busorg (agency) part iii and iv full text

8/11/2019 BusOrg (Agency) Part III and IV Full Text

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III. OBLIGATIONS OF THE AGENT

E. DUTY OF DILIGENCE

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 121824 January 29, 1998

BRITISH AIRWAYS, petitioner,vs.COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE AIRLINES, respondents.

ROMERO, J.:

In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside thedecision of respondent Court of Appeals 1promulgated on September 7, 1995, whichaffirmed the award of damages and attorney's fees made by the Regional Trial Court of

Cebu, 7th Judicial Region, Branch 17, in favor of private respondent GOP Mahtani aswell as the dismissal of its third-party complaint against Philippine Airlines (PAL). 2

The material and relevant facts are as follows:

On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipationof his visit, he obtained the services of a certain Mr. Gumar to prepare his travel plans.The latter, in turn, purchased a ticket from BA where the following itinerary wasindicated:3

CARRIER FLIGHT DATE TIME STATUS

MANILA MNL PR 310 Y 16 APR. 1730 OK

HONGKONG HKG BA 20 M 16 APR. 2100 OK

BOMBAY BOM BA 19 M 23 APR. 0840 OK

HONGKONG HKG PR 311 Y


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MANILA MNL

Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight toHongkong via PAL, and upon arrival in Hongkong he had to take a connecting flight toBombay on board BA.

Prior to his departure, Mahtani checked in at the PAL counter in Manila his two piecesof luggage containing his clothings and personal effects, confident that upon reachingHongkong, the same would be transferred to the BA flight bound for Bombay.

Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage wasmissing and that upon inquiry from the BA representatives, he was told that the samemight have been diverted to London. After patiently waiting for his luggage for oneweek, BA finally advised him to file a claim by accomplishing the "Property IrregularityReport."4

Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint fordamages and attorney's fees5against BA and Mr. Gumar before the trial court,docketed as Civil Case No. CEB-9076.

On September 4, 1990, BA filed its answer with counter claim 6to the complaint raising,as special and affirmative defenses, that Mahtani did not have a cause of action againstit. Likewise, on November 9, 1990, BA filed a third-party complaint 7against PALalleging that the reason for the non-transfer of the luggage was due to the latter's latearrival in Hongkong, thus leaving hardly any time for the proper transfer of Mahtani'sluggage to the BA aircraft bound for Bombay.

On February 25, 1991, PAL filed its answer to the third-party complaint, wherein itdisclaimed any liability, arguing that there was, in fact, adequate time to transfer theluggage to BA facilities in Hongkong. Furthermore, the transfer of the luggage toHongkong authorities should be considered as transfer to BA.8

After appropriate proceedings and trial, on March 4, 1993, the trial court rendered itsdecision in favor of Mahtani,9the dispositive portion of which reads as follows:

WHEREFORE, premises considered, judgment is rendered for the plaintiff andagainst the defendant for which defendant is ordered to pay plaintiff the sum ofSeven Thousand (P7,000.00) Pesos for the value of the two (2) suit cases; FourHundred U.S. ($400.00) Dollars representing the value of the contents ofplaintiff's luggage; Fifty Thousand (P50,000.00) Pesos for moral and actualdamages and twenty percent (20%) of the total amount imposed against thedefendant for attorney's fees and costs of this action.

The Third-Party Complaint against third-party defendant Philippine Airlines isDISMISSED for lack of cause of action.


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SO ORDERED.

Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trialcourt's findings. Thus:

WHEREFORE, in view of all the foregoing considerations, finding the Decisionappealed from to be in accordance with law and evidence, the same is herebyAFFIRMED in toto, with costs against defendant-appellant.

SO ORDERED. 10

BA is now before us seeking the reversal of the Court of Appeals' decision.

In essence, BA assails the award of compensatory damages and attorney's fees, aswell as the dismissal of its third-party complaint against PAL. 11

Regarding the first assigned issue, BA asserts that the award of compensatorydamages in the separate sum of P7,000.00 for the loss of Mahtani's two pieces ofluggage was without basis since Mahtani in his complaint12stated the following as thevalue of his personal belongings:

8. On the said travel, plaintiff took with him the following items and itscorresponding value, to wit:

1. personal belonging P10,000.00

2. gifts for his parents and relatives $5,000.00

Moreover, he failed to declare a higher valuation with respect to his luggage, a conditionprovided for in the ticket, which reads: 13

Liability for loss, delay, or damage to baggage is limited unless a higher value isdeclared in advance and additional charges are paid:

1. For most international travel (including domestic corporations of internationaljourneys) the liability limit is approximately U.S. $9.07 per pound (U.S. $20.000)per kilo for checked baggage and U.S. $400 per passenger for uncheckedbaggage.

Before we resolve the issues raised by BA, it is needful to state that the nature of anairline's contract of carriage partakes of two types, namely: a contract to deliver a cargoor merchandise to its destination and a contract to transport passengers to theirdestination. A business intended to serve the traveling public primarily, it is imbued withpublic interest, hence, the law governing common carriers imposes an exactingstandard.14Neglect or malfeasance by the carrier's employees could predictably furnishbases for an action for damages.15


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In the instant case, it is apparent that the contract of carriage was between Mahtani andBA. Moreover, it is indubitable that his luggage never arrived in Bombay on time.Therefore, as in a number of cases16we have assessed the airlines' culpability in theform of damages for breach of contract involving misplaced luggage.

In determining the amount of compensatory damages in this kind of cases, it is vital thatthe claimant satisfactorily prove during the trial the existence of the factual basis of thedamages and its causal connection to defendant's acts. 17

In this regard, the trial court granted the following award as compensatory damages:

Since plaintiff did not declare the value of the contents in his luggage and evenfailed to show receipts of the alleged gifts for the members of his family inBombay, the most that can be expected for compensation of his lost luggage (2suit cases) is Twenty U.S. Dollars ($20.00) per kilo, or combined value of FourHundred ($400.00) U.S. Dollars for Twenty kilos representing the contents plus

Seven Thousand (P7,000.00) Pesos representing the purchase price of the two(2) suit cases.

However, as earlier stated, it is the position of BA that there should have been noseparate award for the luggage and the contents thereof since Mahtani failed to declarea separate higher valuation for the luggage,18and therefore, its liability is limited, atmost, only to the amount stated in the ticket.

Considering the facts of the case, we cannot assent to such specious argument.

Admittedly, in a contract of air carriage a declaration by the passenger of a higher value

is needed to recover a greater amount. Article 22(1) of the WarsawConvention,19provides as follows:

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(2) In the transportation of checked baggage and goods, the liability of the carriershall be limited to a sum of 250 francs per kilogram, unless the consignor hasmade, at time the package was handed over to the carrier, a special declarationof the value at delivery and has paid a supplementary sum if the case sorequires. In that case the carrier will be liable to pay a sum not exceeding thedeclared sum, unless he proves that the sum is greater than the actual value to

the consignor at delivery.

American jurisprudence provides that an air carrier is not liable for the loss of baggagein an amount in excess of the limits specified in the tariff which was filed with the properauthorities, such tariff being binding, on the passenger regardless of the passenger'slack of knowledge thereof or assent thereto. 20This doctrine is recognized in this

jurisdiction.21


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Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance onadhesion contracts where the facts and circumstances justify that they should bedisregarded.22

In addition, we have held that benefits of limited liability are subject to waiver such as

when the air carrier failed to raise timely objections during the trial when questions andanswers regarding the actual claims and damages sustained by the passenger wereasked.23

Given the foregoing postulates, the inescapable conclusion is that BA had waived thedefense of limited liability when it allowed Mahtani to testify as to the actual damages heincurred due to the misplacement of his luggage, without any objection. In this regard,we quote the pertinent transcript of stenographic notes of Mahtani's direct testimony: 24

Q How much are you going to ask from this court?

