Agency Week 7.pdf

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THIRD DIVISION

[G.R. NO. 171460 : July 24, 2007]

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR., represented by their Attorney-In-Fact, ALFREDO M. PEREZ, Petitioners, v. ALLIED BANKING CORPORATION, Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filedby petitioners Lillian N. Mercado, Cynthia M. Fekaris and Julian Mercado, Jr., represented by theirAttorney-In-Fact, Alfredo M. Perez, seeking to reverse and set aside the Decision1of the Court ofAppeals dated 12 October 2005, and its Resolution2dated 15 February 2006 in CA-G.R. CV No. 82636.The Court of Appeals, in its assailed Decision and Resolution, reversed the Decision3of the Regional TrialCourt (RTC) of Quezon City, Branch 220 dated 23 September 2003, declaring the deeds of real estatemortgage constituted on TCT No. RT-18206 (106338) null and void. The dispositive portion of theassailed Court of Appeals Decision thus r eads:

WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new judgment is hereby entereddismissing the [petitioners] complaint.4

Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned several pieces of real

property situated in different provinces of the Philippines.

Respondent, on the other hand, is a banking institution duly authorized as such under the Philippinelaws.

On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her husband, Julian D.Mercado (Julian) over several pieces of real property registered under her name, authorizing the latter toperform the following acts:

1. To act in my behalf, to sell, alienate, mortgage, lease and deal otherwise over the different parcels ofland described hereinafter, to wit:

a) Calapan, Oriental Mindoro Properties covered by Transfer Certificates of Title Nos. T-53618 - 3,522Square Meters, T-46810 - 3,953 Square Meters, T-53140 - 177 Square Meters, T-21403 - 263 square

Meters, T - 46807 - 3 9 Square Meters of the Registry of Deeds of Oriental Mindoro;

b) Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos. T-108954 - 600 SquareMeters and RT-106338 - 805 Square Meters of the Registry of Deeds of Pasig (now Makati);

c) Personal property - 1983 Car with Vehicle Registration No. R-16381; Model 1983; Make - Toyota;Engine No. T - 2464

2. To sign for and in my behalf any act of strict dominion or ownership any sale, disposition, mortgage,lease or any other transactions including quit -claims, waiver and relinquishment of rights in and over theparcels of land situated in General Trias, Cavite, covered by Transfer Certificates of Title Nos. T-112254and T-112255 of the Registry of Deeds of Cavite, in conjunction with his co-owner and in the personATTY. AUGUSTO F. DEL ROSARIO;

3. To exercise any or all acts of strict dominion or ownership over the above-mentioned properties,rights and interest therein. (Emphasis supplied.)

On the strength of the af oresaid SPA, Julian, on 12 December 1996, obtained a loan from the respondentin the amount of P3,000,000.00, secured by real estate mortgage constituted on TCT No. RT -18206(106338) which covers a parcel of land with an area of 805 sq uare meters, registered with the Registry ofDeeds of Quezon City (subject property).5

Still using the subject property as security, Julian obtained an additional loan from the respondent in thesum of P5,000,000.00, evidenced by a Promissory Note6he executed on 5 February 1997 as another realestate mortgage (REM).

It appears, however, that there was no property identified in the SPA as TCT No. RT - 18206 (106338) and

registered with the Registry of Deeds of Quezon City. What was identified in the SPA instead was theproperty covered by TCT No. RT-106338 registered with the Registry of Deeds of Pasig.

Subsequently, Julian defaulted on the payment of his loan obligations. Thus, respondent initiated extra-judicial foreclosure proceedings over the subject property which was subsequently sold at public auctionwherein the respondent was declared as the highest bidder as shown in the Sheriff's Certificate of Saledated 15 January 1998.7

On 23 March 1999, petitioners initiated with the RTC an action for the annulment of REM constitutedover the subject property on the ground that the same was not covered by the SPA and that the saidSPA, at the time the loan obligations were contracted, no longer had force and effect since it waspreviously revoked by Perla on 10 March 1993, as evidenced by the Revocation of SPA signed by thelatter.8

Petitioners likewise alleged that together with the copy of the Revocation of SPA, Perla, in a Letter dated23 January 1996, notified the Registry of Deeds of Quezon City that any attempt to mortgage or sell thesubject property must be with her full consent documented in the form of an SPA duly authenticatedbefore the Philippine Consulate General in New York.9

In the absence of authority to do so, the REM constituted by Julian over the subject property was nulland void; thus, petitioners likewise prayed that the subsequent extra-judicial foreclosure proceedingsand the auction sale of the subject property be als o nullified.

In its Answer with Compulsory Counterclaim,10 respondent averred that, contrary to petitioner'sallegations, the SPA in favor of Julian included the subject property, covered by one of the titles specifiedin paragraph 1(b) thereof, TCT No. RT - 106338 registered with the Registry of Deeds of Pasig (nowMakati). The subject property was purportedly registered previously under TCT No. T-106338, and wasonly subsequently reconstituted as TCT RT-18206 (106338). Moreover, TCT No. T-106338 was actually

registered with the Registry of Deeds of Quezon City and not before the Registry of Deeds of Pasig (nowMakati). Respondent explained that the discrepancy in the designation of the Registry of Deeds in theSPA was merely an error that must not prevail over the clear intention of Perla to include the subjectproperty in the said SPA. In sum, the property referred to in the SPA Perla executed in favor of Julian ascovered by TCT No. 106338 of the Registry of Deeds of Pasig (now Makati) and the subject property inthe case at bar, covered by RT - 18206 (106338) of the Registry of Deeds of Quezon City, are one and thesame.

On 23 September 2003, the RTC rendered a Decision declaring the REM constituted over the subjectproperty null and void, for Julian was not authorized by the terms of the SPA to mortgage the same. Thecourt a quo likewise ordered that the foreclosure proceedings and the auction sale conducted pursuantto the void REM, be nullified. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the [herein petitioners] andagainst the [herein respondent] Bank:
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1. Declaring the Real Estate Mortgages constituted and registered under Entry Nos. PE-4543/RT-18206and 2012/RT-18206 annotated on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City asNULL and VOID;

2. Declaring the Sheriff's Sale and Certificate of Sale under FRE No. 2217 dated January 15, 1998 over theproperty covered by TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL andVOID;

3. Ordering the defendant Registry of Deeds of Quezon City to cancel the annotation of Real EstateMortgages appearing on Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 on TCT No. RT-18206

(106338) of the Registry of Deeds of Quezon City;

4. Ordering the [respondent] Bank to deliver/return to th e [petitioners] represented by their attorney-in-fact Alfredo M. Perez, the original Owner's Duplicate Copy of TCT No. RT-18206 (106338) free from theencumbrances referred to above; andcralawlibrary

5. Ordering the [respondent] Bank to pay the [petitioners] the amount ofP100,000.00 as for attorney'sfees plus cost of the suit.

The other claim for damages and counterclaim are hereby DENIED for lack of merit.11

Aggrieved, respondent appealed the adverse Decision before the Court of Appeals.

In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC Decision and upheld the

validity of the REM constituted over the subject property on the strength of the SPA. The appellate courtdeclared that Perla intended the subject property to be included in the SPA she executed in favor ofJulian, and that her subsequent revocation of the said SPA, not being contained in a public instrument,cannot bind third persons.

The Motion for Reconsideration interposed by the petitioners was denied by the Court of Appeals in itsResolution dated 15 February 2006.

Petitioners are now before us assailing the Decision and Resolution rendered by the Court of Appealsraising several issues, which are summarized as follows:

I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER SUBJECT PROPERTY.

II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.

III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN - GOOD FAITH.

For a mortgage to be valid, Article 2085 of the Civil Code enumerates the following essential requisites:

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to sec ure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of t he thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and inthe absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging ormortgaging their own property.

In the case at bar, it was Julian who obtained the loan obligations from respondent which he securedwith the mortgage of the subject property. The property mortgaged was owned by his wife, Perla,considered a third party to the loan obligations between Julian and respondent. It was, thus, a situationrecognized by the last paragraph of Article 2085 of the Civil Code afore-quoted. However, since it wasnot Perla who personally mortgaged her own property to secure Julian's loan obligations withrespondent, we proceed to determining if she duly authorized Julian to do so on her behalf.

Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases where real rightsover immovable property are created or conveyed.12 In the SPA executed by Perla in favor of Julian on28 May 1992, the latter was conferred with the authority to "sell, alienate, mortgage, lease and deal

otherwise" the different pieces of real and personal property registered in Perla's name. The SPAlikewise authorized Julian "[t]o exercise any or all acts of strict dominion or ownership" over theidentified properties, and rights and interest therein. The existence and due execution of this SPA by

Perla was not denied or c hallenged by petitioners.

There is no question therefore that Julian was vested with the power to mortgage the pieces of propertyidentified in the SPA. However, as to whether the subject property was among those identified in theSPA, so as to render Julian's mortgage of the same valid, is a question we still must resolve.

Petitioners insist that the subject property was not included in the SPA, considering that it contained anexclusive enumeration of the pieces of property over which Julian had authority, and these include only:(1) TCT No. T-53618, with an area of 3,522 square meters, located at Calapan, Oriental Mindoro, andregistered with the Registry of Deeds of Oriental Mindoro; (2) TCT No. T-46810, with an area of 3,953square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of

Oriental Mindoro; (3) TCT No. T-53140, with an area of 177 square meters, located at Calapan, OrientalMindoro, and registered with the Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403, with an

area of 263 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry ofDeeds of Oriental Mindoro; (5) TCT No. T - 46807, with an area of 39 square meters, located at Calapan,Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No. T-108954,with an area of 690 square meters and located at Susana Heights, Muntinlupa; (7) RT-106338 - 805Square Meters registered with the Registry of Deeds of Pasig (now Makati); and (8) Personal Propertyconsisting of a 1983 Car with Vehicle Registration No. R-16381, Model - 1983, Make - Toyota, and EngineNo. T - 2464. Nowhere is it stated in the SPA that Julian's authority extends to the subject propertycovered by TCT No. RT - 18206 (106338) registered with the Registry of Deeds of Quezon City.Consequently, the act of Julian of constituting a mortgage over the subject property is unenforceable forhaving been done without authority.

Respondent, on the other hand, mainly hinges its argument on the declarations made by the Court ofAppeals that there was no property covered by TCT No. 106338 registered with the Registry of Deeds ofPasig (now Makati); but there exists a property, the subject property herein, covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. Further verification would revealthat TCT No. RT-18206 is merely a reconstitution of TCT No. 106338, and the property covered by bothcertificates of title is actually situated in Quezon City and not Pasig. From the foregoing circumstances,respondent argues that Perla intended to include the subject property in the SPA, and the failure of theinstrument to reflect the recent TCT Number or the exact designation of the Registry of Deeds, shouldnot defeat Perla's clear intention.

After an examination of the literal terms of the SPA, we find that the subject property was not amongthose enumerated therein. There is no obvious reference to the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City.

There was also nothing in the language of the SPA from which we could deduce the intention of Perla toinclude the subject property therein. We cannot attribute such alleged intention to Perla who executedthe SPA when the language of the instrument is bare of any indication suggestive of such intention.Contrariwise, to adopt the intent theory advanced by the respondent, in the absence of clear and
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convincing evidence to that effect, would run afoul of the express tenor of the SPA and thus defeatPerla's true intention.

In cases where the terms of the contract are clear as to leave no room for interpretation, resort tocircumstantial evidence to ascertain the true intent of the parties, is not countenanced. As aptly stated inthe case of JMA House, Incorporated v. Sta. Monica Industrial and Development Corporation,13thus:

[T]he law is that if the terms of a contract are clear and leave no doubt upon the intention of thecontracting parties, the literal meaning of its stipulation shall control. When the language of th e contractis explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it [in] any

other intention that would contradict its main import. The clear terms of the contract should never bethe subject matter of interpretation. Neither abstract justice nor the rule on liberal interpretationjustifies the creation of a contract for the parties which they did not make themselves or the impositionupon one party to a contract or obligation not assumed simply or merely to avoid seeming hardships.The true meaning must be enforced, as it is to be presumed that the contracting parties know theirscope and effects.14

Equally relevant is the rule that a power of attorney must be strictly construed and pursued. Theinstrument will be held to grant only those powers which are specified therein, and the agent mayneither go beyond nor deviate from the power of att orney.15Where powers and duties are specified anddefined in an instrument, all such powers and duties are limited and are confined to those which arespecified and defined, and all other powers and duties are excluded.16This is but in accord with thedisinclination of courts to enlarge the authority granted beyond the powers expressly given and thosewhich incidentally flow or derive therefrom as being usual and reasonably necessary and proper for the

performance of such express powers.17

Even the commentaries of renowned Civilist Manresa18supports a strict and limited construction of theterms of a power of attorney:

The law, which must look after the interests of all, cannot permit a man to express himself in a vague andgeneral way with reference to the right he confers upon another for the purpose of alienation orhypothecation, whereby he might be despoiled of all he possessed and be brought to ruin, suchexcessive authority must be set down in the most formal and explicit terms, and when this is not done,the law reasonably presumes that the principal did not mean to confer it.

In this case, we are not convinced that the property covered by TCT No. 106338 registered with theRegistry of Deeds of Pasig (now Makati) is the same as the subject property covered by TCT No. RT-18206(106338) registered with the Registry of Deeds of Quezon City. The records of the case are stripped of

supporting proofs to verify the respondent's claim that the two titles cover the same property. It failedto present any certification from the Registries of Deeds concerned to support its assertion. Neither didrespondent take the effort of submitting and making part of the records of this case copies of TCTs No.RT-106338 of the Registry of Deeds of Pasig (now Makati) and RT-18206 (106338) of the Registry ofDeeds of Quezon City, and closely comparing the technical descriptions of the properties covered by thesaid TCTs. The bare and sweeping statement of respondent that the properties covered by the twocertificates of title are one and the same contains nothing but empty imputation of a fact that couldhardly be given any evidentiary weight by this C ourt.

Having arrived at the conclusion that Julian was not conferred by Perla with the authority to mortgagethe subject property under the terms of the SPA, the real estate mortgages Julian executed over the saidproperty are therefore unenforceable.

Assuming arguendo that the subject property was indeed included in the SPA executed by Perla in favorof Julian, the said SPA was revoked by virtue of a public instrument executed by Perla on 10 March 1993 .To address respondent's assertion that the said revocation was unenforceable against it as a third party

to the SPA and as one who relied on the same in good faith, we quote with approval the following rulingof the RTC on this matter:

Moreover, an agency is extinguished, among others, by its revocation (Article 1999, New Civil Code ofthe Philippines). The principal may revoke the agency at will, and compel the agent to return thedocument evidencing the agency. Such revocation may be express or implied (Article 1920, supra).

In this case, the revocation of the agency or Special Power of Attorney is expressed and by a publicdocument executed on March 10, 1993.

The Register of Deeds of Quezon City was even notified that any attempt to mortgage or sell theproperty covered by TCT No. [RT-18206] 106338 located at No. 21 Hillside Drive, Blue Ridge, Quezon Citymust have the full consent documented in the form of a special power of attorney duly authenticated atthe Philippine Consulate General, New York City, N.Y., U.S.A.

The non-annotation of the revocation of the Special Power of Attorney on TCT No. RT-18206 is of noconsequence as far as the revocation's existence and legal effect is concerned since actual notice isalways superior to constructive notice. The actual notice of the revocation relayed to defendant Registryof Deeds of Quezon City is not denied by either the Registry of Deeds of Quezon City or the defendantBank. In which case, there appears no reason why Section 52 of the Property Registration Decree (P.D.No. 1529) should not apply to the situation. Said Section 52 of P.D. No. 1529 provides:

"Section 52. Constructive notice upon registration. - Every conveyance, mortgage, lease, lien,attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or

entered in the Office of the Register of Deeds for the province or city where the land to which it relateslies, be constructive notice to all persons from the time of such registering, filing or entering. (Pres.Decree No. 1529, Section 53) (emphasis ours)

It thus developed that at the time the first loan transaction with defendant Bank was effected onDecember 12, 1996, there was on record at the Office of the Register of Deeds of Quezon City that thespecial power of attorney granted Julian, Sr. by Perla had been revoked. That notice, works asconstructive notice to third parties of its being filed, effectively rendering Julian, Sr. without authority toact for and in behalf of Perla as of the date the revocation letter was received by the Register of Deeds ofQuezon City on February 7, 1996.19

Given that Perla revoked the SPA as early as 10 March 1993, and that she informed the Registry of Deedsof Quezon City of such revocation in a letter dated 23 January 1996 and received by the latter on 7February 1996, then third parties to the SPA are constructively notified that the same had been revoked

and Julian no longer had any authority to mortgage the subject property. Although the revocation maynot be annotated on TCT No. RT-18206 (106338), as the RTC pointed out, neither the Registry of Deedsof Quezon City nor respondent denied that Perla's 23 January 1996 letter was received by and filed withthe Registry of Deeds of Quezon City. Respondent would have undoubtedly come across said letter if itindeed diligently investigated the subject property and the circumstances surrounding its mortgage.

