G.R. No.

L-36585 July 16, 1984

MARIANO DIOLOSA and ALEGRIA VILLANUEVA-DIOLOSA, petitioners,

vs.
THE HON. COURT OF APPEALS, and QUIRINO BATERNA (As owner and proprietor of QUIN
BATERNA REALTY), respondents.

RELOVA, J.:

Appeal by certiorari from a decision of the then Court of Appeals ordering herein petitioners to pay
private respondent "the sum of P10,000.00 as damages and the sum of P2,000.00 as attorney's
fees, and the costs."

This case originated in the then Court of First Instance of Iloilo where private respondents instituted
a case of recovery of unpaid commission against petitioners over some of the lots subject of an
agency agreement that were not sold. Said complaint, docketed as Civil Case No. 7864 and entitled:
"Quirino Baterna vs. Mariano Diolosa and Alegria Villanueva-Diolosa", was dismissed by the trial
court after hearing. Thereafter, private respondent elevated the case to respondent court whose
decision is the subject of the present petition.

The parties — petitioners and respondents-agree on the findings of facts made by respondent court
which are based largely on the pre-trial order of the trial court, as follows:

PRE-TRIAL ORDER

When this case was called for a pre-trial conference today, the plaintiff, assisted by
Atty. Domingo Laurea, appeared and the defendants, assisted by Atty. Enrique
Soriano, also appeared.

A. — During the pre-trial conference the parties, in addition to what have been
admitted in the pleadings, have agreed and admitted that the following facts are
attendant in this case and that they will no longer adduce evidence to prove them:

1. That the plaintiff was and still is a licensed real estate broker, and
as such licensed real estate broker on June 20, 1968, an agreement
was entered into between him as party of the second part and the
defendants spouses as party of the first part, whereby the former was
constituted as exclusive sales agent of the defendants, its
successors, heirs and assigns, to dispose of, sell, cede, transfer and
convey the lots included in VILLA ALEGRE SUBDIVISION owned by
the defendants, under the terms and conditions embodied in Exhibit
"A", and pursuant to said agreement (Exhibit "A"), the plaintiff acted
for and in behalf of the defendants as their agent in the sale of the
lots included in the VILLA ALEGRE SUBDIVISION;

2. That on September 27, 1968, the defendants terminated the

services of plaintiff as their exclusive sales agent per letter marked as
Exhibit "B", for the reason stated in the latter.

B. — During the trial of this case on the merit, the plaintiff will adduce by competent
evidence the following facts:

1
 1. That as a real estate broker, he had sold the lots comprised in
several subdivisions, to wit: Greenfield Subdivision, the Villa Beach
Subdivision, the Juntado Subdivision, the St. Joseph Village, the
Ledesma Subdivision, the Brookside Subdivision, the Villa Alegre
Subdivision, and Cecilia Subdivision, all in the City of Iloilo except St.
Joseph which is in Pavia Iloilo.

2. That the plaintiff, as a licensed real estate broker, has been

seriously damaged by the action of the defendants in rescinding, by
Exhibit "B", the contract (Exhibit "A") for which the plaintiff suffered
moral damages in the amount of P50,000.00, damages to his good
will in the amount of P100,000.00, for attorney's fees in the amount of
P10,000.00 to protect his rights and interests, plus exemplary
damages to be fixed by the Court.

3. That the plaintiff is entitled to a commission on the lots unsold

because of the rescission of the contract.

C. — The defendants during the trial will ill prove by competent evidence the
following:

1. That the plaintiff's complaint was filed to make money out of the
suit from defendants, to harrass and to molest defendants;

2. That because of the unjustified and unfounded complaint of the

plaintiff, the defendants suffered moral damages in the amount of
P50,000.00, and that for the public good, the court may order the
plaintiff to pay the defendants exemplary damages in the amount of
P20,000.00, plus attorney's fees of P10,000.00.

D.— Contentions of the parties:

1. The plaintiff contends:

(a) That under the terms of the contract (Exhibit "A")

the plaintiff had unrevocable authority to sell all the
lots included in the Villa Alegre Subdivision and to act
as exclusive sales agent of the defendants until all the
lots shall have been disposed of;

(b) That the rescission of the contract under Exhibit

"B", contravenes the agreement of the parties.

2. The defendants contend:

(a) That they were within their legal right to terminate

the agency on the ground that they needed the
undisposed lots for the use of the family;

(b) That the plaintiff has no right in law to case for

commission on lots that they have not sold.

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 E. — The parties hereby submit to the Court the following issues:

1. Whether under the terms of Exhibit "A" the plaintiff has the
irrevocable right to sen or dispose of all the lots included within Villa
Alegre Subdivision;

2. Can the defendants terminate their agreement with the plaintiff by

a letter like Exhibit "B"?

F. — The plaintiff submitted the following exhibits which were admitted by the
defendants:

Exhibit "A" — agreement entered into between the parties on June

20, 1968 whereby the plaintiff had the authority to sell the subdivision
lots included in Villa Alegre subdivision;

Exhibit "B" — Letter of the defendant Alegria V. Diolosa dated

September 27, 1968 addressed to the plaintiff terminating the agency
and rescinding Exhibit "A" for the reason that the lots remained
unsold lots were for reservation for their grandchildren.

The Court will decide this case based on the facts admitted in the pleadings, those
agreed by the parties during the pre-trial conference, and those which they can prove
during the trial of this case, in accordance with the contention of the parties based on
the issues submitted by them during the pre-trial conference.

SO ORDERED.

Iloilo City, Philippines, August 14, 1969.

(SGD)
VALER
IO V.
ROVIR
A
Judge
(pp.
22-25,
Rollo)

The only issue in this case is whether the petitioners could terminate the agency agreement, Exhibit
"A", without paying damages to the private respondent. Pertinent portion of said Exhibit "A" reads:

That the PARTY OF THE FIRST PART is the lawful and absolute owner in fee
simple of VILLA ALEGRE SUBDIVISION situated in the District of Mandurriao, Iloilo
City, which parcel of land is more particularly described as follows, to wit:

A parcel of land, Lot No. 2110-b-2-C, PSD 74002, Transfer Certificate

of Title No. T_____ situated in the District of Mandurriao, Iloilo,
Philippines, containing an area of 39016 square meters, more or less,
with improvements thereon.

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 That the PARTY OF THE FIRST PART by virtue of these presents, to enhance the
sale of the lots of the above-described subdivision, is engaging as their EXCLUSIVE
SALES AGENT the PARTY OF THE SECOND PART, its successors, heirs and
assigns to dispose of, sell, cede, transfer and convey the above-described property
in whatever manner and nature the PARTY OF THE SECOND PART, with the
concurrence of the PARTY OF THE FIRST PART, may deem wise and proper under
the premises, whether it be in cash or installment basis, until all the subject property
as subdivided is fully disposed of. (p. 7 of Petitioner's brief. Emphasis supplied).

Respondent court, in its decision which is the subject of review said:

Article 1920 of the Civil Code of the Philippines notwithstanding, the defendants
could not terminate the agency agreement, Exh. "A", at will without paying damages.
The said agency agreement expressly stipulates ... until all the subject property as
subdivided is fully disposed of ..." The testimony of Roberto Malundo(t.s.n. p. 99) that
the plaintiff agreed to the intention of Mrs. Diolosa to reserve some lots for her own
famay use cannot prevail over the clear terms of the agency agreement. Moreover,
the plaintiff denied that there was an agreement to reserve any of the lots for the
family of the defendants. (T.s.n. pp. 16).

There are twenty seven (27) lots of the subdivision remaining unsold on September
27, 1968 when the defendants rescinded the agency agreement, Exhibit "A". On that
day the defendants had only six grandchildren. That the defendants wanted to
reserve the twenty seven remaining lots for the six grandchildren is not a legal
reason for defendants rescind the agency agreement. Even if the grandchildren were
to be given one lot each, there would still be twenty-one lots available for sale.
Besides it is undisputed that the defendants have other lands which could be
reserved for their grandchildren. (pp. 26-27, Rollo)

The present appeal is manifestly without merit.

Under the contract, Exhibit "A", herein petitioners allowed the private respondent "to dispose of, sell,
cede, transfer and convey ... until out the subject property as subdivided is fully disposed of." The
authority to sell is not extinguished until all the lots have been disposed of. When, therefore, the
petitioners revoked the contract with private respondent in a letter, Exhibit "B" —

Dear Mr. Baterna:

Please be informed that we have finally decided to reserve the remaining unsold lots,
as of this date of our VILLA ALEGRE Subdivision for our grandchildren.

In view thereof, notice is hereby served upon you to the effect that our agreement
dated June 20, 1968 giving you the authority to sell as exclusive sales agent of our
subdivision is hereby rescinded.

Please be duly guided.

Very
truly
yours,

4
 (SGD) ALEGRIA V.
DIOLOSA
Subdivision Owner

(p. 11 of Petitioner's Brief)

they become liable to the private respondent for damages for breach of contract.

And, it may be added that since the agency agreement, Exhibit "A", is a valid contract, the same may
be rescinded only on grounds specified in Articles 1381 and 1382 of the Civil Code, as follows:

ART. 1381. The following contracts are rescissible:

(1) Those which are entered in to by guardians whenever the wards

whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter

suffer the lesion stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in

any other name collect the claims due them;

(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval of
the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to

rescission.

ART. 1382. Payments made in a state of insolvency for obligations to whose

fulfillment the debtor could not be compelled at the time they were effected, are also
rescissible."

In the case at bar, not one of the grounds mentioned above is present which may be the subject of
an action of rescission, much less can petitioners say that the private respondent violated the terms
of their agreement-such as failure to deliver to them (Subdivision owners) the proceeds of the
purchase price of the lots.

ACCORDINGLY, the petition is hereby dismissed without pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, Gutierrez, Jr. and Dela Fuente, JJ., concur.

G.R. No. L-14248 April 28, 1960

5
NEW MANILA LUMBER COMPANY, INC., plaintiff-appellant,
vs.
REPUBLIC OF THE PHILIPPINES, defendant-appellee.

S. F. Alidio and Associates for appellant.

Office of the Solicitor General Edilberto Barot and Solicitor Ceferino S. Gaddi for appellee.

GUTIERREZ DAVID, J.:

Appeal from an order of dismissal of the Court of First Instance of Manila.

On May 8, 1958, the plaintiff lumber company filed in the court below a complaint against the
defendant Republic of the Philippines for the recovery of a sum of money. The complaint alleges,
among other things, that defendant, thru the Director of Schools, entered into a contract with one
Alfonso Mendoza to build two school houses; that plaintiff furnished the lumber materials in the
construction of the said buildings; that prior to the payment by defendant of any amount due the
contractor, the latter executed powers of attorney in favor of the plaintiff "constituting it as his sole,
true and lawful attorney-in-fact with specific and exclusive authority to collect and receive from the
defendant any and all amounts due or may be due to said contractor from the defendant in
connection with the construction of the aforesaid school buildings, as may be necessary to pay
materials supplied by the plaintiff"; and that originals of the powers of attorney were received by
defendant (thru the Director of Public Schools) who promised to pay plaintiff, but that it,
nevertheless, paid the contractor several amounts on different occasions without first making
payment to plaintiff. The complaint, therefore, prays that defendant be ordered to pay plaintiff the
sum of P18,327.15, the unpaid balance of the cost of lumber supplied and used in the construction
of the school buildings, with interest at the legal rate from the date same was due, plus attorney's
fees and costs.

Served with a copy of the complaint, the defendant Republic of the Philippines, through the Solicitor
General, moved to dismiss the same on the grounds (1) that it does not allege a sufficient cause of
action, (2) that plaintiff has no right to institute the action under Act No. 3688, and (3) that the court is
without jurisdiction to entertain the same against the defendant.

The motion was opposed by plaintiff, but after hearing, the court below — holding that "there is no
juridical tie between plaintiff-supplier and defendant-owner — sustained the motion to dismiss on the
first ground, and on June 23, 1958 issued an order dismissing plaintiff's complaint. Its motion for
reconsideration having been denied, plaintiff took the present appeal.

The appeal is without merit.

Briefly stated, plaintiff's complaint seeks to enforce against the Republic of the Philippines a money
claim for the payment of materials it furnished for the construction of two public school buildings
undertaken by contractor Alfonso Mendoza, on the basis of powers of attorney executed by the latter
authorizing said plaintiff to collect and receive from defendant Republic any amount due or may be
due to said contractor as contract price for the payment of the materials so supplied.

Section one of Public Act No. 3688, entitled "An Act for the protection of persons furnishing material
and labor for the construction of public works", reads in part as follows:

SECTION 1. Any person, partnership or corporation entering into a formal contract with the
Government of the Philippine Islands for the construction of any public building, or the
prosecution and completion of any public work, or for repairs upon any public building or

6
 public work, shall be required, before commencing such work, to execute the usual penal
bond, with good and sufficient sureties, with the additional obligation that such contractor or
his or its sub-contractors shall promptly make payments to all persons supplying him or them
with labor and materials in the prosecution of the work provided for in such contract; and any
person, company or corporation who has furnished labor or materials in the construction or
repair of any public building or public work, and payment for which has not been made, shall
have the right to intervene and be made a party to any action instituted by the Government of
the Philippine Islands on the bond of the contractor, and to have their rights and claims
adjudicated in such action and judgment rendered thereon, subject, however, to the priority
of the claim and judgment of the Government of the Philippine Islands. If the full amount of
the liability of the surety on said bond is insufficient to pay the full amount of said claims and
demands, then, after paying the full amount due the Government, the remainder shall be
distributed pro rata among said intervenors. If no suit should be brought by the Government
of the Philippine Islands within six months from the completion and final settlement of said
contract, or if the Government expressly waives its right to institute action on the penal bond,
then the person or persons supplying the contractor with labor and materials shall, upon
application therefor, and furnishing affidavit to the department under the direction of which
said work has been prosecuted, that labor or materials for the prosecution of such work have
been supplied by him or them, and payment for which has not been made, be furnished with
a certified copy of said contract and bond, upon which he or they shall have a right of action,
and shall be, and are hereby, authorized to bring suit in the name of the Government of the
Philippine Islands in the Court of First Instance in the district in which said contract was to be
performed and executed, and not elsewhere, for his or their use and benefit, against said
contractor and his sureties, and to prosecute the same to final judgment and execution, . . . .

In the case at bar, it is not disputed that defendant Republic has already instituted a suit against the
contractor for the forfeiture of the latter's bond posted to secure the faithful performance of
stipulations in the construction contract with regards to one of the two school buildings (Civil Case
No. 26815, Court of First Instance of Manila). The contractor has a similar bond with respect to the
other school building. Pursuant to Act 3688, plaintiff's legal remedy is, not to bring suit against the
Government, there being no privity of contract between them, but to intervene in the civil case
above-mentioned as an unpaid supplier of materials to the contractor, or file an action in the name of
the Republic against said contractor on the latter's other bond.

Plaintiff argues that an implied contract between it and the defendant Republic arose, when the
latter, thru the Director of Public Schools, on being furnished copies of the powers of attorney
executed by the contractor, promised to make payment to plaintiff for the materials supplied for the
construction of the school buildings. It will be observed, however, that defendant was not a party to
the execution of the powers of attorney. Besides, the Director of Public Schools had no authority to
bind defendant on the payment. While he was the official who entered into contract with the
contractor for the construction of the school buildings, payment of the contract price was not within
his exclusive control but subject to approval under existing laws not only by the Department Head
(Sec. 568, Rev. Adm, Code), but also by the Auditor General.

At any rate, under the facts alleged in the complaint, the powers of attorney in question made
plaintiff the contractor's agent in the collection of whatever amounts may be due the contractor from
the defendant. And since it is also alleged that, after the execution of the powers of attorney, the
contractor (principal) demanded and collected from defendant the money the collection of which he
entrusted to plaintiff, the agency apparently has already been revoked. (Articles 1920 and 1924, new
Civil Code.)

The point is made by plaintiff that the powers of attorney executed by the contractor in its favor are
irrevocable and are coupled with interest. But even supposing that they are, still their alleged

7
irrevocability cannot affect defendant who is not a party thereto. They are obligatory only on the
principal who executed the agency.

Plaintiff also cites Article 1729 of the new Civil Code, which provides that —

Those who put their labor upon or furnish materials for a piece of work undertaken by the
contractor have an action against the owner up to the amount owing from the latter to the
contractor at the time the claim is made. . . .

This article, however, as expressly provided in its last paragraph, "is subject to the provisions of
special law." The special law governing in the present case, as already seen, is Act No. 3688.

There is another reason for upholding the order of dismissal complained of. Plaintiff's action being a
claim for sum of money arising from an alleged implied contract between it and the Republic of the
Philippines, the same should have been lodged with the Auditor General. The state cannot be sued
without its consent.

In view of the foregoing, the order of dismissal appealed from is affirmed, with costs against plaintiff-
appellant.

Paras, C. J., Labrador, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, and
Barrera, JJ., concur.

8
G.R. No. L-40681 October 2, 1934

DY BUNCIO & COMPANY, INC., plaintiff-appelle,

vs.
ONG GUAN CAN, ET AL., defendants.
JUAN TONG and PUA GIOK ENG, appellants.

Pedro Escolin for appellants.

G. Viola Fernando for appellee.

HULL, J.:

This is a suit over a rice mill and camarin situated at Dao, Province of Capiz. Plaintiff claims that the
property belongs to its judgment debtor, Ong Guan Can, while defendants Juan Tong and Pua Giok
Eng claim as owner and lessee of the owner by virtue of a deed dated July 31, 1931, by Ong Guan
Can, Jr.

After trial the Court of First Instance of Capiz held that the deed was invalid and that the property
was subject to the execution which has been levied on said properties by the judgment creditor of
the owner. Defendants Juan Tong and Pua Giok bring this appeal and insist that the deed of the
31st of July, 1931, is valid.

