EUROTECH INDUSTRIAL TECHNOLOGIES, INC.

, Petitioner,
vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review by certiorari assailing the Decision1 of the Court of
Appeals dated 10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP
No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez."
The assailed Decision and Resolution affirmed the Order3 dated 29 January 2002 rendered
by Judge Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon
(EDWIN) as a party defendant in Civil Case No. CEB-19672.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and distribution of various European
industrial equipment for customers here in the Philippines. It has as one of its customers
Impact Systems Sales ("Impact Systems") which is a sole proprietorship owned by
respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of Impact
Systems and was impleaded in the court a quo in said capacity.
From January to April 1995, petitioner sold to Impact Systems various products allegedly
amounting to ninety-one thousand three hundred thirty-eight (P91,338.00) pesos.
Subsequently, respondents sought to buy from petitioner one unit of sludge pump valued
at P250,000.00 with respondents making a down payment of fifty thousand pesos
(P50,000.00).4 When the sludge pump arrived from the United Kingdom, petitioner refused
to deliver the same to respondents without their having fully settled their indebtedness to
petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general
manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner,
the pertinent part of which states:
1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power
Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND
(P365,000.00) PESOS as payment for the purchase of one unit of Selwood Spate
100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto
the ASSIGNEE6 the said receivables from Toledo Power Corporation in the
amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS
which receivables the ASSIGNOR is the lawful recipient;
3.) That the ASSIGNEE does hereby accept this assignment.7

Following the execution of the Deed of Assignment, petitioner delivered to respondents the
sludge pump as shown by Invoice No. 12034 dated 30 June 1995.8
Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of
Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29
as evidenced by Check Voucher No. 09339prepared by said power company and an official
receipt dated 15 August 1995 issued by Impact Systems.10Alarmed by this development,
petitioner made several demands upon respondents to pay their obligations. As a result,
respondents were able to make partial payments to petitioner. On 7 October 1996,
petitioners counsel sent respondents a final demand letter wherein it was stated that as of
11 June 1996, respondents total obligations stood at P295,000.00 excluding interests and
attorneys fees.11 Because of respondents failure to abide by said final demand letter,
petitioner instituted a complaint for sum of money, damages, with application for
preliminary attachment against herein respondents before the Regional Trial Court of Cebu
City.12
On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of
preliminary attachment.13
On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioners
allegations with respect to the sale transactions entered into by Impact Systems and
petitioner between January and April 1995.15 He, however, disputed the total amount of
Impact Systems indebtedness to petitioner which, according to him, amounted to
only P220,000.00.16
By way of special and affirmative defenses, respondent EDWIN alleged that he is not a
real party in interest in this case. According to him, he was acting as mere agent of his
principal, which was the Impact Systems, in his transaction with petitioner and the latter
was very much aware of this fact. In support of this argument, petitioner points to
paragraphs 1.2 and 1.3 of petitioners Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City.
He is the proprietor of a single proprietorship business known as Impact Systems
Sales ("Impact Systems" for brevity), with office located at 46-A del Rosario
Street, Cebu City, where he may be served summons and other processes of the
Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of
Cebu City. He is the Sales Manager of Impact Systems and is sued in this action
in such capacity.17
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with
Motion for Summary Judgment. The trial court granted petitioners motion to declare
respondent ERWIN in default "for his failure to answer within the prescribed period despite
the opportunity granted"18 but it denied petitioners motion for summary judgment in its

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 1

Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October
2001.19 However, the conduct of the pre-trial conference was deferred pending the
resolution by the trial court of the special and affirmative defenses raised by respondent
EDWIN.20
After the filing of respondent EDWINs Memorandum21 in support of his special and
affirmative defenses and petitioners opposition22 thereto, the trial court rendered its
assailed Order dated 29 January 2002 dropping respondent EDWIN as a party defendant
in this case. According to the trial court
A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant
Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact]
Systems Sale is a single proprietorship entity and the complaint shows that defendant
Erwin H. Cuizon is the proprietor; that plaintiff corporation is represented by its general
manager Alberto de Jesus in the contract which is dated June 28, 1995. A study of Annex
"H" to the complaint reveals that [Impact] Systems Sales which is owned solely by
defendant Erwin H. Cuizon, made a down payment of P50,000.00 that Annex "H" is dated
June 30, 1995 or two days after the execution of Annex "G", thereby showing that [Impact]
Systems Sales ratified the act of Edwin B. Cuizon; the records further show that plaintiff
knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B. Cuizon, the
agent, when it accepted the down payment of P50,000.00. Plaintiff, therefore, cannot say
that it was deceived by defendant Edwin B. Cuizon, since in the instant case the principal
has ratified the act of its agent and plaintiff knew about said ratification. Plaintiff could not
say that the subject contract was entered into by Edwin B. Cuizon in excess of his powers
since [Impact] Systems Sales made a down payment of P50,000.00 two days later.
In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as
party defendant.23
Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court
of Appeals which, however, affirmed the 29 January 2002 Order of the court a quo. The
dispositive portion of the now assailed Decision of the Court of Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify the conclusions
reached by the public respondent in his Order dated January 29, 2002, it is hereby
AFFIRMED.24
Petitioners motion for reconsideration was denied by the appellate court in its Resolution
promulgated on 17 March 2005. Hence, the present petition raising, as sole ground for its
allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED
THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS
SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER

ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN THE
PERPETUATION OF A FRAUD.25
To support its argument, petitioner points to Article 1897 of the New Civil Code which
states:
Art. 1897. The agent who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority without
giving such party sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs act
of collecting the receivables from the Toledo Power Corporation notwithstanding the
existence of the Deed of Assignment signed by EDWIN on behalf of Impact Systems.
While said collection did not revoke the agency relations of respondents, petitioner insists
that ERWINs action repudiated EDWINs power to sign the Deed of Assignment. As
EDWIN did not sufficiently notify it of the extent of his powers as an agent, petitioner claims
that he should be made personally liable for the obligations of his principal.26
Petitioner also contends that it fell victim to the fraudulent scheme of respondents who
induced it into selling the one unit of sludge pump to Impact Systems and signing the Deed
of Assignment. Petitioner directs the attention of this Court to the fact that respondents are
bound not only by their principal and agent relationship but are in fact full-blooded brothers
whose successive contravening acts bore the obvious signs of conspiracy to defraud
petitioner.27
In his Comment,28 respondent EDWIN again posits the argument that he is not a real party
in interest in this case and it was proper for the trial court to have him dropped as a
defendant. He insists that he was a mere agent of Impact Systems which is owned by
ERWIN and that his status as such is known even to petitioner as it is alleged in the
Complaint that he is being sued in his capacity as the sales manager of the said business
venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly
states that he was acting as a representative of Impact Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or to do something
in representation or on behalf of another with the latters consent.29 The underlying
principle of the contract of agency is to accomplish results by using the services of others
to do a great variety of things like selling, buying, manufacturing, and transporting.30 Its
purpose is to extend the personality of the principal or the party for whom another acts and
from whom he or she derives the authority to act.31 It is said that the basis of agency is
representation, that is, the agent acts for and on behalf of the principal on matters within
the scope of his authority and said acts have the same legal effect as if they were
personally executed by the principal.32 By this legal fiction, the actual or real absence of the
principal is converted into his legal or juridical presence qui facit per alium facit per se.33

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 2

The elements of the contract of agency are: (1) consent, express or implied, of the parties
to establish the relationship; (2) the object is the execution of a juridical act in relation to a
third person; (3) the agent acts as a representative and not for himself; (4) the agent acts
within the scope of his authority.34
In this case, the parties do not dispute the existence of the agency relationship between
respondents ERWIN as principal and EDWIN as agent. The only cause of the present
dispute is whether respondent EDWIN exceeded his authority when he signed the Deed of
Assignment thereby binding himself personally to pay the obligations to petitioner.
Petitioner firmly believes that respondent EDWIN acted beyond the authority granted by
his principal and he should therefore bear the effect of his deed pursuant to Article 1897 of
the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not
personally liable to the party with whom he contracts. The same provision, however,
presents two instances when an agent becomes personally liable to a third person. The
first is when he expressly binds himself to the obligation and the second is when he
exceeds his authority. In the last instance, the agent can be held liable if he does not give
the third party sufficient notice of his powers. We hold that respondent EDWIN does not fall
within any of the exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the
sales manager of Impact Systems. As discussed elsewhere, the position of manager is
unique in that it presupposes the grant of broad powers with which to conduct the business
of the principal, thus:
The powers of an agent are particularly broad in the case of one acting as a general agent
or manager; such a position presupposes a degree of confidence reposed and investiture
with liberal powers for the exercise of judgment and discretion in transactions and
concerns which are incidental or appurtenant to the business entrusted to his care and
management. In the absence of an agreement to the contrary, a managing agent may
enter into any contracts that he deems reasonably necessary or requisite for the protection
of the interests of his principal entrusted to his management. x x x.35
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within
his authority when he signed the Deed of Assignment. To recall, petitioner refused to
deliver the one unit of sludge pump unless it received, in full, the payment for Impact
Systems indebtedness.36 We may very well assume that Impact Systems desperately
needed the sludge pump for its business since after it paid the amount of fifty thousand
pesos (P50,000.00) as down payment on 3 March 1995,37 it still persisted in negotiating
with petitioner which culminated in the execution of the Deed of Assignment of its
receivables from Toledo Power Company on 28 June 1995.38 The significant amount of
time spent on the negotiation for the sale of the sludge pump underscores Impact Systems

perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind
that respondent EDWINs participation in the Deed of Assignment was "reasonably
necessary" or was required in order for him to protect the business of his principal. Had he
not acted in the way he did, the business of his principal would have been adversely
affected and he would have violated his fiduciary relation with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both from
respondents ERWIN, the principal, and EDWIN, the agent. It is well to state here that
Article 1897 of the New Civil Code upon which petitioner anchors its claim against
respondent EDWIN "does not hold that in case of excess of authority, both the agent and
the principal are liable to the other contracting party."39 To reiterate, the first part of Article
1897 declares that the principal is liable in cases when the agent acted within the bounds
of his authority. Under this, the agent is completely absolved of any liability. The second
part of the said provision presents the situations when the agent himself becomes liable to
a third party when he expressly binds himself or he exceeds the limits of his authority
without giving notice of his powers to the third person. However, it must be pointed out that
in case of excess of authority by the agent, like what petitioner claims exists here, the law
does not say that a third person can recover from both the principal and the agent.40
As we declare that respondent EDWIN acted within his authority as an agent, who did not
acquire any right nor incur any liability arising from the Deed of Assignment, it follows that
he is not a real party in interest who should be impleaded in this case. A real party in
interest is one who "stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit."41 In this respect, we sustain his exclusion as a
defendant in the suit before the court a quo.
WHEREFORE, premises considered, the present petition is DENIED and the Decision
dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CAG.R. SP No. 71397, affirming the Order dated 29 January 2002 of the Regional Trial Court,
Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City,
for the continuation of the proceedings against respondent Erwin Cuizon.
SO ORDERED.
RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF
APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 3

MUOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal,
Concepcion Rallos, sold the latter's undivided share in a parcel of land pursuant to a power
of attorney which the principal had executed in favor. The administrator of the estate of the
went to court to have the sale declared uneanforceable and to recover the disposed share.
The trial court granted the relief prayed for, but upon appeal the Court of Appeals uphold
the validity of the sale and the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos
were sisters and registered co-owners of a parcel of land known as Lot No. 5983 of the
Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11116 of the Registry
of Cebu. On April 21, 1954, the sisters executed a special power of attorney in favor of
their brother, Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. On
March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the
undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan &
Sons Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the
Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of
Title No. 12989 was issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion
Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court of First Instance of
Cebu, praying (1) that the sale of the undivided share of the deceased Concepcion Rallos
in lot 5983 be d unenforceable, and said share be reconveyed to her estate; (2) that the
Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be
cancelled and another title be issued in the names of the corporation and the "Intestate
estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by way
of attorney's fees and payment of costs of suit. Named party defendants were Felix Go
Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but
subsequently, the latter was dropped from the complaint. The complaint was amended
twice; defendant Corporation's Answer contained a crossclaim against its co-defendant,
Simon Rallos while the latter filed third-party complaint against his sister, Gerundia Rallos
While the case was pending in the trial court, both Simon and his sister Gerundia died and
they were substituted by the respective administrators of their estates.
After trial the court a quo rendered judgment with the following dispositive portion:
A. On Plaintiffs Complaint

(1) Declaring the deed of sale, Exh. "C", null and void
insofar as the one-half pro-indiviso share of
Concepcion Rallos in the property in question, Lot
5983 of the Cadastral Survey of Cebu is concerned;
(2) Ordering the Register of Deeds of Cebu City to
cancel Transfer Certificate of Title No. 12989 covering
Lot 5983 and to issue in lieu thereof another in the
names of FELIX GO CHAN & SONS REALTY
CORPORATION and the Estate of Concepcion Rallos
in the proportion of one-half (1/2) share each proindiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation
to deliver the possession of an undivided one-half
(1/2) share of Lot 5983 to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to pay to
plaintiff in concept of reasonable attorney's fees the
sum of P1,000.00; and
(5) Ordering both defendants to pay the costs jointly
and severally.
B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to pay to
defendant Felix Co Chan & Sons Realty Corporation
the sum of P5,343.45, representing the price of onehalf (1/2) share of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to pay in
concept of reasonable attorney's fees to Felix Go
Chan & Sons Realty Corporation the sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo
administrator of Estate of Simeon Rallos, against Josefina Rallos special
administratrix of the Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to filing either a
complaint against the regular administrator of the Estate of Gerundia

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 4

Rallos or a claim in the Intestate-Estate of Cerundia Rallos, covering the

same subject-matter of the third-party complaint, at bar. (pp. 98-100,
Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals
from the foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of
Concepcion Rallos. The appellate tribunal, as adverted to earlier, resolved the appeal on
November 20, 1964 in favor of the appellant corporation sustaining the sale in
question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the
decision but the same was denied in a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his principal?
Applied more particularly to the instant case, We have the query. is the sale of the
undivided share of Concepcion Rallos in lot 5983 valid although it was executed by the
agent after the death of his principal? What is the law in this jurisdiction as to the effect of
the death of the principal on the authority of the agent to act for and in behalf of the latter?
Is the fact of knowledge of the death of the principal a material factor in determining the
legal effect of an act performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of law relevant
to the matter tinder consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the
name of another without being authorized by the latter, or unless he has by law a right to
represent him. 3 A contract entered into in the name of another by one who has no
authority or the legal representation or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it
has been executed, before it is revoked by the other contracting party. 4 Article 1403 (1) of
the same Code also provides:
ART. 1403. The following contracts are unenforceable, unless they are
justified:
(1) Those entered into in the name of another person by one who hi been given no authority or legal representation or who has acted beyond
his powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship
of agency whereby one party, caged the principal (mandante), authorizes another, called
the agent (mandatario), to act for and in his behalf in transactions with third persons. The
essential elements of agency are: (1) there is consent, express or implied of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a
third person; (3) the agents acts as a representative and not for himself, and (4) the agent
acts within the scope of his authority. 5

Agency is basically personal representative, and derivative in nature. The authority of the
agent to act emanates from the powers granted to him by his principal; his act is the act of
the principal if done within the scope of the authority. Qui facit per alium facit se. "He who
acts through another acts himself". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned only with
one cause death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was
taken from Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the principal or
of the agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent, agency is
extinguished by the death of the principal or the agent. This is the law in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for
the law is found in the juridical basis of agency which is representation Them being an in.
integration of the personality of the principal integration that of the agent it is not possible
for the representation to continue to exist once the death of either is
establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a
necessary cause for its extinction. Laurent says that the juridical tie between the principal
and the agent is severed ipso jure upon the death of either without necessity for the heirs
of the fact to notify the agent of the fact of death of the former. 9
The same rule prevails at common law the death of the principal effects instantaneous
and absolute revocation of the authority of the agent unless the Power be coupled with an
interest. 10 This is the prevalent rule in American Jurisprudence where it is well-settled that
a power without an interest confer. red upon an agent is dissolved by the principal's death,
and any attempted execution of the power afterward is not binding on the heirs or
representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of the
agent extinguishes the agency, subject to any exception, and if so, is the instant case
within that exception? That is the determinative point in issue in this litigation. It is the
contention of respondent corporation which was sustained by respondent court that
notwithstanding the death of the principal Concepcion Rallos the act of the attorney-in-fact,
Simeon Rallos in selling the former's sham in the property is valid and enforceable
inasmuch as the corporation acted in good faith in buying the property in question.

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 5

Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule aforementioned.
ART. 1930. The agency shall remain in full force and effect even after
the death of the principal, if it has been constituted in the common
interest of the latter and of the agent, or in the interest of a third person
who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death
of the principal or of any other cause which extinguishes the agency, is
valid and shall be fully effective with respect to third persons who may
have contracted with him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed in
favor of Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the
death of his principal is valid and effective only under two conditions, viz: (1) that the agent
acted without knowledge of the death of the principal and (2) that the third person who
contracted with the agent himself acted in good faith. Good faith here means that the third
person was not aware of the death of the principal at the time he contracted with said
agent. These two requisites must concur the absence of one will render the act of the
agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the
death of his principal at the time he sold the latter's share in Lot No. 5983 to respondent
corporation. The knowledge of the death is clearly to be inferred from the pleadings filed by
Simon Rallos before the trial court. 12 That Simeon Rallos knew of the death of his sister
Concepcion is also a finding of fact of the court a quo 13 and of respondent appellate court
when the latter stated that Simon Rallos 'must have known of the death of his sister, and
yet he proceeded with the sale of the lot in the name of both his sisters Concepcion and
Gerundia Rallos without informing appellant (the realty corporation) of the death of the
former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his
principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law
expressly requires for its application lack of knowledge on the part of the agent of the
death of his principal; it is not enough that the third person acted in good faith. Thus in
Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art.
1931 of the new Civil Code sustained the validity , of a sale made after the death of the
principal because it was not shown that the agent knew of his principal's demise. 15 To the
same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words
of Justice Jesus Barrera the Court stated:

... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs
presented no proof and there is no indication in the record, that the
agent Luy Kim Guan was aware of the death of his principal at the time
he sold the property. The death 6f the principal does not render the act
of an agent unenforceable, where the latter had no knowledge of such
extinguishment of the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals
reasoned out that there is no provision in the Code which provides that whatever is done
by an agent having knowledge of the death of his principal is void even with respect to
third persons who may have contracted with him in good faith and without knowledge of
the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the
general rule enunciated in Article 1919 that the death of the principal extinguishes the
agency. That being the general rule it follows a fortiori that any act of an agent after the
death of his principal is void ab initio unless the same fags under the exception provided
for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the
general rule, is to be strictly construed, it is not to be given an interpretation or application
beyond the clear import of its terms for otherwise the courts will be involved in a process of
legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the vendee acting in good faith
relied on the power of attorney which was duly registered on the original certificate of title
recorded in the Register of Deeds of the province of Cebu, that no notice of the death was
aver annotated on said certificate of title by the heirs of the principal and accordingly they
must suffer the consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries
which We quote:
If the agency has been granted for the purpose of contracting with
certain persons, the revocation must be made known to them. But if the
agency is general iii nature, without reference to particular person with
whom the agent is to contract, it is sufficient that the principal exercise
due diligence to make the revocation of the agency publicity known.
In case of a general power which does not specify the persons to whom
represents' on should be made, it is the general opinion that all acts,
executed with third persons who contracted in good faith, Without
knowledge of the revocation, are valid. In such case, the principal may
exercise his right against the agent, who, knowing of the revocation,
continued to assume a personality which he no longer had. (Manresa
Vol. 11, pp. 561 and 575; pp. 15-16, rollo)

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 6

The above discourse however, treats of revocation by an act of the principal as a mode of
terminating an agency which is to be distinguished from revocation by operation of
law such as death of the principal which obtains in this case. On page six of this Opinion
We stressed that by reason of the very nature of the relationship between principal and
agent, agency is extinguished ipso jure upon the death of either principal or agent.
Although a revocation of a power of attorney to be effective must be communicated to the
parties concerned, 18 yet a revocation by operation of law, such as by death of the principal
is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of
authority is regarded as an execution of the principal's continuing will. 19 With death, the
principal's will ceases or is the of authority is extinguished.

member of the Philippine Bar and the husband of

Angela Blondeau, the principal plaintiff, searched the
registration record, he found them in due form
including the power of attorney of Vallajo in favor of
Nano. If this had not been so and if thereafter the
proper notation of the encumbrance could not have
been made, Angela Blondeau would not have sent
P12,000.00 to the defendant Vallejo.' An executed
transfer of registered lands placed by the registered
owner thereof in the hands of another operates as a
representation to a third party that the holder of the
transfer is authorized to deal with the land.

