RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner, vs. FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS,

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.

Footnotes
1 p. 40, rollo
2 p, 42, Ibid.
3 Art. 1317, Civil Code of the Philippines
4 Ibid
5 Art. 1868, Civil Code. By the contract of the agency of a person blinds himself to render some service or to do something in representation or on behalf of another, with the consent of the authority of the latter.
Art. 1881, Civil Code. The Agent must act within the scope of his authority. He may do acts as may be conductive to the accomplishment of the purpose of the agency.
11 Manresa 422-423; 4 Sanchez Roman 478, 2nd Ed.; 26 Scaevola, 243, 262; Tolentino, Comments, Civil Code of the Philippines, p.340, vol. 5, 1959 Ed.
See also Columbia University Club v. Higgins, D.CN.Y., 23 f. Supp. 572, 574; Valentine Oil Co. v. Young 109 P. 2d 180, 185.
6 74 C.J.S. 4; Valentine Oil Co. v. Powers, 59 N.W. 2d 160, 163, 157 Neb. 87; Purnell v. City of Florence, 175 So. 417, 27 Ala. App. 516; Stroman Motor Co. v. Brown, 243 P. 133, 126 Ok. 36
7 See Art. 1919 of the Civil Code
8 Hermosa v. Longara, 1953, 93 Phil. 977, 983; Del Rosario, et al. v. Abad, et al., 1958, 104 Phil. 648, 652
9 11 Manresa 572-573; Tolentino, supra, 369-370
10 2 Kent Comm. 641, cited in Williston on Contracts, 3rd Ed., Vol. 2, p. 288
11 See Notes on Acts of agent after principal's death, 39 Am. Dec. 81,83, citing Ewell's Evans on Agency, 116; Dunlap's Paley on Agency, 186; Story on Agency, see. 488; Harper v. Little. 11 Am. Dec. 25; Staples v. Bradbury, 23 Id. 494; Gale v. Tappan 37 Id. 194; Hunt v. Rousmanier, 2 Mason, 244, S.C. 8 Wheat, 174; Boones Executor v. Clarke 3 Cranch C.C. 389; Hank of 'Washington v. Person, 2 'Rash. C.C. 6.85; Scruggs v. Driver's Executor, 31 Ala. 274; McGriff v. Porter, 5 Fla. 373; Lincoln v. Emerson, 108 Mass 87; 'Wilson v. Edmonds, 24 N.H 517; Easton v. Ellis, 1 Handy (Ohio), 70; McDonald v. Black's Administrators, 20 Ohio, 185; Michigan Ins. Co. v. Leavenworth, 30 Vt. 11; Huston v. Cantril, 11 Leigh, 136; Campanari v. 'Woodburn, 15 Com B 400
See also ',Williston on Contracts, 3rd Ed., Vol. 2, p. 289
12 see p. 15, 30-31 64 68-69, Record on Appeal
13 pp. 71-72, Ibid.
14 p. 7 of the Decision at page 14, rollo
15 105 Phil. 79:i, 798
16 p. 6 of Decision, at page 13, rollo
17 pp. 6-7 of Decision at pp, 13-14, Ibid.
18 See Articles 1921 & 1922 of the Civil Code
19 2 C.J.S. 1 174 citing American Jurisprudence in different States from Alabama to Washington; emphasis supplied.
20 p. 8, decision at Page 15, rollo

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants, vs. THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and SEGUNDINA NOGUERA, respondents-appe

G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:

The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The facts are beyond dispute:

xxx xxx xxx

On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party of the second part, and hereinafter referred to as appellants, the Tourist World Service, Inc. leased the premises belonging to the party of the first part at Mabini St., Manila for the former-s use as a branch office. In the said contract the party of the third part held herself solidarily liable with the party of the part for the prompt payment of the monthly rental agreed on. When the branch office was opened, the same was run by the herein appellant Una 0. Sevilla payable to Tourist World Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist World Service, Inc.

On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have been informed that Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist World Service considered closing down its office. This was firmed up by two resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office of the manager and vice-president of the Tourist World Service, Inc., Ermita Branch, and the second,authorizing the corporate secretary to receive the properties of the Tourist World Service then located at the said branch office. It further appears that on Jan. 3, 1962, the contract with the appellees for the use of the Branch Office premises was terminated and while the effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a matter of fact appellants used it since Nov. 1961. Because of this, and to comply with the mandate of the Tourist World Service, the corporate secretary Gabino Canilao went over to the branch office, and, finding the premises locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the interests of the Tourist World Service. When neither the appellant Lina Sevilla nor any of her employees could enter the locked premises, a complaint wall filed by the herein appellants against the appellees with a prayer for the issuance of mandatory preliminary injunction. Both appellees answered with counterclaims. For apparent lack of interest of the parties therein, the trial court ordered the dismissal of the case without prejudice.

The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim which the court a quo, in an order dated June 8, 1963, granted permitting her to present evidence in support of her counterclaim.

On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the issues were joined, the reinstated counterclaim of Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly heard following which the court a quo ordered both cases dismiss for lack of merit, on the basis of which was elevated the instant appeal on the following assignment of errors:

I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.

II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE.

III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.

V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be resolved are:

1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch office on Ermita;

2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not; and

3. Whether or not the lessee to the office premises belonging to the appellee Noguera was appellees TWS or TWS and the appellant.

In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and between her and appellee TWS with offices at the Ermita branch office and that she was not an employee of the TWS to the end that her relationship with TWS was one of a joint business venture appellant made declarations showing:

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye, ear and nose specialist as well as a imediately columnist had been in the travel business prior to the establishment of the joint business venture with appellee Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre, she being the godmother of one of his children, with her own clientele, coming mostly from her own social circle (pp. 3-6 tsn. February 16,1965).

2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960 (Exh. 'A') covering the premises at A. Mabini St., she expressly warranting and holding [sic] herself 'solidarily' liable with appellee Tourist World Service, Inc. for the prompt payment of the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn. Jan. 18,1964).

3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World Service, Inc., which had its own, separate office located at the Trade & Commerce Building; nor was she an employee thereof, having no participation in nor connection with said business at the Trade & Commerce Building (pp. 16-18 tsn Id.).

4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings her own business (and not for any of the business of appellee Tourist World Service, Inc.) obtained from the airline companies. She shared the 7% commissions given by the airline companies giving appellee Tourist World Service, Lic. 3% thereof aid retaining 4% for herself (pp. 18 tsn. Id.)

5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and other sundry expenses, aside from desicion the office furniture and supplying some of fice furnishings (pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc. shouldering the rental and other expenses in consideration for the 3% split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).