The first recital of the deed is that Ong Guan Can, Jr., as agent of Ong Guan Can, the proprietor of
the commercial firm of Ong Guan Can & Sons, sells the rice-mill and camarin for P13,000 and gives
as his authority the power of attorney dated the 23d of May, 1928, a copy of this public instrument
being attached to the deed and recorded with the deed in the office of the register of deeds of Capiz.
The receipt of the money acknowledged in the deed was to the agent, and the deed was signed by
the agent in his own name and without any words indicating that he was signing it for the principal.

Leaving aside the irregularities of the deed and coming to the power of attorney referred to in the
deed and registered therewith, it is at once seen that it is not a general power of attorney but a
limited one and does not give the express power to alienate the properties in question. (Article 1713
of the Civil Code.)

Appellants claim that this defect is cured by Exhibit 1, which purports to be a general power of
attorney given to the same agent in 1920. Article 1732 of the Civil Code is silent over the partial
termination of an agency. The making and accepting of a new power of attorney, whether it enlarges
or decreases the power of the agent under a prior power of attorney, must be held to supplant and
revoke the latter when the two are inconsistent. If the new appointment with limited powers does not
revoke the general power of attorney, the execution of the second power of attorney would be a
mere futile gesture.lawphi1.net

The title of Ong Guan Can not having been divested by the so-called deed of July 31, 1931, his
properties are subject to attachment and execution.

The judgment appealed from is therefore affirmed. Costs against appellants. So ordered

9
G.R. No. 6906 September 27, 1911

FLORENTINO RALLOS, ET AL., plaintiff-appellee,

vs.
TEODORO R. YANGCO, defendant-appellant.

Mariano Escueta, for appellant.

Martin M. Levering, for appellees.

MORELAND, J.:

This is an appeal from a judgment of the Court of First Instance of the Province of Cebu, the Hon.
Adolph Wislizenus presiding, in favor of the plaintiffs, in the sum of P1,537.08, with interest at 6 per
cent per annum from the month of July, 1909, with costs.

The defendant in this case on the 27th day of November, 1907, sent to the plaintiff Florentino Rallos,
among others, the following letter:

CIRCULAR NO. 1.

MANILA, November 27, 1907

MR. FLORENTINO RALLOS, Cebu.

DEAR SIR: I have the honor to inform you that I have on this date opened in my steamship
office at No. 163 Muelle de la Reina, Binondo, Manila, P. I., a shipping and commission
department for buying and selling leaf tobacco and other native products, under the following
conditions:

1. When the consignment has been received, the consignor thereof will be credited with a
sum not to exceed two-thirds of the value of the goods shipped, which may be made
available by acceptance of a draft or written order of the consignor on five to ten day's sight,
or by his ordering at his option a bill of goods. In the latter case he must pay a commission of
2 per cent.

2. No draft or written order will be accepted without previous notice forwarding the
consignment of goods to guarantee the same.

3. Expenses of freight, hauling and everything necessary for duly executing the commission
will be charged in the commission.

4. All advances made under sections (1) and (3) shall bear interest at 10 per cent a year,
counting by the sale of the goods shipped or remittance of the amount thereof.

5. A commission of 2 ½ per cent will be collected on the amount realized from the sale of the
goods shipped.

6. A Payment will be made immediately after collection of the price of the goods shipped.

7. Orders will be taken for the purchase of general merchandise, ship-stores, cloths, etc.,
upon remittance of the amount with the commission of 2 per cent on the total value of the

10
 goods bought. Expenses of freight, hauling, and everything necessary for properly executing
the commission will be charged to the consignor.

8. The consignor of the good may not fix upon the consignee a longer period than four
months, counting from the date of receipt, for selling the same; with the understanding that
after such period the consignee is authorized to make the sale, so as to prevent the advance
and cost of storage from amounting to more than the actual value of said goods, as has often
happened.

9. The shipment to the consignors of the goods ordered on account of the amount realized
from the sale of the goods consigned and of the goods bought on remittance of the value
thereof, under sections (1) and (3), will not be insured against risk by sea and land except on
written order of the interested parties.

10. On all consignments of goods not insured according to the next preceding section, the
consignors will bear the risk.

11. All the foregoing conditions will take effect only after this office has acknowledged the
consignor's previous notice.

12. All other conditions and details will be furnished at the office of the undersigned.

If you care to favor me with your patronage, my office is at No. 163 Muelle de la Reinna,
Binondo, Manila, P. I., under the name of "Teodoro R. Yangco." In this connection it gives
me great pleasure to introduce to you Mr. Florentino Collantes, upon whom I have conferred
public power of attorney before the notary, Mr. Perfecto Salas Rodriguez, dated November
16, 1907, to perform in my name and on my behalf all acts necessary for carrying out my
plans, in the belief that through his knowledge and long experience in the business, along
with my commercial connections with the merchants of this city and of the provinces, I may
hope to secure the most advantageous prices for my patrons. Mr. Collantes will sign by
power of attorney, so I beg that you make due note of his signature hereto affixed.

Very respectfully,

(Sgd.) T. R. YANGCO.

(Sgd.) F. COLLANTES.

Accepting this invitation, the plaintiffs proceeded to do a considerable business with the defendant
through the said Collantes, as his factor, sending to him as agent for the defendant a good deal of
produce to be sold on commission. Later, and in the month of February, 1909, the plaintiffs sent to
the said Collantes, as agent for the defendant, 218 bundles of tobacco in the leaf to be sold on
commission, as had been other produce previously. The said Collantes received said tobacco and
sold it for the sum of P1,744. The charges for such sale were P206.96. leaving in the hands of said
Collantes the sum of P1,537.08 belonging to the plaintiffs. This sum was, apparently, converted to
his own use by said agent.

It appears, however, that prior to the sending of said tobacco the defendant had severed his
relations with Collantes and that the latter was no longer acting as his factor. This fact was not
known to the plaintiffs; and it is conceded in the case that no notice of any kind was given by the
defendant to the plaintiffs of the termination of the relations between the defendant and his agent.

11
The defendant refused to pay the said sum upon demand of the plaintiffs, placing such refusal upon
the ground that at the time the said tobacco was received and sold by Collantes he was acting
personally and not as agent of the defendant. This action was brought to recover said sum.

As is seen, the only question for our decision is whether or not the plaintiffs, acting in good faith and
without knowledge, having sent produce to sell on commission to the former agent of the defendant,
can recover of the defendant under the circumstances above set forth. We are of the opinion that the
defendant is liable. Having advertised the fact that Collantes was his agent and having given them a
special invitation to deal with such agent, it was the duty of the defendant on the termination of the
relationship of principal and agent to give due and timely notice thereof to the plaintiffs. Failing to do
so, he is responsible to them for whatever goods may have been in good faith and without
negligence sent to the agent without knowledge, actual or constructive, of the termination of such
relationship.

For these reasons the judgment appealed from is confirmed, without special finding as to costs.

Torres, Mapa, Johnson and Carson, JJ., concur.

12
G.R. No. L-6530 October 6, 1911

LA COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellant,

vs.
DIABA, defendant-appellee.

Orense and Gonzales diez, for appellant.

No appearance for appellee.

JOHNSON, J.:

On the 19th of July, 1909, the plaintiff commenced an action against the defendant in the Court of
First Instance of the Province of Leyte, for the purpose of recovering the sum of P442, for goods sold
and delivered by the plaintiff, through its agent (Gutierrez) to the defendant, between the 11th of
January, 1909, and the 1st of April, 1909.

To this complaint the defendant, in his special answer, admitted that he had purchased from the
agent of the plaintiff (Gutierrez) goods, wares, and merchandise, between the 12th of January, 1909,
and the 15th of March, 1909, amounting to the sum of P692, and that he had sold to the agent of the
plaintiff (Gutierrez) abaca and other effects, between the 25th of January, 1909, and the 6th of
February, 1909, amounting to P1,308.80, leaving a balance due him (the defendant) of P616.80. 1awphil.net

After hearing the evidence, the Hon. Charles A. Low, judge, found that the plaintiff was indebted to
the defendant in the sum of P616.80, and rendered a judgment against the plaintiff for said sum.
From that judgment the plaintiff appealed for said sum. From that judgment the plaintiff appealed
and made several assignments of error in this court.

An examination of the record brought to this court shows by a large preponderance of the evidence
that the agent of the plaintiff (Gutierrez) had been selling goods, wares, and merchandise to the
defendant, and buying abaca and other agricultural products of the defendant for a period covering
more than eight years; that the particular transactions to which the present action related took place
between the 11th of January, 1909, and the 1st of April, 1909. The plaintiff attempted to show that it
had suspended its agent (Gutierrez), as its agent, and that he (Gutierrez) had no further authority to
represent it (the plaintiff). There is no convincing proof in the record that the orders given by the
plaintiff to its agent (Gutierrez) had ever been communicated to the defendant. The defendant had a
perfect right to believe, until otherwise informed, that the agent of the plaintiff, in his purchase of
abaca and other effects was still representing the plaintiff in said transactions. The plaintiff, during
the trial of the cause, placed Gutierrez, its agent, upon the stand as a witness. He testified that the
abaca which was purchased of the defendant was purchased by him a agent of the plaintiff and that
said abaca was actually delivered to the plaintiff. The plaintiff, it appears, was perfectly willing to
ratify the acts of its agent in selling goods to the defendant, but seemed to be unwilling to ratify said
agent's acts in purchasing goods from the defendant.

Under all of the facts of record, we see no reason for modifying the judgment of the lower court; the
same is, therefore, hereby affirmed with costs.

Torres, Mapa, Carson and Moreland, JJ., concur.

13
G.R. No. L-18616 March 31, 1964

VICENTE M. COLEONGCO, plaintiff-appellant,

vs.
EDUARDO L. CLAPAROLS, defendant-appellee.

San Juan, Africa and Benedicto for plaintiff-appellant.

Alberto Jamir for defendant-appellee.

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

Appeal by plaintiff Vicente Coleongco from a decision of the Court of First Instance of Negros
Occidental (in its Civil Case No. 4170) dismissing plaintiff's action for damages, and ordering him to
pay defendant Eduardo Claparols the amount of P81,387.27 plus legal interest from the filing of the
counterclaim till payment thereof; P50,000 as moral and compensatory damages suffered by
defendant; and costs.

A writ of preliminary attachment for the sum of P100,000 was subsequently issued against plaintiff's
properties in spite of opposition thereto.

Plaintiff Coleongco, not being in conformity with the judgment appealed to this Court directly, the
claims involved being in excess of P200,000.

The antecedent facts as found by the trial court and shown by the records, are as follows:

Since 1951, defendant-appellee, Eduardo L. Claparols, operated a factory for the manufacture of
nails in Talisay, Occidental Negros, under the style of "Claparols Steel & Nail Plant". The raw
material, nail wire, was imported from foreign sources, specially from Belgium; and Claparols had a
regular dollar allocation therefor, granted by the Import Control Commission and the Central Bank.
The marketing of the nails was handled by the "ABCD Commercial" of Bacolod, which was owned by
a Chinaman named Kho To. 1äw phï1.ñët

Losses compelled Claparols in 1953 to look for someone to finance his imports of nail wires. At first,
Kho To agreed to do the financing, but on April 25, 1953, the Chinaman introduced his compadre,
appellant Vicente Coleongco, to the appellee, recommending said appellant to be the financier in the
stead of Kho To. Claparols agreed, and on April 25 of that year a contract (Exhibit B) was perfected
between them whereby Coleongco undertook to finance and put up the funds required for the
importation of the nail wire, which Claparols bound himself to convert into nails at his plant. It was
agreed that Coleongco would have the exclusive distribution of the product, and the "absolute care
in the marketing of these nails and the promotion of sales all over the Philippines", except the Davao
Agency; that Coleongco would "share the control of all the cash" from sales or deposited in banks;
that he would have a representative in the management; that all contracts and transactions should
be jointly approved by both parties; that proper books would be kept and annual accounts rendered;
and that profits and losses would be shared "on a 50-50 basis". The contract was renewed from one
year to year until 1958, and Coleongco's share subsequently increased by 5% of the net profit of the
factory (Exhibits D, E, F).

Two days after the execution of the basic agreement, Exhibit "B", on April 27, 1953, Claparols
executed in favor of Coleongco, at the latter's behest a special power of attorney (Exhibit C) to open
and negotiate letters of credit, to sign contracts, bills of lading, invoices, and papers covering
transactions; to represent appellee and the nail factory; and to accept payments and cash advances
from dealers and distributors. Thereafter, Coleongco also became the assistant manager of the

14
factory, and took over its business transactions, while Claparols devoted most of his time to the nail
manufacture processes.

Around mid-November of 1956, appellee Claparols was disagreeably surprised by service of an alias
writ of execution to enforce a judgment obtained against him by the Philippine National Bank,
despite the fact that on the preceding September he had submitted an amortization plan to settle the
account. Worried and alarmed, Claparols immediately left for Manila to confer with the bank
authorities. Upon arrival, he learned to his dismay that the execution had been procured because of
derogatory information against appellee that had reached the bank from his associate, appellant
Coleongco. On July 6, 1956, the latter, without appellee's knowledge, had written to the bank —

in connection with the verbal offer — for the acquisition by me of the whole interest of Mr.
Eduardo L. Claparols in the Claparols Steel & Nail Plant and the Claparols Hollow Blocks
Factory" (Exhibit 36);

and later, on October 29, 1956, Coleongco had written again the bank another letter (Exhibit 35),
also behind the back of appellee, wherein Coleongco charged Claparols with taking machines
mortgaged to the bank, and added - .

In my humble personal opinion I presume that Mr. Eduardo L. Claparols is not serious in
meeting his obligations with your bank, otherwise he had not taken these machines and
equipments a sign of bad faith since the factory is making a satisfactory profit of my
administration.

Fortunately, Claparols managed to arrange matters with the bank and to have the execution levy
lifted. Incensed at what he regarded as disloyalty of his attorney-in-fact, he consulted lawyers. The
upshot was that appellee revoked the power of attorney (Exhibit "C"), and informed Coleongco
thereof (Exhibits T, T-1), by registered mail, demanding a full accounting at the same time.
Coleongco, as could be expected, protested these acts of Claparols, but the latter insisted, and on
the first of January, 1957 wrote a letter to Coleongco dismissing him as assistant manager of the
plant and asked C. Miller & Company, auditors, to go over the books and records of the business
with a view to adjusting the accounts of the associates. These last steps were taken in view of the
revelation made by his machinery superintendent, Romulo Agsam, that in the course of the
preceding New Year celebrations Coleongco had drawn Agsam aside and proposed that the latter
should pour acid on the machinery to paralyze the factory. The examination by the auditors,
summarized in Exhibits 80 and 87, found that Coleongco owed the Claparols Nail Factory the
amount of P87,387.37, as of June 30, 1957.

In the meantime, Claparols had found in the factory files certain correspondence in February, 1955
between Coleongco and the nail dealer Kho To whereby the former proposed to Kho that the latter
should cut his monthly advances to Claparols from P2,000 to P1,000 a month, because —

I think it is time that we do our plan to take advantage of the difficulties of Eddie with the
banks for our benefit. If we can squeeze him more. I am sure that we can extend our contract
with him before it ends next year, and perhaps on better terms. If we play well our cards we
might yet own his factory (Exhibit 32);

and conformably to Coleongco's proposal, Kho To had written to Claparols that "due to present
business conditions" the latter could only be allowed to draw P1,000 a month beginning April, 1955
(Exhibit 33).

15
As the parties could not amicably settle their accounts, Coleongco filed a suit against Claparols
charging breach of contract, asking for accounting, and praying for P528,762.19 as damages, and
attorney's fees, to which Claparols answered, denying the charge, and counter-claiming for the
rescission of the agreement with Coleongco for P561,387.99 by way of damages. After trial, the
court rendered judgment, as stated at the beginning of this opinion.

In this appeal, it is first contended by the appellant Coleongco that the power of attorney (Exhibit "C")
was made to protect his interest under the financing agreement (Exhibit "B") and was one coupled
with an interest that the appellee Claparols had no legal power to revoke. This point can not be
sustained. The financing agreement itself already contained clauses for the protection of appellant's
interest, and did not call for the execution of any power of attorney in favor of Coleongco. But
granting appellant's view, it must not be forgotten that a power of attorney can be made irrevocable
by contract only in the sense that the principal may not recall it at his pleasure; but coupled with
interest or not, the authority certainly can be revoked for a just cause, such as when the attorney-in-
fact betrays the interest of the principal, as happened in this case. It is not open to serious doubt that
the irrevocability of the power of attorney may not be used to shield the perpetration of acts in bad
faith, breach of confidence, or betrayal of trust, by the agent for that would amount to holding that a
power coupled with an interest authorizes the agent to commit frauds against the principal.

Our new Civil Code, in Article 1172, expressly provides the contrary in prescribing that responsibility
arising from fraud is demandable in all obligations, and that any waiver of action for future fraud is
void. It is also on this principle that the Civil Code, in its Article 1800, declares that the powers of a
partner, appointed as manager, in the articles of co-partnership are irrevocable without just or lawful
cause; and an agent with power coupled with an interest can not stand on better ground than such a
partner in so far as irrevocability of the power is concerned.

That the appellee Coleongco acted in bad faith towards his principal Claparols is, on the record,
unquestionable. His letters to the Philippine National Bank (Exhibits 35 and 36) attempting to
undermine the credit of the principal and to acquire the factory of the latter, without the principal's
knowledge; Coleongco's letter to his cousin, Kho To (Exhibit 32), instructing the latter to reduce to
one-half the usual monthly advances to Claparols on account of nail sales in order to squeeze said
appellee and compel him to extend the contract entitling Coleongco to share in the profits of the nail
factory on better terms, and ultimately "own his factory", a plan carried out by Kho's letter, Exhibit 33,
reducing the advances to Claparols; Coleongco's attempt to, have Romulo Agsam pour acid on the
machinery; his illegal diversion of the profits of the factory to his own benefit; and the surreptitious
disposition of the Yates band resaw machine in favor of his cousin's Hong Shing Lumber Yard, made
while Claparols was in Baguio in July and August of 1956, are plain acts of deliberate sabotage by
the agent that fully justified the revocation of the power of attorney (Exhibit "C") by Claparols and his
demand for an accounting from his agent Coleongco.