The Civil Code does not impose a duty on the heirs to notify the agent of the death of the
principal What the Code provides in Article 1932 is that, if the agent die his heirs must
notify the principal thereof, and in the meantime adopt such measures as the
circumstances may demand in the interest of the latter. Hence, the fact that no notice of
the death of the principal was registered on the certificate of title of the property in the
Office of the Register of Deeds, is not fatal to the cause of the estate of the principal
6. Holding that the good faith of a third person in said with an agent affords the former
sufficient protection, respondent court drew a "parallel" between the instant case and that
of an innocent purchaser for value of a land, stating that if a person purchases a registered
land from one who acquired it in bad faith even to the extent of foregoing or falsifying
the deed of sale in his favor the registered owner has no recourse against such
innocent purchaser for value but only against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the case
of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630,
one Vallejo was a co-owner of lands with Agustin Nano. The latter had a
power of attorney supposedly executed by Vallejo Nano in his favor.
Vallejo delivered to Nano his land titles. The power was registered in the
Office of the Register of Deeds. When the lawyer-husband of Angela
Blondeau went to that Office, he found all in order including the power of
attorney. But Vallejo denied having executed the power The lower court
sustained Vallejo and the plaintiff Blondeau appealed. Reversing the
decision of the court a quo, the Supreme Court, quoting the ruling in the
case of Eliason v. Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses
of the defendant- appellee must be overruled. Agustin
Nano had possession of Jose Vallejo's title papers.
Without those title papers handed over to Nano with
the acquiescence of Vallejo, a fraud could not have
been perpetuated. When Fernando de la Canters, a

As between two innocent persons, one of whom must

suffer the consequence of a breach of trust, the one
who made it possible by his act of coincidence bear
the loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because here
We are confronted with one who admittedly was an agent of his sister and who sold the
property of the latter after her death with full knowledge of such death. The situation is
expressly covered by a provision of law on agency the terms of which are clear and
unmistakable leaving no room for an interpretation contrary to its tenor, in the same
manner that the ruling in Blondeau and the cases cited therein found a basis in Section 55
of the Land Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any
voluntary instrument is presented for registration shall be conclusive
authority from the registered owner to the register of deeds to enter a
new certificate or to make a memorandum of registration in accordance
with such instruments, and the new certificate or memorandum Shall be
binding upon the registered owner and upon all persons claiming under
him in favor of every purchaser for value and in good faith: Provided
however, That in all cases of registration provided by fraud, the owner
may pursue all his legal and equitable remedies against the parties to
such fraud without prejudice, however, to the right, of any innocent
holder for value of a certificate of title. ... (Act No. 496 as amended)
7. One last point raised by respondent corporation in support of the appealed decision is
an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein
payments made to an agent after the death of the principal were held to be "good", "the
parties being ignorant of the death". Let us take note that the Opinion of Justice Rogers

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 7

was premised on the statement that the parties were ignorant of the death of the
principal. We quote from that decision the following:
... Here the precise point is, whether a payment to an agent when the
Parties are ignorant of the death is a good payment. in addition to the
case in Campbell before cited, the same judge Lord Ellenboruogh, has
decided in 5 Esp. 117, the general question that a payment after the
death of principal is not good. Thus, a payment of sailor's wages to a
person having a power of attorney to receive them, has been held void
when the principal was dead at the time of the payment. If, by this case,
it is meant merely to decide the general proposition that by operation of
law the death of the principal is a revocation of the powers of the
attorney, no objection can be taken to it. But if it intended to say that his
principle applies where there was 110 notice of death, or opportunity of
twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the
accident circumstance of the death of the principal, which he did not
know, and which by no possibility could he know? It would be unjust to
the agent and unjust to the debtor. In the civil law, the acts of the agent,
done bona fide in ignorance of the death of his principal are held valid
and binding upon the heirs of the latter. The same rule holds in the
Scottish law, and I cannot believe the common law is so unreasonable...
(39 Am. Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke,
mention may be made that the above represents the minority view in American
jurisprudence. Thus in Clayton v. Merrett, the Court said.
There are several cases which seem to hold that although, as a general
principle, death revokes an agency and renders null every act of the
agent thereafter performed, yet that where a payment has been made in
ignorance of the death, such payment will be good. The leading case so
holding is that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am.
76, where, in an elaborate opinion, this view ii broadly announced. It is
referred to, and seems to have been followed, in the case of Dick v.
Page, 17 Mo. 234, 57 AmD 267; but in this latter case it appeared that
the estate of the deceased principal had received the benefit of the
money paid, and therefore the representative of the estate might well
have been held to be estopped from suing for it again. . . . These cases,
in so far, at least, as they announce the doctrine under discussion, are
exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4
Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite,
alone in announcing the principle in its broadest scope. (52, Misc. 353,
357, cited in 2 C.J. 549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the
opinion, except so far as it related to the particular facts, was a mere dictum, Baldwin J.
said:
The opinion, therefore, of the learned Judge may be regarded more as
an extrajudicial indication of his views on the general subject, than as
the adjudication of the Court upon the point in question. But accordingly
all power weight to this opinion, as the judgment of a of great
respectability, it stands alone among common law authorities and is
opposed by an array too formidable to permit us to following it. (15 Cal.
12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American
jurisprudence, no such conflict exists in our own for the simple reason that our statute, the
Civil Code, expressly provides for two exceptions to the general rule that death of the
principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with an interest
(Art 1930), and (2) that the act of the agent was executed without knowledge of the death
of the principal and the third person who contracted with the agent acted also in good faith
(Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress the
indispensable requirement that the agent acted without knowledge or notice of the death of
the principal In the case before Us the agent Ramon Rallos executed the sale
notwithstanding notice of the death of his principal Accordingly, the agent's act is
unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate
court, and We affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the
Court of First Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs against
respondent realty corporation at all instances.
So Ordered.
RODOLFO G. NAVARRO, VICTOR F. BERNAL, and RENE O. MEDINA, Petitioners,
vs.
EXECUTIVE SECRETARY EDUARDO ERMITA, representing the President of the
Philippines; Senate of the Philippines, represented by the SENATE PRESIDENT;
House of Representatives, represented by the HOUSE SPEAKER; GOVERNOR
ROBERT ACE S. BARBERS, representing the mother province of Surigao del Norte;
GOVERNOR GERALDINE ECLEO VILLAROMAN, representing the new Province of
Dinagat Islands, Respondents,
CONGRESSMAN FRANCISCO T. MATUGAS, HON. SOL T. MATUGAS, HON. ARTURO
CARLOS A. EGAY, JR., HON. SIMEON VICENTE G. CASTRENCE, HON. MAMERTO D.
GALANIDA, HON. MARGARITO M. LONGOS, and HON. CESAR M.
BAGUNDOL, Intervenors.
RESOLUTION

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 8

NACHURA, J.:

LGC, Title IV, Chapter I

For consideration of the Court is the Urgent Motion to Recall Entry of Judgment dated
October 20, 2010 filed by Movant-Intervenors1 dated and filed on October 29, 2010,
praying that the Court (a) recall the entry of judgment, and (b) resolve their motion for
reconsideration of the July 20, 2010 Resolution.

Section 461. Requisites for Creation. (a) A province may be created if it has an average
annual income, as certified by the Department of Finance, of not less than Twenty million
pesos (P20,000,000.00) based on 1991 constant prices and either of the following
requisites:

To provide a clear perspective of the instant motion, we present hereunder a brief

background of the relevant antecedents

(i) a continuous territory of at least two thousand (2,000) square kilometers, as

certified by the Lands Management Bureau; or

On October 2, 2006, the President of the Republic approved into law Republic Act (R.A.)
No. 9355 (An Act Creating the Province of Dinagat Islands).2 On December 3, 2006, the
Commission on Elections (COMELEC) conducted the mandatory plebiscite for the
ratification of the creation of the province under the Local Government Code (LGC).3The
plebiscite yielded 69,943 affirmative votes and 63,502 negative votes.4 With the approval
of the people from both the mother province of Surigao del

(ii) a population of not less than two hundred fifty thousand (250,000) inhabitants
as certified by the National Statistics Office:

Norte and the Province of Dinagat Islands (Dinagat), the President appointed the interim
set of provincial officials who took their oath of office on January 26, 2007. Later, during the
May 14, 2007 synchronized elections, the Dinagatnons elected their new set of provincial
officials who assumed office on July 1, 2007.5

(b) The territory need not be contiguous if it comprises two (2) or more islands or
is separated by a chartered city or cities which do not contribute to the income of
the province.

On November 10, 2006, petitioners Rodolfo G. Navarro, Victor F. Bernal and Rene O.
Medina, former political leaders of Surigao del Norte, filed before this Court a petition for
certiorari and prohibition (G.R. No. 175158) challenging the constitutionality of R.A. No.
9355.6 The Court dismissed the petition on technical grounds. Their motion for
reconsideration was also denied.7
Undaunted, petitioners, as taxpayers and residents of the Province of Surigao del Norte,
filed another petition for certiorari8 seeking to nullify R.A. No. 9355 for being
unconstitutional. They alleged that the creation of Dinagat as a new province, if
uncorrected, would perpetuate an illegal act of Congress, and would unjustly deprive the
people of Surigao del Norte of a large chunk of the provincial territory, Internal Revenue
Allocation (IRA), and rich resources from the area. They pointed out that when the law was
passed, Dinagat had a land area of 802.12 square kilometers only and a population of only
106,951, failing to comply with Section 10, Article X of the Constitution and of Section 461
of the LGC, on both counts, viz.
Constitution, Article X Local Government
Section 10. No province, city, municipality, or barangay may be created, divided, merged,
abolished, or its boundary substantially altered, except in accordance with the criteria
established in the local government code and subject to the approval by a majority of the
votes cast in a plebiscite in the political units directly affected.

Provided, That, the creation thereof shall not reduce the land area, population,
and income of the original unit or units at the time of said creation to less than the
minimum requirements prescribed herein.

(c) The average annual income shall include the income accruing to the general
fund, exclusive of special funds, trust funds, transfers, and non-recurring income.
(Emphasis supplied.)
On February 10, 2010, the Court rendered its Decision9 granting the petition.10 The
Decision declared R.A. No. 9355 unconstitutional for failure to comply with the
requirements on population and land area in the creation of a province under the LGC.
Consequently, it declared the proclamation of Dinagat and the election of its officials as null
and void. The Decision likewise declared as null and void the provision on Article 9(2) of
the Rules and Regulations Implementing the LGC (LGC-IRR), stating that, "[t]he land area
requirement shall not apply where the proposed province is composed of one (1) or more
islands" for being beyond the ambit of Article 461 of the LGC, inasmuch as such exemption
is not expressly provided in the law.11
The Republic, represented by the Office of the Solicitor General, and Dinagat filed their
respective motions for reconsideration of the Decision. In its Resolution12 dated May 12,
2010,13 the Court denied the said motions.14
Unperturbed, the Republic and Dinagat both filed their respective motions for leave of
court to admit their second motions for reconsideration, accompanied by their second
motions for reconsideration. These motions were eventually "noted without action" by this
Court in its June 29, 2010 Resolution.15

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 9

Meanwhile, the movants-intervenors filed on June 18, 2010 a Motion for Leave to
Intervene and to File and to Admit Intervenors Motion for Reconsideration of the
Resolution dated May 12, 2010. They alleged that the COMELEC issued Resolution No.
8790, relevant to this case, which provides
RESOLUTION NO. 8790
WHEREAS, Dinagat Islands, consisting of seven (7) municipalities, were previously
components of the First Legislative District of the Province of Surigao del Norte. In
December 2006 pursuant to Republic Act No. 9355, the Province of Dinagat Island[s] was
created and its creation was ratified on 02 December 2006 in the Plebiscite for this
purpose;
WHEREAS, as a province, Dinagat Islands was, for purposes of the May 10, 2010
National and Local Elections, allocated one (1) seat for Governor, one (1) seat for Vice
Governor, one (1) for congressional seat, and ten (10) Sangguniang Panlalawigan seats
pursuant to Resolution No. 8670 dated 16 September 2009;
WHEREAS, the Supreme Court in G.R. No. 180050 entitled "Rodolfo Navarro, et al., vs.
Executive Secretary Eduardo Ermita, as representative of the President of the Philippines,
et al." rendered a Decision, dated 10 February 2010, declaring Republic Act No. 9355
unconstitutional for failure to comply with the criteria for the creation of a province
prescribed in Sec. 461 of the Local Government Code in relation to Sec. 10, Art. X, of the
1987 Constitution;
WHEREAS, respondents intend to file Motion[s] for Reconsideration on the above decision
of the Supreme Court;
WHEREAS, the electoral data relative to the: (1) position for Member, House of
Representatives representing the lone congressional district of Dinagat Islands, (2) names
of the candidates for the aforementioned position, (3) position for Governor, Dinagat
Islands, (4) names of the candidates for the said position, (5) position of the Vice Governor,
(6) the names of the candidates for the said position, (7) positions for the ten (10)
Sangguniang Panlalawigan Members and, [8] all the names of the candidates for
Sangguniang Panlalawigan Members, have already been configured into the system and
can no longer be revised within the remaining period before the elections on May 10, 2010.
NOW, THEREFORE, with the current system configuration, and depending on whether the
Decision of the Supreme Court in Navarro vs. Ermita is reconsidered or not, the
Commission RESOLVED, as it hereby RESOLVES, to declare that:
a. If the Decision is reversed, there will be no problem since the current system
configuration is in line with the reconsidered Decision, meaning that the Province

of Dinagat Islands and the Province of Surigao del Norte remain as two (2)
separate provinces;
b. If the Decision becomes final and executory before the election, the Province of
Dinagat Islands will revert to its previous status as part of the First Legislative
District, Surigao del Norte.
But because of the current system configuration, the ballots for the Province of
Dinagat Islands will, for the positions of Member, House of Representatives,
Governor, Vice Governor and Members, Sangguniang Panlalawigan, bear only
the names of the candidates for the said positions.
Conversely, the ballots for the First Legislative District of Surigao del Norte, will,
for the position of Governor, Vice Governor, Member, House of Representatives,
First District of Surigao del Norte and Members, Sangguniang Panlalawigan,
show only candidates for the said position. Likewise, the whole Province of
Surigao del Norte, will, for the position of Governor and Vice Governor, bear only
the names of the candidates for the said position[s].
Consequently, the voters of the Province of Dinagat Islands will not be able to
vote for the candidates of Members, Sangguniang Panlalawigan, and Member,
House [of] Representatives, First Legislative District, Surigao del Norte, and
candidates for Governor and Vice Governor for Surigao del Norte. Meanwhile,
voters of the First Legislative District of Surigao del Norte, will not be able to vote
for Members, Sangguniang Panlalawigan and Member, House of
Representatives, Dinagat Islands. Also, the voters of the whole Province of
Surigao del Norte, will not be able to vote for the Governor and Vice Governor,
Dinagat Islands. Given this situation, the Commission will postpone the elections
for Governor, Vice Governor, Member, House of Representatives, First Legislative
District, Surigao del Norte, and Members, Sangguniang Panlalawigan, First
Legislative District, Surigao del Norte, because the election will result in [a] failure
to elect, since, in actuality, there are no candidates for Governor, Vice Governor,
Members, Sangguniang Panlalawigan, First Legislative District, and Member,
House of Representatives, First Legislative District (with Dinagat Islands) of
Surigao del Norte.
c. If the Decision becomes final and executory after the election, the Province of
Dinagat Islands will revert to its previous status as part of the First Legislative
District of Surigao del Norte. The result of the election will have to be nullified for
the same reasons given in Item "b" above. A special election for Governor, Vice
Governor, Member, House of Representatives, First Legislative District of Surigao
del Norte, and Members, Sangguniang Panlalawigan, First District, Surigao del
Norte (with Dinagat Islands) will have to be conducted.
xxxx

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 10

SO ORDERED.
They further alleged that, because they are the duly elected officials of Surigao del Norte
whose positions will be affected by the nullification of the election results in the event that
the May 12, 2010 Resolution is not reversed, they have a legal interest in the instant case
and would be directly affected by the declaration of nullity of R.A. No. 9355. Simply put,
movants-intervenors election to their respective offices would necessarily be annulled
since Dinagat Islands will revert to its previous status as part of the First Legislative District
of Surigao del Norte and a special election will have to be conducted for governor, vice
governor, and House of Representatives member and Sangguniang Panlalawigan member
for the First Legislative District of Surigao del Norte. Moreover, as residents of Surigao del
Norte and as public servants representing the interests of their constituents, they have a
clear and strong interest in the outcome of this case inasmuch as the reversion of Dinagat
as part of the First Legislative District of Surigao del Norte will affect the latter province
such that: (1) the whole administrative set-up of the province will have to be restructured;
(2) the services of many employees will have to be terminated; (3) contracts will have to be
invalidated; and (4) projects and other developments will have to be discontinued. In
addition, they claim that their rights cannot be adequately pursued and protected in any
other proceeding since their rights would be foreclosed if the May 12, 2010 Resolution
would attain finality.
In their motion for reconsideration of the May 12, 2010 Resolution, movants-intervenors
raised three (3) main arguments to challenge the above Resolution, namely: (1) that the
passage of R.A. No. 9355 operates as an act of Congress amending Section 461 of the
LGC; (2) that the exemption from territorial contiguity, when the intended province consists
of two or more islands, includes the exemption from the application of the minimum land
area requirement; and (3) that the Operative Fact Doctrine is applicable in the instant case.
In the Resolution dated July 20, 2010,16 the Court denied the Motion for Leave to Intervene
and to File and to Admit Intervenors Motion for Reconsideration of the Resolution dated
May 12, 2010 on the ground that the allowance or disallowance of a motion to intervene is
addressed to the sound discretion of the Court, and that the appropriate time to file the
said motion was before and not after the resolution of this case.
On September 7, 2010, movants-intervenors filed a Motion for Reconsideration of the July
20, 2010 Resolution, citing several rulings17 of the Court, allowing intervention as an
exception to Section 2, Rule 19 of the Rules of Court that it should be filed at any time
before the rendition of judgment. They alleged that, prior to the May 10, 2010 elections,
their legal interest in this case was not yet existent. They averred that prior to the May 10,
2010 elections, they were unaware of the proceedings in this case. Even for the sake of
argument that they had notice of the pendency of the case, they pointed out that prior to
the said elections, Sol T. Matugas was a simple resident of Surigao del Norte, Arturo
Carlos A. Egay, Jr. was a member of the Sangguniang Panlalawigan of the Second District
of Surigao del Norte, and Mamerto D. Galanida was the Municipal Mayor of Socorro,
Surigao del Norte, and that, pursuant to COMELEC Resolution No. 8790, it was only after

they were elected as Governor of Surigao del Norte, Vice Governor of Surigao del Norte
and Sangguniang Panlalawigan Member of the First District of Surigao del Norte,
respectively, that they became possessed with legal interest in this controversy.
On October 5, 2010, the Court issued an order for Entry of Judgment, stating that the
decision in this case had become final and executory on May 18, 2010. Hence, the above
motion.
At the outset, it must be clarified that this Resolution delves solely on the instant Urgent
Motion to Recall Entry of Judgment of movants-intervenors, not on the second motions for
reconsideration of the original parties, and neither on Dinagats Urgent Omnibus Motion,
which our
esteemed colleague, Mr. Justice Arturo D. Brion considers as Dinagats third motion for
reconsideration. Inasmuch as the motions for leave to admit their respective motions for
reconsideration of the May 12, 2010 Resolution and the aforesaid motions for
reconsideration were already noted without action by the Court, there is no reason to treat
Dinagats Urgent Omnibus Motion differently. In relation to this, the Urgent Motion to Recall
Entry of Judgment of movants-intervenors could not be considered as a second motion for
reconsideration to warrant the application of Section 3, Rule 15 of the Internal Rules of the
Supreme Court.18 It should be noted that this motion prays for the recall of the entry of
judgment and for the resolution of their motion for reconsideration of the July 20, 2010
Resolution which remained unresolved. The denial of their motion for leave to intervene
and to admit motion for reconsideration of the May 12, 2010 Resolution did not rule on the
merits of the motion for reconsideration of the May 12, 2010 Resolution, but only on the
timeliness of the intended intervention. Their motion for reconsideration of this denial
elaborated on movants-intervenors interest in this case which existed only after judgment
had been rendered. As such, their motion for intervention and their motion for
reconsideration of the May 12, 2010 Resolution merely stand as an initial reconsideration
of the said resolution.
With due deference to Mr. Justice Brion, there appears nothing in the records to support
the claim that this was a ploy of respondents legal tactician to reopen the case despite an
entry of judgment. To be sure, it is actually COMELEC Resolution No. 8790 that set this
controversy into motion anew. To reiterate, the pertinent portion of the Resolution reads:
c. If the Decision becomes final and executory after the election, the Province of Dinagat
Islands will revert to its previous status as part of the First Legislative District of Surigao del
Norte. The result of the election will have to be nullified for the same reasons given in Item
"b" above. A special election for Governor, Vice Governor, Member, House of
Representatives, First Legislative District of Surigao del Norte, and Members,
Sangguniang Panlalawigan, First District, Surigao del Norte (with Dinagat Islands) will
have to be conducted. (Emphasis supplied.)

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 11

Indeed, COMELEC Resolution No. 8790 spawned the peculiar circumstance of proper
party interest for movants-intervenors only with the specter of the decision in the main
case becoming final and executory. More importantly, if the intervention be not entertained,
the movants-intervenors would be left with no other remedy as regards to the impending
nullification of their election to their respective positions. Thus, to the Courts mind, there is
an imperative to grant the Urgent Motion to Recall Entry of Judgment by movantsintervenors.

The "moot and academic" principle is not a magical formula that can automatically
dissuade the courts from resolving a case. Courts will decide cases, otherwise moot and
academic, if: (1) there is a grave violation of the Constitution; (2) there is an exceptional
character of the situation and the paramount public interest is involved; (3) the
constitutional issue raised requires formation of controlling principles to guide the bench,
the bar, and the public; and (4) the case is capable of repetition yet evading review.20 The
second exception attends this case.

It should be remembered that this case was initiated upon the filing of the petition for
certiorari way back on October 30, 2007. At that time, movants-intervenors had nothing at
stake in the outcome of this case. While it may be argued that their interest in this case
should have commenced upon the issuance of COMELEC Resolution No. 8790, it is
obvious that their interest in this case then was more imaginary than real. This is because
COMELEC Resolution No. 8790 provides that should the decision in this case attain
finality prior to the May 10, 2010 elections, the election of the local government officials
stated therein would only have to be postponed. Given such a scenario, movantsintervenors would not have suffered any injury or adverse effect with respect to the
reversion of Dinagat as part of Surigao del Norte since they would simply have remained
candidates for the respective positions they have vied for and to which they have been
elected.

This Court had taken a liberal attitude in the case of David v. Macapagal-Arroyo,21 where
technicalities of procedure on locus standi were brushed aside, because the constitutional
issues raised were of paramount public interest or of transcendental importance deserving
the attention of the Court. Along parallel lines, the motion for intervention should be given
due course since movants-intervenors have shown their substantial legal interest in the
outcome of this case, even much more than petitioners themselves, and because of the
novelty, gravity, and weight of the issues involved.

For a party to have locus standi, one must allege "such a personal stake in the outcome of
the controversy as to assure that concrete adverseness which sharpens the presentation
of issues upon which the court so largely depends for illumination of difficult constitutional
questions." Because constitutional cases are often public actions in which the relief sought
is likely to affect other persons, a preliminary question frequently arises as to this interest
in the constitutional question raised.19
It cannot be denied that movants-intervenors will suffer direct injury in the event their
Urgent Motion to Recall Entry of Judgment dated October 29, 2010 is denied and their
Motion for Leave to Intervene and to File and to Admit Intervenors Motion for
Reconsideration of the Resolution dated May 12, 2010 is denied with finality. Indeed, they
have sufficiently shown that they have a personal and substantial interest in the case, such
that if the May 12, 2010 Resolution be not reconsidered, their election to their respective
positions during the May 10, 2010 polls and its concomitant effects would all be nullified
and be put to naught. Given their unique circumstances, movants-intervenors should not
be left without any remedy before this Court simply because their interest in this case
became manifest only after the case had already been decided. The consequences of
such a decision would definitely work to their disadvantage, nay, to their utmost prejudice,
without even them being parties to the dispute. Such decision would also violate their right
to due process, a right that cries out for protection. Thus, it is imperative that the movantsintervenors be heard on the merits of their cause. We are not only a court of law, but also
of justice and equity, such that our position and the dire repercussions of this controversy
should be weighed on the scales of justice, rather than dismissed on account of mootness.

Undeniably, the motion for intervention and the motion for reconsideration of the May 12,
2010 Resolution of movants-intervenors is akin to the right to appeal the judgment of a
case, which, though merely a statutory right that must comply with the requirements of the
rules, is an essential part of our judicial system, such that courts should proceed with
caution not to deprive a party of the right to question the judgment and its effects, and
ensure that every party-litigant, including those who would be directly affected, would have
the amplest opportunity for the proper and just disposition of their cause, freed from the
constraints of technicalities.22
Verily, the Court had, on several occasions, sanctioned the recall entries of judgment in
light of attendant extraordinary circumstances.23 The power to suspend or even disregard
rules of procedure can be so pervasive and compelling as to alter even that which this
Court itself had already declared final.24 In this case, the compelling concern is not only to
afford the movants-intervenors the right to be heard since they would be adversely affected
by the judgment in this case despite not being original parties thereto, but also to arrive at
the correct interpretation of the provisions of the LGC with respect to the creation of local
government units. In this manner, the thrust of the Constitution with respect to local
autonomy and of the LGC with respect to decentralization and the attainment of national
goals, as hereafter elucidated, will effectively be realized.
On the merits of the motion for intervention, after taking a long and intent look, the Court
finds that the first and second arguments raised by movants-intervenors deserve
affirmative consideration.
It must be borne in mind that the central policy considerations in the creation of local
government units are economic viability, efficient administration, and capability to deliver
basic services to their constituents. The criteria prescribed by the LGC, i.e., income,
population and land area, are all designed to accomplish these results. In this light,

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 12

Congress, in its collective wisdom, has debated on the relative weight of each of these
three criteria, placing emphasis on which of them should enjoy preferential consideration.