A P100,000.00.

Q What else?

A Exemplary damages.

Q How much?

A P100,000.00.

Q What else?

A The things I lost, $5,000.00 for the gifts I lost and my personalbelongings, P10,000.00.

Q What about the filing of this case?

A The court expenses and attorney's fees is 30%.

Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed bycounsel of the adverse party to be inadmissible for any reason, the latter has the right toobject. However, such right is a mere privilege which can be waived. Necessarily, the

objection must be made at the earliest opportunity, lest silence when there isopportunity to speak may operate as a waiver of objections. 25BA has precisely failed inthis regard.

To compound matters for BA, its counsel failed, not only to interpose a timely objection,but even conducted his own cross-examination as well.26In the early case ofAbrenicav. Gonda,27we ruled that:


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. . . (I)t has been repeatedly laid down as a rule of evidence that a protest orobjection against the admission of any evidence must be made at the propertime, and that if not so made it will be understood to have been waived. Theproper time to make a protest or objection is when, from the question addressedto the witness, or from the answer thereto, or from the presentation of proof, the

inadmissibility of evidence is, or may be inferred.

Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals,are entitled to great respect.28Since the actual value of the luggage involvedappreciation of evidence, a task within the competence of the Court of Appeals, itsruling regarding the amount is assuredly a question of fact, thus, a finding notreviewable by this Court.29

As to the issue of the dismissal of BA's third-party complaint against PAL, the Court ofAppeals justified its ruling in this wise, and we quote:30

Lastly, we sustain the trial court's ruling dismissing appellant's third-partycomplaint against PAL.

The contract of air transportation in this case pursuant to the ticket issued byappellant to plaintiff-appellee was exclusively between the plaintiff Mahtani anddefendant-appellant BA. When plaintiff boarded the PAL plane from Manila toHongkong, PAL was merely acting as a subcontractor or agent of BA. This isshown by the fact that in the ticket issued by appellant to plaintiff-appellee, it isspecifically provided on the "Conditions of Contract," paragraph 4 thereof that:

4. . . . carriage to be performed hereunder by several successive

carriers is regarded as a single operation.

The rule that carriage by plane although performed by successive carriers is regardedas a single operation and that the carrier issuing the passenger's ticket is consideredthe principal party and the other carrier merely subcontractors or agent, is a settledissue.

We cannot agree with the dismissal of the third-complaint.

In Firestone Tire and Rubber Company of the Philippines v. Tempengko,31weexpounded on the nature of a third-party complaint thus:

The third-party complaint is, therefore, a procedural device whereby a "thirdparty" who is neither a party nor privy to the act or deed complained of by theplaintiff, may be brought into the case with leave of court, by the defendant, whoacts, as third-party plaintiff to enforce against such third-party defendant a rightfor contribution, indemnity, subrogation or any other relief, in respect of theplaintiff's claim. The third-party complaint is actually independent of and separateand distinct from the plaintiff's complaint. Were it not for this provision of the


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Rules of Court, it would have to be filed independently and separately from theoriginal complaint by the defendant against the third-party. But the Rules permitdefendant to bring in a third-party defendant or so to speak, to litigate hisseparate cause of action in respect of plaintiff's claim against a third-party in theoriginal and principal case with the object of avoiding circuitry of action and

unnecessary proliferation of law suits and of disposing expeditiously in onelitigation the entire subject matter arising from one particular set of facts.

Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in viewof their contract of carriage. Yet, BA adamantly disclaimed its liability and insteadimputed it to PAL which the latter naturally denies. In other words, BA and PAL areblaming each other for the incident.

In resolving this issue, it is worth observing that the contract of air transportation wasexclusively between Mahtani and BA, the latter merely endorsing the Manila toHongkong leg of the former's journey to PAL, as its subcontractor or agent. In fact, the

fourth paragraph of the "Conditions of Contracts" of the ticket

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issued by BA to Mahtaniconfirms that the contract was one of continuous air transportation from Manila toBombay.

4. . . . carriage to be performed hereunder by several successive carriers isregarded as a single operation.

Prescinding from the above discussion, it is undisputed that PAL, in transportingMahtani from Manila to Hongkong acted as the agent of BA.

Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule

that an agent is also responsible for any negligence in the performance of itsfunction.33and is liable for damages which the principal may suffer by reason of itsnegligent act.34Hence, the Court of Appeals erred when it opined that BA, being theprincipal, had no cause of action against PAL, its agent or sub-contractor.

Also, it is worth mentioning that both BA and PAL are members of the International AirTransport Association (IATA), wherein member airlines are regarded as agents of eachother in the issuance of the tickets and other matters pertaining to theirrelationship.35Therefore, in the instant case, the contractual relationship between BAand PAL is one of agency, the former being the principal, since it was the one whichissued the confirmed ticket, and the latter the agent.

Our pronouncement that BA is the principal is consistent with our ruling in LufthansaGerman Airlines v.Court of Appeals.36In that case, Lufthansa issued a confirmed ticketto Tirso Antiporda covering five-leg trip aboard different airlines. Unfortunately, AirKenya, one of the airlines which was to carry Antiporda to a specific destination"bumped" him off.


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An action for damages was filed against Lufthansa which, however, denied any liability,contending that its responsibility towards its passenger is limited to the occurrence of amishap on its own line. Consequently, when Antiporda transferred to Air Kenya, itsobligation as a principal in the contract of carriage ceased; from there on, it merelyacted as a ticketing agent for Air Kenya.

In rejecting Lufthansa's argument, we ruled:

In the very nature of their contract, Lufthansa is clearly the principal in thecontract of carriage with Antiporda and remains to be so, regardless of thoseinstances when actual carriage was to be performed by various carriers. Theissuance of confirmed Lufthansa ticket in favor of Antiporda covering his entirefive-leg trip abroad successive carriers concretely attest to this.

Since the instant petition was based on breach of contract of carriage, Mahtani can onlysue BA alone, and not PAL, since the latter was not a party to the contract. However,

this is not to say that PAL is relieved from any liability due to any of its negligent acts.In China Air Lines, Ltd.v.Court of Appeals,37while not exactly in point, the case,however, illustrates the principle which governs this particular situation. In that case, werecognized that a carrier (PAL), acting as an agent of another carrier, is also liable for itsown negligent acts or omission in the performance of its duties.

Accordingly, to deny BA the procedural remedy of filing a third-party complaint againstPAL for the purpose of ultimately determining who was primarily at fault as betweenthem, is without legal basis. After all, such proceeding is in accord with the doctrineagainst multiplicity of cases which would entail receiving the same or similar evidencefor both cases and enforcing separate judgments therefor. It must be borne in mind that

the purpose of a third-party complaint is precisely to avoid delay and circuitry of actionand to enable the controversy to be disposed of in one suit. 38It is but logical, fair andequitable to allow BA to sue PAL for indemnification, if it is proven that the latter'snegligence was the proximate cause of Mahtani's unfortunate experience, instead oftotally absolving PAL from any liability.

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R.CV No. 43309 dated September 7, 1995 is hereby MODIFIED, reinstating the third-partycomplaint filed by British Airways dated November 9, 1990 against Philippine Airlines.No costs.

SO ORDERED.

Narvasa, C.J., Melo and Francisco, JJ., concur.

Panganiban, J., concurs in the result.


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Manila

EN BANC

G.R. No. L-30573 October 29, 1971

VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA.DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE andJOSELITO, all surnamed DOMINGO, petitioners-appellants,vs.GREGORIO M. DOMINGO, respondent-appellee,TEOFILO P. PURISIMA, intervenor-respondent.

Teofilo Leonin for petitioners-appellants.

Osorio, Osorio & Osorio for respondent-appellee.

Teofilo P. Purisima in his own behalf as intervenor-respondent.