Appellant attempts to justify his letter to the Philippine National Bank (Exhibits 35 and 36), claiming
that Claparols' mal-administration of the business endangered the security for the advances that he
had made under the financing contract (Exhibit "B"). But if that were the case, it is to be expected
that Coleongco would have first protested to Claparols himself, which he never did. Appellant
likewise denies the authorship of the letter to Kho (Exhibit 32) as well as the attempt to induce
Agsam to damage the machinery of the factory. Between the testimony of Agsam and Claparols and
that of Coleongco, the court below whose to believe the former, and we see no reason to alter the
lower court's conclusion on the value of the evidence before it, considering that Kho's letter to
Claparols (Exhibit 33) plainly corroborates and dovetails with the plan outlined in Coleongco's own
letter (Exhibit 32), signed by him, and that the credibility of Coleongco is affected adversely by his
own admission of his having been previously convicted of estafa (t.s.n., pp. 139, 276), a crime that
implies moral turpitude. Even disregarding Coleongco's letter to his son-in-law (Exhibit 82) that so

16
fully reveals Coleongco's lack of business scruples, the clear preponderance of evidence is against
appellant.

The same remarks apply to the finding of the trial court that it was appellant Coleongco, and not
Claparols, who disposed of the band resawing equipment, since said machine was received in July,
1956 and sold in August of that year to the Hong Shing Lumber Co., managed by appellant's cousin
Vicente Kho. The untruth of Coleongco's charge that Claparols, upon his return from Baguio in
September, 1956, admitted having sold the machine behind his associate's back is further evidenced
by (a) Coleongco's letter, Exhibit "V", dated October 29, 1956, inquiring the whereabouts of the
resaw equipment from Claparols (an inquiry incompatible with Claparols' previous admission); (b) by
the undenied fact that the appellee was in Baguio and Coleongco was acting for him during the
months of July and August when the machine was received and sold; and (c) the fact that as
between the two it is Coleongco who had a clear interest in selling the sawing machine to his cousin
Kho To's lumber yard. If Claparols wished to sell the machine without Coleongco's knowledge, he
would not have picked the latter's cousin for a buyer.

The action of plaintiff-appellant for damages and lost profits due to the discontinuance of the
financing agreement, Exhibit "B", may not prosper, because the record shows that the appellant
likewise breached his part of the contract. It will be recalled that paragraph 2 of the contract, Exhibit
"B", it was stipulated:

That the Party of the Second Part (Coleongco) has agreed to finance and put up all the
necessary money which may be needed to pay for the importation of the raw materials
needed by such nail factory and allocated by the ICC from time to time, either in cash of with
whatever suitable means which the Party of the Second Part may be able to make by
suitable arrangements with any well-known banking institution recognized by the Central
Bank of the Philippines.

Instead of putting up all the necessary money needed to finance the imports of raw material,
Coleongco merely advanced 25% in cash on account of the price and had the balance covered by
surety agreements executed by Claparols and others as solidary, (joint and several) guarantors (see
Exhibits G, H, I). The upshot of this arrangement was that Claparols was made to shoulder 3/4 of the
payment for the imports, contrary to the financing agreement. Paragraph 11 of the latter expressly
denied Coleongco any power or authority to bind Claparols without previous consultation and
authority. When the balances for the cost of the importations became due, Coleongco, in some
instances, paid it with the dealers' advances to the nail factory against future sales without the
knowledge of Claparols (Exhibits "K" to K-11, K-13). Under paragraphs 8 and 11 of the financing
agreement, Coleongco was to give preference to the operating expenses before sharing profits, so
that until the operating costs were provided for, Coleongco had no right to apply the factory's income
to pay his own obligations.

Again, the examination of the books by accountant Atienza of C. Miller and Co., showed that from
1954 onwards Coleongco (who had the control of the factory's cash and bank deposits, under
Paragraph 11 of Exhibit "B") never liquidated and paid in full to Claparols his half of the profits, so
that by the end of 1956 there was due to Claparols P38,068.41 on this account (Exhibit 91). For
1957 to 1958 Claparols financed the imports of nail wire without the help of appellant, and in view of
the latter's infringement of his obligations, his acts of disloyalty previously discussed, and his
diversions of factory funds (he even bought two motor vehicles with them), we find no justification for
his insistence in sharing in the factory's profit for those years, nor for the restoration of the revoked
power of attorney.

17
The accountant's reports and testimony (specially Exhibits 80 to 87) prove that as of June 30, 1957,
Coleongco owed to Claparols the sum of P83,466.34 that after some adjustment was reduced to
P81,387.37, practically accepted even by appellant's auditor. The alleged discrepancies between the
general ledger and the result thus arrived at was satisfactorily explained by accountant Atienza in his
testimony (t.s.n., 1173-1178).

No error was, therefore, committed by the trial court in declaring the financing contract (Exh. B)
properly resolved by Claparols or in rendering judgment against appellant in favor of appellee for the
said amount of P81,387.37. The basic rule of contracts requires parties to act loyally toward each
other in the pursuit of the common end, and appellant clearly violated the rule of good faith
prescribed by Art. 1315 of the new Civil Code.

The lower court also allowed Claparols P50,000 for damages, material, moral, and exemplary,
caused by the appellant Coleongco's acts in maliciously undermining appellee's credit that led the
Philippine National Bank to secure a writ of execution against Claparols. Undeniably, the attempts of
Coleongco to discredit and "squeeze" Claparols out of his own factory and business could not but
cause the latter mental anguish and serious anxiety, as found by the court below, for which he is
entitled to compensation; and the malevolence that lay behind appellee's actions justified also the
imposition of exemplary or deterrent damages (Civ. Code, Art. 2232). While the award could have
been made larger without violating the canons of justice, the discretion in fixing such damages
primarily lay in the trial court, and we feel that the same should be respected.

IN VIEW OF THE FOREGOING, the decision appealed from is affirmed. Costs against appellant
Vicente Coleongco.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Dizon, Regala
and Makalintal, JJ., concur.

18
G.R. No. L-28050 March 13, 1928

FEDERICO VALERA, plaintiff-appellant,

vs.
MIGUEL VELASCO, defendant-appellee.

Jose Martinez San Agustin for appellant.

Vicente O. Romualdez, Crispulo T. Manubay and Placido P. Reyes for appellee.

VILLA-REAL, J.:

This is an appeal taken by Federico Valera from the judgment of the Court of First Instance of Manila
dismissing his complaint against Miguel Velasco, on the ground that he has not satisfactorily proven
his right of action.

In support of his appeal, the appellant assigns the following alleged as committed by the trial court in
its judgment, to wit: (1) The lower court erred in holding that one of the ways of terminating an
agency is by the express or tacit renunciation of the agent; (2) the lower court erred in holding that
the institution of a civil action and the execution of the judgment obtained by the agent against his
principal is but renunciation of the powers conferred on the agent; (3) the lower erred in holding that,
even if the sale by Eduardo Hernandez to the plaintiff Federico Valera be declared void, such a
declaration could not prevail over the rights of the defendant Miguel Velasco inasmuch as the right
redemption was exercised by neither Eduardo Hernandez nor the plaintiff Federico Valera; (4) the
lower court erred in not finding that the defendant Miguel Velasco was, and at present is, an
authorized representative of the plaintiff Federico Valera; (5) the lower court erred in not annulling
the sale made by the sheriff at public auction to defendant Miguel Velasco, Exhibit K; (6) the lower
court erred in failing to annul the sale executed by Eduardo Hernandez to the plaintiff Federico
Valera, Exhibit C; (7) the lower court erred in not annulling Exhibit L, that is, the sale at public
auction of the right to repurchase the land in question to Salvador Vallejo; (8) the lower court erred in
not declaring Exhibit M null and void, which is the sale by Salvador Vallejo to defendant Miguel
Velasco; (9) the lower court erred in not ordering the defendant Miguel Velasco to liquidate his
accounts as agent of the plaintiff Federico Valera; (10) the lower court erred in not awarding plaintiff
the P5,000 damages prayed for.

The pertinent facts necessary for the solution of the questions raised by the above quoted
assignments of error are contained in the decision appealed from and are as follows:

By virtue of the powers of attorney, Exhibits X and Z, executed by the plaintiff on April 11,
1919, and on August 8, 1922, the defendant was appointed attorney-in-fact of the said
plaintiff with authority to manage his property in the Philippines, consisting of the usufruct of
a real property located of Echague Street, City of Manila.

The defendant accepted both powers of attorney, managed plaintiff's property, reported his
operations, and rendered accounts of his administration; and on March 31, 1923 presented
exhibit F to plaintiff, which is the final account of his administration for said month, wherein it
appears that there is a balance of P3,058.33 in favor of the plaintiff.

The liquidation of accounts revealed that the plaintiff owed the defendant P1,100, and as
misunderstanding arose between them, the defendant brought suit against the plaintiff, civil
case No. 23447 of this court. Judgment was rendered in his favor on March 28, 1923, and
after the writ of execution was issued, the sheriff levied upon the plaintiff's right of usufruct,
sold it at public auction and adjudicated it to the defendant in payment of all of his claim.

19
 Subsequently, on May 11, 1923, the plaintiff sold his right of redemption to one Eduardo
Hernandez, for the sum of P200 (Exhibit A). On September 4, 1923, this purchaser conveyed
the same right of redemption, for the sum of P200, to the plaintiff himself, Federico Valera
(Exhibit C).

After the plaintiff had recovered his right of redemption, one Salvador Vallejo, who had an
execution upon a judgment against the plaintiff rendered in a civil case against the latter,
levied upon said right of redemption, which was sold by the sheriff at public auction to
Salvador Vallejo for P250 and was definitely adjudicated to him. Later, he transferred said
right of redemption to the defendant Velasco. This is how the title to the right of usufruct to
the aforementioned property later came to vest the said defendant.

As the first two assignments of error are very closely related to each other, we will consider them
jointly.

Article 1732 of the Civil Code reads as follows:

Art. 1732. Agency is terminated:

1. By revocation;

2. By the withdrawal of the agent;

3. By the death, interdiction, bankruptcy, or insolvency of the principal or of the agent.

And article 1736 of the same Code provides that:

Art. 1736. An agent may withdraw from the agency by giving notice to the principal. Should
the latter suffer any damage through the withdrawal, the agent must indemnify him therefore,
unless the agent's reason for his withdrawal should be the impossibility of continuing to act
as such without serious detriment to himself.

In the case of De la Peña vs. Hidalgo (16 Phil., 450), this court said laid down the following rule:

1. AGENCY; ADMINISTRATION OF PROPERTY; IMPLIED AGENCY. — When the agent

and administrator of property informs his principal by letter that for reasons of health and
medical treatment he is about to depart from the place where he is executing his trust and
wherein the said property is situated, and abandons the property, turns it over to a third
party, renders accounts of its revenues up to the date on which he ceases to hold his
position and transmits to his principal statement which summarizes and embraces all the
balances of his accounts since he began the administration to the date of the termination of
his trust, and, without stating when he may return to take charge of the administration of the
said property, asks his principal to execute a power of attorney in due form in favor of a
transmit the same to another person who took charge of the administration of the said
property, it is but reasonable and just to conclude that the said agent had expressly and
definitely renounced his agency and that such agency duly terminated, in accordance with
the provisions of article 1732 of the Civil Code, and, although the agent in his
aforementioned letter did not use the words "renouncing the agency," yet such words, were
undoubtedly so understood and accepted by the principal, because of the lapse of nearly
nine years up to the time of the latter's death, without his having interrogated either the
renouncing agent, disapproving what he had done, or the person who substituted the latter.

20
The misunderstanding between the plaintiff and the defendant over the payment of the balance of
P1,000 due the latter, as a result of the liquidation of the accounts between them arising from the
collections by virtue of the former's usufructuary right, who was the principal, made by the latter as
his agent, and the fact that the said defendant brought suit against the said principal on March 28,
1928 for the payment of said balance, more than prove the breach of the juridical relation between
them; for, although the agent has not expressly told his principal that he renounced the agency, yet
neither dignity nor decorum permits the latter to continue representing a person who has adopted
such an antagonistic attitude towards him. When the agent filed a complaint against his principal for
recovery of a sum of money arising from the liquidation of the accounts between them in connection
with the agency, Federico Valera could not have understood otherwise than that Miguel Velasco
renounced the agency; because his act was more expressive than words and could not have caused
any doubt. (2 C. J., 543.) In order to terminate their relations by virtue of the agency the defendant,
as agent, rendered his final account on March 31, 1923 to the plaintiff, as principal.

Briefly, then, the fact that an agent institutes an action against his principal for the recovery of the
balance in his favor resulting from the liquidation of the accounts between them arising from the
agency, and renders and final account of his operations, is equivalent to an express renunciation of
the agency, and terminates the juridical relation between them.

If, as we have found, the defendant-appellee Miguel Velasco, in adopting a hostile attitude towards
his principal, suing him for the collection of the balance in his favor, resulting from the liquidation of
the agency accounts, ceased ipso facto to be the agent of the plaintiff-appellant, said agent's
purchase of the aforesaid principal's right of usufruct at public auction held by virtue of an execution
issued upon the judgment rendered in favor of the former and against the latter, is valid and legal,
and the lower court did not commit the fourth and fifth assignments of error attributed to it by the
plaintiff-appellant.

In regard to the third assignment of error, it is deemed unnecessary to discuss the validity of the sale
made by Federico Valera to Eduardo Hernandez of his right of redemption in the sale of his
usufructuary right made by the sheriff by virtue of the execution of the judgment in favor of Miguel
Velasco and against the said Federico Valera; and the same thing is true as to the validity of the
resale of the same right of redemption made by Eduardo Hernandez to Federico Valera; inasmuch
as Miguel Velasco's purchase at public auction held by virtue of an execution of Federico Valera's
usufructuary right is valid and legal, and as neither the latter nor Eduardo Hernandez exercised his
right of redemption within the legal period, the purchaser's title became absolute.

Moreover, the defendant-appellee, Miguel Velasco, having acquired Federico Valera's right of
redemption from Salvador Vallejo, who had acquired it at public auction by virtue of a writ of
execution issued upon the judgment obtained by the said Vallejo against the said Valera, the latter
lost all right to said usufruct.

And even supposing that Eduardo Hernandez had been tricked by Miguel Velasco into selling
Federico Valera's right of repurchase to the latter so that Salvador Vallejo might levy an execution on
it, and even supposing that said resale was null for lack of consideration, yet, inasmuch as Eduardo
Hernandez did not present a third party claim when the right was levied upon for the execution of the
judgment obtained by Vallejo against Federico Vallera, nor did he file a complaint to recover said
right before the period of redemption expired, said Eduardo Hernandez, and much less Federico
Valera, cannot now contest the validity of said resale, for the reason that the one-year period of
redemption has already elapsed.

Neither did the trial court err in not ordering Miguel Velasco to render a liquidation of accounts from
March 31, 1923, inasmuch as he had acquired the rights of the plaintiff by purchase at the execution

21
sale, and as purchaser, he was entitled to receive the rents from the date of the sale until the date of
the repurchase, considering them as part of the redemption price; but not having exercised the right
repurchase during the legal period, and the title of the repurchaser having become absolute, the
latter did not have to account for said rents.

Summarizing, the conclusion is reached that the disagreements between an agent and his principal
with respect to the agency, and the filing of a civil action by the former against the latter for the
collection of the balance in favor of the agent, resulting from a liquidation of the agency accounts,
are facts showing a rupture of relations, and the complaint is equivalent to an express renunciation
of the agency, and is more expressive than if the agent had merely said, "I renounce the agency."

By virtue of the foregoing, and finding no error in the judgment appealed from, the same is hereby
affirmed in all its parts, with costs against the appellant. So ordered.

Johnson, Malcolm, Villamor, Ostrand and Johns, JJ., concur.

22
G.R. No. 155541 January 27, 2004

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No.
09107, dated September 30, 2002,1 which reversed the November 19, 1995 Order of Regional Trial
Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, entitled "Testate Estate of Juliana Diez
Vda. De Gabriel". The petition was filed by the Estate of the Late Juliana Diez Vda. De Gabriel,
represented by Prudential Bank as its duly appointed and qualified Administrator.

As correctly summarized by the Court of Appeals, the relevant facts are as follows:

During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were
managed by the Philippine Trust Company (Philtrust). The decedent died on April 3, 1979.
Two days after her death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed
her Income Tax Return for 1978. The return did not indicate that the decedent had died.

On May 22, 1979, Philtrust also filed a verified petition for appointment as Special Administrator with
the Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp. Proc. No. R-82-6994. The court
a quo appointed one of the heirs as Special Administrator. Philtrust’s motion for reconsideration was
denied by the probate court.

On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his appointment, and
appointed Antonio Lantin to take over as Special Administrator. Subsequently, on July 30, 1981, Mr.
Lantin was also relieved of his appointment, and Atty. Vicente Onosa was appointed in his stead.

In the meantime, the Bureau of Internal Revenue conducted an administrative investigation on the
decedent’s tax liability and found a deficiency income tax for the year 1977 in the amount of
P318,233.93. Thus, on November 18, 1982, the BIR sent by registered mail a demand letter and
Assessment Notice No. NARD-78-82-00501 addressed to the decedent "c/o Philippine Trust
Company, Sta. Cruz, Manila" which was the address stated in her 1978 Income Tax Return. No
response was made by Philtrust. The BIR was not informed that the decedent had actually passed
away.

In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the
Commissioner and Auditor Tax Consultant of the Estate of the decedent.

On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and
levy to enforce collection of the decedent’s deficiency income tax liability, which were served upon
her heir, Francisco Gabriel. On November 22, 1984, respondent filed a "Motion for Allowance of
Claim and for an Order of Payment of Taxes" with the court a quo. On January 7, 1985, Mr.
Ambrosio filed a letter of protest with the Litigation Division of the BIR, which was not acted upon
because the assessment notice had allegedly become final, executory and incontestable.

