[No. 33580.

February 6, 1931]

MAXIMILIANO SANCHO, plaintiff and appellant, vs. SEVERIANO LIZARRAGA, defendant

and appellee.
1.JUDGMENT; APPEAL FROM AN ORDER ON RENDITION OF ACCOUNTS.—In
accordance with the doctrine laid down in the case of Natividad vs. Villarica (31 Phil., 172), it is
held that an appeal taken from a decision ordering the rendition of accounts is deemed premature.
2.PARTNERSHIP; FAILURE OF PARTNER TO PAY THE WHOLE AMOUNT PROMISED;
RESPONSIBILITY.—Owing to the defendant's failure to pay to the partnership the whole amount
which he bound himself to pay, he became indebted to it' for the remainder, with interest and any
damages occasioned thereby, but the plaintiff did not thereby acquire the right to demand
rescission "of the partnership contract under article 1124 of the Civil Code.
3.ID.; ID.; ID.; STATUTORY CONSTRUCTION.—Article 1124 of the Civil Code cannot be
applied to the case in question, because it refers to the resolution of obligations in general, whereas
articles 1681 and 1682 specifically refer to the contract of partnership in particular. And it is a well
known principle that special provisions prevail over general provisions. Sancho vs. Lizarraga, 55
Phil. 601, No. 33580 February 6, 1931
APPEAL from a judgment of the Court of First Instance of Manila. Revilla, J.

The facts are stated in the opinion of the court.

Jose Perez Cardenas and Jose M. Casal for appellant.

Celso B. Jamora and Antonio Gonzalez for appellee.

ROMUALDEZ, J.;

The plaintiff brought an action for the rescission of a partnership contract between himself and the
defendant, entered into on October 15, 1920, the reimbursement by the latter of his 50,000 peso
investment therein, with interest at 12 per cent per annum from October 15, 1920, with costs, and
any other just and equitable remedy against said defendant.
The defendant denies generally and specifically all the allegations of the complaint which are
incompatible with his special defenses, cross-complaint and counterclaim, setting up the latter and
asking for the dissolution of the partnership, and the payment to him as its manager and
administrator of P500 monthly from October 15, 1920, until the final dissolution, with interest,
one-half of said amount to be charged to the plaintiff. He also prays for any other just and equitable
remedy.

The Court of First Instance of Manila, having heard the cause, and finding it duly proved that the
defendant had not contributed all the capital he had bound himself to invest, and that the plaintiff
had demanded that the def endant liquidate the partnership, declared it dissolved on account of the
expiration of the period for which it was constituted, and ordered the defendant, as managing
partner, to proceed without delay to liquidate it, submitting to the court the result of the liquidation
together with the accounts and vouchers within the period of thirty days from receipt of notice of
said judgment, without costs.
APPEAL from a judgment of the Court of First Instance of Manila. Revilla, J.

The facts are stated in the opinion of the court.

Jose Perez Cardenas and Jose M. Casal for appellant.

Celso B. Jamora and Antonio Gonzalez for appellee.

ROMUALDEZ, J.;

The plaintiff brought an action for the rescission of a partnership contract between himself and the
defendant, entered into on October 15, 1920, the reimbursement by the latter of his 50,000 peso
investment therein, with interest at 12 per cent per annum from October 15, 1920, with costs, and
any other just and equitable remedy against said defendant.

The defendant denies generally and specifically all the allegations of the complaint which are
incompatible with his special defenses, cross-complaint and counterclaim, setting up the latter and
asking for the dissolution of the partnership, and the payment to him as its manager and
administrator of P500 monthly from October 15, 1920, until the final dissolution, with interest,
one-half of said amount to be charged to the plaintiff. He also prays for any other just and equitable
remedy.
The Court of First Instance of Manila, having heard the cause, and finding it duly proved that the
defendant had not contributed all the capital he had bound himself to invest, and that the plaintiff
had demanded that the def endant liquidate the partnership, declared it dissolved on account of the
expiration of the period for which it was constituted, and ordered the defendant, as managing
partner, to proceed without delay to liquidate it, submitting to the court the result of the liquidation
together with the accounts and vouchers within the period of thirty days from receipt of notice of
said judgment, without costs.
The plaintiff appealed from said decision making the following assignments of error:

"1. In holding that the plaintiff and appellant is not entitled to the rescission of the partnership
contract, Exhibit A, and that article 1124 of the Civil Code is not applicable to the present case.
"2. In failing to order the defendant to return the sum of P50,000 to the plaintiff with interest from
October 15, 1920, until fully paid.
"3. In denying the motion for a new trial."
In the brief filed by counsel for the appellee, a preliminary question is raised purporting to show
that this appeal is premature and therefore will not lie. The point is based on the contention that
inasmuch as the liquidation ordered by the trial court, and the consequent accounts, have not been
made and submitted, the case cannot be deemed terminated in said court and its ruling is not yet
appealable. In support of this contention counsel cites section 123 of the Code of Civil Procedure,
and the decision of this court in the case of Natividad vs. Villarica (31 Phil., 172).

This contention is well founded. Until the accounts have been rendered as ordered by the trial
court, and until they have been either approved or disapproved, the litigation involved in this action
cannot be considered as completely decided; and, as it was held in said case of Natividad vs.
Villarica, also with reference to an appeal taken from a decision ordering the rendition of accounts
following the dissolution of a partnership, the appeal in the instant case must be deemed premature.

But even going into the merits of the case, the affirmation of the judgment appealed from is
inevitable. In view of the lower court's findings referred to above, which we cannot revise because
the parol evidence has not been forwarded to this court, articles 1681 and 1682 of the Civil Code
have been properly applied. Owing to the defendant's failure to pay to the partnership the whole
amount which he bound himself to pay, he became indebted to it for the remainder, with interest
and any damages occasioned thereby, but the plaintiff did not thereby acquire the right to demand
rescission of the partnership contract according to article 1124 of the Code. This article cannot be
applied to the case in question, because it refers to the resolution of obligations in general, whereas
articles 1681 and 1682 specifically refer to the contract of partnership in particular. And it is a well
known principle that special provisions prevail over general provisions.

By virtue of the f oregoing, this appeal is hereby dismissed, leaving the decision appealed from in
full force, wihtout special pronouncement of costs. So ordered.

Avanceña, C. J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns, and Vitta-Real, JJ., concur.

Appeal dismissed. Sancho vs. Lizarraga, 55 Phil. 601, No. 33580 February 6, 1931
[No. 16318. October 21, 1921]

Pang Lim and Benito Galvez, plaintiffs and appellees, vs. Lo Seng, defendant and appellant.

1.Landlord and Tenant; Termination of Lease by Purchaser of Estate; Inconsistent Positions of

Lessee.—A lessee who upon disposing of his interest in a contract of lease purchases the leased
premises from the landlord, cannot thereafter exer-cise the right of terminating the lease which is
conceded to purchasers by article 1571 of the Civil Code. As vendor of the leasehold he is bound
to respect the rights of his own vendee. Pang Lim and Galvez vs. Lo Seng, 42 Phil., 282, No. 16318
October 21, 1921
2.Forcible Entry and Unlawful Detainer; Possession Valid against One Coowner Valid against
All.—A person who is in lawful possession of a leasehold estate and who has the lawful right to
retain possession as against one of the two owners of the undivided fee cannot be dispossessed of
the premises in an action of unlawful detainer jointly instituted by such owners. Having lawful
possession as against one he is entitled to retain it as against both.

APPEAL from a judgment of the Court of First Instance of Bulacan. Revilla, J.

The facts are stated in the opinion of the court.

Cohn, Fisher & DeWitt for appellant.

No appearance for appellees.

Street, J.:

For several years prior to June 1, 1916, two of the liti-gating parties herein, namely, Lo Seng and
Pang Lim, Chinese residents of the City of Manila, were partners, under the firm name of Lo Seng
& Co., in the business of running a distillery, known as "El Progreso," in the Munic-ipality of
Paombong, in the Province of Bulacan. The land on which said distillery is located as well as the
buildings and improvements originally used in the business were, at the time to which reference is
now made, the property of another Chinaman, who resides in Hongkong, named Lo Yao, who, in
September, 1911, leased the same to the firm of Lo Seng & Co. for the term of three years.
Upon the expiration of this lease a new written contract, in the making of which Lo Ya o was
represented by one Lo Shui as attorney in fact, became effective whereby the lease was extended
for fifteen years. The reason why the con-tract was made for so long a period of time appears to
have been that the Bureau of Internal Revenue had required sundry expensive improvements to be
made in the distillery, and it was agreed that these improvements should be ef-fected at the expense
of the lessees. In conformity with this understanding many thousands of pesos were expended by
Lo Seng & Co., and later by Lo Seng alone, in enlarging and improving the plant.
Among the provisions contained in said lease we note the following:

"Know all men by these presents:

* * * * * * *

"1. That I, Lo Shui, as attorney in fact in charge of the properties of Mr. Lo Yao of Hongkong,
cede by way of lease for fifteen years more said distillery 'El Progreso' to Messrs. Pang Lim and
Lo Seng (doing business under the firm name of Lo Seng & Co.), after the termination of the
previous contract, because of the fact that they are re-quired, by the Bureau of Internal Revenue,
to rearrange, alter and clean up the distillery.

"2. That all the improvements and betterments which they may introduce, such as machinery,
apparatus, tanks, pumps, boilers and buildings which the business may require, shall be, after the
termination of the fifteen years of lease, for the benefit of Mr. Lo Yao, my principal, the buildings
being considered as improvements.

"3. That the monthly rent of said distillery is P200, as agreed upon in the previous contract of
September 11, 1911, acknowledged before the notary public D. Vicente Santos; and all
modifications and repairs which may be needed shall be paid for by Messrs. Pang Lim and Lo
Seng.

"We, Pang Lim and Lo Seng, as partners in said distillery 'El Progreso,' which we are at present
conducting, hereby accept this contract in each and all its parts, said contract to be effective upon
the termination of the contract of Sep-tember 11, 1911."
Neither the original contract of lease nor the agreement extending the same was inscribed in the
property registry, for the reason that the estate which is the subject of the lease has never at any
time been so inscribed.

On June 1, 1916, Pang Lim sold all his interest in the distillery to his partner Lo Seng, thus placing
the latter in the position of sole owner; and on June 28, 1918, Lo Shui, again acting as attorney in
fact of Lo Yao, executed and acknowledged before a notary public a deed purporting to convey to
Pang Lim and another Chinaman named Benito Galvez, the entire distillery plant including the
land used in connection therewith. As in case of the lease this docu-ment also was never recorded
in the registry of property. Thereafter Pang Lim and Benito Galvez demanded posses-sion from
Lo Seng, but the latter refused to yield; and the present action of unlawful detainer was thereupon
initiated by Pang Lim and Benito Galvez in the court of the justice of the peace of Paombong to
recover possession of the prem-ises. From the decision of the justice of the peace the case was
appealed to the Court of First Instance, where judgment was rendered for the plaintiffs; and the
defendant thereupon appealed to the Supreme Court.

The case for the plaintiffs is rested exclusively on the provisions of article 1571 of the Civil Code,
which reads in part as follows:

"Art. 1571. The purchaser of a leased estate shall be entitled to terminate any lease in force at
the time of making the sale, unless the contrary is stipulated, and sub-ject to the provisions of the
Mortgage Law."

In considering this provision it may be premised that a contract of lease is personally binding on
all who partici-pate in it regardless of whether it is recorded or not, though of course the unrecorded
lease creates no real charge upon the land to which it relates. The Mortgage Law was de-vised for
the protection of third parties, or those who have not participated in the contracts which are by that
law required to be registered; and none of its provisions with reference to leases interpose any
obstacle whatever to the giving of full effect to the personal obligations incident to such contracts,
so far as concerns the immediate parties thereto. This is rudimentary, and the law appears to be so
understood by all commentators, there being, so far as we are aware, no authority suggesting the
contrary. Thus, in the commentaries of the authors Galindo and Escosura, on the Mortgage Law,
we find the following pertinent ob-servation: "The Mortgage Law is enacted in aid of and in respect
to third persons only; it does not affect the rela-tions between the contracting parties, nor their
capacity to contract. Any question affecting the former will be deter-mined by the dispositions of
the special law i. e., the Mort-gage Law], while any question affecting the latter will be determined
by the general law." (Galindo y Escosura, Comentarios a la Legislación Hipotecaria, vol. I, p. 461.)
Although it is thus manifest that, under the Mortgage Law, as regards the personal obligations
expressed therein, the lease in question was from the beginning, and has re-mained, binding upon
all the parties thereto—among whom is to be numbered Pang Lim, then a member of the firm of
Lo Seng & Co.—this does not really solve the problem now before us, which is, whether the
plaintiffs herein, as pur-chasers of the estate, are at liberty to terminate the lease, assuming that it
was originally binding upon all parties participating in it.

Upon this point the plaintiffs are undoubtedly supported, prima facie, by the letter of article 1571
of the Civil Code; and the position of the defendant derives no assistance from the mere
circumstance that the lease was admittedly bind-ing as between the parties thereto.

The words "subject to the provisions of the Mortgage Law," contained in article 1571, express a
qualification which evidently has reference to the familiar proposition that recorded instruments
are effective against third persons from the date of registration (Co-Tiongco vs. Co-Guia, 1 Phil.,
210); from whence it follows that a recorded lease must be respected by any purchaser of the estate
whomso-ever. But there is nothing in the Mortgage Law which, so far as we now see, would
prevent a purchaser from exercis-ing the precise power conferred in article 1571 of the Civil Code,
namely, of terminating any lease which is unrecorded; nothing in that law that can be considered
as arresting the force of article 1571 as applied to the lease now before us.

Article 1549 of the Civil Code has also been cited by the at-torneys for the appellant as supplying
authority for the proposition that the lease in question cannot be terminated by one who, like Pang
Lim, has taken part in the contract. That provision is practically identical in terms with the first
paragraph of article 23 of the Mortgage Law, being to the effect that unrecorded leases shall be of
no effect as against third persons; and the same observation will suffice to dispose of it that was
made by us above in dis-cussing the Mortgage Law, namely, that while it recog-nizes the fact that
an unrecorded lease is binding on all persons who participate therein, this does not determine the
question whether, admitting the lease to be so binding, it can be terminated by the plaintiffs under
article 1571.

Having thus disposed of the considerations which arise in relation with the Mortgage Law, as well
as article 1549 of the Civil Code—all of which, as we have seen, are un-decisive—we are brought
to consider the aspect of the case which seems to us conclusive. This is found in the circum-stance
that the plaintiff Pang Lim has occupied a double role in the transactions which gave rise to this
litigation, namely, first, as one of the lessees; and secondly, as one of the pur-chasers now seeking
to terminate the lease. These two positions are essentially antagonistic and incompatible. Every
competent person is by law bound to maintain in all good faith the integrity of his own obligations;
and no less certainly is he bound to respect the rights of any person whom he has placed in his own
shoes as regards any contract previously entered into by himself.
While yet a partner in the firm of Lo Seng & Co., Pang Lim participated in the creation of this
lease; and when he sold out his interest in that firm to Lo Seng this operated as a transfer to Lo
Seng of Pang Lim's interest in the firm assets, including the lease; and Pang Lim cannot now be
permitted, in the guise of a purchaser of the estate, to destroy an interest derived from himself, and
for which he has received full value.

The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikingly revealed
in the cir-cumstance that prior to the acquisition of this property Pang Lim had been partner with
Lo Seng and Benito Gal- vez an employee. Both therefore had been in relations of confidence with
Lo Seng and in that position had ac-quired knowledge of the possibilities of the property and
possibly an experience which would have enabled them, in case they had acquired possession, to
exploit the distillery with profit. On account of his status as partner in the firm of Lo Seng & Co.,
Pang Lim knew that the original lease had been extended for fifteen years; and he knew the extent
of valuable improvements that had been made thereon. Certainly, as observed in the appellant's
brief, it would be shocking to the moral sense if the condition of the law were found to be such
that Pang Lim, after profiting by the sale of his interest in a business, worthless without the lease,
could intervene as purchaser of the property and confiscate for his own benefit the property which
he had sold for a valuable consideration to Lo Seng. The sense of justice recoils before the mere
possibility of such eventuality.

Above all other persons in business relations, partners are required to exhibit towards each other
the highest degree of good faith. In fact the relation between part-ners is essentially fiduciary, each
being considered in law, as he is in fact, the confidential agent of the other. It is therefore accepted
as fundamental in equity jurisprudence that one partner cannot, to the detriment of another, apply
exclusively to his own benefit the results of the knowledge and information gained in the character
of partner. Thus, it has been held that if one partner obtains in his own name and for his own
benefit the renewal of a lease on property used by the firm, to commence at a date subsequent to
the expiration of the firm's lease, the partner obtaining the renewal is held to be a constructive
trustee for the firm as to such lease. (20 R. C. L., 878-882) And this rule has even been applied to
a renewal taken in the name of one partner after the dissolution of the firm and pending its
liquidation. (16 R. C. L., 906; Knapp vs. Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869; Mitchell vs.
Reed, 61 N. Y., 123; 19 Am. Rep., 252.)

An additional consideration showing that the position of the plaintiff Pang Lim in this case is
untenable is deducible from articles 1461 and 1474 of the Civil Code, which declare that every
person who sells anything is bound to deliver and warrant the subject-matter of the sale and is
respon-sible to the vendee for the legal and lawful possession of the thing sold. The pertinence of
these provisions to the case now under consideration is undeniable, for among the assets of the
partnership which Pang Lim transferred to Lo Seng, upon selling out his interest in the firm to the
latter, was this very lease; and while it cannot be supposed that the obligation to warrant recognized
in the articles cited would nullify article 1571, if the latter ar-ticle had actually conferred on the
plaintiffs the right to terminate this lease, nevertheless said articles (1461, 1474), in relation with
other considerations, reveal the basis of an estoppel which in our opinion precludes Pang Lim from
setting up his interest as purchaser of the estate to the detriment of Lo Seng.