6. It was the understanding between them that appellant Mrs. Sevilla would be given the title of branch manager for appearance's sake only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title for dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary Gabino Canilao (pp- 2-5, Appellants' Reply Brief)

Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee Tourist World Service, Inc. and as such was designated manager. ¹

xxx xxx xxx

The trial court ² held for the private respondent on the premise that the private respondent, Tourist World Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock the premises. ³ It likewise found the petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts of her employer. ⁴ The respondent Court of Appeal ⁵ rendered an affirmance.

The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they state:

I

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.

II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)

III

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS.

IV

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. ⁶

As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the relief of damages prayed for and whether or not the evidence for the said appellant supports the contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World Service, Inc. ⁷ Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on the lease executed with the private respondent, Segundina Noguera. The petitioners contend, however, that relation between the between parties was one of joint venture, but concede that "whatever might have been the true relationship between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World Service and Canilao from taking the law into their own hands, ⁸ in reference to the padlocking now questioned.

The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service, Inc., maintains, that the relation between the parties was in the character of employer and employee, the courts would have been without jurisdiction to try the case, labor disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant to statutes then in force. ⁹

In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee relation. In general, we have relied on the so-called right of control test, "where the person for whom the services are performed reserves a right to control not only the end to be achieved but also the means to be used in reaching such end." ¹⁰ Subsequently, however, we have considered, in addition to the standard of right-of control, the existing economic conditions prevailing between the parties, like the inclusion of the employee in the payrolls, in determining the existence of an employer-employee relationship. ¹¹

The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means used in connection therewith. In the first place, under the contract of lease covering the Tourist Worlds Ermita office, she had bound herself in solidum as and for rental payments, an arrangement that would be like claims of a master-servant relationship. True the respondent Court would later minimize her participation in the lease as one of mere guaranty, ¹² that does not make her an employee of Tourist World, since in any case, a true employee cannot be made to part with his own money in pursuance of his employer's business, or otherwise, assume any liability thereof. In that event, the parties must be bound by some other relation, but certainly not employment.

In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina Sevilla. ¹³ Under these circumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing the business, obviously relied on her own gifts and capabilities.

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee then, who earns a fixed salary usually, she earned compensation in fluctuating amounts depending on her booking successes.

The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's employee. As we said, employment is determined by the right-of-control test and certain economic parameters. But titles are weak indicators.

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence of such a relation. In her letter of November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the operation of your branch office ¹⁴ in effect, accepting Tourist World Service, Inc.'s control over the manner in which the business was run. A joint venture, including a partnership, presupposes generally a of standing between the joint co-venturers or partners, in which each party has an equal proprietary interest in the capital or property contributed ¹⁵ and where each party exercises equal rights in the conduct of the business. ¹⁶ furthermore, the parties did not hold themselves out as partners, and the building itself was embellished with the electric sign "Tourist World Service, Inc. ¹⁷in lieu of a distinct partnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the essence of this contract that the agent renders services "in representation or on behalf of another. ¹⁸ In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of commissions. And as we said, Sevilla herself based on her letter of November 28, 1961, pre-assumed her principal's authority as owner of the business undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of facts, that the ties had contemplated a principal agent relationship, rather than a joint managament or a partnership..

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for mutual interest, of the agent and the principal. ¹⁹ It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had acquired an interest in the business entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof, holding herself solidarily liable for the payment of rentals. She continued the business, using her own name, after Tourist World had stopped further operations. Her interest, obviously, is not to the commissions she earned as a result of her business transactions, but one that extends to the very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, to damages.

As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the Court of Appeals that there is 'no evidence showing that the Tourist World Service, Inc. disconnected the telephone lines at the branch office. ²⁰ Yet, what cannot be denied is the fact that Tourist World Service, Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand in the disconnection now complained of, it had clearly condoned it, and as owner of the telephone lines, it must shoulder responsibility therefor.

The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not accord it any authority to terminate that contract without notice to its actual occupant, and to padlock the premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the business itself, and necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not a stranger to that contract having been explicitly named therein as a third party in charge of rental payments (solidarily with Tourist World, Inc.). She could not be ousted from possession as summarily as one would eject an interloper.

The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival firm. To be sure, the respondent court speaks of alleged business losses to justify the closure '21 but there is no clear showing that Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit for another company. What the evidence discloses, on the other hand, is that following such an information (that Sevilla was working for another company), Tourist World's board of directors adopted two resolutions abolishing the office of 'manager" and authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private respondents ended the lease over the branch office premises, incidentally, without notice to her.

It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked, personally by the respondent Canilao, on the pretext that it was necessary to Protect the interests of the Tourist World Service. " ²² It is strange indeed that Tourist World Service, Inc. did not find such a need when it cancelled the lease five months earlier. While Tourist World Service, Inc. would not pretend that it sought to locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, she could not have been anywhere near the premises. Capping these series of "offensives," it cut the office's telephone lines, paralyzing completely its business operations, and in the process, depriving Sevilla articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice and fair play.

We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil Code, moral damages may be awarded for "breaches of contract where the defendant acted ... in bad faith. ²³

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of attorney granted to her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. ²⁴

ART. 2219. Moral damages ²⁵ may be recovered in the following and analogous cases:

xxx xxx xxx

(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same damages in a solidary capacity.

Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown that she had connived with Tourist World Service, Inc. in the disconnection and padlocking incidents. She cannot therefore be held liable as a cotortfeasor.

The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary damages, ²⁵ and P5,000.00 as nominal ²⁶ and/or temperate ²⁷ damages, to be just, fair, and reasonable under the circumstances.

WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or temperate damages.

Costs against said private respondents.

SO ORDERED.