23
On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a formal
opposition to the BIR’s Motion for Allowance of Claim based on the ground that there was no proper
service of the assessment and that the filing of the aforesaid claim had already prescribed. The BIR
filed its Reply, contending that service to Philippine Trust Company was sufficient service, and that
the filing of the claim against the Estate on November 22, 1984 was within the five-year prescriptive
period for assessment and collection of taxes under Section 318 of the 1977 National Internal
Revenue Code (NIRC).

On November 19, 1985, the court a quo issued an Order denying respondent’s claim against the
Estate,2 after finding that there was no notice of its tax assessment on the proper party.3

On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No.
09107,4 assailing the Order of the probate court dated November 19, 1985. It was claimed that
Philtrust, in filing the decedent’s 1978 income tax return on April 5, 1979, two days after the
taxpayer’s death, had "constituted itself as the administrator of the estate of the deceased at least
insofar as said return is concerned."5 Citing Basilan Estate Inc. v. Commissioner of Internal
Revenue,6 respondent argued that the legal requirement of notice with respect to tax
assessments7 requires merely that the Commissioner of Internal Revenue release, mail and send
the notice of the assessment to the taxpayer at the address stated in the return filed, but not that the
taxpayer actually receive said assessment within the five-year prescriptive period.8 Claiming that
Philtrust had been remiss in not notifying respondent of the decedent’s death, respondent therefore
argued that the deficiency tax assessment had already become final, executory and incontestable,
and that petitioner Estate was liable therefor.

On September 30, 2002, the Court of Appeals rendered a decision in favor of the respondent.
Although acknowledging that the bond of agency between Philtrust and the decedent was severed
upon the latter’s death, it was ruled that the administrator of the Estate had failed in its legal duty to
inform respondent of the decedent’s death, pursuant to Section 104 of the National Internal Revenue
Code of 1977. Consequently, the BIR’s service to Philtrust of the demand letter and Notice of
Assessment was binding upon the Estate, and, upon the lapse of the statutory thirty-day period to
question this claim, the assessment became final, executory and incontestable. The dispositive
portion of said decision reads:

WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED AND SET
ASIDE. Another one is entered ordering the Administrator of the Estate to pay the
Commissioner of Internal Revenue the following:

a. The amount of P318,223.93, representing the deficiency income tax liability for the
year 1978, plus 20% interest per annum from November 2, 1982 up to November 2,
1985 and in addition thereto 10% surcharge on the basic tax of P169,155.34
pursuant to Section 51(e)(2) and (3) of the Tax Code as amended by PD 69 and
1705; and

b. The costs of the suit.

SO ORDERED.9

Hence, the instant petition, raising the following issues:

1. Whether or not the Court of Appeals erred in holding that the service of deficiency tax
assessment against Juliana Diez Vda. de Gabriel through the Philippine Trust Company was
a valid service in order to bind the Estate;

24
 2. Whether or not the Court of Appeals erred in holding that the deficiency tax assessment
and final demand was already final, executory and incontestable.

Petitioner Estate denies that Philtrust had any legal personality to represent the decedent after her
death. As such, petitioner argues that there was no proper notice of the assessment which,
therefore, never became final, executory and incontestable.10 Petitioner further contends that
respondent’s failure to file its claim against the Estate within the proper period prescribed by the
Rules of Court is a fatal error, which forever bars its claim against the Estate.11

Respondent, on the other hand, claims that because Philtrust filed the decedent’s income tax return
subsequent to her death, Philtrust was the de facto administrator of her Estate.12 Consequently,
when the Assessment Notice and demand letter dated November 18, 1982 were sent to Philtrust,
there was proper service on the Estate.13 Respondent further asserts that Philtrust had the legal
obligation to inform petitioner of the decedent’s death, which requirement is found in Section 104 of
the NIRC of 1977.14 Since Philtrust did not, respondent contends that petitioner Estate should not be
allowed to profit from this omission.15 Respondent further argues that Philtrust’s failure to protest the
aforementioned assessment within the 30-day period provided in Section 319-A of the NIRC of 1977
meant that the assessment had already become final, executory and incontestable.16

The resolution of this case hinges on the legal relationship between Philtrust and the decedent, and,
by extension, between Philtrust and petitioner Estate. Subsumed under this primary issue is the sub-
issue of whether or not service on Philtrust of the demand letter and Assessment Notice No. NARD-
78-82-00501 was valid service on petitioner, and the issue of whether Philtrust’s inaction thereon
could bind petitioner. If both sub-issues are answered in the affirmative, respondent’s contention as
to the finality of Assessment Notice No. NARD-78-82-00501 must be answered in the affirmative.
This is because Section 319-A of the NIRC of 1977 provides a clear 30-day period within which to
protest an assessment. Failure to file such a protest within said period means that the assessment
ipso jure becomes final and unappealable, as a consequence of which legal proceedings may then
be initiated for collection thereof.

We find in favor of the petitioner.

The first point to be considered is that the relationship between the decedent and Philtrust was one
of agency, which is a personal relationship between agent and principal. Under Article 1919 (3) of
the Civil Code, death of the agent or principal automatically terminates the agency. In this instance,
the death of the decedent on April 3, 1979 automatically severed the legal relationship between her
and Philtrust, and such could not be revived by the mere fact that Philtrust continued to act as her
agent when, on April 5, 1979, it filed her Income Tax Return for the year 1978.

Since the relationship between Philtrust and the decedent was automatically severed at the moment
of the Taxpayer’s death, none of Philtrust’s acts or omissions could bind the estate of the Taxpayer.
Service on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501 was
improperly done.

It must be noted that Philtrust was never appointed as the administrator of the Estate of the
decedent, and, indeed, that the court a quo twice rejected Philtrust’s motion to be thus appointed. As
of November 18, 1982, the date of the demand letter and Assessment Notice, the legal relationship
between the decedent and Philtrust had already been non-existent for three years.

Respondent claims that Section 104 of the National Internal Revenue Code of 1977 imposed the
legal obligation on Philtrust to inform respondent of the decedent’s death. The said Section reads:

25
 SEC. 104. Notice of death to be filed. – In all cases of transfers subject to tax or where,
though exempt from tax, the gross value of the estate exceeds three thousand pesos, the
executor, administrator, or any of the legal heirs, as the case may be, within two months after
the decedent’s death, or within a like period after qualifying as such executor or
administrator, shall give written notice thereof to the Commissioner of Internal Revenue.

The foregoing provision falls in Title III, Chapter I of the National Internal Revenue Code of
1977, or the chapter on Estate Tax, and pertains to "all cases of transfers subject to tax" or
where the "gross value of the estate exceeds three thousand pesos". It has absolutely no
applicability to a case for deficiency income tax, such as the case at bar. It further lacks
applicability since Philtrust was never the executor, administrator of the decedent’s estate,
and, as such, never had the legal obligation, based on the above provision, to inform
respondent of her death.

Although the administrator of the estate may have been remiss in his legal obligation to
inform respondent of the decedent’s death, the consequences thereof, as provided in
Section 119 of the National Internal Revenue Code of 1977, merely refer to the imposition of
certain penal sanctions on the administrator. These do not include the indefinite tolling of the
prescriptive period for making deficiency tax assessments, or the waiver of the notice
requirement for such assessments.

Thus, as of November 18, 1982, the date of the demand letter and Assessment Notice No.
NARD-78-82-00501, there was absolutely no legal obligation on the part of Philtrust to either
(1) respond to the demand letter and assessment notice, (2) inform respondent of the
decedent’s death, or (3) inform petitioner that it had received said demand letter and
assessment notice. This lack of legal obligation was implicitly recognized by the Court of
Appeals, which, in fact, rendered its assailed decision on grounds of "equity".17

Since there was never any valid notice of this assessment, it could not have become final, executory
and incontestable, and, for failure to make the assessment within the five-year period provided in
Section 318 of the National Internal Revenue Code of 1977, respondent’s claim against the
petitioner Estate is barred. Said Section 18 reads:

SEC. 318. Period of limitation upon assessment and collection. – Except as provided in the
succeeding section, internal revenue taxes shall be assessed within five years after the
return was filed, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period. For the purpose of this section, a
return filed before the last day prescribed by law for the filing thereof shall be considered as
filed on such last day: Provided, That this limitation shall not apply to cases already
investigated prior to the approval of this Code.

Respondent argues that an assessment is deemed made for the purpose of giving effect to such
assessment when the notice is released, mailed or sent to the taxpayer to effectuate the
assessment, and there is no legal requirement that the taxpayer actually receive said notice within
the five-year period.18 It must be noted, however, that the foregoing rule requires that the notice be
sent to the taxpayer, and not merely to a disinterested party. Although there is no specific
requirement that the taxpayer should receive the notice within the said period, due process requires
at the very least that such notice actually be received. In Commissioner of Internal Revenue v.
Pascor Realty and Development Corporation,19 we had occasion to say:

An assessment contains not only a computation of tax liabilities, but also a demand for
payment within a prescribed period. It also signals the time when penalties and interests

26
 begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies
thereon, due process requires that it must be served on and received by the taxpayer.

In Republic v. De le Rama,20 we clarified that, when an estate is under administration, notice must be
sent to the administrator of the estate, since it is the said administrator, as representative of the
estate, who has the legal obligation to pay and discharge all debts of the estate and to perform all
orders of the court. In that case, legal notice of the assessment was sent to two heirs, neither one of
whom had any authority to represent the estate. We said:

The notice was not sent to the taxpayer for the purpose of giving effect to the assessment,
and said notice could not produce any effect. In the case of Bautista and Corrales Tan v.
Collector of Internal Revenue … this Court had occasion to state that "the assessment is
deemed made when the notice to this effect is released, mailed or sent to the taxpayer for
the purpose of giving effect to said assessment." It appearing that the person liable for the
payment of the tax did not receive the assessment, the assessment could not become final
and executory. (Citations omitted, emphasis supplied.)

In this case, the assessment was served not even on an heir of the Estate, but on a completely
disinterested third party. This improper service was clearly not binding on the petitioner.

By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2) Philtrust
was remiss in its obligation to respond to the demand letter and assessment notice, (3) Philtrust was
remiss in its obligation to inform respondent of the decedent’s death, and (4) the assessment notice
is therefore binding on the Estate, respondent is arguing in circles. The most crucial point to be
remembered is that Philtrust had absolutely no legal relationship to the deceased, or to her Estate.
There was therefore no assessment served on the Estate as to the alleged underpayment of tax.
Absent this assessment, no proceedings could be initiated in court for the collection of said tax,21 and
respondent’s claim for collection, filed with the probate court only on November 22, 1984, was
barred for having been made beyond the five-year prescriptive period set by law.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No.
09107, dated September 30, 2002, is REVERSED and SET ASIDE. The Order of the Regional Trial
Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, dated November 19, 1985, which
denied the claim of the Bureau of Internal Revenue against the Estate of Juliana Diez Vda. De
Gabriel for the deficiency income tax of the decedent for the year 1977 in the amount of
P318,223.93, is AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Panganiban, and Carpio, JJ., concur.

Azcuna, J., on official leave.

27
G.R. No. L-11415 May 25, 1959

MANUEL BUASON and LOLITA M. REYES, plaintiffs-appellants,

vs.
MARIANO PANUYAS, defendant-appellee.

Garcia and Jacinto, for appellants.

Servando Cleto for appellee.

PADILLA, J.:

This is an appeal from a judgment of the Court of First Instance of Nueva Ecija dismissing an action
brought by the spouses Manuel Buason and Lolita M. Reyes for annulment of a deed of sale in favor
of the defendant, cancellation of transfer certificate of title No. 8419 issued in the name of the
defendant and his wife, declaration that the sale in their favor is valid, recovery of possession of the
parcel of land described in the complaint from the defendant, damages, attorney's fees and costs.
(Civil No. 2144.)

In their lifetime the spouses Buenaventura Dayao and Eugenia Vega acquired by homestead patent
a parcel of land situated at barrio Gabaldon, municipality of Muñoz, province of Nueva Ecija,
containing an area of 14.8413 hectares covered by original certificate of title No. 1187 (Exhibit C).
On 29 October 1930 they executed a power of attorney authorizing Eustaquio Bayuga to engage the
services of an attorney to prosecute their case against Leonardo Gambito for annulment of a
contract of sale of the parcel of land (civil No. 5787 of the same court) and after the termination of
the case in their favor to sell it, and from the proceeds of the sale to deduct whatever expenses he
had incurred in the litigation (Exhibit B). On 14 March 1934 Buenaventura Dayao died leaving his
wife Eugenia Vega and children Pablo, Teodoro, Fortunata and Juliana, all surnamed Dayao. On 21
march 1939 his four children executed a deed of sale conveying 12.8413 hectares of the parcel of
land to the appellants, the spouses Manuel Buason and Lolita M. Reyes (Exhibit A). Their mother
Eugenia Vega affixed her thumbmark to the deed of sale as witness (Exhibit A). The appellants took
possession of the parcel of land through their tenants in 1939. On 18 July 1944 Eustaquio Bayuga
sold 8 hectares of the same parcel of land to the spouses Mariano Panuyas (appellee herein) and
Sotera B. Cruz (Exhibit D). Eustaquio Bayuga died on 25 March 1946 and Eugenia Vega in 1954.

The appellants and the appellee claim ownership to the same parcel of land. In their complaint the
appellants prayed that the appellee be ordered to deliver possession of the part of the parcel of land
held by him; that the deed of sale of that part of the parcel of land held by the appellee executed by
Eustaquio Bayuga in his favor and of his wife (Exhibit D) be declared null and void and that transfer
certificate of title No. 8419 issued in their name be cancelled; that the deed of sale of the parcel of
land executed by the children and heirs of Buenaventura Dayao in their favor (Exhibit A) be declared
valid; that the appellee be ordered to pay them damages and attorney's fees in the sum of P9,600;
and that he ordered to pay the costs of the suit. The appellees affirmative defenses are that he and
his wife were buyers in good faith and for valuable consideration; that appellant's causes of action
are barred by the statute of limitations; that the complaint states no cause of action; that the claim on
which their action is based is unenforceable under the statute of frauds; and that the appellants are
guilty of laches. By way of counterclaim, he prayed that for bringing a clearly unfounded suit against
him which depreciated the value of the land and injured his good reputation, the appellants be
ordered to pay him the sums of P5,000 as actual damages and P10,000 as moral damages.

After trial on 20 August 1956 the Court rendered judgment holding that the appellants' action is
barred by the statute of limitations and dismissing their complaint. Their motion for reconsideration
filed on 23 August 1956. Hence this appeal upon questions of law.

28
It appears that the appellants did not register the sale of 12.8413 hectares of the parcel of land in
question executed in their favor by the Dayao children on 21 March 1939 after the death of their
father Buenaventura Dayao. On the other hand, the power of attorney executed by Buenaventura
Dayao on 29 October 1930 authorizing Eustaquio Bayuga to sell the parcel of land (Exhibit B) was
annotated or inscribed on the back of the original certificate of title No. 1187 (Exhibit C) as Entry No.
16836/H-1187, and the sale executed by Eustaquio Bayuga in favor of the appellee Mariano
Panuyas and his wife Sotera B. Cruz under the aforesaid power of attorney was annotated or
inscribed on the back of the same original certificate of title (Exhibit C) as Entry No 778/H-1187. It
does not appear that the appellee and his wife had actual knowledge of the previous sale. In the
absence of such knowledge, they had a right to rely on the face of the certificate of title of the
registered owners and of the authority conferred by them upon the agent also recorded on the back
of the certificate of title. As this is a case of double sale of land registered under the Land
Registration Act, he who recorded the sale in the Registry of Deeds has a better right than he who
did not.1

As to the appellants' contention that, as the death of the principal on 14 March 1934 ended the
authority of the agent,2 the sale of 8 hectares of the parcel of land by the agent to the appellee
Mariano Panuyas and his wife Sotera B. Cruz was null and void, suffice it to state that is has not
been shown that the agent knew of his principal's demise, and for that reason article 1738, old Civil
code or 1931, new Civil Code, which provides:

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 is the law applicable to the point raised by the appellants.

The judgment appealed from is affirmed, with costs against the appellants.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion and
Endencia, JJ., concur.

29
G.R. No. 177086 December 5, 2012

ALBERT M. CHING and ROMEO J. BAUTISTA, Petitioners,

vs.
FELIX M. BANTOLO, ANTONIO O. ADRIANO and EULOGIO STA. CRUZ JR., substituted by his
children, represented by RAUL STA. CRUZ JR., Respondents.

DECISION

DEL CASTILLO, J.:

"It is essential that for damages to be awarded, a claimant must satisfactorily prove during the trial
that they have a factual basis and that the defendant’s acts have a casual connection to them"1

this Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the Decision3 dated
July 31, 2006 and the Resolution4 dated March 12, 2007 of the Court of Appeals (CA) in CA-G.R. CV
No. 79886.