It will not escape observation that the doctrine thus applied is analogous to the doctrine recognized
in courts of common law under the head of estoppel by deed, in accordance with which it is held
that if a person, having no title to land, conveys the same to another by some one or another of the
recognized modes of conveyance at com-mon law, any title afterwards acquired by the vendor will
pass to the purchaser; and the vendor is estopped as against such purchaser from asserting such
after-acquired title. The indenture of lease, it may be further noted, was recognized as one of the
modes of conveyance at com-mon law which created this estoppel. (8 R. C. L., 1058, 1059.)

From what has been said it is clear that Pang Lim. having been a participant in the contract of lease
now in question, is not in a position to terminate it: and this is a fatal obstacle to the maintenance
of the action of un-lawful detainer by him. Moreover, it is fatal to the main-tenance of the action
brought jointly by Pang Lim and Benito Galvez. The reason is that in the action of un-lawful
detainer, under section 80 of the Code of Civil Procedure, the only question that can be adjudicated
is the right to possession; and in order to maintain the action, in the form in which it is here
presented, the proof must show that occupant's possession is unlawful, i. e., that he is unlawfully
withholding possession after the determina-tion of the right to hold possession. In the case before
us quite the contrary appears; for, even admitting that Pang Lim and Benito Galvez have purchased
the estate from Lo Yao, the original landlord, they are, as between themselves, in the position of
tenants in common or owners pro indiviso, according to the proportion of their respective
contribution to the purchase price. But it is well recog-nized that one tenant in common cannot
maintain a pos-sessory action against his cotenant, since one is as much entitled to have possession
as the other. The remedy is ordinarily by an action for partition. (Cornista vs. Ticson, 27 Phil., 80.)
It follows that as Lo Seng is vested with the possessory right as against Pang Lim, he cannot be
ousted either by Pang Lim or Benito Galvez. Having lawful possession as against one cotenant, he
is entitled to retain it against both. Furthermore, it is obvious that partition proceedings could not
be maintained at the in-stance of Benito Galvez as against Lo Seng, since partition can only be
effected where the partitioners are cotenants, that is, have an interest of an identical character as
among themselves. (30 Cyc, 178-180.) The practical result is that both Pang Lim and Benito
Galvez are bound to respect Lo Seng's lease, at least in so far as the present action is concerned.

We have assumed in the course of the preceding discus-sion that the deed of sale under which the
plaintiffs acquired the rights of Lo Yao, the owner of the fee, is competent proof in behalf of the
plaintiffs. It is, however, earnestly insisted by the attorney for Lo Seng that this document, having
never been recorded in the property registry, cannot, under article 389 of the Mortgage Law, be
used in court.
[No. L-11648. April 22, 1959]

THE DIRECTOR OF LANDS, petitioner, vs. LOPE ALBA, ET AL., claimants. ELIGIO
CATALAN, movant and appellee, vs. RAMON GATCHALIAN, oppositor and appellant.
Appeal from the order of the Court of First Instance of Tacloban City. It appears that Eligio Catalan
and Ramon Gatchalian, as partners, mortgaged to Dr. Dionisio Marave two lots in Tacloban City,
including the improvements thereon, all belonging to the partnership, to secure the payment of a
loan. The partnership failed to pay the loan; the mortgage was foreclosed and the properties were
sold at public auction to Dr. Marave. Before the expiration of the one year period of redemption,
Catalan, on his own behalf, redeemed the properties with his private funds. The Sheriff issued the
corresponding certificate of redemption in favor of Catalan. Upon Catalan's petition, the lower
court ordered the cancellation of the title in the name of the partnership and to issue in its stead
another in the name of Catalan. Held: The theory of Catalan, accepted by the trial court, that he
became the absolute owner of the properties in question upon Director of Lands vs. Alba, et al.,
105 Phil. 1270, No. L-11648 April 22, 1959 making the redemption because he was subrogated to
the rights of Dr. Marave who made the purchase at public auction, is untenable. Under general
principles of law, a partner is an agent of the partnership. (Art. 1818, new Civil Code).
Furthermore, every partner becomes a trustee for his copartner with regard to any benefits or profits
derived from his act as partner (Art. 1807, new Civil Code). Consequently, when Catalan redeemed
the properties in question, he became a trustee and held the same in trust for his copartner
Gatchalian, subject to his right to demand from the latter his contribution to the amount of
redemption. The principle of subrogation cannot be applied because at the time Catalan redeemed
the property, Dr. Marave, the purchaser at public auction, had not yet become the absolute owner
of said properties. He never received the definite and formal certificate of sale constituting
muniment of title, for the reason that redemption was made. Consequently, there was no title to
the properties which he could convey to Catalan as redemptioner.

Judgment reversed. Montemayor, J., ponente. Director of Lands vs. Alba, et al., 105 Phil. 1270,
No. L-11648 April 22, 1959
1.Director of Lands vs. Alba, et al. 105 Phil. 1270 , April 22, 1959
Case Title : THE DIRECTOR OF LANDS, petitioner, vs. LOPE ALBA, ET AL., claimants.
ELIGIO CATALAN, movant and appellee, vs. RAMON GATCHALIAN, oppositor and
appellant.
Case Nature : Appeal from the order of the Court of First Instance of Tacloban City. It appears
that Eligio Catalan and Ramon Gatchalian, as partners, mortgaged to Dr. Dionisio Marave two lots
in Tacloban City, including the improvements thereon, all belonging to the partnership, to secure
the payment of a loan. The partnership failed to pay the loan; the mortgage was foreclosed and the
properties were sold at public auction to Dr. Marave. Before the expiration of the one year period
of redemption, Catalan, on his own behalf, redeemed the properties with his private funds. The
Sheriff issued the corresponding certificate of redemption in favor of Catalan. Upon Catalan's
petition, the lower court ordered the cancellation of the title in the name of the partnership and to
issue in its stead another in the name of Catalan. Held: The theory of Catalan, accepted by the trial
court, that he became the absolute owner of the properties in question upon
Docket Number: No. L-11648
SUPREME COURT REPORTS ANNOTATED

Island Sales, Inc. vs. United Pioneers Gen. Const. Co.

No. L-22493. July 31, 1975.*

ISLAND SALES, INC., plaintiff-appellee, vs. UNITED PIONEERS GENERAL

CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C. DACO, defendant-
appellant.
Civil law; Partnership; Condonation by creditor of share in partnerships debt of one partner does
not increase pro rata liability of other partners.—In the instant case, there were five general
partners when the promissory note in question was executed for and in behalf of the partnerships.
Since the liability of the partners in pro rata, the liability of the appellant Benjamin C. Daco shall
be limited to only 1/5 of the obligations of the defendant company. The fact that the complaint
against the defendant Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not
unmake the said Lumauig as a general partner in the defendant company. In so moving to dismiss
the complaint, the plaintiff merely condoned Lumauig’s individual liability to the plaintiff.

APPEAL from a decision of the Court of First Instance of Manila. Alvendia, J.

The facts are stated in the opinion of the Court.

Grey, Buenaventura & Santiago for plaintiff-appellee.

Anacleto D. Badoy, Jr. for defendant-appellant.

CONCEPCION JR., J.:

This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the Court of
First Instance of Manila, Branch XVI, in Civil Case No. 50682, the dispositive portion of which
reads:
“WHEREFORE, the Court sentences defendant United Pioneer General Construction Company to
pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per annum until it is fully paid,
plus attorney’s fees which the Court fixes in the sum of Eight Hundred Pesos (P800.00) and costs.

“The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc are
sentenced to pay the plaintiff in this case with the understanding that the judgment against these
individual defendants shall be enforced only if the defendant company has no more leviable
properties with which to satisfy the judgment against it.

“The individual defendants shall also pay the costs.”

On April 22, 1961, the defendant company, a general partnership duly registered under the laws
of the Philippines, purchased from the plaintiff a motor vehicle on the installment basis and for
this purpose executed a promissory note for P9,440.00, payable in twelve (12) equal monthly
installments of P786.63, the first installment payable on or before May 22, 1961 and the subsequent
installments on the 22nd day of every month thereafter, until fully paid, with the condition that
failure to pay any of said installments as they fall due would render the whole unpaid balance
immediately due and demandable.

Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant
company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona,
Noel C. Sim, Romulo R. Lumauig, and Augusto Palisoc were included as co-defendants in their
capacity as general partners of the defendant company.

Daniel A. Guizona failed to file an answer and was consequently declared in default.1

Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant
Romulo B. Lumauig is concerned.2

When the case was called for hearing, the defendants and their counsels failed to appear
notwithstanding the notices sent to them. Consequently, the trial court authorized the plaintiff to
present its evidence ex-parte3, after which the trial court rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming
that since there are five (5) general partners, the joint and subsidiary liability of each partner should
not exceed one-fifth (1/5) of the obligations of the defendant company. But the trial court denied
the said motion notwithstanding the conformity of the plaintiff to limit the liability of the
defendants Daco and Sim to only one-fifth (1/5) of the obligations of the defendant company4.
Hence, this appeal.

The only issue for resolution is whether or not the dismissal of the complaint to favor one of the
general partners of a partnership increases the joint and subsidiary liability of each of the remaining
partners for the obligations of the partnership.

Article 1816 of the Civil Code provides:

“Art. 1816. All partners including industrial ones, shall be liable pro rata with all their property
and after all the partnership assets have been exhausted, for the contracts which may be entered
into in the name and for the account of the partnership, under its signature and by a person
authorized to act for the partnership. However, any partner may enter into a separate obligation to
perform a partnership contract.”

In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held: “The partnership of Yulo and
Palacios was engaged in the operation of a sugar estate in Negros. It was, therefore, a civil
partnership as distinguished from a mercantile partnership. Being a civil partnership, by the
express provisions of articles 1698 and 1137 of the Civil Code, the partners are not liable each for
the whole debt of the partnership. The liability is pro rata and in this case Pedro Yulo is responsible
to plaintiff for only one-half of the debt. The fact that the other partner, Jaime Palacios, had left
the country cannot increase the liability of Pedro Yulo.”

In the instant case, there were five (5) general partners when the promissory note in question was
executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the
liability of the appellant Benjamin C. Daco shall be limited to only one-fifth (1/5) of the obligations
of the defendant company. The fact that the complaint against the defendant Romulo B. Lumauig
was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner
in the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned
Lumauig’s individual liability to the plaintiff.

WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without

pronouncement as to costs.
SO ORDERED.

Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ., concur.

Decision affirmed.

Notes.—A sale of land, made by the general manager of a partnership, by virtue of the power
vested in him by the articles of partnership, which sale was effected after the insolvency proceeding
involving the partnership was terminated, is a valid sale (Ng Cho Cio vs. Ng Diong, 1 SCRA 275).

By authorizing the widow of the managing partner to manage partnership property which a limited
partner could not be authorized to do, the other general partner recognized her as a general partner,
and is now in estoppel to deny her position as a general partner, with authority to administer and
alienate partnership property (Goquiolay vs. Sycip, 9 SCRA 663).

A remaining partner cannot be held liable in his personal capacity for the payment of a partner’s
shares, for he does not hold them except as manager of, or trustee for, the partnership (Magdusa
vs. Albaran, 5 SCRA 511).

A contract of partnership to exploit a fishpond pending its award to any qualified party or applicant
is valid, but a contract of partnerhsip to divide the fishpond after such award is illegal (Deluao vs.
Casteel, 26 SCRA 475; Deluao vs. Casteel, 29 SCRA 350.
Idos vs. Court of Appeals

G.R. No. 110782. September 25, 1998.*

IRMA IDOS, petitioner, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES,
respondents.
Criminal Law; Bouncing Checks Law (Batas Pambansa Blg. 22); Statutory Construction; For an
act to be punishable under Batas Pambansa Blg. 22, it “must come clearly within both the spirit
and the letter of the statute.”—Considering that penal statutes are strictly construed against the
state and liberally in favor of the accused, it bears stressing that for an act to be punishable under
the B.P. 22, it “must come clearly within both the spirit and the letter of the statute.” Otherwise,
the act has to be declared outside the law’s ambit and a plea of innocence by the accused must be
sustained.

Same; Same; Elements of the Offense Penalized Under Batas Pambansa Blg. 22.—As decided by
this Court, the elements of the offense penalized under B.P. 22, are as follows: ‘(1) the making,
drawing and issuance of any check to apply to account or for value; (2) the knowledge of the
maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit with
the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent
dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the
same reason had not the drawer, without any valid cause, ordered the bank to stop payment.’

Same; Same; Same; Partnerships; Where a check issued to a partner, to evidence only his share or
interest in the partnership, is to be funded from receivables to be collected and goods to be sold by
the partnership, and only when such collection and sale are realized, the same does not involve a
debt of or any account due and payable by the drawer.—In the present case, with regard to the first
issue, evidence on record would show that the subject check was to be funded from receivables to
be collected and goods to be sold by the partnership, and only when such collection and sale were
realized. Thus, there is sufficient basis for the assertion that the petitioner issued the subject check
(Metrobank Check No. 103115490 dated October 30, 1986, in the amount of P135,828.87) to
evidence only complainant’s share or interest in the partnership, or at best, to show her
commitment that when receivables are collected and goods are sold, she would give to private
complainant the net amount due him representing his interest in the partnership. It did not involve
a debt of or any account due and payable by the petitioner.

Partnerships; Final Stages of a Partnership.—Under the Civil Code, the three final stages of a
partnership are (1) dissolution; (2) winding-up; and (3) termination. These stages are distinguished,
to wit: “(1) Dissolution Defined—Dissolution is the change in the relation of the partners caused
by any partner ceasing to be associated in the carrying on of the business (Art. 1828). It is that
point of time the partners cease to carry on the business together. [Citation omitted]; (2) Winding
Up Defined—Winding up is the process of settling business affairs after dissolution. (NOTE:
Examples of winding up: the paying of previous obligations; the collecting of assets previously
demandable; even new business if needed to wind up, as the contracting with a demolition
company for the demolition of the garage used in a ‘used car’ partnership.); (3) Termination
Defined—Termination is the point in time after all the partnership affairs have been wound up.”
[Citation omitted] (Italics supplied.)

Criminal Law; Bouncing Checks Law (Batas Pambansa Blg. 22); Where the check was issued
merely to evidence a partner’s share in the partnership, it should be deemed as having been drawn
without consideration at the time of issue.—For there is nothing on record which even slightly
suggests that petitioner ever became interested in acquiring, much less keeping, the shares of the
complainant. What is very clear therefrom is that the petitioner exerted her best efforts to sell the
remaining goods and to collect the receivables of the partnership, in order to come up with the
amount necessary to satisfy the value of complainant’s interest in the partnership at the dissolution
thereof. To go by accepted custom of the trade, we are more inclined to the view that the subject
check was issued merely to evidence complainant’s interest in the partnership. Thus, we are
persuaded that the check was not intended to apply on account or for value; rather it should be
deemed as having been drawn without consideration at the time of issue.

Same; Same; Absent the first element—“the making, drawing and issuance of any check to apply
on account or for value”—a person’s issuance of a check is not an act contemplated in nor made
punishable by Batas Pambansa Blg. 22.—Absent the first element of the offense penalized under
B.P. 22, which is “the making, drawing and issuance of any check to apply on account or for
value,” petitioner’s issuance of the subject check was not an act contemplated in nor made
punishable by said statute.

Same; Same; Presumptions; The prima facie presumption arising from the fact of drawing, issuing
or making a check, the payment of which was subsequently refused for insufficiency of funds is
not sufficient proof of guilt by the issuer.—Noteworthy for the defense knowledge of insufficiency
of funds or credit in the drawee bank for the payment of a check upon its presentment is an essential
element of the offense. It must be proved, particularly where the prima facie presumption of the
existence of this element has been rebutted. The prima facie presumption arising from the fact of
drawing, issuing or making a check, the payment of which was subsequently refused for
insufficiency of funds is, moreover, not sufficient proof of guilt by the issuer.
Same; Same; Statutory Construction; It is basic doctrine that penal statutes such as Batas Pambansa
Blg. 22 “must be construed with such strictness as to carefully safeguard the rights of the
defendant”; The element of knowledge of insufficiency of funds has to be proved by the
prosecution, and absent said proof, an accused could not be held criminally liable under that law.—
Since petitioner issued these four checks without actual knowledge of the insufficiency of funds,
she could not be held liable under B.P. 22 when one was not honored right away. For it is basic
doctrine that penal statutes such as B.P. 22 “must be construed with such strictness as to carefully
safeguard the rights of the defendant x x x.” The element of knowledge of insufficiency of funds
has to be proved by the prosecution; absent said proof, petitioner could not be held criminally
liable under that law. Moreover, the presumption of prima facie knowledge of such insufficiency
in this case was actually rebutted by petitioner’s evidence.

Same; Same; Compromise Agreements; A compromise agreement entered into by the parties
during the pendency of the case for violation of Batas Pambansa Blg. 22 constitutes an arrangement
for the payment in full of the subject check.—But in fact, while the subject check initially bounced,
it was later made good by petitioner. In addition, the terms of the parties’ compromise agreement,
entered into during the pendency of this case, effectively invalidates the allegation of failure to
pay or to make arrangement for the payment of the check in full. Verily, said compromise
agreement constitutes an arrangement for the payment in full of the subject check.