MAKASIAR, J.:

Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs,Antonina Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion,Irene and Joselito, all surnamed Domingo, sought the reversal of the majority decisiondated, March 12, 1969 of the Special Division of Five of the Court of Appeals affirmingthe judgment of the trial court, which sentenced the said Vicente M. Domingo to payGregorio M. Domingo P2,307.50 and the intervenor Teofilo P. Purisima P2,607.50 withinterest on both amounts from the date of the filing of the complaint, to pay GregorioDomingo P1,000.00 as moral and exemplary damages and P500.00 as attorney's feesplus costs.

The following facts were found to be established by the majority of the Special Division

of Five of the Court of Appeals:

In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo grantedGregorio Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 ofPiedad Estate with an area of about 88,477 square meters at the rate of P2.00 persquare meter (or for P176,954.00) with a commission of 5% on the total price, if theproperty is sold by Vicente or by anyone else during the 30-day duration of the agencyor if the property is sold by Vicente within three months from the termination of the


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agency to apurchaser to whom it was submitted by Gregorio during the continuance ofthe agency with notice to Vicente. The said agency contract was in triplicate, one copywas given to Vicente, while the original and another copy were retained by Gregorio.

On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a

buyer, promising him one-half of the 5% commission.

Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospectivebuyer.

Oscar de Leon submitted a written offer which was very much lower than the price ofP2.00 per square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon toraise his offer. After several conferences between Gregorio and Oscar de Leon, thelatter raised his offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit "C", towhich Vicente agreed by signing Exhibit "C". Upon demand of Vicente, Oscar de Leonissued to him a check in the amount of P1,000.00 as earnest money, after which

Vicente advanced to Gregorio the sum of P300.00. Oscar de Leon confirmed his formeroffer to pay for the property at P1.20 per square meter in another letter, Exhibit "D".Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest money,which Oscar de Leon promised to deliver to him. Thereafter, Exhibit "C" was amendedto the effect that Oscar de Leon will vacate on or about September 15, 1956 his houseand lot at Denver Street, Quezon City which is part of the purchase price. It was againamended to the effect that Oscar will vacate his house and lot on December 1, 1956,because his wife was on the family way and Vicente could stay in lot No. 883 of PiedadEstate until June 1, 1957, in a document dated June 30, 1956 (the year 1957 therein isa mere typographical error) and marked Exhibit "D". Pursuant to his promise toGregorio, Oscar gave him as a gift or propina the sum of One Thousand Pesos

(P1,000.00) for succeeding in persuading Vicente to sell his lot at P1.20 per squaremeter or a total in round figure of One Hundred Nine Thousand Pesos (P109,000.00).This gift of One Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente.Neither did Oscar pay Vicente the additional amount of One Thousand Pesos(P1,000.00) by way of earnest money. In the deed of sale was not executed on August1, 1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended by Vicente,Oscar told Gregorio that he did not receive his money from his brother in the UnitedStates, for which reason he was giving up the negotiation including the amount of OneThousand Pesos (P1,000.00) given as earnest money to Vicente and the OneThousand Pesos (P1,000.00) given to Gregorio aspropinaor gift. When Oscar did notsee him after several weeks, Gregorio sensed something fishy. So, he went to Vicenteand read a portion of Exhibit "A" marked habit "A-1" to the effect that Vicente was stillcommitted to pay him 5% commission, if the sale is consummated within three monthsafter the expiration of the 30-day period of the exclusive agency in his favor from theexecution of the agency contract on June 2, 1956 to a purchaser brought by Gregorio toVicente during the said 30-day period. Vicente grabbed the original of Exhibit "A" andtore it to pieces. Gregorio held his peace, not wanting to antagonize Vicente further,because he had still duplicate of Exhibit "A". From his meeting with Vicente, Gregorioproceeded to the office of the Register of Deeds of Quezon City, where he discovered


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Exhibit "G' deed of sale executed on September 17, 1956 by Amparo Diaz, wife ofOscar de Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon City, infavor Vicente as down payment by Oscar de Leon on the purchase price of Vicente's lotNo. 883 of Piedad Estate. Upon thus learning that Vicente sold his property to the samebuyer, Oscar de Leon and his wife, he demanded in writting payment of his commission

on the sale price of One Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". Healso conferred with Oscar de Leon, who told him that Vicente went to him and askedhim to eliminate Gregorio in the transaction and that he would sell his property to him forOne Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's letter,Exhibit "H", Vicente stated that Gregorio is not entitled to the 5% commission becausehe sold the property not to Gregorio's buyer, Oscar de Leon, but to another buyer,

Amparo Diaz, wife of Oscar de Leon.

The Court of Appeals found from the evidence that Exhibit "A", the exclusive agencycontract, is genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon thesale by Vicente of his property is practically a sale to Oscar de Leon since husband and

wife have common or identical interests; that Gregorio and intervenor Teofilo Purisimawere the efficient cause in the consummation of the sale in favor of the spouses Oscarde Leon and Amparo Diaz; that Oscar de Leon paid Gregorio the sum of One ThousandPesos (P1,000.00) as "propina" or gift and not as additional earnest money to be givento the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar de Leon withrespect to the additional earnest money, does not appear to have been answered byOscar de Leon and therefore there is no writing or document supporting Oscar deLeon's testimony that he paid an additional earnest money of One Thousand Pesos(P1,000.00) to Gregorio for delivery to Vicente, unlike the first amount of One ThousandPesos (P1,000.00) paid by Oscar de Leon to Vicente as earnest money, evidenced bythe letter Exhibit "4"; and that Vicente did not even mention such additional earnestmoney in his two replies Exhibits "I" and "J" to Gregorio's letter of demand of the 5%commission.

The three issues in this appeal are (1) whether the failure on the part of Gregorio todisclose to Vicente the payment to him by Oscar de Leon of the amount of OneThousand Pesos (P1,000.00) as gift or "propina" for having persuaded Vicente toreduce the purchase price from P2.00 to P1.20 per square meter, so constitutes fraudas to cause a forfeiture of his commission on the sale price; (2) whether Vicente orGregorio should be liable directly to the intervenor Teofilo Purisima for the latter's sharein the expected commission of Gregorio by reason of the sale; and (3) whether theaward of legal interest, moral and exemplary damages, attorney's fees and costs, wasproper.

Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurredin by Justice Juan Enriquez did not touch on these issues which were extensivelydiscussed by Justice Magno Gatmaitan in his dissenting opinion. However, JusticeEsguerra, in his concurring opinion, affirmed that it does not constitute breach of trust orfraud on the part of the broker and regarded same as merely part of the whole processof bringing about the meeting of the minds of the seller and the purchaser and that the


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commitment from the prospect buyer that he would give a reward to Gregorio if he couldeffect better terms for him from the seller, independent of his legitimate commission, isnot fraudulent, because the principal can reject the terms offered by the prospectivebuyer if he believes that such terms are onerous disadvantageous to him. On the otherhand, Justice Gatmaitan, with whom Justice Antonio Cafizares corner held the view that

such an act on the part of Gregorio was fraudulent and constituted a breach of trust,which should deprive him of his right to the commission.

The duties and liabilities of a broker to his employer are essentially those which anagent owes to his principal.1

Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of theNew Civil Code.

Art. 1891. Every agent is bound to render an account of his transactionsand to deliver to the principal whatever he may have received by virtue of

the agency, even though it may not be owing to the principal.

Every stipulation exempting the agent from the obligation to render anaccount shall be void.

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Art. 1909. The agent is responsible not only for fraud but also fornegligence, which shall be judged with more less rigor by the courts,according to whether the agency was or was not for a compensation.

Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Codewhich provides that:

Art. 1720. Every agent is bound to give an account of his transaction andto pay to the principal whatever he may have received by virtue of theagency, even though what he has received is not due to the principal.