Factual Antecedents

Respondents Felix M. Bantolo (Bantolo), Antonio O. Adriano and Eulogio Sta Cruz,5 Jr. are owners of
several parcels of land situated in Tagaytay City, to wit:

Registered owner:

Felix M. Bantolo - Original Certificates of Title (OCT) Nos. 787, 788, 789 & 799

Antonio O. Adriano - OCT Nos. 793, 805, 806 & 807

Eulogio Sta. Cruz, Jr. - OCT Nos. 790, 791, 800 & 801.6

On April 3, 2000, respondents executed in favor of petitioners Albert Ching (Ching) and Romeo J.
Bautista a Special Power of Attorney (SPA)7 authorizing petitioners to obtain a loan using
respondents’ properties as collateral. Pertinent portions of the SPA are reproduced below:

1. To borrow money and apply for and secure a loan on their account with any bank or financial
institution in such sum or sums which the herein Attorney-in-fact shall [deem] fit and advisable and
the maximum extent of which shall be the loanable value of our real properties based on the
attached appraisal report of Asian Appraisal Co., Inc. dated March 24, 1995 on the "Fair Market
Value Appraisal" of said realties and/or parcels of land registered in our names respectively in the
Registry of Deeds of Tagaytay City and located thereat, to wit:

Registrant

1. OCT NO. OP-790 Eulogio Sta. Cruz, Jr.

2. OCT NO. OP-791 -do-

3. OCT NO. OP-800 -do-

30
 4. OCT NO. OP-801 -do-

5. OCT NO. OP-793 Antonio O. Adriano

6. OCT NO. OP-805 -do-

7. OCT NO. OP-806 -do-

8. OCT NO. OP-807 -do-

9. OCT NO. OP-787 Felix M. Bantolo

10. OCT NO. OP-788 -do-

11. OCT NO. OP-789 -do-

12. OCT NO. OP-799 –do

the photocopies of which certificates of title are hereto attached and made integral parts hereof, and
we hereby authorize and/or vest authority unto the herein attorney-in-fact to deed, convey, and
transfer by way of first mortgage all our rights of ownership and interest over the said parcels as
technically described in and covered by the aforementioned original certificates of title in favor of any
bank or financial institution of their choice, judgment and discretion subject to the usual conditions or
such other terms which may be imposed by said bank or financial institutions, in order to secure and
ensure the repayment of any loan indebtedness or obligation which our herein attorneys-in-fact may
obtain by virtue of this power and authority with the further authority to receive the proceeds of such
loan whether in cash, check or other bills of exchange with the corresponding obligation on the part
of the attorney-in-fact to account for or render an accounting of the loan proceeds to us or in our
favor;

2. To sign, execute, and deliver any deed or deeds of real estate mortgage over the
aforestated parcels of land and the certificates of title covering the same in favor of the
lending bank or financial institution or to secure any surety agreement, bond or undertaking
with any Surety Company who may issue a surety or performance bond to ensure the
repayment of any loan taken or obtained by our herein Attorneys-in-fact pursuant to the
herein special power of attorney;

3. To do and perform any or all acts which may be necessary to carry out and/or implement
the foregoing powers and authority vested by us unto aforenamed attorney-in-fact.

4. GIVING and GRANTING, as well as ratifying and confirming all acts and things which our
said Attorney-in-fact will do and perform or has done and performed in or about the premises
which acts and things done or performed or still to be done or performed are, for all legal
intents and purpose are our own as if we ourselves were personally present.8

Without notice to petitioners, respondents executed a Revocation of Power of Attorney9 effective at

the end of business hours of July 17, 2000.10

On July 18, 2000, the Philippine Veterans Bank (PVB) approved the loan application of petitioner
Ching in the amount of P25 million for a term of five years subject to certain conditions, to wit:

31
 1) Third party mortgages acceptable. Within one (1) year, however, all mortgaged properties
should be in the name of American Boulevard or Albert Ching;

2) Submission of new tax declarations free from claimants;

3) Submission of certification/clearance from DENR that said properties are not subject to
forest reserve;

4) To require right of way of at least 6 meters wide which can be used as an actual access
road.11

On July 31, 2000, petitioner Ching thru a letter12 informed respondents of the approval of the loan.13

Sometime in the first week of August 2000, petitioners learned about the revocation of the
SPA.14 Consequently, petitioners sent a letter15 to respondents demanding that the latter comply with
the agreement by annulling the revocation of the SPA.16

On September 8, 2000, petitioners filed before the Regional Trial Court (RTC) of Quezon City a
Complaint17 for Annulment of Revocation of SPA, Enforcement of SPA and/or interest in the
properties covered by said SPA and Damages against respondents. Petitioners later amended18 the
Complaint, docketed as Q00-41851, to include an alternative prayer to have them declared as the
owners of one-half of the properties covered by the SPA.19

Petitioners alleged that the SPA is irrevocable because it is a contract of agency coupled with
interest.20 According to them, they agreed to defray the costs or expenses involved in processing the
loan because respondents promised that they would have an equal share in the proceeds of the loan
or the subject properties.21

In their Answer,22 respondents contended that petitioners have no cause of action.23 Respondents
alleged that they executed the SPA in favor of petitioners because of their assurance that they would
be able to get a loan in the amount of P50 million and that P30 million would be given to
respondents within a month’s time.24 When the one-month period expired, respondents complained to
petitioner Ching and asked him to advance the amount of P500,000.00.25 Petitioner Ching acceded to
their request on the condition that they hand over to him the original titles for
safekeeping.26 Respondents, in turn, asked petitioner Ching to give them P1 million in exchange for
the titles.27 Petitioner Ching agreed and so they gave him the titles.28 However, he never gave them
the money.29 They asked him to return the titles, but he refused.30 Later, they were informed that the
loan was approved in the amount of P25 million and that their share would be P6 million.31 Since it
was not the amount agreed upon, respondents revoked the SPA and demanded the return of the
titles.32

Ruling of the Regional Trial Court

On December 18, 2002, the RTC rendered a Decision33 in favor of petitioners. It upheld the validity of
the SPA and declared its revocation illegal and unjust.34 But although the SPA was declared valid, the
RTC held that it could no longer be enforced because the circumstances present at the time of its
execution have changed.35 For this reason, the RTC found respondents liable for all the damages
caused by the illegal revocation.36 The RTC also declared petitioners owners of one-half of the
subject properties.37 As to the deficiency in the payment of the docket fees, if any, the RTC ruled that
it would be considered a lien on the judgment.38 Thus:

32
WHEREFORE, premises considered, judgment is hereby rendered declaring the [petitioners] to be
the owners of 50% or one-half, pro-indiviso, of all the parcels of lands covered by OCT Nos. OP-787,
OP-788, OP-789, OP-799, OP-793, OP-805, OP-806, OP-807, OP-790, OP-791, OP-800 and OP-
801.

Furthermore, [respondents] are ordered to pay [petitioners] jointly and solidarily the following sums,
to wit:

1. As actual damages:

a. The amount covered by the receipts which the [petitioners] used in procuring the
loan after the SPA was executed amounting to P949,960.40; and

b. The amount of P500,000.00 as actual damages for the amount paid out to the
[respondents] in exchange for the original certificates of title;

2. As moral damages, the amount of Php500,000.00 in favor [of] Albert M. Ching;

3. As exemplary damages, the amount of Php100,000.00; and

4. As attorney’s fees, the amount of Php100,000.00.

No costs.

SO ORDERED.39

Aggrieved, respondents elevated the case to the CA.

Pending appeal, a Motion for Intervention with attached Petition-in- Intervention40 was filed by First
Aikka Development, Inc. and Sadamu Watanabe. They alleged that respondents individually
executed Deeds of Irrevocable SPAs authorizing Tagaytay and Taal Management Corporation
(TTMC), represented by its Japanese President Wataru Minagawa, to sell, lease, mortgage, or
administer the subject properties;41 and that by virtue of the said SPAs, they entered into a
Memorandum of Agreement and a Supplement to Memorandum of Agreement with respondents and
TTMC, whereby respondents agreed to sell the subject property to them.42 Thus, they prayed that the
Decision of the RTC be vacated and set aside, and that judgment be rendered in their favor.43

Ruling of the Court of Appeals

On June 15, 2004, the CA issued a Resolution44 denying the Motion for Intervention for being filed out
of time.

On July 31, 2006, the CA modified the Decision of the RTC. The CA ruled that petitioners are not
entitled to one-half of the subject properties because it is contrary to human experience for a person
to give one-half of his property to someone he barely knows.45 The CA likewise ruled that petitioners
are not entitled to reimbursement because they failed to show that the receipts presented in
evidence were incurred in relation to the loan application.46 As to the award of exemplary damages,
the CA deleted the same because respondents did not act in a wanton, fraudulent, reckless,
oppressive or malevolent manner.47 The decretal portion of the CA Decision reads:

WHEREFORE, premises considered, the assailed decision is hereby MODIFIED as follows:

33
 1. The Revocation of the Power of Attorney executed by the [respondents] is hereby
declared null and void. The Special Power of Attorney dated April 3, 2000 is considered valid
and subsisting;

2. The amount of P500,000.00 paid by the [petitioner] Ching to the [respondents] should be
deducted from the amount to be loaned;

3. The expenses incurred and to be incurred in the processing of the loan application must
be borne by the [petitioners] alone;

4. The [petitioners] are not entitled to the one-half of all the parcerls of land covered by OCT
Nos. OP-787, OP-788, OP-789, OP-799, OP-793, OP- 805, OP-806, OP-807, OP-790, OP-
791, OP-800 and OP-801; and

5. The award of moral damages in the amount of P500,000.00 and attorney’s fees in the
amount of P100,000.00 are in order. The award of exemplary damages is deleted.

SO ORDERED.48

Petitioners moved for reconsideration but the CA denied the same in a Resolution49 dated March 12,
2007.

Issues

Hence, this petition raising the following issues:

A.

WHETHER X X X THE [CA] ERRED IN RULING THAT PETITIONERS’ RECOVERY OF

THE ACTUAL DAMAGES IN THE AMOUNT OF PHP500,000.00 BE MADE CONTINGENT
UPON THE OBTENTION OF A LOAN THROUGH THE SUBJECT SPECIAL POWER OF
ATTORNEY, WHICH THE RESPONDENTS, IN THE FIRST PLACE, REFUSED TO HONOR
AND REVOKED IN BAD FAITH AND ILLEGALLY.

B.

WHETHER X X X THE [CA] ERRED IN RULING THAT THE PETITIONERS ARE NOT
ENTITLED TO ONE-HALF OF THE RESPONDENTS’ PROPERTIES DESPITE THE
FINDING OF THE [RTC] THAT THE CONSIDERATION THEREFOR WAS THAT THE
PETITIONERS SHALL PAY FOR THE LOAN TO BE OBTAINED UTILIZING THE
RESPONDENTS’ PROPERTIES AND THE FINDING OF THE [RTC] THAT PETITIONER
CHING, TO HIS GRAVE PREJUDICE, FAILED TO UTILIZE THE PROCEEDS OF THE
LOAN FOR THE LATTER’S BUSINESS PLAN AS WELL AS TO RECOVER HIS SHARE IN
THE EXPENSES, WHICH PETITIONER CHING ADVANCED IN PROCURING THE LOAN.

C.

WHETHER X X X THE [CA] ERRED IN RULING THAT THE EXPENSES INCURRED AND
TO BE INCURRED BY THE PETITIONERS IN APPLYING FOR A LOAN THROUGH THE
SPA SHOULD BE BORNE BY THE PETITIONER[S] DESPITE THE EXISTENCE OF AN
AGREEMENT TO THE CONTRARY BETWEEN THE PETITIONERS AND

34
 RESPONDENTS, THE EXISTENCE OF WHICH AGREEMENT WAS DULY FOUND BY
THE [RTC].

D.

WHETHER X X X THE [CA] ERRED IN RULING THAT RESPONDENTS ARE NOT LIABLE
TO PAY EXEMPLARY DAMAGES FOR REVOKING THE SPA IN BAD FAITH ON THE
RATIOCINATION THAT THE RESPONDENTS DID NOT ACT IN A WANTON,
FRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENT MANNER BECAUSE THE
RESPONDENTS WERE PURPORTEDLY UNSATISFIED WITH THE AMOUNT OF THE
LOAN APPROVED.50

Petitioners’ Arguments

Petitioners, in essence, seek the reinstatement of the Decision of the RTC.51 They contend that the
CA’s directive that the actual damages in the amount of P500,000.00 be deducted from the amount
to be loaned, is a conditional judgment, and thus, null and void.52 In addition, they claim that they are
entitled to one-half of the subject properties,53 and to reimbursement of all expenses incurred in
procuring the loan.54 Finally, they impute error on the part of the CA in deleting the award for
exemplary damages, contending that the revocation was done by respondents in a malevolent and
oppressive manner.55

Respondents’ Arguments

Respondents, on the other hand, argue that the judgment was not conditional because the CA
categorically declared respondents liable to return the amount of P500,000.00 to petitioner
Ching.56 They insist that they never agreed to give petitioners one-half of their respective
properties.57 Neither did they agree to reimburse petitioner Ching all the expenses incurred in
obtaining the loan.58 Petitioner Ching, in fact, admitted in court that he agreed to shoulder all the
expenses.59 Also, petitioners are not entitled to exemplary damages because when respondents
revoked the SPA, they did not act in a wanton, fraudulent, reckless, oppressive or malevolent
manner.60

Our Ruling

The petition is partly meritorious.

There is no question that the SPA executed by respondents in favor of petitioners is a contract of
agency coupled with interest.61 This is because their bilateral contract depends upon the
agency.62 Hence, it "cannot be revoked at the sole will of the principal."63

The only issue therefore is the extent of the liability of respondents and the damages to be awarded
to petitioners.

Petitioner Ching is entitled to actual

damages in the amount of P500,000.00
without any condition.

In exchange for his possession of the titles, petitioner Ching advanced the amount of P500,000.00 to
respondents. Considering that the loan application with PVB did not push through, respondents are
liable to return the said amount to petitioner Ching.

35
In ordering the award of P500,000.00, the CA decreed:

2. The amount of P500,000.00 paid by the [petitioner] Ching to the [respondents] should be
deducted from the amount to be loaned;64

Obviously, the language employed by the CA made the judgment conditional. The return of the
amount of P500,000.00 should not depend on the happening of a future event.65 Whether or not a
loan is obtained by petitioners, respondents are liable to pay the amount of P500,000.00 as actual
damages. Thus, the dispositive portion of the CA Decision should be modified by ordering
respondents to pay actual damages in the amount of P500,000.00, without any condition.

Petitioners are not entitled to one-half

of the subject properties.

As to petitioners’ claim to one-half of the subject properties, we agree with the CA that:

x x x it is far from human experience that a person will give half of his property to another person
whom he barely knows. It is clear from the records of the case that the [respondents] do not know
[petitioner] Ching. It was [petitioner] Bautista who introduced him to [respondent] Bantolo. The
[respondents] agreed to give an SPA to Ching, because they were informed that the latter could help
them secure a loan with their pieces of property as collateral. No one in his right mind would
definitely agree to give half of his property to another. It is certain that they agreed that they would
share in the proceeds of the loan but not in the property. Hence, [petitioners] are not entitled to
one-half of the property.[66 (Emphasis supplied)

In fact, other than petitioner Ching’s self-serving testimony,67 no evidence was presented to show that
respondents agreed to give one-half of the properties to petitioners.

Petitioners are not entitled to

reimbursement of all the expenses
incurred in obtaining a loan.

Petitioner Ching testified in court that he agreed to shoulder all the expenses, to wit:

Atty. Figueroa:

Mr. Witness, during your testimony in the last hearing, you said that [respondent] Bantolo
approached you and proposed a business transaction with you, basically using a property, parcels of
land, as collateral for a bank loan, which you are supposed to take care of. Now, you also testified in
the last hearing that you will personally take care of the [loan application], and in fact, this loan
application was approved by Philippine Veterans Bank. Now, by way of recapitulation, Mr. Witness,
can you please tell us who will shoulder the expenses that will be incurred in the processing of this
loan application?

A - I will shoulder everything.

Q - But you have an agreement with [respondent] Bantolo, and pursuant to this agreement, Mr.
Witness, once the application for loan was approved, what will happen?

A - According to him, we will share 50-50 [in] the amount that we will pay and I have the option to
choose between the money, if the same is small [or] to take the 50% of the property.

36
Q - That sharing agreement, Mr. Witness, is premised on the condition that the loan application will
be approved. What happens, now, Mr. witness, if the loan is not approved by the bank[?] What
happens specifically to the expenses that you have incurred in the processing of the loan
application[?]

Atty. Noel:

Objection, your Honor. That question was already asked. In fact, the witness started on a general
term, without any condition, that he will shoulder all the expenses. He did not qualify whether the
loan will be approved or not. It has been answered already.

Court:

We are at the stage of direct examination. In the interest of truth, you answer.

A - I asked them about that but they told me that they don’t have money to pay me, so I shouldered
all the expenses. I took the risk of shouldering all the expenses.

Atty. Figueroa:

You said you took the risk. Will you be more specific what do you mean by this risk that you took, as
1âwphi1

far as the expenses are concerned?

A - What I mean, sir, is that I will not be able to recover all my expenses if the loan is not
granted by the Philippine Veterans Bank.[68 (Emphasis supplied)

For this reason, we find that petitioners are not entitled to the reimbursement of the expenses they
have incurred in applying for the loan.

Besides, petitioners failed to show that the receipts submitted as evidence were incurred in relation
to the loan application.69 As aptly pointed out by the CA, majority of the receipts were incurred abroad
and in connection with petitioner Ching’s business dealings.70

Petitioners are not entitled to exemplary damages.

Neither are petitioners entitled to exemplary damages.

Article 222971 of the Civil Code provides that exemplary damages may be imposed "by way of
example or correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages." They are, however, not recoverable as a matter of right.72 They are
awarded only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.73

In this case, we agree with the CA that although the revocation was done in bad faith, respondents
did not act in a wanton, fraudulent, reckless, oppressive or malevolent manner. They revoked the
SPA because they were not satisfied with the amount of the loan approved. Thus, petitioners are not
entitled to exemplary damages.

WHEREFORE, the petition is hereby partially GRANTED. The assailed Decision dated July 31, 2006
and the Resolution dated March 12, 2007 of the Court of Appeals in CA-G.R. CV. No. 79886 are

37
hereby AFFIRMED with MODIFICATION that respondents are ordered to pay petitioner Ching actual
damages in the amount of P500,000.00.

SO ORDERED:

38
G.R. No. 163720 December 16, 2004

GENEVIEVE LIM, petitioner,

vs.
FLORENCIO SABAN, respondents.