Same; Same; Where no notice of dishonor was actually sent to and received by the accused, the
prima facie presumption that she knew about the insufficiency of funds cannot apply—the absence
of a notice of dishonor necessarily deprives an accused an opportunity to preclude a criminal
prosecution.—The absence of notice of dishonor is crucial in the present case. As held by this
Court in prior cases: “Because no notice of dishonor was actually sent to and received by the
petitioner, the prima facie presumption that she knew about the insufficiency of funds cannot
apply. Section 2 of B.P. 22 clearly provides that this presumption arises not from the mere fact of
drawing, making and issuing a bum check; there must also be a showing that, within five banking
days from receipt of the notice of dishonor, such maker or drawer failed to pay the holder of the
check the amount due thereon or to make arrangement for its payment in full by the drawee of
such check.” [Italics supplied.] “The absence of a notice of dishonor necessarily deprives an
accused an opportunity to preclude a criminal prosecution. Accordingly, procedural due process
clearly enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a right to
demand—and the basic postulates of fairness require—that the notice of dishonor be actually sent
to and received by her to afford her the opportunity to avert prosecution under B.P. 22.”

Same; Same; The fact that the drawer repeatedly notified the payee of the insufficiency of funds
militates strongly against the prosecution’s stand.—What militates strongly against public
respondents’ stand is the fact that petitioner repeatedly notified the complainant of the
insufficiency of funds. Instructive is the following pronouncement of this Court in Magno v. Court
of Appeals: “Furthermore, the element of ‘knowing at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon its
presentment, which check is subsequently dishonored by the drawee bank for insufficiency of
funds or credit or would have been dishonored for the same reason x x x’ is inversely applied in
this case. From the very beginning, petitioner never hid the fact that he did not have the funds with
which to put up the warranty deposit and as a matter of fact, he openly intimated this to the vital
conduit of the transaction, Joey Gomez, to whom petitioner was introduced by Mrs. Teng. It would
have been different if this predicament was not communicated to all the parties he dealt with
regarding the lease agreement the financing of which was covered by L.S. Finance Management.”

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Ceferino Padua Law Office for petitioner.

The Solicitor General for public respondents.

QUISUMBING, J.:

Before this Court is the petition for review of the Decision of respondent Court of Appeals1
dismissing petitioner’s appeal in CA-G.R. CR No. 11960; and affirming her conviction as well as
the sentence imposed on her by the Regional Trial Court of Malolos, Bulacan, in Criminal Case
No. 1395-M-882 as follows:

“WHEREFORE . . . the [c]ourt finds the accused Irma Idos guilty beyond reasonable doubt and is
hereby sentenced to suffer the penalty of imprisonment of six (6) months and to pay a fine of
P135,000.00 and to pay private complainant Eddie Alarilla the amount of the check in question of
P135,000.00 at 12% interest from the time of the filing of the [i]nformation (August 10, 1988)
until said amount has been fully paid.”

Elevated from the Third Division3 of this Court, the case was accepted for resolution en banc on
the initial impression that here, a constitutional question might be involved.4 It was opined that
petitioner’s sentence, particularly six months’ imprisonment, might be in violation of the
constitutional guarantee against imprisonment for non-payment of a debt.5

A careful consideration of the issues presented in the petition as well as the comments thereon and
the findings of fact by the courts below in the light of applicable laws and precedents convinces
us, however, that the constitutional dimension need not be reached in order to resolve those issues
adequately. For, as herein discussed, the merits of the petition could be determined without delving
into aspects of the cited constitutional guarantee vis-à-vis provisions of the Bouncing Checks Law
(Batas Pambansa Blg. 22). There being no necessity therefor, we lay aside discussions of the
constitutional challenge to said law in deciding this petition.

The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her accuser
for violation of B.P. 22, is her erstwhile supplier and business partner, the complainant below,
Eddie Alarilla.

As narrated by the Court of Appeals, the background of this case is as follows:

“The complainant Eddie Alarilla supplied chemicals and rawhide to the accused-appellant Irma L.
Idos for use in the latter’s business of manufacturing leather. In 1985, he joined the accused-
appellant’s business and formed with her a partnership under the style ‘Tagumpay Manufacturing,’
with offices in Bulacan and Cebu City.

However, the partnership was short lived. In January, 1986 the parties agreed to terminate their
partnership. Upon liquidation of the business the partnership had as of May 1986 receivables and
stocks worth P1,800,000.00. The complainant’s share of the assets was P900,000.00 to pay for
which the accused-appellant issued the following postdated checks, all drawn against Metrobank
Branch in Mandaue, Cebu:

CHECK NO. DATE AMOUNT

1) 103110295 8-15-86 P135,828.87

2) 103110294 P135,828.87
3) 103115490 9-30-86 P135,828.87
4) 103115491 10-30-86 P126,656.01
The complainant was able to encash the first, second, and fourth checks, but the third check (Exh.
A) which is the subject of this case, was dishonored on October 14, 1986 for insufficiency of funds.
The complainant demanded payment from the accused-appellant but the latter failed to pay.
Accordingly, on December 18, 1986, through counsel, he made a formal demand for payment.
(Exh. B) In a letter dated January 2, 1987, the accused-appellant denied liability. She claimed that
the check had been given upon demand of complainant in May 1986 only as ‘assurance’ of his
share in the assets of the partnership and that it was not supposed to be deposited until the stocks
had been sold.

Complainant then filed his complaint in the Office of the Provincial Fiscal of Bulacan which on
August 22, 1988 filed an information for violation of BP Blg. 22 against accused-appellant.

Complainant denied that the checks issued to him by accused-appellant were subject to the
disposition of the stocks and the collection of receivables of the business. But the accused-
appellant insisted that the complainant had known that the checks were to be funded from the
proceeds of the sale of the stocks and the collection of receivables. She claimed that the
complainant himself asked for the checks because he did not want to continue in the tannery
business and had no use for a share of the stocks. (TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13,
1989; id., pp. 12, 16, 20, Feb. 14, 1990; id., p. 14, June 4, 1990).

On February 15, 1992, the trial court rendered judgment finding the accused-appellant guilty of
the crime charged. The accused-appellant’s motion for annulment of the decision and for
reconsideration was denied by the trial court in its order dated April 12, 1991.”6

Herein respondent court thereafter affirmed on appeal the decision of the trial court. Petitioner
timely moved for a re- consideration, but this was subsequently denied by respondent court in its
Resolution7 dated June 11, 1993. Petitioner has now appealed to us by way of a petition for
certiorari under Rule 45 of the Rules of Court.

During the pendency of this petition, this Court by a resolution8 dated August 30, 1993, took note
of the compromise agreement executed between the parties, regarding the civil aspect of the case,
as manifested by petitioner in a Motion to Render Judgment based on Compromise Agreement9
filed on August 5, 1993. After submission of the Comment10 by the Solicitor General, and the
Reply11 by petitioner, this case was deemed submitted for decision.
Contending that the Court of Appeals erred in its affirmance of the trial court’s decision, petitioner
cites the following reasons to justify the review of her case:

“1. The Honorable Court of Appeals has decided against the innocence of the accused based on
mere probabilities which, on the contrary, should have warranted her acquittal on reasonable
doubt. Even then, the conclusion of the trial court is contrary to the evidence on record, including
private complainant’s judicial admission that there was no consideration for the check.
2. The Honorable Court of Appeals has confused and merged into one the legal concepts of
dissolution, liquidation and termination of a partnership and, on the basis of such misconception
of the law, disregarded the fact of absence of consideration of the check and convicted the accused.
3. While this appeal was pending, the parties submitted for the approval of the Honorable Court a
compromise agreement on the civil liability. The accused humbly submits that this supervening
event, which by its terms puts to rest any doubt the Court of Appeals had entertained against the
defense of lack of consideration, should have a legal effect favorable to the accused, considering
that the dishonored check constitutes a private transaction between partners which does not involve
the public interest, and considering further that the offense is not one involving moral turpitude.
4. The Honorable Court of Appeals failed to appreciate the fact that the accused had warned private
complainant that the check was not sufficiently funded, which should have exonerated the accused
pursuant to the ruling in the recent case of Magno vs. Court of Appeals, 210 SCRA 471, which
calls for a more flexible and less rigid application of the Bouncing Checks Law.”12
For a thorough consideration of the merits of petitioner’s appeal, we find pertinent and decisive
the following issues:

1. Whether respondent court erred in holding that the subject check was issued by petitioner to
apply on account or for value, that is, as part of the consideration of a “buy-out” of said
complainant’s interest in the partnership, and not merely as a commitment on petitioner’s part to
return the investment share of complainant, along with any profit pertaining to said share, in the
partnership.
2. Whether the respondent court erred in concluding that petitioner issued the subject check
knowing at the time of issue that she did not have sufficient funds in or credit with the drawee
bank and without communicating this fact of insufficiency of funds to the complainant.
Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming the trial
court’s judgment that she violated Batas Pambansa Blg. 22?

Considering that penal statutes are strictly construed against the state and liberally in favor of the
accused, it bears stressing that for an act to be punishable under the B.P. 22, it “must come clearly
within both the spirit and the letter of the statute.”13 Otherwise, the act has to be declared outside
the law’s ambit and a plea of innocence by the accused must be sustained.

The relevant provisions of B.P. 22 state that:

“SECTION 1. Checks without sufficient funds.—Any person who makes or draws and issues any
check to apply on account or for value, knowing at the time of issue that he does not have sufficient
funds in or credit with the drawee bank for the payment of such check in full upon its presentment,
which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or
would have been dishonored for the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment, shall be punished by imprisonment of not less than thirty days
but not more than one (1) year or by a fine of not less than but not more than double the amount
of the check which fine shall in no case exceed Two hundred thousand pesos, or both such fine
and imprisonment at the discretion of the court.

The same penalty shall be imposed upon any person who having sufficient funds in or credit with
the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or
to maintain a credit or to cover the full amount of the check if presented within a period of ninety
(90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank.

Where the check is drawn by a corporation, company or entity, the person or persons who actually
signed the check in behalf of such drawer shall be liable under this Act.

SECTION 2. Evidence of knowledge of insufficient funds.—The making, drawing and issuance

of a check payment of which is refused by the drawee because of insufficient funds in or credit
with such bank, when presented within ninety (90) days from the date of the check, shall be prima
facie evidence of knowledge of such insufficiency of funds or credit unless such maker or drawer
pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the
drawee of such check within five (5) banking days after receiving notice that such check has not
been paid by the drawee.” (Italics supplied) As decided by this Court, the elements of the offense
penalized under B.P. 22, are as follows: ‘(1) the making, drawing and issuance of any check to
apply to account or for value; (2) the knowledge of the maker, drawer or issuer that at the time of
issue he does not have sufficient funds in or credit with the drawee bank for the payment of such
check in full upon its presentment; and (3) subsequent dishonor of the check by the drawee bank
for insufficiency of funds or credit or dishonor for the same reason had not the drawer, without
any valid cause, ordered the bank to stop payment.’14
In the present case, with regard to the first issue, evidence on record would show that the subject
check was to be funded from receivables to be collected and goods to be sold by the partnership,
and only when such collection and sale were realized.15 Thus, there is sufficient basis for the
assertion that the petitioner issued the subject check (Metrobank Check No. 103115490 dated
October 30, 1986, in the amount of P135,828.87) to evidence only complainant’s share or interest
in the partnership, or at best, to show her commitment that when receivables are collected and
goods are sold, she would give to private complainant the net amount due him representing his
interest in the partnership. It did not involve a debt of or any account due and payable by the
petitioner.

Two facts stand out. Firstly, three of four checks were properly encashed by complainant; only
one (the third) was not. But eventually even this one was redeemed by petitioner. Secondly, even
private complainant admitted that there was no consideration whatsoever for the issuance of the
check, whose funding was dependent on future sales of goods and receipts of payment of account
receivables.

Now, it could not be denied that though the parties—petitioner and complainant—had agreed to
dissolve the partnership, such agreement did not automatically put an end to the partnership, since
they still had to sell the goods on hand and collect the receivables from debtors. In short, they were
still in the process of “winding up” the affairs of the partnership, when the check in question was
issued.

Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-up;
and (3) termination. These stages are distinguished, to wit:

“(1)Dissolution Defined
Dissolution is the change in the relation of the partners caused by any partner ceasing to be
associated in the carrying on of the business (Art. 1828). It is that point of time the partners cease
to carry on the business together. [Citation omitted]

(2)Winding Up Defined
Winding up is the process of settling business affairs after dissolution.

(NOTE: Examples of winding up: the paying of previous obligations; the collecting of assets
previously demandable; even new business if needed to wind up, as the contracting with a
demolition company for the demolition of the garage used in a ‘used car’ partnership.)
(3)Termination Defined
Termination is the point in time after all the partnership affairs have been wound up.”16 [Citation
omitted] (Italics supplied.)

These final stages in the life of a partnership are recognized under the Civil Code that explicitly
declares that upon dissolution, the partnership is not terminated, to wit:

“Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by
any partner ceasing to be associated in the carrying on as distinguished from the winding up of the
business.

Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed.” (Italics supplied.)

The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to
the trial court. Since the partnership has not been terminated, the petitioner and private complainant
remained as co-partners. The check was thus issued by the petitioner to complainant, as would a
partner to another, and not as payment from a debtor to a creditor.

The more tenable view, one in favor of the accused, is that the check was issued merely to evidence
the complainant’s share in the partnership property, or to assure the latter that he would receive in
time his due share therein. The alternative view that the check was in consideration of a “buy out”
is but a theory, favorable to the complainant, but lacking support in the record; and must
necessarily be discarded.

For there is nothing on record which even slightly suggests that petitioner ever became interested
in acquiring, much less keeping, the shares of the complainant. What is very clear therefrom is that
the petitioner exerted her best efforts to sell the remaining goods and to collect the receivables of
the partnership, in order to come up with the amount necessary to satisfy the value of complainant’s
interest in the partnership at the dissolution thereof. To go by accepted custom of the trade, we are
more inclined to the view that the subject check was issued merely to evidence complainant’s
interest in the partnership. Thus, we are persuaded that the check was not intended to apply on
account or for value; rather it should be deemed as having been drawn without consideration at the
time of issue.
Absent the first element of the offense penalized under B.P. 22, which is “the making, drawing
and issuance of any check to apply on account or for value,” petitioner’s issuance of the subject
check was not an act contemplated in nor made punishable by said statute.

As to the second issue, the Solicitor General contends that under the Bouncing Checks Law, the
elements of deceit and damage are not essential or required to constitute a violation thereof. In his
view, the only essential element is the knowledge on the part of the maker or drawer of the check
of the insufficiency of his/her funds at the time of the issuance of said check.

The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a special
offense punishable by law. “Malice or intent in issuing the worthless check is immaterial, the
offense being malum prohibitum,”17 so goes the argument for the public respondents.

But of course this could not be an absolute proposition without descending to absurdity. For if a
check were issued by a kidnap victim to a kidnapper for ransom, it would be absurd to hold the
drawer liable under B.P. 22, if the check is dishonored and unpaid. That would go against public
policy and common sense.

Public respondents further contend that “since petitioner issued the check in favor of complainant
Alarilla and when notified that it was returned for insufficiency of funds, failed to make good the
check, then petitioner is liable for violation of B.P. 22.”18 Again, this matter could not be all that
simple. For while “the maker’s knowledge of the insufficiency of funds is legally presumed from
the dishonor of his checks for insufficiency of funds,”19 this presumption is rebuttable.

In the instant case, there is only a prima facie presumption which did not preclude the presentation
of contrary evidence.20 In fact, such contrary evidence on two points could be gleaned from the
record concerning (1) lack of actual knowledge of insufficiency of funds; and (2) lack of adequate
notice of dishonor.

Noteworthy for the defense knowledge of insufficiency of funds or credit in the drawee bank for
the payment of a check upon its presentment is an essential element of the offense.21 It must be
proved, particularly where the prima facie presumption of the existence of this element has been
rebutted. The prima facie presumption arising from the fact of drawing, issuing or making a check,
the payment of which was subsequently refused for insufficiency of funds is, moreover, not
sufficient proof of guilt by the issuer.
In the case of Nieva v. Court of Appeals,22 it was held that the subsequent dishonor of the subject
check issued by accused merely engendered the prima facie presumption that she knew of the
insufficiency of funds, but did not render the accused automatically guilty under B.P. 22.23

“The prosecution has a duty to prove all the elements of the crime, including the acts that give rise
to the prima facie presumption; petitioner, on the other hand, has a right to rebut the prima facie
presumption. Therefore, if such knowledge of insufficiency of funds is proven to be actually absent
or non-existent, the accused should not be held liable for the offense defined under the first
paragraph of Section 1 of B.P. 22. Although the offense charged is a malum prohibitum, the
prosecution is not thereby excused from its responsibility of proving beyond reasonable doubt all
the elements of the offense, one of which is knowledge of the insufficiency of funds.”

Section 1 of B.P. 22 specifically requires that the person in making, drawing or issuing the check,
be shown that he knows at the time of issue, that he does not have sufficient funds in or credit with
the drawee bank for the payment of such check in full upon its presentment.

In the case at bar, as earlier discussed, petitioner issued the check merely to evidence the
proportionate share of complainant in the partnership assets upon its dissolution. Payment of that
share in the partnership was conditioned on the subsequent realization of profits from the unsold
goods and collection of the receivables of the firm. This condition must be satisfied or complied
with before the complainant can actually “encash” the check. The reason for the condition is that
petitioner has no independent means to satisfy or discharge the complainant’s share, other than by
the future sale and collection of the partnership assets. Thus, prior to the selling of the goods and
collecting of the receivables, the complainant could not, as of yet, demand his proportionate share
in the business. This situation would hold true until after the winding up, and subsequent
termination of the partnership. For only then, when the goods were already sold and receivables
paid that cash money could be availed of by the erstwhile partners. Complainant did not present
any evidence that petitioner signed and issued four checks actually knowing that funds therefor
would be insufficient at the time complainant would present them to the drawee bank. For it was
uncertain at the time of issuance of the checks whether the unsold goods would have been sold, or
whether the receivables would have been collected by the time the checks would be encashed. As
it turned out, three were fully funded when presented to the bank; the remaining one was settled
only later on.

