Republic of the Philippines

SUPREME COURT

Manila

G.R. No. L-24332 January 31, 1978

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,

vs.

FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.

Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.

MUÑOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion
Rallos, sold the latter's undivided share in a parcel of land pursuant to a power of attorney which the
principal had executed in favor. The administrator of the estate of the went to court to have the sale
declared uneanforceable and to recover the disposed share. The trial court granted the relief prayed for,
but upon appeal the Court of Appeals uphold the validity of the sale and the complaint.

Hence, this Petition for Review on certiorari.

The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and
registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered
by Transfer Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed
a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in
their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos
sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons
Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the Registry of Deeds
of Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of Title No. 12989 was issued in the
named of the vendee.

On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a
complaint docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the
sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said
share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan &
Sons Realty Corporation be cancelled and another title be issued in the names of the corporation and
the "Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by
way of attorney's fees and payment of costs of suit. Named party defendants were Felix Go Chan & Sons
Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was
dropped from the complaint. The complaint was amended twice; defendant Corporation's Answer
contained a crossclaim against its co-defendant, Simon Rallos while the latter filed third-party complaint
against his sister, Gerundia Rallos While the case was pending in the trial court, both Simon and his
sister Gerundia died and they were substituted by the respective administrators of their estates.

After trial the court a quo rendered judgment with the following dispositive portion:

A. On Plaintiffs Complaint —

(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-indiviso share of
Concepcion Rallos in the property in question, — Lot 5983 of the Cadastral Survey of Cebu — is
concerned;

(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title No. 12989
covering Lot 5983 and to issue in lieu thereof another in the names of FELIX GO CHAN & SONS REALTY
CORPORATION and the Estate of Concepcion Rallos in the proportion of one-half (1/2) share each pro-
indiviso;

(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an undivided one-
half (1/2) share of Lot 5983 to the herein plaintiff;

(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to
pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00; and
(5) Ordering both defendants to pay the costs jointly and severally.

B. On GO CHANTS Cross-Claim:

(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to
pay to defendant Felix Co Chan & Sons Realty Corporation the sum of P5,343.45, representing the price
of one-half (1/2) share of lot 5983;

(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay in
concept of reasonable attorney's fees to Felix Go Chan & Sons Realty Corporation the sum of P500.00.

C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of Simeon

Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia Rallos:

(1) Dismissing the third-party complaint without prejudice to filing either a complaint against the
regular administrator of the Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia
Rallos, covering the same subject-matter of the third-party complaint, at bar. (pp. 98-100, Record on
Appeal)

Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the
foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos. The
appellate tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of the
appellant corporation sustaining the sale in question. 1 The appellee administrator, Ramon Rallos,
moved for a reconsider of the decision but the same was denied in a resolution of March 4, 1965. 2

What is the legal effect of an act performed by an agent after the death of his principal? Applied more
particularly to the instant case, We have the query. is the sale of the undivided share of Concepcion
Rallos in lot 5983 valid although it was executed by the agent after the death of his principal? What is
the law in this jurisdiction as to the effect of the death of the principal on the authority of the agent to
act for and in behalf of the latter? Is the fact of knowledge of the death of the principal a material factor
in determining the legal effect of an act performed after such death?

Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter
tinder consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name
of another without being authorized by the latter, or unless he has by law a right to represent him. 3 A
contract entered into in the name of another by one who has no authority or the legal representation or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other contracting party.4
Article 1403 (1) of the same Code also provides:

ART. 1403. The following contracts are unenforceable, unless they are justified:

(1) Those entered into in the name of another person by one who hi - been given no authority or
legal representation or who has acted beyond his powers; ...

Out of the above given principles, sprung the creation and acceptance of the relationship of agency
whereby one party, caged the principal (mandante), authorizes another, called the agent (mandatario),
to act for and in his behalf in transactions with third persons. The essential elements of agency are: (1)
there is consent, express or implied of the parties to establish the relationship; (2) the object is the
execution of a juridical act in relation to a third person; (3) the agents acts as a representative and not
for himself, and (4) the agent acts within the scope of his authority. 5

Agency is basically personal representative, and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his act is the act of the principal if done
within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts
himself". 6

2. There are various ways of extinguishing agency, 7 but her We are concerned only with one
cause — death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art.
1709 of the Spanish Civil Code provides:

ART. 1919. Agency is extinguished.

xxx xxx xxx

3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ...
(Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent, agency is extinguished by
the death of the principal or the agent. This is the law in this jurisdiction.8

Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is
found in the juridical basis of agency which is representation Them being an in. integration of the
personality of the principal integration that of the agent it is not possible for the representation to
continue to exist once the death of either is establish. Pothier agrees with Manresa that by reason of the
nature of agency, death is a necessary cause for its extinction. Laurent says that the juridical tie between
the principal and the agent is severed ipso jure upon the death of either without necessity for the heirs
of the fact to notify the agent of the fact of death of the former. 9

The same rule prevails at common law — the death of the principal effects instantaneous and absolute
revocation of the authority of the agent unless the Power be coupled with an interest. 10 This is the
prevalent rule in American Jurisprudence where it is well-settled that a power without an interest
confer. red upon an agent is dissolved by the principal's death, and any attempted execution of the
power afterward is not binding on the heirs or representatives of the deceased. 11

3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent
extinguishes the agency, subject to any exception, and if so, is the instant case within that exception?
That is the determinative point in issue in this litigation. It is the contention of respondent corporation
which was sustained by respondent court that notwithstanding the death of the principal Concepcion
Rallos the act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the property is valid
and enforceable inasmuch as the corporation acted in good faith in buying the property in question.

Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.

ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has
been constituted in the common interest of the latter and of the agent, or in the interest of a third
person who has accepted the stipulation in his favor.

ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any
other cause which extinguishes the agency, is valid and shall be fully effective with respect to third
persons who may have contracted with him in good. faith.

Article 1930 is not involved because admittedly the special power of attorney executed in favor of
Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his
principal is valid and effective only under two conditions, viz: (1) that the agent acted without
knowledge of the death of the principal and (2) that the third person who contracted with the agent
himself acted in good faith. Good faith here means that the third person was not aware of the death of
the principal at the time he contracted with said agent. These two requisites must concur the absence of
one will render the act of the agent invalid and unenforceable.

In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his
principal at the time he sold the latter's share in Lot No. 5983 to respondent corporation. The
knowledge of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the trial
court. 12 That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of the
court a quo 13 and of respondent appellate court when the latter stated that Simon Rallos 'must have
known of the death of his sister, and yet he proceeded with the sale of the lot in the name of both his
sisters Concepcion and Gerundia Rallos without informing appellant (the realty corporation) of the
death of the former. 14

On the basis of the established knowledge of Simon Rallos concerning the death of his principal
Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death of his principal; it is not enough that
the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738
of the old Civil rode now Art. 1931 of the new Civil Code sustained the validity , of a sale made after the
death of the principal because it was not shown that the agent knew of his principal's demise. 15 To the
same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice
Jesus Barrera the Court stated:

... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is
no indication in the record, that the agent Luy Kim Guan was aware of the death of his principal at the
time he sold the property. The death 6f the principal does not render the act of an agent unenforceable,
where the latter had no knowledge of such extinguishment of the agency. (1 SCRA 406, 412)

4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned
out that there is no provision in the Code which provides that whatever is done by an agent having
knowledge of the death of his principal is void even with respect to third persons who may have
contracted with him in good faith and without knowledge of the death of the principal. 16

We cannot see the merits of the foregoing argument as it ignores the existence of the general rule
enunciated in Article 1919 that the death of the principal extinguishes the agency. That being the
general rule it follows a fortiori that any act of an agent after the death of his principal is void ab initio
unless the same fags under the exception provided for in the aforementioned Articles 1930 and 1931.
Article 1931, being an exception to the general rule, is to be strictly construed, it is not to be given an
interpretation or application beyond the clear import of its terms for otherwise the courts will be
involved in a process of legislation outside of their judicial function.