The final issue to be threshed out by this Court is whether the respondent is a mortgagee-in-good faith.Respondent fervently asserts that it exercised reasonable diligence required of a prudent man in dealingwith the subject property.

Elaborating, respondent claims to have carefully verified Julian's authority over the subject propertywhich was validly contained in the SPA. It stresses that the SPA was annotated at the back of the TCT ofthe subject property. Finally, after conducting an investigation, it found t hat the property covered by TCTNo. 106338, registered with the Registry of Deeds of Pasig (now Makati) referred to in the SPA, and thesubject property, covered by TCT No. 18206 (106338) registered with the Registry of Deeds of QuezonCity, are one and the same property. From the foregoing, respondent concluded that Julian was indeedauthorized to constitute a mortgage over the subject property.
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We are unconvinced. The property listed in the real estate mortgages Julian executed in favor of PNB isthe one covered by "TCT#RT-18206(106338)." On the other hand, the Special Power of Attorney referredto TCT No. "RT-106338 - 805 Square Meters of the Registry of Deeds of Pasig now Makati." The palpabledifference between the TCT numbers referred to in the real estate mortgages and Julian's SPA, coupledwith the fact that the said TCTs are registered in the Registries of Deeds of different cities, should haveput respondent on guard. Respondent's claim of prudence is debunked by the fact that it had

conveniently or otherwise overlooked the inconsistent details appearing on the face of the documents,which it was relying on for its rights as mortgagee, and which significantly affected the identification ofthe property being mortgaged. In Arrofo v. Quio,20we have elucidated that:

[Settled is the rule that] a person dealing with registered lands [is not required] to inquire further thanwhat the Torrens title on its face indicates. This rule, however, is not absolute but admits ofexceptions. Thus, while its is true, x x x that a person dealing with registered lands need not go beyond

the certificate of title, it is likewise a well-settled rule that a purchaser or mortgagee cannot close hiseyes to facts which should put a reasonable man on his guard, and then claim that he acted in good faithunder the belief that there was no defect in the title of the vendor or mortgagor. His mere refusal to faceup the fact that such defect exists, or his willful closing of his eyes to the possibility of the existence of adefect in the vendor's or mortgagor's title, will not make him an innocent purchaser for value, if itafterwards develops that the title was in fact defective, and it appears that he had such notice of thedefect as would have led to its discovery had he acted with the measure of precaution which may berequired of a prudent man in a like situation.

By putting blinders on its eyes, and by refusing to see the patent defect in the scope of Julian's authority,easily discernable from the plain terms of the SPA, respondent cannot now claim to be an innocent

mortgagee.

Further, in the case of Abad v. Guimba,21we laid down the principle that where the mortgagee does notdirectly deal with the registered owner of real property, the law requires that a higher degree ofprudence be exercised by the mortgagee, thus:

While [the] one who buys from the registered owner does not need to look behind the certificate o f title,one who buys from [the] one who is not [the] registered owner is expected to examine not only the

certificate of title but all factual circumstances necessary for [one] to determine if there are any flaws inthe title of the transferor, or in [the] capacity to transfer the land. Although the instant case does notinvolve a sale but only a mortgage, the same rule applies inasmuch as the l aw itself includes a mortgageein the term "purchaser."22

This principle is applied more strenuously when the mortgagee is a bank or a banking institution. Thus, inthe case of Cruz v. Bancom Finance Corporation,23we ruled:

Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike privateindividuals, it is expected to exercise greater care and prudence in its dealings, including those involvingregistered lands. A banking institution is expected to exercise due diligence before entering into amortgage contract. The ascertainment of the status or condition of a property offered to it as security fora loan must be a standard and indispensable part of its operations.24

Hence, considering that the property being mortgaged by Julian was not his, and there are additionaldoubts or suspicions as to the real identity of the same, the respondent bank should have proceededwith its transactions with Julian only with utmost caution. As a bank, respondent must subject all itstransactions to the most rigid scrutiny, since its business is impressed with public interest and itsfiduciary character requires high standards of integrity and performance .25Where respondent acted inundue haste in granting the mortgage loans in favor of Julian and disregarding the apparent defects in

the latter's authority as agent, it failed to discharge the degree of diligence required of it as a bankingcorporation.rblrlllbrr

Thus, even granting for the sake of argument that the subject property and the one identified in the SPAare one and the same, it would not elevate respondent's status to that of an innocent mortgagee. As abanking institution, jurisprudence stringently requires that respondent should take more precautionsthan an ordinary prudent man should, to ascertain the status and condition of the properties offered ascollateral and to verify the scope of the authority of the agents dealing with these. Had respondent actedwith the required degree of diligence, it could have acquired knowledge of the letter dated 23 January

1996 sent by Perla to the Registry of Deeds of Quezon City which recorded the same. The failure of therespondent to investigate into the circumstances surrounding the mortgage of the subject propertybelies its contention of good faith.

On a last note, we find that the real estate mortgages constituted over the subject property areunenforceable and not null and void, as ruled by the RTC. It is best to reiterate that the said mortgagewas entered into by Julian on behalf of Perla without the latter's authority and consequently,

unenforceable under Article 1403(1) of the Civil Code. Unenforceable contracts are those which cannotbe enforced by a proper action in court, unless they are ratified, because either they are entered intowithout or in excess of authority or they do not comply with the statute of frauds or both of thecontracting parties do not possess the required legal capacity.26An unenforceable contract may beratified, expressly or impliedly, by the person in whose behalf it has been executed, before it is revokedby the other contracting party.27Without Perla's ratification of the same, the real estate mortgagesconstituted by Julian over the subject property cannot be enforced by any action in court against Perlaand/or her successors in interest.

In sum, we rule that the contracts of real estate mortgage constituted over the subject property coveredby TCT No. RT - 18206 (106338) registered with the Registry of Deeds of Quezon City are unenforceable.

Consequently, the foreclosure proceedings and the auction sale of the subject property conducted inpursuance of these unenforceable contracts are null and void. This, however, is without prejudice to theright of the respondent to proceed against Julian, in his personal capacity, for the amount of the loans.

WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The Decision dated 12October 2005 and its Resolution dated 15 February 2006 rendered by the Court of Appeals in CA-G.R. CVNo. 82636, are hereby REVERSED. The Decision dated 23 September 2003 of the Regional Trial Court ofQuezon City, Branch 220, in Civil Case No. Q-99-37145, is hereby REINSTATED and AFFIRMED withmodification that the real estate mortgages constituted over TCT No. RT - 18206 (106338) are not nulland void but UNENFORCEABLE. No costs.

SO ORDERED.
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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 15823 September 12, 1921

JULIO DANON, plaintiff-appellee,vs.

ANTONIO A. BRIMO & CO., defendant-appellant.

Claro M. Recto for appellant.Canillas & Cardenas for appellee.

JOHNSON, J.:

This action was brought to recover the sum of P60,000, alleged to be the value of services rendered tothe defendant by the plaintiff as a broker. The plaintiff alleges that in the month of August, 1918, thedefendant company, through its manager, Antonio A. Brimo, employed him to look for a purchaser of itsfactory known as "Holland American Oil Co.," for the sum of P1,200,000, payable in cash; that thedefendant promised to pay the plaintiff, as compensation for his services, a commission of five per centon the said sum of P1,200,000, if the sale was consummated, or if the plaintiff should find a purchaserready, able and willing to buy said factory for the said sum of P1,200,000; that subsequently the plaintiff

found such a purchaser, but that the defendant refused to sell the said factory without any justifiablemotive or reason therefor and without having previously notified the plaintiff of its desistance orvariation in the price and terms of the sale.