DECISION

TINGA, J.:

Before the Court is a Petition for Review on Certiorari assailing the Decision1 dated October 27, 2003
of the Court of Appeals, Seventh Division, in CA-G.R. V No. 60392.2

The late Eduardo Ybañez (Ybañez), the owner of a 1,000-square meter lot in Cebu City (the "lot"),
entered into an Agreement and Authority to Negotiate and Sell (Agency Agreement) with respondent
Florencio Saban (Saban) on February 8, 1994. Under the Agency Agreement, Ybañez authorized
Saban to look for a buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up
the selling price to include the amounts needed for payment of taxes, transfer of title and other
expenses incident to the sale, as well as Saban’s commission for the sale.3

Through Saban’s efforts, Ybañez and his wife were able to sell the lot to the petitioner Genevieve
Lim (Lim) and the spouses Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The
price of the lot as indicated in the Deed of Absolute Sale is Two Hundred Thousand Pesos
(P200,000.00).4 It appears, however, that the vendees agreed to purchase the lot at the price of Six
Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other incidental expenses of the
sale. After the sale, Lim remitted to Saban the amounts of One Hundred Thirteen Thousand Two
Hundred Fifty Seven Pesos (P113,257.00) for payment of taxes due on the transaction as well as
Fifty Thousand Pesos (P50,000.00) as broker’s commission.5 Lim also issued in the name of Saban
four postdated checks in the aggregate amount of Two Hundred Thirty Six Thousand Seven
Hundred Forty Three Pesos (P236,743.00). These checks were Bank of the Philippine Islands (BPI)
Check No. 1112645 dated June 12, 1994 for P25,000.00; BPI Check No. 1112647 dated June 19,
1994 for P18,743.00; BPI Check No. 1112646 dated June 26, 1994 for P25,000.00; and Equitable
PCI Bank Check No. 021491B dated June 20, 1994 for P168,000.00.

Subsequently, Ybañez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybañez
asked Lim to cancel all the checks issued by her in Saban’s favor and to "extend another partial
payment" for the lot in his (Ybañez’s) favor.6

After the four checks in his favor were dishonored upon presentment, Saban filed a Complaint for
collection of sum of money and damages against Ybañez and Lim with the Regional Trial Court
(RTC) of Cebu City on August 3, 1994.7 The case was assigned to Branch 20 of the RTC.

In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase the lot
for P600,000.00, i.e., with a mark-up of Four Hundred Thousand Pesos (P400,000.00) from the price
set by Ybañez. Of the total purchase price of P600,000.00, P200,000.00 went to

39
Ybañez, P50,000.00 allegedly went to Lim’s agent, and P113,257.00 was given to Saban to cover
taxes and other expenses incidental to the sale. Lim also issued four (4) postdated checks8 in favor
of Saban for the remaining P236,743.00.9

Saban alleged that Ybañez told Lim that he (Saban) was not entitled to any commission for the sale
since he concealed the actual selling price of the lot from Ybañez and because he was not a
licensed real estate broker. Ybañez was able to convince Lim to cancel all four checks.

Saban further averred that Ybañez and Lim connived to deprive him of his sales commission by
withholding payment of the first three checks. He also claimed that Lim failed to make good the
fourth check which was dishonored because the account against which it was drawn was closed.

In his Answer, Ybañez claimed that Saban was not entitled to any commission because he
concealed the actual selling price from him and because he was not a licensed real estate broker.

Lim, for her part, argued that she was not privy to the agreement between Ybañez and Saban, and
that she issued stop payment orders for the three checks because Ybañez requested her to pay the
purchase price directly to him, instead of coursing it through Saban. She also alleged that she
agreed with Ybañez that the purchase price of the lot was only P200,000.00.

Ybañez died during the pendency of the case before the RTC. Upon motion of his counsel, the trial
court dismissed the case only against him without any objection from the other parties.10

On May 14, 1997, the RTC rendered its Decision11 dismissing Saban’s complaint, declaring the four
(4) checks issued by Lim as stale and non-negotiable, and absolving Lim from any liability towards
Saban.

Saban appealed the trial court’s Decision to the Court of Appeals.

On October 27, 2003, the appellate court promulgated its Decision12 reversing the trial court’s ruling.
It held that Saban was entitled to his commission amounting to P236,743.00.13

The Court of Appeals ruled that Ybañez’s revocation of his contract of agency with Saban was
invalid because the agency was coupled with an interest and Ybañez effected the revocation in bad
faith in order to deprive Saban of his commission and to keep the profits for himself.14

The appellate court found that Ybañez and Lim connived to deprive Saban of his commission. It
declared that Lim is liable to pay Saban the amount of the purchase price of the lot corresponding to
his commission because she issued the four checks knowing that the total amount thereof
corresponded to Saban’s commission for the sale, as the agent of Ybañez. The appellate court
further ruled that, in issuing the checks in payment of Saban’s commission, Lim acted as an
accommodation party. She signed the checks as drawer, without receiving value therefor, for the
purpose of lending her name to a third person. As such, she is liable to pay Saban as the holder for
value of the checks.15

Lim filed a Motion for Reconsideration of the appellate court’s Decision, but her Motion was denied
by the Court of Appeals in a Resolution dated May 6, 2004.16

Not satisfied with the decision of the Court of Appeals, Lim filed the present petition.

40
Lim argues that the appellate court ignored the fact that after paying her agent and remitting to
Saban the amounts due for taxes and transfer of title, she paid the balance of the purchase price
directly to Ybañez.17

She further contends that she is not liable for Ybañez’s debt to Saban under the Agency Agreement
as she is not privy thereto, and that Saban has no one but himself to blame for consenting to the
dismissal of the case against Ybañez and not moving for his substitution by his heirs.18

Lim also assails the findings of the appellate court that she issued the checks as an accommodation
party for Ybañez and that she connived with the latter to deprive Saban of his commission.19

Lim prays that should she be found liable to pay Saban the amount of his commission, she should
only be held liable to the extent of one-third (1/3) of the amount, since she had two co-vendees (the
Spouses Lim) who should share such liability.20

In his Comment, Saban maintains that Lim agreed to purchase the lot for P600,000.00, which
consisted of the P200,000.00 which would be paid to Ybañez, the P50,000.00 due to her broker,
the P113,257.00 earmarked for taxes and other expenses incidental to the sale and Saban’s
commission as broker for Ybañez. According to Saban, Lim assumed the obligation to pay him his
commission. He insists that Lim and Ybañez connived to unjustly deprive him of his commission
from the negotiation of the sale.21

The issues for the Court’s resolution are whether Saban is entitled to receive his commission from
the sale; and, assuming that Saban is entitled thereto, whether it is Lim who is liable to pay Saban
his sales commission.

The Court gives due course to the petition, but agrees with the result reached by the Court of
Appeals.

The Court affirms the appellate court’s finding that the agency was not revoked since Ybañez
requested that Lim make stop payment orders for the checks payable to Saban only after the
consummation of the sale on March 10, 1994. At that time, Saban had already performed his
obligation as Ybañez’s agent when, through his (Saban’s) efforts, Ybañez executed the Deed of
Absolute Sale of the lot with Lim and the Spouses Lim.

To deprive Saban of his commission subsequent to the sale which was consummated through his
efforts would be a breach of his contract of agency with Ybañez which expressly states that Saban
would be entitled to any excess in the purchase price after deducting the P200,000.00 due to
Ybañez and the transfer taxes and other incidental expenses of the sale.22

In Macondray & Co. v. Sellner,23 the Court recognized the right of a broker to his commission for
finding a suitable buyer for the seller’s property even though the seller himself consummated the
sale with the buyer.24 The Court held that it would be in the height of injustice to permit the principal to
terminate the contract of agency to the prejudice of the broker when he had already reaped the
benefits of the broker’s efforts.

In Infante v. Cunanan, et al.,25 the Court upheld the right of the brokers to their commissions although
the seller revoked their authority to act in his behalf after they had found a buyer for his properties
and negotiated the sale directly with the buyer whom he met through the brokers’ efforts. The Court
ruled that the seller’s withdrawal in bad faith of the brokers’ authority cannot unjustly deprive the
brokers of their commissions as the seller’s duly constituted agents.

41
The pronouncements of the Court in the aforecited cases are applicable to the present case,
especially considering that Saban had completely performed his obligations under his contract of
agency with Ybañez by finding a suitable buyer to preparing the Deed of Absolute Sale between
Ybañez and Lim and her co-vendees. Moreover, the contract of agency very clearly states that
Saban is entitled to the excess of the mark-up of the price of the lot after deducting Ybañez’s share
of P200,000.00 and the taxes and other incidental expenses of the sale.

However, the Court does not agree with the appellate court’s pronouncement that Saban’s agency
was one coupled with an interest. Under Article 1927 of the Civil Code, an agency cannot be
revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already
contracted, or if a partner is appointed manager of a partnership in the contract of partnership and
his removal from the management is unjustifiable. Stated differently, an agency is deemed as one
coupled with an interest where it is established for the mutual benefit of the principal and of the
agent, or for the interest of the principal and of third persons, and it cannot be revoked by the
principal so long as the interest of the agent or of a third person subsists. In an agency coupled with
an interest, the agent’s interest must be in the subject matter of the power conferred and not merely
an interest in the exercise of the power because it entitles him to compensation. When an agent’s
interest is confined to earning his agreed compensation, the agency is not one coupled with an
interest, since an agent’s interest in obtaining his compensation as such agent is an ordinary
incident of the agency relationship.26

Saban’s entitlement to his commission having been settled, the Court must now determine whether
Lim is the proper party against whom Saban should address his claim.

Saban’s right to receive compensation for negotiating as broker for Ybañez arises from the Agency
Agreement between them. Lim is not a party to the contract. However, the record reveals that she
had knowledge of the fact that Ybañez set the price of the lot at P200,000.00 and that
the P600,000.00—the price agreed upon by her and Saban—was more than the amount set by
Ybañez because it included the amount for payment of taxes and for Saban’s commission as broker
for Ybañez.

According to the trial court, Lim made the following payments for the lot: P113,257.00 for
taxes, P50,000.00 for her broker, and P400.000.00 directly to Ybañez, or a total of Five Hundred
Sixty Three Thousand Two Hundred Fifty Seven Pesos (P563,257.00).27 Lim, on the other hand,
claims that on March 10, 1994, the date of execution of the Deed of Absolute Sale, she paid directly
to Ybañez the amount of One Hundred Thousand Pesos (P100,000.00) only, and gave to
Saban P113,257.00 for payment of taxes and P50,000.00 as his commission,28 and One Hundred
Thirty Thousand Pesos (P130,000.00) on June 28, 1994,29 or a total of Three Hundred Ninety Three
Thousand Two Hundred Fifty Seven Pesos (P393,257.00). Ybañez, for his part, acknowledged that
Lim and her co-vendees paid him P400,000.00 which he said was the full amount for the sale of the
lot.30 It thus appears that he received P100,000.00 on March 10, 1994, acknowledged receipt
(through Saban) of the P113,257.00 earmarked for taxes and P50,000.00 for commission, and
received the balance of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly to
Ybañez. Apparently, although the amount actually paid by Lim was P393,257.00, Ybañez rounded
off the amount to P400,000.00 and waived the difference.

Lim’s act of issuing the four checks amounting to P236,743.00 in Saban’s favor belies her claim that
she and her co-vendees did not agree to purchase the lot at P600,000.00. If she did not agree
thereto, there would be no reason for her to issue those checks which is the balance of P600,000.00
less the amounts of P200,000.00 (due to Ybañez), P50,000.00 (commission), and the P113,257.00
(taxes). The only logical conclusion is that Lim changed her mind about agreeing to purchase the lot
at P600,000.00 after talking to Ybañez and ultimately realizing that Saban’s commission is even

42
more than what Ybañez received as his share of the purchase price as vendor. Obviously, this
change of mind resulted to the prejudice of Saban whose efforts led to the completion of the sale
between the latter, and Lim and her co-vendees. This the Court cannot countenance.

The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening for the facts therein
are similar to the circumstances of the present case. In that case, Consejo Infante asked Jose
Cunanan and Juan Mijares to find a buyer for her two lots and the house built thereon for Thirty
Thousand Pesos (P30,000.00) . She promised to pay them five percent (5%) of the purchase price
plus whatever overprice they may obtain for the property. Cunanan and Mijares offered the
properties to Pio Noche who in turn expressed willingness to purchase the properties. Cunanan and
Mijares thereafter introduced Noche to Infante. However, the latter told Cunanan and Mijares that
she was no longer interested in selling the property and asked them to sign a document stating that
their written authority to act as her agents for the sale of the properties was already cancelled.
Subsequently, Infante sold the properties directly to Noche for Thirty One Thousand Pesos
(P31,000.00). The Court upheld the right of Cunanan and Mijares to their commission, explaining
that—

…[Infante] had changed her mind even if respondent had found a buyer who was willing to
close the deal, is a matter that would not give rise to a legal consequence if [Cunanan and
Mijares] agreed to call off the transaction in deference to the request of [Infante]. But the
situation varies if one of the parties takes advantage of the benevolence of the other and
acts in a manner that would promote his own selfish interest. This act is unfair as would
amount to bad faith. This act cannot be sanctioned without according the party prejudiced
the reward which is due him. This is the situation in which [Cunanan and Mijares] were
placed by [Infante]. [Infante] took advantage of the services rendered by [Cunanan and
Mijares], but believing that she could evade payment of their commission, she made use of a
ruse by inducing them to sign the deed of cancellation….This act of subversion cannot be
sanctioned and cannot serve as basis for [Infante] to escape payment of the commission
agreed upon.31

The appellate court therefore had sufficient basis for concluding that Ybañez and Lim connived to
deprive Saban of his commission by dealing with each other directly and reducing the purchase
price of the lot and leaving nothing to compensate Saban for his efforts.

Considering the circumstances surrounding the case, and the undisputed fact that Lim had not yet
paid the balance of P200,000.00 of the purchase price of P600,000.00, it is just and proper for her to
pay Saban the balance of P200,000.00.

Furthermore, since Ybañez received a total of P230,000.00 from Lim, or an excess of P30,000.00
from his asking price of P200,000.00, Saban may claim such excess from Ybañez’s estate, if that
remedy is still available,32 in view of the trial court’s dismissal of Saban’s complaint as against
Ybañez, with Saban’s express consent, due to the latter’s demise on November 11, 1994.33

The appellate court however erred in ruling that Lim is liable on the checks because she issued them
as an accommodation party. Section 29 of the Negotiable Instruments Law defines an
accommodation party as a person "who has signed the negotiable instrument as maker, drawer,
acceptor or indorser, without receiving value therefor, for the purpose of lending his name to some
other person." The accommodation party is liable on the instrument to a holder for value even
though the holder at the time of taking the instrument knew him or her to be merely an
accommodation party. The accommodation party may of course seek reimbursement from the party
accommodated.34

43
As gleaned from the text of Section 29 of the Negotiable Instruments Law, the accommodation party
is one who meets all these three requisites, viz: (1) he signed the instrument as maker, drawer,
acceptor, or indorser; (2) he did not receive value for the signature; and (3) he signed for the
purpose of lending his name to some other person. In the case at bar, while Lim signed as drawer of
the checks she did not satisfy the two other remaining requisites.

The absence of the second requisite becomes pellucid when it is noted at the outset that Lim issued
the checks in question on account of her transaction, along with the other purchasers, with Ybañez
which was a sale and, therefore, a reciprocal contract. Specifically, she drew the checks in payment
of the balance of the purchase price of the lot subject of the transaction. And she had to pay the
agreed purchase price in consideration for the sale of the lot to her and her co-vendees. In other
words, the amounts covered by the checks form part of the cause or consideration from Ybañez’s
end, as vendor, while the lot represented the cause or consideration on the side of Lim, as
vendee.35 Ergo, Lim received value for her signature on the checks.

Neither is there any indication that Lim issued the checks for the purpose of enabling Ybañez, or any
other person for that matter, to obtain credit or to raise money, thereby totally debunking the
presence of the third requisite of an accommodation party.

WHEREFORE, in view of the foregoing, the petition is DISMISSED.

SO ORDERED.

Puno, J., Chairman, Austria-Martinez, Chico-Nazario, JJ. concur.

Callejo, Sr., on leave.

44
G.R. No. 151218 January 28, 2003

NATIONAL SUGAR TRADING and/or the SUGAR REGULATORY ADMINISTRATION, petitioners,

vs.
PHILIPPINE NATIONAL BANK, respondent.

YNARES-SANTIAGO, J.:

This is a petition for review which seeks to set aside the decision of the Court of Appeals dated
August 10, 2001 in CA-G.R. SP. No. 58102, 1 upholding the decision of the Office of the President
dated September 17, 1999, 2 as well as the resolution dated December 12, 2001 denying petitioners'
motion for reconsideration.

The antecedent facts, as culled from the records, are as follows:

Sometime in February 1974, then President Ferdinand E. Marcos issued Presidential Decree No.
388 3 constituting the Philippine Sugar Commission (PHILSUCOM), as the sole buying and selling
agent of sugar on the quedan permit level. In November of the same year, PD 579 4 was issued,
authorizing the Philippine Exchange Company, Inc. (PHILEXCHANGE), a wholly owned subsidiary
of Philippine National Bank (PNB) to serve as the marketing agent of PHILSUCOM. Pursuant to PD
579, PHILEXCHANGE's purchases of sugar shall be financed by PNB and the proceeds of sugar
trading operations of PHILEXCHANGE shall be used to pay its liabilities with PNB. 5

Similarly, in February 1975, PD 659 was issued, constituting PHILEXCHANGE and/or PNB as the
exclusive sugar trading agencies of the government for buying sugar from planters or millers and
selling or exporting them. 6 PNB then extended loans to PHILEXCHANGE for the latter's sugar
trading operations. At first, PHILEXCHANGE religiously paid its obligations to PNB by depositing the
proceeds of the sale of sugar with the bank. Subsequently, however, with the fall of sugar prices in
the world market, PHILEXCHANGE defaulted in the payments of its loans amounting to
P206,070,172.57. 7

In July 1977, the National Sugar Trading Corporation (NASUTRA) replaced PHILEXCHANGE as the
marketing agent of PHILSUCOM. Accordingly, PHILEXCHANGE sold and turned over all sugar
quedans to NASUTRA. However, no physical inventory of the sugar covered by the quedans was
made. 8 Neither NASUTRA nor PHILSUCOM was required to immediately pay PHILEXCHANGE.
Notwithstanding this concession, NASUTRA and PHILSUCOM still failed to pay the sugar stocks
covered by quedans to PHILEXCHANGE which, as of June 30, 1984, amounted to
P498,828,845.03. As a consequence, PHILEXCHANGE was not able to pay its obligations to PNB.