5. Another argument advanced by respondent court is that the vendee acting in good faith relied
on the power of attorney which was duly registered on the original certificate of title recorded in the
Register of Deeds of the province of Cebu, that no notice of the death was aver annotated on said
certificate of title by the heirs of the principal and accordingly they must suffer the consequences of
such omission. 17

To support such argument reference is made to a portion in Manresa's Commentaries which We quote:

If the agency has been granted for the purpose of contracting with certain persons, the revocation must
be made known to them. But if the agency is general iii nature, without reference to particular person
with whom the agent is to contract, it is sufficient that the principal exercise due diligence to make the
revocation of the agency publicity known.

In case of a general power which does not specify the persons to whom represents' on should be made,
it is the general opinion that all acts, executed with third persons who contracted in good faith, Without
knowledge of the revocation, are valid. In such case, the principal may exercise his right against the
agent, who, knowing of the revocation, continued to assume a personality which he no longer had.
(Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)

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

The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What
the Code provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and
in the meantime adopt such measures as the circumstances may demand in the interest of the latter.
Hence, the fact that no notice of the death of the principal was registered on the certificate of title of
the property in the Office of the Register of Deeds, is not fatal to the cause of the estate of the principal

6. Holding that the good faith of a third person in said with an agent affords the former sufficient
protection, respondent court drew a "parallel" between the instant case and that of an innocent
purchaser for value of a land, stating that if a person purchases a registered land from one who acquired
it in bad faith — even to the extent of foregoing or falsifying the deed of sale in his favor — the
registered owner has no recourse against such innocent purchaser for value but only against the forger.
20

To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al.,
v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:

In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a co-owner of
lands with Agustin Nano. The latter had a power of attorney supposedly executed by Vallejo Nano in his
favor. Vallejo delivered to Nano his land titles. The power was registered in the Office of the Register of
Deeds. When the lawyer-husband of Angela Blondeau went to that Office, he found all in order including
the power of attorney. But Vallejo denied having executed the power The lower court sustained Vallejo
and the plaintiff Blondeau appealed. Reversing the decision of the court a quo, the Supreme Court,
quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held:

But there is a narrower ground on which the defenses of the defendant- appellee must be overruled.
Agustin Nano had possession of Jose Vallejo's title papers. Without those title papers handed over to
Nano with the acquiescence of Vallejo, a fraud could not have been perpetuated. When Fernando de la
Canters, a member of the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff,
searched the registration record, he found them in due form including the power of attorney of Vallajo
in favor of Nano. If this had not been so and if thereafter the proper notation of the encumbrance could
not have been made, Angela Blondeau would not have sent P12,000.00 to the defendant Vallejo.' An
executed transfer of registered lands placed by the registered owner thereof in the hands of another
operates as a representation to a third party that the holder of the transfer is authorized to deal with
the land.

As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the
one who made it possible by his act of coincidence bear the loss. (pp. 19-21)

The Blondeau decision, however, is not on all fours with the case before Us because here We are
confronted with one who admittedly was an agent of his sister and who sold the property of the latter
after her death with full knowledge of such death. The situation is expressly covered by a provision of
law on agency the terms of which are clear and unmistakable leaving no room for an interpretation
contrary to its tenor, in the same manner that the ruling in Blondeau and the cases cited therein found a
basis in Section 55 of the Land Registration Law which in part provides:

xxx xxx xxx

The production of the owner's duplicate certificate whenever any voluntary instrument is presented for
registration shall be conclusive authority from the registered owner to the register of deeds to enter a
new certificate or to make a memorandum of registration in accordance with such instruments, and the
new certificate or memorandum Shall be binding upon the registered owner and upon all persons
claiming under him in favor of every purchaser for value and in good faith: Provided however, That in all
cases of registration provided by fraud, the owner may pursue all his legal and equitable remedies
against the parties to such fraud without prejudice, however, to the right, of any innocent holder for
value of a certificate of title. ... (Act No. 496 as amended)

7. One last point raised by respondent corporation in support of the appealed decision is an 1842
ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an
agent after the death of the principal were held to be "good", "the parties being ignorant of the death".
Let us take note that the Opinion of Justice Rogers was premised on the statement that the parties were
ignorant of the death of the principal. We quote from that decision the following:

... Here the precise point is, whether a payment to an agent when the Parties are ignorant of the death
is a good payment. in addition to the case in Campbell before cited, the same judge Lord Ellenboruogh,
has decided in 5 Esp. 117, the general question that a payment after the death of principal is not good.
Thus, a payment of sailor's wages to a person having a power of attorney to receive them, has been held
void when the principal was dead at the time of the payment. If, by this case, it is meant merely to
decide the general proposition that by operation of law the death of the principal is a revocation of the
powers of the attorney, no objection can be taken to it. But if it intended to say that his principle applies
where there was 110 notice of death, or opportunity of twice I must be permitted to dissent from it.

... That a payment may be good today, or bad tomorrow, from the accident circumstance of the death of
the principal, which he did not know, and which by no possibility could he know? It would be unjust to
the agent and unjust to the debtor. In the civil law, the acts of the agent, done bona fide in ignorance of
the death of his principal are held valid and binding upon the heirs of the latter. The same rule holds in
the Scottish law, and I cannot believe the common law is so unreasonable... (39 Am. Dec. 76, 80, 81;
emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be
made that the above represents the minority view in American jurisprudence. Thus in Clayton v.
Merrett, the Court said.—

There are several cases which seem to hold that although, as a general principle, death revokes an
agency and renders null every act of the agent thereafter performed, yet that where a payment has
been made in ignorance of the death, such payment will be good. The leading case so holding is that of
Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this view ii
broadly announced. It is referred to, and seems to have been followed, in the case of Dick v. Page, 17
Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate of the deceased principal had
received the benefit of the money paid, and therefore the representative of the estate might well have
been held to be estopped from suing for it again. . . . These cases, in so far, at least, as they announce
the doctrine under discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4
Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite, alone in announcing the principle
in its broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except
so far as it related to the particular facts, was a mere dictum, Baldwin J. said:

The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial indication of his
views on the general subject, than as the adjudication of the Court upon the point in question. But
accordingly all power weight to this opinion, as the judgment of a of great respectability, it stands alone
among common law authorities and is opposed by an array too formidable to permit us to following it.
(15 Cal. 12,17, cited in 2 C.J. 549)

Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no
such conflict exists in our own for the simple reason that our statute, the Civil Code, expressly provides
for two exceptions to the general rule that death of the principal revokes ipso jure the agency, to wit: (1)
that the agency is coupled with an interest (Art 1930), and (2) that the act of the agent was executed
without knowledge of the death of the principal and the third person who contracted with the agent
acted also in good faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We
stress the indispensable requirement that the agent acted without knowledge or notice of the death of
the principal In the case before Us the agent Ramon Rallos executed the sale notwithstanding notice of
the death of his principal Accordingly, the agent's act is unenforceable against the estate of his principal.

IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We affirm
en toto the judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of Cebu,
quoted in pages 2 and 3 of this Opinion, with costs against respondent realty corporation at all
instances.
So Ordered.

Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.

G.R. No. 76931 May 29, 1991

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,

vs.

COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.

G.R. No. 76933 May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.

COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, INCORPORATED,
respondents.

Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives, Inc.

Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:

This case is a consolidation of two (2) petitions for review on certiorari of a decision1 of the Court of
Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel
Representatives, Inc." which affirmed, with modification, the decision2 of the Regional Trial Court of
Manila, Branch IV, which dismissed the complaint and granted therein defendant's counterclaim for
agent's overriding commission and damages.
The antecedent facts are as follows:

On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier
offering passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel
Representatives (hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), whereby the former authorized the latter to act as its
exclusive general sales agent within the Philippines for the sale of air passenger transportation.
Pertinent provisions of the agreement are reproduced, to wit:

WITNESSETH

In consideration of the mutual convenants herein contained, the parties hereto agree as follows:

1. Representation of American by Orient Air Services

Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the
Philippines, including any United States military installation therein which are not serviced by an Air
Carrier Representation Office (ACRO), for the sale of air passenger transportation. The services to be
performed by Orient Air Services shall include:

(a) soliciting and promoting passenger traffic for the services of American and, if necessary,
employing staff competent and sufficient to do so;

(b) providing and maintaining a suitable area in its place of business to be used exclusively for the
transaction of the business of American;

(c) arranging for distribution of American's timetables, tariffs and promotional material to sales
agents and the general public in the assigned territory;

(d) servicing and supervising of sales agents (including such sub-agents as may be appointed by
Orient Air Services with the prior written consent of American) in the assigned territory including if
required by American the control of remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public in the
assigned territory.

In connection with scheduled or non-scheduled air passenger transportation within the United States,
neither Orient Air Services nor its sub-agents will perform services for any other air carrier similar to
those to be performed hereunder for American without the prior written consent of American. Subject
to periodic instructions and continued consent from American, Orient Air Services may sell air passenger
transportation to be performed within the United States by other scheduled air carriers provided
American does not provide substantially equivalent schedules between the points involved.

xxx xxx xxx

4. Remittances

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

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

5. Commissions

American will pay Orient Air Services commission on transportation sold hereunder by Orient Air
Services or its sub-agents as follows:

(a) Sales agency commission

American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient
Air Services or its sub-agents over American's services and any connecting through air transportation,
when made on American's ticket stock, equal to the following percentages of the tariff fares and
charges:
(i) For transportation solely between points within the United States and between such points and
Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America.

(ii) For transportation included in a through ticket covering transportation between points other
than those described above: 8% or such other rate(s) as may be prescribed by the International Air
Transport Association.

(b) Overriding commission

In addition to the above commission American will pay Orient Air Services an overriding commission of
3% of the tariff fares and charges for all sales of transportation over American's service by Orient Air
Service or its sub-agents.

xxx xxx xxx

10. Default

If Orient Air Services shall at any time default in observing or performing any of the provisions of this
Agreement or shall become bankrupt or make any assignment for the benefit of or enter into any
agreement or promise with its creditors or go into liquidation, or suffer any of its goods to be taken in
execution, or if it ceases to be in business, this Agreement may, at the option of American, be
terminated forthwith and American may, without prejudice to any of its rights under this Agreement,
take possession of any ticket forms, exchange orders, traffic material or other property or funds
belonging to American.

11. IATA and ATC Rules

The provisions of this Agreement are subject to any applicable rules or resolutions of the International
Air Transport Association and the Air Traffic Conference of America, and such rules or resolutions shall
control in the event of any conflict with the provisions hereof.

xxx xxx xxx

13. Termination

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

xxx xxx x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing
to promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of
US $254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold originally
by Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13 thereof
(Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against Orient Air
with the Court of First Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or
Garnishment, Mandatory Injunction and Restraining Order4 averring the aforesaid basis for the
termination of the Agreement as well as therein defendant's previous record of failures "to promptly
settle past outstanding refunds of which there were available funds in the possession of the defendant, .
. . to the damage and prejudice of plaintiff."5

In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations
of the complaint with respect to plaintiff's entitlement to alleged unremitted amounts, contending that
after application thereof to the commissions due it under the Agreement, plaintiff in fact still owed
Orient Air a balance in unpaid overriding commissions. Further, the defendant contended that the
actions taken by American Air in the course of terminating the Agreement as well as the termination
itself were untenable, Orient Air claiming that American Air's precipitous conduct had occasioned
prejudice to its business interests.

Finding that the record and the evidence substantiated the allegations of the defendant, the trial court
ruled in its favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:

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

Costs against plaintiff.7

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27
January 1986, affirmed the findings of the court a quo on their material points but with some
modifications with respect to the monetary awards granted. The dispositive portion of the appellate
court's decision is as follows:

WHEREFORE, with the following modifications —

1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the
latter's overriding commission covering the period March 16, 1977 to December 31, 1980, or its
Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on July 10,
1981, the date the counterclaim was filed;

2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding commission
per month starting January 1, 1981 until date of termination, May 9, 1981 or its Philippine peso
equivalent in accordance with the official rate of exchange legally prevailing on July 10, 1981, the date
the counterclaim was filed

3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the
answer with counterclaim was filed, until full payment;

4) American is ordered to pay Orient exemplary damages of P200,000.00;

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

the rest of the appealed decision is affirmed.

Costs against American.8

American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof
and arguing for its reversal. The appellate court's decision was also the subject of a Motion for Partial
Reconsideration by Orient Air which prayed for the restoration of the trial court's ruling with respect to
the monetary awards. The Court of Appeals, by resolution promulgated on 17 December 1986, denied
American Air's motion and with respect to that of Orient Air, ruled thus:

Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial court's
award of exemplary damages and attorney's fees, but granted insofar as the rate of exchange is
concerned. The decision of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive part
so that the payment of the sums mentioned therein shall be at their Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on the date of actual payment.9

Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as
petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution10 of this
Court dated 25 March 1987 both petitions were consolidated, hence, the case at bar.

The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding
commission. It is the stand of American Air that such commission is based only on sales of its services
actually negotiated or transacted by Orient Air, otherwise referred to as "ticketed sales." As basis
thereof, primary reliance is placed upon paragraph 5(b) of the Agreement which, in reiteration, is
quoted as follows:

5. Commissions

a) ...

b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an overriding commission of
3% of the tariff fees and charges for all sales of transportation over American's services by Orient Air
Services or its sub-agents. (Emphasis supplied)

Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having
opted to appoint any sub-agents, it is American Air's contention that Orient Air can claim entitlement to
the disputed overriding commission based only on ticketed sales. This is supposed to be the clear
meaning of the underscored portion of the above provision. Thus, to be entitled to the 3% overriding
commission, the sale must be made by Orient Air and the sale must be done with the use of American
Air's ticket stocks.

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

It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be
taken into consideration to ascertain the meaning of its provisions.12 The various stipulations in the
contract must be read together to give effect to all.13 After a careful examination of the records, the
Court finds merit in the contention of Orient Air that the Agreement, when interpreted in accordance
with the foregoing principles, entitles it to the 3% overriding commission based on total revenue, or as
referred to by the parties, "total flown revenue."