CHAIRMAN PIMENTEL. Okay, ya, our, the Senate version is 3.5, 3,500 square meters, ah,
square kilometers.

Without doubt, the primordial criterion in the creation of local government units, particularly
of a province, is economic viability. This is the clear intent of the framers of the LGC. In this
connection, the following excerpts from congressional debates are quoted hereunder

HON. LAGUDA. Ne, Ne. A province is constituted for the purpose of administrative
efficiency and delivery of basic services.
CHAIRMAN PIMENTEL. Right.

HON. ALFELOR. Income is mandatory. We can even have this doubled because we
thought
CHAIRMAN CUENCO. In other words, the primordial consideration here is the economic
viability of the new local government unit, the new province?

HON. LAGUDA. Actually, when you come down to it, when government was instituted,
there is only one central government and then everybody falls under that. But it was later
on subdivided into provinces for purposes of administrative efficiency.
CHAIRMAN PIMENTEL. Okay.

xxxx
HON. LAGUDA. The reason why we are willing to increase the income, double than the
House version, because we also believe that economic viability is really a minimum. Land
area and population are functions really of the viability of the area, because you have an
income level which would be the trigger point for economic development, population will
naturally increase because there will be an immigration. However, if you disallow the
particular area from being converted into a province because of the population problems in
the beginning, it will never be able to reach the point where it could become a province
simply because it will never have the economic take off for it to trigger off that economic
development.
Now, were saying that maybe Fourteen Million Pesos is a floor area where it could pay for
overhead and provide a minimum of basic services to the population. Over and above that,
the provincial officials should be able to trigger off economic development which will attract
immigration, which will attract new investments from the private sector. This is now the
concern of the local officials. But if we are going to tie the hands of the proponents, simply
by telling them, "Sorry, you are now at 150 thousand or 200 thousand," you will never be
able to become a province because nobody wants to go to your place. Why? Because you
never have any reason for economic viability.

HON. LAGUDA. Now, what were seeing now is that the administrative efficiency is no
longer there precisely because the land areas that we are giving to our governors is so
wide that no one man can possibly administer all of the complex machineries that are
needed.
Secondly, when you say "delivery of basic services," as pointed out by Cong. Alfelor, there
are sections of the province which have never been visited by public officials, precisely
because they dont have the time nor the energy anymore to do that because its so wide.
Now, by compressing the land area and by reducing the population requirement, we are, in
effect, trying to follow the basic policy of why we are creating provinces, which is to deliver
basic services and to make it more efficient in administration.
CHAIRMAN PIMENTEL. Yeah, thats correct, but on the assumption that the province is
able to do it without being a burden to the national government. Thats the assumption.
HON. LAGUDA. Thats why were going into the minimum income level. As we said, if we
go on a minimum income level, then we say, "this is the trigger point at which this
administration can take place."25

xxxx

Also worthy of note are the requisites in the creation of a barangay, a municipality, a city,
and a province as provided both in the LGC and the LGC-IRR, viz.

CHAIRMAN PIMENTEL. Okay, what about land area?

For a Barangay:

HON. LUMAUIG. 1,500 square kilometers

LGC: SEC. 386. Requisites for Creation. (a) A barangay may be created out of a
contiguous territory which has a population of at least two thousand (2,000) inhabitants as
certified by the National Statistics Office except in cities and municipalities within Metro
Manila and other metropolitan political subdivisions or in highly urbanized cities where
such territory shall have a certified population of at least five thousand (5,000) inhabitants:

HON. ANGARA. Walang problema yon, in fact thats not very critical, yong land area
because

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 13

Provided, That the creation thereof shall not reduce the population of the original barangay
or barangays to less than the minimum requirement prescribed herein.
To enhance the delivery of basic services in the indigenous cultural communities,
barangays may be created in such communities by an Act of Congress,
notwithstanding the above requirement.
(b) The territorial jurisdiction of the new barangay shall be properly identified by
metes and bounds or by more or less permanent natural boundaries. The territory
need not be contiguous if it comprises two (2) or more islands.
(c) The governor or city mayor may prepare a consolidation plan for barangays,
based on the criteria prescribed in this Section, within his territorial jurisdiction.
The plan shall be submitted to the sangguniang panlalawigan or sangguniang
panlungsod concerned for appropriate action. In the case of municipalities within
the Metropolitan Manila area and other metropolitan political subdivisions, the
barangay consolidation plan can be prepared and approved by the sangguniang
bayan concerned.
LGC-IRR: ARTICLE 14. Barangays. (a) Creation of barangays by the sangguniang
panlalawigan shall require prior recommendation of the sangguniang bayan.
(b) New barangays in the municipalities within MMA shall be created only by Act
of Congress, subject to the limitations and requirements prescribed in this Article.
(c) Notwithstanding the population requirement, a barangay may be created in the
indigenous cultural communities by Act of Congress upon recommendation of the
LGU or LGUs where the cultural community is located.
(d) A barangay shall not be created unless the following requisites are present:
(1) Population which shall not be less than two thousand (2,000)
inhabitants, except in municipalities and cities within MMA and other
metropolitan political subdivisions as may be created by law, or in highlyurbanized cities where such territory shall have a population of at least
five thousand (5,000) inhabitants, as certified by the NSO. The creation
of a barangay shall not reduce the population of the original barangay or
barangays to less than the prescribed minimum/
(2) Land Area which must be contiguous, unless comprised by two (2)
or more islands. The territorial jurisdiction of a barangay sought to be
created shall be properly identified by metes and bounds or by more or
less permanent natural boundaries.

Municipality:
LGC: SEC. 442. Requisites for Creation. (a) A municipality may be created if it has an
average annual income, as certified by the provincial treasurer, or at least Two million five
hundred thousand pesos (P2,500,000.00) for the last two (2) consecutive years based on
the 1991 constant prices; a population of at least twenty-five thousand (25,000) inhabitants
as certified by the National Statistics Office; and a contiguous territory of at least fifty (50)
square kilometers as certified by the Lands
Management Bureau: Provided, That the creation thereof shall not reduce the
land area, population or income of the original municipality or municipalities at the
time of said creation to less than the minimum requirements prescribed herein.
(b) The territorial jurisdiction of a newly-created municipality shall be properly
identified by metes and bounds. The requirement on land area shall not apply
where the municipality proposed to be created is composed of one (1) or more
islands. The territory need not be contiguous if it comprises two (2) or more
islands.
(c) The average annual income shall include the income accruing to the general
fund of the municipality concerned, exclusive of special funds, transfers and nonrecurring income.
(d) Municipalities existing as of the date of effectivity of this Code shall continue to
exist and operate as such. Existing municipal districts organized pursuant to
presidential issuances or executive orders and which have their respective set of
elective municipal officials holding office at the time of the effectivity of this Code
shall henceforth be considered regular municipalities.
LGC-IRR: ARTICLE 13. Municipalities. (a) Requisites for Creation A municipality shall
not be created unless the following requisites are present:
(i) Income An average annual income of not less than Two Million Five Hundred
Thousand Pesos (P2,500,000.00), for the immediately preceding two (2)
consecutive years based on 1991 constant prices, as certified by the provincial
treasurer. The average annual income shall include the income accruing to the
general fund, exclusive of special funds, special accounts, transfers, and
nonrecurring income;
(ii) Population which shall not be less than twenty five thousand (25,000)
inhabitants, as certified by NSO; and
(iii) Land area which must be contiguous with an area of at least fifty (50)
square kilometers, as certified by LMB. The territory need not be contiguous if it

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 14

comprises two (2) or more islands. The requirement on land area shall not apply
where the proposed municipality is composed of one (1) or more islands. The
territorial jurisdiction of a municipality sought to be created shall be properly
identified by metes and bounds.
The creation of a new municipality shall not reduce the land area, population, and
income of the original LGU or LGUs at the time of said creation to less than the
prescribed minimum requirements. All expenses incidental to the creation shall be
borne by the petitioners.
City:
LGC: SEC. 450. Requisites for Creation. (a) A municipality or a cluster of barangays may
be converted into a component city if it has an average annual income, as certified by the
Department of Finance, of at least Twenty million pesos (P20,000,000.00) for the last two
(2) consecutive years based on 1991 constant prices, and if it has either of the following
requisities:
(i) a contiguous territory of at least one hundred (100) square kilometers,
as certified by the Lands Management Bureau; or,
(ii) a population of not less than one hundred fifty thousand (150,000)
inhabitants, as certified by the National Statistics Office: Provided, That,
the creation thereof shall not reduce the land area, population, and
income of the original unit or units at the time of said creation to less
than the minimum requirements prescribed herein.
(b) The territorial jurisdiction of a newly-created city shall be properly identified by
metes and bounds. The requirement on land area shall not apply where the city
proposed to be created is composed of one (1) or more islands. The territory
need not be contiguous if it comprises two (2) or more islands.
(c) The average annual income shall include the income accruing to the general
fund, exclusive of special funds, transfers, and non-recurring income.
LGC-IRR: ARTICLE 11. Cities. (a) Requisites for creation A city shall not be created
unless the following requisites on income and either population or land area are present:
(1) Income An average annual income of not less than Twenty Million Pesos
(P20,000,000.00), for the immediately preceding two (2) consecutive years based
on 1991 constant prices, as certified by DOF. The average annual income shall
include the income accruing to the general fund, exclusive of special funds,
special accounts, transfers, and nonrecurring income; and

(2) Population or land area Population which shall not be less than one hundred
fifty thousand (150,000) inhabitants, as certified by the NSO; or land area which
must be contiguous with an area of at least one hundred (100) square kilometers,
as certified by LMB. The territory need not be contiguous if it comprises two (2) or
more islands or is separated by a chartered city or cities which do not contribute
to the income of the province. The land area requirement shall not apply where
the proposed city is composed of one (1) or more islands. The territorial
jurisdiction of a city sought to be created shall be properly identified by metes and
bounds.
The creation of a new city shall not reduce the land area, population, and income of the
original LGU or LGUs at the time of said creation to less than the prescribed minimum
requirements. All expenses incidental to the creation shall be borne by the petitioners.
Provinces:
LGC: SEC. 461. Requisites for Creation. (a) A province may be created if it has an
average annual income, as certified by the Department of Finance, of not less than Twenty
million pesos (P20,000,000.00) based on 1991 prices and either of the following requisites:
(i) a contiguous territory of at least two thousand (2,000) square
kilometers, as certified by the Lands Management Bureau; or,
(ii) a population of not less than two hundred fifty thousand (250,000)
inhabitants as certified by the National Statistics Office:
Provided, That the creation thereof shall not reduce the land area, population, and
income of the original unit or units at the time of said creation to less than the
minimum requirements prescribed herein.
(b) The territory need not be contiguous if it comprises two (2) or more islands or
is separated by a chartered city or cities which do not contribute to the income of
the province.
(c) The average annual income shall include the income accruing to the general
fund, exclusive of special funds, trust funds, transfers, and non-recurring income.
LGC-IRR: ARTICLE 9. Provinces. (a) Requisites for creation A province shall not be
created unless the following requisites on income and either population or land area are
present:
(1) Income An average annual income of not less than Twenty Million pesos
(P20,000,000.00) for the immediately preceding two (2) consecutive years based
on 1991 constant prices, as certified by DOF. The average annual income shall

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 15

include the income accruing to the general fund, exclusive of special funds,
special accounts, transfers, and non-recurring income; and
(2) Population or land area Population which shall not be less than two hundred
fifty thousand (250,000) inhabitants, as certified by NSO; or land area which must
be contiguous with an area of at least two thousand (2,000) square kilometers, as
certified by LMB. The territory need not be contiguous if it comprises two (2) or
more islands or is separated by a chartered city or cities which do not contribute
to the income of the province. The land area requirement shall not apply where
the proposed province is composed of one (1) or more islands. The territorial
jurisdiction of a province sought to be created shall be properly identified by
metes and bounds.
The creation of a new province shall not reduce the land area, population, and income of
the original LGU or LGUs at the time of said creation to less than the prescribed minimum
requirements. All expenses incidental to the creation shall be borne by the petitioners.
(Emphasis supplied.)
It bears scrupulous notice that from the above cited provisions, with respect to the creation
of barangays, land area is not a requisite indicator of viability. However, with respect to the
creation of municipalities, component cities, and provinces, the three (3) indicators of
viability and projected capacity to provide services, i.e., income, population, and land area,
are provided for.
But it must be pointed out that when the local government unit to be created consists of
one (1) or more islands, it is exempt from the land area requirement as expressly provided
in Section 442 and Section 450 of the LGC if the local government unit to be created is a
municipality or a component city, respectively. This exemption is absent in the enumeration
of the requisites for the creation of a province under Section 461 of the LGC, although it is
expressly stated under Article 9(2) of the LGC-IRR.
There appears neither rhyme nor reason why this exemption should apply to cities and
municipalities, but not to provinces. In fact, considering the physical configuration of the
Philippine archipelago, there is a greater likelihood that islands or group of islands would
form part of the land area of a newly-created province than in most cities or municipalities.
It is, therefore, logical to infer that the genuine legislative policy decision was expressed in
Section 442 (for municipalities) and Section 450 (for component cities) of the LGC, but was
inadvertently omitted in Section 461 (for provinces). Thus, when the exemption was
expressly provided in Article 9(2) of the LGC-IRR, the inclusion was intended to correct the
congressional oversight in Section 461 of the LGC and to reflect the true legislative
intent. It would, then, be in order for the Court to uphold the validity of Article 9(2) of the
LGC-IRR.
This interpretation finds merit when we consider the basic policy considerations
underpinning the principle of local autonomy.

Section 2 of the LGC, of which paragraph (a) is pertinent to this case, provides
Sec. 2. Declaration of Policy. (a) It is hereby declared the policy of the State that the
territorial and political subdivisions of the State shall enjoy genuine and meaningful local
autonomy to enable them to attain their fullest development as self-reliant communities
and make them more effective partners in the attainment of national goals. Toward this
end, the State shall provide for a more responsive and accountable local government
structure instituted through a system of decentralization whereby local government units
shall be given more powers, authority, responsibilities, and resources. The process of
decentralization shall proceed from the national government to the local government units.
This declaration of policy is echoed in Article 3(a) of the LGC-IRR26 and in the Whereas
clauses of Administrative Order No. 270,27 which read
WHEREAS, Section 25, Article II of the Constitution mandates that the State shall ensure
the autonomy of local governments;
WHEREAS, pursuant to this declared policy, Republic Act No. 7160, otherwise known as
the Local Government Code of 1991, affirms, among others, that the territorial and political
subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable
them to attain their fullest development as self-reliant communities and make them more
effective partners in the attainment of national goals;
WHEREAS, Section 533 of the Local Government Code of 1991 requires the President to
convene an Oversight Committee for the purpose of formulating and issuing the
appropriate rules and regulations necessary for the efficient and effective implementation
of all the provisions of the said Code; and
WHEREAS, the Oversight Committee, after due deliberations and consultations with all the
concerned sectors of society and consideration of the operative principles of local
autonomy as provided in the Local Government Code of 1991, has completed the
formulation of the implementing rules and regulations; x x x
Consistent with the declared policy to provide local government units genuine and
meaningful local autonomy, contiguity and minimum land area requirements for
prospective local government units should be liberally construed in order to achieve the
desired results. The strict interpretation adopted by the February 10, 2010 Decision could
prove to be counter-productive, if not outright absurd, awkward, and impractical. Picture an
intended province that consists of several municipalities and component cities which, in
themselves, also consist of islands. The component cities and municipalities which consist
of islands are exempt from the minimum land area requirement, pursuant to Sections 450
and 442, respectively, of the LGC. Yet, the province would be made to comply with the
minimum land area criterion of 2,000 square kilometers, even if it consists of several
islands. This would mean that Congress has opted to assign a distinctive preference to
create a province with contiguous land area over one composed of islands and negate

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 16

the greater imperative of development of self-reliant communities, rural progress, and the
delivery of basic services to the constituency. This preferential option would prove more
difficult and burdensome if the 2,000-square-kilometer territory of a province is scattered
because the islands are separated by bodies of water, as compared to one with a
contiguous land mass.
Moreover, such a very restrictive construction could trench on the equal protection clause,
as it actually defeats the purpose of local autonomy and decentralization as enshrined in
the Constitution. Hence, the land area requirement should be read together with territorial
contiguity.
Another look at the transcript of the deliberations of Congress should prove enlightening:
CHAIRMAN ALFELOR. Can we give time to Congressman Chiongbian,28 with respect to
his
CHAIRMAN LINA. Okay.
HON. CHIONGBIAN. At the outset, Chairman Lina, we would like to apprise the
distinguished Senator about the action taken by the House, on House Bill No. 7166. This
was passed about two years ago and has been pending in the Senate for consideration.
This is a bill that I am not the only one involved, including our distinguished Chairman
here. But then we did want to sponsor the bill, being the Chairman then of the Local
Government.
So, I took the cudgels for the rest of the Congressmen, who were more or less interested
in the creation of the new provinces, because of the vastness of the areas that were
involved.
At any rate, this bill was passed by the House unanimously without any objection. And as I
have said a while ago, that this has been pending in the Senate for the last two years. And
Sen. Pimentel himself was just in South Cotabato and he delivered a speech that he will
support this bill, and he says, that he will incorporate this in the Local Government Code,
which I have in writing from him. I showed you the letter that he wrote, and naturally, we in
the House got hold of the Senate version. It becomes an impossibility for the whole
Philippines to create a new province, and that is quite the concern of the respective
Congressmen.
Now, insofar as the constitutional provision is concerned, there is nothing to stop the
mother province from voting against the bill, if a province is going to be created.
So, we are talking about devolution of powers here. Why is the province not willing to
create another province, when it can be justified. Even Speaker Mitra says, what will
happen to Palawan? We wont have one million people there, and if you look at Palawan,

there will be about three or four provinces that will comprise that island. So, the
development will be hampered.
Now, I would like to read into the record the letter of Sen. Pimentel, dated November 2,
1989. This was practically about a year after 7166 was approved by the House, House Bill
7166.
On November 2, 1989, the Senator wrote me:
"Dear Congressman Chiongbian:
We are in receipt of your letter of 17 October. Please be informed that your House No.
7166 was incorporated in the proposed Local Government Code, Senate Bill No. 155,
which is pending for second reading.
Thank you and warm regards.
Very truly yours,"
That is the very context of the letter of the Senator, and we are quite surprised that the
Senate has adopted another position.
So, we would like because this is a unanimously approved bill in the House, thats the
only bill that is involving the present Local Government Code that we are practically
considering; and this will be a slap on the House, if we do not approve it, as approved by
the lower House. This can be [an] irritant in the approval of the Conference Committee
Report. And I just want to manifest that insofar as the creation of the province, not only in
my province, but the other provinces. That the mother province will participate in the
plebiscite, they can defeat the province, lets say, on the basis of the result, the province
cannot be created if they lose in the plebiscite, and I dont see why, we should put this
stringent conditions to the private people of the devolution that they are seeking.
So, Mr. Senator, I think we should consider the situation seriously, because, this is an
approved version of the House, and I will not be the one to raise up and question the
Conference Committee Report, but the rest of the House that are interested in this bill. And
they have been approaching the Speaker about this. So, the Speaker reminded me to
make sure that it takes the cudgel of the House approved version.
So, thats all what I can say, Mr. Senator, and I dont believe that it is not, because its the
wish of the House, but because the mother province will participate anyhow, you vote them
down; and that is provided for in the Constitution. As a matter of fact, I have seen the
amendment with regards to the creation of the city to be urbanized, subject to the
plebiscite. And why should we not allow that to happen in the provinces! In other words, we

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 17

dont want the people who wants to create a new province, as if they are left in the
devolution of powers, when they feel that they are far away from civilization.
Now, I am not talking about other provinces, because I am unaware, not aware of their
situation. But the province of South Cotabato has a very unique geographical territorial
conglomerations. One side is in the other side of the Bay, of Sarangani Bay. The capital
town is in the North; while these other municipalities are in the East and in the West. And if
they have to travel from the last town in the eastern part of the province, it is about one
hundred forty kilometers to the capital town. And from the West side, it is the same
distance. And from the North side, it is about one hundred kilometers. So that is the
problem there. And besides, they have enough resources and I feel that, not because I am
interested in the province, I am after their welfare in the future. Who am I to dictate on
those people? I have no interest but then I am looking at the future development of these
areas.
As a matter of fact, if I am in politics, its incidental; I do not need to be there, but I can
foresee what the creation of a new province will bring to these people. It will bring them
prosperity; it will bring them more income, and it will encourage even foreign investors.
Like the PAP now, they are concentrating in South Cotabato, especially in the City of
General Santos and the neighboring municipalities, and they are quite interested and even
the AID people are asking me, "What is holding the creation of a new province when
practically you need it?" Its not 20 or 30 kilometers from the capital town; its about 140
kilometers. And imagine those people have to travel that far and our road is not like
Metropolitan Manila. That is as far as from here to Tarlac. And there are municipalities
there that are just one municipality is bigger than the province of La Union. They have the
income. Of course, they dont have the population because thats a part of the land of
promise and people from Luzon are migrating everyday because they feel that there are
more opportunities here.
So, by creating the new provinces, not only in my case, in the other cases, it will enhance
the development of the Philippines, not because I am interested in my province. Well, as
far as I am concerned, you know, I am in the twilight years of my life to serve and I would
like to serve my people well. No personal or political interest here. I hope the distinguished
Chairman of the Committee will appreciate the House Bill 7166, which the House has
already approved because we dont want them to throw the Conference Committee Report
after we have worked that the house Bill has been, you know, drawn over board and not
even considered by the Senate. And on top of that, we are considering a bill that has not
yet been passed. So I hope the Senator will take that into account.
Thank you for giving me this time to explain.
CHAIRMAN LINA. Thank you very much, Congressman James. We will look into the
legislative history of the Senate version on this matter of creation of provinces. I am sure
there was an amendment. As I said, Ill look into it. Maybe the House version was

incorporated in toto, but maybe during the discussion, their amendments were introduced
and, therefore, Senator Pimentel could not hold on to the original version and as a result
new criteria were introduced.
But because of the manifestation that you just made, we will definitely, when we reach a
book, Title IV, on the matter of provinces, we will look at it sympathetically from your end so
that the objective that you want [to] achieve can be realized. So we will look at it with
sympathy. We will review our position on the matter, how we arrived at the Senate version
and we will adopt an open mind definitely when we come into it.
CHAIRMAN ALFELOR. Kanino yan?
CHAIRMAN LINA. Book III.
CHAIRMAN ALFELOR. Title?
CHAIRMAN LINA. Title IV.
CHAIRMAN ALFELOR. I have been pondering on the case of James, especially on
economic stimulation of a certain area. Like our case, because I put myself on our
province, our province is quite very big. Its composed of four (4) congressional districts
and I feel it should be five now. But during the Batasan time, four of us talked and
conversed proposing to divide the province into two.
There are areas then, when since time immemorial, very few governors ever tread on
those areas. That is, maybe youre acquainted with the Bondoc Peninsula of Quezon,
fronting that is Ragay Gulf. From Ragay there is a long stretch of coastal area. From Albay
going to Ragay, very few governors ever tread [there] before, even today. That area now is
infested with NPA. That is the area of Congressman Andaya.
Now, we thought that in order to stimulate growth, maybe provincial aid can be extended to
these areas. With a big or a large area of a province, a certain administrator or provincial
governor definitely will have no sufficient time. For me, if we really would like to stimulate
growth, I believe that an area where there is physical or geographical impossibilities,
where administrators can penetrate, I think we have to create certain provisions in the law
where maybe we can treat it with special considerations.
Now, we went over the graduate scale of the Philipppine Local Government Data as far as
provinces are concerned. It is very surprising that there are provinces here which only
composed of six municipalities, eight municipalities, seven municipalities. Like in Cagayan,
Tuguegarao, there are six municipalities. Ah, excuse me, Batanes.
CHAIRMAN LINA. Will you look at the case of --- how many municipalities are there in
Batanes province?