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

Footnotes
1 Rollo, 30-45.
2 Court of First Instance of Manila, Branch XIX Montesa, Agustin, Presiding Judge.
3 Rollo, Id 55; Record on Appeal, 38.
4 Record on Appeal, Id., 37-38.
5 Gaviola, Jr., RAmon, J., Reyes, Luis, and De Castro, Pacific, JJ., Conccurring
6 Rollo, Id., 124; Brief for Petitioners, 1-2.
7 Rollo, Id., 36.
8 Id., 21; emphasis in the original.
9 See Rep. Act No. 875 See also Rep. Act No. 1052, as amended by Rep. Act No. 1787.
10 LVN Pictures, Inc. v. Philippine Musicians Guild, No. L-12582, January 28,1961, 1 SCRA 132,173 (1961); emphasis in the original.
11 Visayan Stevedore Trans. Co., et al. v. C.I.R., et al., No. L-21696, February 25,1967,19 SCRA 426 (1967).
12 Rollo, Id., 40.
13 Id 31.
14 Id., 47.
15 BAUTISTA, TREATISE ON PHILIPPINE PARTNERSHIP LAW 34 (1978).
16 Op cit 37. In Tuazon v. Balanos [95 Phil. 106 (1954)], this Court distinguished between a joint venture and a partnership but this view has since raised questions from authorities. According to Campos, there seems to be no fundamental distinction between the two forms of business combinations. CAMPOS, THE CORPORATION CODE 12 (1981).] For p of this case, we use the terms of interchangeable.
17 See rollo, id.
18 CIVIL CODE, art. 1868.
19 See VI PADILLA, CIVIL LAW 350 (1974).
20 Rollo, id., 36.
21 Id, 31.
22 Id.
23 CIVIL CODE, art. 2220.
24 Supra.
25 Supra, art. 2232.
26 Supra art. 2221.

NELITA M. BACALING, represented by her attorney-in-fact JOSE JUAN TONG, and JOSE JUAN TONG, in his personal capacity, petitioners, vs. FELOMINO MUYA, CRISPIN AMOR, WILFREDO JEREZA, RODOLFO LAZARTE and NEMESIO TONOCANTE

SECOND DIVISION

G.R. Nos. 148404-05            April 11, 2002
NELITA M. BACALING, represented by her attorney-in-fact JOSE JUAN TONG, and JOSE JUAN TONG, in his personal capacity, petitioners,
vs.
FELOMINO MUYA, CRISPIN AMOR, WILFREDO JEREZA, RODOLFO LAZARTE and NEMESIO TONOCANTE, respondents.

DE LEON, JR., J.:

Before us is a Petition for Review of the consolidated Decision¹ dated January 31, 2001 of the Court of Appeals² in CA-G.R. SP No. 54413,³ and in CA-G.R. SP No. 54414,⁴ and of its Resolution⁵ dated June 5, 2001 reversing the Decision⁶ dated May 22, 1998 and Resolution July 22, 1999 of the Office of the President.

The facts of the case are as follows:

Petitioner Nelita M. Bacaling and her spouse Ramon Bacaling were the owners of three (3) parcels of land, with a total area of 9.9631 hectares, located in Barangay Cubay, Jaro, Iloilo City, and designated as Lot No. 2103-A (Psd-24069), Lot No. 2103-B-12 (Psd 26685) and Lot No. 2295. These lots were duly covered by Transfer Certificates of Title Nos. T-5801, T-5833 and T-5834, respectively. In 1955 the landholding was subdivided into one hundred ten (110) sub-lots covered by TCT Nos. T-10664 to T-10773, inclusive of the Registry of Deeds of the City of Iloilo. On May 16, 1955, the landholding was processed and approved as "residential" or "subdivision" by the National Urban Planning Commission (NUPC).⁷ On May 24, 1955 the Bureau of Lands approved the corresponding subdivision plan for purposes of developing the said property into a low-cost residential community which the spouses referred to as the Bacaling-Moreno Subdivision.⁸

In 1957, a real estate loan of Six Hundred Thousand Pesos (P600,000.00) was granted to the spouses Nelita and Ramon Bacaling by the Government Service Insurance System (GSIS) for the development of the subdivision.⁹ To secure the repayment of the loan, the Bacalings executed in favor of the GSIS a real estate mortgage over their parcels of land including the one hundred ten (110) sub-lots.¹⁰ Out of the approved loan of Six Hundred Thousand Pesos (P600,000.00), only Two Hundred Forty Thousand Pesos (P240,000.00) was released to them.¹¹ The Bacalings failed to pay the amortizations on the loan and consequently the mortgage constituted on the one hundred ten (110) sub-lots was foreclosed by the GSIS.¹² After a court case that reached all the way to this Court,¹³ Nelita Bacaling (by then a widow) in 1989 was eventually able to restore to herself ownership of the one hundred ten (110) sub-lots.¹⁴

According to the findings of the Office of the President, in 1972 and thereafter, respondents Felomino Muya, Crispin Amor, Wilfredo Jereza, Rodolfo Lazarte and Nemesio Tonocante clandestinely entered and occupied the entire one hundred ten (110) sub-lots (formerly known as Lot No. 2103-A, Lot No. 2103-B-12 and Lot No. 2295) and grabbed exclusively for themselves the said 9.9631 hectare landholding.¹⁵ Apparently, respondents took advantage of the problematic peace and order situation at the onset of martial law and the foreclosure of the lots by GSIS.¹⁶ They sowed the lots as if the same were their own, and altered the roads, drainage, boundaries and monuments established thereon.¹⁷

Respondents, on the other hand, claim that in 1964 they were legally instituted by Bacaling's administrator/overseer as tenant-tillers of the subject parcels of land on sharing basis with two and a half (2½) hectares each for respondents Muya, Amor, Tonocante and Lazarte, and one and a half (1½) hectares for respondent Jereza. In 1974, their relationship with the landowner was changed to one of leasehold. They religiously delivered their rental payments to Bacaling as agricultural lessor. In 1980, they secured certificates of land transfer in their names for the one hundred ten (110) sub-lots. They have made various payments to the Land Bank of the Philippines as amortizing owners-cultivators of their respective tillage.

In 1977, however, the City Council of Iloilo enacted Zoning Ordinance No. 212 declaring the one hundred ten (110) sub-lots as "residential" and "non-agricultural," which was consistent with the conversion effected in 1955 by the NUPC and the Bureau of Lands. In 1978, Nelita Bacaling was able to register the subject property as the Bacaling-Moreno Subdivision with the National Housing Authority and to obtain therefrom a license to sell the subject one hundred ten (110) sub-lots comprising the said subdivision to consummate the original and abiding design to develop a low-cost residential community.