As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the
promotion and marketing of American Air's services for air passenger transportation, and the solicitation
of sales therefor. In return for such efforts and services, Orient Air was to be paid commissions of two
(2) kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and charges from sales by
Orient Air when made on American Air ticket stock; and second, an overriding commission of 3% of tariff
fares and charges for all sales of passenger transportation over American Air services. It is immediately
observed that the precondition attached to the first type of commission does not obtain for the second
type of commissions. The latter type of commissions would accrue for sales of American Air services
made not on its ticket stock but on the ticket stock of other air carriers sold by such carriers or other
authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such overriding
commissions to sales from American Air ticket stock would erase any distinction between the two (2)
types of commissions and would lead to the absurd conclusion that the parties had entered into a
contract with meaningless provisions. Such an interpretation must at all times be avoided with every
effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that American Air
was the party responsible for the preparation of the Agreement. Consequently, any ambiguity in this
"contract of adhesion" is to be taken "contra proferentem", i.e., construed against the party who caused
the ambiguity and could have avoided it by the exercise of a little more care. Thus, Article 1377 of the
Civil Code provides that the interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity.14 To put it differently, when several interpretations of a provision
are otherwise equally proper, that interpretation or construction is to be adopted which is most
favorable to the party in whose favor the provision was made and who did not cause the ambiguity.15
We therefore agree with the respondent appellate court's declaration that:

Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read
against the party who drafted it.16

We now turn to the propriety of American Air's termination of the Agreement. The respondent
appellate court, on this issue, ruled thus:

It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of
the Agreement, Exh. F, which provides for remittances to American less commissions to which Orient is
entitled, and from paragraph 5(d) which specifically allows Orient to retain the full amount of its
commissions. Since, as stated ante, Orient is entitled to the 3% override. American's premise, therefore,
for the cancellation of the Agreement did not exist. . . ."

We agree with the findings of the respondent appellate court. As earlier established, Orient Air was
entitled to an overriding commission based on total flown revenue. American Air's perception that
Orient Air was remiss or in default of its obligations under the Agreement was, in fact, a situation where
the latter acted in accordance with the Agreement—that of retaining from the sales proceeds its
accrued commissions before remitting the balance to American Air. Since the latter was still obligated to
Orient Air by way of such commissions. Orient Air was clearly justified in retaining and refusing to remit
the sums claimed by American Air. The latter's termination of the Agreement was, therefore, without
cause and basis, for which it should be held liable to Orient Air.

On the matter of damages, the respondent appellate court modified by reduction the trial court's award
of exemplary damages and attorney's fees. This Court sees no error in such modification and, thus,
affirms the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the
trial court.1âwphi1 We refer particularly to the lower court's decision ordering American Air to
"reinstate defendant as its general sales agent for passenger transportation in the Philippines in
accordance with said GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to
extend its personality to Orient Air. Such would be violative of the principles and essence of agency,
defined by law as a contract whereby "a person binds himself to render some service or to do something
in representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE LATTER .17
(emphasis supplied) In an agent-principal relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would have him do. Such a relationship can only be
effected with the consent of the principal, which must not, in any way, be compelled by law or by any
court. The Agreement itself between the parties states that "either party may terminate the Agreement
without cause by giving the other 30 days' notice by letter, telegram or cable." (emphasis supplied) We,
therefore, set aside the portion of the ruling of the respondent appellate court reinstating Orient Air as
general sales agent of American Air.

WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the
respondent Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively. Costs against
petitioner American Air.

SO ORDERED.

Melencio-Herrera, and Regalado, JJ., concur.

Paras, J., took no part. Son is a partner in one of the counsel.

Sarmiento, J., is on leave.

G.R. No. 2962 February 27, 1907

B. H. MACKE, ET AL., plaintiffs-appellees,

vs.

JOSE CAMPS, defendant-appellant.

Manuel G. Gavieres for appellant.

Gibbs & Gale for appellees.

CARSON, J.:

The plaintiffs in this action, B. H. Macke and W. H. Chandler, partners doing business under the firm
name of Macke, Chandler & Company, allege that during the months of February and March, 1905, they
sold to the defendant and delivered at his place of business, known as the "Washington Cafe," various
bills of goods amounting to P351.50; that the defendant has only paid on account of said accounts the
sum of P174; that there is still due them on account of said goods the sum of P177.50; that before
instituting this action they made demand for the payment thereof; and that defendant had failed and
refused to pay the said balance or any part of it up to the time of the filing of the complaint.

B. H. Macke, one of the plaintiffs, testified that on the order of one Ricardo Flores, who represented
himself to be agent of the defendant, he shipped the said goods to the defendants at the Washington
Cafe; that Flores later acknowledged the receipt of said goods and made various payments thereon
amounting in all to P174; that on demand for payment of balance of the account Flores informed him
that he did not have the necessary funds on hand, and that he would have to wait the return of his
principal, the defendant, who was at that time visiting in the provinces; that Flores acknowledged the
bill for the goods furnished and the credits being the amount set out in the complaint; that when the
goods were ordered they were ordered on the credit of the defendant and that they were shipped by
the plaintiffs after inquiry which satisfied the witness as to the credit of the defendant and as to the
authority of Flores to act as his agent; that the witness always believed and still believes that Flores was
the agent of the defendant; and that when he went to the Washington Cafe for the purpose of collecting
his bill he found Flores, in the absence of the defendant in the provinces, apparently in charge of the
business and claiming to be the business manager of the defendant, said business being that of a hotel
with a bar and restaurant annexed.

A written contract dated May 25, 1904, was introduced in evidence, from which it appears that one
Galmes, the former owner of the business now know as the "Washington Cafe," subrented the building
wherein the business was conducted, to the defendant for a period of one year, for the purpose of
carrying on that business, the defendant obligating himself not to sublet or subrent the building or the
business without the consent of the said Galmes. This contract was signed by the defendant and the
name of Ricardo Flores appears thereon as a witness, and attached thereto is an inventory of the
furniture and fittings which also is signed by the defendant with the word "sublessee" (subarrendatario)
below the name, and at the foot of this inventory the word "received" (recibo) followed by the name
"Ricardo Flores," with the words "managing agent" (el manejante encargado) immediately following his
name.
Galmes was called to the stand and identified the above- described document as the contract and
inventory delivered to him by the defendant, and further stated that he could not tell whether Flores
was working for himself or for some one else — that it to say, whether Flores was managing the
business as agent or sublessee.

The defendant did not go on the stand nor call any witnesses, and relies wholly on his contention that
the foregoing facts are not sufficient to establish the fact that he received the goods for which payment
is demanded.

In the absence of proof of the contrary we think that this evidence is sufficient to sustain a finding that
Flores was the agent of the defendant in the management of the bar of the Washington Cafe with
authority to bind the defendant, his principal, for the payment of the goods mentioned in the complaint.