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 18

CHAIRMAN ALFELOR. Batanes is only six.

CHAIRMAN LINA. Six town. Siquijor?
CHAIRMAN ALFELOR. Siquijor. It is region?
CHAIRMAN LINA. Seven.
CHAIRMAN ALFELOR.L Seven. Anim.
CHAIRMAN LINA. Six also.
CHAIRMAN ALFELOR. Six also.
CHAIRMAN LINA. It seems with a minimum number of towns?
CHAIRMAN ALFELOR. The population of Siquijor is only 70 thousand, not even one
congressional district. But tumaas in 1982. Camiguin, that is Region 9. Wala dito.
Nagtataka nga ako ngayon.
CHAIRMAN LINA. Camiguin, Camiguin.
CHAIRMAN ALFELOR. That is region? Camiguin has five municipalities, with a population
of 63 thousand. But we do not hold it against the province because maybe thats one
stimulant where growth can grow, can start. The land area for Camiguin is only 229 square
kilometers. So if we hard fast on requirements of, we set a minimum for every province,
palagay ko we just leave it to legislation, eh. Anyway, the Constitution is very clear that in
case we would like to divide, we submit it to a plebiscite. Pabayaan natin ang tao. Kung
maglalagay tayo ng set ng minimum, tila yata mahihirapan tayo, eh. Because what is really
the thrust of the Local Government Code? Growth. To devolve powers in order for the
community to have its own idea how they will stimulate growth in their respective areas.
So, in every geographical condition, mayroon sariling id[i]osyncracies eh, we cannot make
a generalization.
CHAIRMAN LINA. Will the creation of a province, carved out of the existing province
because of some geographical id[i]osyncracies, as you called it, stimulate the economic
growth in the area or will substantial aid coming from the national government to a
particular area, say, to a municipality, achieve the same purpose?
CHAIRMAN ALFELOR. Ano tayo dito sa budget. All right, here is a province. Usually,
tinitingnan lang yun, provision eh, hindi na yung composition eh. You are entitled to, say,
20% of the area.

Theres a province of Camarines Sur which have the same share with that of Camiguin
and Siquijor, but Camiguin is composed only of five municipalities; in Siquijor, its
composed of six, but the share of Siquijor is the same share with that of the province of
Camarines Sur, having a bigger area, very much bigger.
That is the budget in process.
CHAIRMAN LINA. Well, as I said, we are going to consider this very seriously and even
with sympathy because of the explanation given and we will study this very carefully.29
The matters raised during the said Bicameral Conference Committee meeting clearly show
the manifest intention of Congress to promote development in the previously
underdeveloped and uninhabited land areas by allowing them to directly share in the
allocation of funds under the national budget. It should be remembered that, under
Sections 284 and 285
of the LGC, the IRA is given back to local governments, and the sharing is based on land
area, population, and local revenue.30
Elementary is the principle that, if the literal application of the law results in absurdity,
impossibility, or injustice, then courts may resort to extrinsic aids of statutory construction,
such as the legislative history of the law,31 or may consider the implementing rules and
regulations and pertinent executive issuances in the nature of executive and/or legislative
construction. Pursuant to this principle, Article 9(2) of the LGC-IRR should be deemed
incorporated in the basic law, the LGC.
It is well to remember that the LGC-IRR was formulated by the Oversight Committee
consisting of members of both the Executive and Legislative departments, pursuant to
Section 53332 of the LGC. As Section 533 provides, the Oversight Committee shall
formulate and issue the appropriate rules and regulations necessary for the efficient and
effective implementation of any and all provisions of this Code, thereby ensuring
compliance with the principles of local autonomy as defined under the Constitution. It was
also mandated by the Constitution that a local government code shall be enacted by
Congress, to wit
Section 3. The Congress shall enact a local government code which shall provide for a
more responsive and accountable local government structure instituted through a system
of decentralization with effective mechanisms of recall, initiative, and referendum, allocate
among the different local government units their powers, responsibilities, and resources,
and provide for the qualifications, election, appointment and removal, term, salaries,
powers and functions and duties of local officials, and all other matters relating to the
organization and operation of the local units. (Emphasis supplied.)

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 19

These State policies are the very reason for the enactment of the LGC, with the view to
attain decentralization and countryside development. Congress saw that the old LGC,
Batas Pambansa Bilang 337, had to be replaced with a new law, now the LGC of 1991,
which is more dynamic and cognizant of the needs of the Philippines as an archipelagic
country. This accounts for the exemption from the land area requirement of local
government units composed of one or more islands, as expressly stated under Sections
442 and 450 of the LGC, with respect to the creation of municipalities and cities, but
inadvertently omitted from Section 461 with respect to the creation of provinces. Hence,
the void or missing detail was filled in by the Oversight Committee in the LGC-IRR.

taking into account its average annual income of P82,696,433.23 at the time of its creation,
as certified by the Bureau of Local Government Finance, which is four times more than the
minimum requirement of P20,000,000.00 for the creation of a province. The delivery of
basic services to its constituents has been proven possible and sustainable. Rather than
looking at the results of the plebiscite and the May 10, 2010 elections as mere fait
accompli circumstances which cannot operate in favor of Dinagats existence as a
province, they must be seen from the perspective that Dinagat is ready and capable of
becoming a province. This Court should not be instrumental in stunting such capacity. As
we have held in League of Cities of the Philippines v. Commission on Elections35

With three (3) members each from both the Senate and the House of Representatives,
particularly the chairpersons of their respective Committees on Local Government, it
cannot be gainsaid that the inclusion by the Oversight Committee of the exemption from
the land area requirement with respect to the creation of provinces consisting of one (1) or
more islands was intended by Congress, but unfortunately not expressly stated in Section
461 of the LGC, and this intent was echoed through an express provision in the LGC-IRR.
To be sure, the Oversight Committee did not just arbitrarily and whimsically insert such an
exemption in Article 9(2) of the LGC-IRR. The Oversight Committee evidently conducted
due deliberation and consultations with all the concerned sectors of society and
considered the operative principles of local autonomy as provided in the LGC when the
IRR was formulated.33 Undoubtedly, this amounts not only to an executive construction,
entitled to great weight and respect from this Court,34 but to legislative construction as well,
especially with the inclusion of representatives from the four leagues of local government
units as members of the Oversight Committee.

Ratio legis est anima. The spirit rather than the letter of the law. A statute must be read
according to its spirit or intent, for what is within the spirit is within the statute although it is
not within its letter, and that which is within the letter but not within the spirit is not within
the statute. Put a bit differently, that which is within the intent of the lawmaker is as much
within the statute as if within the letter, and that which is within the letter of the statute is
not within the statute unless within the intent of the lawmakers. Withal, courts ought not to
interpret and should not accept an interpretation that would defeat the intent of the law and
its legislators.

With the formulation of the LGC-IRR, which amounted to both executive and legislative
construction of the LGC, the many details to implement the LGC had already been put in
place, which Congress understood to be impractical and not too urgent to immediately
translate into direct amendments to the LGC. But Congress, recognizing the capacity and
viability of Dinagat to become a full-fledged province, enacted R.A. No. 9355, following the
exemption from the land area requirement, which, with respect to the creation of provinces,
can only be found as an express provision in the LGC-IRR. In effect, pursuant to its
plenary legislative powers, Congress breathed flesh and blood into that exemption in
Article 9(2) of the LGC-IRR and transformed it into law when it enacted R.A. No. 9355
creating the Island Province of Dinagat.
Further, the bill that eventually became R.A. No. 9355 was filed and favorably voted upon
in both Chambers of Congress. Such acts of both Chambers of Congress definitively show
the clear legislative intent to incorporate into the LGC that exemption from the land area
requirement, with respect to the creation of a province when it consists of one or more
islands, as expressly provided only in the LGC-IRR. Thereby, and by necessity, the LGC
was amended by way of the enactment of R.A. No. 9355.
What is more, the land area, while considered as an indicator of viability of a local
government unit, is not conclusive in showing that Dinagat cannot become a province,

So as it is exhorted to pass on a challenge against the validity of an act of Congress, a coequal branch of government, it behooves the Court to have at once one principle in mind:
the presumption of constitutionality of statutes. This presumption finds its roots in the tripartite system of government and the corollary separation of powers, which enjoins the
three great departments of the government to accord a becoming courtesy for each others
acts, and not to interfere inordinately with the exercise by one of its official functions.
Towards this end, courts ought to reject assaults against the validity of statutes, barring of
course their clear unconstitutionality. To doubt is to sustain, the theory in context being that
the law is the product of earnest studies by Congress to ensure that no constitutional
prescription or concept is infringed. Consequently, before a law duly challenged is nullified,
an unequivocal breach of, or a clear conflict with, the Constitution, not merely a doubtful or
argumentative one, must be demonstrated in such a manner as to leave no doubt in the
mind of the Court.
WHEREFORE, the Court resolved to:
1. GRANT the Urgent Motion to Recall Entry of Judgment by movantsintervenors, dated and filed on October 29, 2010;
2. RECONSIDER and SET ASIDE the July 20, 2010 Resolution, and GRANT the
Motion for Leave to Intervene and to File and to Admit Intervenors Motion for
Reconsideration of the Resolution dated July 20, 2010;
3. GRANT the Intervenors Motion for Reconsideration of the Resolution dated
May 12, 2010. The May 12, 2010 Resolution is RECONSIDERED and SET
ASIDE. The provision in Article 9(2) of the Rules and Regulations Implementing

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 20

the Local Government Code of 1991 stating, "The land area requirement shall not
apply where the proposed province is composed of one (1) or more islands," is
declared VALID. Accordingly, Republic Act No. 9355 (An Act Creating the
Province of Dinagat Islands) is declared as VALID and CONSTITUTIONAL, and
the proclamation of the Province of Dinagat Islands and the election of the
officials thereof are declared VALID; and
4. The petition is DISMISSED.
No pronouncement as to costs.
SO ORDERED.
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933

May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED, respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel
Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 of the
Court of Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air
Services and Hotel Representatives, Inc." which affirmed, with modification, the
decision 2 of the Regional Trial Court of Manila, Branch IV, which dismissed the complaint
and granted therein defendant's counterclaim for agent's overriding commission and
damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an
air carrier offering passenger and air cargo transportation in the Philippines, and Orient Air
Services and Hotel Representatives (hereinafter referred to as Orient Air), entered into a
General Sales Agency Agreement (hereinafter referred to as the Agreement), whereby the
former authorized the latter to act as its exclusive general sales agent within the

Philippines for the sale of air passenger transportation. Pertinent provisions of the
agreement are reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto
agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales
Agent within the Philippines, including any United States military installation
therein which are not serviced by an Air Carrier Representation Office (ACRO),
for the sale of air passenger transportation. The services to be performed by
Orient Air Services shall include:
(a) soliciting and promoting passenger traffic for the services of
American and, if necessary, employing staff competent and sufficient to
do so;
(b) providing and maintaining a suitable area in its place of business to
be used exclusively for the transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and
promotional material to sales agents and the general public in the
assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents
as may be appointed by Orient Air Services with the prior written consent
of American) in the assigned territory including if required by American
the control of remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the
general public in the assigned territory.
In connection with scheduled or non-scheduled air passenger transportation
within the United States, neither Orient Air Services nor its sub-agents will
perform services for any other air carrier similar to those to be performed
hereunder for American without the prior written consent of American. Subject to
periodic instructions and continued consent from American, Orient Air Services
may sell air passenger transportation to be performed within the United States by
other scheduled air carriers provided American does not provide substantially
equivalent schedules between the points involved.
xxx

xxx

xxx

4. Remittances

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 21

Orient Air Services shall remit in United States dollars to American the ticket stock
or exchange orders, less commissions to which Orient Air Services is entitled
hereunder, not less frequently than semi-monthly, on the 15th and last days of
each month for sales made during the preceding half month.

under this Agreement, take possession of any ticket forms, exchange orders,
traffic material or other property or funds belonging to American.

All monies collected by Orient Air Services for transportation sold hereunder on
American's ticket stock or on exchange orders, less applicable commissions to
which Orient Air Services is entitled hereunder, are the property of American and
shall be held in trust by Orient Air Services until satisfactorily accounted for to
American.

The provisions of this Agreement are subject to any applicable rules or

resolutions of the International Air Transport Association and the Air Traffic
Conference of America, and such rules or resolutions shall control in the event of
any conflict with the provisions hereof.

11. IATA and ATC Rules

xxx

5. Commissions
American will pay Orient Air Services commission on transportation sold
hereunder by Orient Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of
transportation by Orient Air Services or its sub-agents over American's services
and any connecting through air transportation, when made on American's ticket
stock, equal to the following percentages of the tariff fares and charges:
(i) For transportation solely between points within the United States and
between such points and Canada: 7% or such other rate(s) as may be
prescribed by the Air Traffic Conference of America.
(ii) For transportation included in a through ticket covering transportation
between points other than those described above: 8% or such other
rate(s) as may be prescribed by the International Air Transport
Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an
overriding commission of 3% of the tariff fares and charges for all sales of
transportation over American's service by Orient Air Service or its sub-agents.
xxx

xxx

xxx

10. Default
If Orient Air Services shall at any time default in observing or performing any of
the provisions of this Agreement or shall become bankrupt or make any
assignment for the benefit of or enter into any agreement or promise with its
creditors or go into liquidation, or suffer any of its goods to be taken in execution,
or if it ceases to be in business, this Agreement may, at the option of American,
be terminated forthwith and American may, without prejudice to any of its rights

xxx

xxx

13. Termination
American may terminate the Agreement on two days' notice in the event Orient
Air Services is unable to transfer to the United States the funds payable by Orient
Air Services to American under this Agreement. Either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram or
cable.
xxx

xxx

x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for the months of January
to March 1981 in the amount of US $254,400.40, American Air by itself undertook the
collection of the proceeds of tickets sold originally by Orient Air and terminated forthwith
the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4) days later,
or on 15 May 1981, American Air instituted suit against Orient Air with the Court of First
Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or Garnishment,
Mandatory Injunction and Restraining Order 4 averring the aforesaid basis for the
termination of the Agreement as well as therein defendant's previous record of failures "to
promptly settle past outstanding refunds of which there were available funds in the
possession of the defendant, . . . to the damage and prejudice of plaintiff." 5
In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient Air denied the
material allegations of the complaint with respect to plaintiff's entitlement to alleged
unremitted amounts, contending that after application thereof to the commissions due it
under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid overriding
commissions. Further, the defendant contended that the actions taken by American Air in
the course of terminating the Agreement as well as the termination itself were untenable,
Orient Air claiming that American Air's precipitous conduct had occasioned prejudice to its
business interests.
Finding that the record and the evidence substantiated the allegations of the defendant,
the trial court ruled in its favor, rendering a decision dated 16 July 1984, the dispositive
portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby
rendered in favor of defendant and against plaintiff dismissing the complaint and

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 22

holding the termination made by the latter as affecting the GSA agreement illegal
and improper and order the plaintiff to reinstate defendant as its general sales
agent for passenger tranportation in the Philippines in accordance with said GSA
agreement; plaintiff is ordered to pay defendant the balance of the overriding
commission on total flown revenue covering the period from March 16, 1977 to
December 31, 1980 in the amount of US$84,821.31 plus the additional amount of
US$8,000.00 by way of proper 3% overriding commission per month commencing
from January 1, 1981 until such reinstatement or said amounts in its Philippine
peso equivalent legally prevailing at the time of payment plus legal interest to
commence from the filing of the counterclaim up to the time of payment. Further,
plaintiff is directed to pay defendant the amount of One Million Five Hundred
Thousand (Pl,500,000.00) pesos as and for exemplary damages; and the amount
of Three Hundred Thousand (P300,000.00) pesos as and by way of attorney's
fees.
Costs against plaintiff.

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision

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

subject of a Motion for Partial Reconsideration by Orient Air which prayed for the
restoration of the trial court's ruling with respect to the monetary awards. The Court of
Appeals, by resolution promulgated on 17 December 1986, denied American Air's motion
and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for
affirmance of the trial court's award of exemplary damages and attorney's fees,
but granted insofar as the rate of exchange is concerned. The decision of January
27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the
payment of the sums mentioned therein shall be at their Philippine peso
equivalent in accordance with the official rate of exchange legally prevailing on
the date of actual payment. 9
Both parties appealed the aforesaid resolution and decision of the respondent court, Orient
Air as petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By
resolution 10 of this Court dated 25 March 1987 both petitions were consolidated, hence,
the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3%
overriding commission. It is the stand of American Air that such commission is based only
on sales of its services actually negotiated or transacted by Orient Air, otherwise referred
to as "ticketed sales." As basis thereof, primary reliance is placed upon paragraph 5(b) of
the Agreement which, in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an
overriding commission of 3% of the tariff fees and charges for all sales of
transportation over American's services by Orient Air Services or its subagents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former
not having opted to appoint any sub-agents, it is American Air's contention that Orient Air
can claim entitlement to the disputed overriding commission based only on ticketed sales.
This is supposed to be the clear meaning of the underscored portion of the above
provision. Thus, to be entitled to the 3% overriding commission, the sale must be made by
Orient Air and the sale must be done with the use of American Air's ticket stocks.

5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.

the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing the
substance thereof and arguing for its reversal. The appellate court's decision was also the

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

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 23

It is a well settled legal principle that in the interpretation of a contract, the entirety thereof
must be taken into consideration to ascertain the meaning of its provisions. 12 The various
stipulations in the contract must be read together to give effect to all. 13 After a careful
examination of the records, the Court finds merit in the contention of Orient Air that the
Agreement, when interpreted in accordance with the foregoing principles, entitles it to the
3% overriding commission based on total revenue, or as referred to by the parties, "total
flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was
responsible for the promotion and marketing of American Air's services for air passenger
transportation, and the solicitation of sales therefor. In return for such efforts and services,
Orient Air was to be paid commissions of two (2) kinds: first, a sales agency commission,
ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on
American Air ticket stock; and second, an overriding commission of 3% of tariff fares and
charges for all sales of passenger transportation over American Air services. It is
immediately observed that the precondition attached to the first type of commission does
not obtain for the second type of commissions. The latter type of commissions would
accrue for sales of American Air services made not on its ticket stock but on the ticket
stock of other air carriers sold by such carriers or other authorized ticketing facilities or
travel agents. To rule otherwise, i.e., to limit the basis of such overriding commissions to
sales from American Air ticket stock would erase any distinction between the two (2) types
of commissions and would lead to the absurd conclusion that the parties had entered into
a contract with meaningless provisions. Such an interpretation must at all times be avoided
with every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that
American Air was the party responsible for the preparation of the Agreement.
Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra
proferentem", i.e., construed against the party who caused the ambiguity and could have
avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code
provides that the interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity. 14 To put it differently, when several interpretations of a
provision are otherwise equally proper, that interpretation or construction is to be adopted
which is most favorable to the party in whose favor the provision was made and who did
not cause the ambiguity. 15 We therefore agree with the respondent appellate court's
declaration that:
Any ambiguity in a contract, whose terms are susceptible of different
interpretations, must be read against the party who drafted it. 16
We now turn to the propriety of American Air's termination of the Agreement. The
respondent appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification
from paragraph 4 of the Agreement, Exh. F, which provides for remittances to
American less commissions to which Orient is entitled, and from paragraph 5(d)
which specifically allows Orient to retain the full amount of its commissions. Since,
as stated ante, Orient is entitled to the 3% override. American's premise,
therefore, for the cancellation of the Agreement did not exist. . . ."

We agree with the findings of the respondent appellate court. As earlier established, Orient
Air was entitled to an overriding commission based on total flown revenue. American Air's
perception that Orient Air was remiss or in default of its obligations under the Agreement
was, in fact, a situation where the latter acted in accordance with the Agreementthat of
retaining from the sales proceeds its accrued commissions before remitting the balance to
American Air. Since the latter was still obligated to Orient Air by way of such commissions.
Orient Air was clearly justified in retaining and refusing to remit the sums claimed by
American Air. The latter's termination of the Agreement was, therefore, without cause and
basis, for which it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial
court's award of exemplary damages and attorney's fees. This Court sees no error in such
modification and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the
decision of the trial court.1wphi1 We refer particularly to the lower court's decision
ordering American Air to "reinstate defendant as its general sales agent for passenger
transportation in the Philippines in accordance with said GSA Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect, compels
American Air to extend its personality to Orient Air. Such would be violative of the
principles and essence of agency, defined by law as a contract whereby "a person binds
himself to render some service or to do something in representation or on behalf of
another, WITH THE CONSENT OR AUTHORITY OF THE LATTER . 17 (emphasis
supplied) In an agent-principal relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the principal, which must not, in any
way, be compelled by law or by any court. The Agreement itself between the parties states
that "either party may terminate the Agreement without cause by giving the other 30 days'
notice by letter, telegram or cable." (emphasis supplied) We, therefore, set aside the
portion of the ruling of the respondent appellate court reinstating Orient Air as general
sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and
resolution of the respondent Court of Appeals, dated 27 January 1986 and 17 December
1986, respectively. Costs against petitioner American Air.
SO ORDERED.
JOSE BORDADOR and LYDIA BORDADOR, petitioners,
vs.
BRIGIDA D. LUZ, ERNESTO M. LUZ and NARCISO DEGANOS, respondents.