To that complaint the defendant interposed a general denial. Upon the issue thus presented, theHonorable Simplicio del Rosario, judge, after hearing and considering the evidence adduced during thetrial of the cause, rendered a judgment in favor of the plaintiff and against the defendant for the sum ofP60,000, with costs. From that judgment the defendant appealed to this c ourt.

The proof with regard to the a uthority of the plaintiff to sell the factory in question for the defendant, oncommission, is extremely unsatisfactory. It consists solely of the testimony of the plaintiff, on the onehand, and of the manager of the defendant company, Antonio A. Brimo, on the other. From a reading oftheir testimony we believe that neither of them has been entirely free from prevarications. However,after giving due weight to the finding of the trial court in this regard and after carefully considering the

inherent probability or improbability of the testimony of each of said witnesses, we believe we areapproximating the truth in finding: (1) That Antonio A. Brimo, in a conversation with the plaintiff, JulioDanon, about the middle of August, 1918, informed the latter that he (Brimo) desired to sell his factory,the Holland American Oil Co., for the sum of P1,200,000; (2) that he agreed and promised to pay to theplaintiff a commission of 5 per cent provided the latter could sell said factory for that amount; and (3)that no definite period of time was fixed within which the plaintiff should effect the sale. It seems thatanother broker, Sellner, was also negotiating the sale, or trying to find a purchaser for th e same propertyand that the plaintiff was informed of the fact either by Brimo himself or by someone else; at least, it isprobable that the plaintiff was aware that he was not alone in the field, and his whole effort was toforestall his competitor by being the first to find a purchaser and effect the sale. Such, we believe. wasthe contract between the plaintiff and the defendant, upon which t he present action is based.

The next question to determine is whether the plaintiff had performed all that was required of himunder that contract to entitle him to recover the commission agreed upon. The proof in this regard is noless unsatisfactory. It seems that immediately after having an interview with Mr. Brimo, as a bove stated,the plaintiff went to see Mr. Mauro Prieto, president of the Santa Ana Oil Mill, a cor poration, and offeredto sell to him the defendant's property at P1,200,000. The said corporation was at that time in need of

such a factory as the plaintiff was offering for sale, and Mr. Prieto, its president, instructed the manager,Samuel E. Kane, to see Mr. Brimo and ascertain whether he really wanted to sell said factory, and, if so,to get permission from him to inspect the premises. Mr. Kane inspected the factory and, presumably,made a favorable report to Mr. Prieto. The latter asked for an appoint ment with Mr. Brimo to perfect thenegotiation. In the meantime Sellner, the other broker referred to, had found a purchaser for the sameproperty, who ultimately bought it for P1,300,000. For that reason Mr. Prieto, the would be purchaser

found by the plaintiff, never came to see Mr. Brimo to perfect the proposed negotiation.

Under the proofs in this case, the most that can be said as to what the plaintiff had accomplished is, thathe had found a person who might have bought t he defendant's factory if the defendant had not sold it to

someone else. The evidence does not show that the Santa Ana Oil Mill had definitely decided to buy theproperty in question at the fixed price of P1,200,000. The board of directors of said corporation had notresolved to purchase said property; and even if its president could legally make the purchase without

previous formal authorization of the board of directors, yet said president does not pretend that he haddefinitely and formally agreed to buy the factory in question on behalf of his corporation at the pricestated. On direct examination he testified for the plaintiff as follows:

Q. You say that we were going to accept or that it was beneficial for us; will you say to whom yourrefer, when you say "we?"

A. Our company, the Santa Ana Oil Mill.

Q. And is that company able to pay the sum of P1,200,000?

A. Yes, sir.

Q. And you accepted it at that price of P1,200.000?

A. Surely, because as I already said before, we were in the difficult position of not being able tooperate our factory, because of the obstacle placed by t he Government.

Q. And did you inform Mr. Danon of this acceptance?

A. I did not explain to Mr. Danon.

On cross-examination the same witness testified:

Q. What actions did the board of directors of the Santa Ana Oil Mill take in order to acquire or to

make an offer to Mr. Brimo of the Holland American Oil Co mpany?

A. But nothing was effected, because Mr. Danon stated that the property had been sold when Iwas going to deal with him.

Q. But do you not say that you made an offer of P1,200,000?

A. No; it was Mr. Danon who made the offer and we were sure to put the deal through because wehave bound ourselves.

The plaintiff claims that the reasons why the sale to the Santa Ana Mill was not consummated wasbecause Mr. Brimo refused to sell to a Filipino firm and preferred an American buyer; that upon learningsuch attitude of the defendant the plaintiff endeavored to procure another purchaser and found a Mr.Leas, who delivered to the plaintiff a letter addressed to Mr. Brimo, offering to buy the factory inquestion at P1,200,000. the offer being good for twenty-four; that said offer was not accepted by Brimo


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because while he was reading the letter of Leas, Sellner came in, drew Brimo into another room, andthen and there closed the deal at P1,300,000. The last statement is admitted by the defendant.

Such are the facts in this case, as nearly accurate as we can gather them from the conflicting evidencebefore us. Under those facts, is the plaintiff entitled to recover the sum of P60,000, claimed by him ascompensation for his services? It will be noted that, according to the plaintiff's own testimony, thedefendant agreed and promised to pay him a commission of 5 per cent provided he (the plaintiff) couldsell the factory at P1,200.000 ("con tal que V. me venda la fabrica en P1,200.000"). It will also be notedthat all that the plaintiff had accomplished by way of performance of his contract was, that he had founda person who might have bought the factory in question had not the defendant sold it to someone else.

(Beaumont vs. Prieto, 41 Phil., 670; 249 U.S., 554.)

Under these circumstances it is difficult to see how the plaintiff can recover anything in the premises.The plaintiff's action is not one for damages for breach of contract; it is an action to recover "thereasonable value" of services rendered. this is unmistakable both from the plaintiff's complaint and histestimony as a witness during the trial.

Q. And what is the reasonable value of the services you rendered to Mr. Brimo?

A. Five per cent of the price at which it was sold.

Q. Upon what do you base your qualification that those services were reasonable?

A. First, because that is the common rate in the city, and, secondly, because of the big gain that he

obtained from the sale.

What benefit did the plaintiff, by his "services," bestow upon the defendant to entitle him to recoverfrom the latter the sum of P60,000? It is perfectly clear and undisputed that his "services" did not anyway contribute towards bringing about the sale of the factory in question. He was not "the efficientagent or the procuring cause of the sale."

The broker must be the efficient agent or the procuring cause of sale. The means employed by him andhis efforts must result in the sale. He must find the purchaser, and the sale must proceed from his effortsacting as broker. (Wylie vs. Marine National Bank, 61 N. Y., 414; 416; citing: McClure vs. Paine, 49 N. Y.,561; Lloyd vs. Mathews, 51 id., 124; Lyon vs. Mitchell, 36 id., 235; Briggs vs. Rowe, 4 Keyes, 424;Murray vs.Currie, 7 Carr. and Payne, 584; Wilkinson vs. Martin, 8 id., 5.)

A leading case on the subject is that of Sibbald vs. Bethlehem Iron Co. (83 N. Y., 378; 38 Am. Rep., 441).