The contract introduced in evidence sufficiently establishes the fact that the defendant was the owner
of business and of the bar, and the title of "managing agent" attached to the signature of Flores which
appears on that contract, together with the fact that, at the time the purchases in question were made,
Flores was apparently in charge of the business, performing the duties usually entrusted to managing
agent, leave little room for doubt that he was there as authorized agent of the defendant. One who
clothes another apparent authority as his agent, and holds him out to the public as such, can not be
permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third
parties dealing with such person in good faith and in the following preassumptions or deductions, which
the law expressly directs to be made from particular facts, are deemed conclusive:

(1) "Whenever a party has, by his own declaration, act, or omission, intentionally and deliberately
led another to believe a particular thing true, and to act upon such belief, he can not, in any litigation
arising out such declaration, act, or omission, be permitted to falsify it" (subsec. 1, sec. 333, Act no. 190);
and unless the contrary appears, the authority of an agent must be presumed to include all the
necessary and usual means of carrying his agency into effect. (15 Conn., 347; 90 N. C. 101; 15 La. Ann,
247; 43 Mich., 364; 93 N. Y., 495; 87 Ind., 187.)

That Flores, as managing agent of the Washington Cafe, had authority to buy such reasonable quantities
of supplies as might from time to time be necessary in carrying on the business of hotel bar may fairly be
presumed from the nature of the business, especially in view of the fact that his principal appears to
have left him in charge during more or less prolonged periods of absence; from an examination of the
items of the account attached to the complaint, we are of opinion that he was acting within the scope of
his authority in ordering these goods are binding on his principal, and in the absence of evidence to the
contrary, furnish satisfactory proof of their delivery as alleged in the complaint.
The judgment of the trial court is affirmed with the costs of his instance against the appellant. After
expiration of twenty days judgment will be rendered in accordance herewith, and ten days thereafter
the case remanded to the lower court for proper action. So ordered.

Arellano, C.J., Torres and Willard, JJ., concur.

Tracey, J., dissents.

G.R. No. 108957 June 14, 1993

PRUDENTIAL BANK, petitioner,

vs.

THE COURT OF APPEALS, AURORA CRUZ, respondents.

Monique Q. Ignacio for petitioner.

Eduardo C. Tutaan for private respondent.

CRUZ, J.:

We deal here with another controversy involving the integrity of a bank.

The complaint in this case arose when private respondent Aurora F.

Cruz, * with her sister as co-depositor, invested P200,000.00 in Central Bank bills with the Prudential
Bank at its branch in Quezon Avenue, Quezon City, on June 23, 1986. The placement was for 63 days at
13.75% annual interest. For this purpose, the amount of P196,122.88 was withdrawn from the
depositors' Savings Account No. 2546 and applied to the investment. The difference of P3,877.07
represented the pre-paid interest.

The transaction was evidenced by a Confirmation of Sale1 delivered to Cruz two days later, together
with a Debit Memo2 in the amount withdrawn and applied to the confirmed sale. These documents
were issued by Susan Quimbo, the employee of the bank to whom Cruz was referred and who was
apparently in charge of such transactions.3

Upon maturity of the placement on August 25, 1986, Cruz returned to the bank to "roll-over" or renew
her investment. Quimbo, who again attended to her, prepared a Credit Memo4 crediting the amount of
P200,000.00 in Cruz's savings account passbook. She also prepared a Debit Memo for the amount of
P196,122.88 to cover the re-investment of P200,000.00 minus the prepaid interest of P3,877.02.5

This time, Cruz was asked to sign a Withdrawal Slip6 for P196,122.98, representing the amount to be re-
invested after deduction of the prepaid interest. Quimbo explained this was a new requirement of the
bank. Several days later, Cruz received another Confirmation of Sale7 and a copy of the Debit Memo.8

On October 27, 1986, Cruz returned to the bank and sought to withdraw her P200,000.00. After
verification of her records, however, she was informed that the investment appeared to have been
already withdrawn by her on August 25, 1986. There was no copy on file of the Confirmation of Sale and
the Debit Memo allegedly issued to her by Quimbo. Quimbo herself was not available for questioning as
she had not been reporting for the past week. Shocked by this information, Cruz became hysterical and
burst into tears. The branch manager, Roman Santos, assured her that he would look into the matter.9

Every day thereafter, Cruz went to the bank to inquire about her request to withdraw her investment.
She received no definite answer, not even to the letter she wrote the bank which was received by
Santos himself. 10 Finally, Cruz sent the bank a demand letter dated November 12, 1986 for the amount
of P200,000.00 plus interest. 11 In a reply dated November 20, 1986, the bank's Vice President Lauro J.
Jocson said that there appeared to be an anomaly

and requested Cruz to defer court action as they hoped to settle the matter amicably. 12 Increasingly
worried, Cruz sent another letter reiterating her demand. 13 This time the reply of the bank was
unequivocal and negative. She was told that her request had to be denied because she had already
withdrawn the amount she was claiming. 14

Cruz's reaction was to file a complaint for breach of contract against Prudential Bank in the Regional
Trial Court of Quezon City. She demanded the return of her money with interest, plus damages and
attorney's fees. In its answer, the bank denied liability, insisting that Cruz had withdrawn her
investment. The bank also instituted a third-party complaint against Quimbo, who did not file an answer
and was declared in default. 15 The bank, however, did not present any evidence against her.

After trial, Judge Rodolfo A. Ortiz rendered judgment in favor of the plaintiffs and disposed as follows:
ACCORDINGLY, judgment is hereby rendered ordering the defendant/third-party plaintiff to pay to the
plaintiffs the following amounts:

1. P200,000.00, plus interest thereon at the rate of 13.75% per annum from October 27, 1986,
until fully paid;

2. P30,000.00, as moral damages;

3. P20,000.00, as exemplary damages; and

4. P25,000.00, as reasonable attorney's fees.

The counterclaim and the third-party complaint of the defendant/third-party plaintiff are dismissed.

With costs against the defendant/third-party plaintiff.

The decision was affirmed in toto on appeal to the respondent court.

The judgment of the Court of Appeals 16 is now faulted in this petition, mainly on the ground that the
bank should not have been found liable for a quasi-delict when it was sued for breach of contract.

The petition shall fail. The petitioner is quibbling. It appears to be merely temporizing to delay
enforcement of the liability clearly established against it.

The basic issues are factual. The private respondent claims she has not yet collected her investment of
P200,000.00 and has submitted in proof of their contention the Confirmation of Sale and the Debit
Memo issued to her by Quimbo on the official forms of the bank. The petitioner denies her claim and
points to the Withdrawal Slip, which it says Cruz has not denied having signed. It also contends that the
Confirmation of Sale and the Debit Memo are fake and should not have been given credence by the
lower courts.
The findings of the trial court on these issues have been affirmed by the respondent court and we see
no reason to disturb them. The petitioner has not shown that they have been reached arbitrarily or in
disregard of the evidence of record. On the contrary, we find substantial basis for the conclusion that
the private respondents signed the Withdrawal Slip only as part of the bank's new procedure of re-
investment. She did not actually receive the amount indicated therein, which she was made to
understand was being re-invested in her name. The bank itself so assured her in the Confirmation of
Sale and the Debit Memo later issued to her by Quimbo.

Especially persuasive are the following observations of the trial court: 17

What is more, it could not be that plaintiff Aurora F. Cruz withdrew only the amount of P196,122.98
from their savings account, if her only intention was to make such a withdrawal. For, if, indeed, it was
the desire of the plaintiffs to withdraw their money from the defendant/third-party plaintiff, they could
have withdrawn an amount in round figures. Certainly, it is unbelievable that their withdrawal was in
the irregular amount of P196,122.98 if they really received it. On the contrary, this amount, which is the
price of the Central Bank bills rolled over, indicates that, as claimed by plaintiff Aurora F. Cruz, she did
not receive this money, but it was left by her with the defendant/third-party plaintiff in order to buy
Central Bank bills placement for another sixty-three (63) days, for which she signed a withdrawal slip at
the instance of third-party defendant Susan Quimbo who told her that it was a new bank requirement
for the roll-over of a matured placement which she trustingly believed.