REGALADO, J.:

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 24

In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in CAG.R. CV No. 49175 affirming the adjudication of the Regional Trial Court of Malolos,
Bulacan which found private respondent Narciso Deganos liable to petitioners for actual
damages, but absolved respondent spouses Brigida D. Luz and Ernesto M. Luz of liability.
Petitioners likewise belabor the subsequent resolution of the Court of Appeals which
denied their motion for reconsideration of its challenged decision.
Petitioners were engaged in the business of purchase and sale of jewelry and respondent
Brigida D. Luz, also known as Aida D. Luz, was their regular customer. On several
occasions during the period from April 27, 1987 to September 4, 1987, respondent Narciso
Deganos, the brother to Brigida D. Luz, received several pieces of gold and jewelry from
petitioner amounting to P382,816.00. 1 These items and their prices were indicated in
seventeen receipts covering the same. Eleven of the receipts stated that they were
received for a certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated
that they were received for Brigida D. Luz. 2
Deganos was supposed to sell the items at a profit and thereafter remit the proceeds and
return the unsold items to petitioners. Deganos remitted only the sum of P53,207.00. He
neither paid the balance of the sales proceeds, nor did he return any unsold item to
petitioners. By January 1990, the total of his unpaid account to petitioners, including
interest, reached the sum of P725,463.98. 3 Petitioners eventually filed a complaint in
the barangay court against Deganos to recover said amount.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case,
appeared as a witness for Deganos and ultimately, she and her husband, together with
Deganos, signed a compromise agreement with petitioners. In that compromise
agreement, Deganos obligated himself to pay petitioners, on installment basis, the balance
of his account plus interest thereon. However, he failed to comply with his aforestated
undertakings.
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial
Court of Malolos, Bulacan against Deganos and Brigida, D. Luz for recovery of a sum of
money and damages, with an application for preliminary attachment. 4 Ernesto Luz was
impleaded therein as the spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with
estafa 5 in the Regional Trial Court of Malolos, Bulacan, which was docketed as Criminal
Case No. 785-M-94. That criminal case appears to be still pending in said trial court.
During the trial of the civil case, petitioners claimed that Deganos acted as the agent of
Brigida D. Luz when he received the subject items of jewelry and, because he failed to pay
for the same, Brigida, as principal, and her spouse are solidarily liable with him therefor.
On the other hand, while Deganos admitted that he had an unpaid obligation to petitioners,
he claimed that the same was only in the sum of P382,816.00 and not P725,463.98. He

further asserted that it was he alone who was involved in the transaction with the
petitioners; that he neither acted as agent for nor was he authorized to act as an agent by
Brigida D. Luz, notwithstanding the fact that six of the receipts indicated that the items
were received by him for the latter. He further claimed that he never delivered any of the
items he received from petitioners to Brigida.
Brigida, on her part, denied that she had anything to do with the transactions between
petitioners and Dangerous. She claimed that she never authorized Deganos to receive any
item of jewelry in her behalf and, for that matter, neither did she actually receive any of the
articles in question.
After trial, the court below found that only Deganos was liable to petitioners for the amount
and damages claimed. It held that while Brigida D. Luz did have transactions with
petitioners in the past, the items involved were already paid for and all that Brigida owed
petitioners was the sum of P21,483.00 representing interest on the principal account which
she had previously paid for. 6
The trial court also found that it was petitioner Lydia Bordador who indicated in the receipts
that the items were received by Deganos for Evelyn Aquino and Brigida D. Luz. 7 Said
court was "persuaded that Brigida D. Luz was behind Deganos," but because there was no
memorandum to this effect, the agreement between the parties was unenforceable under
the Statute of Frauds. 8 Absent the required memorandum or any written document
connecting the respondent Luz spouses with the subject receipts, or authorizing Deganos
to act on their behalf, the alleged agreement between petitioners and Brigida D. Luz was
unenforceable.
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest
thereon June 25, 1990, and attorney's fees. Brigida D. Luz was ordered to pay P21,483.00
representing the interest on her own personal loan. She and her co-defendant spouse
were absolved from any other or further liability. 9
As stated at the outset, petitioners appealed the judgment of the court a quo to the Court
Appeals which affirmed said judgment. 10 The motion for reconsideration filed by petitioners
was subsequently dismissed, 11 hence the present recourse to this Court.
The primary issue in the instant petition is whether or not herein respondent spouses are
liable to petitioners for the latter's claim for money and damages in the sum of
P725,463.98, plus interests and attorney's fees, despite the fact that the evidence does not
show that they signed any of the subject receipts or authorized Deganos to received the
items of jewelry on their behalf.
Petitioners argue that the Court of Appeals erred in adopting the findings of the court a
quo that respondent spouses are not liable to them, as said conclusion of the trial court is
contradicted by the finding of fact of the appellate court that "(Deganos) acted as agent of
his sister (Brigida Luz)." 12 In support of this contention, petitioners quoted several letters

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 25

sent to them by Brigida D. Luz wherein the latter acknowledged her obligation to
petitioners and requested for more time to fulfill the same. They likewise aver that Brigida
testified in the trial court that Deganos took some gold articles from petitioners and
delivered the same to her.
Both the Court of Appeals and the trial court, however, found as a fact that the
aforementioned letters concerned the previous obligations of Brigida to petitioners, and
had nothing to do with the money sought to be recovered in the instant case. Such
concurrent factual findings are entitled to great weight, hence, petitioners cannot plausibly
claim in this appellate review that the letters were in the nature of acknowledgments by
Brigida that she was the principal of Deganos in the subject transactions.
On the other hand, with regard to the testimony of Brigida admitting delivery of the gold to
her, there is no showing whatsoever that her statement referred to the items which are the
subject matter of this case. It cannot, therefore, be validly said that she admitted her
liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him
with apparent authority as her agent and held him out to the public as such, hence Brigida
can not be permitted to deny said authority to innocent third parties who dealt with
Deganos under such belief. 13 Petitioners further represent that the Court of Appeals
recognized in its decision that Deganos was an agent of Brigida. 14
The evidence does not support the theory of petitioners that Deganos was an agent of
Brigida D. Luz and that the latter should consequently be held solidarily liable with
Deganos in his obligation to petitioners. While the quoted statement in the findings of fact
of the assailed appellate decision mentioned that Deganos ostensibly acted as an agent of
Brigida, the actual conclusion and ruling of the Court of Appeals categorically stated that,
"(Brigida Luz) never authorized her brother (Deganos) to act for and in her behalf in any
transaction with Petitioners . . . . 15 It is clear, therefore, that even assuming arguendo that
Deganos acted as an agent of Brigida, the latter never authorized him to act on her behalf
with regard to the transaction subject of this case.
The Civil Code provides:
Art. 1868. By the contract of agency a person binds himself to render
some service or to do something in representation or on behalf of
another, with the consent or authority of the latter.
The basis for agency is representation. Here, there is no showing that Brigida
consented to the acts of Deganos or authorized him to act on her behalf, much
less with respect to the particular transactions involved. Petitioners' attempt to
foist liability on respondent spouses through the supposed agency relation with
Deganos is groundless and ill-advised.

Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not
once or twice but on at least six occasions as evidenced by six receipts, several pieces of
jewelry of substantial value without requiring a written authorization from his alleged
principal. A person dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent. 16
The records show that neither an express nor an implied agency was proven to have
existed between Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent in
their transactions with Deganos, cannot seek relief from the effects of their negligence by
conjuring a supposed agency relation between the two respondents where no evidence
supports such claim.
Petitioners next allege that the Court of Appeals erred in ignoring the fact that the decision
of the court below, which it affirmed, is "null and void" as it contradicted its ruling in CAG.R. SP No. 39445 holding that there is "sufficient evidence/proof" against Brigida D. Luz
and Deganos for estafa in the pending criminal case. They further aver that said appellate
court erred in ruling against them in this civil action since the same would result in an
inevitable conflict of decisions should be trial court convict the accused in the criminal
case.
By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz and
Deganos had filed a demurrer to evidence and a motion for reconsideration in the
aforestated criminal case, both of which were denied by the trial court. They then filed a
petition for certiorari in the Court of Appeals to set aside the denial of their demurrer and
motion for reconsideration but, as just stated, their petition therefor was dismissed. 17
Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the petition in
CA-G.R. SP No. 39445 with respect to the criminal case is equivalent to a finding that
there is sufficient evidence in the estafa case against Brigida D. Luz and Deganos. Hence,
as already stated, petitioners theorize that the decision and resolution of the Court of
Appeals now being impugned in the case at bar would result in a possible conflict with the
prospective decision in the criminal case. Instead of promulgating the present decision and
resolution under review, so they suggest, the Court of Appeals should have awaited the
decision in the criminal case, so as not to render academic or preempt the same or, worse,
create two conflicting rulings. 18
Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that in
cases involving alleged fraudulent acts, a civil action for damages, entirely separate and
distinct from the criminal action, may be brought by the injured party. Such civil action shall
proceed independently of the criminal prosecution and shall require only a preponderance
of evidence.
It is worth noting that this civil case was instituted four years before the criminal case for
estafa was filed, and that although there was a move to consolidate both cases, the same
was denied by the trial court. Consequently, it was the duty of the two branches of the

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 26

Regional Trial Court concerned to independently proceed with the civil and criminal cases.
It will also be observed that a final judgment rendered in a civil action absolving the
defendant from civil liability is no bar to a criminal action. 19
It is clear, therefore, that this civil case may proceed independently of the criminal
case 20 especially because while both cases are based on the same facts, the quantum of
proof required for holding the parties liable therein differ. Thus, it is improvident of
petitioners to claim that the decision and resolution of the Court of Appeals in the present
case would be preemptive of the outcome of the criminal case. Their fancied fear of
possible conflict between the disposition of this civil case and the coutcome of the pending
criminal case is illusory.
Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to issue
the denial resolution dated August 18, 1997, as the same was tainted with irregularities
and badges of fraud perpetrated by its court officers. 21 They charge that said appellate
court, through conspiracy and fraud on the part of its officers, gravely abused its discretion
in issuing that resolution denying their motion for reconsideration. They claim that said
resolution was drafted by the ponente, then signed and issued by the members of the
Eleventh Division of said court within one and a half days from the elevation thereof by the
division clerk of court to the office of the ponente.
It is the thesis of petitioners that there was undue haste in issuing the resolution as the
same was made without waiting for the lapse of the ten-day period for respondents to file
their comment and for petitioners to file their reply. It was allegedly impossible for the Court
of Appeals to resolve the issue in just one and a half days, especially because its ponente,
the late Justice Maximiano C. Asuncion, was then recuperating from surgery and, that,
additionally, "hundreds of more important cases were pending." 22
These lamentable allegation of irregularities in the Court of Appeals and in the conduct of
its officers strikes us as a desperate attempt of petitioners to induce this Court to give
credence to their arguments which, as already found by both the trial and intermediate
appellate courts, are devoid of factual and legal substance. The regrettably irresponsible
attempt to tarnish the image of the intermediate appellate tribunal and its judicial officers
through ad hominem imputations could well be contumacious, but we are inclined to let
that pass with a strict admonition that petitioners refrain from indulging in such conduct in
litigations.
On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial
court's decision. 23Petitioners moved for reconsideration and the Court of Appeals ordered
respondents to file a comment. Respondents filed the same on August 5, 1997 24 and
petitioners filed their reply to said comment on August 15, 1997. 25 The Eleventh Division of
said court issued the questioned resolution denying petitioner's motion for reconsideration
on August 18, 1997. 26

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

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 27

SO ORDERED.

CHICO-NAZARIO, J.:

APEX MINING CO., INC., petitioner,

vs.
SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication board,
provincial mining regulatory board (PMRB-DAVAO), MONKAYO INTEGRATED
SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR, BALITE
COMMUNAL PORTAL MINING COOPERATIVE, DAVAO UNITED MINERS
COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD MINERS COOPERATIVE,
ROMEO ALTAMERA, THELMA CATAPANG, LUIS GALANG, RENATO BASMILLO,
FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN ASION, MACARIO HERNANDEZ,
REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY ESPORTONO, ROMEO
CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and
joel brillantes management mining corporation, Respondents.

On 27 February 1931, Governor General Dwight F. Davis issued Proclamation No. 369,
establishing the Agusan-Davao-Surigao Forest Reserve consisting of approximately
1,927,400 hectares.1

x--------------------------------------x
G.R. No. 152619-20

June 23, 2006

BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner,

vs.
SOUTHEAST MINDANAO GOLD MINING CORPORATION, APEX MINING CO., INC.,
the mines adjudication board, provincial mining regulatory board (PMRB-DAVAO),
MONKAYO INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO
VILLAFLOR, DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO,
PUTING-BATO GOLD MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA
CATAPANG, LUIS GALANG, RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO
GLORIA, EDWIN ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO
BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO,
PRIMITIVA LICAYAN, LETICIA ALQUEZA and joel brillantes management mining
corporation, Respondents.
x--------------------------------------x
G.R. No. 152870-71

June 23, 2006

THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON. VICTOR O.
RAMOS (Chairman), UNDERSECRETARY VIRGILIO MARCELO (Member) and
DIRECTOR HORACIO RAMOS (Member), petitioners,
vs.
SOUTHEAST MINADANAO GOLD MINING CORPORATION, Respondent.
DECISION

The disputed area, a rich tract of mineral land, is inside the forest reserve located at
Monkayo, Davao del Norte, and Cateel, Davao Oriental, consisting of 4,941.6759
hectares.2 This mineral land is encompassed by Mt. Diwata, which is situated in the
municipalities of Monkayo and Cateel. It later became known as the "Diwalwal Gold Rush
Area." It has since the early 1980s been stormed by conflicts brought about by the
numerous mining claimants scrambling for gold that lies beneath its bosom.
On 21 November 1983, Camilo Banad and his group, who claimed to have first discovered
traces of gold in Mount Diwata, filed a Declaration of Location (DOL) for six mining claims
in the area.
Camilo Banad and some other natives pooled their skills and resources and organized the
Balite Communal Portal Mining Cooperative (Balite).3
On 12 December 1983, Apex Mining Corporation (Apex) entered into operating
agreements with Banad and his group.
From November 1983 to February 1984, several individual applications for mining
locations over mineral land covering certain parts of the Diwalwal gold rush area were filed
with the Bureau of Mines and Geo-Sciences (BMG).
On 2 February 1984, Marcopper Mining Corporation (MMC) filed 16 DOLs or mining claims
for areas adjacent to the area covered by the DOL of Banad and his group. After realizing
that the area encompassed by its mining claims is a forest reserve within the coverage of
Proclamation No. 369 issued by Governor General Davis, MMC abandoned the same and
instead applied for a prospecting permit with the Bureau of Forest Development (BFD).
On 1 July 1985, BFD issued a Prospecting Permit to MMC covering an area of 4,941.6759
hectares traversing the municipalities of Monkayo and Cateel, an area within the forest
reserve under Proclamation No. 369. The permit embraced the areas claimed by Apex and
the other individual mining claimants.
On 11 November 1985, MMC filed Exploration Permit Application No. 84-40 with the BMG.
On 10 March 1986, the BMG issued to MCC Exploration Permit No. 133 (EP 133).
Discovering the existence of several mining claims and the proliferation of small-scale
miners in the area covered by EP 133, MMC thus filed on 11 April 1986 before the BMG a
Petition for the Cancellation of the Mining Claims of Apex and Small Scale Mining Permit

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 28

Nos. (x-1)-04 and (x-1)-05 which was docketed as MAC No. 1061. MMC alleged that the
areas covered by its EP 133 and the mining claims of Apex were within an established and
existing forest reservation (Agusan-Davao-Surigao Forest Reserve) under Proclamation
No. 369 and that pursuant to Presidential Decree No. 463,4 acquisition of mining rights
within a forest reserve is through the application for a permit to prospect with the BFD and
not through registration of a DOL with the BMG.
On 23 September 1986, Apex filed a motion to dismiss MMCs petition alleging that its
mining claims are not within any established or proclaimed forest reserve, and as such, the
acquisition of mining rights thereto must be undertaken via registration of DOL with the
BMG and not through the filing of application for permit to prospect with the BFD.
On 9 December 1986, BMG dismissed MMCs petition on the ground that the area covered
by the Apex mining claims and MMCs permit to explore was not a forest reservation. It
further declared null and void MMCs EP 133 and sustained the validity of Apex mining
claims over the disputed area.
MMC appealed the adverse order of BMG to the Department of Environment and Natural
Resources (DENR).
On 15 April 1987, after due hearing, the DENR reversed the 9 December 1996 order of
BMG and declared MMCs EP 133 valid and subsisting.
Apex filed a Motion for Reconsideration with the DENR which was subsequently denied.
Apex then filed an appeal before the Office of the President. On 27 July 1989, the Office of
the President, through Assistant Executive Secretary for Legal Affairs, Cancio C.
Garcia,5 dismissed Apexs appeal and affirmed the DENR ruling.

On 25 August 1993, Monkayo Integrated Small Scale Miners Association (MISSMA) filed
an MPSA application which was denied by the BMG on the grounds that the area applied
for is within the area covered by MMC EP 133 and that the MISSMA was not qualified to
apply for an MPSA under DAO No. 82,7 Series of 1990.
On 5 January 1994, Rosendo Villaflor and his group filed before the BMG a Petition for
Cancellation of EP 133 and for the admission of their MPSA Application. The Petition was
docketed as RED Mines Case No. 8-8-94. Davao United Miners Cooperative (DUMC) and
Balite intervened and likewise sought the cancellation of EP 133.
On 16 February 1994, MMC assigned EP 133 to Southeast Mindanao Gold Mining
Corporation (SEM), a domestic corporation which is alleged to be a 100% -owned
subsidiary of MMC.
On 14 June 1994, Balite filed with the BMG an MPSA application within the contested area
that was later on rejected.
On 23 June 1994, SEM filed an MPSA application for the entire 4,941.6759 hectares under
EP 133, which was also denied by reason of the pendency of RED Mines Case No. 8-8-94.
On 1 September 1995, SEM filed another MPSA application.
On 20 October 1995, BMG accepted and registered SEMs MPSA application and the
Deed of Assignment over EP 133 executed in its favor by MMC. SEMs application was
designated MPSA Application No. 128 (MPSAA 128). After publication of SEMs
application, the following filed before the BMG their adverse claims or oppositions:
a) MAC Case No. 004 (XI) JB Management Mining Corporation;

Apex filed a Petition for Certiorari before this Court. The Petition was docketed as G.R. No.
92605 entitled, "Apex Mining Co., Inc. v. Garcia."6 On 16 July 1991, this Court rendered a
Decision against Apex holding that the disputed area is a forest reserve; hence, the proper
procedure in acquiring mining rights therein is by initially applying for a permit to prospect
with the BFD and not through a registration of DOL with the BMG.

c) MAC Case No. 006(XI) Balite Integrated Small Scale Miners Cooperative;

On 27 December 1991, then DENR Secretary Fulgencio Factoran, Jr. issued Department
Administrative Order No. 66 (DAO No. 66) declaring 729 hectares of the areas covered by
the Agusan-Davao-Surigao Forest Reserve as non-forest lands and open to small-scale
mining purposes.

e) MAC Case No. 008(XI) Paper Industries Corporation of the Philippines;

As DAO No. 66 declared a portion of the contested area open to small scale miners,
several mining entities filed applications for Mineral Production Sharing Agreement
(MPSA).

b) MAC Case No. 005(XI) Davao United Miners Cooperative;

d) MAC Case No. 007(XI) Monkayo Integrated Small Scale Miners Association,
Inc. (MISSMA);

f) MAC Case No. 009(XI) Rosendo Villafor, et al.;

g) MAC Case No. 010(XI) Antonio Dacudao;
h) MAC Case No. 011(XI) Atty. Jose T. Amacio;

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 29

i) MAC Case No. 012(XI) Puting-Bato Gold Miners Cooperative;

j) MAC Case No. 016(XI) Balite Communal Portal Mining Cooperative;
k) MAC Case No. 97-01(XI) Romeo Altamera, et al.8
To address the matter, the DENR constituted a Panel of Arbitrators (PA) to resolve the
following:
(a) The adverse claims on MPSAA No. 128; and
(b) The Petition to Cancel EP 133 filed by Rosendo Villaflor docketed as RED
Case No. 8-8-94.9
On 13 June 1997, the PA rendered a resolution in RED Mines Case No. 8-8-94. As to the
Petition for Cancellation of EP 133 issued to MMC, the PA relied on the ruling in Apex
Mining Co., Inc. v. Garcia,10 and opined that EP 133 was valid and subsisting. It also
declared that the BMG Director, under Section 99 of the Consolidated Mines Administrative
Order implementing Presidential Decree No. 463, was authorized to issue exploration
permits and to renew the same without limit.
With respect to the adverse claims on SEMs MPSAA No. 128, the PA ruled that adverse
claimants petitions were not filed in accordance with the existing rules and regulations
governing adverse claims because the adverse claimants failed to submit the sketch plan
containing the technical description of their respective claims, which was a mandatory
requirement for an adverse claim that would allow the PA to determine if indeed there is an
overlapping of the area occupied by them and the area applied for by SEM. It added that
the adverse claimants were not claim owners but mere occupants conducting illegal mining
activities at the contested area since only MMC or its assignee SEM had valid mining
claims over the area as enunciated in Apex Mining Co., Inc. v. Garcia.11 Also, it maintained
that the adverse claimants were not qualified as small-scale miners under DENR
Department Administrative Order No. 34 (DAO No. 34),12 or the Implementing Rules and
Regulation of Republic Act No. 7076 (otherwise known as the "Peoples Small-Scale
Mining Act of 1991"), as they were not duly licensed by the DENR to engage in the
extraction or removal of minerals from the ground, and that they were large-scale miners.
The decretal portion of the PA resolution pronounces:
VIEWED IN THE LIGHT OF THE FOREGOING, the validity of Expoloration Permit No. 133
is hereby reiterated and all the adverse claims against MPSAA No. 128 are DISMISSED.13
Undaunted by the PA ruling, the adverse claimants appealed to the Mines Adjudication
Board (MAB). In a Decision dated 6 January 1998, the MAB considered erroneous the
dismissal by the PA of the adverse claims filed against MMC and SEM over a mere
technicality of failure to submit a sketch plan. It argued that the rules of procedure are not

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

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 30

however, were remanded to the Court of Appeals for proper disposition pursuant to Rule
43 of the 1997 Rules of Civil Procedure. The Court of Appeals consolidated the remanded
cases as CA-G.R. SP No. 61215 and No. 61216.
In the assailed Decision15 dated 13 March 2002, the Court of Appeals affirmed in toto the
decision of the PA and declared null and void the MAB decision.
The Court of Appeals, banking on the premise that the SEM is the agent of MMC by virtue
of its assignment of EP 133 in favor of SEM and the purported fact that SEM is a 100%
subsidiary of MMC, ruled that the transfer of EP 133 was valid. It argued that since SEM is
an agent of MMC, the assignment of EP 133 did not violate the condition therein
prohibiting its transfer except to MMCs duly designated agent. Thus, despite the nonrenewal of EP 133 on 6 July 1994, the Court of Appeals deemed it relevant to declare EP
133 as valid since MMCs mining rights were validly transferred to SEM prior to its
expiration.