The modification contained in the first paragraph Article 1891 consists in changing thephrase "to pay" to "to deliver", which latter term is more comprehensive than the former.

Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that

is required to an agent condemning as void any stipulation exempting the agent fromthe duty and liability imposed on him in paragraph one thereof.

Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of theold Spanish Civil Code which reads thus:


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Art. 1726. The agent is liable not only for fraud, but also for negligence,which shall be judged with more or less severity by the courts, accordingto whether the agency was gratuitous or for a price or reward.

The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and

fairness on the part of the agent, the real estate broker in this case, to his principal, thevendor. The law imposes upon the agent the absolute obligation to make a fulldisclosure or complete account to his principal of all his transactions and other materialfacts relevant to the agency, so much so that the law as amended does notcountenance any stipulation exempting the agent from such an obligation and considerssuch an exemption as void. The duty of an agent is likened to that of a trustee. This isnot a technical or arbitrary rule but a rule founded on the highest and truest principle ofmorality as well as of the strictest justice.2

Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personalbenefit from the vendee, without revealing the same to his principal, the vendor, is guilty

of a breach of his loyalty to the principal and forfeits his right to collect the commissionfrom his principal, even if the principal does not suffer any injury by reason of suchbreach of fidelity, or that he obtained better results or that the agency is a gratuitousone, or that usage or custom allows it; because the rule is to prevent the possibility ofany wrong, not to remedy or repair an actual damage.3By taking such profit or bonus orgift or propina from the vendee, the agent thereby assumes a position whollyinconsistent with that of being an agent for hisprincipal, who has a right to treat him,insofar as his commission is concerned, as if no agency had existed. The fact that theprincipal may have been benefited by the valuable services of the said agent does notexculpate the agent who has only himself to blame for such a result by reason of histreachery or perfidy.

This Court has been consistent in the rigorous application of Article 1720 of the oldSpanish Civil Code. Thus, for failure to deliver sums of money paid to him as aninsurance agent for the account of his employer as required by said Article 1720, saidinsurance agent was convicted estafa.4An administrator of an estate was likewiseunder the same Article 1720 for failure to render an account of his administration to theheirs unless the heirs consented thereto or are estopped by having accepted thecorrectness of his account previously rendered. 5

Because of his responsibility under the aforecited article 1720, an agent is likewiseliable for estafa for failure to deliver to his principal the total amount collected by him inbehalf of his principal and cannot retain the commission pertaining to him by subtractingthe same from his collections.6

A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all themoney and property received by him for his client despite his attorney's lien. 7The dutyof a commission agent to render a full account his operations to his principal wasreiterated in Duhart, etc. vs. Macias.8


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The American jurisprudence on this score is well-nigh unanimous.

Where a principal has paid an agent or broker a commission whileignorant of the fact that the latter has been unfaithful, the principal mayrecover back the commission paid, since an agent or broker who has been

unfaithful is not entitled to any compensation.

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In discussing the right of the principal to recover commissions retained byan unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94NE 260, 34 LRA (NS) 1046, said: "It is well settled that the agent is boundto exercise the utmost good faith in his dealings with his principal. As LordCairns said, this rule "is not a technical or arbitrary rule. It is a rule foundedon the highest and truest principles, of morality." Parker vs.McKenna(1874) LR 10,Ch(Eng) 96,118 ... If the agent does not conduct

himself with entire fidelity towards his principal, but is guilty of taking asecret profit or commission in regard the matter in which he is employed,he loses his right to compensation on the ground that he has taken aposition wholly inconsistent with that of agent for his employer, and whichgives his employer, upon discovering it, the right to treat him so far ascompensation, at least, is concerned as if no agency had existed. Thismay operate to give to the principal the benefit of valuable servicesrendered by the agent, but the agent has only himself to blame for thatresult."

xxx xxx xxx

The intent with which the agent took a secret profit has been heldimmaterial where the agent has in fact entered into a relationshipinconsistent with his agency, since the law condemns the corruptingtendency of the inconsistent relationship. Little vs. Phipps (1911) 94 NE260.9

As a general rule, it is a breach of good faith and loyalty to his principal foran agent, while the agency exists, so to deal with the subject matterthereof, or with information acquired during the course of the agency, as tomake a profit out of it for himself in excess of his lawful compensation; andif he does so he may be held as a trustee and may be compelled toaccount to his principal for all profits, advantages, rights, or privilegesacquired by him in such dealings, whether in performance or in violation ofhis duties, and be required to transfer them to his principal upon beingreimbursed for his expenditures for the same, unless the principal hasconsented to or ratified the transaction knowing that benefit or profit wouldaccrue or had accrued, to the agent, or unless with such knowledge hehas allowed the agent so as to change his condition that he cannot be put


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in status quo. The application of this rule is not affected by the fact that theprincipal did not suffer any injury by reason of the agent's dealings or thathe in fact obtained better results; nor is it affected by the fact that there isa usage or custom to the contrary or that the agency is a gratuitous one .(Emphasis applied.) 10

In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a giftorpropina in the amount of One Thousand Pesos (P1,000.00) from the prospectivebuyer Oscar de Leon, without the knowledge and consent of his principal, hereinpetitioner-appellant Vicente Domingo. His acceptance of said substantial monetary giftcorrupted his duty to serve the interests only of his principal and undermined his loyaltyto his principal, who gave him partial advance of Three Hundred Pesos (P300.00) on hiscommission. As a consequence, instead of exerting his best to persuade hisprospective buyer to purchase the property on the most advantageous terms desired byhis principal, the broker, herein defendant-appellee Gregorio Domingo, succeeded inpersuading his principal to accept the counter-offer of the prospective buyer to purchase

the property at P1.20 per square meter or One Hundred Nine Thousand Pesos(P109,000.00) in round figure for the lot of 88,477 square meters, which is very muchlower the the price of P2.00 per square meter or One Hundred Seventy-Six ThousandNine Hundred Fifty-Four Pesos (P176,954.00) for said lot originally offered by hisprincipal.

The duty embodied in Article 1891 of the New Civil Code will not apply if the agent orbroker acted only as a middleman with the task of merely bringing together the vendorand vendee, who themselves thereafter will negotiate on the terms and conditions of thetransaction. Neither would the rule apply if the agent or broker had informed theprincipal of the gift or bonus or profit he received from the purchaser and his principal

did not object therto.

11

Herein defendant-appellee Gregorio Domingo was not merely amiddleman of the petitioner-appellant Vicente Domingo and the buyer Oscar de Leon.He was the broker and agent of said petitioner-appellant only. And therein petitioner-appellant was not aware of the gift of One Thousand Pesos (P1,000.00) received byGregorio Domingo from the prospective buyer; much less did he consent to his agent'saccepting such a gift.

The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscarde Leon, does not materially alter the situation; because the transaction, to be valid,must necessarily be with the consent of the husband Oscar de Leon, who is theadministrator of their conjugal assets including their house and lot at No. 40 DenverStreet, Cubao, Quezon City, which were given as part of and constituted the downpayment on, the purchase price of herein petitioner-appellant's lot No. 883 of PiedadEstate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer.

As a necessary consequence of such breach of trust, defendant-appellee GregorioDomingo must forfeit his right to the commission and must return the part of thecommission he received from his principal.


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Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from GregorioDomingo his one-half share of whatever amounts Gregorio Domingo received by virtueof the transaction as his sub-agency contract was with Gregorio Domingo alone and notwith Vicente Domingo, who was not even aware of such sub-agency. Since GregorioDomingo received from Vicente Domingo and Oscar de Leon respectively the amounts

of Three Hundred Pesos (P300.00) and One Thousand Pesos (P1,000.00) or a total ofOne Thousand Three Hundred Pesos (P1,300.00), one-half of the same, which is SixHundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to TeofiloPurisima.

Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingomental anguish and serious anxiety as well as wounded feelings, petitioner-appellantVicente Domingo should be awarded moral damages in the reasonable amount of OneThousand Pesos (P1,000.00) attorney's fees in the reasonable amount of OneThousand Pesos (P1,000.00), considering that this case has been pending for the lastfifteen (15) years from its filing on October 3, 1956.

WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court ofAppeals and directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs ofVicente Domingo the sum of One Thousand Pesos (P1,000.00) as moral damages andOne Thousand Pesos (P1,000.00) as attorney's fees; (2) to pay Teofilo Purisima thesum of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee,Barredo and Villamor, JJ., concur.


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I. POWER OF AGENT TO APPOINT A SUBSTITUTE

Republic of the Philippines

SUPREME COURTManila

FIRST DIVISION

G.R. No. 137162 January 24, 2007

CORAZON L. ESCUETA, assisted by her husband EDGAR ESCUETA, IGNACIO E.RUBIO, THE HEIRS OF LUZ R. BALOLOY, namely, ALEJANDRINO R. BALOLOYand BAYANI R. BALOLOY, Petitioners,vs.

RUFINA LIM,Respondent.

D E C I S I O N

AZCUNA, J.:

This is an appeal by certiorari1to annul and set aside the Decision and Resolution ofthe Court of Appeals (CA) dated October 26, 1998 and January 11, 1999, respectively,in CA-G.R. CV No. 48282, entitled "Rufina Lim v. Corazon L. Escueta, etc., et. al."

The facts2appear as follows:

Respondent Rufina Lim filed an action to remove cloud on, or quiet title to, real property,with preliminary injunction and issuance of [a hold-departure order] from the Philippinesagainst Ignacio E. Rubio. Respondent amended her complaint to include specificperformance and damages.

In her amended complaint, respondent averred inter alia that she bought the hereditaryshares (consisting of 10 lots) of Ignacio Rubio [and] the heirs of Luz Baloloy, namely:

Alejandrino, Bayani, and other co-heirs; that said vendors executed a contract of saledated April 10, 1990 in her favor; that Ignacio Rubio and the heirs of Luz Baloloyreceived [a down payment] or earnest money in the amount of P102,169.86

and P450,000, respectively; that it was agreed in the contract of sale that the vendorswould secure certificates of title covering their respective hereditary shares; that thebalance of the purchase price would be paid to each heir upon presentation of theirindividual certificate[s] of [title]; that Ignacio Rubio refused to receive the other half ofthe down payment which isP[100,000]; that Ignacio Rubio refused and still refuses todeliver to [respondent] the certificates of title covering his share on the two lots; that withrespect to the heirs of Luz Baloloy, they also refused and still refuse to perform thedelivery of the two certificates of title covering their share in the disputed lots; that
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respondent was and is ready and willing to pay Ignacio Rubio and the heirs of LuzBaloloy upon presentation of their individual certificates of title, free from whatever lienand encumbrance;

As to petitioner Corazon Escueta, in spite of her knowledge that the disputed lots have

already been sold by Ignacio Rubio to respondent, it is alleged that a simulated deed ofsale involving said lots was effected by Ignacio Rubio in her favor; and that thesimulated deed of sale by Rubio to Escueta has raised doubts and clouds overrespondents title.

In their separate amended answers, petitioners denied the material allegations of thecomplaint and alleged inter alia the following:

For the heirs of Luz Baloloy (Baloloys for brevity):

Respondent has no cause of action, because the subject contract of sale has no more

force and effect as far as the Baloloys are concerned, since they have withdrawn theiroffer to sell for the reason that respondent failed to pay the balance of the purchaseprice as orally promised on or before May 1, 1990.

For petitioners Ignacio Rubio (Rubio for brevity) and Corazon Escueta (Escueta forbrevity):

Respondent has no cause of action, because Rubio has not entered into a contract ofsale with her; that he has appointed his daughter Patricia Llamas to be his attorney-in-fact and not in favor of Virginia Rubio Laygo Lim (Lim for brevity) who was the one whorepresented him in the sale of the disputed lots in favor of respondent; that theP100,000

respondent claimed he received as down payment for the lots is a simple transaction byway of a loan with Lim.

The Baloloys failed to appear at the pre-trial. Upon motion of respondent, the trial courtdeclared the Baloloys in default. They then filed a motion to lift the order declaring themin default, which was denied by the trial court in an order dated November 27, 1991.Consequently, respondent was allowed to adduce evidence ex parte. Thereafter, thetrial court rendered a partial decision dated July 23, 1993 against the Baloloys, thedispositive portion of which reads as follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of [respondent]

and against [petitioners, heirs] of Luz R. Balolo[y], namely: Alejandrino Baloloy andBayani Baloloy. The [petitioners] Alejandrino Baloloy and Bayani Baloloy are ordered toimmediately execute an [Absolute] Deed of Sale over their hereditary share in theproperties covered by TCT No. 74392 and TCT No. 74394, after payment to them by[respondent] the amount of P[1,050,000] or consignation of said amount in Court. [For]failure of [petitioners] Alejandrino Baloloy and Bayani Baloloy to execute the AbsoluteDeed of Sale over their hereditary share in the property covered by TCT No. T-74392and TCT No. T-74394 in favor of [respondent], the Clerk of Court is ordered to execute


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the necessary Absolute Deed of Sale in behalf of the Baloloys in favor of [respondent,]with a consideration ofP[1,500,000]. Further[,] [petitioners] Alejandrino Baloloy andBayani Baloloy are ordered to jointly and severally pay [respondent] moral damages inthe amount of P[50,000] and P[20,000] for attorneys fees. The adverse claim annotatedat the back of TCT No. T-74392 and TCT No. T-74394[,] insofar as the shares of

Alejandrino Baloloy and Bayani Baloloy are concerned[,] [is] ordered cancelled.

With costs against [petitioners] Alejandrino Baloloy and Bayani Baloloy.

SO ORDERED.3

The Baloloys filed a petition for relief from judgment and order dated July 4, 1994 andsupplemental petition dated July 7, 1994. This was denied by the trial court in an orderdated September 16, 1994. Hence, appeal to the Court of Appeals was takenchallenging the order denying the petition for relief.

Trial on the merits ensued between respondent and Rubio and Escueta. After trial, thetrial court rendered its assailed Decision, as follows:

IN VIEW OF THE FOREGOING, the complaint [and] amended complaint are dismissedagainst [petitioners] Corazon L. Escueta, Ignacio E. Rubio[,] and the Register of Deeds.The counterclaim of [petitioners] [is] also dismissed. However, [petitioner] Ignacio E.Rubio is ordered to return to the [respondent], Rufina Lim[,] the amountof P102,169.80[,] with interest at the rate of six percent (6%) per annum from April 10,[1990] until the same is fully paid. Without pronouncement as to costs.

SO ORDERED.4

On appeal, the CA affirmed the trial courts order and partial decision, but reversed thelater decision. The dispositive portion of its assailed Decision reads:

WHEREFORE, upon all the foregoing premises considered, this Court rules:

1. the appeal of the Baloloys from the Order denying the Petition for Relief fromJudgment and Orders dated July 4, 1994 and Supplemental Petition dated July7, 1994 is DISMISSED. The Order appealed from is AFFIRMED.

2. the Decision dismissing [respondents] complaint is REVERSED and SET

ASIDE and a new one is entered. Accordingly,

a. the validity of the subject contract of sale in favor of [respondent] isupheld.

b. Rubio is directed to execute a Deed of Absolute Sale conditioned uponthe payment of the balance of the purchase price by [respondent] within30 days from the receipt of the entry of judgment of this Decision.
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c. the contracts of sale between Rubio and Escueta involving Rubiosshare in the disputed properties is declared NULL and VOID.

d. Rubio and Escueta are ordered to pay jointly and severally the[respondent] the amount ofP[20,000] as moral damages and P[20,000] as

attorneys fees.