To finance its sugar trading operations, NASUTRA applied for and was granted 9 a P408 Million
Revolving Credit Line by PNB in 1981. Every time NASUTRA availed of the credit line, 10 its
Executive Vice-President, Jose Unson, executed a promissory note in favor of PNB.

In order to stabilize sugar liquidation prices at a minimum of P300.00 per picul, PHILSUCOM issued
on March 15, 1985 Circular Letter No. EC-4-85, considering all sugar produced during crop year
1984–1985 as domestic sugar. Furthermore, PHILSUCOM's Chairman of Executive Committee,
Armando C. Gustillo proposed on May 14, 1985 the following liquidation scheme of the sugar
quedans 11 assigned to PNB by the sugar planters:

Upon notice from NASUTRA, PNB shall credit the individual producer and millers loan accounts for
their sugar proceeds and shall treat the same as loans of NASUTRA.

45
Such loans shall be charged interest at the prevailing rates and it shall commence five (5) days after
receipt by PNB of quedans from NASUTRA. 12

PNB, for its part, issued Resolution No. 353 dated May 20, 1985 approving 13 the
PHILSUCOM/NASUTRA proposal for the payment of the sugar quedans assigned to it. Pursuant to
said resolution, NASUTRA would assume the interest on the planter/mill loan accounts. The
pertinent portion of the Resolution states:

Five (5) days after receipt of the quedans, NASUTRA shall absorb the accruing interest on that
portion of the planter/mill loan with PNB commensurate to the net liquidation value of the sugar
delivered, or in other words, NASUTRA proposes to assume interest that will run on the planter/mill
loan equivalent to the net proceeds of the sugar quedans, reckoned five (5) days after quedan
delivery to PNB. 14

Despite such liquidation scheme, NASUTRA/PHILSUCOM still failed to remit the interest payments
to PNB and its branches, which interests amounted to P65,412,245.84 in 1986. 15 As a result thereof,
then President Marcos issued PD 2005 dissolving NASUTRA effective January 31, 1986.
NASUTRA's records of its sugar trading operations, however, were destroyed during the Edsa
Revolution in February 1986.

On May 28, 1986, then President Corazon C. Aquino issued Executive Order (EO) No. 18 creating
the Sugar Regulatory Administration (SRA) and abolishing PHILSUCOM. All the assets and records
of PHILSUCOM 16 including its beneficial interests over the assets of NASUTRA were transferred to
SRA. 17 On January 24, 1989, before the completion of the three-year winding up period, NASUTRA
established a trusteeship to liquidate and settle its accounts. 18 This notwithstanding, NASUTRA still
defaulted in the payment of its loans amounting to P389,246,324.60 (principal and accrued interest)
to PNB.

In the meantime, PNB received remittances from foreign banks totaling US$36,564,558.90 or the
equivalent of P696,281,405.09 representing the proceeds of NASUTRA's sugar exports. 19 Said
remittances were then applied by PNB to the unpaid accounts of NASUTRA/PHILSUCOM with PNB
and PHILEXCHANGE. The schedule of remittances and applications are as follows:

SCHEDULE OF REMITTANCES & APPLICATIONS

Account of NASUTRA

July 31, 1988

REMITTANCES
Date Remitting Bank Amount
11-19-85 Bankers Trust-New York P259,253,573.46
11-26-85 Bankers Trust-New York 144,459,242.84
03-06-86 Credit Lyonnais-Manila 209,880,477.07
04-22-86 Societé Generalé-Manila 82,151,953.10
06-09-86 Credit Lyonnais-Manila 536,158.62
Total P696,281,405.09
APPLICATIONS

46
 Date Applied to Amount
1986 NASUTRA account with PNB P389,246,324.60
Claims of various CAB
1986 planters 15,863,898.79
Claims of various PNB
branches for interest or the
unpaid CY 1984–85 sugar
1987 proceeds 65,412,245.84
1987& Philsucom account carried in 206,070,172.57
1988 the books of Philexchange P676,592,641.80
Unapplied Remittance P19,688,763.29" 20

Subsequently, PNB applied the P19,688,763.29 to PHILSUCOM's account with PHILEXCHANGE

which in turn was applied to PHILEXCHANGE's account with PNB. 21

Accordingly, NASUTRA requested 22 PNB to furnish it with the necessary documents and/or
explanation 23 concerning the disposition/application, accounting and restitution of the remittances in
question. Dissatisfied, and believing that PNB failed to provide them with said documents,
NASUTRA and SRA filed a petition for arbitration 24 with the Department of Justice on August 13,
1991.

After due proceedings, the Secretary of Justice rendered a decision, to wit:

WHEREFORE, judgment is hereby rendered —

1. Declaring that of the amount of Six Hundred Ninety Six Million Two Hundred Eighty One
Thousand Four Hundred Five and 09/100 Pesos (P696,281,405.09) equivalent of
US$36,564,558.90, foreign remittances received by respondent PNB, for and in behalf of
petitioner NASUTRA—

a) the amount of Three Hundred Eighty Nine Million Two Hundred Forty Six
Thousand Three Hundred Twenty Four and 60/100 Pesos (P389,246,324.60) was
validly applied to outstanding account of NASUTRA to PNB;

b) the amount of Sixty Five Billion Four Hundred Twelve Thousand Two Hundred
Forty Five and 84/100 Pesos (P65,412,245.84) was validly applied to claims of
various PNB branches for interest on the unpaid CY 1984–85 sugar proceeds;

Or a total of Four Hundred Fifty Four Million Six Hundred Fifty Eight Thousand Five Hundred
Seventy and 44/100 Pesos (P454,658,570.44).

2. Ordering respondent PNB to pay petitioners —

a) the amount of Two Hundred Six Million Seventy Thousand One Hundred Seventy
Two and 57/100 Pesos (P206,070,172.57) representing the amount of remittance
applied to PHILSUCOM account carried in the books of Philexchange;

b) the amount of Fifteen Million Eight Hundred Sixty Three Thousand Eight Hundred
Ninety Eight and 79/100 Pesos (P15,863,898.79) representing the amount applied to

47
 settle Claims of Various CAB Planters; and to pay interest on both items, at legal rate
from date of filing of this case.

Costs of suit will be shared equally by the parties.

SO ORDERED. 25

Both parties appealed before the Office of the President. On September 17, 1999, the Office of the
President modified the decision of the Secretary of Justice, to wit:

IN VIEW OF ALL THE FOREGOING, the decision of the Secretary of Justice is hereby
AFFIRMED with the MODIFICATION that the application by the Philippine National Bank of
the amounts of P225,758,935.86 and P15,863,898.79 as payment of the Philippine Sugar
Commission's account carried in the books of Philippine Exchange Co., Inc. and the claims
of various CAB planters, respectively, is hereby declared legal and valid.

SO ORDERED. 26

Petitioners' subsequent Motion for Reconsideration was denied by the Office of the
President. 27 Thereafter, petitioners filed a petition for review with the Court of Appeals, alleging, inter
alia, that the Office of the President erred when it relied solely on the documents submitted by PNB
to determine the amount of the subject remittances and in not ordering PNB to render an accounting
of the said remittances; in declaring as valid and legal PNB's application of the subject remittances
to alleged NASUTRA's accounts with PNB and PHILEXCHANGE without NASUTRA's knowledge,
consent and authority.

On August 10, 2001, Court of Appeals rendered judgment dismissing the petition. 28 Petitioners filed
a Motion for Reconsideration, which was denied on December 12, 2001.

Hence this petition, raising the lone issue:

THE CA DECIDED NOT IN ACCORD WITH LAW AND WITH THE APPLICABLE DECISION
OF THIS HONORABLE COURT, AND GRAVELY ABUSED ITS DISCRETION, WHEN IT
UPHELD THE LEGALITY AND VALIDITY OF THE OFFSETTING OR COMPENSATION OF
THE SUBJECT REMITTANCES TO ALLEGED ACCOUNTS OF NASUTRA WITH PNB AND
PHILEX DESPITE THE FACT THAT NO CREDITOR-DEBTOR RELATIONSHIP EXISTED
BETWEEN PNB AND NASUTRA WITH RESPECT TO THE SAID REMITTANCES.

In essence, NASUTRA and SRA aver that no compensation involving the subject remittances can
take effect by operation of law since the relationship created between PNB and NASUTRA was one
of trustee-beneficiary and not one of creditor and debtor. They also claim that no legal compensation
can take place in favor of PHILEXCHANGE since the subject remittances were received by PNB and
not PHILEXCHANGE, a corporation clothed with a separate and distinct corporate personality from
PNB. They added that PHILEXCHANGE's account had already prescribed.

Moreover, NASUTRA and SRA contend that, assuming arguendo that creditor-debtor relationship
existed between PNB and NASUTRA, compensation was still illegal, since PNB has not proven the
existence of the P408 million revolving credit line and the CAB Planters Account. Petitioners also
assert that the CAB Planters Account is an unliquidated account considering that it still has to be
recomputed pursuant to the Sugar Reconstitution Law. 29

48
Respondent PNB counters that it can apply the foreign remittances on the long-overdue obligations
of NASUTRA. They were entered into by NASUTRA with the blessing, if not with express mandate,
of the National Government in the pursuit of national interest and policy. PNB invokes also the Letter
of Intent submitted by the National Government to the International Monetary Fund (IMF), wherein
the government made specific reference to the immediate payment by NASUTRA and PHILSUCOM
of their outstanding obligations with PNB to buoy up the country's sagging economy. 30

Petitioners' arguments are specious.

Article 1306 of the New Civil Code provides:

Contracting parties may establish such stipulations, clauses terms and conditions as they may deem
convenient provided they are not contrary to law, morals, good customs, public order or public
policy.

In the instant case, NASUTRA applied for a P408 million credit line with PNB in order to finance its
trading operations. PNB, on the other hand, approved said credit line in its Resolution No. 68.
Thereafter, NASUTRA availed of the credit and in fact drew P389,246,324.60, in principal and
accrued interest, from the approved credit line. Evidence shows that every time NASUTRA availed
of the credit, its Executive Vice President, Jose Unson, executed a promissory note 31 in favor of
PNB with the following proviso:

In the event that this note is not paid at maturity or when the same becomes due under any of the
provisions hereof, I/We hereby authorize the Bank, at its option and without notice, to apply to the
payment of this note, any and all moneys, securities and things of values which may be in the hands
on deposit or otherwise belonging to me/us and for this purpose, I/We hereby, jointly and severally,
irrevocably constitute and appoint the Bank to be my/our true Attorney-in-Fact with full power and
authority for me/us and in my/our name and behalf and without prior notice to negotiate, sell and
transfer any moneys, securities and things of value which it may hold, by public or private sale and
apply the proceeds thereof to the payment of this note. (Italics ours)

While we agree with petitioners that the application of subject remittances cannot be justified under
Article 1278 in relation to Article 1279 of the Civil Code, considering that some elements of legal
compensation were lacking, application of the subject remittances to NASUTRA's account with PNB
and the claims of various PNB branches for interest on the unpaid CY 1984–1985 sugar proceeds is
authorized under the above-quoted stipulation. PNB correctly treated the subject remittances for the
account of NASUTRA as moneys in its hands which may be applied for the payment of the note.

Also, the relationship between NASUTRA/SRA and PNB when the former constituted the latter as its
attorney-in-fact is not a simple agency. NASUTRA/SRA has assigned and practically surrendered its
rights in favor of PNB for a substantial consideration. 32 To reiterate, NASUTRA/SRA executed
promissory notes in favor of PNB every time it availed of the credit line. The agency established
between the parties is one coupled with interest which cannot be revoked or cancelled at will by any
of the parties. 33

Notwithstanding its availment of the approved credit, NASUTRA, for reasons only known to itself,
insisted in claiming for refund of the remittances. NASUTRA's posture is untenable. NASUTRA's
actuation runs counter to the good faith covenant in contractual relations, required under Article
1159 of the Civil Code, to wit:

Obligations arising from contract have the force of law between the contracting parties and should
be complied with in good faith.

49
Verily, parties may freely stipulate their duties and obligations which perforce would be binding on
them. Not being repugnant to any legal proscription, the agreement entered into by NASUTRA/SRA
and PNB must be respected and have the force of law between them.

With respect to the application of the sum of P65,412,245.84, 34 the record shows that NASUTRA
failed to remit the interest payments to PNB despite its obligation under the liquidation scheme
proposed by the Chairman of its Executive Committee, Armando C. Gustillo, to stabilize sugar
liquidation prices. Certainly, the authority granted by NASUTRA to Armando Gustillo to propose such
liquidation scheme was an authority to represent NASUTRA. Undisputedly, any obligation or liability
arising from such agreement shall be binding on the parties. NASUTRA, for its part, cannot now
renege on its duties, considering that it took advantage of the loan.

Having established that PNB validly applied the subject remittances to the interest of NASUTRA's
loan in the amount of P65,412,245.84, the application of the remainder of the remittance amounting
to P15,863,898.79 to the principal is proper.

With respect to the Central Azucarera de Bais (CAB) Planters account, petitioners maintained that
the subject remittances cannot be applied to payment thereof, considering that it is unliquidated and
needs recomputation, pursuant to Section 3 of Republic Act No. 7202 or the Sugar Reconstitution
Law, which provides:

The Philippine National Bank of the Philippines and other government-owned and controlled
financial institutions which have granted loans to the sugar producers shall extend to accounts of
said sugar producers incurred from Crop Year 1974–1975 up to and including Crop Year 1984–1985
the following:

(a) Condonation of interest charged by the banks in excess of twelve percent (12%) per
annum and all penalties and surcharges:

(b) The recomputed loans shall be amortized for a period of thirteen (13) years inclusive of a
three-year grace period on principal portion of the loan will carry an interest rate of twelve
(12%) and on the outstanding balance effective when the original promissory notes were
signed and funds released to the producer.

Section 6 of Rules and Regulations implementing RA No. 7202 also provides:

SECTION 2. In cases, however, where sugar producers have no outstanding loan balance
with said financial institutions as of the date of effectivity of RA No. 7202 (i.e. sugar
producers who have fully paid their loans either through actual payment or foreclosure of
collateral, or who have partially paid their loans and after the computation of the interest
charges, they end up with excess payment to said financial institutions), said producers shall
be entitled to the benefits of recomputation in accordance with Sections 3 and 4 of RA No.
7202, but the said financial institutions, instead of refunding the interest in excess of twelve
(12%) percent per annum, interests, penalties and surcharges apply the excess payment as
an offset and/or as payment for the producers' outstanding loan obligations. Applications of
restructuring banks under Section 6 of RA No. 7202 shall be filed with the Central Monetary
Authority of the Philippines within one (1) year from application of excess payment.

Although it appears from said provision that PNB was directed to condone interest, penalties and
surcharges charged in excess of 12% per annum, the passage of said law did not forestall legal
compensation that had taken place before its effectivity. The loan had been definitely ascertained,

50
assessed and determined by PNB. Pursuant to Section 4 35 of RA 7202, there would be condonation
of interest whether the accounts were fully or partially paid.

With regard to the application of the amount of P206,070,172.57 to the PHILSUCOM account carried
in the books of PHILEXCHANGE, petitioners maintain that there could be no application of the
subject remittance, considering that the remittances were received by PNB and not
PHILEXCHANGE which has a personality separate and distinct from PNB.

Petitioners' contention is not well-taken.

There exist clear indications that insofar as sugar trading was concerned, PHILEXCHANGE and
PNB were treated as one entity. Purchases of sugar of PHILEXCHANGE as the exclusive sugar
trading arm of PHILSUCOM were financed by PNB pursuant to PD 579. More importantly, PNB, a
wholly owned bank of the government at that time, in turn wholly owned and controlled
PHILEXCHANGE. Also, Section 2 (a), PD 659 declared as illegal the sale, transfer and assignment
of sugar by any planter, producer, miller, central, or refinery to any person or entity other than
Philippine Exchange, Inc. and/or the PNB. To reiterate, PHILEXCHANGE failed to pay its loans with
PNB because of the fall of the sugar prices in the world market. When NASUTRA substituted
PHILEXCHANGE as marketing agent of PHILSUCOM, 1,485,532.47 metric tons 36 of export sugar
were turned over by PHILEXCHANGE to NASUTRA. To reiterate, the foreign remittances
constituted proceeds of the sale of the sugar covered by quedans transferred by PHILEXCHANGE
to NASUTRA.

WHEREFORE, in view of the foregoing, the instant petition for review is DENIED. The decision of
the Court of Appeals dated August 10, 2001 is AFFIRMED.

SO ORDERED.

Davide, Jr., C .J ., Vitug, and Carpio, JJ., concur.

Azcuna, J., took no part.

51
G.R. No. 74623 August 31, 1987

BISAYA LAND TRANSPORTATION CO., INC., ANTONIO V. CUENCO and BENJAMIN G.

ROA, petitioners,
vs.
MARCIANO C. SANCHEZ AND THE HON. INTERMEDIATE APPELLATE COURT, respondents.

PADILLA, J.:

This is a petition for certiorari to review the decision * of respondent Intermediate Appellate Court, dated 25 April 1986,
in AC-G.R. No. CV-01300 which affirmed the decision ** of the Regional Trial Court, 7th Judicial Region, Branch XII, Cebu City, dated 14
February 1983, in Civil Case No. R-18830 which was a suit for Specific Performance with Preliminary Injunction and Damages.