In the case, after an exhaustive review of various cases, the Court of Appeals of New York stated the ruleas follows:

In all the cases, under all and varying forms of expression, the fundamental and correct doctrine, is,that the duty assumed by the broker is to bring the minds of the buyer and seller to an agreement for asale, and the price and terms on which it is to be made, and until that is done his right to commissionsdoes not accrue. (McGavock vs. Woodlief, 20 How., 221; Barnes vs. Roberts, 5 Bosw., 73;Holly vs. Gosling, 2 E. D., Smith, 262; Jacobs vs. Kolff, 2 Hilt., 133; Kock vs. Emmerling, 22 How., 72;Corning vs. Calvert, 2 Hilt., 56; Trundy vs. N.Y. and Hartf. Steamboat Co., 6 Robt., 312; Van Lien vs. Burns,1 Hilt., 134.)

xxx xxx xxx

It follows, as a necessary deduction from the established rule, that a broker is never entitled tocommissions for unsuccessful efforts. The risk of a failure is wholly his. The reward comes only with hissuccess. That is the plain contract and contemplation of the parties. The broker may devote his time andlabor, and expend his money with ever so much of devotion to the interest of his employer, and yet if he

fails, if without effecting an agreement or accomplishing a bargain, he abandons the effort, or hisauthority is fairly and in good faith terminated, he gains no right to commissions. He loses the labor andeffort which was staked upon success. And in such event it matters not that after his failure, and thetermination of his agency, what he has done proves of use and benefit to the principal. In a multitude ofcases that must necessarily result. He may have introduced to each other parties who otherwise wouldhave never met; he may have created impressions, which under later and more favorable circumstances

naturally lead to and materially assist in the consummation of a sale; he may have planted the very seedfrom which others reap the harvest; but all that gives him no claim. It was part of his risk that failinghimself, not successful in fulfilling his obligation, others might be left to some extent to avail themselvesof the fruit of his labors. As we said in Wylie vs.Marine National Bank (61 N.Y., 416), in such a case the

principal violates no right of the broker by selling to the first party who offers the price asked, and itmatters not that sale is to the very party with whom the broker had been negotiating. He failed to find orproduce a purchaser upon the terms prescribed in his employment, and the principal was under noobligation to wait longer that he might make further efforts. The failure therefore and its consequenceswere the risk of the broker only. This however must be taken with one important and necessarylimitation. If the efforts of the broker are rendered a failure by the fault of the employer;if capriciously he changes his mind after the purchaser, ready a nd willing, and consenting to theprescribed terms, is produced; or if the latter declines to complete the contract because of some defectof title in the ownership of the seller, some unremoved incumbrance, some defect which is the fault ofthe latter, then the broker does not lose his commissions. And that upon the familiar principle that noone can avail himself of the nonperformance of a condition precedent, who has himself occasioned itsnonperformance. But this limitation is not even an exception to the general rule affecting the broker'sright for it goes on the ground that the broker has done his duty, that he has brought buyer and seller toan agreement, but that the contract is not consummated and fails though the after-fault of the seller.

The cases are uniform in this respect. (Moses vs. Burling, 31 N.Y., 462; Glentworth vs. Luther, 21 Barb.,147; Van Lienvs. Burns, 1 Hilt., 134.)

One other principle applicable to such a contract as existed in the present case needs to be kept inview.Where no time for the continuance of the contract is fixed by its terms either party is at liberty toterminate it at will, subject only to the ordinary requirements of good faith. Usually the broker is entitledto a fair and reasonable opportunity to perform his obligation, subject of course to the right of the sellerto sell independently. But having been granted him, the right of the principal to terminate his authorityis absoluteand unrestricted, except only that he may not do it in bad faith, and as a mere device toescape the payment of the broker's commissions. Thus, if in the midst of negotiations instituted by thebroker, and which were plainly and evidently approaching success, the s eller should revoke the authorityof the broker,with the view of concluding the bargain without his aid, and avoiding the payment ofcommission about to be earned, it might be well said that the due performance his obligation by thebroker was purposely prevented by the principal. But if the latter acts in good faith, not seeking toescape the payment of commissions, butmoved fairly by a view of his own interest, he has the absoluteright before a bargain is made while negotiations remain unsuccessful, before commissions areearned, to revoke the broker's authority, and the latter cannot thereafter claim compensation for a salemade by the principal, even though it be t o a customer with whom t he broker unsuccessfully negotiated,and even though, to some extent, the seller might justly be said to have availed himself of the fruits ofthe broker's labor. (Ibid. pp. 444, 445 and 446.)

The rule laid down in the foregoing case was adopted and followed in the cases of Zeimer vs. Antisell (75Cal. 509), and Ayres vs. Thomas (116 Cal., 140).

The undertaking to procure a purchaser requires of the party so undertaking, not simply to name orintroduce a person who may be willing to make any sort of contract in reference to the property, but toproduce a party capable, and who ultimately becomes the purchaser. (Kimberly vs. Henderson andLupton, 29 Md., 512, 515, citing: Keener vs. Harrod and Brooke, 2 Md. 63; McGavock vs. Woodlief, 20How., 221. See also Richards, Executor, vs. Jackson, 31 Md., 250.)


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The defendant sent a proposal to a broker in these words: If you send or cause to be sent to me, byadvertisement or otherwise, any party with whom I may see fit and proper to effect a sale or exchangeof my real estate, above described I will pay you the sum of $200. The broker found a person whoproposed to purchase the property, but the sale was not affected. Held: That the broker was not entitledto compensation. (Walker vs. Tirrel, 3 Am. Rep., 352.)

It is clear from the foregoing authorities that, although t he present plaintiff could probably have effectedthe sale of the defendant's factory had not the defendant sold it to someone else, he is not entitled tothe commissions agreed upon because he had no intervention whatever in, and much sale i n question. Itmust be borne in mind that no definite period was fixed by the defendant within which the plaintiff

might effect the sale of its factory. Nor was the plaintiff given by the defendant the exclusive agency ofsuch sale. Therefore, the plaintiff cannot complaint of the defendant's conduct in selling the propertythrough another agent before the plaintiff's efforts w ere crowned with success. "One who has employed

a broker can himself sell the property to a purchaser whom he has procured, without any aid from thebroker." (Hungerford vs. Hicks, 39 Conn., 259; Wylie vs. Marine National Bank, 61 N.Y., 415, 416.)

For the foregoing reasons the judgment appealed from is hereby revoked and the defendant is herebyabsolved from all liability under the plaintiff's complaint, with costs in both instances against theplaintiff. So ordered.

Araullo, Street, Avancea and Villamor, JJ., concur.


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Manila

EN BANC

G.R. No. L-5180 August 31, 1953

CONSEJO INFANTE, petitioner,vs.

JOSE CUNANAN, JUAN MIJARES and THE COURT OF APPEALS, SECOND DIVISION, respondents.

Yuseco, Abdon & Yuseco for petitioner.Jose E. Erfe and Maria Luisa Gomez for respondents.

BAUTISTA ANGELO, J.:

This is a petition for review of a decision of the Court of appeals affirming the judgement of the court oforigin which orders the defendant to pay the plaintiffs the sum of P2,500 with legal interest thereonfrom February 2,1949 and the costs of action.

Consejo Infante, defendant herein, was the owner of two parcels of land, together with a house builtthereon, situated in the City of Manila and covered by Transfer Certificate of Title No. 61786. On orbefore November 30, 1948, she contracted the services of Jose Cunanan and Juan Mijares, plaintiff

herein, to sell the above-mentioned property for a price of P30,000 subject to the condition that thepurchaser would assume the mortgage existing thereon in the favor of the Rehabilitation FinanceCorporation. She agreed to pay them a commission of 5 per cent on the purchase price plus whateveroverprice they may obtain for the property. Plaintiffs found one Pio S. Noche who was willing to buy theproperty under the terms agreed upon with defendant, but when they introduced him to defendant, thelatter informed them that she was no longer interested in selling the property and succeeded in makingthem sign a document stating therein that the written authority she had given them was already can-celled. However, on December 20, 1948, defendant dealt directly with Pio S. Noche selling to him the

property for P31,000. Upon learning this transaction, plaintiffs demanded from defendant the paymentof their commission, but she refused and so they brought the pr esent action.

Defendant admitted having contracted the services of the plaintiffs to sell her property as set forth in thecomplaint, but stated that she agreed to pay them a commission of P1,200 only on condition that theybuy her a property somewhere in Taft Avenue to where she might transfer after selling her property.Defendant avers that while plaintiffs took steps to sell her property as agreed upon, they sold the

property at Taft Avenue to another party and because of this failure it was agreed that the authority shehad given them be cancelled.

The lower court found that the preponderance of evidence was in favor of the plaintiffs and renderedjudgement sentensing the defendant to pay the plaintiff the sum of P2,500 with legal interest th ereonfrom February 2,1949 plus the costs of action. This decision was affirmed in toto by the Court of Appeals.