Since petitioner issued these four checks without actual knowledge of the insufficiency of funds,
she could not be held liable under B.P. 22 when one was not honored right away. For it is basic
doctrine that penal statutes such as B.P. 22 “must be construed with such strictness as to carefully
safeguard the rights of the defendant x x x.”24 The element of knowledge of insufficiency of funds
has to be proved by the prosecution; absent said proof, petitioner could not be held criminally
liable under that law. Moreover, the presumption of prima facie knowledge of such insufficiency
in this case was actually rebutted by petitioner’s evidence.

Further, we find that the prosecution also failed to prove adequate notice of dishonor of the subject
check on petitioner’s part, thus precluding any finding of prima facie evidence of knowledge of
insufficiency of funds. There is no proof that notice of dishonor was actually sent by the
complainant or by the drawee bank to the petitioner. On this point, the record is bereft of evidence
to the contrary.

But in fact, while the subject check initially bounced, it was later made good by petitioner. In
addition, the terms of the parties’ compromise agreement, entered into during the pendency of this
case, effectively invalidates the allegation of failure to pay or to make arrangement for the payment
of the check in full. Verily, said compromise agreement constitutes an arrangement for the payment
in full of the subject check. The absence of notice of dishonor is crucial in the present case. As
held by this Court in prior cases:

“Because no notice of dishonor was actually sent to and received by the petitioner, the prima facie
presumption that she knew about the insufficiency of funds cannot apply. Section 2 of B.P. 22
clearly provides that this presumption arises not from the mere fact of drawing, making and issuing
a bum check; there must also be a showing that, within five banking days from receipt of the notice
of dishonor, such maker or drawer failed to pay the holder of the check the amount due thereon or
to make arrangement for its payment in full by the drawee of such check.”25 [Italics supplied.]

“The absence of a notice of dishonor necessarily deprives an accused an opportunity to preclude a

criminal prosecution. Accordingly, procedural due process clearly enjoins that a notice of dishonor
be actually served on petitioner. Petitioner has a right to demand—and the basic postulates of
fairness require—that the notice of dishonor be actually sent to and received by her to afford her
the opportunity to avert prosecution under B.P. 22.”26

Further, what militates strongly against public respondents’ stand is the fact that petitioner
repeatedly notified the complainant of the insufficiency of funds. Instructive is the following
pronouncement of this Court in Magno v. Court of Appeals:

“Furthermore, the element of ‘knowing at the time of issue that he does not have sufficient funds
in or credit with the drawee bank for the payment of such check in full upon its presentment, which
check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would
have been dishonored for the same reason x x x’ is inversely applied in this case. From the very
beginning, petitioner never hid the fact that he did not have the funds with which to put up the
warranty deposit and as a matter of fact, he openly intimated this to the vital conduit of the
transaction, Joey Gomez, to whom petitioner was introduced by Mrs. Teng. It would have been
different if this predicament was not communi- cated to all the parties he dealt with regarding the
lease agreement the financing of which was covered by L.S. Finance Management.”27

In the instant case, petitioner intimated to private complainant the possibility that funds might be
insufficient to cover the subject check, due to the fact that the partnership’s goods were yet to be
sold and receivables yet to be collected.

As Magno had well observed:

“For all intents and purposes, the law was devised to safeguard the interest of the banking system
and the legitimate public checking account user. It did not intend to shelter or favor nor encourage
users of the system to enrich themselves through manipulations and circumvention of the noble
purpose and objective of the law. Least should it be used also as a means of jeopardizing honest-
to-goodness transactions with some color of ‘get-rich’ scheme to the prejudice of well-meaning
businessmen who are the pillars of society.”

xxx

“Thus, it behooves upon a court of law that in applying the punishment imposed upon the accused,
the objective of retribution of a wronged society, should be directed against the ‘actual and
potential wrongdoers.’ In the instant case, there is no doubt that petitioner’s four (4) checks were
used to collateralize an accommodation, and not to cover the receipt of an actual ‘account or credit
for value’ as this was absent, and therefore petitioner should not be punished for mere issuance of
the checks in question. Following the aforecited theory, in petitioner’s stead the ‘potential
wrongdoer,’ whose operation could be a menace to society, should not be glorified by convicting
the petitioner.”28

Under the circumstances obtaining in this case, we find the petitioner to have issued the check in
good faith, with every intention of abiding by her commitment to return, as soon as able, the
investments of complainant in the partnership. Evidently, petitioner issued the check with benign
considerations in mind, and not for the purpose of committing fraud, deceit, or violating public
policy.
To recapitulate, we find the petition impressed with merit. Petitioner may not be held liable for
violation of B.P. 22 for the following reasons: (1) the subject check was not made, drawn and
issued by petitioner in exchange for value received as to qualify it as a check on account or for
value; (2) there is no sufficient basis to conclude that petitioner, at the time of issue of the check,
had actual knowledge of the insufficiency of funds; and (3) there was no notice of dishonor of said
check actually served on petitioner, thereby depriving her of the opportunity to pay or make
arrangements for the payment of the check, to avoid criminal prosecution.

Having resolved the foregoing principal issues, and finding the petition meritorious, we no longer
need to pass upon the validity and legality or necessity of the purported compromise agreement on
civil liability between the petitioner and the complainant.

WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER

ACQUITTED. The Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960 is
hereby REVERSED and the Decision of Regional Trial Court in Criminal Case No. 1395-M-88 is
hereby SET ASIDE.

NO COSTS.

SO ORDERED.

Narvasa (C.J.), Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan,
Panganiban, Martinez and Purisima, JJ., concur.

Mendoza, J., No part, being ponente of appealed decision.

Petition granted, petitioner acquitted.

Notes.—People are forced to borrow money because of financial problems, and it is not a valid
defense to claim that an accused could not have borrowed because he or she is not capable of
paying the amount. (Caca vs. Court of Appeals, 275 SCRA 123 [1997])
To establish a person’s culpability under Batas Pambansa Blg. 22 and Article 315 (2)(d) of the
Revised Penal Code, it is indispensable that the checks he or she issued for which he or she was
subsequently charged, be offered in evidence because the gravamen of the offense charged is the
act of knowingly issuing a check with insufficient funds. (Gutierrez vs. Palattao, 292 SCRA 26
[1998]) Idos vs. Court of Appeals, 296 SCRA 194, G.R. No. 110782 September 25, 1998
G.R. No. 149353. June 26, 2006.*

JOCELYN B. DOLES, petitioner, vs. MA. AURA TINA ANGELES, respondent.

Agency; Evidence; Estoppel; The basis of agency is representation; 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; Though that 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.—This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency
is representation. 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. Agency may even be implied from the words
and conduct of the parties and the circumstances of the particular case. Though 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.

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

Same; If the principals do not actually and personally know each other, such ignorance does not
affect their juridical standing as agents.—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.
Same; Words and Phrases; 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—it will be an agency whether the parties understood the exact nature of the relation or
not.—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. 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.

Same; Loans; Sales; A sale predicated on a loan between the principals in which the agents are not
privy to is void for lack of consideration.—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.

Sales; Mortgages; An assumption of a mortgage debt may constitute a valid consideration for a
sale.—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. This Court in the recent past has declared that an assumption of a mortgage
debt may constitute a valid consideration for a sale.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

Maria Rowena R. Dimson for petitioner.

Salonga, Evasco, Clave Law Office for respondent.

AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning
the Decision1 dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985,
which reversed the Decision dated July 29, 1998 of the Regional Trial Court (RTC), Branch 21,
City of Manila; and the CA Resolution2 dated August 6, 2001 which denied petitioner’s Motion
for Reconsideration.

The antecedents of the case follow:

On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific
Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 97-
82716. Respondent alleged that petitioner was indebted to the former in the concept of a personal
loan amounting to P405,430.00 representing the principal amount and interest; that on October 5,
1996, by virtue of a “Deed of Absolute Sale,”3 petitioner, as seller, ceded to respondent, as buyer,
a parcel of land, as well as the improvements thereon, with an area of 42 square meters, covered
by Transfer Certificate of Title No. 382532,4 and located at a subdivision project known as
Camella Townhomes Sorrente in Bacoor, Cavite, in order to satisfy her personal loan with
respondent; that this property was mortgaged to National Home Mortgage Finance Corporation
(NHMFC) to secure petitioner’s loan in the sum 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 former’s loan with the NHMFC,
at the latter’s expense. No costs.

SO ORDERED.”

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

The CA took into account the following circumstances in their entirety: the supposed friends of
petitioner never presented themselves to respondent and that all transactions were made by and
between petitioner and respondent;7 that the money borrowed waited by the latter to respondent’s
bank account;8 that petitioner herself admitted in open court that she was “re-lending” the money
loaned from respondent to other individuals for profit;9 and that the documentary evidence shows
that the actual borrowers, the friends of petitioner, consider her as their creditor and not the
respondent.10
Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate
consent, since the same is considered just or legal if made to enforce one’s claim through
competent authority under Article 133511 of the Civil Code;12 that with respect to the arrearages
of petitioner on her monthly amortization with the NHMFC in the sum of P26,744.09, the same
shall be deemed part of the balance of petitioner’s loan with the NHMFC which respondent agreed
to assume; and that the amount of P3,000.00 representing the rental for January 1997 supposedly
collected by petitioner, as well as the claim for damages and attorney’s fees, is denied for
insufficiency of evidence.
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that
respondent categorically admitted in open court that she acted only as agent or representative of
Arsenio Pua, the principal financier and, hence, she had no legal capacity to sue petitioner; and
that the CA failed to consider the fact that petitioner’s father, who co-owned the subject property,
was not impleaded as a defendant nor was he indebted to the respondent and, hence, she cannot be
made to sign the documents to effect the transfer of ownership over the entire property.

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

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

I.

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

RESPONDENT.

II.

WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO

COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE
DEBTOR.

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

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

The Petition is meritorious.

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

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

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

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

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

q.You also mentioned that you were not the one indebted to the plaintiff?

witness:Yes, sir.

Atty. Diza:

q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa
Inocencio, Zenaida Romulo, they are your friends?
witness:

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

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

witness:
a.Yes, sir.

Atty. Diza:
q.What is that transaction?

witness:
a.To refer those persons to Aura and to refer again to Arsenio Pua, sir.

Atty. Diza: q. Did the plaintiff personally see the transactions with your friends?
witness: a. No, sir.

Atty. Diza: q.Your friends and the plaintiff did not meet personally?

witness: a.Yes, sir.

Atty. Diza:q.You are intermediaries?

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

witness: a. Yes, she knows the money will go to those persons.

Atty. Diza: q. You are re-lending the money?

witness: a. Yes, sir.

Atty. Diza: q. What profit do you have, do you have commission?

witness:a.Yes, sir.

Atty. Diza: q. How much?

witness: a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends
none, sir.
Based on the foregoing, the CA concluded that petitioner is the real borrower, while the
respondent, the real lender. But as correctly noted by the RTC, respondent, then plaintiff, made
the following admission during her cross examination:23

Atty. Villacorta: q. Who is this Arsenio Pua?

Witness:a. Principal financier, sir.

Atty. Villacorta: q. So the money came from Arsenio Pua?

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

Other portions of the testimony of respondent must likewise be considered:24

Atty. Villacorta: q. So it is not actually your money but the money of Arsenio Pua?

witness: a.Yes, sir.

Court: q.It is not your money?

witness:a.Yes, Your Honor.

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

witness: a. I am aware of that.

Atty. Villacorta: q. More or less she [accommodated] several friends of the defendant?
witness: a. Yes, sir, I am aware of that.
Atty. Villacorta: q. And these friends of the defendant borrowed money from you with the
assurance of the defendant?

witness: a. They go direct to Jocelyn because I don’t know them.

Atty. Villacorta: 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?

witness: a.Yes, there were checks issued.

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: 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.

Atty. Villacorta: q. And because of that Arsenio Pua got mad with you?

witness: Yes, sir.

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.27 Though the fact or extent of authority of the agents may not, as a general
rule, be established from the declarations of the agents alone, if one professes to act as agent for
another, she may be estopped to deny her agency both as against the asserted principal and the
third persons interested in the transaction in which he or she is engaged.28

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

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

In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they
are representing someone else, and so both of them are estopped to deny the same. It is evident
from the record that petitioner merely refers actual borrowers and then collects and disburses the
amounts of the loan upon which she received a commission; and that respondent transacts on
behalf of her “principal financier,” a certain Arsenio Pua. If their respective principals do not
actually and personally know each other, such ignorance does not affect their juridical standing as
agents, especially since the very purpose of agency is to extend the personality of the principal
through the facility of the agent.

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

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

With respect to the second point, particularly, the finding of the CA that the disbursements and
payments for the loan were made through the bank accounts of petitioner and respondent, suffice
it to say that in the normal course of commercial dealings and for reasons of convenience and
practical utility it can be reasonably expected that the facilities of the agent, such as a bank account,
may be employed, and that a sub-agent be appointed, such as the bank itself, to carry out the task,
especially where there is no stipulation to the contrary.

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

2. A further scrutiny of the record shows, however, that the sale might have been backed up by
another consideration that is separate and distinct from the debt: respondent averred in her
complaint and testified that the parties had agreed that as a condition for the conveyance of the
property the respondent shall assume the balance of the mortgage loan which petitioner allegedly
owed to the NHMFC.33 This Court in the recent past has declared that an assumption of a
mortgage debt may constitute a valid consideration for a sale.34 Although the record shows that
petitioner admitted at the time of trial that she owned the property described in the TCT,35 the
Court must stress that the Transfer Certificate of Title No. 38253236 on its face shows that the
owner of the property which admittedly forms the subject matter of the Deed of Absolute Sale
refers neither to the petitioner nor to her father, Teodorico Doles, the alleged co-owner. Rather, it
states that the property is registered in the name of “Household Development Corporation.”
Although there is an entry to the effect that the petitioner had been granted a special power of
attorney “covering the shares of Teodorico Doles on the parcel of land described in this
certificate,”37 it cannot be inferred from this bare notation, nor from any other evidence on the
record, that the petitioner or her father held any direct interest on the property in question so as to
validly constitute a mortgage thereon38 and, with more reason, to effect the delivery of the object
of the sale at the consummation stage.39 What is worse, there is a notation that the TCT itself has
been “cancelled.”In view of these anomalies, the Court cannot entertain the possibility that
respondent agreed to assume the balance of the mortgage loan which petitioner allegedly owed to
the NHMFC, especially since the record is bereft of any factual finding that petitioner was, in the
first place, endowed with any ownership rights to validly mortgage and convey the property. As
the complainant who initiated the case, respondent bears the burden of proving the basis of her
complaint.
Having failed to discharge such burden, the Court has no choice but to declare the sale void for
lack of cause. And since the sale is void, the Court finds it unnecessary to dwell on the issue of
whether duress or intimidation had been foisted upon petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly exists, the Court notes respondent’s allegation that
the mortgage with the NHMFC was for 25 years which began September 3, 1994. Respondent
filed her Complaint for Specific Performance in 1997. Since the 25 years had not lapsed, the prayer
of respondent to compel petitioner to execute necessary documents to effect the transfer of title is
premature.
WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals are
REVERSED and SET ASIDE. The complaint of respondent in Civil Case No. 97-82716 is
DISMISSED.

SO ORDERED.

Panganiban (C.J., Chairperson), Ynares-Santiago, Callejo, Sr. and Chico-Nazario, JJ., concur.

Petition granted, judgment and resolution reversed and set aside.

Notes.—It is common practice for the buyer to inform the seller who referred him; Agents working
on commission basis will not normally pass up a commission by not informing their principal of a
referred buyer. (People vs. Castillo, 333 SCRA 506 [2000])

One factor which most clearly distinguishes agency from other legal concepts is control—one
person (the agent) agreeing to act under the control or direction of another (the principal).
(Victorias Milling Co., Inc. vs. Court of Appeals, 333 SCRA 663 [2000])

In this jurisdiction, it imatter of the litigation even when he believes that such a settlement will
best serve his client’s interest. (Philippine Aluminum Wheels, Inc. vs. FASGI Enterprises, Inc.,
342 SCRA 722
[No. 6906. September 27, 1911.]

FLORENTINO RALLOS ET AL., plaintiffs and appellees, vs. TEODORO R. YANGCO,

defendant and appellant.
1.PRINCIPAL AND AGENT; TERMINATION OF THE AGENCY; DUTY OF PRINCIPAL TO
GIVE DUE NOTICE.—The defendant having advertised the fact that C was his agent, having
given special notice to the plaintiffs of the agency, and having also given them a special invitation
to deal with such agent, it became the defendant's duty, upon the termination of the relationship of
principal and agent, to give due and timely notice thereof to the plaintiffs.
2.ID; ID.; ID.; LIABILITY OF PRINCIPAL.—The general rule is that, when the relationship of
principal and agent is established, and the principal gives notice of the agency and holds out the
agent as his authorized representative, upon the termination of the agency it is the duty of the
principal to give due and timely notice thereof, otherwise, he will be held liable to third parties
acting in good faith and properly relying upon such agency.
APPEAL from a judgment of the Court of First Instance of Cebu. Wislizenus, J.

The facts are stated in the opinion of the court.

Mariano Escueta, for appellant.

Martin M. Levering, for appellees.