Hence, the instant Petitions for Review on Certiorari under Rule 45 of the Rules of Court
filed by Apex, Balite and MAB.
During the pendency of these Petitions, President Gloria Macapagal-Arroyo issued
Proclamation No. 297 dated 25 November 2002. This proclamation excluded an area of
8,100 hectares located in Monkayo, Compostela Valley, and proclaimed the same as
mineral reservation and as environmentally critical area. Subsequently, DENR
Administrative Order No. 2002-18 was issued declaring an emergency situation in the
Diwalwal gold rush area and ordering the stoppage of all mining operations therein.
Thereafter, Executive Order No. 217 dated 17 June 2003 was issued by the President
creating the National Task Force Diwalwal which is tasked to address the situation in the
Diwalwal Gold Rush Area.
In G.R. No. 152613 and No. 152628, Apex raises the following issues:
I

The Court of Appeals also ruled that MMCs right to explore under EP 133 is a property
right which the 1987 Constitution protects and which cannot be divested without the
holders consent. It stressed that MMCs failure to proceed with the extraction and
utilization of minerals did not diminish its vested right to explore because its failure was not
attributable to it.
Reading Proclamation No. 369, Section 11 of Commonwealth Act 137, and Sections 6, 7,
and 8 of Presidential Decree No. 463, the Court of Appeals concluded that the issuance of
DAO No. 66 was done by the DENR Secretary beyond his power for it is the President who
has the sole power to withdraw from the forest reserve established under Proclamation No.
369 as non-forest land for mining purposes. Accordingly, the segregation of 729 hectares
of mining areas from the coverage of EP 133 by the MAB was unfounded.
The Court of Appeals also faulted the DENR Secretary in implementing DAO No. 66 when
he awarded the 729 hectares segregated from the coverage area of EP 133 to other
corporations who were not qualified as small-scale miners under Republic Act No. 7076.
As to the petitions of Villaflor and company, the Court of Appeals argued that their failure to
submit the sketch plan to the PA, which is a jurisdictional requirement, was fatal to their
appeal. It likewise stated the Villaflor and companys mining claims, which were based on
their alleged rights under DAO No. 66, cannot stand as DAO No. 66 was null and void. The
dispositive portion of the Decision decreed:
WHEREFORE, premises considered, the Petition of Southeast Mindanao Gold Mining
Corporation is GRANTED while the Petition of Rosendo Villaflor, et al., is DENIED for lack
of merit. The Decision of the Panel of Arbitrators dated 13 June 1997 is AFFIRMED in toto
and the assailed MAB Decision is hereby SET ASIDE and declared as NULL and VOID.16

WHETHER OR NOT SOUTHEAST MINDANAO GOLD MININGS [SEM] E.P. 133 IS NULL
AND VOID DUE TO THE FAILURE OF MARCOPPER TO COMPLY WITH THE TERMS
AND CONDITIONS PRESCRIBED IN EP 133.
II
WHETHER OR NOT APEX HAS A SUPERIOR AND PREFERENTIAL RIGHT TO STAKE
ITS CLAIM OVER THE ENTIRE 4,941 HECTARES AGAINST SEM AND THE OTHER
CLAIMANTS PURSUANT TO THE TIME-HONORED PRINCIPLE IN MINING LAW THAT
"PRIORITY IN TIME IS PRIORITY IN RIGHT."17
In G.R. No. 152619-20, Balite anchors its petition on the following grounds:
I
WHETHER OR NOT THE MPSA OF SEM WHICH WAS FILED NINE (9) DAYS LATE
(JUNE 23, 1994) FROM THE FILING OF THE MPSA OF BALITE WHICH WAS FILED ON
JUNE 14, 1994 HAS A PREFERENTIAL RIGHT OVER THAT OF BALITE.
II
WHETHER OR NOT THE DISMISSAL BY THE PANEL OF ARBITRATORS OF THE
ADVERSE CLAIM OF BALITE ON THE GROUND THAT BALITE FAILED TO SUBMIT
THE REQUIRED SKETCH PLAN DESPITE THE FACT THAT BALITE, HAD IN FACT
SUBMITTED ON TIME WAS A VALID DISMISSAL OF BALITES ADVERSE CLAIM.
III

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 31

WHETHER OR NOT THE ACTUAL OCCUPATION AND SMALL-MINING OPERATIONS

OF BALITE PURSUANT TO DAO 66 IN THE 729 HECTARES WHICH WAS PART OF
THE 4,941.6759 HECTARES COVERED BY ITS MPSA WHICH WAS REJECTED BY THE
BUREAU OF MINES AND GEOSCIENCES WAS ILLEGAL.18
In G.R. No. 152870-71, the MAB submits two issues, to wit:
I
WHETHER OR NOT EP NO. 133 IS STILL VALID AND SUBSISTING.
II
WHETHER OR NOT THE SUBSEQUENT ACTS OF THE GOVERNMENT SUCH AS THE
ISSUANCE OF DAO NO. 66, PROCLAMATION NO. 297, AND EXECUTIVE ORDER 217
CAN OUTWEIGH EP NO. 133 AS WELL AS OTHER ADVERSE CLAIMS OVER THE
DIWALWAL GOLD RUSH AREA.19
The common issues raised by petitioners may be summarized as follows:
I. Whether or not the Court of Appeals erred in upholding the validity and
continuous existence of EP 133 as well as its transfer to SEM;
II. Whether or not the Court of Appeals erred in declaring that the DENR
Secretary has no authority to issue DAO No. 66; and
III. Whether or not the subsequent acts of the executive department such as the
issuance of Proclamation No. 297, and DAO No. 2002-18 can outweigh Apex and
Balites claims over the Diwalwal Gold Rush Area.
On the first issue, Apex takes exception to the Court of Appeals ruling upholding the
validity of MMCs EP 133 and its subsequent transfer to SEM asserting that MMC failed to
comply with the terms and conditions in its exploration permit, thus, MMC and its
successor-in-interest SEM lost their rights in the Diwalwal Gold Rush Area. Apex pointed
out that MMC violated four conditions in its permit. First, MMC failed to comply with the
mandatory work program, to complete exploration work, and to declare a mining feasibility.
Second, it reneged on its duty to submit an Environmental Compliance Certificate. Third, it
failed to comply with the reportorial requirements. Fourth, it violated the terms of EP 133
when it assigned said permit to SEM despite the explicit proscription against its transfer.
Apex likewise emphasizes that MMC failed to file its MPSA application required under DAO
No. 8220 which caused its exploration permit to lapse because DAO No. 82 mandates
holders of exploration permits to file a Letter of Intent and a MPSA application not later

than 17 July 1991. It said that because EP 133 expired prior to its assignment to SEM,
SEMs MPSA application should have been evaluated on its own merit.
As regards the Court of Appeals recognition of SEMs vested right over the disputed area,
Apex bewails the same to be lacking in statutory bases. According to Apex, Presidential
Decree No. 463 and Republic Act No. 7942 impose upon the claimant the obligation of
actually undertaking exploration work within the reserved lands in order to acquire priority
right over the area. MMC, Apex claims, failed to conduct the necessary exploration work,
thus, MMC and its successor-in-interest SEM lost any right over the area.
In its Memorandum, Balite maintains that EP 133 of MMC, predecessor-in-interest of SEM,
is an expired and void permit which cannot be made the basis of SEMs MPSA application.
Similarly, the MAB underscores that SEM did not acquire any right from MMC by virtue of
the transfer of EP 133 because the transfer directly violates the express condition of the
exploration permit stating that "it shall be for the exclusive use and benefit of the permittee
or his duly authorized agents." It added that while MMC is the permittee, SEM cannot be
considered as MMCs duly designated agent as there is no proof on record authorizing
SEM to represent MMC in its business dealings or undertakings, and neither did SEM
pursue its interest in the permit as an agent of MMC. According to the MAB, the
assignment by MMC of EP 133 in favor of SEM did not make the latter the duly authorized
agent of MMC since the concept of an agent under EP 133 is not equivalent to the concept
of assignee. It finds fault in the assignment of EP 133 which lacked the approval of the
DENR Secretary in contravention of Section 25 of Republic Act No. 794221 requiring his
approval for a valid assignment or transfer of exploration permit to be valid.
SEM, on the other hand, counters that the errors raised by petitioners Apex, Balite and the
MAB relate to factual and evidentiary matters which this Court cannot inquire into in an
appeal by certiorari.
The established rule is that in the exercise of the Supreme Courts power of review, the
Court not being a trier of facts, does not normally embark on a re-examination of the
evidence presented by the contending parties during the trial of the case considering that
the findings of facts of the Court of Appeals are conclusive and binding on the Court.22 This
rule, however, admits of exceptions as recognized by jurisprudence, to wit:
(1) [w]hen the findings are grounded entirely on speculation, surmises or conjectures; (2)
when the inference made is manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on misapprehension of facts;
(5) when the findings of facts are conflicting; (6) when in making its findings the Court of
Appeals went beyond the issues of the case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when the findings are contrary to the trial court;
(8) when the findings are conclusions without citation of specific evidence on which they
are based; (9) when the facts set forth in the petition as well as in the petitioners main and
reply briefs are not disputed by the respondent; (10) when the findings of fact are premised

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 32

on the supposed absence of evidence and contradicted by the evidence on record; and
(11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by
the parties, which, if properly considered, would justify a different conclusion.23
Also, in the case of Manila Electric Company v. Benamira,24 the Court in a Petition for
Review on Certiorari, deemed it proper to look deeper into the factual circumstances of the
case since the Court of Appeals findings are at odds to those of the National Labor
Relations Commission (NLRC). Just like in the foregoing case, it is this Courts considered
view that a re-evaluation of the attendant facts surrounding the present case is appropriate
considering that the findings of the MAB are in conflict with that of the Court of Appeals.
I
At the threshold, it is an undisputed fact that MMC assigned to SEM all its rights under EP
133 pursuant to a Deed of Assignment dated 16 February 1994.25
EP 133 is subject to the following terms and conditions26 :
1. That the permittee shall abide by the work program submitted with the
application or statements made later in support thereof, and which shall be
considered as conditions and essential parts of this permit;
2. That permittee shall maintain a complete record of all activities and accounting
of all expenditures incurred therein subject to periodic inspection and verification
at reasonable intervals by the Bureau of Mines at the expense of the applicant;
3. That the permittee shall submit to the Director of Mines within 15 days after the
end of each calendar quarter a report under oath of a full and complete statement
of the work done in the area covered by the permit;
4. That the term of this permit shall be for two (2) years to be effective from this
date, renewable for the same period at the discretion of the Director of Mines and
upon request of the applicant;
5. That the Director of Mines may at any time cancel this permit for violation of its
provision or in case of trouble or breach of peace arising in the area subject
hereof by reason of conflicting interests without any responsibility on the part of
the government as to expenditures for exploration that might have been incurred,
or as to other damages that might have been suffered by the permittee; and
6. That this permit shall be for the exclusive use and benefit of the permittee or
his duly authorized agents and shall be used for mineral exploration purposes
only and for no other purpose.

Under Section 9027 of Presidential Decree No. 463, the applicable statute during the
issuance of EP 133, the DENR Secretary, through Director of BMG, is charged with
carrying out the said law. Also, under Commonwealth Act No. 136, also known as "An Act
Creating The Bureau of Mines," which was approved on 7 November 1936, the Director of
Mines has the direct charge of the administration of the mineral lands and minerals, and of
the survey, classification, lease or any other form of concession or disposition thereof
under the Mining Act.28 This power of administration includes the power to prescribe terms
and conditions in granting exploration permits to qualified entities. Thus, in the grant of EP
133 in favor of the MMC, the Director of the BMG acted within his power in laying down the
terms and conditions attendant thereto.
Condition number 6 categorically states that the permit shall be for the exclusive use and
benefit of MMC or its duly authorized agents. While it may be true that SEM, the assignee
of EP 133, is a 100% subsidiary corporation of MMC, records are bereft of any evidence
showing that the former is the duly authorized agent of the latter. For a contract of agency
to exist, it is essential that the principal consents that the other party, the agent, shall act
on its behalf, and the agent consents so as to act.29 In the case of Yu Eng Cho v. Pan
American World Airways, Inc.,30this Court had the occasion to set forth the elements of
agency, viz:
(1) consent, express or implied, of the parties to establish the relationship;
(2) the object is the execution of a juridical act in relation to a third person;
(3) the agent acts as a representative and not for himself;
(4) the agent acts within the scope of his authority.
The existence of the elements of agency is a factual matter that needs to be established or
proven by evidence. The burden of proving that agency is extant in a certain case rests in
the party who sets forth such allegation. This is based on the principle that he who alleges
a fact has the burden of proving it.31 It must likewise be emphasized that the evidence to
prove this fact must be clear, positive and convincing.32
In the instant Petitions, it is incumbent upon either MMC or SEM to prove that a contract of
agency actually exists between them so as to allow SEM to use and benefit from EP 133
as the agent of MMC. SEM did not claim nor submit proof that it is the designated agent of
MMC to represent the latter in its business dealings or undertakings. SEM cannot,
therefore, be considered as an agent of MMC which can use EP 133 and benefit from it.
Since SEM is not an authorized agent of MMC, it goes without saying that the assignment
or transfer of the permit in favor of SEM is null and void as it directly contravenes the terms
and conditions of the grant of EP 133.

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 33

Furthermore, the concept of agency is distinct from assignment. In agency, the agent acts
not on his own behalf but on behalf of his principal.33 While in assignment, there is total
transfer or relinquishment of right by the assignor to the assignee.34 The assignee takes
the place of the assignor and is no longer bound to the latter. The deed of assignment
clearly stipulates:
1. That for ONE PESO (P1.00) and other valuable consideration received by the
ASSIGNOR from the ASSIGNEE, the ASSIGNOR hereby ASSIGNS, TRANSFERS and
CONVEYS unto the ASSIGNEE whatever rights or interest the ASSIGNOR may have in
the area situated in Monkayo, Davao del Norte and Cateel, Davao Oriental, identified as
Exploration Permit No. 133 and Application for a Permit to Prospect in Bunawan, Agusan
del Sur respectively.35
Bearing in mind the just articulated distinctions and the language of the Deed of
Assignment, it is readily obvious that the assignment by MMC of EP 133 in favor of SEM
did not make the latter the formers agent. Such assignment involved actual transfer of all
rights and obligations MMC have under the permit in favor of SEM, thus, making SEM the
permittee. It is not a mere grant of authority to SEM, as an agent of MMC, to use the
permit. It is a total abdication of MMCs rights over the permit. Hence, the assignment in
question did not make SEM the authorized agent of MMC to make use and benefit from
EP 133.
The condition stipulating that the permit is for the exclusive use of the permittee or its duly
authorized agent is not without any reason. Exploration permits are strictly granted to
entities or individuals possessing the resources and capability to undertake mining
operations. Without such a condition, non-qualified entities or individuals could circumvent
the strict requirements under the law by the simple expediency acquiring the permit from
the original permittee.
We cannot lend recognition to the Court of Appeals theory that SEM, being a 100%
subsidiary of MMC, is automatically an agent of MMC.
A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes, and properties expressly authorized by law or
incident to its existence.36 It is an artificial being invested by law with a personality separate
and distinct from those of the persons composing it as well as from that of any other legal
entity to which it may be related.37 Resultantly, absent any clear proof to the contrary, SEM
is a separate and distinct entity from MMC.
The Court of Appeals pathetically invokes the doctrine of piercing the corporate veil to
legitimize the prohibited transfer or assignment of EP 133. It stresses that SEM is just a
business conduit of MMC, hence, the distinct legal personalities of the two entities should
not be recognized. True, the corporate mask may be removed when the corporation is just
an alter ego or a mere conduit of a person or of another corporation.38 For reasons of
public policy and in the interest of justice, the corporate veil will justifiably be impaled only

when it becomes a shield for fraud, illegality or inequity committed against a third
person.39 However, this Court has made a caveat in the application of the doctrine of
piercing the corporate veil. Courts should be mindful of the milieu where it is to be applied.
Only in cases where the corporate fiction was misused to such an extent that injustice,
fraud or crime was committed against another, in disregard of its rights may the veil be
pierced and removed. Thus, a subsidiary corporation may be made to answer for the
liabilities and/or illegalities done by the parent corporation if the former was organized for
the purpose of evading obligations that the latter may have entered into. In other words,
this doctrine is in place in order to expose and hold liable a corporation which commits
illegal acts and use the corporate fiction to avoid liability from the said acts. The doctrine of
piercing the corporate veil cannot therefore be used as a vehicle to commit prohibited acts
because these acts are the ones which the doctrine seeks to prevent.
To our mind, the application of the foregoing doctrine is unwarranted. The assignment of
the permit in favor of SEM is utilized to circumvent the condition of non-transferability of
the exploration permit. To allow SEM to avail itself of this doctrine and to approve the
validity of the assignment is tantamount to sanctioning illegal act which is what the doctrine
precisely seeks to forestall.
Quite apart from the above, a cursory consideration of the mining law pertinent to the case,
will, indeed, demonstrate the infraction committed by MMC in its assignment of EP 133 to
SEM.
Presidential Decree No. 463, enacted on 17 May 1974, otherwise known as the Mineral
Resources Development Decree, which governed the old system of exploration,
development, and utilization of mineral resources through "license, concession or lease"
prescribed:
SEC. 97. Assignment of Mining Rights. A mining lease contract or any interest
therein shall not be transferred, assigned, or subleased without the prior approval of the
Secretary: Provided, That such transfer, assignment or sublease may be made only to a
qualified person possessing the resources and capability to continue the mining operations
of the lessee and that the assignor has complied with all the obligations of the lease:
Provided, further, That such transfer or assignment shall be duly registered with the office
of the mining recorder concerned. (Emphasis supplied.)
The same provision is reflected in Republic Act No. 7942, otherwise known as the
Philippine Mining Act of 1995, which is the new law governing the exploration,
development and utilization of the natural resources, which provides:
SEC. 25. Transfer or Assignment. - An exploration permit may be transferred or assigned
to a qualified person subject to the approval of the Secretary upon the recommendation of
the Director.

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 34

The records are bereft of any indication that the assignment bears the imprimatur of the
Secretary of the DENR. Presidential Decree No. 463, which is the governing law when the
assignment was executed, explicitly requires that the transfer or assignment of mining
rights, including the right to explore a mining area, must be with the prior approval of the
Secretary of DENR. Quite conspicuously, SEM did not dispute the allegation that the Deed
of Assignment was made without the prior approval of the Secretary of DENR. Absent the
prior approval of the Secretary of DENR, the assignment of EP 133, was, therefore,
without legal effect for violating the mandatory provision of Presidential Decree No. 463.
An added significant omission proved fatal to MMC/SEMs cause. While it is true that the
case of Apex Mining Co., Inc. v. Garcia40 settled the issue of which between Apex and
MMC validly acquired mining rights over the disputed area, such rights, though, had been
extinguished by subsequent events. Records indicate that on 6 July 1993, EP 133 was
extended for 12 months or until 6 July 1994.41 MMC never renewed its permit prior and
after its expiration. Thus, EP 133 expired by non-renewal.
With the expiration of EP 133 on 6 July 1994, MMC lost any right to the Diwalwal Gold
Rush Area. SEM, on the other hand, has not acquired any right to the said area because
the transfer of EP 133 in its favor is invalid. Hence, both MMC and SEM have not acquired
any vested right over the 4,941.6759 hectares which used to be covered by EP 133.
II
The Court of Appeals theorizes that DAO No. 66 was issued beyond the power of the
DENR Secretary since the power to withdraw lands from forest reserves and to declare the
same as an area open for mining operation resides in the President.
Under Proclamation No. 369 dated 27 February 1931, the power to convert forest reserves
as non-forest reserves is vested with the DENR Secretary. Proclamation No. 369 partly
states:
From this reserve shall be considered automatically excluded all areas which had already
been certified and which in the future may be proclaimed as classified and certified lands
and approved by the Secretary of Agriculture and Natural Resources.42
However, a subsequent law, Commonwealth Act No. 137, otherwise known as "The Mining
Act" which was approved on 7 November 1936 provides:
Sec. 14. Lands within reservations for purposes other than mining, which, after such
reservation is made, are found to be more valuable for their mineral contents than for the
purpose for which the reservation was made, may be withdrawn from such reservations by
the President with the concurrence of the National Assembly, and thereupon such lands
shall revert to the public domain and be subject to disposition under the provisions of this
Act.

Unlike Proclamation No. 369, Commonwealth Act No. 137 vests solely in the President,
with the concurrence of the National Assembly, the power to withdraw forest reserves
found to be more valuable for their mineral contents than for the purpose for which the
reservation was made and convert the same into non-forest reserves. A similar provision
can also be found in Presidential Decree No. 463 dated 17 May 1974, with the
modifications that (1) the declaration by the President no longer requires the concurrence
of the National Assembly and (2) the DENR Secretary merely exercises the power to
recommend to the President which forest reservations are to be withdrawn from the
coverage thereof. Section 8 of Presidential Decree No. 463 reads:
SEC. 8. Exploration and Exploitation of Reserved Lands. When lands within
reservations, which have been established for purposes other than mining, are found to be
more valuable for their mineral contents, they may, upon recommendation of the Secretary
be withdrawn from such reservation by the President and established as a mineral
reservation.
Against the backdrop of the applicable statutes which govern the issuance of DAO No. 66,
this Court is constrained to rule that said administrative order was issued not in
accordance with the laws. Inescapably, DAO No. 66, declaring 729 hectares of the areas
covered by the Agusan-Davao-Surigao Forest Reserve as non-forest land open to smallscale mining operations, is null and void as, verily, the DENR Secretary has no power to
convert forest reserves into non-forest reserves.
III
It is the contention of Apex that its right over the Diwalwal gold rush area is superior to that
of MMC or that of SEM because it was the first one to occupy and take possession of the
area and the first to record its mining claims over the area.
For its part, Balite argues that with the issuance of DAO No. 66, its occupation in the
contested area, particularly in the 729 hectares small-scale mining area, has entitled it to
file its MPSA. Balite claims that its MPSA application should have been given preference
over that of SEM because it was filed ahead.
The MAB, on the other hand, insists that the issue on who has superior right over the
disputed area has become moot and academic by the supervening events. By virtue of
Proclamation No. 297 dated 25 November 2002, the disputed area was declared a mineral
reservation.
Proclamation No. 297 excluded an area of 8,100 hectares located in Monkayo,
Compostela Valley, and proclaimed the same as mineral reservation and as
environmentally critical area, viz:

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 35

WHEREAS, by virtue of Proclamation No. 369, series of 1931, certain tracts of public land
situated in the then provinces of Davao, Agusan and Surigao, with an area of
approximately 1,927,400 hectares, were withdrawn from settlement and disposition,
excluding, however, those portions which had been certified and/or shall be classified and
certified as non-forest lands;
WHEREAS, gold deposits have been found within the area covered by Proclamation No.
369, in the Municipality of Monkayo, Compostela Valley Province, and unregulated small to
medium-scale mining operations have, since 1983, been undertaken therein, causing in
the process serious environmental, health, and peace and order problems in the area;
WHEREAS, it is in the national interest to prevent the further degradation of the
environment and to resolve the health and peace and order problems spawned by the
unregulated mining operations in the said area;
WHEREAS, these problems may be effectively addressed by rationalizing mining
operations in the area through the establishment of a mineral reservation;
WHEREAS, after giving due notice, the Director of Mines and Geoxciences conducted
public hearings on September 6, 9 and 11, 2002 to allow the concerned sectors and
communities to air their views regarding the establishment of a mineral reservation in the
place in question;
WHEREAS, pursuant to the Philippine Mining Act of 1995 (RA 7942), the President may,
upon the recommendation of the Director of Mines and Geosciences, through the
Secretary of Environment and Natural Resources, and when the national interest so
requires, establish mineral reservations where mining operations shall be undertaken by
the Department directly or thru a contractor;
WHEREAS, as a measure to attain and maintain a rational and orderly balance between
socio-economic growth and environmental protection, the President may, pursuant to
Presidential Decree No. 1586, as amended, proclaim and declare certain areas in the
country as environmentally critical;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Philippines,
upon recommendation of the Secretary of the Department of Environment and Natural
Resources (DENR), and by virtue of the powers vested in me by law, do hereby exclude
certain parcel of land located in Monkayo, Compostela Valley, and proclaim the same as
mineral reservation and as environmentally critical area, with metes and bound as defined
by the following geographical coordinates;
xxxx

with an area of Eight Thousand One Hundred (8,100) hectares, more or less. Mining
operations in the area may be undertaken either by the DENR directly, subject to payment
of just compensation that may be due to legitimate and existing claimants, or thru a
qualified contractor, subject to existing rights, if any.
The DENR shall formulate and issue the appropriate guidelines, including the
establishment of an environmental and social fund, to implement the intent and provisions
of this Proclamation.
Upon the effectivity of the 1987 Constitution, the State assumed a more dynamic role in
the exploration, development and utilization of the natural resources of the country.43 With
this policy, the State may pursue full control and supervision of the exploration,
development and utilization of the countrys natural mineral resources. The options open to
the State are through direct undertaking or by entering into co-production, joint venture, or
production-sharing agreements, or by entering into agreement with foreign-owned
corporations for large-scale exploration, development and utilization.44 Thus, Article XII,
Section 2, of the 1987 Constitution, specifically states:
SEC. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may enter
into co-production, joint venture, or production-sharing agreements with Filipino citizens, or
corporations or associations at least sixty per centum of whose capital is owned by such
citizens. Such agreements may be for a period not exceeding twenty-five years, renewable
for not more than twenty-five years, and under such terms and conditions as may be
provided by law. x x x
xxxx
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare
of the country. x x x (Underscoring supplied.)
Recognizing the importance of the countrys natural resources, not only for national
economic development, but also for its security and national defense, Section 5 of
Republic Act No. 7942 empowers the President, when the national interest so requires, to
establish mineral reservations where mining operations shall be undertaken directly by the
State or through a contractor.