In August 21, 1990, petitioner Jose Juan Tong, together with Vicente Juan and Victoria Siady, bought from Nelita Bacaling the subject one hundred ten (110) sub-lots for One Million Seven Hundred Thousand Pesos (P1,700,000.00).¹⁸ The said sale was effected after Bacaling has repurchased the subject property from the Government Service Insurance System. To secure performance of the contract of absolute sale and facilitate the transfer of title of the lots to Jose Juan Tong, Bacaling appointed him in 1992 as her attorney-in-fact, under an irrevocable special power of attorney with the following mandate-

1. To file, defend and prosecute any case/cases involving lots nos. 1 to 110 covered by TCT Nos. T-10664 to T-10773 of the Register of Deeds of the City of Iloilo;

2. To assume full control, prosecute, terminate and enter into an amicable settlement and compromise agreement of all cases now pending before the DARAB, Region VI, Iloilo City, which involved portion of Lots 1 to 110, covered by TCT Nos. T-10664 to T-10773 of the Register of Deeds of Iloilo City, which were purchased by Jose Juan Tong, Vicente Juan Tong and Victoria Siady;

3. To hire a lawyer/counsel which he may deem fit and necessary to effect and attain the foregoing acts and deeds; handle and prosecute the aforesaid cases;

4. To negotiate, cause and effect a settlement of occupation and tenants on the aforesaid lots;

5. To cause and effect the transfer of the aforesaid lots in the name of the VENDEES;

6. To execute and deliver document/s or instrument of whatever nature necessary to accomplish the foregoing acts and deeds.¹⁹

It is significant to note that ten (10) years after the perfection and execution of the sale, or on April 26, 2000, Bacaling filed a complaint to nullify the contract of sale. The suit was, however, dismissed with prejudice and the dismissal has long become final and executory.²⁰

Following the sale of the one hundred ten (110) sub-lots and using the irrevocable special power of attorney executed in his favor, petitioner Tong (together with Bacaling) filed a petition for cancellation of the certificates of land transfer against respondents and a certain Jaime Ruel with the Department of Agrarian Reform (DAR) Region VI Office in Iloilo City.²¹ The DAR, however, dismissed the petition on the ground that there had been no legitimate conversion of the classification of the 110 sub-lots from agricultural to residential prior to October 21, 1972 when Operation Land Transfer under P.D. No. 72 took effect.²² Bacaling and Tong appealed to the DAR Central Office but their appeal was similarly rejected.²³ The motion for reconsideration failed to overturn the ruling of the Central Office Order.²⁴

On September 19, 1997, Bacaling and Tong appealed the adverse DAR Orders to the Office of the President which reversed them in toto in a Decision²⁵ dated May 22, 1998 (OP Decision, for brevity), the dispositive portion of which reads:

WHEREFORE, premises [considered], the assailed order of the Regional Director, DAR Region VI, dated April 3, 1996, as well as the orders of the DAR Secretary dated December 12, 1996 and September 4, 1997, are hereby REVERSED AND SET ASIDE and subject landholdings declared exempt from coverage of the CARL. The Certificates of Land Transfer (CLTs) issued to the appellees are hereby cancelled and the Department of Agrarian Reform directed to implement the voluntary offer made by appellant with respect to the payment of disturbance compensation and relocation of the affected parties. 1âwphi1.nêt

SO ORDERED.²⁶

The OP Decision found that the one hundred ten (110) parcels of land had been completely converted from agricultural to residential lots as a result of the declarations of the NUPC and the Bureau of Lands and the factual circumstances, i.e., the GSIS loan with real estate mortgage, the division of the original three (3) parcels of land into one hundred ten (110) sub-lots under individual certificates of title, and the establishment of residential communities adjacent to the subject property, which indubitably proved the intention of Nelita and Ramon Bacaling to develop a residential subdivision thereon. The OP Decision also categorically acknowledged the competence of the NUPC and the Bureau of Lands to classify the one hundred ten (110) sub-lots into residential areas. On July 22, 1999, separate motions for reconsideration thereof were denied.²⁷

Respondents elevated the OP Decision to the Court of Appeals on a petition for review under Rule 43 of the Rules of Civil Procedure.²⁸ Before the petition was resolved, or on December 2, 1999, Nelita Bacaling manifested to the appellate court that she was revoking the irrevocable power of attorney in favor of Jose Juan Tong and that she was admitting the status of respondents as her tenants of the one hundred ten (110) sub-lots which allegedly were agricultural in character. The manifestation was however characterized by an obvious streak of ambivalence when her prayer therein urged the Court of Appeals to decide the case, curiously, "on the basis of the clear intent of Private Respondent" and "in accordance with the perception of this Honorable Court."²⁹

On January 31, 2001 the Court of Appeals reversed the OP Decision and validated the certificates of land transfers in favor of respondents without however promulgating a ruling on petitioner Tong's supposedly ensuing lack of material interest in the controversy as a result of the manifestation.³⁰ The dispositive portion of the decision reads:

WHEREFORE, premises considered, petition is GRANTED; and the May 22, 1998 Decision of the Office of the President is hereby REVERSED and SET ASIDE. The April 3, 1996 Order of the Regional Director, DARAB, Region VI, is REINSTATED.³¹

The appellate court refused to recognize the 1955 NUPC and Bureau of Lands classification of the subject lots as residential subdivision. Tong moved for reconsideration of the CA Decision which Bacaling did not oppose despite her manifestation. On June 5, 2001, again without a single reference to Bacaling's alleged repudiation of Tong's actions, the Court of Appeals denied reconsideration of its decision,³² Hence, this petition for review on certiorari based on the following assignment of errors:

I

SUBJECT LANDHOLDINGS ARE EXEMPT FROM THE COVERAGE OF P.D. 27 AND OPERATION LAND TRANSFER (1972, AS WELL (sic) THE COMPREHENSIVE AGRARIAN REFORM LAW (1988) AS THEY WERE CLASSIFIED AS RESIDENTIAL WAY BACK IN 1955 BY THE THEN NATIONAL PLANNING COMMISSION AND THE SUBDIVSION PLAN WAS APPROVED BY THE BUREAU OF LANDS. AS A CONSEQUENCE, THE CLTs ISSUED TO PRIVATE RESPONENTS IN OCTOBER, 1980 ARE INVALID AS HAVING BEEN ISSUED WITHOUT JURISDICTION.

II

PRIVATE RESPONDENTS ARE NOT BONA FIDE TENANTS OF THE LANDS INVOLVED. PUBLIC REPSONDENT'S RULING THAT THE LATTER ARE SUCH IS CONTRARY TO LAW AS IT IGNORED THE FACT THAT THE LANDHOLDINGS ARE RESIDENTIAL AND NO COMPETENT PROOF OF CONSENT OF THE OWNER WAS EVER PRESENTED BY PRIVATE RESPONDENTS.