There is no dispute that respondents were authorized by petitioner to sell her property for the sum ofP30,000 with the understanding that they will be given a commission of 5 percent plus whateveroverprice they may obtain for the property. Petitioner, however, contends that authority has alreadybeen withdrawn on November 30, 1948 when, by the voluntary act of respondents, they executed adocument stating that said authority shall be considered cancelled and without any effect, so that whenpetitioner sold the property to Pio S. Noche on December 20, 1948, she was already free from her

commitment with respondents and, therefore, was not in duty bound to pay them any commission forthe transaction..

If the facts were as claimed by petitioner, there is in-deed no doubt that she would have no obligation topay respondents the commission which was promised them under the original authority because, underthe old Civil Code, her right to withdraw such authority is recognized. A principal may withdraw theauthority given to an agent at will. (Article 1733.) But this fact is disputed. Thus, respondents claim thatwhile they agreed to cancel the written authority given to them, they did so merely upon the verbalassurance given by petitioner that, should the property be sold to their own buyer, Pio S. Noche, they

would be given the commission agreed upon. True, this verbal assurance does not appear in the writtencancellation, Exhibit 1, and, on the other hand, it is disputed by petitioner, but respondents wereallowed to present oral evidence to prove it, and this is now assigned as error in this petition for review.

The plea that oral evidence should not have been allowed to prove the alleged verbal assurance is welltaken it appearing that the written authority given to respondents has been cancelled in a writtenstatement. The rule on this matter is that "When the terms of an agreement have been reduced to

writing, it is to be considered as containing all those terms, and, therefore, there can be, between partiesand their successors in interest, no evidence of the terms of the agreement other than the contents ofthe writing." (Section 22, Rule 123, Rules of Court.) The only exceptions to this rule are: "(a)Where amistake or imperfection of the writing, or its failure to express the true intent and agreement of theparties, or the validity of the agreement is put in issue by the pleadings"; and "(b) Where there is anintrinsic ambiguity in the writing." (Ibid.) There is no doubt that the point raised does not come underany of the cases excepted, for there is nothing therein that has been put in issue by respondents in theircomplaint. The terms of the document, Exhibit 1, seem to be clear and they do not contain anyreservation which may in any way run counter to the clear intention of th e parties.

But even disregarding the oral evidence adduced by respondents in contravention of the parole evidence

rule, we are, however, of the opinion that there is enough justification for the conclusion reached by thelower court as well as by the Court of Appeals to the effect that respondents are entitled to thecommission originally agreed upon. It is a fact found by the Court of Appeals that after petitioner hadgiven the written authority to respondents to sell her land for the sum of P30,000, respondents found abuyer in the person of one Pio S. Noche who was willing to buy the property under the terms agreedupon, and this matter was immediately brought to the knowledge of petitioner. But the latter, perhapsby way of strategem, advised respondents that she was no longer interested in the deal and was able toprevail upon them to sign a document agreeing to the cancellation of the written authority.

That petitioner had changed her mind even if respondents had found a buyer who was willing to closethe deal, is a matter that would not give rise to a legal consequence if respondents agree to call off thetransaction in deference to the request of the petitioner. But the situation varies if one of the partiestakes advantage of the benevolence of the other and acts in a manner that would promote his ownselfish interest. This act is unfair as would amount to bad faith. This act cannot be sanctioned without ac-cording to the party prejudiced the reward which is due him. This is the situation in which respondentswere placed by petitioner. Petitioner took advantage of the services rendered by respondents, butbelieving that she could evade payment of their commission, she made use of a ruse by inducing them tosign the deed of cancellation Exhibit 1. This act of subversion cannot be sanctioned and cannot serve asbasis for petitioner to escape payment of the commission agreed upon.

Wherefore, the decision appealed from is hereby affirmed, with costs against petitioner.

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Monte-mayor, Reyes, and Jugo, JJ., concur.

Separate Opinions

LABRADOR, J., concurring and dissenting:


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I concur in the result. I can not agree, however, to the ruling made in the majority decision that thepetitioners can not introduce evidence of the circumstances under which the document was signed, i.e.upon promise by respondent that should the property be sold to petitioner's buyer they wouldnevertheless be entitled to the commission agreed upon. Such evidence is not excluded by the paroleevidence rule, because it does not tend to alter or vary the terms of the document. This document wasmerely a withdrawal of the authority granted the petitioner to sell the property, not an agreement that

they shall not be paid their commission.


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Manila

SECOND DIVISION

G.R. No. L-41420 July 10, 1992

CMS LOGGING, INC., petitioner,vs.

THE COURT OF APPEALS and D.R. AGUINALDO CORPORATION, respondents.

NOCON, J.:

This is a petition for review on certiorari from the decision dated July 31, 1975 of the Court of Appeals inCA-G.R. No. 47763-R which affirmed in toto the decision of the Court of First Instance of Manila, BranchVII, in Civil Case No. 56355 dismissing the complaint filed by petitioner CMS Logging, Inc. (CMS, forbrevity) against private respondent D.R. Aguinaldo Corporation (DRACOR, for brevity) and ordering theformer to pay the latter attorney's fees in the amount of P1,000.00 and the costs.

The facts of the case are as follows: Petitioner CMS is a forest concessionaire engaged in the loggingbusiness, while private respondent DRACOR is engaged in the business of exporting and selling logs andlumber. On August 28, 1957, CMS and DRACOR entered into a contract of agency 1 whereby the formerappointed the latter as its exclusive export and sales agent for all logs that the former may produce, for aperiod of five (5) years. The pertinent portions of the agreement, which was drawn up by DRACOR, 2 areas follows:

1. SISON [CMS] hereby appoints DRACOR as his sole and exclusive export sales agent with full authority,subject to the conditions and limitations hereinafter set forth, to sell and export under a firm salescontract acceptable to SISON, all logs produced by SISON for a period of five (5) years commencing uponthe execution of the agreement and upon the terms and conditions hereinafter provided and DRACORhereby accepts such appointment;

xxx xxx xxx

3. It is expressly agreed that DRACOR shall handle exclusively all negotiations of all export sales of SISONwith the buyers and arrange the procurement and schedules of the vessel or vessels for the shipment ofSISON's logs in accordance with SISON's written requests, but DRACOR shall not in anyway [sic] be liableor responsible for any delay, default or failure of the vessel or vessels to comply with the schedulesagreed upon;

xxx xxx xxx

9. It is expressly agreed by the parties hereto t hat DRACOR shall receive five (5%) per cent c ommission ofthe gross sales of logs of SISON based on F.O.B. invoice value which commission shall be deducted fromthe proceeds of any and/or all moneys received by DRACOR for and in behalf and for the account ofSISON;

By virtue of the aforesaid agreement, CMS was able to sell through DRACOR a total of 77,264,672 boardfeet of logs in Japan, from September 20, 1957 to April 4, 1962.

About six months prior to the expiration of the agreement, while on a trip to Tokyo, Japan, CMS'spresident, Atty. Carlos Moran Sison, and general manager and legal counsel, Atty. Teodoro R.Dominguez, discovered that DRACOR had used Shinko Trading Co., Ltd. (Shinko for brevity) as agent,representative or liaison officer in selling CMS's logs in Japan for which Shinko earned a commission ofU.S. $1.00 per 1,000 board feet from the buyer of the logs. Under this arrangement, Shinko was able tocollect a total of U.S. $77,264.67. 3

CMS claimed that this commission paid to Shinko was in violation of the agreement and that it (CMS) isentitled to this amount as part of the proceeds of the sale of the logs. CMS contended that sinceDRACOR had been paid the 5% commission under the agreement, it is no longer entitled to the

additional commission paid to Shinko as this tantamount to DRACOR receiving double compensation forthe services it rendered.

After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or P2,883,351.90, 4 directly toseveral firms in Japan without the aid or intervention of DRACOR.

CMS sued DRACOR for the commission received by Shinko and for moral and exemplary damages, whileDRACOR counterclaimed for its commission, amounting to P144,167.59, from the sales made by CMS oflogs to Japanese firms. In its reply, CMS averred as a defense to the counterclaim that DRACOR hadretained the sum of P101,167.59 as part of its commission for the sales made by CMS. 5 Thus, as itscounterclaim to DRACOR's counterclaim, CMS demanded DRACOR return the amount it unlawfullyretained. DRACOR later filed an amended counterclaim, alleging that the balance of its commission onthe sales made by CMS was P42,630.82, 6 thus impliedly admitting that it retained the amount allegedby CMS.