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 36

To implement the intent and provisions of Proclamation No. 297, the DENR Secretary
issued DAO No. 2002-18 dated 12 August 2002 declaring an emergency situation in the
Diwalwal Gold Rush Area and ordering the stoppage of all mining operations therein.
The issue on who has priority right over the disputed area is deemed overtaken by the
above subsequent developments particularly with the issuance of Proclamation 297 and
DAO No. 2002-18, both being constitutionally-sanctioned acts of the Executive Branch.
Mining operations in the Diwalwal Mineral Reservation are now, therefore, within the full
control of the State through the executive branch. Pursuant to Section 5 of Republic Act
No. 7942, the State can either directly undertake the exploration, development and
utilization of the area or it can enter into agreements with qualified entities, viz:
SEC 5. Mineral Reservations. When the national interest so requires, such as when
there is a need to preserve strategic raw materials for industries critical to national
development, or certain minerals for scientific, cultural or ecological value, the President
may establish mineral reservations upon the recommendation of the Director through the
Secretary. Mining operations in existing mineral reservations and such other reservations
as may thereafter be established, shall be undertaken by the Department or through a
contractor x x x .
It is now up to the Executive Department whether to take the first option, i.e., to undertake
directly the mining operations of the Diwalwal Gold Rush Area. As already ruled, the State
may not be precluded from considering a direct takeover of the mines, if it is the only
plausible remedy in sight to the gnawing complexities generated by the gold rush. The
State need be guided only by the demands of public interest in settling on this option, as
well as its material and logistic feasibility.45 The State can also opt to award mining
operations in the mineral reservation to private entities including petitioners Apex and
Balite, if it wishes. The exercise of this prerogative lies with the Executive Department over
which courts will not interfere.
WHEREFORE, premises considered, the Petitions of Apex, Balite and the MAB are
PARTIALLY GRANTED, thus:
1. We hereby REVERSE and SET ASIDE the Decision of the Court of Appeals,
dated 13 March 2002, and hereby declare that EP 133 of MMC has EXPIRED on
7 July 1994 and that its subsequent transfer to SEM on 16 February 1994 is
VOID.
2. We AFFIRM the finding of the Court of Appeals in the same Decision declaring
DAO No. 66 illegal for having been issued in excess of the DENR Secretarys
authority.
Consequently, the State, should it so desire, may now award mining operations in the
disputed area to any qualified entity it may determine. No costs.

SO ORDERED.
DOMINGO DE LA CRUZ, plaintiff-appellant,
vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees.
Conrado Rubio for appellant.
Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.
MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the year 1941
the Northern Theatrical Enterprises Inc., a domestic corporation operated a movie house in
Laoag, Ilocos Norte, and among the persons employed by it was the plaintiff DOMINGO
DE LA CRUZ, hired as a special guard whose duties were to guard the main entrance of
the cine, to maintain peace and order and to report the commission of disorders within the
premises. As such guard he carried a revolver. In the afternoon of July 4, 1941, one
Benjamin Martin wanted to crash the gate or entrance of the movie house. Infuriated by
the refusal of plaintiff De la Cruz to let him in without first providing himself with a ticket,
Martin attacked him with a bolo. De la Cruz defendant himself as best he could until he
was cornered, at which moment to save himself he shot the gate crasher, resulting in the
latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the
Court of First Instance of Ilocos Norte. After a re-investigation conducted by the Provincial
Fiscal the latter filed a motion to dismiss the complaint, which was granted by the court in
January 1943. On July 8, 1947, De la Cruz was again accused of the same crime of
homicide, in Criminal Case No. 431 of the same Court. After trial, he was finally acquitted
of the charge on January 31, 1948. In both criminal cases De la Cruz employed a lawyer to
defend him. He demanded from his former employer reimbursement of his expenses but
was refused, after which he filed the present action against the movie corporation and the
three members of its board of directors, to recover not only the amounts he had paid his
lawyers but also moral damages said to have been suffered, due to his worry, his neglect
of his interests and his family as well in the supervision of the cultivation of his land, a total
of P15,000. On the basis of the complaint and the answer filed by defendants wherein they
asked for the dismissal of the complaint, as well as the agreed statement of facts, the
Court of First Instance of Ilocos Norte after rejecting the theory of the plaintiff that he was
an agent of the defendants and that as such agent he was entitled to reimbursement of the
expenses incurred by him in connection with the agency (Arts. 1709-1729 of the old Civil
Code), found that plaintiff had no cause of action and dismissed the complaint without
costs. De la Cruz appealed directly to this Tribunal for the reason that only questions of law
are involved in the appeal.
We agree with the trial court that the relationship between the movie corporation and the
plaintiff was not that of principal and agent because the principle of representation was in

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 37

no way involved. Plaintiff was not employed to represent the defendant corporation in its
dealings with third parties. He was a mere employee hired to perform a certain specific
duty or task, that of acting as special guard and staying at the main entrance of the movie
house to stop gate crashers and to maintain peace and order within the premises. The
question posed by this appeal is whether an employee or servant who in line of duty and
while in the performance of the task assigned to him, performs an act which eventually
results in his incurring in expenses, caused not directly by his master or employer or his
fellow servants or by reason of his performance of his duty, but rather by a third party or
stranger not in the employ of his employer, may recover said damages against his
employer.
The learned trial court in the last paragraph of its decision dismissing the complaint said
that "after studying many laws or provisions of law to find out what law is applicable to the
facts submitted and admitted by the parties, has found none and it has no other alternative
than to dismiss the complaint." The trial court is right. We confess that we are not aware of
any law or judicial authority that is directly applicable to the present case, and realizing the
importance and far-reaching effect of a ruling on the subject-matter we have searched,
though vainly, for judicial authorities and enlightenment. All the laws and principles of law
we have found, as regards master and servants, or employer and employee, refer to cases
of physical injuries, light or serious, resulting in loss of a member of the body or of any one
of the senses, or permanent physical disability or even death, suffered in line of duty and in
the course of the performance of the duties assigned to the servant or employee, and
these cases are mainly governed by the Employer's Liability Act and the Workmen's
Compensation Act. But a case involving damages caused to an employee by a stranger or
outsider while said employee was in the performance of his duties, presents a novel
question which under present legislation we are neither able nor prepared to decide in
favor of the employee.
In a case like the present or a similar case of say a driver employed by a transportation
company, who while in the course of employment runs over and inflicts physical injuries on
or causes the death of a pedestrian; and such driver is later charged criminally in court,
one can imagine that it would be to the interest of the employer to give legal help to and
defend its employee in order to show that the latter was not guilty of any crime either
deliberately or through negligence, because should the employee be finally held criminally
liable and he is found to be insolvent, the employer would be subsidiarily liable. That is
why, we repeat, it is to the interest of the employer to render legal assistance to its
employee. But we are not prepared to say and to hold that the giving of said legal
assistance to its employees is a legal obligation. While it might yet and possibly be
regarded as a normal obligation, it does not at present count with the sanction of manmade laws.
If the employer is not legally obliged to give, legal assistance to its employee and provide
him with a lawyer, naturally said employee may not recover the amount he may have paid
a lawyer hired by him.

Viewed from another angle it may be said that the damage suffered by the plaintiff by
reason of the expenses incurred by him in remunerating his lawyer, is not caused by his
act of shooting to death the gate crasher but rather by the filing of the charge of homicide
which made it necessary for him to defend himself with the aid of counsel. Had no criminal
charge been filed against him, there would have been no expenses incurred or damage
suffered. So the damage suffered by plaintiff was caused rather by the improper filing of
the criminal charge, possibly at the instance of the heirs of the deceased gate crasher and
by the State through the Fiscal. We say improper filing, judging by the results of the court
proceedings, namely, acquittal. In other words, the plaintiff was innocent and blameless. If
despite his innocence and despite the absence of any criminal responsibility on his part he
was accused of homicide, then the responsibility for the improper accusation may be laid
at the door of the heirs of the deceased and the State, and so theoretically, they are the
parties that may be held responsible civilly for damages and if this is so, we fail to see now
this responsibility can be transferred to the employer who in no way intervened, much less
initiated the criminal proceedings and whose only connection or relation to the whole
affairs was that he employed plaintiff to perform a special duty or task, which task or duty
was performed lawfully and without negligence.
Still another point of view is that the damages incurred here consisting of the payment of
the lawyer's fee did not flow directly from the performance of his duties but only indirectly
because there was an efficient, intervening cause, namely, the filing of the criminal
charges. In other words, the shooting to death of the deceased by the plaintiff was not the
proximate cause of the damages suffered but may be regarded as only a remote cause,
because from the shooting to the damages suffered there was not that natural and
continuous sequence required to fix civil responsibility.
In view of the foregoing, the judgment of the lower court is affirmed. No costs.
MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses
ANASTACIO and MARY T. BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.
DECISION
PANGANIBAN, J.:
Stripped of nonessentials, the present case involves the collection of a sum of money.
Specifically, this case arose from the failure of petitioners to pay respondents
predecessor-in-interest. This fact was shown by the non-encashment of checks issued by
a third person, but indorsed by herein Petitioner Maria Tuazon in favor of the said
predecessor. Under these circumstances, to enable respondents to collect on the
indebtedness, the check drawer need not be impleaded in the Complaint. Thus, the suit is
directed, not against the drawer, but against the debtor who indorsed the checks in
payment of the obligation.

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 38

The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the
July 31, 2002 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 46535. The
decretal portion of the assailed Decision reads:
"WHEREFORE, the appeal is DISMISSED and the appealed decision is AFFIRMED."
On the other hand, the affirmed Decision3 of Branch 34 of the Regional Trial Court (RTC)
of Gapan, Nueva Ecija, disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants, ordering the defendants spouses Leonilo Tuazon and Maria Tuazon to pay the
plaintiffs, as follows:
"1. The sum of P1,750,050.00, with interests from the filing of the second amended
complaint;
"2. The sum of P50,000.00, as attorneys fees;
"3. The sum of P20,000.00, as moral damages
"4. And to pay the costs of suit.
x x x x x x x x x"4
The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988, spouses
Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from [the deceased
Bartolome] Ramos [predecessor-in-interest of respondents]. That of this [quantity,] x x x
only 4,437 cavans [have been paid for so far], leaving unpaid 3,889 cavans valued
at P1,211,919.00. In payment therefor, the spouses Tuazon issued x x x [several] Traders
Royal Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks bounced due to insufficiency of
funds. [Respondents] advanced that before issuing said checks[,] spouses Tuazon already
knew that they had no available fund to support the checks, and they failed to provide for
the payment of these despite repeated demands made on them.

"[Respondents] averred that because spouses Tuazon anticipated that they would be
sued, they conspired with the other [defendants] to defraud them as creditors by executing
x x x fictitious sales of their properties. They executed x x x simulated sale[s] [of three lots]
in favor of the x x x spouses Buenaventura x x x[,] as well as their residential lot and the
house thereon[,] all located at Nueva Ecija, and another simulated deed of sale dated July
12, 1988 of a Stake Toyota registered with the Land Transportation Office of Cabanatuan
City on September 7, 1988. [Co-petitioner] Melecio Tuazon, a son of spouses Tuazon,
registered a fictitious Deed of Sale on July 19, 1988 x x x over a residential lot located at
Nueva Ecija. Another simulated sale of a Toyota Willys was executed on January 25, 1988
in favor of their other son, [co-petitioner] Alejandro Tuazon x x x. As a result of the said
sales, the titles of these properties issued in the names of spouses Tuazon were cancelled
and new ones were issued in favor of the [co-]defendants spouses Buenaventura,
Alejandro Tuazon and Melecio Tuazon. Resultantly, by the said ante-dated and simulated
sales and the corresponding transfers there was no more property left registered in the
names of spouses Tuazon answerable to creditors, to the damage and prejudice of
[respondents].
"For their part, defendants denied having purchased x x x rice from [Bartolome] Ramos.
They alleged that it was Magdalena Ramos, wife of said deceased, who owned and traded
the merchandise and Maria Tuazon was merely her agent. They argued that it was
Evangeline Santos who was the buyer of the rice and issued the checks to Maria Tuazon
as payments therefor. In good faith[,] the checks were received [by petitioner] from
Evangeline Santos and turned over to Ramos without knowing that these were not funded.
And it is for this reason that [petitioners] have been insisting on the inclusion of Evangeline
Santos as an indispensable party, and her non-inclusion was a fatal error. Refuting that the
sale of several properties were fictitious or simulated, spouses Tuazon contended that
these were sold because they were then meeting financial difficulties but the disposals
were made for value and in good faith and done before the filing of the instant suit. To
dispute the contention of plaintiffs that they were the buyers of the rice, they argued that
there was no sales invoice, official receipts or like evidence to prove this. They assert that
they were merely agents and should not be held answerable."5
The corresponding civil and criminal cases were filed by respondents against Spouses
Tuazon. Those cases were later consolidated and amended to include Spouses Anastacio
and Mary Buenaventura, with Alejandro Tuazon and Melecio Tuazon as additional
defendants. Having passed away before the pretrial, Bartolome Ramos was substituted by
his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the case, petitioners
moved to file a third-party complaint against her. Allegedly, she was primarily liable to
respondents, because she was the one who had purchased the merchandise from their
predecessor, as evidenced by the fact that the checks had been drawn in her name. The
RTC, however, denied petitioners Motion.

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 39

Since the trial court acquitted petitioners in all three of the consolidated criminal cases,
they appealed only its decision finding them civilly liable to respondents.
Ruling of the Court of Appeals

his or her authority.10 As the basis of agency is representation, there must be, on the part
of the principal, an actual intention to appoint, an intention naturally inferable from the
principals words or actions. In the same manner, there must be an intention on the part of
the agent to accept the appointment and act upon it. Absent such mutual intent, there is
generally no agency.11

Sustaining the RTC, the CA held that petitioners had failed to prove the existence of an
agency between respondents and Spouses Tuazon. The appellate court disbelieved
petitioners contention that Evangeline Santos should have been impleaded as an
indispensable party. Inasmuch as all the checks had been indorsed by Maria Tuazon, who
thereby became liable to subsequent holders for the amounts stated in those checks, there
was no need to implead Santos.

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

Hence, this Petition.6

The declarations of agents alone are generally insufficient to establish the fact or extent of
their authority.13 The law makes no presumption of agency; proving its existence, nature
and extent is incumbent upon the person alleging it.14 In the present case, petitioners raise
the fact of agency as an affirmative defense, yet fail to prove its existence.

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

The Court notes that petitioners, on their own behalf, sued Evangeline Santos for
collection of the amounts represented by the bounced checks, in a separate civil case that
they sought to be consolidated with the current one. If, as they claim, they were mere
agents of respondents, petitioners should have brought the suit against Santos for and on
behalf of their alleged principal, in accordance with Section 2 of Rule 3 of the Rules on
Civil Procedure.15 Their filing a suit against her in their own names negates their claim that
they acted as mere agents in selling the rice obtained from Bartolome Ramos.
Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be
impleaded as an indispensable party. They insist that respondents Complaint against them
is based on the bouncing checks she issued; hence, they point to her as the person
primarily liable for the obligation.

Agency
Well-entrenched is the rule that the Supreme Courts role in a petition under Rule 45 is
limited to reviewing errors of law allegedly committed by the Court of Appeals. Factual
findings of the trial court, especially when affirmed by the CA, are conclusive on the parties
and this Court.8 Petitioners have not given us sufficient reasons to deviate from this rule.
In a contract of agency, one binds oneself to render some service or to do something in
representation or on behalf of another, with the latters consent or authority.9 The following
are the elements of agency: (1) the parties consent, express or implied, to establish the
relationship; (2) the object, which is the execution of a juridical act in relation to a third
person; (3) the representation, by which the one who acts as an agent does so, not for
oneself, but as a representative; (4) the limitation that the agent acts within the scope of

We hold that respondents cause of action is clearly founded on petitioners failure to pay
the purchase price of the rice. The trial court held that Petitioner Maria Tuazon had
indorsed the questioned checks in favor of respondents, in accordance with Sections 31
and 63 of the Negotiable Instruments Law.16 That Santos was the drawer of the checks is
thus immaterial to the respondents cause of action.
As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks
were to be accepted or paid, or both, according to their tenor; and that in case they were
dishonored, she would pay the corresponding amount.17After an instrument is dishonored
by nonpayment, indorsers cease to be merely secondarily liable; they become principal
debtors whose liability becomes identical to that of the original obligor. The holder of a

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 40

negotiable instrument need not even proceed against the maker before suing the
indorser.18 Clearly, Evangeline Santos -- as the drawer of the checks -- is not an
indispensable party in an action against Maria Tuazon, the indorser of the checks.
Indispensable parties are defined as "parties in interest without whom no final
determination can be had."19 The instant case was originally one for the collection of the
purchase price of the rice bought by Maria Tuazon from respondents predecessor. In this
case, it is clear that there is no privity of contract between respondents and Santos.
Hence, a final determination of the rights and interest of the parties may be made without
any need to implead her.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioners.
SO ORDERED.
VICTORIAS MILLING CO., INC., petitioner,
vs.
COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing
the decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717,
as well as the respondent court's resolution of September 30, 1994 modifying said
decision. Both decision and resolution amended the judgment dated February 13, 1991, of
the Regional Trial Court of Makati City, Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner
Victorias Milling Co., Inc., (VMC). In the course of their dealings, petitioner issued several
Shipping List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among these was
SLDR No. 1214M, which gave rise to the instant case. Dated October 16, 1989, SLDR No.
1214M covers 25,000 bags of sugar. Each bag contained 50 kilograms and priced at
P638.00 per bag as "per sales order VMC Marketing No. 042 dated October 16,
1989."1 The transaction it covered was a "direct sale."2The SLDR also contains an
additional note which reads: "subject for (sic) availability of a (sic) stock at NAWACO
(warehouse)."3
On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation
(CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated

October 25, 1989 and three checks postdated November 13, 1989 in payment. That same
day, CSC wrote petitioner that it had been authorized by STM to withdraw the sugar
covered by SLDR No. 1214M. Enclosed in the letter were a copy of SLDR No. 1214M and
a letter of authority from STM authorizing CSC "to withdraw for and in our behalf the
refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214
dated October 16, 1989 in the total quantity of 25,000 bags."4
On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with
petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27,
1989 acknowledging receipt of the said checks in payment of 50,000 bags. Aside from
SLDR No. 1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO
warehouse and was allowed to withdraw sugar. However, after 2,000 bags had been
released, petitioner refused to allow further withdrawals of sugar against SLDR No.
1214M. CSC then sent petitioner a letter dated January 23, 1990 informing it that SLDR
No. 1214M had been "sold and endorsed" to it but that it had been refused further
withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags had
been withdrawn.5 CSC thus inquired when it would be allowed to withdraw the remaining
23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further withdrawals of
sugar against SLDR No. 1214M because STM had already dwithdrawn all the sugar
covered by the cleared checks.6
On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of
23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the amount of
STM's cleared checks had been fully withdrawn and hence, there would be no more
deliveries of the commodity to STM's account. Petitioner also noted that CSC had
represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR No.
1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case
No. 90-1118. Defendants were Teresita Ng Sy (doing business under the name of St.
Therese Merchandising) and herein petitioner. Since the former could not be served with
summons, the case proceeded only against the latter. During the trial, it was discovered
that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy who could not be
reached through summons.7 CSC, however, did not bother to pursue its case against her,
but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR
No. 1214M. Therefore, the latter had no justification for refusing delivery of the sugar. CSC
prayed that petitioner be ordered to deliver the 23,000 bags covered by SLDR No. 1214M

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 41

and sought the award of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary

damages, P2,200,000.00 as attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000
bags.8 Since STM had already drawn in full all the sugar corresponding to the amount of its
cleared checks, it could no longer authorize further delivery of sugar to CSC. Petitioner
also contended that it had no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of title, but
mere delivery receipts issued pursuant to a series of transactions entered into between it
and STM. The SLDRs prescribed delivery of the sugar to the party specified therein and
did not authorize the transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's coconspirator to defraud it through a misrepresentation that CSC was an innocent purchaser
for value and in good faith. Petitioner then prayed that CSC be ordered to pay it the
following sums: P10,000,000.00 as moral damages; P10,000,000.00 as exemplary
damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed that crossdefendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and
P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the merits.
As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as
follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the
plaintiff and against defendant Victorias Milling Company:

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

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

On appeal, petitioner averred that the dealings between it and STM were part of a series of
transactions involving only one account or one general contract of sale. Pursuant to this
contract, STM or any of its authorized agents could withdraw bags of sugar only against
cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM
and since the latter had already withdrawn its full quota of sugar under the said SLDR,
CSC was already precluded from seeking delivery of the 23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M
were separate and independent transactions and that the details of the series of purchases
were contained in a single statement with a consolidated summary of cleared check
payments and sugar stock withdrawals because this a more convenient system than
issuing separate statements for each purchase.

"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase
price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No.

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 42

The appellate court considered the following issues: (a) Whether or not the transaction
between petitioner and STM involving SLDR No. 1214M was a separate, independent, and
single transaction; (b) Whether or not CSC had the capacity to sue on its own on SLDR
No. 1214M; and (c) Whether or not CSC as buyer from STM of the rights to 25,000 bags of
sugar covered by SLDR No. 1214M could compel petitioner to deliver 23,000
bags allegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's
judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendantappellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No.
1214M;
"2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the
undelivered bags of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."11
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its decision to
read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendantappellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No.
1214M;
"(2) Pay costs of suit.
"SO ORDERED."12
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.