Indeed, the bank has not explained the remarkable coincidence that the amount indicated in the
withdrawal slip is exactly the same amount Cruz was re-investing after deducting therefrom the pre-paid
interest.

The bank has also not, succeeded in impugning the authenticity of the Confirmation of Sale and the
Debit Memo which were made on its official, forms. These are admittedly not available to the general
public or even its depositors and are handled only by its personnel. Even assuming that they were not
signed by its authorized officials, as it claims, there was no obligation on the part of Cruz to verify their
authority because she had the right to presume it. The documents had been issued in the office of the
bank itself and by its own employees with whom she had previously dealt. Such dealings had not been
questioned before, much leas invalidated. There was absolutely no reason why she should not have
accepted their authority to act on behalf of their employer.

It is also worthy of note — and wonder — that although the bank impleaded Quimbo in a third-party
complaint, it did not pursue its suit even when she failed to answer and was declared in default. The
bank did not introduce evidence against her although it could have done so under the rules. No less
remarkably, it did not call on her to testify on its behalf, considering that under the circumstances
claimed by it, she would have been the best witness to show that Cruz had actually withdrawn her
P200,000.00 placement. Instead, the bank chose to rely on its other employees whose testimony was
less direct and categorical than the testimony Quimbo could have given.

We do not find that the Court of Appeals held the bank liable on a quasi-delict. The argument of the
petitioner on this issue is pallid, to say the least, consisting as it does only of the observation that the
article cited by the respondent court on the agent's liability falls under the heading in the Civil Code on
quasi-delicts. On the other hand, the respondent court clearly declared that:

The defendant/third-party plaintiff being liable for the return of the P200,000.00 placement of the
plaintiffs, the extent of the liability of the defendant/third-party plaintiff for damages resultant thereof,
which is contractual, is for all damages which may be reasonably attributed to the non-performance of
the obligation, . . .

xxx xxx xxx

Because of the bad faith of the defendant/third-party plaintiff in its breach of its contract with the
plaintiffs, the latter are, therefore, entitled to an award of moral damages . . . (Emphasis supplied)

There is no question that the petitioner was made liable for its failure or refusal to deliver to Cruz the
amount she had deposited with it and which she had a right to withdraw upon its maturity. That
investment was acknowledged by its own employees, who had the apparent authority to do so and so
could legally bind it by its acts vis-a-vis Cruz. Whatever might have happened to the investment —
whether it was lost or stolen by whoever — was not the concern of the depositor. It was the concern of
the bank.

As far as Cruz was concerned, she had the right to withdraw her P200,000.00 placement when it
matured pursuant to the terms of her investment as acknowledged and reflected in the Confirmation of
Sale. The failure of the bank to deliver the amount to her pursuant to the Confirmation of Sale
constituted its breach of their contract, for which it should be held liable.

The liability of the principal for the acts of the agent is not even debatable. Law and jurisprudence are
clearly and absolutely against the petitioner.
Such liability dates back to the Roman Law maxim, Qui per alium facit per seipsum facere videtur. "He
who does a thing by an agent is considered as doing it himself." This rule is affirmed by the Civil Code
thus:

Art. 1910. The principal must comply with all the obligations which the agent may have contracted
within the scope of his authority.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the
agent if the former allowed the latter to act as though he had full powers.

Conformably, we have declared in countless decisions that the principal is liable for obligations
contracted by the agent. The agent's apparent representation yields to the principal's true
representation and the contract is considered as entered into between the principal and the third
person. 18

A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of
dealings of the officers in their representative capacity but not for acts outside the scope of their
authority. (9 c.q.s. p. 417) A bank holding out its officers and agent as worthy of confidence will not be
permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit
may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to
innocent third persons where the representation is made in the course of its business by an agent acting
within the general scope of his authority even though, in the particular case, the agent is secretly
abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for
his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021.)

Application of these principles in especially necessary because banks have a fiduciary relationship with
the public and their stability depends on the confidence of the people in their honesty and efficiency.
Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its
employees, resulting in prejudice to their depositors.

It would appear from the facts established in the case before us that the petitioner was less than eager
to present Quimbo at the trial or even to establish her liability although it made the initial effort —
which it did not pursue — to hold her answerable in the third-party complaint. What ever happened to
her does not appear in the record. Her absence from the proceedings feeds the suspicion of her possible
misdeed, which the bank seems to have studiously ignored by its insistence that the missing money had
been actually withdrawn by Cruz. By such insistence, the bank is absolving not only itself but also, in
effect and by extension, the disappeared Quimbo who apparently has much to explain.
We agree with the lower courts that the petitioner acted in bad faith in denying Cruz the obligation she
was claiming against it. It was obvious that an irregularity had been committed by the bank's personnel,
but instead of repairing the injury to Cruz by immediately restoring her money to her, it sought to gloss
over the anomaly in its own operations.

Cruz naturally suffered anxious moments and mental anguish over the loss of the investment. The
amount of P200,000.00 is not small even by present standards. By unjustly withholding it from her on
the unproved defense that she had already withdrawn it, the bank violated the trust she had reposed in
it and thus subjected itself to further liability for moral and exemplary damages.

If a person dealing with a bank does not read the fine print in the contract, it is because he trusts the
bank and relies on its integrity. The ordinary customer applying for a loan or even making a deposit (and
so himself extending the loan to the bank) does not bother with the red tape requirements and the
finicky conditions in the documents he signs. His feeling is that he does not have to be wary of the bank
because it will deal with him fairly and there is no reason to suspect its motives. This is an attitude the
bank must justify.

While this is not to say that bank regulations are meaningless or have no binding effect, they should,
however, not be used for covering up the fault of bank employees when they blunder or, worse,
intentionally cheat him. The misdeeds of such employees must be readily acknowledged and rectified
without delay. The bank must always act in good faith. The ordinary customer does not feel the need for
a lawyer by his side every time he deals with a bank because he is certain that it is not a predator or a
potential adversary. The bank should show that there is really no reason for any apprehension because
it truly deserves his faith in it.

WHEREFORE, the petition is DENIED and the appealed decision is AFFIRMED, with costs against the
petitioner. It is so ordered.

Griño-Aquino, Bellosillo and Quiason, JJ., concur.

G.R. No. 144805 June 8, 2006

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,

vs.

ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and

FAR EAST BANK & TRUST COMPANY, Respondents.

DECISION

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in CA-G.R.
CV No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in
Civil Case No. 54887, as well as the Resolution2 of the CA denying the motion for reconsideration
thereof.

The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since
1950, it had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing
operations were conducted on eight parcels of land with a total area of 47,233 square meters. The
properties, located in Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title
Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124 and 451125 under the name of Far East
Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were owned by
Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the laws of
Belgium.3 Jack Glanville, an Australian citizen, was the General Manager and President of EC, while
Claude Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their offices in Belgium.