III

APPROVAL OF THE SECRETARY OF AGRARIAN REFORM IS NOT NECESSARY FOR THE VALID CLASSIFICATION OF THE LANDS INVOLVED INTO RESIDENTIAL BECAUSE THE CARL, AS ALSO THE RELATED AGRARIAN LAWS, HAVE NO RETROACTIVE APPLICATION.³³

Long after issues were joined in the instant proceedings, or on October 8, 2001, petitioner Nelita Bacaling resurrected her manifestation with the Court of Appeals and moved to withdraw/dismiss the present petition on the ground that the irrevocable power of attorney in favor of petitioner Jose Juan Tong had been nullified by her and that Tong consequently lacked the authority to appear before this Court.³⁴ She also manifested that, contrary to the arguments of petitioner Tong, respondents were bona fide tenants of the one hundred ten (110) sub-lots which were allegedly agricultural and not residential pieces of realty.³⁵ Accordingly, petitioner Tong was left all alone to pursue the instant case.

The issues in this case can be summarized as follows: (1) Does petitioner Tong have the requisite interest to litigate this petition for review on certiorari?; (2) Are the respondents agricultural lessees?; and (3) Are the one hundred ten (110) sub-lots admittedly classified for residential use by the National Urban Planning Commission and the Bureau of Lands prior to October 21, 1972³⁶ covered by the Operation Land Transfer under P.D. No. 72?

We hold that petitioner Jose Juan Tong possesses adequate and legitimate interest to file the instant petition. Under our rules of procedure, interest means material interest, that is, an interest in issue and to be affected by the judgment,³⁷ while a real party in interest is the party who would be benefited or injured by the judgment or the party entitled to the avails of the suit.³⁸ There should be no doubt that as transferee of the one hundred ten (110) sub-lots through a contract of sale and as the attorney-in-fact of Nelita Bacaling, former owner of the subject lots, under an irrevocable special power of attorney, petitioner Tong stands to be benefited or injured by the judgment in the instant case as well as the orders and decisions in the proceedings a quo. The deed of sale categorically states that petitioner Tong and his co-sellers have fully paid for the subject parcels of land. The said payment has been duly received by Bacaling. Hence, it stands to reason that he has adequate and material interest to pursue the present petition to finality.

Respondents put too much weight on the motion to dismiss/withdraw filed by Nelita Bacaling. Under the facts obtaining in this case, the motion should be treated cautiously, and more properly, even skeptically. It is a matter of law that when a party adopts a certain theory in the court below, he will not be permitted to change his theory on appeal, for to permit him to do so would not only be unfair to the other party but it would also be offensive to the basic rules of fair play, justice and due process.³⁹ Bacaling's motion to dismiss the instant petition comes at the heels of her admission that she had immensely benefited from selling the said one hundred ten (110) sub-lots to petitioner Tong and of the dismissal with prejudice of the civil case which she had earlier filed to nullify the sale.⁴⁰ It appears that the motion to dismiss is a crude and belated attempt long after the dismissal of the civil case to divest Tong of his indubitable right of ownership over the one hundred ten (110) sub-lots through the pretext of revoking the irrevocable special power of attorney which Bacaling had executed in his favor hoping that in the process that her act would cause the assailed orders of the DAR to become final and executory.

The records also bear out the fact that Bacaling's design to dispossess petitioner Tong of material interest in the subject matter of the instant petition appears to be subtly coordinated with respondents' legal maneuvers when it began as a side pleading (a mere Manifestation) in the proceedings before the Court of Appeals (CA-G.R. SP No. 54413 and CA-G.R. SP No. 54414) but which was never pursued to its ultimate conclusion until it again surfaced before this Court long after respondents' voluminous comment to the instant petition had been filed. Under these circumstances, we certainly cannot place our trust upon such an unsolicited motion having dubious roots, character and purpose.

Substantively, we rule that Bacaling cannot revoke at her whim and pleasure the irrevocable special power of attorney which she had duly executed in favor of petitioner Jose Juan Tong and duly acknowledged before a notary public. The agency, to stress, is one coupled with interest which is explicitly irrevocable since the deed of agency was prepared and signed and/or accepted by petitioner Tong and Bacaling with a view to completing the performance of the contract of sale of the one hundred ten (110) sub-lots. It is for this reason that the mandate of the agency constituted Tong as the real party in interest to remove all clouds on the title of Bacaling and that, after all these cases are resolved, to use the irrevocable special power of attorney to ultimately "cause and effect the transfer of the aforesaid lots in the name of the vendees [Tong with two (2) other buyers] and execute and deliver document/s or instrument of whatever nature necessary to accomplish the foregoing acts and deeds."⁴¹ The fiduciary relationship inherent in ordinary contracts of agency is replaced by material consideration which in the type of agency herein established bars the removal or dismissal of petitioner Tong as Bacaling's attorney-in-fact on the ground of alleged loss of trust and confidence.

While Bacaling alleges fraud in the performance of the contract of agency to justify its revocation, it is significant to note that allegations are not proof, and that proof requires the intervention of the courts where both petitioners Tong and Bacaling are heard. Stated otherwise, Bacaling cannot vest in herself just like in ordinary contracts the unilateral authority of determining the existence and gravity of grounds to justify the rescission of the irrevocable special power of attorney. In Sevilla v. Court of Appeals⁴² we thus held-

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for the mutual interest of the agent and the principal xxx [Petitioner's] interest, obviously, is not limited to the commissions she earned as a result of her business transactions, but one that extends to the very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner x x x to damages.

The requirement of a judicial process all the more assumes significance in light of the dismissal with prejudice, hence, res judicata, of Bacaling's complaint to annul the contract of sale which in turn gave rise to the irrevocable special power of attorney. It is clear that prima facie there are more than sufficient reasons to deny the revocation of the said special power of attorney which is coupled with interest. Inasmuch as no judgment has set aside the agency relationship between Bacaling and Tong, we rule that petitioner Tong maintains material interest to prosecute the instant petition with or without the desired cooperation of Bacaling.

On the issue of whether the private respondents are agricultural tenants and entitled to the benefits accorded by our agrarian laws, we rule in the negative. The requisites in order to have a valid agricultural leasehold relationship are: (1) The parties are the landowner and the tenant or agricultural lessee; (2) The subject matter of the relationship is agricultural land; (3) There is consent between the parties to the relationship; (4) the purpose of the relationship is to bring about agricultural production; (5) There is personal cultivation on the part of the tenant or agricultural lessee; and (6) The harvest is shared between the landowner and the tenant or agricultural lessee.