3. the appeal of Rubio and Escueta on the denial of their counterclaim isDISMISSED.

SO ORDERED.5

Petitioners Motion for Reconsideration of the CA Decision was denied. Hence, thispetition.

The issues are:

I

THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE PETITION FORRELIEF FROM JUDGMENT FILED BY THE BALOLOYS.

II

THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THECOMPLAINT AND IN AWARDING MORAL DAMAGES AND ATTORNEYS FEES INFAVOR OF RESPONDENT RUFINA L. LIM CONSIDERING THAT:

A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALEBETWEEN VIRGINIA LAYGO-LIM AND RUFINA LIM.

B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND VIRGINIALAYGO-LIM IS A CONTRACT TO SELL AND NOT A CONTRACT OF SALE.

C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER OBLIGATIONSUNDER THE CONTRACT TO SELL THEREBY WARRANTING THECANCELLATION THEREOF.

D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERINGINTO THE CONTRACT OF SALE WITH IGNACIO E. RUBIO.

III

THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO ANDCORAZON L. ESCUETA IS VALID.
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IV

THE HONORABLE COURT OF APPEALS ERRED IN DISMISSINGPETITIONERS COUNTERCLAIMS.

Briefly, the issue is whether the contract of sale between petitioners and respondent isvalid.

Petitioners argue, as follows:

First, the CA did not consider the circumstances surrounding petitioners failure toappear at the pre-trial and to file the petition for relief on time.

As to the failure to appear at the pre-trial, there was fraud, accident and/or excusableneglect, because petitioner Bayani was in the United States. There was no service ofthe notice of pre-trial or order. Neither did the former counsel of record inform him.

Consequently, the order declaring him in default is void, and all subsequentproceedings, orders, or decision are void.

Furthermore, petitioner Alejandrino was not clothed with a power of attorney to appearon behalf of Bayani at the pre-trial conference.

Second, the sale by Virginia to respondent is not binding. Petitioner Rubio did notauthorize Virginia to transact business in his behalf pertaining to the property. TheSpecial Power of Attorney was constituted in favor of Llamas, and the latter was notempowered to designate a substitute attorney-in-fact. Llamas even disowned hersignature appearing on the "Joint Special Power of Attorney," which constituted Virginia

as her true and lawful attorney-in-fact in selling Rubios properties.

Dealing with an assumed agent, respondent should ascertain not only the fact ofagency, but also the nature and extent of the formers authority. Besides, Virginiaexceeded the authority for failing to comply with her obligations under the "Joint SpecialPower of Attorney."

The amount encashed by Rubio represented not the down payment, but the payment ofrespondents debt. His acceptance and encashment of the check was not a ratificationof the contract of sale.

Third, the contract between respondent and Virginia is a contract to sell, not a contractof sale. The real character of the contract is not the title given, but the intention of theparties. They intended to reserve ownership of the property to petitioners pending fullpayment of the purchase price. Together with taxes and other fees due on theproperties, these are conditions precedent for the perfection of the sale. Even assumingthat the contract is ambiguous, the same must be resolved against respondent, theparty who caused the same.


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Fourth, Respondent failed to faithfully fulfill her part of the obligation. Thus, Rubio hadthe right to sell his properties to Escueta who exercised due diligence in ascertainingownership of the properties sold to her. Besides, a purchaser need not inquire beyondwhat appears in a Torrens title.

The petition lacks merit. The contract of sale between petitioners and respondent isvalid.lawphil.net

Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. In theBaloloys answer to the original complaint and amended complaint, the allegationsrelating to the personal circumstances of the Baloloys are clearly admitted.

"An admission, verbal or written, made by a party in the course of the proceedings in thesame case, does not require proof."6The "factual admission in the pleadings on record[dispenses] with the need x x x to present evidence to prove the admitted fact."7Itcannot, therefore, "be controverted by the party making such admission, and [is]

conclusive"

8

as to them. All proofs submitted by them "contrary thereto or inconsistenttherewith should be ignored whether objection is interposed by a party or not. "9Besides,there is no showing that a palpable mistake has been committed in their admission orthat no admission has been made by them.

Pre-trial is mandatory.10The notices of pre-trial had been sent to both the Baloloys andtheir former counsel of record. Being served with notice, he is "charged with the duty ofnotifying the party represented by him."11He must "see to it that his client receives suchnotice and attends the pre-trial."12What the Baloloys and their former counsel havealleged instead in their Motion to Lift Order of As In Default dated December 11, 1991 isthe belated receipt of Bayani Baloloys special power of attorney in favor of their former

counsel, not that they have not received the notice or been informed of the scheduledpre-trial. Not having raised the ground of lack of a special power of attorney in theirmotion, they are now deemed to have waived it. Certainly, they cannot raise it at thislate stage of the proceedings. For lack of representation, Bayani Baloloy was properlydeclared in default.

Section 3 of Rule 38 of the Rules of Court states:

SEC. 3. Time for filing petition; contents and verification.A petition provided for ineither of the preceding sections of this Rule must be verified, filed within sixty (60) daysafter the petitioner learns of the judgment, final order, or other proceeding to be setaside, and not more than six (6) months after such judgment or final order was entered,or such proceeding was taken; and must be accompanied with affidavits showing thefraud, accident, mistake, or excusable negligence relied upon, and the facts constitutingthe petitioners good and substantial cause of action or defense, as the case may be.

There is no reason for the Baloloys to ignore the effects of the above-cited rule. "The60-day period is reckoned from the time the party acquired knowledge of the order,
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judgment or proceedings and not from the date he actually read the same."13As aptlyput by the appellate court:

The evidence on record as far as this issue is concerned shows that Atty. ArsenioVillalon, Jr., the former counsel of record of the Baloloys received a copy of the partial

decision dated June 23, 1993 on April 5, 1994. At that time, said former counsel is stilltheir counsel of record. The reckoning of the 60 day period therefore is the date whenthe said counsel of record received a copy of the partial decision which was on April 5,1994. The petition for relief was filed by the new counsel on July 4, 1994 which meansthat 90 days have already lapsed or 30 days beyond the 60 day period. Moreover, therecords further show that the Baloloys received the partial decision on September 13,1993 as evidenced by Registry return cards which bear the numbers 02597 and 02598signed by Mr. Alejandrino Baloloy.

The Baloloys[,] apparently in an attempt to cure the lapse of the aforesaid reglementaryperiod to file a petition for relief from judgment[,] included in its petition the two Orders

dated May 6, 1994 and June 29, 1994. The first Order denied Baloloys motion to fix theperiod within which plaintiffs-appellants pay the balance of the purchase price. Thesecond Order refers to the grant of partial execution, i.e. on the aspect of damages.These Orders are only consequences of the partial decision subject of the petition forrelief, and thus, cannot be considered in the determination of the reglementary periodwithin which to file the said petition for relief.

Furthermore, no fraud, accident, mistake, or excusable negligence exists in order thatthe petition for relief may be granted.14There is no proof of extrinsic fraud that "preventsa party from having a trial x x x or from presenting all of his case to the court"15or an"accident x x x which ordinary prudence could not have guarded against, and by reason

of which the party applying has probably been impaired in his rights."

16

There is also noproof of either a "mistake x x x of law"17or an excusable negligence "caused by failureto receive notice of x x x the trial x x x that it would not be necessary for him to take anactive part in the case x x x by relying on another person to attend to the case for him,when such other person x x x was chargeable with that duty x x x, or by othercircumstances not involving fault of the moving party."18

Article 1892 of the Civil Code provides:

Art. 1892. The agent may appoint a substitute if the principal has not prohibited himfrom doing so; but he shall be responsible for the acts of the substitute:

(1) When he was not given the power to appoint one x x x.