MORELAND, J.:

This is an appeal from a judgment of the Court of First Instance of the Province of Cebu, the Hon.
Adolph Wislizenus presiding, in favor of the plaintiffs, in the sum of P1,537.08, with interest at 6
per cent per annum from the month of July, 1909, with costs. The defendant in this case on the
27th day of November, 1907, sent to the plaintiff Florentino Rallos, among others, the following
letter:

"ClRCULAR NO. 1.

"MANILA, November 27, 1907.

"Mr. FLORENTINO RALLOS, Cebú.

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

"1. When the consignment has been received, the consignor thereof will be credited with a sum
not to exceed two-thirds of the value of the goods shipped, which may be made available by
acceptance of a draft or written order of the consignor on five to ten days' sight, or by his ordering
at his option a bill of goods. In the latter case he must pay a commission of 2 per cent.
"2. No draft or written order will be accepted without previous notice forwarding the consignment
of goods to guarantee the same.
"3. Expenses of freight, hauling and everything necessary f or duly executing the commission will
be charged in the commission.
"4. All advances made under sections (1) and (3) shall bear interest at 10 per cent a year, counting
from a month after the making thereof, until liquidated by the sale of the goods shipped or by
remittance of the amount thereof.
"5. A commission of 2½ per cent will be collected on the amount realized from the sale of the
goods shipped.
"6. Payment will be made immediately after collection of the price of the goods shipped.
"7. Orders will be taken for the purchase of general merchandise, ship-stores, cloths, etc., upon
remittance of the amount with the commission of 2 per cent on the total value of the goods bought.
Expenses of freight, hauling, and everything necessary f or properly executing the commission
will be charged to the consignor.
"8. The consignor of the goods may not fix upon the consignee a longer period than f our months,
counting f from the date of receipt, for selling the same; with the understanding that after such
period the consignee is authorized to make the sale, so as to prevent the advance and cost of storage
from amounting to more than the actual value of said goods, as has often happened.
"9. The shipment to the consignors of the goods ordered on account of the amount realized f rom
the sale of the goods consigned and of the goods bought on remittance of the value thereof, under
sections (1) and (3), will not be Insured against risk by sea and land except on written order of the
interested parties.
"10. On all consignments of goods not insured according to the next preceding section, the
consignors will bear the risk.
"11. All the foregoing conditions will take effect only after this office has acknowledged the
consignor's previous notice.
"12, All other conditions and details will be furnished at the office of the undersigned.
"If you care to favor me with your patronage, my office is at No. 163 Muelle de la Reina, Binondo,
Manila, P. I., under the name of 'Teodoro R. Yangco.' In this connection it gives me great pleasure
to introduce to you Mr. Florentino Collantes, upon whom I have conferred public power of attorney
before the notary, Mr. Perfecto Salas Rodriguez, dated November 16, 1907, to perform in my name
and on my behalf all acts necessary for carrying out my plans, in the belief that through his
knowledge and long experience in the business, along with my commercial connections with the
merchants of this city and of the provinces, I may hope to secure the most advantageous prices for
my patrons. Mr. Collantes will sign by power of attorney, so I beg that you make due note of his
signature hereto affixed.

"Very respectfully,

(Sgd.) "T. R. YANGCO.

(Sgd.) "F. COLLANTES."

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

It appears, however, that prior to the sending of said tobacco the defendant had severed his relations
with Collantes and that the latter was no longer acting as his factor. This fact was not known to the
plaintiffs; and it is conceded in the case that no notice of any kind was given by the defendant to
the plaintiffs of the termination of the relations between the defendant and his agent. The de-
fendant refused to pay the said sum upon demand of the plaintiffs, placing such refusal upon the
ground that at the time the said tobacco was received and sold by Collantes he was acting
personally and not as agent of the defendant. This action was brought to recover said sum.

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

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

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

Judgment affirmed.
G.R. No. 167812. December 19, 2006.*

JESUS M. GOZUN, petitioner, vs. JOSE TEOFILO T. MERCADO a.k.a. ‘DON PEPITO
MERCADO,’ respondent.
Contracts; Agency; Special Powers of Attorney; Contracts entered into in the name of another
person by one who has been given no authority or legal representation or who has acted beyond
his powers are classified as unauthorized contracts and are unenforceable, unless they are ratified;
A special power of attorney is necessary for an agent to borrow money, unless it be urgent and
indispensable for the preservation of the things which are under administration.—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. Contracts entered into in the name
of another person by one who has been given no authority or legal representation or who has acted
beyond his powers are classified as unauthorized contracts and are declared unenforceable, unless
they are ratified. Generally, the agency may be oral, unless the law requires a specific form.
However, a special power of attorney is necessary for an agent to, as in this case, borrow money,
unless it be urgent and indispensable for the preservation of the things which are under
administration. Since nothing in this case involves the preservation of things under administration,
a determination of whether Soriano had the special authority to borrow money on behalf of
respondent is in order.
Same; Same; Same; The requirement of a special power of attorney refers to the nature of the
authorization and not to its form—if the special authority is not written, then it must be duly
established by evidence.—Lim Pin v. Liao Tian, et al., 115 SCRA 290 (1982), held that the
requirement of a special power of attorney refers to the nature of the authorization and not to its
form. . . . The requirements are met if there is a clear mandate from the principal specifically
authorizing the performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide
(6 Phil. 680) stated that such a mandate may be either oral or written. The one thing vital being
that it shall be express. And more recently, We stated that, if the special authority is not written,
then it must be duly established by evidence: “… the Rules require, for attorneys to compromise
the litigation of their clients, a special authority. And while the same does not state that the special
authority be in writing the Court has every reason to expect that, if not in writing, the same be duly
established by evidence other than the self-serving assertion of counsel himself that such authority
was verbally given him.”

Same; Same; Same; Real Estate Mortgages; It is a general rule in the law of agency that, in order
to bind the principal by a mortgage on real property executed by an agent, it must upon its face
purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the agent
only.—It bears noting that Lilian signed in the receipt in her name alone, without indicating therein
that she was acting for and in behalf of respondent. She thus bound herself in her personal capacity
and not as an agent of respondent or anyone for that matter. It is a general rule in the law of agency
that, in order to bind the principal by a mortgage on real property executed by an agent, it must
upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it will
bind the agent only. It is not enough merely that the agent was in fact authorized to make the
mortgage, if he has not acted in the name of the principal. x x x

Same; Same; Same; Actions; Parties; One who is not a party to a contract, and for whose benefit
it was not expressly made, cannot maintain an action on it.—In Oco v. Limbaring, 481 SCRA 348
(2006), this Court ruled: The parties to a contract are the real parties in interest in an action upon
it, as consistently held by the Court. Only the contracting parties are bound by the stipulations in
the contract; they are the ones who would benefit from and could violate it. Thus, one who is not
a party to a contract, and for whose benefit it was not expressly made, cannot maintain an action
on it. One cannot do so, even if the contract performed by the contracting parties would incidentally
inure to one’s benefit.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

Bermudo, Reyes, Bermudo & Associates for petitioner.

Roberto L. Mendoza for respondent.

CARPIO-MORALES, J.:

On challenge via petition for review on certiorari is the Court of Appeals’ Decision of December
8, 2004 and Resolution of April 14, 2005 in CA-G.R. CV No. 763091 reversing the trial court’s
decision2 against Jose Teofilo T. Mercado a.k.a. Don Pepito Mercado (respondent) and
accordingly dismissing the complaint of Jesus M. Gozun (petitioner).

In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga. Upon
respondent’s request, petitioner, owner of JMG Publishing House, a printing shop located in San
Fernando, Pampanga, submitted to respondent draft samples and price quotation of campaign
materials.
By petitioner’s claim, respondent’s wife had told him that respondent already approved his price
quotation and that he could start printing the campaign materials, hence, he did print campaign
materials like posters bearing respondent’s photograph,3 leaflets containing the slate of party
candidates,4 sample ballots,5 poll watcher identification cards,6 and stickers.

Given the urgency and limited time to do the job order, petitioner availed of the services and
facilities of Metro Angeles Printing and of St. Joseph Printing Press, owned by his daughter
Jennifer Gozun and mother Epifania Macalino Gozun, respectively.7

Petitioner delivered the campaign materials to respondent’s headquarters along Gapan-Olongapo

Road in San Fer-nando, Pampanga.8

Meanwhile, on March 31, 1995, respondent’s sister-in-law, Lilian Soriano (Lilian) obtained from
petitioner “cash advance” of P253,000 allegedly for the allowances of poll watchers who were
attending a seminar and for other related expenses. Lilian acknowledged on petitioner’s 1995
diary9 receipt of the amount.10

Petitioner later sent respondent a Statement of Account11 in the total amount of P2,177,906
itemized as follows: P640,310 for JMG Publishing House; P837,696 for Metro Angeles Printing;
P446,900 for St. Joseph Printing Press; and P253,000, the “cash advance” obtained by Lilian.

On August 11, 1995, respondent’s wife partially paid P1,000,000 to petitioner who issued a
receipt12 therefor. Despite repeated demands and respondent’s promise to pay, respondent failed
to settle the balance of his account to petitioner.

Petitioner and respondent being compadres, they having been principal sponsors at the weddings
of their respective daughters, waited for more than three (3) years for respondent to honor his
promise but to no avail, compelling petitioner to endorse the matter to his counsel who sent
respondent a demand letter.13 Respondent, however, failed to heed the demand.14

Petitioner thus filed with the Regional Trial Court of Ange-les City on November 25, 1998 a
complaint15 against respondent to collect the remaining amount of P1,177,906 plus “inflationary
adjustment” and attorney’s fees.
In his Answer with Compulsory Counterclaim,16 respondent denied having transacted with
petitioner or entering into any contract for the printing of campaign materials. He alleged that the
various campaign materials delivered to him were represented as donations from his family,
friends and political supporters. He added that all contracts involving his personal expenses were
coursed through and signed by him to ensure compliance with pertinent election laws.

On petitioner’s claim that Lilian, on his (respondent’s) behalf, had obtained from him a cash
advance of P253,000, respondent denied having given her authority to do so and having received
the same.

At the witness stand, respondent, reiterating his allegations in his Answer, claimed that petitioner
was his over-all coordinator in charge of the conduct of seminars for volunteers and the monitoring
of other matters bearing on his candidacy; and that while his campaign manager, Juanito “Johnny”
Cabalu (Cabalu), who was authorized to approve details with regard to printing materials,
presented him some campaign materials, those were partly donated.17

When confronted with the official receipt issued to his wife acknowledging her payment to JMG
Publishing House of the amount of P1,000,000, respondent claimed that it was his first time to see
the receipt, albeit he belatedly came to know from his wife and Cabalu that the P1,000,000
represented “compensation [to petitioner] who helped a lot in the campaign as a gesture of
goodwill.”18

Acknowledging that petitioner is engaged in the printing business, respondent explained that he
sometimes discussed with petitioner strategies relating to his candidacy, he (petitioner) having
actively volunteered to help in his campaign; that his wife was not authorized to enter into a
contract with petitioner regarding campaign materials as she knew her limitations; that he no
longer questioned the P1,000,000 his wife gave petitioner as he thought that it was just proper to
compensate him for a job well done; and that he came to know about petitioner’s claim against
him only after receiving a copy of the complaint, which surprised him because he knew fully well
that the campaign materials were donations.19

Upon questioning by the trial court, respondent could not, however, confirm if it was his
understanding that the campaign materials delivered by petitioner were donations from third
parties.20
Finally, respondent, disclaiming knowledge of the Comelec rule that if a campaign material is
donated, it must be so stated on its face, acknowledged that nothing of that sort was written on all
the materials made by petitioner.21
As adverted to earlier, the trial court rendered judgment in favor of petitioner, the dispositive
portion of which reads:

“WHEREFORE, the plaintiff having proven its (sic) cause of action by preponderance of evidence,
the Court hereby renders a decision in favor of the plaintiff ordering the defendant as follows:

1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest per annum from the filing of
this complaint until fully paid;
2. To pay the sum of P50,000.00 as attorney’s fees and the costs of suit.
SO ORDERED.”22

Also as earlier adverted to, the Court of Appeals reversed the trial court’s decision and dismissed
the complaint for lack of cause of action.

In reversing the trial court’s decision, the Court of Appeals held that other than petitioner’s
testimony, there was no evidence to support his claim that Lilian was authorized by respondent to
borrow money on his behalf. It noted that the acknowledgment receipt23 signed by Lilian did not
specify in what capacity she received the money. Thus, applying Article 131724 of the Civil Code,
it held that petitioner’s claim for P253,000 is unenforceable.

On the accounts claimed to be due JMG Publishing House—P640,310, Metro Angeles Printing—
P837,696, and St. Joseph Printing Press—P446,900, the appellate court, noting that since the
owners of the last two printing presses were not impleaded as parties to the case and it was not
shown that petitioner was authorized to prosecute the same in their behalf, held that petitioner
could not collect the amounts due them.

Finally, the appellate court, noting that respondent’s wife had paid P1,000,000 to petitioner, the
latter’s claim of P640,310 (after excluding the P253,000) had already been settled.

Hence, the present petition, faulting the appellate court to have erred:
“1. . . . when it dismissed the complaint on the ground that there is no evidence, other than
petitioner’s own testimony, to prove that Lilian R. Soriano was authorized by the respondent to
receive the cash advance from the petitioner in the amount of P253,000.00.

xxxx

2. . . . when it dismissed the complaint, with respect to the amounts due to the Metro Angeles Press
and St. Joseph Printing Press on the ground that the complaint was not brought by the real party in
interest.

x x x x”25

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.26 Contracts
entered into in the name of another person by one who has been given no authority or legal
representation or who has acted beyond his powers are classified as unauthorized contracts and are
declared unenforceable, unless they are ratified.27
Generally, the agency may be oral, unless the law requires a specific form.28 However, a special
power of attorney is necessary for an agent to, as in this case, borrow money, unless it be urgent
and indispensable for the preservation of the things which are under administration.29 Since
nothing in this case involves the preservation of things under administration, a determination of
whether Soriano had the special authority to borrow money on behalf of respondent is in order.

Lim Pin v. Liao Tian, et al.30 held that the requirement of a special power of attorney refers to the
nature of the authorization and not to its form.

. . . The requirements are met if there is a clear mandate from the principal specifically authorizing
the performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680)
stated that such a mandate may be either oral or written. The one thing vital being that it shall be
express. And more recently, We stated that, if the special authority is not written, then it must be
duly established by evidence:
“. . . the Rules require, for attorneys to compromise the litigation of their clients, a special authority.
And while the same does not state that the special authority be in writing the Court has every
reason to expect that, if not in writing, the same be duly established by evidence other than the
selfserving assertion of counsel himself that such authority was verbally given him.”31 (Emphasis
and italics supplied)

Petitioner submits that his following testimony suffices to establish that respondent had authorized
Lilian to obtain a loan from him, viz.:
Q:Another caption appearing on Exhibit “A” is cash advance, it states given on 3-31-95 received
by Mrs. Lilian Soriano in behalf of Mrs. Annie Mercado, amount P253,000.00, will you kindly tell
the Court and explain what does that caption means?

A:It is the amount representing the money borrowed from me by the defendant when one morning
they came very early and talked to me and told me that they were not able to go to the bank to get
money for the allowances of Poll Watchers who were having a seminar at the headquarters plus
other election related expenses during that day, sir.

Q:Considering that this is a substantial amount which according to you was taken by Lilian
Soriano, did you happen to make her acknowledge the amount at that time?

A: Yes, sir.32 (Emphasis supplied)

Petitioner’s testimony failed to categorically state, however, whether the loan was made on behalf
of respondent or of his wife. While petitioner claims that Lilian was authorized by respondent, the
statement of account marked as Exhibit “A” states that the amount was received by Lilian “in
behalf of Mrs. Annie Mercado.”

Invoking Article 187333 of the Civil Code, petitioner submits that respondent informed him that
he had authorized Lilian to obtain the loan, hence, following Macke v. Camps which holds that
one who clothes another with apparent au- thority as his agent, and holds him out to the public as
such, respondent cannot be permitted to deny the authority.

Petitioner’s submission does not persuade. As the appellate court observed:

. . . Exhibit “B” [the receipt issued by petitioner] presented by plaintiff-appellee to support his
claim unfortunately only indicates the Two Hundred Fifty Three Thousand Pesos (P253,0000.00)
was received by one Lilian R. Soriano on 31 March 1995, but without specifying for what reason
the said amount was delivered and in what capacity did Lilian R. Soriano received [sic] the money.
The note reads:

“3-31-95

261,120 ADVANCE MONEY FOR TRAINEE—

RECEIVED BY

RECEIVED FROM JMG THE AMOUNT OF 253,000

TWO HUNDRED FIFTY THREE THOUSAND PESOS

(SIGNED)
LILIAN R. SORIANO
3-31-95”

Nowhere in the note can it be inferred that defendant-appellant was connected with the said
transaction. Under Article 1317 of the New Civil Code, a person cannot be bound by contracts he
did not authorize to be entered into his behalf.”35 (Italics supplied)

It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that
she was acting for and in behalf of respondent. She thus bound herself in her personal capacity and
not as an agent of respondent or anyone for that matter.

“It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real
property executed by an agent, it must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent
was in fact authorized to make the mortgage, if he has not acted in the name of the principal. x x
x”36 (Emphasis and italics supplied)
On the amount due him and the other two printing presses, petitioner explains that he was the one
who personally and directly contracted with respondent and he merely subcontracted the two
printing establishments in order to deliver on time the campaign materials ordered by respondent.

Respondent counters that the claim of sub-contracting is a change in petitioner’s theory of the case
which is not allowed on appeal.