In dismissing the complaint, the trial court ruled that no evidence was presented to show that Shinkoreceived the commission of U.S. $77,264.67 arising from the sale of CMS's logs in Japan, though the trialcourt stated that "Shinko was able to collect the total amount of $77,264.67 US Dollars (Exhs. M and M-1)." 7 The counterclaim was likewise dismissed, as it was shown that DRACOR had waived its rights to thebalance of its commission in a letter dated February 2, 1963 to Atty. Carlos Moran Sison, president ofCMS. 8 From said decision, only CMS appealed to the Court of Appeals.

The Court of Appeals, in a 3 to 2 decision, 9 affirmed the dismissal of the complaint since "[t]he trialcourt could not have made a categorical finding that Shinko collected commissions from the buyers ofSison's logs in Japan, and could not have held that Sison is entitled to recover from Dracor the amountcollected by Shinko as commissions, plaintiff-appellant having failed to prove by competent evidence itsclaims." 10

Moreover, the appellate court held:

There is reason to believe that Shinko Trading Co. Ltd., was paid by defendant-appellee out of its owncommission of 5%, as indicated in the letter of its president to the president of Sison, dated February 2,1963 (Exhibit "N"), and in the Agreement between Aguinaldo Development Corporation (ADECOR) andShinko Trading Co., Ltd. (Exhibit "9"). Daniel R. Aguinaldo stated in his said letter:

. . . , I informed you that if you wanted to pay me for the service, then it would be no more than at thestandard rate of 5% commission because in our own case, we pay our Japanese agents 2-1/2%.Accordingly, we would only add a similar amount of 2-1/2% for the service which we would render you inthe Philippines. 11

Aggrieved, CMS appealed to this Court by way of a petition for review on certiorari, alleging (1) that theCourt of Appeals erred in not making a complete findings of fact; (2) that the testimony of Atty. TeodoroR. Dominguez, regarding the admission by Shinko's president and director that it collected a commission

of U.S. $1.00 per 1,000 board feet of logs from the Japanese buyers, is admissible against DRACOR; (3)that the statement of DRACOR's chief legal counsel in his memorandum dated May 31, 1965, Exhibit "K",


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is an admission that Shinko was able to collect the commission in question; (4) that the fact that Shinkoreceived the questioned commissions is deemed admitted by DRACOR by its silence under Section 23,Rule 130 of the Rules of Court when it failed to reply to Atty. Carlos Moran Sison's letter dated February6, 1962; (5) that DRACOR is not entitled to its 5% commission arising from the direct sales made by CMSto buyers in Japan; and (6) that DRACOR is guilty of fraud and bad faith in its dealings with CMS.

With regard to CMS's arguments concerning whether or not Shinko received th e commission in question,We find the same unmeritorious.

To begin with, these arguments question the findings of fact made by the Court of Appeals, which are

final and conclusive and can not be reviewed on appeal to the Supreme Court. 1 2

Moreover, while it is true that the evidence adduced establishes the fact that Shinko is DRACOR's agentor liaison in Japan, 13 there is no evidence which established the fact that Shinko did receive the amountof U.S. $77,264.67 as commission arising from the sale of CMS's logs to various Japanese firms.

The fact that Shinko received the commissions in question was not established by the testimony of Atty.Teodoro R. Dominguez to the effect that Shinko's president and director told him that Shinko received acommission of U.S. $1.00 for every 1,000 board feet of logs sold, since the same is hearsay. Similarly, theletter of Mr. K. Shibata of Toyo Menka Kaisha, Ltd. 14 is also hearsay since Mr. Shibata was notpresented to testify on his letter.

CMS's other evidence have little or no probative value at all. The statements made in the memorandumof Atty. Simplicio R. Ciocon to DRACOR dated May 31, 1965, 15 the letter dated February 2, 1963 of

DanielR. Aguinaldo, 16 president of DRACOR, and the reply-letter dated January 9, 1964 17 by DRACOR'scounsel Atty. V. E. Del Rosario to CMS's demand letter dated September 25, 1963 can not be categorizedas admissions that Shinko did r eceive the commissions in question.

The alleged admission made by Atty. Ciocon, t o wit

Furthermore, as per our records, our shipment of logs to Toyo Menka Kaisha, Ltd., is only for a net

volume of 67,747,732 board feet which should enable Shinko to collect a commission of US $67,747.73only

can not be considered as such since the statement was made in the context of questioning CMS's tally oflogs delivered to various Japanese firms.

Similarly, the statement of Daniel R. Aguinaldo, to wit

. . . Knowing as we do that Toyo Menka is a large and reputable company, it is obvious that they paidShinko for certain services which Shinko must have satisfactorily performed for them in Japan otherwisethey would not have paid Shinko

and that of Atty. V. E. Del Rosario,

. . . It does not seem proper, therefore, for CMS Logging, Inc., as principal, to concern itself with, muchless question, the right of Shinko Trading Co., Ltd. with which our client debt directly, to whateverbenefits it might have derived form the ultimate consumer/buyer of these logs, Toyo Menka Kaisha, Ltd.There appears to be no justification for your client's contention that these benefits, whether they can beconsidered as commissions paid by Toyo Menka Kaisha to Shinko Trading, are to be regarded part of thegross sales.

can not be considered admissions that Shinko received the questioned commissions since neitherstatements declared categorically that Shinko did in fact receive the commissions and that these arosefrom the sale of CMS's logs.

As correctly stated by the appellate court:

It is a rule that "a statement is not competent as an admission where it does not, under a reasonableconstruction, appear to admit or acknowledge the fact which is sought to be proved by it". An admissionor declaration to be competent must have been expressed in definite, certain and unequivocal language(Bank of the Philippine Islands vs. Fidelity & Surety Co., 51 Phil. 57, 64). 18

CMS's contention that DRACOR had admitted by its silence the allegation that Shinko received thecommissions in question when it failed to respond to Atty. Carlos Moran Sison's letter dated February 6,1963, is not supported by the evidence. DRACOR did in fact reply to the letter of Atty. Sison, through theletter dated March 5, 1963 of F .A. Novenario, 19 which stated:

This is to acknowledge receipt of your letter dated February 6, 1963, and addressed to Mr. D. R.Aguinaldo, who is at present out of the co untry.

xxx xxx xxx

We have no record or knowledge of any such payment of commission made by Toyo Menka to Shinko. Ifthe payment was made by Toyo Menka to Shinko, as stated in your letter, we knew nothing about it andhad nothing to do with it.

The finding of fact made by the trial court, i.e., that "Shinko was able to collect the total amount of$77,264.67 US Dollars," can not be given weight since this was based on the summary prepared by CMSitself, Exhibits "M" and "M-1".

Moreover, even if it was shown that Shinko did in fact receive the commissions in question, CMS is notentitled thereto since these were apparently paid by the buyers to Shinko for arranging the sale. This istherefore not part of the gross sales of CMS's logs.

However, We find merit in CMS's contention that the appellate court erred in holding that DRACOR wasentitled to its commission from the sales made by CMS to Japanese firms.

The principal may revoke a contract of agency at will, and such revocation may be express, orimplied, 20 and may be availed of even if t he period fixed in th e contract of agency as not y etexpired. 21 As the principal has this absolute right to revoke the agency, the agent can not objectthereto; neither may he claim damages arising from such revocation, 22 unless it is shown that such wasdone in order to evade the payment of agent's commission.23

In the case at bar, CMS appointed DRACOR as its agent for the sale of its logs to Japanese firms. Yet,during the existence of the contract of agency, DRACOR admitted that CMS sold its logs directly toseveral Japanese firms. This act constituted an implied revocation of t he contract of agency under Article1924 of the Civil Code, which provides:

Art. 1924 The agency is revoked if the principal directly manages the business entrusted to the agent,dealing directly with third persons.

In New Manila Lumber Company, Inc. vs. Republic of the Philippines, 24 this Court ruled that the act of a

contractor, who, after executing powers of attorney in favor of another empowering the latter to collectwhatever amounts may be due to him from the Government, and thereafter demanded and collected


12/39

from the government the money the collection of which he entrusted to his attorney-in-fact, constitutedrevocation of the agency in favor of the attor ney-in-fact.