We find that the first, third and sixth requisites are lacking in the case at bar. One legal conclusion adduced from the facts in Government Service Insurance System v. Court of Appeals⁴³ provides that GSIS, not Bacaling, was the owner of the subject properties from 1961 up to 1989 as a result of the foreclosure and confirmation of the sale of the subject properties. Although the confirmation only came in 1975, the ownership is deemed to have been vested to GSIS way back in 1961, the year of the sale of the foreclosed properties. This is due to the fact that the date of confirmation by the trial court of the foreclosure sale retroacts to the date of the actual sale itself.⁴⁴

Thus, the respondents cannot validly claim that they are legitimate and recognized tenants of the subject parcels of land for the reason that their agreement to till the land was not with GSIS, the real landowner. There is no showing that GSIS consented to such tenancy relationship nor is there proof that GSIS received a share in the harvest of the tenants. Consequently, the respondents cannot claim security of tenure and other rights accorded by our agrarian laws considering that they have not been validly instituted as agricultural lessees of the subject parcels of land. And from the time Bacaling recovered the subject properties from GSIS up to the time the former changed her legal position in the instant case, Bacaling has consistently disclaimed respondents as her alleged tenants. Bacaling's current legal posture cannot also overturn our finding since, as earlier mentioned, the said change of mind of Bacaling has little or no evidentiary weight under the circumstances.

The respondents argue that GSIS cannot be considered as the owner of the said properties from 1961 up to 1989 inasmuch as the foreclosure proceedings that started in 1957 only attained finality during its promulgation by this Court in 1989. Respondents contend that GSIS was the owner of the said parcels of land only from 1989.

We disagree. The pendency of the GSIS case cannot be construed as a maintenance of status quo with Bacaling as the owner from 1957 up to 1989 for the reason that what was appealed to this Court was only the issue of redemption, and not the validity of the foreclosure proceedings including the public auction sale, the confirmation of the public auction sale and the confirmation and transfer of ownership of the foreclosed parcels of land to GSIS. The ownership of GSIS over the subject parcels of land was not disputed. It was the existence of the right to redeem in a judicial foreclosure that was the subject of the controversy. We ruled that there was no longer any right of redemption in a judicial foreclosure proceeding after the confirmation of the public auction. Only foreclosures of mortgages in favor of banking institutions and those made extrajudicially are subject to legal redemption. Since GSIS is not a banking institution and the procedure of the foreclosure is not extrajudicial in nature, no right of redemption exists after the judicial confirmation of the public auction sale of the said lots.

With respect to the third issue, we find that the one hundred ten (110) sub-lots are indeed residential. In Tiongson v. Court of Appeals⁴⁵ we held that if the lot in question is not an agricultural land then the rules on agrarian reform do not apply since the "key factor in ascertaining whether there is a landowner-tenant relationship xxx is the nature of the disputed property."⁴⁶ We reiterated this rule in Natalia Realty, Inc. v. Department of Agrarian Reform⁴⁷ where we excluded lands not devoted to agricultural activity, i.e., lands previously converted to non-agricultural or residential uses prior to the effectivity of the 1988 agrarian reform law (R.A. No. 6657) by agencies other than the DAR, from the coverage of agrarian reform. The statement of the rule is buttressed by P.D. No. 27 which by its terms applies only to "tenant-farmers of private agricultural lands primarily devoted to rice and corn under a system of shared-crop or lease tenancy, whether classified as landed estate or not."⁴⁸

In the case at bar, the indubitable conclusion from established facts is that the one hundred ten (110) sub-lots, originally three (3) parcels of land, have been officially classified as residential since 1955. The classification began when the NUPC and the Bureau of Lands approved the subdivision of the original three (3) parcels of land into one hundred ten (110) sub-lots each covered with transfer certificates of title. To build the subdivision project, Nelita Bacaling then obtained a real estate mortgage loan from the GSIS which she used to fund the project but he was unfortunately unable to complete it due to the immensity of the project cost. Bacaling undertook to complete the sale of the subdivision when in 1978 she obtained the registration thereof with the National Housing Authority as well as a license to sell individually the one hundred ten (110) sub-lots. Earlier, in 1977, the City Council of Iloilo also recognized the residential classification of the same one hundred ten (110) sub-lots when it passed the Land Use Plan and Zoning Ordinance. In 1990, Bacaling sold the same parcels of land to petitioner Tong who obviously wanted to pursue the development of the subdivision project. It is clear that Tong bought the property for residential and not agricultural purposes upon the strong assurance of Bacaling that the one hundred ten (110) sub-lots were legally available for such prospect. To be sure, the subject lots were valuable in the buyer's market only for residential use as shown by the example of adjacent lots which had long been utilized for building subdivisions and the implausibility of believing that Tong would buy the lands only to lose them at a bargain to agrarian reform.⁴⁹

Clearly, both intention and overt actions show the classification of the one hundred ten (110) sub-lots for residential use. There can be no other conclusion from the facts obtaining in the instant case. Indeed, one cannot imagine Nelita Bacaling borrowing the substantial amount of Six Hundred Thousand Pesos (P600,000.00) from the GSIS and spending Two Hundred Fifty Thousand Pesos (P250,000.00) for the purpose of developing and subdividing the original three (3) parcels of land into one hundred ten (110) homelots, with individual transfer certificates of title ready and available for sale, if her purported desire were to keep the landholding for agricultural purposes. It also makes no sense that petitioner Tong would invest so much money, time and effort in these sub-lots for planting and cultivating agricultural crops when all the mechanisms are already in place for building a residential community. One cannot likewise deny the consistent official government action which decreed the said one hundred ten (110) sub-lots as most appropriate for human settlements considering that for several times beginning in 1955 and in accordance with relevant laws and regulations, the said landholding was categorically reserved as a residential subdivision.

It is also grave error to gloss over the NUPC action since its declarations have long been recognized in similar cases as the present one as clear and convincing evidence of residential classification. In Magno-Adamos v. Bagasao⁵⁰ we found the endorsements of the NUPC approving albeit tentatively a subdivision plan to be a very strong evidence of conversion of the disputed parcels of land into a residential subdivision which would contradict the alleged tenancy relationship. We found nothing objectionable in the trial court's ruling in Santos v. de Guzman⁵¹ ejecting an alleged tenant from the landholding "because the same was included in a homesite subdivision duly approved by the National Planning Commission."⁵² In Republic v. Castellvi53 we gave great weight to the certification of the NUPC that the subject parcels of land were classified as residential areas and ordered their appraisal as residential and not agricultural lands -

The lower court found, and declared, that the lands of Castellvi and Toledo-Gozun are residential lands. The finding of the lower court is in consonance with the unanimous opinion of the three commissioners who, in their report to the court, declared that the lands are residential lands. The Republic assails the finding that the lands are residential, contending that the plans of the appellees to convert the lands into subdivision for residential purposes were only on paper, there being no overt acts on the part of the appellees which indicated that the subdivision project had been commenced xxx. We find evidence showing that the lands in question had ceased to be devoted to the production of agricultural crops, that they had become adaptable for residential purposes, and that the appellees had actually taken steps to convert their lands into residential subdivisions xxx. The evidence shows that Castellvi broached the idea of subdividing her land into residential lots as early as July 11, 1956 in her letter to the Chief of Staff of the Armed Forces of the Philippines xxx. As a matter of fact, the layout of the subdivision plan was tentatively approved by the National Planning Commission on September 7, 1956 xxx. The land of Castellvi had not been devoted to agriculture since 1947 when it was leased to the Philippine Army. In 1957 said land was classified as residential, and taxes based on its classification as residential had been paid since then xxx. The location of the Castellvi land justifies its suitability for a residential subdivision.

