint against petitioner, alleging that he had successfully negotiated the sale of the property. He claimed that it was because of his efforts that the Municipal Board of Manila passed Ordinance No. 6603 which appropriated the sum for the payment of the property subject of the sale.

Petitioner claimed otherwise. It denied the claim of private respondent on the following grounds: (1) private respondent would be entitled to a commission only if the sale was consummated and the price paid within the period given in the respective letters of authority; and (2) private respondent was not the person responsible for the negotiation and consummation of the sale, instead it was Filomeno E. Huelgas, the PTA president for 1967-1968 of the Claro M. Recto High School. As a counterclaim, petitioner (then defendant-appellant) demanded the sum of P4,000.00 as attorney's fees and for moral damages.

Thereafter, trial ensued. Private respondent, then plaintiff, testified as to the efforts undertaken by him to ensure the consummation of the sale. He recounted that it first began at a meeting with Rufino Manotok at the office of Fructuoso Ancheta, principal of C.M. Recto High School. Atty. Dominador Bisbal, then president of the PTA, was also present. The meeting was set precisely to ask private respondent to negotiate the sale of the school lot and building to the City of Manila. Private respondent then went to Councilor Mariano Magsalin, the author of the Ordinance which appropriated the money for the purchase of said property, to present the project. He also went to the Assessor's Office for appraisal of the value of the property. While these transpired and his letters of authority expired, Rufino Manotok always renewed the former's authorization until the last was given, which was to remain in force until May 14, 1968. After securing the report of the appraisal committee, he went to the City Mayor's Office, which indorsed the matter to the Superintendent of City Schools of Manila. The latter office approved the report and so private respondent went back to the City Mayor's Office, which thereafter indorsed the same to the Municipal Board for appropriation. Subsequently, on April 26, 1968, Ordinance No. 6603 was passed by the Municipal Board for the appropriation of the sum corresponding to the purchase price. Petitioner received the full payment of the purchase price, but private respondent did not receive a single centavo as commission.

Fructuoso Ancheta and Atty. Dominador Bisbal both testified acknowledging the authority of private respondent regarding the transaction.

Petitioner presented as its witnesses Filomeno Huelgas and the petitioner's President, Rufino Manotok.

Huelgas testified to the effect that after being inducted as PTA president in August, 1967 he followed up the sale from the start with Councilor Magsalin until after it was approved by the Mayor on May 17, 1968. He. also said that he came to know Rufino Manotok only in August, 1968, at which meeting the latter told him that he would be given a "gratification" in the amount of P20,000.00 if the sale was expedited.

Rufino Manotok confirmed that he knew Huelgas and that there was an agreement between the two of them regarding the "gratification".

On rebuttal, Atty. Bisbal said that Huelgas was present in the PTA meetings from 1965 to 1967 but he never offered to help in the acquisition of said property. Moreover, he testified that Huelgas was aware of the fact that it was private respondent who was negotiating the sale of the subject property.

Thereafter, the then Court of First Instance (now, Regional Trial Court) rendered judgment sentencing petitioner and/or Rufino Manotok to pay unto private respondent the sum of P20,540.00 by way of his commission fees with legal interest thereon from the date of the filing of the complaint until payment. The lower court also ordered petitioner to pay private respondent the amount of P4,000.00 as and for attorney's fees. 9

Petitioner appealed said decision, but to no avail. Respondent Court of Appeals affirmed the said ruling of the trial court. 10

Its Motion for Reconsideration having been denied by respondent appellate court in a Resolution dated June 22, 1987, petitioner seasonably elevated its case on Petition for Review on Certiorari on August 10, 1987 before this Court, docketed as G.R. No. 78898.

Acting on said Petition, this Court issued a Minute Resolution 11 dated August 31, 1987 ordering private respondent to comment on said Petition.

It appearing that the abovementioned Resolution was returned unserved with the postmaster's notation "unclaimed", this Court in another Resolution 12 dated March 13, 1989, required petitioner to locate private respondent and to inform this Court of the present address of private respondent within ten (10) days from notice. As petitioner was unsuccessful in its efforts to locate private respondent, it opted to manifest that private respondent's last address was the same as that address to which this. Court's Resolution was forwarded.