In Oco v. Limbaring,37 this Court ruled:

“The parties to a contract are the real parties in interest in an action upon it, as consistently held
by the Court. Only the contracting parties are bound by the stipulations in the contract; they are
the ones who would benefit from and could violate it. Thus, one who is not a party to a contract,
and for whose benefit it was not expressly made, cannot maintain an action on it. One cannot do
so, even if the contract performed by the contracting parties would incidentally inure to one's
benefit.”38 (Italics supplied)

In light thereof, petitioner is the real party in interest in this case. The trial court’s findings on the
matter were af-firmed by the appellate court.39 It erred, however, in not declaring petitioner as a
real party in interest insofar as recovery of the cost of campaign materials made by petitioner’s
mother and sister are concerned, upon the wrong notion that they should have been, but were not,
impleaded as plaintiffs. In sum, respondent has the obligation to pay the total cost of printing his
campaign materials delivered by petitioner in the total of P1,924,906, less the partial payment of
P1,000,000, or P924,906.

WHEREFORE, the petition is GRANTED. The Decision dated December 8, 2004 and the
Resolution dated April 14, 2005 of the Court of Appeals are hereby REVERSED and SET ASIDE.

The April 10, 2002 Decision of the Regional Trial Court of Angeles City, Branch 57, is
REINSTATED mutatis mutandis, in light of the foregoing discussions. The trial court’s decision
is modified in that the amount payable by respondent to petitioner is reduced to P924,906.

SO ORDERED.
 Quisumbing (Chairperson), Carpio, Tinga and Velasco, Jr., JJ., concur.

Petition granted, judgment and resolution reversed and set aside.

Notes.—No voluntary appearance by a foreign corporation can be inferred from the acts of a
lawyer who filed an answer for such corporation where the latter does not claim to have directly
conferred with the former, there is no evidence to show that he notified it of his appearance in its
behalf, or that he furnished it with copies of pleadings or the answer he filed. (Litton Mills, Inc.
vs. Court of Appeals, 256 SCRA 696 [1996])

A Special Power of Attorney which lacks the consent of the principal is void ab initio. (Insurance
Services and Commercial Traders, Inc. vs. Court of Appeals, 341 SCRA 572 [2000
SUPREME COURT REPORTS ANNOTATED

Angeles vs. Philippine National Railways (PNR)

G.R. No. 150128. August 31, 2006.*

LAUREANO T. ANGELES, petitioner, vs. PHILIPPINE NATIONAL RAILWAYS (PNR) AND

RODOLFO FLORES,1 respondents.
Civil Law; Contracts; Agency; Normally, the agent has neither rights nor liabilities as against the
third party; he cannot thus sue or be sued on the contract.—Where agency exists, the third party’s
(in this case, PNR’s) liability on a contract is to the 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, Angeles vs. Philippine National Railways (PNR), 500 SCRA 444, G.R. No.
150128 August 31, 2006 the agent has neither rights nor liabilities as against the third party. He
cannot thus sue or be sued on the contract. Since a contract may be violated only by the parties
thereto as against each other, the real party-in-interest, either as plaintiff or defendant in an action
upon that contract must, generally, be a contracting party.

Agency; Assignee; The legal situation is different where an agent is constituted as an assignee.—
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 his principal, 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 may maintain an action upon such claim
or right.

Civil Law; Contracts; Article 1374 of the Civil Code provides that the various stipulations of a
contract shall be read and interpreted together, attributing to the doubtful ones that sense which
may result from all of them taken jointly.—Article 1374 of the Civil Code provides that the various
stipulations of a contract shall be read and interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. In fine, the real intention of the parties is
primarily to be determined from the language used and gathered from the whole instrument. When
put into the context of the letter as a whole, it is abundantly clear that the rights which Romualdez
waived or ceded in favor of Lizette were those in furtherance of the agency relation 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 letter was couched could be clarified by the acts of the main players
themselves. Article 1371 of the Civil Code provides that to judge the intention of the contracting
parties, their contemporaneous 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 the parties.

Powers of Attorney; 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 certain
specified acts on behalf of the principal.—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 certain specified acts on behalf of the principal. The written authorization itself is the
power of attorney, and this is clearly indicated by the fact that it has also been called a “letter of
attorney.” Its primary purpose is not to define the authority of the agent as between himself and
his principal but to evidence the authority of the agent to third parties with whom the agent
deals.The letter under consideration is sufficient to constitute a power of attorney. Except as may
be required by statute, a power of attorney is valid although no notary public intervened in its
execution. A power of attorney must be strictly construed and pursued. The instrument will be held
to grant only those powers which are specified therein, and the agent may neither go beyond nor
deviate from the power of attorney.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

The facts are stated in the opinion of the Court.

Vicente D. Millora for petitioner.

Dionisio D. Ramos and Frolin H. Remoquillo for respondent PNR.

GARCIA, J.:

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

1. Decision2 dated June 4, 2001, affirming an earlier decision of the Regional Trial Court (RTC)
of Quezon City, Branch 79, which dismissed the complaint for specific performance and damages
thereat commenced by the petitioner against the herein respondents; and
2. Resolution3 dated September 17, 2001, denying the petitioner’s motion for reconsideration.

The facts:

On May 5, 1980, the respondent Philippine National Railways (PNR) informed a certain
Gaudencio Romualdez (Romualdez, hereinafter) that it has accepted the latter’s offer to buy, on
an “AS IS, WHERE IS” basis, the PNR’s scrap/unserviceable rails located in Del 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, PNR’s 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 the bearer,
LIZETTE R. WIJANCO of No. 1606 Aragon St., Sta. Cruz, Manila, to be my lawful representative
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, 1980 and
O.R. No. 8706855 dated May 20, 1980 which will indicate my waiver of rights, interests and
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’s now
deceased wife. That very same day—May 26, 1980—Lizette requested the PNR to transfer the
location of withdrawal for the reason that the scrap/unserviceable rails located in Del Carmen and
Lubao, Pampanga were not ready for hauling. The PNR granted said request and allowed Lizette
to withdraw scrap/unserviceable rails in Murcia, Capas and San Miguel, Tarlac instead. However,
the PNR subsequently suspended the withdrawal in view of what it considered as documentary
discrepancies coupled by reported pilferages of over P500,000.00 worth of PNR scrap properties
in Tarlac.

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 by Lizette, 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 claim for 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 before the Regional Trial
Court of Quezon City. In it, they prayed that PNR be directed to deliver 46 metric tons of
scrap/unserviceable rails and to pay them damages and attorney’s fees.

Issues having been joined following the filing by PNR, et al., of their answer, trial ensued.
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 the real 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 the withdrawal of scrap or
unserviceable rails awarded to him and not an assignee to the latter’s rights with respect to the
award.

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

Hence, the petitioner’s present recourse on the submission that the CA erred in affirming the trial
court’s holding that petitioner and his spouse, as plaintiffs a quo, had no 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 of Romualdez to
Atty. Dizon of the PNR should be taken: was it meant to designate, or has it the effect of
designating, Lizette W. Angeles as a mere agent or as an assignee of his (Romualdez’s) interest in
the scrap rails awarded to San Juanico Enterprises? The CA’s conclusion, affirmatory of that of
the trial court, is that Lizette was not an assignee, 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 to the 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 has neither rights nor liabilities as against
the third party. He cannot thus sue or be sued on the contract. Since a contract may be violated
only by the parties thereto as against each other, the real party-in-interest, either as plaintiff or
defendant in an action upon that 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 his principal, 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 may maintain 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” of Romualdez in the “withdrawal
of rails,” and not an assignee. For perspective, we reproduce the contents of said letter:

“This is to inform you as President of San Juanico Enterprises, that I have authorized the bearer,
LIZETTE R. WIJANCO x x x to be my lawful representative 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, 1980 and
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)

If Lizette was without legal standing to sue and appear in this case, there is more reason to hold
that her petitioner husband, either as her conjugal partner or her heir, is also 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 an agency relation. The agent may also be
called an attorney, proxy, delegate or, as here, 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 in the subject matter.
Stated a bit differently, he intended to limit Lizette’s role in the scrap transaction 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 was intended to be an assignee, and not a mere agent.

We are not persuaded. As it were, the petitioner conveniently omitted an important phrase
preceding the paragraph which would have put the whole matter in context. The phrase is “For this
reason,” and the antecedent thereof is his (Romualdez) having appointed Lizette as his
representative in the matter of the withdrawal of the scrap items. In fine, the key phrase clearly
conveys the idea that Lizette was given the original copy of the contract award to enable her to
withdraw the rails as Romualdez’s authorized representative.

Article 1374 of the Civil Code provides that the various stipulations of a contract shall be read and
interpreted together, attributing to the doubtful ones that sense which may result from all of them
taken jointly. In fine, the real intention of the parties is primarily to be determined from the
language used and gathered from the whole instrument. When put into the context of the letter as
a whole, it is abundantly clear that the rights which Romualdez waived or ceded in favor of Lizette
were those in furtherance of the agency relation 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 letter was couched
could be clarified by the acts of the main players themselves. Article 1371 of the Civil Code
provides that to judge the intention of the contracting parties, their contemporaneous 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 the parties.

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

Whether or not an agency has been created is a question to be determined by the fact that one
represents and is acting for another. The appellate court, and before it, the trial court, had
peremptorily determined that Lizette, with respect to the withdrawal of the scrap 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. The desired reversal urged by the petitioner
cannot, accordingly, be granted. For, factual findings of the trial court, adopted and confirmed by
the CA, are, as a rule, final and conclusive and may not be disturbed on appeal.6 So it must be
here.

Petitioner maintains that the Romualdez letter in question was not in the form of a special 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. In the absence of statute, no form
or method of execution is required for a valid power of attorney; it may be in any form clearly
showing on its face the agent’s 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 certain specified acts on behalf
of the principal. The written authorization itself is the power of attorney, and this is clearly
indicated by the fact that it has also been called a “letter of attorney.” Its primary purpose is not to
define the authority of the agent as between himself and his principal but to evidence the authority
of the agent to third parties with whom the agent deals.8 The letter under consideration is sufficient
to constitute a power of attorney. Except as may be required by statute, a power of attorney is valid
although no notary public intervened in its execution.9

A power of attorney must be strictly construed and pursued. The instrument will be held to grant
only those powers which are specified therein, and the agent may neither go beyond nor deviate
from the power of attorney.10 Contextually, all that Lizette was authorized to do was to withdraw
the unserviceable/scrap railings. Allowing her authority to sue therefor, especially in her own
name, would be to read something not intended, let alone written in the Romualdez letter.

Finally, the petitioner’s claim that Lizette paid the amount of P96,000.00 to the PNR appears to be
a mere afterthought; it ought to be dismissed outright under the estoppel principle. In earlier
proceedings, petitioner himself admitted in his complaint that it was Romualdez who paid this
amount.
WHEREFORE, the petition is DENIED and the assailed decision of the CA is AFFIRMED.

Costs against the petitioner.

SO ORDERED.

Puno (Chairperson), Sandoval-Gutierrez and Azcuna, JJ., concur. Angeles vs. Philippine
National Railways (PNR), 500 SCRA 444, G.R. No. 150128 August 31, 2006
Corona, J., On Leave.

Petition denied, assailed decision affirmed.

Note.—Parties may freely stipulate their duties and obligations which perforce would be binding
on them. (National Sugar Trading vs. Philippine National Bank, 396 SCRA 528 [2003]) Angeles
vs. Philippine National Railways (PNR), 500 SCRA 444, G.R. No. 150128 August 31, 2006
SUPREME COURT REPORTS ANNOTATED

Siasat vs. Intermediate Appellate Court

No. L-67889. October 10, 1985.*

PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners, vs. INTERMEDIATE

APPELLATE COURT and TERESITA NACIANCENO, respondents.
Civil Law; Agency; General Agency; Where general words were employed in an agreement that
no restrictions were intended as to the manner the agency was to be carried out or in the place
where it was to be executed, a general agency is constituted.—One does not have to undertake a
close scrutiny of the document embodying the agreement between the petitioners and the
respondent to deduce that the latter was instituted as a general agent. Indeed, it can easily be seen
by the way general words were employed in the agreement that no restrictions were intended as to
the manner the agency was to be carried out or in the place where it was to be executed. The power
granted to the respondent was so broad that it practically covers the negotiations leading to, and
the execution of, a contract of sale of petitioners' merchandise with any entity or organization.

Same; Same; Same; Contract of agency, not entered through fraudulent representations where no
efforts were exerted to limit the scope of the agency; Case at bar.—lf the circumstances were as
claimed by the petitioners, they would have exerted efforts to protect their interests by limiting the
respondent's authority. There was nothing to prevent the petitioners from stating in the contract of
agency that the respondent could represent them only in the Visayas. Or to state that the
Department of Education and Culture and the Department of National Defense, which alone would
need a million pesos worth of flags, are outside the scope of the agency. As the trial court opined,
it is incredible that they could be so careless after being in the business for fifteen years.

Same; Same; Same; Evidence; General rule that when the terms of an agreement have been
reduced to writing, it is to be considered as construing all such terms and there can be between the
parties and their successors-in-interest no evidence of the terms of the agreement other than the
contents of the writing.—A cardinal rule of evidence embodied in Section 7 Rule 130 of our
Revised Rules of Court states that "when the terms of an agreement have been reduced to writing,
it is to be considered as containing all such terms, and, therefore, there can be between the parties
and their successors-in-interest, no evidence of the terms of the agreement other than the contents
of the writing", except in cases specifically mentioned in the same rule. Petitioners have failed to
show that their agreement falls under any of these exceptions. The respondent was given ample
authority to transact with the Department in behalf of the petitioners.
Same; Same; Same; Contracts; Fact that there were two purchase orders and two deliveries of
merchandise does not involve two separate contracts but only one transaction; Case at bar.—The
petitioners' evidence does not necessarily prove that there were two separate transactions. Exhibit
"6" is a general indorsement made by Secretary Manuel for the purchase of the national flags for
public schools. It contains no reference to the number of flags to be ordered or the amount of funds
to be released. Exhibit "7" is a letter request for a "similar authority" to purchase flags from the
United Flag Industry. This was, however, written by Dr. Narciso Albarracin who was appointed
Acting Secretary of the Department after Secretary Manuel's tenure, and who may not have known
the real nature of the transaction. If the contracts were separate and distinct from one another, the
whole or at least a substantial part of the government's supply procurement process would have
been repeated. In this case, what were issued were mere indorsements for the release of funds and
authorization for the next purchase.

Same; Same; Same; Entitlement of agent to her stipulated commission on the second delivery of
the merchandise despite revocation of the agency effected after the first delivery as only one
transaction is involved; Revocation of agency does not prevent earning of sales commission where
the contract of sale had already been perfected and partly executed.—Since only one transaction
was involved, we deny the petitioners' contention that respondent Nacianceno is not entitled to the
stipulated commission on the second delivery because of the revocation of the agency effected
after the first delivery. The revocation of agency could not prevent the respondent from earning
her commission because as the trial court opined, it came too late, the contract of sale having been
already perfected and partly executed.

Same; Same; Same; Same; Forged Signature; Fact that the agent signed certain documents using
her full name does not rule out the possibility of her signing a mere acknowledgment with her
initial for the given name and the surname written in full.—The stated basis is inadequate to sustain
the respondent's allegation of forgery. A variance in the manner the respondent signed her name
can not be considered as conclusive proof that the questioned signature is a forgery. The mere fact
that the respondent signed thirteen documents using her full name does not rule out the possibility
of her having signed the notation "Fully Paid", with her initial for the given name and the surname
written in full. What she was signing was a mere acknowledgment.

Same; Same; Same; Same; Forgery cannot be presumed, but must be proved.—While the experts
testified in a civil case, the principles developed in criminal cases involving forgery are applicable.
Forgery cannot be presumed. It must be proved.
Same; Same; Same; Revocation of agency; Absence of fraud and bad faith in revocation of agency
by the principal; Fraud and bad faith are not presumed, but must be alleged with sufficient facts;
Revocation of agency, not done by principal to avoid payment of the commission.—Fraud and bad
faith are matters not to be presumed but matters to be alleged with sufficient facts. To support a
judgment for damages, facts which justify the inference of a lack or absence of good faith must be
alleged and proven. (Bacolod-Murcia Milling Co., Inc. v. First Farmers Milling Co., Inc., Etc., 103
SCRA 436). There is no evidence on record from which to conclude that the revocation of the
agency was deliberately effected by the petitioners to avoid payment of the respondent's
commission. What appears before us is only the petitioner's use in court of such a factual allegation
as a defense against the respondent's claim. This alone does not per se make the petitioners guilty
of bad faith for that defense should have been fully litigated.

Same; Same; Damages; Moral damages, cannot be awarded, absent a wrongful act or omission or
of fraud or bad faith.—Moral damages cannot be awarded in the absence of a wrongful act or
omission or of fraud or bad faith. (R & B Surety & Insurance Co., Inc. v. Intermediate Appellate
Court, 129 SCRA 736). We therefore, rule that the award of P 25,000.00 as moral damages is
without basis.

Same; Same; Same; A ttorney 's Fees; No award of attorney's fees where the agent did not come
to court with clean hands and that the principals believed they could legally revoke the agency and
did not have to pay a commission for the second delivery of the merchandise.—The underlying
circumstances of this case lead us to rule out any award of attorney's fees. For one thing, the
respondent did not come to court with completely clean hands. For another, the petitioners
apparently believed they could legally revoke the agency in the manner they did and deal directly
with education officials handling the purchase of Philippine flags. They had reason to sincerely
believe they did not have to pay a commission for the second delivery of flags.