Applying the above-quoted provision to the special power of attorney executed byIgnacio Rubio in favor of his daughter Patricia Llamas, it is clear that she is notprohibited from appointing a substitute. By authorizing Virginia Lim to sell the subjectproperties, Patricia merely acted within the limits of the authority given by her father, but
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she will have to be "responsible for the acts of the sub-agent,"19among which isprecisely the sale of the subject properties in favor of respondent.

Even assuming that Virginia Lim has no authority to sell the subject properties, thecontract she executed in favor of respondent is not void, but simply unenforceable,

under the second paragraph of Article 1317 of the Civil Code which reads:

Art. 1317. x x x

A contract entered into in the name of another by one who has no authority or legalrepresentation, or who has acted beyond his powers, shall be unenforceable, unless itis ratified, expressly or impliedly, by the person on whose behalf it has been executed,before it is revoked by the other contracting party.

Ignacio Rubio merely denies the contract of sale. He claims, without substantiation, thatwhat he received was a loan, not the down payment for the sale of the subject

properties. His acceptance and encashment of the check, however, constituteratification of the contract of sale and "produce the effects of an express power ofagency."20"[H]is action necessarily implies that he waived his right of action to avoid thecontract, and, consequently, it also implies the tacit, if not express, confirmation of thesaid sale effected" by Virginia Lim in favor of respondent.

Similarly, the Baloloys have ratified the contract of sale when they accepted andenjoyed its benefits. "The doctrine of estoppel applicable to petitioners here is not onlythat which prohibits a party from assuming inconsistent positions, based on the principleof election, but that which precludes him from repudiating an obligation voluntarilyassumed after having accepted benefits therefrom. To countenance such repudiation

would be contrary to equity, and would put a premium on fraud or misrepresentation. "

21

Indeed, Virginia Lim and respondent have entered into a contract of sale. Not only hasthe title to the subject properties passed to the latter upon delivery of the thing sold, butthere is also no stipulation in the contract that states the ownership is to be reserved inor "retained by the vendor until full payment of the price."22

Applying Article 1544 of the Civil Code, a second buyer of the property who may havehad actual or constructive knowledge of such defect in the sellers title, or at least wascharged with the obligation to discover such defect, cannot be a registrant in good faith.Such second buyer cannot defeat the first buyers title. In case a title is issued to the

second buyer, the first buyer may seek reconveyance of the property subject of thesale.23Even the argument that a purchaser need not inquire beyond what appears in aTorrens title does not hold water. A perusal of the certificates of title alone will revealthat the subject properties are registered in common, not in the individual names of theheirs.

Nothing in the contract "prevents the obligation of the vendor to convey title frombecoming effective"24or gives "the vendor the right to unilaterally resolve the contract
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the moment the buyer fails to pay within a fixed period."25Petitioners themselves havefailed to deliver their individual certificates of title, for which reason it is obvious thatrespondent cannot be expected to pay the stipulated taxes, fees, and expenses.

"[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are

present, such as: (1) consent or meeting of the minds; (2) determinate subject matter;and (3) price certain in money or its equivalent."26Ignacio Rubio, the Baloloys, and theirco-heirs sold their hereditary shares for a price certain to which respondent agreed tobuy and pay for the subject properties. "The offer and the acceptance are concurrent,since the minds of the contracting parties meet in the terms of the agreement."27

In fact, earnest money has been given by respondent. "[I]t shall be considered as part ofthe price and as proof of the perfection of the contract.28It constitutes an advancepayment to "be deducted from the total price."29

Article 1477 of the same Code also states that "[t]he ownership of the thing sold shall be

transferred to the vendee upon actual or constructive delivery thereof."

30

In the presentcase, there is actual delivery as manifested by acts simultaneous with and subsequentto the contract of sale when respondent not only took possession of the subjectproperties but also allowed their use as parking terminal for jeepneys and buses.Moreover, the execution itself of the contract of sale is constructive delivery.

Consequently, Ignacio Rubio could no longer sell the subject properties to CorazonEscueta, after having sold them to respondent. "[I]n a contract of sale, the vendor losesownership over the property and cannot recover it until and unless the contract isresolved or rescinded x x x."31The records do not show that Ignacio Rubio asked for arescission of the contract. What he adduced was a belated revocation of the special

power of attorney he executed in favor of Patricia Llamas. "In the sale of immovableproperty, even though it may have been stipulated that upon failure to pay the price atthe time agreed upon the rescission of the contract shall of right take place, the vendeemay pay, even after the expiration of the period, as long as no demand for rescission ofthe contract has been made upon him either judicially or by a notarial act. "32

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court ofAppeals in CA-G.R. CV No. 48282, dated

October 26, 1998 and January 11, 1999, respectively, are hereby AFFIRMED. Costsagainst petitioners.

SO ORDERED.

ADOLFO S. AZCUNAAssociate Justice
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J. FIDUCIARY DUTIES OF AGENTS TO THIRD PARTIES


Manila

SECOND DIVISION

G.R. No. 150128 August 31, 2006

LAUREANO T. ANGELES, Petitioner,vs.PHILIPPINE NATIONAL RAILWAYS (PNR) AND RODOLFO FLORES,1Respondents.

D E C I S I O N

GARCIA, J .:

Under consideration is this petition forreview under Rule 45 of the Rules of Courtassailing and seeking to set aside the following issuances of the Court of Appeals (CA)in CA-G.R. CV No. 54062, to wit:

1. Decision2dated June 4, 2001, affirming an earlier decision of the Regional TrialCourt (RTC) of Quezon City, Branch 79, which dismissed the complaint for specificperformance and damages thereat commenced by the petitioner against the hereinrespondents; and

2. Resolution3

dated September 17, 2001, denying the petitioner's motion forreconsideration.

The facts:

On May 5, 1980, the respondent Philippine National Railways (PNR) informed a certainGaudencio Romualdez (Romualdez, hereinafter) that it has accepted the latters offer tobuy, on an "AS IS, WHERE IS" basis, the PNRs scrap/unserviceable rails located inDel Carmen and Lubao, Pampanga at P1,300.00 and P2,100.00 per metric ton,respectively, for the total amount of P96,600.00. After paying the stated purchase price,Romualdez addressed a letter to Atty. Cipriano Dizon, PNRs Acting Purchasing Agent.

Bearing date May 26, 1980, the letter reads:

Dear Atty. Dizon:

This is to inform you as President of San Juanico Enterprises, that I have authorized thebearer, LIZETTE R. WIJANCO of No. 1606 Aragon St., Sta. Cruz, Manila, to be mylawful representative in the withdrawal of the scrap/unserviceable rails awarded to me.
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For this reason, I have given her the original copy of the award, dated May 5, 1980 andO.R. No. 8706855 dated May 20, 1980 which will indicate my waiver of rights, interestsand participation in favor of LIZETTE R. WIJANCO.

Thank you for your cooperation.

Very truly yours,

(Sgd.) Gaudencio Romualdez

The Lizette R. Wijanco mentioned in the letter was Lizette Wijanco- Angeles, petitioner'snow deceased wife. That very same dayMay 26, 1980Lizette requested the PNR totransfer the location of withdrawal for the reason that the scrap/unserviceable railslocated in Del Carmen and Lubao, Pampanga were not ready for hauling. The PNRgranted said request and allowed Lizette to withdraw scrap/unserviceable rails inMurcia, Capas and San Miguel, Tarlac instead. However, the PNR subsequently

suspended the withdrawal in view of what it considered as documentary discrepanciescoupled by reported pilferages of over P500,000.00 worth of PNR scrap properties inTarlac.

Consequently, the spouses Angeles demanded the refund of the amount of P96,000.00.The PNR, however, refused to pay, alleging that as per delivery receipt duly signed byLizette, 54.658 metric tons of unserviceable rails had already been withdrawn which,at P2,100.00 per metric ton, were worth P114,781.80, an amount that exceeds the claimfor refund.