Subsequently, this Court issued a Resolution dated May 3, 1989 dismissing petitioner's case on the ground that the issues raised in the case at bar cannot be joined. Thus, the above-entitled case became final and executory by the entry of judgment on May 3, 1989.

Thereafter, on January 9, 1990 private respondent filed a Motion to Execute the said judgment before the court of origin. Upon discovery of said development, petitioner verified with the court of origin the circumstances by which private respondent obtained knowledge of the resolution of this Court. Sensing a fraudulent scheme employed by private respondent, petitioner then instituted this instant Petition for Relief, on August 30, 1990. On September 13, 1990, said petition was amended to include, in the alternative, its petition to re-file its Petition for Certiorari (G.R. No. 78898).

The sole issue to be addressed in this petition is whether or not private respondent is entitled to the five percent (5%) agent's commission.

It is petitioner's contention that as a broker, private respondent's job is to bring together the parties to a transaction. Accordingly, if the broker does not succeed in bringing the minds of the purchaser and the vendor to an agreement with respect to the sale, he is not entitled to a commission.

Private respondent, on the other hand, opposes petitioner's position maintaining that it was because of his efforts that a purchase actually materialized between the parties.

We rule in favor of private respondent.

At first sight, it would seem that private respondent is not entitled to any commission as he was not successful in consummating the sale between the parties, for the sole reason that when the Deed of Sale was finally executed, his extended authority had already expired. By this alone, one might be misled to believe that this case squarely falls within the ambit of the established principle that a broker or agent is not entitled to any commission until he has successfully done the job given to him. 13

Going deeper however into the case would reveal that it is within the coverage of the exception rather than of the general rule, the exception being that enunciated in the case of Prats vs. Court of Appeals. 14 In the said case, this Court ruled in favor of claimant-agent, despite the expiration of his authority, when a sale was finally consummated.

In its decision in the abovecited case, this Court said, that while it was respondent court's (referring to the Court of Appeals) factual findings that petitioner Prats (claimant-agent) was not the efficient procuring cause in bringing about the sale (prescinding from the fact of expiration of his exclusive authority), still petitioner was awarded compensation for his services. And We quote:

"In equity, however, the Court notes that petitioner had diligently taken steps to bring back together respondent Doronila and the SSS,.

xxx xxx xxx

The court has noted on the other hand that Doronila finally sold the property to the Social Security System at P3.25 per square meter which was the very same price counter-offered by the Social Security System and accepted by him in July, 1967 when he alone was dealing exclusively with the said buyer long before Prats came into the picture but that on the other hand Prats' efforts somehow were instrumental in bringing them together again and finally consummating the transaction at the same price of P3.25 per square meter, although such finalization was after the expiration of Prats' extended exclusive authority.

xxx xxx xxx

Under the circumstances, the Court grants in equity the sum of One hundred Thousand Pesos (P100,000.00) by way of compensation for his efforts and assistance in the transaction, which however was finalized and consummated after the expiration of his exclusive authority . . ." 15 (Emphasis supplied.).

From the foregoing, it follows then that private respondent herein, with more reason, should be paid his commission, While in Prats vs. Court of Appeals, the agent was not even the efficient procuring cause in bringing about the sale, unlike in the case at bar, it was still held therein that the agent was entitled to compensation. In the case at bar, private respondent is the efficient procuring cause for without his efforts, the municipality would not have anything to pass and the Mayor would not have anything to approve.

In an earlier case, 16 this Court ruled that when there is a close, proximate and causal connection between the agent's efforts and labor and the principal's sale of his property, the agent is entitled to a commission.

We agree with respondent Court that the City of Manila ultimately became the purchaser of petitioner's property mainly through the efforts of private respondent. Without discounting the fact that when Municipal Ordinance No. 6603 was signed by the City Mayor on May 17, 1968, private respondent's authority had already expired, it is to be noted that the ordinance was approved on April 26, 1968 when private respondent's authorization was still in force. Moreover, the approval by the City Mayor came only three days after the expiration of private respondent's authority. It is also worth emphasizing that from the records, the only party given a written authority by petitioner to negotiate the sale from July 5, 1966 to May 14, 1968 was private respondent.