Same; Same; 30% commission or P300,000 fee for a P1 million price for purchase of flags awarded
to an agent of the merchandise or the facilitator of documents, abhorred; Procurement policies of
the Department of Education in its purchase of Philippine flags thru an agent instead of directly
through the manufacturers, not proper.—We cannot close this case without commenting adversely
on the inexplicably strange procurement policies of the Department of Education and Culture in
its purchase of Philippine flags. There is no reason why a shocking 30% of the taxpayers' money
should go to an agent or facilitator who had no flags to sell and whose only work was to secure
and handcarry the indorsements of education and budget officials. There are only a few
manufacturers of flags in our country with the petitioners claiming to have supplied flags for our
public schools on earlier occasions. If public bidding was deemed unnecessary, the Department
should have negotiated directly with flag manufacturers. Considering the sad plight of underpaid
and overworked classroom teachers whose pitiful salaries and allowances cannot sometimes be
paid on time, a P300,000.00 fee for a P1,000,000.00 purchase of flags is not only clearly
unnecessary but a scandalous waste of public funds as well.
PETITION for certiorari to review the decision of the Intermediate Appellate Court.

The facts are stated in the opinion of the Court.

Payawal, Jimenez & A ssociates for petitioners.

Nelson A Loyola for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review of the decision of the Intermediate Appellate Court affirming in toto
the judgment of the Court of First Instance of Manila, Branch XXI, which ordered the petitioner
to pay respondent the thirty percent (30%) commission on 15,666 pieces of Philippine flags worth
P936,960.00, moral damages, attorney's fees and the costs of the suit.

Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing officials of the then
Department of Education and Culture, hereinafter called Department, to purchase without public
bidding, one million pesos worth of national flags for the use of public schools throughout the
country. The respondent was able to expedite the approval of the purchase by handcarrying the
different indorsements from one office to another, so that by the first week of September, 1974,
all the legal requirements had been complied with, except the release of the purchase orders, When
Nacianceno was informed by the Chief of the Budget Division of the Department that the purchase
orders could not be released unless a formal offer to deliver the flags in accordance with the
required specifications was first submitted for approval, she contacted the owners of the United
Flag Industry on September 17, 1974. The next day, after the transaction was discussed, the
following document (Exhibit A) was drawn up:

"Mrs. Tessie Nacianceno,

"This is to formalize our agreement for you to represent United Flag Industry to deal with any
entity or organization, private or government in connection with the marketing of our products—
flags and all its accessories. "For your service, you will be entitled to a commission of thirty (30%)
percent.

Signed
Mr. Primitivo Siasat
Owner and Gen. Manager"

On October 16, 1974, the first delivery of 7,933 flags was made by the United Flag Industry. The
next day, on October 17, 1974, the respondent's authority to represent the United Flag Industry
was revoked by petitioner Primitivo Siasat.

According to the findings of the courts below, Siasat, after receiving the payment of P469,980.00
on October 23, 1974 for the first delivery, tendered the amount of P23,900.00 or five percent (5%)
of the amount received, to the respondent as payment of her commission. The latter allegedly
protested. She refused to accept the said amount insisting on the 30% commission agreed upon.
The respondent was prevailed upon to accept the same, however, because of the assurance of the
petitioners that they would pay the commission in full after they delivered the other half of the
order. The respondent states that she later on learned that petitioner Siasat had already received
payment for the second delivery of 7,833 flags. When she confronted the petitioners, they
vehemently denied receipt of the payment, at the same time claiming that the respondent had no
participation whatsoever with regard to the second delivery of flags and that the agency had already
been revoked.

The respondent originally filed a complaint with the Complaints and Investigation Office in
Malacañang but when nothing came of the complaint, she filed an action in the Court of First
Instance of Manila to recover the following commissions: 25% as balance on the first delivery and
30% on the second delivery.

The trial court decided in favor of the respondent. The dispositive portion of the decision reads as
follows:

"WHEREFORE, judgment is hereby rendered sentencing Primitivo Siasat to pay to the plaintiff
the sum of P281,988.00, minus the sum P23,900.00, with legal interest from the date of this
decision, and ordering the defendants to pay jointly and solidarily the sum of P25,000.00 as moral
damages, and P25,000.00 as attorney's fees, also with legal interest from the date of this decision,
and the costs."
The decision was affirmed in toto by the Intermediate Appellate Court. After their motion for
reconsideration was denied, the petitioners went to this Court on a petition for review on August
6,1984.

In assailing the appellate court's decision, the petition tenders the following arguments: first, the
authorization making the respondent the petitioner's representative merely states that she could
deal with any entity in connection with the marketing of their products for a commission of 30%.
There was no specific authorization for the sale of 15,666 Philippine flags to the Department;
second, there were two transactions involved evidenced by the separate purchase orders and
separate delivery receipts, Exhibit 6-C for the purchase and delivery on October 16, 1974, and
Exhibits 7 to 7-C, for the purchase and delivery on November 6, 1974. The revocation of agency
effected by the parties with mutual consent on October 17, 1974, therefore, forecloses the
respondent's claim of 30% commission on the second transaction; and last, there was no basis for
the granting of attorney's fees and moral damages because there was no showing of bad faith on
the part of the petitioner. It was respondent who showed bad faith in denying having received her
commission on the first delivery. The petitioner's counterclaim, therefore, should have been
granted.

This petition was initially dismissed for lack of merit in a minute resolution. On a motion for
reconsideration, however. this Court gave due course to the petition on November 14, 1984.

After a careful review of the records, we are constrained to sustain with some modifications the
decision of the appellate court.

We find petitioners' argument regarding respondent's incapacity to represent them in the

transaction with the Department untenable. There are several kinds of agents. To quote a
commentator on the matter:

"An agent may be (1) universal; (2) general, or (3) special. A universal agent is one authorized to
do all acts for his principal which can lawfully be delegated to an agent. So far as such a condition
is possible, such an agent may be said to have universal authority. (Mec. Sec. 58).

"A general agent is one authorized to do all acts pertaining to a business of a certain kind or at a
particular place, or all acts pertaining to a business of a particular class or series. He has usually
authority either expressly conferred in general terms or in effect made general by the usages,
customs or nature of the business which he is authorized to transact.

"An agent, therefore, who is empowered to transact all the business of his principal of a particular
kind or in a particular place, would, for this reason, be ordinarily deemed a general agent. (Mec.
Sec. 60).

"A special agent is one authorized to do some particular act or to act upon some particular occasion.
He acts usually in accordance with specific instructions or under limitations necessarily implied
from the nature of the act to be done." (Mec. Sec. 61) (Padilla, Civil Law, The Civil Code
Annotated, Vol. VI, 1969 Edition, p. 204).

One does not have to undertake a close scrutiny of the document embodying the agreement
between the petitioners and the respondent to deduce that the latter was instituted as a general
agent. Indeed, it can easily be seen by the way general words were employed in the agreement that
no restrictions were intended as to the manner the agency was to be carried out or in the place
where it was to be executed. The power granted to the respondent was so broad that it practically
covers the negotiations leading to, and the execution of, a contract of sale of petitioners'
merchandise with any entity or organization.

There is no merit in petitioners' allegations that the contract of agency between the parties was
entered into under fraudulent representation because respondent "would not disclose the agency
with which she was supposed to transact and made the petitioner believe that she would be dealing
with the Visayas", and that "the petitioner had known of the transactions and/or project for the said
purchase of the Philippine flags by the Department of Education and Culture and precisely it was
the one being f ollowed up also by petitioner.''
If the circumstances were as claimed by the petitioners, they would have exerted efforts to protect
their interests by limiting the respondent's authority. There was nothing to prevent the petitioners
from stating in the contract of agency that the respondent could represent them only in the Visayas.
Or to state that the Department of Education and Culture and the Department of National Defense,
which alone would need a million pesos worth of flags, are outside the scope of the agency. As the
trial court opined, it is incredible that they could be so careless af ter being in the business for
fifteen years.

A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules of Court states
that "when the terms of an agreement have been reduced to writing, it is to be considered as
containing all such terms, and, therefore, there can be between the parties and their successors-in-
interest, no evidence of the terms of the agreement other than the contents of the writing", except
in cases specifically mentioned in the same rule. Petitioners have failed to show that their
agreement falls under any of these exceptions. The respondent was given ample authority to
transact with the Department in behalf of the petitioners. Equally without merit is the petitioners'
proposition that the transaction involved two separate contracts because there were two purchase
orders and two deliveries.

The petitioners' evidence is overcome by other pieces of evidence proving that there was only one
transaction. The indorsement of then Assistant Executive Secretary Roberto Reyes to the Budget
Commission on September 3, 1974 (Exhibit "C") attests to the fact that out of the total budget of
the Department for the fiscal year 1975, "P1,000,000.00 is for the purchase of national flags." This
is also reflected in the Financial and Work Plan Request for Allotment (Exhibit "F") submitted by
Secretary Juan Manuel for fiscal year 1975 which however, divided the allocation and release of
the funds into three, corresponding to the second, third, and fourth quarters of the said year. Later
correspondence between the Department and the Budget Commission (Exhibits "D" and "E") show
that the first allotment of P500,000.00 was released during the second quarter. However, due to
the necessity of furnishing all of the public schools in the country with the Philippine flag,
Secretary Manuel requested for the immediate release of the programmed allotments intended for
the third and fourth quarters. These circumstances explain why two purchase orders and two
deliveries had to be made on one transaction.

The petitioners' evidence does not necessarily prove that there were two separate transactions.
Exhibit "6" is a general indorsement made by Secretary Manuel for the purchase of the national
flags for public schools. It contains no reference to the number of flags to be ordered or the amount
of funds to be released. Exhibit "7" is a letter request for a "similar authority" to purchase flags
from the United Flag Industry. This was, however, written by Dr. Narciso Albarracin who was
appointed Acting Secretary of the Department after Secretary Manuel's tenure, and who may not
have known the real nature of the transaction.

If the contracts were separate and distinct from one another, the whole or at least a substantial part
of the government's supply procurement process would have been repeated. In this case, what were
issued were mere indorsements for the release of funds and authorization for the next purchase.

Since only one transaction was involved, we deny the petitioners' contention that respondent
Nacianceno is not entitled to the stipulated commission on the second delivery because of the
revocation of the agency effected after the first delivery. The revocation of agency could not
prevent the respondent from earning her commission because as the trial court opined, it came too
late, the contract of sale having been already perf ected and partly executed.
In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one in principle, this
Court held:

"We do not mean to question the general doctrine as to the power of a principal to revoke the
authority of his agent at will, in the absence of a contract fixing the duration of the agency (subject,
however, to some well defined exceptions). Our ruling is that at the time fixed by the manager of
the plaintiff company for the termination of the negotiations, the defendant real estate agent had
already earned the commissions agreed upon, and could not be deprived thereof by the arbitrary
action of the plaintiff company in declining to execute the contract of sale for some reason personal
to itself."

The principal cannot deprive his agent of the commission agreed upon by cancelling the agency
and, thereafter, dealing directly with the buyer. (Infante v. Cunanan, 93 Phil. 691).

The appellate court's citation of its previous ruling in Heimbrod, et al v. Ledesma (C.A. 49 O.G.
1507) is correct:

"The appellee is entitled to recovery. No citation is necessary to show that the general law of
contracts the equitable principle of estoppel, and the expense of another, uphold payment of
compensation for services rendered."

There is merit, however, in the petitioners' contention that the agent's commission on the first
delivery was fully paid. The evidence does not sustain the respondent's claim that the petitioners
paid her only 5% and that their right to collect another 25% commission on the first delivery must
be upheld.

When respondent Nacianceno asked the Malacañang Complaints and Investigation Office to help
her collect her commission, her statement under oath referred exclusively to the 30% commission
on the second delivery, The statement was emphatic that "now" her demand was for the 30%
commission on the second release of P469,980.00. The demand letter of the respondent's lawyer
dated November 13, 1984 asked petitioner Siasat only for the 30% commission due from the
second delivery. The fact that the respondent demanded only the commission on the second
delivery without reference to the alleged unpaid balance—which was only slightly less than the
amount claimed—can only mean that the commission on the first delivery was already fully paid.
Considering the sizeable sum involved, such an omission is too glaringly remiss to be regarded as
an oversight.

Moreover, the respondent's authorization letter (Exhibit "5") bears her signature with the
handwritten words "Fully Paid'', inscribed above it.

The respondent contested her signature as a forgery. Handwriting experts from two government
agencies testified on the matter. The reason given by the trial court in ruling for the respondent is
too flimsy to warrant a finding of forgery.

The court stated that in thirteen documents presented as exhibits, the private respondent signed her
name as "Tessie Nacianceno" while in this particular instance, she signed as "T. Nacianceno."

The stated basis is inadequate to sustain the respondent's allegation of forgery. A variance in the
manner the respondent signed her name can not be considered as conclusive proof that the
questioned signature is a forgery. The mere fact that the respondent signed thirteen documents
using her full name does not rule out the possibility of her having signed the notation. "Fully Paid",
with her initial for the given name and the surname written in full. What she was signing was a
mere acknowledgment.

This leaves the expert testimony as the sole basis for the verdict of f orgery.

In support of their allegation of full payment as evidenced by the signed authorization letter
(Exhibit "5-A"), the petitioners presented as witness Mr. Francisco Cruz, Jr. a senior document
examiner of the Philippine Constabulary Crime Laboratory. In rebuttal, the respondent presented
Mr. Arcadio Ramos, a junior document examiner of the National Bureau of Investigation.

While the experts testified in a civil case, the principles developed in criminal cases involving
forgery are applicable. Forgery cannot be presumed. It must be proved.

In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:

xxx xxx xxx

"x x x Where the evidence, as here, gives rise to two probabilities, one consistent with the
defendant's innocence and another indicative of his guilt, that which is favorable to the accused
should be considered. The constitutional presumption of innocence continues until overthrown by
proof of guilt beyond reasonable doubt, which requires moral certainty which convinces and
satisfies the reason and conscience of those who are to act upon it. (People v. Clores, et al., 125
SCRA 67; People v. Bautista, 81 Phil. 78).

We ruled in another case that where the supposed expert's testimony would constitute the sole
ground for conviction and there is equally convincing expert testimony to the contrary, the
constitutional presumption of innocence must prevail. (Lorenzo Ga. Cesar v. Hon. Sandiganbayan
and People of the Philippines, 134 SCRA 105) In the present case, the circumstances earlier
mentioned taken with the testimony of the PC senior document examiner lead us to rule against
forgery.

We also rule against the respondent's allegation that the petitioners acted in bad faith when they
revoked the agency given to the respondent.

Fraud and bad faith are matters not to be presumed but matters to be alleged with sufficient facts.
To support a judgment for damages, facts which justify the inference of a lack or absence of good
faith must be alleged and proven. (BacolodMurcia Milling Co., Inc. vs. First Farmers Milling Co.,
Inc., Etc., 103 SCRA 436).

There is no evidence on record from which to conclude that the revocation of the agency was
deliberately effected by the petitioners to avoid payment of the respondent's commission. What
appears before us is only the petitioner's use in court of such a factual allegation as a defense
against the respondent's claim. This alone does not per se make the petitioners guilty of bad f aith
f or that defense should have been fully litigated.

Moral damages cannot be awarded in the absence of a wrongful act or omission or of fraud or bad
faith. (R & B Surety & Insurance Co., Inc. vs. Intermediate Appellate Court, 129 SCRA 736).

We therefore, rule that the award of P25,000.00 as moral damages is without basis.
The additional award of P25,000.00 damages by way of attorney's fees, was given by the courts
below on the basis of Article 2208, Paragraph 2, of the Civil Code, which provides: "When the
defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interests;" attorney's fees may be awarded as damages. (Pirovano, et al. v.
De la Rama Steamship Co., 96 Phil. 335).

The underlying circumstances of this case lead us to rule out any award of attorney's fees. For one
thing, the respondent did not come to court with completely clean hands. For another, the
petitioners apparently believed they could legally revoke the agency in the manner they did and
deal directly with education officials handling the purchase of Philippine flags. They had reason
to sincerely believe they did not have to pay a commission for the second delivery of flags.

We cannot close this case without commenting adversely on the inexplicably strange procurement
policies of the Department of Education and Culture in its purchase of Philippine flags. There is
no reason why a shocking 30% of the taxpayers' money should go to an agent or facilitator who
had no flags to sell and whose only work was to secure and handcarry the indorsements of
edacation and budget officials. There are only a few manufacturers of flags in our country with the
petitioners claiming to have supplied flags for our public schools on earlier occasions. If public
bidding was deemed unnecessary, the Department should have negotiated directly with flag
manufacturers. Considering the sad plight of underpaid and overworked classroom teachers whose
pitiful salaries and allowances cannot sometimes be paid on time, a P300,000.00 fee for a
P1,000,000.00 purchase of flags is not only clearly unnecessary but a scandalous waste of public
funds as well.

WHEREFORE, the decision of the respondent court is hereby MODIFIED. The petitioners are
ordered to pay the respondent the amount of ONE HUNDRED FORTY THOUSAND NINE
HUNDRED AND NINETY FOUR PESOS (P140,994.00) as her commission on the second
delivery of flags with legal interest from the date of the trial court's decision, No pronouncement
as to costs.

SO ORDERED.

Relova, De la Fuente and Patajo, JJ., concur.

Teehankee, J., Let copy hereof be furnished the Commission on Audit for appropriate remedial
action, as it may take. Melencio-Herrera, J., on leave.
 Plana, J., no part.

Decision modified.