The NUPC was created under EO 98, s. of 1946⁵⁴ to "prepare general plans, zoning ordinances, and subdivision regulations, to guide and accomplish a coordinated, adjusted, harmonious reconstruction and future development of urban areas which will in accordance with present and future needs, best promote health, safety, morals, order, convenience, prosperity, and general welfare, as well as efficiency and economy in the process of development; including among other things adequate provisions for traffic, the promotion of safety from fire and other dangers, adequate provision for light and air, the promotion of healthful and convenient distribution of populations xxx."⁵⁵ Under the express terms of its mandate, the NUPC was therefore duty-bound to act only upon realty projects which would be used for human settlements and not for agricultural purposes. It is in this light that we must take stock of the 1955 NUPC conversion of the one hundred ten (110) sub-lots from agricultural to residential classification.

To bolster the exclusive role of the NUPC over developmental projects for residential and industrial purposes, the term "subdivision" (which NUPC was mandated to review and if properly executed to approve) was defined in EO 98 as "the division of a tract or parcel of land into two (2) or more lots, sites or other divisions for the purpose, whether immediate or future, of sale or building development, and includes resubdivision, and when appropriate to the context, relates to the process of subdividing or to the land or area subdivided."⁵⁶ The Subdivision Regulations⁵⁷ (which the NUPC adopted pursuant to EO 98) decreed as mandatory the NUPC approval of all subdivisions of land in the Philippines intended for residential, commercial and industrial purposes, before lots comprising the subdivision could be legally sold or building development therein could validly commence -

Any owner of land wishing to subdivide land shall submit to the Director of Planning [who was the head of NUPC] a plat of the subdivision which shall conform to the requirements set forth in these Regulations. No subdivider shall proceed with the sale of lots of a subdivision and no plat of a subdivision shall be filed with the Director of Lands for approval or recorded in the Office of the Register of Deeds until such plat shall have been approved by the Director of Planning. Applications for plat approval submitted to the District or City Engineer of a town or city in the Philippines shall be forwarded to the Director of Planning together with the District or City Engineer's recommendations (underscoring supplied).

We are convinced that the 1955 approval by the NUPC of the subdivision of the subject three (3) parcels of land owned by Nelita Bacaling and her spouse into one hundred ten (110) sub-lots caused the conversion, if not outright classification, of the entire landholding into a residential community for sale to interested buyers. This is an official classification of the sub-lots as residential units and constitutes the only objective and effectual means of obtaining in 1955 the classification and reservation of private land for non-agricultural use, i.e. residential, industrial or commercial, since neither P.D. No. 27 nor R.A. No. 6657⁵⁸ (together with the specified formal mechanisms stipulated therein for converting a piece of agricultural land into a residential lot) were then binding and effective. The assignment or conversion of the one hundred ten (110) sub-lots for residential purposes was not abrogated by P.D. No. 27 under which respondents invalidly secured their certificates of land transfer since the decree was only prospectively effective⁵⁹ and its coverage was limited only to agricultural lands which clearly do not include the residential sub-lots in question.⁶⁰

By virtue of the official classification made by NUPC and the other circumstances convincingly proved herein, the only fair and legally acceptable decision in the instant case would be to declare, as we now indeed rule, that the one hundred ten (110) sub-lots are truly residential in character as well as in purpose and are thus excluded from the coverage of P.D. No. 27.

Verily, the Certificates of Land Transfer (CLT) issued in respondents' names are not valid and do not change our ruling. The respondents cannot rely on said CLTS as proof of security of tenure. It is well settled that the certificates of land transfer are not absolute evidence of ownership of the subject lots⁶¹ and consequently do not bar the finding that their issuance is void from inception since they cover residential lands contrary to the mandate of P.D. No. 27. It follows from the fact of nullity of the certificates of land transfer in respondents' names that the respondents are not entitled to occupy and possess the one hundred ten (110) sub-lots or portions thereof without the consent of the owner, herein petitioner Tong.1âwphi1.nêt

While not raised as issues in the instant petition, we nevertheless rule now (conformably with Gayos v. Gayos⁶² that it is a cherished rule of procedure that a court should always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation) that respondents cannot claim disturbance compensation for the reason that the sub-lots are not and have never been available for agrarian reform. In the same vein, respondents also have no right to be reimbursed by petitioner Jose Juan Tong for the value of or expenses for improvements which they might have introduced on the one hundred ten (110) sub-lots since they did not allege nor prove the existence of such improvements and their right to compensation thereto, if any.⁶³

WHEREFORE, the Petition for Review is GRANTED. It is further ordered and adjudged that:

1. The certificates of land transfer over the one hundred ten (110) sub-lots located in Barangay Cubay, Jaro, Iloilo City, in the name of respondents and/or their successors in interest are hereby DECLARED VOID AB INITIO. The said one hundred ten (110) sub-lots, covered by TCT Nos. T-10664 to T-10773 of the Registry of Deeds of the City of Iloilo, are declared outside the coverage and operation of P.D. No. 27 and other land reform laws.

2. The consolidated Decision of the Court of Appeals in CA-G.R. SP No. 54413 ("Felomino Muya and Crispin Amor v. Nelita Bacaling, represented by her attorney-in-fact, Jose Juan Tong, and the Executive Secretary, Office of the President") and in CA-G.R. SP No. 54414, ("Wilfredo Jereza, Rodolfo Lazarte and Nemesio Tonocante v. Hon. Executive Secretary, Office of the President and Nelita Bacaling") and its Resolution dated June 5, 2001 denying petitioners' Motion for Reconsideration are REVERSED AND SET ASIDE.

3. The Decision dated May 22, 1998 and the Resolution dated July 22, 1999 of the Office of the President in OP Case No. 98-K-8180 are REINSTATED with the modification in that the respondents are not entitled to disturbance compensation; and

4. Respondents Felomino Muya, Crispin Amor, Wilfredo Jereza, Rodolfo Lazarte and Nemesio Tonocante together with their assigns and successors in interest are ordered to vacate and surrender peacefully the possession of the one hundred ten (110) sub-lots, covered by TCT Nos. T-10664 to T-10773-Iloilo City, to petitioner Jose Juan Tong within thirty (30) days from notice of this Decision.

No pronouncement as to costs.

SO ORDERED.

Bellosillo, Mendoza, and Quisumbing, JJ., concur.

Footnotes

¹ Penned by Associate Justice Andres Reyes, Jr. and concurred in by Associate Justices B.A. Adefuin-de la Cruz, and Rebecca de Guia-Salvador; Rollo, pp. 36-45.

² Sixteenth Division.

³ The case is entitled "Felomino Muya and Crispin Amor v. Nelita Bacaling, represented by her attorney-in-fact, Jose Juan Tong, and the Executive Secretary, Office of the President".

⁴ The case is entitled "Wilfredo Jereza, Rodolfo Lazarte and Nemesio Tonocante v. Hon. Executive Secretary, Office of the President, and Nelita Bacaling."

⁵ Rollo, pp. 47-48.

⁶ Rollo, pp. 49-55.

⁷ Rollo, p. 50.

⁸ Rollo, p. 50.

⁹ Rollo, p. 50.

¹⁰ Rollo, p. 50.

¹¹ Government Service Insurance System v. Court of First Instance of Iloilo, Branch III, 175 SCRA 19, 21 (1989).

¹² Ibid.

¹³ The case referred to is Government Service Insurance System v. Court of First Instance of Iloilo, Branch III; Ibid.

¹⁴ Rollo, p. 50.

¹⁵ Rollo, p. 50.

¹⁶ Rollo, p. 52.

¹⁷ Rollo, p. 50.

¹⁸ Annex "A" of Comment/Opposition (on Petitioner Nelita M. Bacaling's Motion to Withdraw/Dismiss Petition); Rollo, p. 319-321.

¹⁹ Rollo, pp. 58-60.

²⁰ See Note 18, i.e., Deed of Absolute Sale; Annex "E" of Comment/Opposition (on Petitioner Nelita M. Bacaling's Motion to Withdraw/Dismiss Petition); Rollo, p. 330.

²¹ Docketed as ADM. Case No. 01-21-93-3090.

²² Order dated April 3, 1996; Rollo, pp. 61-66.

²³ Docketed as ADM. Case No. A-0400-0010-92; Order dated December 12, 1996; Rollo, pp. 67-72.

²⁴ Order dated September 4, 1997; Rollo, pp. 73-77.

²⁵ Docketed as OP Case No. 98-K-8180; Decision dated May 22, 1998 penned by Executive Secretary Alexander P. Aguirre; Rollo, pp. 49-55.

²⁶ Rollo, p. 55.

²⁷ Resolution dated July 22, 1999 penned by Executive Secretary Ronaldo B. Zamora; Rollo, pp. 56-57.

²⁸ Docketed as CA-G.R. SP Nos. 54413 and 54414; Rollo, pp. 35-48.

²⁹ Rollo, pp. 118-124.

³⁰ Rollo, pp. 35-45.

³¹ Rollo, p. 45.

³² Rollo, pp. 47-48.

³³ Rollo, pp. 17-18.

³⁴ Rollo, pp. 260-261.

³⁵ Rollo, p. 260.

³⁶ This is the date of effectivity of P.D. No. 72, the land reform law under which respondents obtained the certificates of land transfer in their names.

³⁷ I V.J. Francisco, The Revised Rules of Court in the Philippines (1973), p. 209.

³⁸ Sec. 2, Rule 3, Revised Rules of Civil Procedure.

³⁹ Cruz v. Court of Appeals, 233 SCRA 301, 309 (1994), citing BA Finance Corporation v. Court of Appeals, 201 SCRA 157; Galicia v. Palo, 179 SCRA 375; Ramos v. Intermediate Appellate Court, 175 SCRA 70; Ganzon v. Court of Appeals, 161 SCRA 641; Dulos Realty and Development Corporation v. Court of Appeals, 157 SCRA 425; Dihiansan, et.al. v. Court of Appeals, 153 SCRA 712; Dela Santa v. Court of Appeals, 140 SCRA 44; Soriano v. Philippine National Railways, 84 SCRA 722; Mejorada v. Municipal Counsil of Dipolog, 52 SCRA 451.

⁴⁰ See Note 20.

⁴¹ Rollo, pp. 58-60.

⁴² G.R. Nos. L-41182-3, 160 SCRA 171 (1988).

⁴³ See Note 11.

⁴⁴ Government Service Insurance System v. Court of Appeals, 175 SCRA 19, 24 (1989); Binalbagan Estate, Inc. v. Gatuslao, et. al. 74 Phil 128 (1943).

⁴⁵ G.R. No. L-62626, 130 SCRA 482 (1984).

⁴⁶ Id., p. 489.

⁴⁷ G.R. No. 103302, 225 SCRA 282 (1983).

⁴⁸ Par. 5.

⁴⁹ For a listing of the subdivisions, see Rollo, p. 52.

⁵⁰ G.R. No. L-63671, 162 SCRA 747 (1988).

⁵¹ 111 Phil. 671 (1961).

⁵² The National Planning Commission was the successor agency of the National Urban Planning Commission under EO 367, s. 1950; 46 O.G., No. 11, pp. 5301-5307 (11 November 1950).

⁵³ 58 SCRA 336, 356 (1974).

⁵⁴ The EO is entitled "Creating a National Urban Planning Commission and Defining Its Powers and Duties."

⁵⁵ 42 O.G. No. 3, p. 425 (March 11, 1946).

⁵⁶ Ibid.

⁵⁷ 45 O.G. No. 6, p. 2417 (June 1949); Underscoring supplied.

⁵⁸ This law is entitled "Comprehensive Agrarian Reform Law of 1988."

⁵⁹ Castro v. Court of Appeals, No. L-44727, 99 SCRA 722 (1980).

⁶⁰ See note 46.

⁶¹ R.P. Barte, The Law on Agrarian Reform (1991), p. 64.

⁶² G.R. No. L-27812, 67 SCRA 146 (1975).

⁶³ Baclayon v. Court of Appeals, G.R. No. 89132, 182 SCRA 761, 769-770 (1990); International School, Inc. Minister of Labor and Employment, G.R. No. 54243, 175 SCRA 507 (1989).