Contrary to what petitioner advances, the case of Danon vs. Brimo, 17 on which it heavily anchors its justification for the denial of private respondent's claim, does not apply squarely to the instant petition. Claimant-agent in said case fully comprehended the possibility that he may not realize the agent's commission as he was informed that another agent was also negotiating the sale and thus, compensation will pertain to the one who finds a purchaser and eventually effects the sale. Such is not the case herein. On the contrary, private respondent pursued with his goal of seeing that the parties reach an agreement, on the belief that he alone was transacting the business with the City Government as this was what petitioner made it to appear.

While it may be true that Filomeno Huelgas followed up the matter with Councilor Magsalin, the author of Municipal Ordinance No. 6603 and Mayor Villegas, his intervention regarding the purchase came only after the ordinance had already been passed — when the buyer has already agreed to the purchase and to the price for which said property is to be paid. Without the efforts of private respondent then, Mayor Villegas would have nothing to approve in the first place. It was actually private respondent's labor that had set in motion the intervention of the third party that produced the sale, hence he should be amply compensated.

WHEREFORE, in the light of the foregoing and finding no reversible error committed by respondent Court, the decision of the Court of Appeals is hereby AFFIRMED. The temporary restraining order issued by this Court in its Resolution dated October 1, 1990 is hereby lifted.

SO ORDERED.

ANTONIO E. PRATS, doing business under the name of Philippine Real Estate Exchange, petitioner, vs. HON. COURT OF APPEALS, ALFONSO DORONILA and PHILIPPINE NATIONAL BANK, respondents.Note: The facts of this case (only) were taken from a digest found in the internet due to lack of time. Sorry for the substandard service. Haha!

FACTS: In 1968, Antonio Prats, under the name of “ Philippine Real Estate Exchange” instituted against Alfonso Doronilla and PNB a case to recover a sum of money and damages. Doronilla had for sometime tried to sell his 300 ha land and he had designated several agents for that purpose at one time. He offered the property to the Social Security System but was unable to consummate the sale. Subsequently he gave a written authority in writing to Prats to negotiate the sale of the property. Such authorization was published by Prats in the Manila Times. The parties agreed that Prats will be entitled to 10% commission and if he will be able to sell it over its price, the excess shall be credited to the latter plus his commission. Thereafter, Prats negotiated the land to the SSS. SSS invited Doronilla for a conference but the latter declined and instead instructed that the former should deal with Prats directly. Doronilla had received the full payment from SSS. When Prats demanded from him his professional fees as real estate broker, Doronilla refused to pay. Doronilla alleged that Prats had no right to demand the payment not rendered according to their agreement and that the authority extended to Prats had expired prior to the closing of the sale. ISSUE: Whether or not the agent is entitled to compensation.

RULING: NO. The Supreme Court ruled that Prats was not the efficient procuring cause of the sale. It was not categorical that it was through Prats efforts that meeting with the SSS official to close the sale took place. The court concluded that the meeting took place independently because the SSS had manifested disinterest in Prats intervention. However, in equity, the court noted that Prats had diligently taken steps to bring back together Doronilla and SSS. Prats efforts somehow were instrumental in bringing them together again and finally consummating the sale although such finalization was after the expiration of Prats extended exclusive authority. Doronilla was ordered to pay Prats for his efforts and assistance in the transaction

The doctrine established in this case: Prats doctrine: When the agent is the “efficient procuring cause in bringing about the sale” then the agent is entitled to compensation. In essence, the Court ruled that when there is a close, proximate and causal connection between the agent’s efforts and labor and the principal’s sale of his property, the agent is entitled to a commission. It ought to be noted though that even under the Prtas doctrine, the ultimate objective of the actual sale being effected, must be present for the agent or borker to earn his commission.