On August 10, 1988, the spouses Angeles filed suit against the PNR and its corporate

secretary, Rodolfo Flores, among others, for specific performance and damages beforethe Regional Trial Court of Quezon City. In it, they prayed that PNR be directed todeliver 46 metric tons of scrap/unserviceable rails and to pay them damages andattorney's fees.

Issues having been joined following the filing by PNR, et al., of their answer, trialensued. Meanwhile, Lizette W. Angeles passed away and was substituted by her heirs,among whom is her husband, herein petitioner Laureno T. Angeles.

On April 16, 1996, the trial court, on the postulate that the spouses Angeles are not thereal parties-in-interest, rendered judgment dismissing their complaint for lack of cause

of action. As held by the court, Lizette was merely a representative of Romualdez in thewithdrawal of scrap or unserviceable rails awarded to him and not an assignee to thelatter's rights with respect to the award.

Aggrieved, the petitioner interposed an appeal with the CA, which, as stated at thethreshold hereof, in its decision of June 4, 2001, dismissed the appeal and affirmed thatof the trial court. The affirmatory decision was reiterated by the CA in its resolution ofSeptember 17, 2001, denying the petitioners motion for reconsideration.


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Hence, the petitioners present recourse on the submission that the CA erred inaffirming the trial court's holding that petitioner and his spouse, as plaintiffs a quo, hadno cause of action as they were not the real parties-in-interest in this case.

We DENY the petition.

At the crux of the issue is the matter of how the aforequoted May 26, 1980 letter ofRomualdez to Atty. Dizon of the PNR should be taken: was it meant to designate, orhas it the effect of designating, Lizette W. Angeles as a mere agent or as an assignee ofhis (Romualdez's) interest in the scrap rails awarded to San Juanico Enterprises? TheCAs conclusion, affirmatory of that of the trial court, is that Lizette was not anassignee,but merely an agent whose authority was limited to the withdrawal of the scrap rails,hence, without personality to sue.

Where agency exists, the third party's (in this case, PNR's) liability on a contract is tothe principal and not to the agent and the relationship of the third party to the principal is

the same as that in a contract in which there is no agent. Normally, the agent hasneither rights nor liabilities as against the third party. He cannot thus sue or be sued onthe contract. Since a contract may be violated only by the parties thereto as againsteach other, the real party-in-interest, either as plaintiff or defendant in an action uponthat contract must, generally, be a contracting party.

The legal situation is, however, different where an agent is constituted as an assignee.In such a case, the agent may, in his own behalf, sue on a contract made for hisprincipal, as an assignee of such contract. The rule

requiring every action to be prosecuted in the name of the real party-in-interest

recognizes the assignment of rights of action and also recognizes

that when one has a right assigned to him, he is then the real party-in-interest and maymaintain an action upon such claim or right.4

Upon scrutiny of the subject Romualdez's letter to Atty. Cipriano Dizon dated May 26,1980, it is at once apparent that Lizette was to act just as a "representative" ofRomualdez in the "withdrawal of rails," and not an assignee. For perspective, wereproduce the contents of said letter:

This is to inform you as President of San Juanico Enterprises, that I

have authorizedthe bearer, LIZETTE R. WIJANCO x x x to be my lawfulrepresentative in the withdrawal of the scrap/unserviceable rails awarded to me.

For this reason, I have given her the original copy of the award, dated May 5, 1980and O.R. No. 8706855 dated May 20, 1980 which will indicate my waiver of rights,interests and participation in favor of LIZETTE R. WIJANCO. (Emphasis added)
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If Lizette was without legal standing to sue and appear in this case, there is morereason to hold that her petitioner husband, either as her conjugal partner or her heir, isalso without such standing.

Petitioner makes much of the fact that the terms "agent" or "attorney-in-fact" were not

used in the Romualdez letter aforestated. It bears to stress, however, that the words"principal" and "agent," are not the only terms used to designate the parties in anagency relation. The agent may also be called an attorney, proxy, delegate or, ashere, representative.

It cannot be over emphasized that Romualdez's use of the active verb "authorized,"instead of "assigned," indicated an intent on his part to keep and retain his interest inthe subject matter. Stated a bit differently, he intended to limit Lizettes role in the scraptransaction to being the representative of his interest therein.

Petitioner submits that the second paragraph of the Romualdez letter, stating - "I have

given [Lizette] the original copy of the award x x x which will indicate my waiver of rights,interests and participation in favor of Lizette R. Wijanco" - clarifies that Lizette wasintended to be an assignee, and not a mere agent.

We are not persuaded. As it were, the petitioner conveniently omitted an importantphrase preceding the paragraph which would have put the whole matter in context. Thephrase is "For this reason," and the antecedent thereof is his (Romualdez) havingappointed Lizette as his representative in the matter of the withdrawal of the scrapitems. In fine, the key phrase clearly conveys the idea that Lizette was given the originalcopy of the contract award to enable her to withdraw the rails as Romualdezsauthorized representative.

Article 1374 of the Civil Code provides that the various stipulations of a contract shall beread and interpreted together, attributing to the doubtful ones that sense which mayresult from all of them taken jointly. In fine, the real intention of the parties is primarily tobe determined from the language used and gathered from the whole instrument. Whenput into the context of the letter as a whole, it is abundantly clear that the rights whichRomualdez waived or ceded in favor of Lizette were those in furtherance of the agencyrelation that he had established for the withdrawal of the rails.

At any rate, any doubt as to the intent of Romualdez generated by the way his letterwas couched could be clarified by the acts of the main players themselves. Article 1371of the Civil Code provides that to judge the intention of the contracting parties, theircontemporaneous and subsequent acts shall be principally considered. In other words,in case of doubt, resort may be made to the situation, surroundings, and relations of theparties.

The fact of agency was, as the trial court aptly observed,5confirmed in subsequentletters from the Angeles spouses in which they themselves refer to Lizette as"authorized representative" of San Juanico Enterprises. Mention may also be made that
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the withdrawal receipt which Lizette had signed indicated that she was doing so in arepresentative capacity. One professing to act as agent for another is estopped to denyhis agency both as against his asserted principal and third persons interested in thetransaction which he engaged in.

Whether or not an agency has been created is a question to be determined by the factthat one represents and is acting for another. The appellate court, and before it, the trialcourt, had peremptorily determined that Lizette, with respect to the withdrawal of thescrap in question, was acting for Romualdez. And with the view we take of this case,there were substantial pieces of evidence adduced to support this determination. Thedesired reversal urged by the petitioner cannot, accordingly, be granted. For, factualfindings of the trial court, adopted and confirmed by the CA, are, as a rule, final andconclusive and may not be disturbed on appeal.6So it must be here.

Petitioner maintains that the Romualdez letter in question was not in the form of aspecial power of attorney, implying that the latter had not intended to merely authorize

his wife, Lizette, to perform an act for him (Romualdez). The contention is specious. Inthe absence of statute, no form or method of execution is required for a valid power ofattorney; it may be in any form clearly showing on its face the agents authority. 7

A power of attorney is only but an instrument in writing by which a person, as principal,appoints another as his agent and confers upon him the authority to perform certainspecified acts on behalf of the principal. The written authorization itself is the power ofattorney, and this is clearly indicated by the fact that it has also been called a "letter ofattorney." Its primary purpose is not to define the authority of the agent as betweenhimself and his principal but to evidence the authority of the agent to third parties withwhom the agent deals.8The letter under consideration is sufficient to constitute a

power of attorney. Except as may be required by statute, a power of attorney is validalthough no notary public intervened in its execution.9

A power of attorney must be strictly construed and pursued. The instrument will be heldto grant only those powers which are specified therein, and the agent may neither gobeyond nor deviate from the power of att

busorg (agency) part iii and iv full text

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