Note.—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 (Article 1868,
Civil Code). Representation constitutes the principal basis of agency, its purpose is to extend the
personality of the principal and the result is to convert real absence into juridical presence. Agency
creates a fiduciary relation. Its characteristics are: (1) Consensual—because it is perfected by mere
consent (Article 1869, par. 2 Civil Code) except in the case of sale of land or an interest therein
where the authority of the agent must be in writing otherwise the sale is void (Article 1874); (2)
Unilateral if it is gratuitous and bilateral if it is for a compensation, but the presumption is that it
is for a compensation (Article 1875); (3) Preparatory—because the purpose is to enter into other
contracts.
Veloso vs. Court of Appeals

G.R. No. 102737. August 21, 1996.*

FRANCISCO A. VELOSO, petitioner, vs. COURT OF AP-PEALS, AGLALOMA B. ESCARIO,

assisted by her husband GREGORIO L. ESCARIO, the REGISTER OF DEEDS FOR THE CITY
OF MANILA, respondents.
Agency; Powers of Attorney; Evidence; Notarial Law; A nota-rized power of attorney carries with
it the evidentiary weight conferred upon it with respect to its due execution.— An examination of
the records showed that the assailed power of attorney was valid and regular on its face. It was
notarized and as such, it carries the evi-dentiary weight conferred upon it with respect to its due
execution.

Same; Same; Where the general power of attorney expressly authorizes the agent or attorney in
fact the power to sell, there is no need to execute a separate and special power of attorney.—Thus,
there was no need to execute a separate and special power of attorney since the general power of
attorney had expressly authorized the agent or attorney in fact the power to sell the subject
property. The special power of attorney can be included in the general power when it is specified
therein the act or transaction for which the special power is required.

Same; Same; Evidence; Forgery; Mere variance of the signatures cannot be considered as
conclusive proof that the same were forged—forgery cannot be presumed.—We found, however,
that the basis presented by the petitioner was inadequate to sustain his allegation of forgery. Mere
variance of the signatures cannot be considered as conclusive proof that the same were forged.
Forgery cannot be presumed. Petitioner, however, failed to prove his allegation and simply relied
on the apparent difference of the signatures. His denial had not established that the signature on
the power of attorney was not his.

Same; Same; Same; Same; Forgery should be proved by clear and convincing evidence and
whoever alleges it has the burden of proving the same.—Documents acknowledged before a notary
public have the evidentiary weight with respect to their due execution. The questioned power of
attorney and deed of sale, were notarized and therefore, presumed to be valid and duly executed.
Atty. Tubig denied having notarized the said documents and alleged that his signature had also
been falsified. He presented samples of his signature to prove his contention. Forgery should be
proved by clear and convincing evidence and whoever alleges it has the burden of proving the
same. Just like the petitioner, witness Atty. Tubig merely pointed out that his signature was
different from that in the power of attorney and deed of sale. There had never been an accurate
examination of the signature, even that of the petitioner.

Same; Same; Same; Same; Test to Determine Forgery.—To determine forgery, it was held in Cesar
vs. Sandiganbayan (quoting Osborn, The Problem of Proof) that: “The process of identification,
therefore, must include the determination of the extent, kind, and significance of this resemblance
as well as of the variation. It then becomes necessary to determine whether the variation is due to
the operation of a different personality, or is only the expected and inevitable variation found in
the genuine writing of the same writer. It is also necessary to decide whether the resemblance is
the result of a more or less skillful imitation, or is the habitual and characteristic resemblance
which naturally appears in a genuine writing. When these two questions are correctly answered
the whole problem of identification is solved.”

Same; Same; Sales; Words and Phrases; A purchaser in good faith is one who buys property of
another, without notice that some other person has a right to, or interest in such property and pays
a full and fair price for the same, at the time of such purchase, or before he has notice of the claim
or interest of some other person in the property.—We agree with the conclusion of the lower court
that private respondent was an innocent purchaser for value. Respondent Aglaloma relied on the
power of attorney presented by petitioner’s wife, Irma. Being the wife of the owner and having
with her the title of the property, there was no reason for the private respondent not to believe in
her authority. Moreover, the power of attorney was notarized and as such, carried with it the
presumption of its due execution. Thus, having had no inkling on any irregularity and having no
participation thereof, private respondent was a buyer in good faith. It has been consistently held
that a purchaser in good faith is one who buys property of another, without notice that some other
person has a right to, or interest in such property and pays a full and fair price for the same, at the
time of such purchase, or before he has notice of the claim or interest of some other person in the
property.

Same; Same; Same; The right of an innocent purchaser for value must be respected and protected,
even if the seller obtained his title through fraud.—Even granting for the sake of argument, that
the petitioner’s signature was falsified and consequently, the power of attorney and the deed of
sale were null and void, such fact would not revoke the title subsequently issued in favor of private
respondent Aglaloma. In Tenio-Obsequio vs. Court of Appeals, it was held, viz: “The right of an
innocent purchaser for value must be respected and protected, even if the seller obtained his title
through fraud. The remedy of the person prejudiced is to bring an action for damages against those
who caused or employed the fraud, and if the latter are insolvent, an action against the Treasurer
of the Philippines may be filed for recovery of damages against the Assurance Fund.”
Same; Same; Same; Estoppel; Words and Phrases; The principle of equitable estoppel states that
where one or two innocent persons must suffer a loss, he who by his conduct made the loss possible
must bear it.—Finally, the trial court did not err in applying equitable estoppel in this case. The
principle of equitable estoppel states that where one or two innocent persons must suffer a loss, he
who by his conduct made the loss possible must bear it.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Bernas Law Offices for petitioner.

Edgardo A. Arandia for private respondent.

TORRES, JR., J.:

This petition for review assails the decision of the Court of Appeals, dated July 29, 1991, the
dispositive portion of which reads: “WHEREFORE, the decision appealed from is hereby
AFFIRMED IN TOTO. Costs against appellant.”1

The following are the antecedent facts:

Petitioner Francisco Veloso was the owner of a parcel of land situated in the district of Tondo,
Manila, with an area of one hundred seventy seven (177) square meters and covered by Transfer
Certificate of Title No. 49138 issued by the Registry of Deeds of Manila.2 The title was registered
in the name of Francisco A. Veloso, single,3 on October 4, 1957.4 The said title was subsequently
cancelled and a new one, Transfer Certificate of Title No. 180685, was issued in the name of
Aglaloma B. Escario, married to Gregorio L. Escario, on May 24, 1988.5

On August 24, 1988, petitioner Veloso filed an action for annulment of documents, reconveyance
of property with damages and preliminary injunction and/or restraining order. The complaint,
docketed as Civil Case No. 88-45926, was raffled to the Regional Trial Court, Branch 45, Manila.
Petitioner alleged therein that he was the absolute owner of the subject property and he never
authorized anybody, not even his wife, to sell it. He alleged that he was in possession of the title
but when his wife, Irma, left for abroad, he found out that his copy was missing. He then verified
with the Registry of Deeds of Manila and there he discovered that his title was already cancelled
in favor of defendant Aglaloma Escario. The transfer of property was supported by a General
Power of Attorney6 dated November 29, 1985 and Deed of Absolute Sale, dated November 2,
1987, executed by Irma Veloso, wife of the petitioner and appearing as his attorney-in-fact, and
defendant Aglaloma Escario.7 Petitioner Veloso, however, denied having executed the power of
attorney and alleged that his signature was falsified. He also denied having seen or even known
Rosemarie Reyes and Imelda Santos, the supposed witnesses in the execution of the power of
attorney. He vehemently denied having met or transacted with the defendant. Thus, he contended
that the sale of the property, and the subsequent transfer thereof, were null and void. Petitioner
Veloso, therefore, prayed that a temporary restraining order be issued to prevent the transfer of the
subject property; that the General Power of Attorney, the Deed of Absolute Sale and the Transfer
Certificate of Title No. 180685 be annulled; and the subject property be reconveyed to him.

Defendant Aglaloma Escario in her answer alleged that she was a buyer in good faith and denied
any knowledge of the alleged irregularity. She allegedly relied on the general power of attorney of
Irma Veloso which was sufficient in form and substance and was duly notarized. She contended
that plaintiff (herein petitioner), had no cause of action against her. In seeking for the declaration
of nullity of the documents, the real party in interest was Irma Veloso, the wife of the plaintiff.
She should have been impleaded in the case. In fact, Plaintiff’s cause of action should have been
against his wife, Irma. Consequently, defendant Escario prayed for the dismissal of the complaint
and the payment to her of damages.8

Pre-trial was conducted. The sole issue to be resolved by the trial court was whether or not there
was a valid sale of the subject property.9

During the trial, plaintiff (herein petitioner) Francisco Veloso testified that he acquired the subject
property from the Philippine Building Corporation, as evidenced by a Deed of Sale dated October
1, 1957.10 He married Irma Lazatin on January 20, 1962.11 Hence, the property did not belong to
their conjugal partnership. Plaintiff further asserted that he did not sign the power of attorney and
as proof that his signature was falsified, he presented Allied Bank Checks Nos. 16634640,
16634641 and 16634643, which allegedly bore his genuine signature.

Witness for the plaintiff Atty. Julian G. Tubig denied any participation in the execution of the
general power of attorney. He attested that he did not sign thereon, and the same was never entered
in his Notarial Register on November 29, 1985.
In the decision of the trial court dated March 9, 1990,12 defendant Aglaloma Escario was adjudged
the lawful owner of the property as she was deemed an innocent purchaser for value. The assailed
general power of attorney was held to be valid and sufficient for the purpose. The trial court ruled
that there was no need for a special power of attorney when the special power was already
mentioned in the general one. It also declared that plaintiff failed to substantiate his allegation of
fraud. The court also stressed that plaintiff was not entirely blameless for although he admitted to
be the only person who had access to the title and other important documents, his wife was still
able to possess the copy. Citing Section 55 of Act 496, the court held that Irma’s possession and
production of the certificate of title was deemed a conclusive authority from the plaintiff to the
Register of Deeds to enter a new certificate. Then applying the principle of equitable estoppel,
plaintiff was held to bear the loss for it was he who made the wrong possible. Thus:

“WHEREFORE, the Court finds for the defendants and against plaintiff—

a. declaring that there was a valid sale of the subject property in favor of the defendant;
b. denying all other claims of the parties for want of legal and factual basis.
Without pronouncement as to costs.

SO ORDERED.”

Not satisfied with the decision, petitioner Veloso filed his appeal with the Court of Appeals. The
respondent court affirmed in toto the findings of the trial court.

Hence, this petition for review before Us.

This petition for review was initially dismissed for failure to submit an affidavit of service of a
copy of the petition on the counsel for private respondent.13 A motion for reconsideration of the
resolution was filed but it was denied in a resolution dated March 30, 1992.14 A second motion
for reconsideration was filed and in a resolution dated Aug. 3, 1992, the motion was granted and
the petition for review was reinstated.15

A supplemental petition was filed on October 9, 1992 with the following assignment of errors:
I

The Court of Appeals committed a grave error in not finding that the forgery of the power of
attorney (Exh. “C”) had been adequately proven, despite the preponderant evidence, and in doing
so, it has so far departed from the applicable provisions of law and the decisions of this Honorable
Court, as to warrant the grant of this petition for review on certiorari.

II

There are principles of justice and equity that warrant a review of the decision.
III

The Court of Appeals erred in affirming the decision of the trial court which misapplied the
principle of equitable estoppel since the petitioner did not fail in his duty of observing due diligence
in the safekeeping of the title to the property.

We find petitioner’s contentions not meritorious.

An examination of the records showed that the assailed power of attorney was valid and regular
on its face. It was notarized and as such, it carries the evidentiary weight conferred upon it with
respect to its due execution. While it is true that it was denominated as a general power of attorney,
a perusal thereof revealed that it stated an authority to sell, to wit:

“2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands, tenements and
hereditaments or other forms of real property, more specifically TCT No. 49138, upon such terms
and conditions and under such covenants as my said attorney shall deem fit and proper.”16

Thus, there was no need to execute a separate and special power of attorney since the general
power of attorney had expressly authorized the agent or attorney in fact the power to sell the subject
property. The special power of attorney can be included in the general power when it is specified
therein the act or transaction for which the special power is required.
The general power of attorney was accepted by the Register of Deeds when the title to the subject
property was cancelled and transferred in the name of private respondent. In LRC Consulta No.
123, Register of Deeds of Albay, Nov. 10, 1956, it stated that:

“Whether the instrument be denominated as “general power of attorney” or “special power of

attorney,” what matters is the extent of the power or powers contemplated upon the agent or
attorney in fact. If the power is couched in general terms, then such power cannot go beyond acts
of administration. However, where the power to sell is specific, it not being merely implied, much
less couched in general terms, there can not be any doubt that the attorney in fact may execute a
valid sale. An instrument may be captioned as “special power of attorney” but if the powers granted
are couched in general terms without mentioning any specific power to sell or mortgage or to do
other specific acts of strict dominion, then in that case only acts of administration may be deemed
conferred.”

Petitioner contends that his signature on the power of attorney was falsified. He also alleges that
the same was not duly notarized for as testified by Atty. Tubig himself, he did not sign thereon nor
was it ever recorded in his notarial register. To bolster his argument, petitioner had presented
checks, marriage certificate and his residence certificate to prove his alleged genuine signature
which when compared to the signature in the power of attorney, showed some difference.

We found, however, that the basis presented by the petitioner was inadequate to sustain his
allegation of forgery. Mere variance of the signatures cannot be considered as conclusive proof
that the same were forged. Forgery cannot be presumed.17 Petitioner, however, failed to prove his
allegation and simply relied on the apparent difference of the signatures. His denial had not
established that the signature on the power of attorney was not his.

We agree with the conclusion of the lower court that private respondent was an innocent purchaser
for value. Respondent Aglaloma relied on the power of attorney presented by petitioner’s wife,
Irma. Being the wife of the owner and having with her the title of the property, there was no reason
for the private respondent not to believe in her authority. Moreover, the power of attorney was
notarized and as such, carried with it the presumption of its due execution. Thus, having had no
inkling on any irregularity and having no participation thereof, private respondent was a buyer in
good faith. It has been consistently held that a purchaser in good faith is one who buys property of
another, without notice that some other person has a right to, or interest in such property and pays
a full and fair price for the same, at the time of such purchase, or before he has notice of the claim
or interest of some other person in the property.18
Documents acknowledged before a notary public have the evidentiary weight with respect to their
due execution. The questioned power of attorney and deed of sale, were notarized and therefore,
presumed to be valid and duly executed. Atty. Tubig denied having notarized the said documents
and alleged that his signature had also been falsified. He presented samples of his signature to
prove his contention. Forgery should be proved by clear and convincing evidence and whoever
alleges it has the burden of proving the same. Just like the petitioner, witness Atty. Tubig merely
pointed out that his signature was different from that in the power of attorney and deed of sale.
There had never been an accurate examination of the signature, even that of the petitioner. To
determine forgery, it was held in Cesar vs. Sandiganbayan 19 (quoting Osborn, The Problem of
Proof) that:

“The process of identification, therefore, must include the determination of the extent, kind, and
significance of this resemblance as well as of the variation. It then becomes necessary to determine
whether the variation is due to the operation of a different personality, or is only the expected and
inevitable variation found in the genuine writing of the same writer. It is also necessary to decide
whether the resemblance is the result of a more or less skillful imitation, or is the habitual and
characteristic resemblance which naturally appears in a genuine writing. When these two questions
are correctly answered the whole problem of identification is solved.”

Even granting for the sake of argument, that the petitioner’s signature was falsified and
consequently, the power of attorney and the deed of sale were null and void, such fact would not
revoke the title subsequently issued in favor of private respondent Aglaloma. In Tenio-Obsequio
vs. Court of Appeals,20 it was held, viz:

“The right of an innocent purchaser for value must be respected and protected, even if the seller
obtained his title through fraud. The remedy of the person prejudiced is to bring an action for
damages against those who caused or employed the fraud, and if the latter are insolvent, an action
against the Treasurer of the Philippines may be filed for recovery of damages against the Assurance
Fund.”

Finally, the trial court did not err in applying equitable estoppel in this case. The principle of
equitable estoppel states that where one or two innocent persons must suffer a loss, he who by his
conduct made the loss possible must bear it. From the evidence adduced, it should be the petitioner
who should bear the loss. As the court a quo found:

“Besides, the records of this case disclosed that the plaintiff is not entirely free from blame. He
admitted that he is the sole person who has access to TCT No. 49138 and other documents
appertaining thereto (TSN, May 23, 1989, pp. 7-12). However, the fact remains that the Certificate
of Title, as well as other documents necessary for the transfer of title were in the possession of
plaintiff’s wife, Irma L. Veloso, consequently leaving no doubt or any suspicion on the part of the
defendant as to her authority. Under Section 55 of Act 496, as amended, Irma’s possession and
production of the Certificate of Title to defendant operated as “conclusive authority from the
plaintiff to the Register of Deeds to enter a new certificate.”21

Considering the foregoing premises, we found no error in the appreciation of facts and application
of law by the lower court which will warrant the reversal or modification of the appealed decision.
ACCORDINGLY, the petition for review is hereby DENIED for lack of merit.

SO ORDERED.

Regalado (Chairman), Romero, Puno and Mendoza, JJ., concur.

Petition denied.

Notes.—The passage of time and a person’s increase in age may have decisive influences in his
writing characteristics, thus, in order to bring about an accurate comparison and analysis, the
standards of comparison must be as close as possible in point of time to the suspected signature.
(Causapin vs. Court of Appeals, 233 SCRA 615 [1994])

The fact that a deed of sale is a notarized document does not necessarily justify the conclusion that
the said sale is undoubtedly a true conveyance to which the parties thereto are irrevocably and
undeniably bound. Conduct to be given jural effect, must be jural in its subject. (Suntay vs. Court
of Appeals, 251 SCRA 430 [1995])