Petitioner Bisaya Land Transportation Company, Inc. (BISTRANCO, for short) has been engaged in
the shipping business, operating several passenger-cargo vessels, and among the ports of call of
these vessels has been Butuan City. As early as 1954, private respondent Marciano Sanchez
(Sanchez, for short) was an employee of BISTRANCO, specifically, a quartermaster in one of its
vessels, In 1959, he ceased to be an employee as he engaged in stevedoring services in the port of
Butuan City and rendered steverdoring services for the vessels of BISTRANCO. 1

In May 1975, Sanchez was appointed by BISTRANCO as shipping agent in Butuan City for the vessel M/V Don Mariano. 2 The new Butuan
City Agent3 referred to in the letter "Exhibit "C" was Marciano Sanchez. Later, on 12 March 1976, when BISTRANCO was under receivership,
Sanchez was appointed by its Receiver, Atty. Adolfo V. Amor, as acting shipping agent, also for M/V Doña Remedies, in addition to M/V
Doña Filomena, in the port of Butuan City "pending the execution of the formal contract of agency. 4 When Sanchez was constituted as
acting shipping agent, he received the same commission as his predecessor, one ONG YUI who received 10% for all freight and passenger
revenues coming from Butuan City and 5 % for all freight going to Butuan. 5

Thereafter, or on 27 July 1976, a formal Contract of Agency, marked as Exhibit "F", was executed
between BISTRANCO, represented by Receiver Atty. Adolfo V. Amor and Marciano C. Sanchez,
represented by his authorized representative Exequiel Aranas. On 30 July 1976, after Sanchez
found that Paragraph 16 of the Contract of agency was quite prejudicial to him, he executed with
BISTRANCO a Supplemental Shipping Agency Contract, marked as Exhibit "G", which was duly
signed by Receiver Atty. Adolfo V. Amor on behalf of BISTRANCO and Marciano C. Sanchez
himself. 6 But, both the Contract of Agency and the Supplemental Shipping Agency Contract were
never submitted by Atty. Adolfo Amor to the receivership court for its approval.

By virtue of the Contract of Agency and the Supplemental Shipping Agency Contract (hereinafter
referred to as Contracts), Sanchez performed his duties as shipping agent of BISTRANCO, and he
received his corresponding commissions as such shipping agent. Pursuant to the Contracts,
Sanchez leased a parcel of land owned by Jose S. Mondejar which was used as the wharf and
berthing facilities of BISTRANCO.7 At an expense of more than P100,000.00, Sanchez constructed
the wharf on the land he leased and the wharf was used to facilitate the loading and unloading of
cargoes of the BISTRANCO vessels at the port of Butuan City from 1976 to December 1979.
Sanchez also constructed a bodega at his wharf for use in connection with the shipping business of
BISTRANCO. He constructed an office for the agency and, as of December 1979, he had an office
force of 13 employees, all paid and maintained by him. Sanchez operated six (6) cargo trucks and
one (1) jeep for the service of the shipping agency. As shipping agent, Sanchez put up billboards
and other forms of advertisement to enhance the shipping business of BISTRANCO. He established
good business relations with the business community of Butuan City.8 In these endeavors, Sanchez
succeeded in increasing the volume of the shipping business of BISTRANCO at the Butuan City
port, so much so that his earnings on freight alone increased from an average of P8,535.00 a month
in 1975 to an average of about P32,000.00 a month in the last seven months of 1979.9

52
While the shipping business of BISTRANCO in Butuan City flourished, evidently to the mutual
benefit of both parties, on 26 December 1979, co-petitioner Benjamin G. Roa, as Executive Vice-
President of BISTRANCO, wrote Sanchez a letter 10 advising him that, effective 1 January 1980, BISTRANCO would
commence operating its branch office in Butuan City. Prior to this, on 11 December 1979, Sanchez was invited to attend a meeting of the
Board of Directors of BISTRANCO wherein he was told by co-petitioner Antonio V. Cuenco that the Board was to open a branch office in
Butuan City and he was asked what would be his proposals. Sanchez submitted his proposals in writing, marked as Exhibit "NN", but these
were not acceptable to BISTRANCO. 11

Realizing that the letter, marked as Exhibit "FF", was in effect a repudiation of the Contracts,
Sanchez filed an action for specific performance with preliminary injunction and damages with the
Regional Trial Court of Cebu City on 28 December 1979.

Pursuant to the letter (Exhibit "FF"), BISTRANCO actually opened and operated a branch office in
Butuan City on 15 January 1980. BISTRANCO through its new representative contacted the
shippers in Butuan City and neighboring towns, advising them to transact their business directly with
its new branch office in Butuan City. Under these circumstances, the business of Sanchez, as
shipping agent of BISTRANCO in Butuan City, was seriously impaired and undermined He could not
solicit as many passengers as he used to, because the passenger tickets issued to him by
BISTRANCO were limited. The cargoes solicited by Sanchez were loaded on a "chance basis"
because those that were solicited by the branch office were given priority. 12

After due hearing and their respective memorandum filed, the trial court rendered judgment in favor of Sanchez, the dispositive portion of
which is quoted hereunder: 13

WHEREFORE, judgment is hereby rendered declaring the contracts, Exhibits "F"

and "G", as valid and binding between the plaintiff and defendant BISTRANCO up to
its expiry date on July 27, 1981, and ordering the defendant BISTRANCO to pay the
plaintiff the total sum of FIVE HUNDRED EIGHTY EIGHT THOUSAND PESOS
(P588,000.00) in concept of unearned commissions as well as damages, with
interest at the legal rate counted from July 28, 1981 up to the time the amount is fully
paid, and the further sum of P15,000.00 as attorney's fees, and the costs of this
action.

Thereafter, BISTRANCO appealed to the Court of Appeals which, as heretofore stated, affirmed the
decision of the trial court in toto.

Hence this Petition for certiorari brought to this Court, with the petitioners raising the following
issues: 14

CAN A COURT APPOINTED RECEIVER VALIDLY ENTER INTO A CONTRACT WITHOUT

COURT APPROVAL?

II

IS THE OPENING BY BISTRANCO OF A BRANCH OFFICE IN BUTUAN CITY A VIOLATION OF

THE CONTRACT OF AGENCY AND SUPPLEMENTAL SHIPPING AGENCY CONTRACT
EXHIBITS "F" and "G") ASSUMING THEM TO BE VALID?

III

53
WHAT EFFECT DID THE WORKING AGREEMENTS (EXHIBITS "S" and "U") HAVE ON
AFORESAID QUESTIONED CONTRACTS?

IV

IS THE AWARD FOR UNEARNED COMMISSION AND DAMAGES JUSTIFIED?

The general powers of a court-appointed receiver are provided in Section 7, Rule 59 of the Rules of
Court. Under such rule, the receiver is "subject to the control of the court in which the action is
pending" and he can "generally do such acts respecting the property as the court may authorize".
The act of Receiver Amor in entering into a contract of agency with Sanchez is not one of the acts
specifically allowed in the mentioned rule. While such act of Amor may be arguably implied from the
power of the receiver to "take and keep possession of the property in controversy", and that the act
of Amor is covered by the broad phrase that a receiver can "generally do such acts respecting the
property as the court may authorize", still, it is necessary that the acts of the receiver have the
approval or authorization of the court which appointed him as a receiver. As held in one case, 15 a
court-appointed receiver cannot validly enter into a contract without the approval of the court.

What then is the status of the Contracts which Receiver Amor entered into with Sanchez, without the
approval of the court which appointed him receiver? Even the petitioners noticeably waver as to the
exact status of these Contracts. The petitioners allege in their Memorandum 16 submitted to this Court that
they are void contracts under Article 1409(l) of the Civil Code, whereas, in their Petition, 17 they labelled the contracts as unenforceable
under Article 1403(l) of the Civil Code.

The determination, therefore, of whether the questioned contracts are void or merely unenforceable
is important, because of the settled distinction that a void and inexistent contract can not be ratified
and become enforceable, whereas an unenforceable contract may still be ratified and, thereafter,
enforced.

The petitioners allege that the Contracts are void, citing Article 1409(l) of the Civil Code which
provides that contracts whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy, are inexistent and void from the beginning. In the case at bar, the
contracts of agency were entered into for the management and operation of BISTRANCO's business
in Butuan City. Said Contracts necessarily imposed obligations and liabilities on the contracting
parties, thereby affecting the disposition of the assets and business of the company under
receivership. But a perusal of the Contracts in question would show that there is nothing in their
cause, object or purpose which renders them void. The purpose of the Contracts was to create an
agency for BISTRANCO with Marciano Sanchez as its agent in Butuan City. Even as to the other
provisions of the Contracts, there is nothing in their cause or object which can be said as contrary to
law, morals, good customs, public order or public policy so as to render them void.

On the other hand, paragraph 1. Article 1403 of the Civil Code provides that contracts "entered into
in the name of another person by one who has been given no authority or legal representation, or
who has acted beyond his powers" are unenforceable, unless they are ratified.

In the case at bar, it is undisputed that Atty. Adolfo Amor was entrusted, as receiver, with the
administration of BISTRANCO and it business. But the act of entering into a contract is one which
requires the authorization of the court which appointed him receiver. Consequently, the questioned
Contracts can rightfully be classified as unenforceable for having been entered into by one who had
acted beyond his powers, due to Receiver Amor's failure to secure the court's approval of said
Contracts.

54
These unenforceable Contracts were nevertheless deemed ratified in the case at bar, based upon
the facts and circumstances on record which have led this Court to conclude that BISTRANCO had
actually ratified the questioned Contracts.

Private respondent Sanchez filed his complaint in the lower court on 28 December 1979. But on 10
January 1980, copetitioner Benjamin G. Roa, as Executive Vice-President of BISTRANCO, still sent
Sanchez three (3) separate letters with the following contents: (3) reducing his passage commission
from 10%, as he used to receive in the previous years, to 7-1/2% "as stated in the agency contract
dated 27 July 1976, 18 (2) advising Sanchez that in view of "his failure to post a bond or such other securities acceptable to the
company in the sum of P5,000.00 pursuant to par. 8 of the Contract executed by Sanchez the plaintiff with BISTRANCO on 27 July 1976, we
are recalling all unused passage tickets issued your agency" and reminding him (Sanchez) also that "pursuant to par. 2 of aforementioned
Contract, solicitation of cargo and passengers shall be undertaken by you strictly in accordance with the scheduled rates of the
Company; 19 and (3) informing Sanchez that "we (petitioners) are abiding strictly with the terms of the contracts executed between Marciano
C Sanchez, and Atty. Adolfo V Amor in behalf of BISTRANCO, etc. etc. 20

The three (3) letters of Benjamin G. Roa in effect recognized and gave efficacy to the Contracts in
question. The declaration of Benjamin G. Roa that BISTRANCO did not have any knowledge about
the Contracts before the complaint was filed on 28 December 1979 is contradicted by his own
testimony that, as early as 14 December 1979, he was already looking for the contract, after he saw
Exhibit "NN", wherein Sanchez requested the company "to abide with the terms of the contract which
will expire on July 1981;21 Besides, the pretended lack which will expire on July 1981 of knowledge of
Benjamin G. Roa can not be equated with BISTRANCO's. It should be noted that Roa started to
work for BISTRANCO only on 27 April 1979, 22 whereas, the Contracts were executed in 1976.

The people who were more in a position to know about the Contracts, like the company officers and
members of the board of directors at the time the Contracts were entered into, especially Antonio V.
Cuenco, were never presented as witnesses. Aside from this, the company cannot deny its
ratification of the Contracts even before the time of Benjamin G. Roa, because when Atty. Fulveo
Pelaez succeeded Atty. Adolfo Amor as Receiver, he was represented by BISTRANCO's shipping
manager as having taken cognizance of these Contracts and sanctioned the acts of Sanchez as
shipping agent of BISTRANCO in Butuan City. This is shown by a letter, 23 dated 15 February 1977,
written by Capt. Federico Reyes,24 the shipping manager of BISTRANCO at that time. The letter
states that "the Receiver (Atty. Fulveo Pelaez) maintains that the previous agency contract remains
and (sic) basically the same except that the rates of the agency commission were modified.

Furthermore, it is clear that BISTRANCO received material benefits from the contracts of agency of
Sanchez, based upon the monthly statements of income of BISTRANCO, upon which the
commissions of Sanchez were based. 25 A perusal of the Contracts will also show that there is no
single provision therein that can be said as prejudicial or not beneficial to BISTRANCO. As held
in Savings v. Ball-Bearing Chain Co. 26

Not every act within the letter of an order can be sanctioned, nor everything done
without the direction of the court condemned. The tests to be applied are: (1) was the
act under investigation within the authority conferred by an order of court? (2) If so,
was it performed with reference to the preservation of the estate, as a man of
ordinary sagacity and prudence would have performed it under like circumstances?
(3) If without authority, was it beneficial to the estate?

Besides, in our considered opinion, the doctrine of estoppel precludes BISTRANCO from repudiating
an obligation voluntarily assumed by it, after having accepted benefits therefrom. To countenance
such, repudiation would be contrary to equity and would put a premium on fraud or
misrepresentation, 27 which this Court will not sanction.

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Anent the issue of whether the Memorandum of Agreement and the Working Agreement (Exhibits
"S" and "U") which were executed by the parties in this case on 4 February 1977 and 28 May 1979,
respectively, novated the questioned Contracts, the answer is also in the negative. BISTRANCO
avers that Exhibit "S" substantially altered or changed the principal terms and conditions of Exhibits
"F" and "G" on material points, such as, reduction of the rate of commission for freight and passage
(from 10% to 7-1/2%), the manner of liquidation and remittance of collections of the agent, the mode
of payment of the agent's commissions, and the term of the Contract which is from a period of 5
years to a term of 1 year renewable yearly upon mutual consent; and that Exhibit "U" ,furthermore,
bolstered this novation theory.

Novation is not equivalent or synonymous to mere alteration, modification or amendment. Novation

is the substitution of a new obligation for an existing or old one, which is thereby extinguished.
Novation takes place when the object or principal condition of an obligation is changed or
altered.28 Novation is never presumed; it must be explicitly stated or there must be a manifest
incompatibility between the old and the new obligations in every aspect.29 The test of incompatibility
between two obligations or contracts, is whether or not they can stand together, each one having an
independent existence. If they cannot, they are incompatible, and the later obligation novates the
first.

In the case at bar, it can be deduced that the Agreements, Exhibits "S" and "U", were not meant to
novate the herein questioned contracts. Rather, the intent of the parties was to suspend some of the
provisions of the Contracts for a period of one (1) year, during which, the provisions of the
Agreements will prevail. As par. 8 of the Memorandum of Agreement provides: "It is in this spirit of
cooperation with the Receiver to enable him to pay huge obligations of the company that the agent
Marciano Sanchez has acceded to the request of Messrs. Miguel Cuenco and Antonio Cuenco to
accept the reduction of his commissions." It would not be equitable to Sanchez to say now that the
Contracts were extinguished and substituted by the Agreements. It would be tantamount to
punishing Sanchez for the concessions he extended to BISTRANCO.

Besides, the changes were not really substantial to bring about a novation. The changes pointed out
by BISTRANCO between the Contracts and the Agreements do not go into the essence of the cause
or object of the former. Under the Agreements, Sanchez remains the agent of BISTRANCO in
Butuan City. There is really no clear proof of incompatibility. In fact, the Contracts and the
Agreements can be reconciled. The provisions of the Agreements which were more of changes on
how to enforce the agency, prevailed during the period provided in them, but after their expiration,
the conditions under the Contracts were implemented again. The term of the agency contract which
was for a period of five (5) years still continued, until 27 July 1981.

Considering that the contract of agency and the supplemental shipping agency contract are valid
and binding between BISTRANCO and Sanchez, the former's opening of a branch in Butuan City
was, in effect, a violation of the Contracts. Sanchez entered into the agency Contract because of the
expected income and profits for himself. There could be no other motive from a businessman's point
of view. A provision in the Supplemental Shipping Agency Contract reads:

6. That in consideration of the foregoing additional particular obligations of the

AGENT, the COMPANY agrees not to appoint or employ another agent in Butuan
City or in any of the City's neighboring towns without the written consent of the
AGENT first obtained. (Exhibit "G ")

The additional particular obligations referred to in Exhibit "G" were the putting up of an adequate
agency office in Butuan City, the employment of canvassers of passengers and solicitors of cargoes,
that the Agent shall provide at least two (2) cargo trucks and a private docking and berthing facilities

56
for the vessels of the company, at the expense of Sanchez. Aside from this, Sanchez also had to
spend for the lease of the wharf and the construction of the bodega at the wharf.

It may be true that there is no express prohibition for BISTRANCO to open its branch in Butuan City.
But, the very reason why BISTRANCO agreed not to employ or appoint another agent in Butuan City
was to prevent competition against Sanchez' agency, in order that he might recover what he
invested and eventually maximize his profits. The opening by BISTRANCO of a branch in Butuan
City virtually resulted in consequences to Sanchez worse than if another agent had been appointed.
In effect, the opening of a branch office in Butuan City was a violation of the Contracts of agency.
Article 1315 of the Civil Code provides:

Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in keeping with good
faith, usage and law.

In the case at bar, good faith required that BISTRANCO refrain from opening its branch in Butuan
City during the effectivity of the agency contract with Sanchez, or until 27 July 1981.

Moreover, the opening of the branch office which, in effect, was a revocation of the contracts of
agency is not sanctioned by law because the agency was the means by which Sanchez could fulfill
his obligations under Exhibits "F" and "G". Article 1927 of the Civil Code, among others, provides:
"An agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling
an obligation already contracted".

As to the issue of whether the award of P588,000.00 to Sanchez for unearned commissions and
damages is justified, the answer is also in the affirmative, considering that BISTRANCO violated the
Contracts of agency and that Sanchez, before the breach by BISTRANCO of said agency Contracts,
was already earning an average monthly commission of P32,000.00, as shown by the statements of
commissions prepared by BISTRANCO itself.

WHEREFORE, the petition is denied. The decision of the respondent Court is affirmed.

SO ORDERED.

Yap (Chairman), Melencio-Herrera, Paras and Sarmiento, JJ., concur.

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