"Exhibit F' We relied upon in fixing the number of bags of sugar which remained
undelivered as 12,586 cannot be made the basis for such a finding. The rule is explicit that
courts should consider the evidence only for the purpose for which it was offered. (People
v. Abalos, et al, 1 CA Rep 783). The rationale for this is to afford the party against whom
the evidence is presented to object thereto if he deems it necessary. Plaintiff-appellee is,
therefore, correct in its argument that Exhibit F' which was offered to prove that checks in
the total amount of P15,950,000.00 had been cleared. (Formal Offer of Evidence for
Plaintiff, Records p. 58) cannot be used to prove the proposition that 12,586 bags of sugar
remained undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and
Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiffappellee was to the effect that it had withdrawn only 2,000 bags of sugar from SLDR after
which it was not allowed to withdraw anymore. Documentary evidence (Exhibit I, Id., p. 78,
Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to defendantappellant asking the latter to allow it to withdraw the remaining 23,000 bags of sugar from
SLDR 1214M. Defendant-appellant, on the other hand, alleged that sugar delivery to the
STM corresponded only to the value of cleared checks; and that all sugar corresponded to
cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's
assertions. It did not present evidence to show how many bags of sugar had been
withdrawn against SLDR No. 1214M, precisely because of its theory that all sales in
question were a series of one single transaction and withdrawal of sugar depended on the
clearing of checks paid therefor.
"After a second look at the evidence, We see no reason to overturn the findings of the trial
court on this point."13
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private respondent's
specially informing petitioner that respondent was authorized by buyer STM to
withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf,"
(emphasis in the original) private respondent's withdrawing 2,000 bags of sugar
for STM, and STM's empowering other persons as its agents to withdraw sugar
against the same SLDR No. 1214M, rendered respondent like the other persons,
an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA
252, and precluded it from subsequently claiming and proving being an assignee
of SLDR No. 1214M and from suing by itself for its enforcement because it was
conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and
estopped from doing so. (Art. 1431, Civil Code).
"2. The Court of Appeals erred in manifestly and arbitrarily ignoring and
disregarding certain relevant and undisputed facts which, had they been
considered, would have shown that petitioner was not liable, except for 69 bags

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 43

of sugar, and which would justify review of its conclusion of facts by this
Honorable Court.
"3. The Court of Appeals misapplied the law on compensation under Arts. 1279,
1285 and 1626 of the Civil Code when it ruled that compensation applied only to
credits from one SLDR or contract and not to those from two or more distinct
contracts between the same parties; and erred in denying petitioner's right to
setoff all its credits arising prior to notice of assignment from other sales or
SLDRs against private respondent's claim as assignee under SLDR No. 1214M,
so as to extinguish or reduce its liability to 69 bags, because the law on
compensation applies precisely to two or more distinct contracts between the
same parties (emphasis in the original).
"4. The Court of Appeals erred in concluding that the settlement or liquidation of
accounts in Exh. F between petitioner and STM, respondent's admission of its
balance, and STM's acquiescence thereto by silence for almost one year did not
render Exh. `F' an account stated and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the assigned
SLDR No. 1214, namely, (a) its subject matter being generic, and (b) the sale of
sugar being subject to its availability at the Nawaco warehouse, made the sale
conditional and prevented STM or private respondent from acquiring title to the
sugar; and the non-availability of sugar freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands" doctrine
precluded respondent from seeking judicial reliefs (sic) from petitioner, its only
remedy being against its assignor."14
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an
agent of STM and hence, estopped to sue upon SLDR No. 1214M as an
assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on
compensation to the transaction under SLDR No. 1214M so as to preclude
petitioner from offsetting its credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar
under SLDR No. 1214M was a conditional sale or a contract to sell and hence
freed petitioner from further obligations.
(4)....Whether or not the Court of Appeals committed an error of law in not
applying the "clean hands doctrine" to preclude CSC from seeking judicial relief.

The issues will be discussed in seriatim.

Anent the first issue, we find from the records that petitioner raised this issue for the first
time on appeal.1avvphi1 It is settled that an issue which was not raised during the trial in
the court below could not be raised for the first time on appeal as to do so would be
offensive to the basic rules of fair play, justice, and due process.15 Nonetheless, the Court
of Appeals opted to address this issue, hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar
against SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion of
said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for
and in our behalf (stress supplied) the refined sugar covered by Shipping List/Delivery
Receipt = Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of
25, 000 bags."16
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds himself to render some service or to
do something in representation or on behalf of another, with the consent or authority of the
latter."
It is clear from Article 1868 that the basis of agency is representation.17 On the part of the
principal, there must be an actual intention to appoint18 or an intention naturally inferable
from his words or actions;19 and on the part of the agent, there must be an intention to
accept the appointment and act on it,20 and in the absence of such intent, there is generally
no agency.21 One factor which most clearly distinguishes agency from other legal concepts
is control; one person - the agent - agrees to act under the control or direction of another the principal. Indeed, the very word "agency" has come to connote control by the
principal.22 The control factor, more than any other, has caused the courts to put contracts
between principal and agent in a separate category.23 The Court of Appeals, in finding that
CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon the acts of the
parties, the law makes no presumption of agency, and it is always a fact to be proved, with
the burden of proof resting upon the persons alleging the agency, to show not only the fact
of its existence, but also its nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536].
Here, defendant-appellant failed to sufficiently establish the existence of an agency relation
between plaintiff-appellee and STM. The fact alone that it (STM) had authorized withdrawal
of sugar by plaintiff-appellee "for and in our (STM's) behalf" should not be eyed as pointing
to the existence of an agency relation ...It should be viewed in the context of all the
circumstances obtaining. Although it would seem STM represented plaintiff-appellee as
being its agent by the use of the phrase "for and in our (STM's) behalf" the matter was
cleared when on 23 January 1990, plaintiff-appellee informed defendant-appellant that

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 44

SLDFR No. 1214M had been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78).
Further, plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the SLDR
No. 1214M were sold and transferred by STM to it ...A conclusion that there was a valid
sale and transfer to plaintiff-appellee may, therefore, be made thus capacitating plaintiffappellee to sue in its own name, without need of joining its imputed principal STM as coplaintiff."24
In the instant case, it appears plain to us that private respondent CSC was a buyer of the
SLDFR form, and not an agent of STM. Private respondent CSC was not subject to STM's
control. The question of whether a contract is one of sale or agency depends on the
intention of the parties as gathered from the whole scope and effect of the language
employed.25 That the authorization given to CSC contained the phrase "for and in our
(STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention of
the parties.26 That no agency was meant to be established by the CSC and STM is clearly
shown by CSC's communication to petitioner that SLDR No. 1214M had been "sold and
endorsed" to it.27 The use of the words "sold and endorsed" means that STM and CSC
intended a contract of sale, and not an agency. Hence, on this score, no error was
committed by the respondent appellate court when it held that CSC was not STM's agent
and could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions entered into
between petitioner and STM are but serial parts of one account, petitioner insists that its
debt has been offset by its claim for STM's unpaid purchases, pursuant to Article 1279 of
the Civil Code.28 However, the trial court found, and the Court of Appeals concurred, that
the purchase of sugar covered by SLDR No. 1214M was a separate and independent
transaction; it was not a serial part of a single transaction or of one account contrary to
petitioner's insistence. Evidence on record shows, without being rebutted, that petitioner
had been paid for the sugar purchased under SLDR No. 1214M. Petitioner clearly had the
obligation to deliver said commodity to STM or its assignee. Since said sugar had been
fully paid for, petitioner and CSC, as assignee of STM, were not mutually creditors and
debtors of each other. No reversible error could thereby be imputed to respondent
appellate court when, it refused to apply Article 1279 of the Civil Code to the present case.
Regarding the third issue, petitioner contends that the sale of sugar under SLDR No.
1214M is a conditional sale or a contract to sell, with title to the sugar still remaining with
the vendor. Noteworthy, SLDR No. 1214M contains the following terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined sugar and/or
receipt of this document by the buyer/trader personally or through a representative, title to
refined sugar is transferred to buyer/trader and delivery to him/it is deemed effected and
completed (stress supplied) and buyer/trader assumes full responsibility therefore"29
The aforequoted terms and conditions clearly show that petitioner transferred title to the
sugar to the buyer or his assignee upon payment of the purchase price. Said terms clearly
establish a contract of sale, not a contract to sell. Petitioner is now estopped from alleging

the contrary. The contract is the law between the contracting parties.30 And where the
terms and conditions so stipulated are not contrary to law, morals, good customs, public
policy or public order, the contract is valid and must be upheld.31 Having transferred title to
the sugar in question, petitioner is now obliged to deliver it to the purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and private respondent CSC have
entered into a conspiracy to defraud it of its sugar. This conspiracy is allegedly evidenced
by: (a) the fact that STM's selling price to CSC was below its purchasing price; (b) CSC's
refusal to pursue its case against Teresita Ng Go; and (c) the authority given by the latter
to other persons to withdraw sugar against SLDR No. 1214M after she had sold her rights
under said SLDR to CSC. Petitioner prays that the doctrine of "clean hands" should be
applied to preclude CSC from seeking judicial relief. However, despite careful scrutiny, we
find here the records bare of convincing evidence whatsoever to support the petitioner's
allegations of fraud. We are now constrained to deem this matter purely speculative, bereft
of concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court
questioning the Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV
No. 66985, which reversed the Decision dated July 29, 1998 of the Regional Trial Court
(RTC), Branch 21, City of Manila; and the CA Resolution2 dated August 6, 2001 which
denied petitioners Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for
Specific Performance with Damages against Jocelyn B. Doles (petitioner), docketed as
Civil Case No. 97-82716. Respondent alleged that petitioner was indebted to the former in
the concept of a personal loan amounting to P405,430.00 representing the principal
amount and interest; that on October 5, 1996, by virtue of a "Deed of Absolute
Sale",3 petitioner, as seller, ceded to respondent, as buyer, a parcel of land, as well as the
improvements thereon, with an area of 42 square meters, covered by Transfer Certificate
of Title No. 382532,4 and located at a subdivision project known as Camella Townhomes

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 45

Sorrente in Bacoor, Cavite, in order to satisfy her personal loan with respondent; that this
property was mortgaged to National Home Mortgage Finance Corporation (NHMFC) to
secure petitioners loan in the sum of P337,050.00 with that entity; that as a condition for
the foregoing sale, respondent shall assume the undue balance of the mortgage and pay
the monthly amortization of P4,748.11 for the remainder of the 25 years which began on
September 3, 1994; that the property was at that time being occupied by a tenant paying a
monthly rent of P3,000.00; that upon verification with the NHMFC, respondent learned that
petitioner had incurred arrearages amounting to P26,744.09, inclusive of penalties and
interest; that upon informing the petitioner of her arrears, petitioner denied that she
incurred them and refused to pay the same; that despite repeated demand, petitioner
refused to cooperate with respondent to execute the necessary documents and other
formalities required by the NHMFC to effect the transfer of the title over the property; that
petitioner collected rent over the property for the month of January 1997 and refused to
remit the proceeds to respondent; and that respondent suffered damages as a result and
was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint, denied that
she borrowed money from respondent, and averred that from June to September 1995,
she referred her friends to respondent whom she knew to be engaged in the business of
lending money in exchange for personal checks through her capitalist Arsenio Pua. She
alleged that her friends, namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio,
Virginia Jacob, and Elizabeth Tomelden, borrowed money from respondent and issued
personal checks in payment of the loan; that the checks bounced for insufficiency of funds;
that despite her efforts to assist respondent to collect from the borrowers, she could no
longer locate them; that, because of this, respondent became furious and threatened
petitioner that if the accounts were not settled, a criminal case will be filed against her; that
she was forced to issue eight checks amounting to P350,000 to answer for the bounced
checks of the borrowers she referred; that prior to the issuance of the checks she informed
respondent that they were not sufficiently funded but the latter nonetheless deposited the
checks and for which reason they were subsequently dishonored; that respondent then
threatened to initiate a criminal case against her for violation of Batas Pambansa Blg. 22;
that she was forced by respondent to execute an "Absolute Deed of Sale" over her
property in Bacoor, Cavite, to avoid criminal prosecution; that the said deed had no valid
consideration; that she did not appear before a notary public; that the Community Tax
Certificate number on the deed was not hers and for which respondent may be prosecuted
for falsification and perjury; and that she suffered damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid;
second; if valid, whether petitioner is obliged to sign and execute the necessary
documents to effect the transfer of her rights over the property to the respondent; and third,
whether petitioner is liable for damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:

WHEREFORE, premises considered, the Court hereby orders the dismissal of the
complaint for insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration:5
Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and
further admission that the checks issued by these borrowers in payment of the loan
obligation negates [sic] the cause or consideration of the contract of sale executed by and
between plaintiff and defendant. Moreover, the property is not solely owned by defendant
as appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532 (Annex A,
Complaint), thus:
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of
Teodorico Doles on the parcel of land described in this certificate of title by virtue of the
special power of attorney to mortgage, executed before the notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration produce no
effect whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed her sole
assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF
[sic] THE DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR
INSUFFICIENCY OF EVIDENCE.6
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The
Decision of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new one
is entered ordering defendant-appellee to execute all necessary documents to effect
transfer of subject property to plaintiff-appellant with the arrearages of the formers loan
with the NHMFC, at the latters expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the
amount borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale
was supported by a valid consideration, which is the sum of money petitioner owed
respondent amounting to P405,430.00, representing both principal and interest.

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 46

The CA took into account the following circumstances in their entirety: the supposed
friends of petitioner never presented themselves to respondent and that all transactions
were made by and between petitioner and respondent;7 that the money borrowed was
deposited with the bank account of the petitioner, while payments made for the loan were
deposited by the latter to respondents bank account;8 that petitioner herself admitted in
open court that she was "re-lending" the money loaned from respondent to other
individuals for profit;9 and that the documentary evidence shows that the actual borrowers,
the friends of petitioner, consider her as their creditor and not the respondent.10
Furthermore, the CA held that the alleged threat or intimidation by respondent did not
vitiate consent, since the same is considered just or legal if made to enforce ones claim
through competent authority under Article 133511 of the Civil Code;12 that with respect to
the arrearages of petitioner on her monthly amortization with the NHMFC in the sum
of P26,744.09, the same shall be deemed part of the balance of petitioners loan with the
NHMFC which respondent agreed to assume; and that the amount of P3,000.00
representing the rental for January 1997 supposedly collected by petitioner, as well as the
claim for damages and attorneys fees, is denied for insufficiency of evidence.13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that
respondent categorically admitted in open court that she acted only as agent or
representative of Arsenio Pua, the principal financier and, hence, she had no legal capacity
to sue petitioner; and that the CA failed to consider the fact that petitioners father, who coowned the subject property, was not impleaded as a defendant nor was he indebted to the
respondent and, hence, she cannot be made to sign the documents to effect the transfer of
ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the
foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001,
petitioner filed the present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR
OF THE RESPONDENT.

WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A

CAUSE.14
Although, as a rule, it is not the business of this Court to review the findings of fact made
by the lower courts, jurisprudence has recognized several exceptions, at least three of
which are present in the instant case, namely: when the judgment is based on a
misapprehension of facts; when the findings of facts of the courts a quo are conflicting; and
when the CA manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, could justify a different conclusion.15 To arrive at a proper
judgment, therefore, the Court finds it necessary to re-examine the evidence presented by
the contending parties during the trial of the case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale is supported by a valid
consideration.
1. Petitioner argues that since she is merely the agent or representative of the alleged
debtors, then she is not a party to the loan; and that the Deed of Sale executed between
her and the respondent in their own names, which was predicated on that pre-existing
debt, is void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form
of a price certain in money16 and that this sum indisputably pertains to the debt in issue.
This Court has consistently held that a contract of sale is null and void and produces no
effect whatsoever where the same is without cause or consideration.17 The question that
has to be resolved for the moment is whether this debt can be considered as a valid cause
or consideration for the sale.
To restate, the CA cited four instances in the record to support its holding that petitioner
"re-lends" the amount borrowed from respondent to her friends: first, the friends of
petitioner never presented themselves to respondent and that all transactions were made
by and between petitioner and respondent;18 second; the money passed through the bank
accounts of petitioner and respondent;19 third, petitioner herself admitted that she was "relending" the money loaned to other individuals for profit;20 and fourth, the documentary
evidence shows that the actual borrowers, the friends of petitioner, consider her as their
creditor and not the respondent.21

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

On the first, third, and fourth points, the CA cites the testimony of the petitioner, then
defendant, during her cross-examination:22
Atty. Diza:
q. You also mentioned that you were not the one indebted to the plaintiff?

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 47

witness:

witness:

a. Yes, sir.

a. Yes, sir.

Atty. Diza:

Atty. Diza:

q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa

Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are your friends?

q. You are intermediaries?

witness:

witness:
a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,]
they were just referred.

a. We are both intermediaries. As evidenced by the checks of the debtors they

were deposited to the name of Arsenio Pua because the money came from
Arsenio Pua.

Atty. Diza:

xxxx

q. And you have transact[ed] with the plaintiff?

Atty. Diza:

witness:

q. Did the plaintiff knew [sic] that you will lend the money to your friends
specifically the one you mentioned [a] while ago?

a. Yes, sir.
witness:
Atty. Diza:
a. Yes, she knows the money will go to those persons.
q. What is that transaction?
Atty. Diza:
witness:
q. You are re-lending the money?
a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.
witness:
Atty. Diza:
a. Yes, sir.
q. Did the plaintiff personally see the transactions with your friends?
Atty. Diza:
witness:
q. What profit do you have, do you have commission?
a. No, sir.
witness:
Atty. Diza:
a. Yes, sir.
q. Your friends and the plaintiff did not meet personally?
Atty. Diza:

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 48

q. How much?

witness:

witness:

a. Yes, Your Honor.

a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my
friends none, sir.

Atty. Villacorta:

Based on the foregoing, the CA concluded that petitioner is the real borrower,
while the respondent, the real lender.

q. Is it not a fact Ms. Witness that the defendant borrowed from you to
accommodate somebody, are you aware of that?
witness:

But as correctly noted by the RTC, respondent, then plaintiff, made the following
admission during her cross examination:23

a. I am aware of that.

Atty. Villacorta:

Atty. Villacorta:

q. Who is this Arsenio Pua?

q. More or less she [accommodated] several friends of the defendant?

witness:

witness:

a. Principal financier, sir.

a. Yes, sir, I am aware of that.

Atty. Villacorta:

xxxx

q. So the money came from Arsenio Pua?

Atty. Villacorta:

witness:

q. And these friends of the defendant borrowed money from you with the
assurance of the defendant?

a. Yes, because I am only representing him, sir.

witness:
Other portions of the testimony of respondent must likewise be considered:24
a. They go direct to Jocelyn because I dont know them.
Atty. Villacorta:
xxxx
q. So it is not actually your money but the money of Arsenio Pua?
Atty. Villacorta:
witness:
a. Yes, sir.

q. And is it not also a fact Madam witness that everytime that the defendant
borrowed money from you her friends who [are] in need of money issued check[s]
to you? There were checks issued to you?

Court:
witness:
q. It is not your money?
a. Yes, there were checks issued.

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 49

Atty. Villacorta:
q. By the friends of the defendant, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of your assistance, the friends of the defendant who are in need
of money were able to obtain loan to [sic] Arsenio Pua through your assistance?
witness:

Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua,
her disclosed principal. She is also estopped to deny that petitioner acted as agent for the
alleged debtors, the friends whom she (petitioner) referred.
This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is
representation.25 The question of whether an agency has been created is ordinarily a
question which may be established in the same way as any other fact, either by direct or
circumstantial evidence. The question is ultimately one of intention.26 Agency may even be
implied from the words and conduct of the parties and the circumstances of the particular
case.27Though the fact or extent of authority of the agents may not, as a general rule, be
established from the declarations of the agents alone, if one professes to act as agent for
another, she may be estopped to deny her agency both as against the asserted principal
and the third persons interested in the transaction in which he or she is engaged.28
In this case, petitioner knew that the financier of respondent is Pua; and respondent knew
that the borrowers are friends of petitioner.

a. Yes, sir.
Atty. Villacorta:
q. So that occasion lasted for more than a year?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And some of the checks that were issued by the friends of the defendant
bounced, am I correct?
witness:
a. Yes, sir.

The CA is incorrect when it considered the fact that the "supposed friends of [petitioner],
the actual borrowers, did not present themselves to [respondent]" as evidence that
negates the agency relationshipit is sufficient that petitioner disclosed to respondent that
the former was acting in behalf of her principals, her friends whom she referred to
respondent. For an agency to arise, it is not necessary that the principal personally
encounter the third person with whom the agent interacts. The law in fact contemplates,
and to a great degree, impersonal dealings where the principal need not personally know
or meet the third person with whom her agent transacts: precisely, the purpose of agency
is to extend the personality of the principal through the facility of the agent.29
In the case at bar, both petitioner and respondent have undeniably disclosed to each other
that they are representing someone else, and so both of them are estopped to deny the
same. It is evident from the record that petitioner merely refers actual borrowers and then
collects and disburses the amounts of the loan upon which she received a commission;
and that respondent transacts on behalf of her "principal financier", a certain Arsenio Pua.
If their respective principals do not actually and personally know each other, such
ignorance does not affect their juridical standing as agents, especially since the very
purpose of agency is to extend the personality of the principal through the facility of the
agent.

Atty. Villacorta:
q. And because of that Arsenio Pua got mad with you?
witness:
a. Yes, sir.

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

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 50

That both parties acted as mere agents is shown by the undisputed fact that the friends of
petitioner issued checks in payment of the loan in the name of Pua. If it is true that
petitioner was "re-lending", then the checks should have been drawn in her name and not
directly paid to Pua.
With respect to the second point, particularly, the finding of the CA that the disbursements
and payments for the loan were made through the bank accounts of petitioner and
respondent,

entry to the effect that the petitioner had been granted a special power of attorney
"covering the shares of Teodorico Doles on the parcel of land described in this
certificate,"37 it cannot be inferred from this bare notation, nor from any other evidence on
the record, that the petitioner or her father held any direct interest on the property in
question so as to validly constitute a mortgage thereon38 and, with more reason, to effect
the delivery of the object of the sale at the consummation stage.39 What is worse, there is a
notation that the TCT itself has been "cancelled."40
In view of these anomalies, the Court cannot entertain the

suffice it to say that in the normal course of commercial dealings and for reasons of
convenience and practical utility it can be reasonably expected that the facilities of the
agent, such as a bank account, may be employed, and that a sub-agent be appointed,
such as the bank itself, to carry out the task, especially where there is no stipulation to the
contrary.32
In view of the two agency relationships, petitioner and respondent are not privy to the
contract of loan between their principals. Since the sale is predicated on that loan, then the
sale is void for lack of consideration.
2. A further scrutiny of the record shows, however, that the sale might have been backed
up by another consideration that is separate and distinct from the debt: respondent averred
in her complaint and testified that the parties had agreed that as a condition for the
conveyance of the property the respondent shall assume the balance of the mortgage loan
which petitioner allegedly owed to the NHMFC.33 This Court in the recent past has
declared that an assumption of a mortgage debt may constitute a valid consideration for a
sale.34
Although the record shows that petitioner admitted at the time of trial that she owned the
property described in the TCT,35 the Court must stress that the Transfer Certificate of Title
No. 38253236 on its face shows that the owner of the property which admittedly forms the
subject matter of the Deed of Absolute Sale refers neither to the petitioner nor to her
father, Teodorico Doles, the alleged co-owner. Rather, it states that the property is
registered in the name of "Household Development Corporation." Although there is an

possibility that respondent agreed to assume the balance of the mortgage loan which
petitioner allegedly owed to the NHMFC, especially since the record is bereft of any factual
finding that petitioner was, in the first place, endowed with any ownership rights to validly
mortgage and convey the property. As the complainant who initiated the case, respondent
bears the burden of proving the basis of her complaint. Having failed to discharge such
burden, the Court has no choice but to declare the sale void for lack of cause. And since
the sale is void, the Court finds it unnecessary to dwell on the issue of whether duress or
intimidation had been foisted upon petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly exists, the Court notes respondents
allegation that the mortgage with the NHMFC was for 25 years which began September 3,
1994. Respondent filed her Complaint for Specific Performance in 1997. Since the 25
years had not lapsed, the prayer of respondent to compel petitioner to execute necessary
documents to effect the transfer of title is premature.
WHEREFORE, the petition is granted. The Decision and Resolution of the Court of
Appeals are REVERSED and SET ASIDE. The complaint of respondent in Civil Case No.
97-82716 is DISMISSED.
SO ORDERED.

AGENCY, PARTNERSHIP AND TRUST- ATTY. RAMOS - 51