In 1986, the management of ESAC grew concerned about the political situation in the Philippines and
wanted to stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams,
a member of EC’s Board of Directors, to dispose of the eight parcels of land. Adams engaged the services
of realtor/broker Lauro G. Marquez so that the properties could be offered for sale to prospective
buyers. Glanville later showed the properties to Marquez.

Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua,
Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was
authorized to sell the properties for P27,000,000.00 and that the terms of the sale were subject to
negotiation.4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and
his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00
cash. Marquez apprised Glanville of the Litonjua siblings’ offer and relayed the same to Delsaux in
Belgium, but the latter did not respond. On October 28, 1986, Glanville telexed Delsaux in Belgium,
inquiring on his position/ counterproposal to the offer of the Litonjua siblings. It was only on February
12, 1987 that Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss decision," the
final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final
liquidation."5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted
the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26,
1987, confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated
that the Litonjua siblings would confirm full payment within 90 days after execution and preparation of
all documents of sale, together with the necessary governmental clearances.6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust
Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.7

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be
implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the
buyer, which had given him the impression that "he is prepared to press for a satisfactory conclusion to
the sale."8 He also emphasized to Delsaux that the buyers were concerned because they would incur
expenses in bank commitment fees as a consequence of prolonged period of inaction.9

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines,
the political situation in the Philippines had improved. Marquez received a telephone call from Glanville,
advising that the sale would no longer proceed. Glanville followed it up with a Letter dated May 7, 1987,
confirming that he had been instructed by his principal to inform Marquez that "the decision has been
taken at a Board Meeting not to sell the properties on which Eternit Corporation is situated."10

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had
decided not to proceed with the sale of the subject land, to wit:

May 22, 1987

Mr. L.G. Marquez

L.G. Marquez, Inc.

334 Makati Stock Exchange Bldg.

6767 Ayala Avenue

Makati, Metro Manila

Philippines

Dear Sir:

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land
which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the
position as far as the Philippines are (sic) concerned. Considering [the] new political situation since the
departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not
to stop our operations in Manila. In fact, production has started again last week, and (sic) to recognize
the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a
later state, we would consult you again.

xxx

Yours sincerely,

(Sgd.)

C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)11

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for
damages they had suffered on account of the aborted sale. EC, however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton
Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City.
An amended complaint was filed, in which defendant EC was substituted by Eterton Multi-Resources
Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded
as additional defendants on account of their purchase of ESAC shares of stocks and were the controlling
stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in
the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders
of EC never approved any resolution to sell subject properties nor authorized Marquez to sell the same;
and the telex dated October 28, 1986 of Jack Glanville was his own personal making which did not bind
EC.

On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended
complaint.12 The fallo of the decision reads:

WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the
plaintiffs and said defendants.

The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of
action.

The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer,
S.A. is also dismissed for lack of merit.13

The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void
and not merely unenforceable, and as such, could not have been ratified by the principal. In any event,
such ratification cannot be given any retroactive effect. Plaintiffs could not assume that defendants had
agreed to sell the property without a clear authorization from the corporation concerned, that is,
through resolutions of the Board of Directors and stockholders. The trial court also pointed out that the
supposed sale involves substantially all the assets of defendant EC which would result in the eventual
total cessation of its operation.14

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding that
the real estate broker in the instant case needed a written authority from appellee corporation and/or
that said broker had no such written authority; and (2) the lower court committed grave error of law in
holding that appellee corporation is not legally bound for specific performance and/or damages in the
absence of an enabling resolution of the board of directors."15 They averred that Marquez acted merely
as a broker or go-between and not as agent of the corporation; hence, it was not necessary for him to
be empowered as such by any written authority. They further claimed that an agency by estoppel was
created when the corporation clothed Marquez with apparent authority to negotiate for the sale of the
properties. However, since it was a bilateral contract to buy and sell, it was equivalent to a perfected
contract of sale, which the corporation was obliged to consummate.

In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither
were Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the
sale involved substantially all of the corporation’s assets, it would necessarily need the authority from
the stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The Litonjuas filed a
motion for reconsideration, which was also denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of
Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special
authority from EC’s board of directors to bind such corporation to the sale of its properties. Delsaux,
who was merely the representative of ESAC (the majority stockholder of EC) had no authority to bind
the latter. The CA pointed out that Delsaux was not even a member of the board of directors of EC.
Moreover, the Litonjuas failed to prove that an agency by estoppel had been created between the
parties.

In the instant petition for review, petitioners aver that

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE.
II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A
WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE NECESSARY
AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED
BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS
HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the
parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover
obligations prior to final liquidation." Petitioners insist that they had accepted the counter-offer of
respondent EC and that before the counter-offer was withdrawn by respondents, the acceptance was
made known to them through real estate broker Marquez.

Petitioners assert that there was no need for a written authority from the Board of Directors of EC for
Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary
agent because his authority was of a special and limited character in most respects. His only job as a
broker was to look for a buyer and to bring together the parties to the transaction. He was not
authorized to sell the properties or to make a binding contract to respondent EC; hence, petitioners
argue, Article 1874 of the New Civil Code does not apply.

In any event, petitioners aver, what is important and decisive was that Marquez was able to
communicate both the offer and counter-offer and their acceptance of respondent EC’s counter-offer,
resulting in a perfected contract of sale.

Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville,
who was the President and General Manager of respondent EC, and Delsaux, who was the Managing
Director for ESAC Asia, had the necessary authority to sell the subject property or, at least, had been
allowed by respondent EC to hold themselves out in the public as having the power to sell the subject
properties. Petitioners identified such evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the then President and General
Manager of Eternit, to sell the properties of said corporation to any interested party, which authority, as
hereinabove discussed, need not be in writing.

2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS,
from 1986 to 1987;

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties as evidenced by the
Petitioners’ ACCEPTANCE of the counter-offer;

5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that an
ESCROW agreement was drafted over the subject properties;

6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY
AND SELL";

7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that Petitioners’
offer was allegedly REJECTED by both Glanville and Delsaux.18

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners’
offer and thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners
insist that Delsaux confirmed his authority to sell the properties in his letter to Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land
which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and examined the
position as far as the Philippines are (sic) concerned. Considering the new political situation since the
departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not
to stop our operations in Manila[.] [I]n fact production started again last week, and (sic) to reorganize
the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a
later stage we would consult you again.

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX19

Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly
permitted by respondent EC to sell the properties within the scope of an apparent authority. Petitioners
insist that respondents held themselves to the public as possessing power to sell the subject properties.

By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are
proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC)
and ESAC reiterate their submissions in the CA. They maintain that Glanville, Delsaux and Marquez had
no authority from the stockholders of respondent EC and its Board of Directors to offer the properties
for sale to the petitioners, or to any other person or entity for that matter. They assert that the decision
and resolution of the CA are in accord with law and the evidence on record, and should be affirmed in
toto.

Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux,
conformed to the written authority of Marquez to sell the properties. The authority of Glanville and
Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux negotiated for the sale
of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given the significance of their
positions and their duties in respondent EC at the time of the transaction, and the fact that respondent
ESAC owns 90% of the shares of stock of respondent EC, a formal resolution of the Board of Directors
would be a mere ceremonial formality. What is important, petitioners maintain, is that Marquez was
able to communicate the offer of respondent EC and the petitioners’ acceptance thereof. There was no
time that they acted without the knowledge of respondents. In fact, respondent EC never repudiated
the acts of Glanville, Marquez and Delsaux.