Since the contract of agency was revoked by CMS when it sold its logs to Japanese firms without theintervention of DRACOR, the latter is no longer entitled to its commission from the proceeds of such saleand is not entitled to retain whatever moneys it may have received as its commission for saidtransactions. Neither would DRACOR be entitled to collect damages from CMS, since damages aregenerally not awarded to the agent for the revocation of the agency, and the case at bar is not onefalling under the exception mentioned, which is to evade the payment of the agent's commission.

Regarding CMS's contention that the Court of Appeals erred in not finding that DRACOR had committedacts of fraud and bad faith, We find the same unmeritorious. Like the contention involving Shinko andthe questioned commissions, the findings of the Court of Appeals on the matter were based on itsappreciation of the evidence, and these findings are binding on this Court.

In fine, We affirm the ruling of the Court of Appeals that there is no evidence to support CMS'scontention that Shinko earned a separate commission of U.S. $1.00 for every 1,000 board feet of logsfrom the buyer of CMS's logs. However, We reverse the ruling of the Court of Appeals with regard toDRACOR's right to retain the amount of P101,536.77 as part of its commission from the sale of logs byCMS, and hold that DRACOR has no right to its commission. Consequently, DRACOR is hereby ordered toremit to CMS the amount of P101,536.77.

WHEREFORE, the decision appealed from is hereby MODIFIED as stated in the preceding paragraph.Costs de officio.

SO ORDERED.

Narvasa, C.J., Padilla and Regalado JJ., concur.


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THIRD DIVISION

CARLOS SANCHEZ,

Petitioner,

- versus -

MEDICARD PHILIPPINES, INC., DR. NICANORMONTOYA and CARLOS EJERCITO,

Respondents.

G.R. No. 141525

Present:

PANGANIBAN, J., Chairman,

SANDOVAL-GUTIERREZ,

CORONA,

CARPIO MORALES, and

GARCIA, JJ.

Promulgated:

September 2, 2005

x---------------------------------------------------------------------------------------------x

DECISION

SANDOVAL-GUTIERREZ, J.:

This petition for review on certiorari seeks to reverse the Decision[1]of the Court of Appeals datedFebruary 24, 1999 and its Resolution dated January 12, 2 000 in CA-G.R. CV No. 47681.

The facts, as established by the trial court and affirmed by t he Court of Appeals, follow:

Sometime in 1987, Medicard Philippines, Inc. (Medicard), respondent, appointed petitioner as its specialcorporate agent. As such agent, Medicard gave him a commission based on the cash brought in.

In September, 1988, through petitioners efforts, Medicard and United Laboratories Group of Companies

(Unilab) executed a Health Care Program Contract. Under this contract, Unilab shall pay Medicard afixed monthly premium for the health insurance of its personnel. Unilab paid MedicardP4,148,005.00representing the premium for one (1) year. Medicard then handed petitioner 18% of said amountor P746,640.90 representing his commission.

Again, through petitioners initiative, the agency contract between Medicard and Unilab was renewedfor another year, or from October 1, 1989 to September 30, 1990, incorporating therein the increase ofpremium from P4,148,005.00 to P7,456,896.00. Medicard paid petitioner P1,342,241.00 as hiscommission.

Prior to the expiration of the renewed contract, Medicard proposed to Unilab, through petitioner, anincrease of the premium for the next year. Unilab rejected the proposal for the reason that it was to ohigh, prompting Dr. Nicanor Montoya (Medicards president and general manager), also a respondent,to request petitioner to reduce his commission, but the latter refused.

In a letter dated October 3, 1990, Unilab, through Carlos Ejercito, another respondent, confirmed itsdecision not to renew the health program contract with Medicard.

Meanwhile, in order not to prejudice its personnel by the termination of their health insurance, Unilab,through respondent Ejercito, negotiated with Dr. Montoya and other officers of Medicard, to discussways in order to continue the insurance coverage of those personnel.

Under the new scheme, Unilab shall pay Medicard only the amount corresponding to the actual

hospitalization expenses incurred by each personnel plus 15% service fee for using Medicard facilities,which amount shall not be less than P780,000.00.

Medicard did not give petitioner any c ommission under the new scheme.

In a letter dated March 15, 1991, petitioner demanded from Medicard payment of P338,000.00 as hiscommission plus damages, but the latter refused to heed his demand.

Thus, petitioner filed with the Regional Trial Court (RTC), Branch 66, Makati City, a complaint for sum ofmoney against Medicard, Dr. Nicanor Montoya and Carlos Ejercito, herein respondents.

After hearing, the RTC rendered its Decision dismissing petitioners complaint and respondents

counterclaim.

On appeal, the Court of Appeals affirmed the trial courts assailed Decision. The Appellate Court heldthat there is no proof that the execution of the new contract between the parties under the cost plussystem is a strategy to deprive petitioner of his commission; that Medicard did not commit anyfraudulent act in revoking its agency contract with Sanchez; that when Unilab rejected M edicardsproposal for an increase of premium, their Health Care Program Contract on its third year waseffectively revoked; and that where the contract is ineffectual, then the agent is not entitled to acommission.

Petitioner filed a motion for reconsideration, but this was denied by the Court of Appeals on January 12,2000.

Hence, the instant petition for review on certiorari.

The basic issue for our resolution is whether the Court of Appeals erred in holding that the contract ofagency has been revoked by Medicard, hence, petitioner is not entitled to a co mmission.
http://sc.judiciary.gov.ph/jurisprudence/2005/sep2005/141525.htm#_ftn1http://sc.judiciary.gov.ph/jurisprudence/2005/sep2005/141525.htm#_ftn1http://sc.judiciary.gov.ph/jurisprudence/2005/sep2005/141525.htm#_ftn1http://sc.judiciary.gov.ph/jurisprudence/2005/sep2005/141525.htm#_ftn1


14/39

It is dictum that in order for an agent to be entitled to a commission, he must be the procuring cause ofthe sale, which simply means that the measures employed by him and the efforts he exerted must resultin a sale.[2] In other words, an agent receives his commission only upon the successful conclusion of asale.[3] Conversely, it follows that where his efforts are unsuccessful, or there was no effort on his part,he is not entitled to a commission.

In Prats vs. Court of Appeals,[4] this Court held that for the purpose of equity, an agent who is not theefficient procuring cause is nonetheless entitled to his commission, where said agent, notwithstandingthe expiration of his authority, nonetheless, took diligent steps to bring back together the parties, suchthat a sale was finalized and consummated between them. In Manotok Borthers vs. Court of

Appeals,[5] where the Deed of Sale was only executed after the agents extended authority hadexpired, this Court, applying its ruling in Prats, held that the agent (in Manotok) is entitled t o acommission since he was the efficient procuring cause of the sale, notwithstanding that the sale took

place after his authority had lapsed. The proximate, close, and causal connection between the agentsefforts and the principals sale of his property can not be ignored.

It may be recalled that through petitioners efforts, Medicard was able to enter into a one-year HealthCare Program Contract with Unilab. As a result, Medicard paid petitioner his commission. Again,through his efforts, the contract was renewed and once more, he received his commission. Before the

expiration of the renewed contract, Medicard, t hrough petitioner, proposed an increase in premium, butUnilab rejected this proposal. Medicard then requested petitioner to reduce his commission should thecontract be renewed on its third year, but he was obstinate. Meantime, on October 3, 1990, Unilabinformed Medicard it was no longer ren ewing the Health Care Program contract.

In order not to prejudice its personnel, Unilab, through respondent Ejercito, negotiated with respondentDr. Montoya of Medicard, in order to find mutually beneficial ways of continuing the Health Care

Program. The negotiations resulted in a new contract wherein Unilab shall pay Medicard thehospitalization expenses actually incurred by each employees, plus a service fee. Under the cost plussystem which replaced the premium scheme, petitioner was not given a c ommission.

It is clear that since petitioner refused to reduce his commission, Medicard directly negotiated withUnilab, thus revoking its agency contract with petitioner. We hold that such revocation is authorized by

Article 1924 of the Civil Code which provides:

Art. 1924.

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