The petition has no merit.

Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in
this case are factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC
to act as its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of
their authority as agents, is a question of fact. In the absence of express written terms creating the
relationship of an agency, the existence of an agency is a fact question.20 Whether an agency by
estoppel was created or whether a person acted within the bounds of his apparent authority, and
whether the principal is estopped to deny the apparent authority of its agent are, likewise, questions of
fact to be resolved on the basis of the evidence on record.21 The findings of the trial court on such
issues, as affirmed by the CA, are conclusive on the Court, absent evidence that the trial and appellate
courts ignored, misconstrued, or misapplied facts and circumstances of substance which, if considered,
would warrant a modification or reversal of the outcome of the case.22

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of
Court because the Court is not a trier of facts. It is not to re-examine and assess the evidence on record,
whether testimonial and documentary. There are, however, recognized exceptions where the Court may
delve into and resolve factual issues, namely:

(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2)
when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact
are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of the
Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly considered, would
justify a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on
the absence of evidence and are contradicted by the evidence on record.23

We have reviewed the records thoroughly and find that the petitioners failed to establish that the
instant case falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of
Appeals is supported by the evidence on record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that
it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to
prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove that their
counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It must be stressed
that when specific performance is sought of a contract made with an agent, the agency must be
established by clear, certain and specific proof.24

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines,
provides:

SEC. 23. The Board of Directors or Trustees. – Unless otherwise provided in this Code, the corporate
powers of all corporations formed under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees to be elected
from among the holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year and until their successors are elected and qualified.

Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is
not affected by the personal rights,

obligations and transactions of the latter.25 It may act only through its board of directors or, when
authorized either by its by-laws or by its board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern the relation between the corporation and its
officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of law.26

Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject
to the limitations prescribed by law and the Constitution, as follows:

SEC. 36. Corporate powers and capacity. – Every corporation incorporated under this Code has the
power and capacity:

xxxx

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal
with such real and personal property, including securities and bonds of other corporations, as the
transaction of a lawful business of the corporation may reasonably and necessarily require, subject to
the limitations prescribed by the law and the Constitution.

The property of a corporation, however, is not the property of the stockholders or members, and as
such, may not be sold without express authority from the board of directors.27 Physical acts, like the
offering of the properties of the corporation for sale, or the acceptance of a counter-offer of prospective
buyers of such properties and the execution of the deed of sale covering such property, can be
performed by the corporation only by officers or agents duly authorized for the purpose by corporate
by-laws or by specific acts of the board of directors.28 Absent such valid delegation/authorization, the
rule is that the declarations of an individual director relating to the affairs of the corporation, but not in
the course of, or connected with, the performance of authorized duties of such director, are not binding
on the corporation.29

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will
have to be with the board of directors through its officers and agents as authorized by a board
resolution or by its by-laws.30 An unauthorized act of an officer of the corporation is not binding on it
unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real
property of a corporation by a person purporting to be an agent thereof but without written authority
from the corporation is null and void. The declarations of the agent alone are generally insufficient to
establish the fact or extent of his/her authority.31

By the contract of agency, a person binds himself to render some service or to do something in
representation on behalf of another, with the consent or authority of the latter.32 Consent of both
principal and agent is necessary to create an agency. The principal must intend that the agent shall act
for him; the agent must intend to accept the authority and act on it, and the intention of the parties
must find expression either in words or conduct between them.33

An agency may be expressed or implied from the act of the principal, from his silence or lack of action,
or his failure to repudiate the agency knowing that another person is acting on his behalf without
authority. Acceptance by the agent may be expressed, or implied from his acts which carry out the
agency, or from his silence or inaction according to the circumstances.34 Agency may be oral unless the
law requires a specific form.35 However, to create or convey real rights over immovable property, a
special power of attorney is necessary.36 Thus, when a sale of a piece of land or any portion thereof is
through an agent, the authority of the latter shall be in writing, otherwise, the sale shall be void.37

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board
of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone
offer for sale, for and in its behalf, the eight parcels of land owned by respondent EC including the
improvements thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the
shares of stock of respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners’ claim that
he had likewise been authorized by respondent EC to sell the parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of
Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for Asia,38 the
Board of Directors of respondent ESAC,39 and the Belgian/Swiss component of the management of
respondent ESAC.40 As such, Adams and Glanville engaged the services of Marquez to offer to sell the
properties to prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he
was authorized to offer for sale the property for P27,000,000.00 and the other terms of the sale subject
to negotiations. When petitioners offered to purchase the property for P20,000,000.00, through
Marquez, the latter relayed petitioners’ offer to Glanville; Glanville had to send a telex to Delsaux to
inquire the position of respondent ESAC to petitioners’ offer. However, as admitted by petitioners in
their Memorandum, Delsaux was unable to reply immediately to the telex of Glanville because Delsaux
had to wait for confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on
February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of
respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final
liquidation.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision," and not the entire
management or Board of Directors of respondent ESAC. While it is true that petitioners accepted the
counter-offer of respondent ESAC, respondent EC was not a party to the transaction between them;
hence, EC was not bound by such acceptance.

While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were
members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly
authorized agents of respondent EC; a board resolution evincing the grant of such authority is needed to
bind EC to any agreement regarding the sale of the subject properties. Such board resolution is not a
mere formality but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC
owned 90% of the shares of stocks of respondent EC; however, the mere fact that a corporation owns a
majority of the shares of stocks of another, or even all of such shares of stocks, taken alone, will not
justify their being treated as one corporation.43

It bears stressing that in an agent-principal relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would have him do. Such a relationship can only be
effected with the consent of the principal, which must not, in any way, be compelled by law or by any
court.44

The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent
EC empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell the said
properties to the petitioners. A person dealing with a known agent is not authorized, under any
circumstances, blindly to trust the agents; statements as to the extent of his powers; such person must
not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts
within the scope of his authority.45 The settled rule is that, persons dealing with an assumed agent are
bound at their peril, and if they would hold the principal liable, to ascertain not only the fact of agency
but also the nature and extent of authority, and in case either is controverted, the burden of proof is
upon them to prove it.46 In this case, the petitioners failed to discharge their burden; hence, petitioners
are not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent.
As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in
behalf of the petitioners, that the latter had accepted such offer to sell the land and the improvements
thereon. However, we agree with the ruling of the appellate court that Marquez had no authority to
bind respondent EC to sell the subject properties. A real estate broker is one who negotiates the sale of
real properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land
upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale.
Indeed, an authority to find a purchaser of real property does not include an authority to sell.47

Equally barren of merit is petitioners’ contention that respondent EC is estopped to deny the existence
of a principal-agency relationship between it and Glanville or Delsaux. For an agency by estoppel to
exist, the following must be established: (1) the principal manifested a representation of the agent’s
authority or knowlingly allowed the agent to assume such authority; (2) the third person, in good faith,
relied upon such representation; (3) relying upon such representation, such third person has changed
his position to his detriment.48 An agency by estoppel, which is similar to the doctrine of apparent
authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.49 Such proof is lacking in this case. In their
communications to the petitioners, Glanville and Delsaux positively and unequivocally declared that
they were acting for and in behalf of respondent ESAC.

Neither may respondent EC be deemed to have ratified the transactions between the petitioners and
respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various
communications inter se were never submitted to the Board of Directors of respondent EC for
ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice