G.R. No.

L-11415 May 25, 1959

MANUEL BUASON and LOLITA M. REYES, plaintiffs-appellants,

vs.
MARIANO PANUYAS, defendant-appellee.

Garcia and Jacinto, for appellants.

Servando Cleto for appellee.

PADILLA, J.:

This is an appeal from a judgment of the Court of First Instance of Nueva Ecija dismissing an action
brought by the spouses Manuel Buason and Lolita M. Reyes for annulment of a deed of sale in favor
of the defendant, cancellation of transfer certificate of title No. 8419 issued in the name of the
defendant and his wife, declaration that the sale in their favor is valid, recovery of possession of the
parcel of land described in the complaint from the defendant, damages, attorney's fees and costs.
(Civil No. 2144.)

In their lifetime the spouses Buenaventura Dayao and Eugenia Vega acquired by homestead patent
a parcel of land situated at barrio Gabaldon, municipality of Muñoz, province of Nueva Ecija,
containing an area of 14.8413 hectares covered by original certificate of title No. 1187 (Exhibit C).
On 29 October 1930 they executed a power of attorney authorizing Eustaquio Bayuga to engage the
services of an attorney to prosecute their case against Leonardo Gambito for annulment of a
contract of sale of the parcel of land (civil No. 5787 of the same court) and after the termination of
the case in their favor to sell it, and from the proceeds of the sale to deduct whatever expenses he
had incurred in the litigation (Exhibit B). On 14 March 1934 Buenaventura Dayao died leaving his
wife Eugenia Vega and children Pablo, Teodoro, Fortunata and Juliana, all surnamed Dayao. On 21
march 1939 his four children executed a deed of sale conveying 12.8413 hectares of the parcel of
land to the appellants, the spouses Manuel Buason and Lolita M. Reyes (Exhibit A). Their mother
Eugenia Vega affixed her thumbmark to the deed of sale as witness (Exhibit A). The appellants took
possession of the parcel of land through their tenants in 1939. On 18 July 1944 Eustaquio Bayuga
sold 8 hectares of the same parcel of land to the spouses Mariano Panuyas (appellee herein) and
Sotera B. Cruz (Exhibit D). Eustaquio Bayuga died on 25 March 1946 and Eugenia Vega in 1954.

The appellants and the appellee claim ownership to the same parcel of land. In their complaint the
appellants prayed that the appellee be ordered to deliver possession of the part of the parcel of land
held by him; that the deed of sale of that part of the parcel of land held by the appellee executed by
Eustaquio Bayuga in his favor and of his wife (Exhibit D) be declared null and void and that transfer
certificate of title No. 8419 issued in their name be cancelled; that the deed of sale of the parcel of
land executed by the children and heirs of Buenaventura Dayao in their favor (Exhibit A) be declared
valid; that the appellee be ordered to pay them damages and attorney's fees in the sum of P9,600;
and that he ordered to pay the costs of the suit. The appellees affirmative defenses are that he and
his wife were buyers in good faith and for valuable consideration; that appellant's causes of action
are barred by the statute of limitations; that the complaint states no cause of action; that the claim on
which their action is based is unenforceable under the statute of frauds; and that the appellants are
guilty of laches. By way of counterclaim, he prayed that for bringing a clearly unfounded suit against
him which depreciated the value of the land and injured his good reputation, the appellants be
ordered to pay him the sums of P5,000 as actual damages and P10,000 as moral damages.

After trial on 20 August 1956 the Court rendered judgment holding that the appellants' action is
barred by the statute of limitations and dismissing their complaint. Their motion for reconsideration
filed on 23 August 1956. Hence this appeal upon questions of law.
It appears that the appellants did not register the sale of 12.8413 hectares of the parcel of land in
question executed in their favor by the Dayao children on 21 March 1939 after the death of their
father Buenaventura Dayao. On the other hand, the power of attorney executed by Buenaventura
Dayao on 29 October 1930 authorizing Eustaquio Bayuga to sell the parcel of land (Exhibit B) was
annotated or inscribed on the back of the original certificate of title No. 1187 (Exhibit C) as Entry No.
16836/H-1187, and the sale executed by Eustaquio Bayuga in favor of the appellee Mariano
Panuyas and his wife Sotera B. Cruz under the aforesaid power of attorney was annotated or
inscribed on the back of the same original certificate of title (Exhibit C) as Entry No 778/H-1187. It
does not appear that the appellee and his wife had actual knowledge of the previous sale. In the
absence of such knowledge, they had a right to rely on the face of the certificate of title of the
registered owners and of the authority conferred by them upon the agent also recorded on the back
of the certificate of title. As this is a case of double sale of land registered under the Land
Registration Act, he who recorded the sale in the Registry of Deeds has a better right than he who
did not.1

As to the appellants' contention that, as the death of the principal on 14 March 1934 ended the
authority of the agent,2 the sale of 8 hectares of the parcel of land by the agent to the appellee
Mariano Panuyas and his wife Sotera B. Cruz was null and void, suffice it to state that is has not
been shown that the agent knew of his principal's demise, and for that reason article 1738, old Civil
code or 1931, new Civil Code, which provides:

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 is the law applicable to the point raised by the appellants.

The judgment appealed from is affirmed, with costs against the appellants.
G.R. No. L-41420 July 10, 1992

CMS LOGGING, INC., petitioner,

vs.
THE COURT OF APPEALS and D.R. AGUINALDO CORPORATION, respondents.

NOCON, J.:

This is a petition for review on certiorari from the decision dated July 31, 1975 of the Court of
Appeals in CA-G.R. No. 47763-R which affirmed in toto the decision of the Court of First Instance of
Manila, Branch VII, in Civil Case No. 56355 dismissing the complaint filed by petitioner CMS
Logging, Inc. (CMS, for brevity) against private respondent D.R. Aguinaldo Corporation (DRACOR,
for brevity) and ordering the former to pay the latter attorney's fees in the amount of P1,000.00 and
the costs.

The facts of the case are as follows: Petitioner CMS is a forest concessionaire engaged in the
logging business, while private respondent DRACOR is engaged in the business of exporting and
selling logs and lumber. On August 28, 1957, CMS and DRACOR entered into a contract of
agency 1 whereby the former appointed the latter as its exclusive export and sales agent for all logs
that the former may produce, for a period of five (5) years. The pertinent portions of the agreement,
which was drawn up by DRACOR, 2 are as follows:

1. SISON [CMS] hereby appoints DRACOR as his sole and exclusive export sales
agent with full authority, subject to the conditions and limitations hereinafter set forth,
to sell and export under a firm sales contract acceptable to SISON, all logs produced
by SISON for a period of five (5) years commencing upon the execution of the
agreement and upon the terms and conditions hereinafter provided and DRACOR
hereby accepts such appointment;

xxx xxx xxx

3. It is expressly agreed that DRACOR shall handle exclusively all negotiations of all
export sales of SISON with the buyers and arrange the procurement and schedules
of the vessel or vessels for the shipment of SISON's logs in accordance with
SISON's written requests, but DRACOR shall not in anyway [sic] be liable or
responsible for any delay, default or failure of the vessel or vessels to comply with
the schedules agreed upon;

xxx xxx xxx

9. It is expressly agreed by the parties hereto that DRACOR shall receive five (5%)
per cent commission of the gross sales of logs of SISON based on F.O.B. invoice
value which commission shall be deducted from the proceeds of any and/or all
moneys received by DRACOR for and in behalf and for the account of SISON;

By virtue of the aforesaid agreement, CMS was able to sell through DRACOR a total of 77,264,672
board feet of logs in Japan, from September 20, 1957 to April 4, 1962.
About six months prior to the expiration of the agreement, while on a trip to Tokyo, Japan, CMS's
president, Atty. Carlos Moran Sison, and general manager and legal counsel, Atty. Teodoro R.
Dominguez, discovered that DRACOR had used Shinko Trading Co., Ltd. (Shinko for brevity) as
agent, representative or liaison officer in selling CMS's logs in Japan for which Shinko earned a
commission of U.S. $1.00 per 1,000 board feet from the buyer of the logs. Under this arrangement,
Shinko was able to collect a total of U.S. $77,264.67. 3

CMS claimed that this commission paid to Shinko was in violation of the agreement and that it
(CMS) is entitled to this amount as part of the proceeds of the sale of the logs. CMS contended that
since DRACOR had been paid the 5% commission under the agreement, it is no longer entitled to
the additional commission paid to Shinko as this tantamount to DRACOR receiving double
compensation for the services it rendered.

After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or
P2,883,351.90, 4 directly to several firms in Japan without the aid or intervention of DRACOR.

CMS sued DRACOR for the commission received by Shinko and for moral and exemplary damages,
while DRACOR counterclaimed for its commission, amounting to P144,167.59, from the sales made
by CMS of logs to Japanese firms. In its reply, CMS averred as a defense to the counterclaim that
DRACOR had retained the sum of P101,167.59 as part of its commission for the sales made by
CMS. 5 Thus, as its counterclaim to DRACOR's counterclaim, CMS demanded DRACOR return the
amount it unlawfully retained. DRACOR later filed an amended counterclaim, alleging that the
balance of its commission on the sales made by CMS was P42,630.82, 6 thus impliedly admitting
that it retained the amount alleged by CMS.

In dismissing the complaint, the trial court ruled that no evidence was presented to show that Shinko
received the commission of U.S. $77,264.67 arising from the sale of CMS's logs in Japan, though
the trial court stated that "Shinko was able to collect the total amount of $77,264.67 US Dollars
(Exhs. M and M-1)." 7 The counterclaim was likewise dismissed, as it was shown that DRACOR had
waived its rights to the balance of its commission in a letter dated February 2, 1963 to Atty. Carlos
Moran Sison, president of CMS. 8 From said decision, only CMS appealed to the Court of Appeals.

The Court of Appeals, in a 3 to 2 decision, 9 affirmed the dismissal of the complaint since "[t]he trial
court could not have made a categorical finding that Shinko collected commissions from the buyers
of Sison's logs in Japan, and could not have held that Sison is entitled to recover from Dracor the
amount collected by Shinko as commissions, plaintiff-appellant having failed to prove by competent
evidence its claims." 10

Moreover, the appellate court held:

There is reason to believe that Shinko Trading Co. Ltd., was paid by defendant-
appellee out of its own commission of 5%, as indicated in the letter of its president to
the president of Sison, dated February 2, 1963 (Exhibit "N"), and in the Agreement
between Aguinaldo Development Corporation (ADECOR) and Shinko Trading Co.,
Ltd. (Exhibit "9"). Daniel R. Aguinaldo stated in his said letter:

. . . , I informed you that if you wanted to pay me for the service, then it would be no
more than at the standard rate of 5% commission because in our own case, we pay
our Japanese agents 2-1/2%. Accordingly, we would only add a similar amount of 2-
1/2% for the service which we would render you in the Philippines. 11
Aggrieved, CMS appealed to this Court by way of a petition for review on certiorari, alleging (1) that
the Court of Appeals erred in not making a complete findings of fact; (2) that the testimony of Atty.
Teodoro R. Dominguez, regarding the admission by Shinko's president and director that it collected
a commission of U.S. $1.00 per 1,000 board feet of logs from the Japanese buyers, is admissible
against DRACOR; (3) that the statement of DRACOR's chief legal counsel in his memorandum
dated May 31, 1965, Exhibit "K", is an admission that Shinko was able to collect the commission in
question; (4) that the fact that Shinko received the questioned commissions is deemed admitted by
DRACOR by its silence under Section 23, Rule 130 of the Rules of Court when it failed to reply to
Atty. Carlos Moran Sison's letter dated February 6, 1962; (5) that DRACOR is not entitled to its 5%
commission arising from the direct sales made by CMS to buyers in Japan; and (6) that DRACOR is
guilty of fraud and bad faith in its dealings with CMS.

With regard to CMS's arguments concerning whether or not Shinko received the commission in
question, We find the same unmeritorious.

To begin with, these arguments question the findings of fact made by the Court of Appeals, which
are final and conclusive and can not be reviewed on appeal to the Supreme Court. 12

Moreover, while it is true that the evidence adduced establishes the fact that Shinko is DRACOR's
agent or liaison in Japan, 13 there is no evidence which established the fact that Shinko did receive
the amount of U.S. $77,264.67 as commission arising from the sale of CMS's logs to various
Japanese firms.

The fact that Shinko received the commissions in question was not established by the testimony of
Atty. Teodoro R. Dominguez to the effect that Shinko's president and director told him that Shinko
received a commission of U.S. $1.00 for every 1,000 board feet of logs sold, since the same is
hearsay. Similarly, the letter of Mr. K. Shibata of Toyo Menka Kaisha, Ltd. 14 is also hearsay since Mr.
Shibata was not presented to testify on his letter.

CMS's other evidence have little or no probative value at all. The statements made in the
memorandum of Atty. Simplicio R. Ciocon to DRACOR dated May 31, 1965, 15 the letter dated
February 2, 1963 of Daniel
R. Aguinaldo, 16 president of DRACOR, and the reply-letter dated January 9, 1964 17 by DRACOR's
counsel Atty. V. E. Del Rosario to CMS's demand letter dated September 25, 1963 can not be
categorized as admissions that Shinko did receive the commissions in question.

The alleged admission made by Atty. Ciocon, to wit —

Furthermore, as per our records, our shipment of logs to Toyo Menka Kaisha, Ltd., is
only for a net volume of 67,747,732 board feet which should enable Shinko to collect
a commission of US $67,747.73 only

can not be considered as such since the statement was made in the context of questioning
CMS's tally of logs delivered to various Japanese firms.

Similarly, the statement of Daniel R. Aguinaldo, to wit —

. . . Knowing as we do that Toyo Menka is a large and reputable company, it is

obvious that they paid Shinko for certain services which Shinko must have
satisfactorily performed for them in Japan otherwise they would not have paid Shinko
 and that of Atty. V. E. Del Rosario,

. . . It does not seem proper, therefore, for CMS Logging, Inc., as principal, to
concern itself with, much less question, the right of Shinko Trading Co., Ltd. with
which our client debt directly, to whatever benefits it might have derived form the
ultimate consumer/buyer of these logs, Toyo Menka Kaisha, Ltd. There appears to
be no justification for your client's contention that these benefits, whether they can be
considered as commissions paid by Toyo Menka Kaisha to Shinko Trading, are to be
regarded part of the gross sales.

can not be considered admissions that Shinko received the questioned commissions since
neither statements declared categorically that Shinko did in fact receive the commissions
and that these arose from the sale of CMS's logs.

As correctly stated by the appellate court:

It is a rule that "a statement is not competent as an admission where it does not,
under a reasonable construction, appear to admit or acknowledge the fact which is
sought to be proved by it". An admission or declaration to be competent must have
been expressed in definite, certain and unequivocal language (Bank of the Philippine
Islands vs. Fidelity & Surety Co., 51 Phil. 57, 64). 18

CMS's contention that DRACOR had admitted by its silence the allegation that Shinko received the
commissions in question when it failed to respond to Atty. Carlos Moran Sison's letter dated
February 6, 1963, is not supported by the evidence. DRACOR did in fact reply to the letter of Atty.
Sison, through the letter dated March 5, 1963 of F.A. Novenario, 19 which stated:

This is to acknowledge receipt of your letter dated February 6, 1963, and addressed
to Mr. D. R. Aguinaldo, who is at present out of the country.

xxx xxx xxx

We have no record or knowledge of any such payment of commission made by Toyo

Menka to Shinko. If the payment was made by Toyo Menka to Shinko, as stated in
your letter, we knew nothing about it and had nothing to do with it.

The finding of fact made by the trial court, i.e., that "Shinko was able to collect the total amount of
$77,264.67 US Dollars," can not be given weight since this was based on the summary prepared by
CMS itself, Exhibits "M" and "M-1".

Moreover, even if it was shown that Shinko did in fact receive the commissions in question, CMS is
not entitled thereto since these were apparently paid by the buyers to Shinko for arranging the sale.
This is therefore not part of the gross sales of CMS's logs.

However, We find merit in CMS's contention that the appellate court erred in holding that DRACOR
was entitled to its commission from the sales made by CMS to Japanese firms.

The principal may revoke a contract of agency at will, and such revocation may be express, or
implied, 20 and may be availed of even if the period fixed in the contract of agency as not yet
expired. 21 As the principal has this absolute right to revoke the agency, the agent can not object
thereto; neither may he claim damages arising from such revocation, 22 unless it is shown that such
was done in order to evade the payment of agent's commission. 23

In the case at bar, CMS appointed DRACOR as its agent for the sale of its logs to Japanese firms.
Yet, during the existence of the contract of agency, DRACOR admitted that CMS sold its logs
directly to several Japanese firms. This act constituted an implied revocation of the contract of
agency under Article 1924 of the Civil Code, which provides:

Art. 1924 The agency is revoked if the principal directly manages the business
entrusted to the agent, dealing directly with third persons.

In New Manila Lumber Company, Inc. vs. Republic of the Philippines, 24 this Court ruled that the act
of a contractor, who, after executing powers of attorney in favor of another empowering the latter to
collect whatever amounts may be due to him from the Government, and thereafter demanded and
collected from the government the money the collection of which he entrusted to his attorney-in-fact,
constituted revocation of the agency in favor of the attorney-in-fact.

Since the contract of agency was revoked by CMS when it sold its logs to Japanese firms without
the intervention of DRACOR, the latter is no longer entitled to its commission from the proceeds of
such sale and is not entitled to retain whatever moneys it may have received as its commission for
said transactions. Neither would DRACOR be entitled to collect damages from CMS, since damages
are generally not awarded to the agent for the revocation of the agency, and the case at bar is not
one falling under the exception mentioned, which is to evade the payment of the agent's
commission.

Regarding CMS's contention that the Court of Appeals erred in not finding that DRACOR had
committed acts of fraud and bad faith, We find the same unmeritorious. Like the contention involving
Shinko and the questioned commissions, the findings of the Court of Appeals on the matter were
based on its appreciation of the evidence, and these findings are binding on this Court.

In fine, We affirm the ruling of the Court of Appeals that there is no evidence to support CMS's
contention that Shinko earned a separate commission of U.S. $1.00 for every 1,000 board feet of
logs from the buyer of CMS's logs. However, We reverse the ruling of the Court of Appeals with
regard to DRACOR's right to retain the amount of P101,536.77 as part of its commission from the
sale of logs by CMS, and hold that DRACOR has no right to its commission. Consequently,
DRACOR is hereby ordered to remit to CMS the amount of P101,536.77.

WHEREFORE, the decision appealed from is hereby MODIFIED as stated in the preceding
paragraph. Costs de officio.

SO ORDERED.
G.R. No. 111924 January 27, 1997

ADORACION LUSTAN, petitioner,

vs.
COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE
NATIONAL BANK, respondents.

FRANCISCO, J.:

Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069
of the Cadastral Survey of Calinog, Iloilo containing an area of 10.0057 hectares and covered by
TCT No. T-561. On February 25, 1969, petitioner leased the above described property to private
respondent Nicolas Parangan for a term of ten (10) years and an annual rent of One Thousand
(P1,000.00) Pesos. During the period of lease, Parangan was regularly extending loans in small
amounts to petitioner to defray her daily expenses and to finance her daughter's education. On July
29, 1970, petitioner executed a Special Power of Attorney in favor of Parangan to secure an
agricultural loan from private respondent Philippine National Bank (PNB) with the aforesaid lot as
collateral. On February 18, 1972, a second Special Power of Attorney was executed by petitioner, by
virtue of which, Parangan was able to secure four (4) additional loans, to wit: the sums of
P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September 6, 1976,
July 2, 1979 and June 2, 1980, respectively. The last three loans were without the knowledge of
herein petitioner and all the proceeds therefrom were used by Parangan for his own benefit. 1 These
encumbrances were duly annotated on the certificate of title. On April 16, 1973, petitioner signed a
Deed of Pacto de Retro Sale2 in favor of Parangan which was superseded by the Deed of Definite
Sale3 dated May 4, 1979 which petitioner signed upon Parangan's representation that the same
merely evidences the loans extended by him unto the former.

For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner
demanded the return of her certificate of title. Instead of complying with the request, Parangan
asserted his rights over the property which allegedly had become his by virtue of the aforementioned
Deed of Definite Sale. Under said document, petitioner conveyed the subject property and all the
improvements thereon unto Parangan absolutely for and in consideration of the sum of Seventy Five
Thousand (P75,000.00) Pesos.

Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession
and damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the
lower court rendered judgment, disposing as follows:

WHEREFORE and in view of the foregoing, a decision is rendered as follows:

1. Ordering cancellation by the Register of Deeds of the Province of Iloilo, of the

unauthorized loans, the liens and encumbrances appearing in the Transfer
Certificate of Title No. T-561, especially entries nos. 286231; 338638; and 352794;

2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of
Definite Sale dated May 6, 1979, both documents executed by Adoracion Lustan in
favor of Nicolas Parangan over Lot 8069 in TCT No. T-561 of the Register of Deeds
of Iloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage;
 3. Ordering defendant Nicolas Parangan to pay all the loans he secured from
defendant PNB using thereto as security TCT No. T-561 of plaintiff and defendant
PNB to return TCT No. T-561 to plaintiff;

4. Ordering defendant Nicolas Parangan to return possession of the land in question,

Lot 8069 of the Calinog Cadastre, described in TCT No. T-561 of the Register of
Deeds of Iloilo, to plaintiff upon payment of the sum of P75,000.00 by plaintiff to
defendant Parangan which payment by plaintiff must be made within ninety (90) days
from receipt of this decision; otherwise, sale of the land will be ordered by the court
to satisfy payment of the amount;

5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of
P15,000.00 and to pay the costs of the suit.

SO ORDERED.4

Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision.
Hence this petition contending that the CA committed the following errors:

IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED

IN ART. 1602 OF THE NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY
PREPONDERANCE OF EVIDENCE;

IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH

KNOWLEDGE AS TO THE CONTENTS THEREOF;

IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS

DELIA CABIAL DESERVES FULL FAITH AND CREDIT;

IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING

MORTGAGE FOR "UNLIMITED" LOANS AS RELEVANT.

Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality
an equitable mortgage and whether or not petitioner's property is liable to PNB for the loans
contracted by Parangan by virtue of the special power of attorney. The lower court and the CA
arrived at different factual findings thus necessitating a review of the evidence on record.5 After a
thorough examination, we note some errors, both in fact and in law, committed by public respondent
CA.

The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was
shown beyond doubt that the intention of the parties was one of a loan secured by petitioner's
land.6 We agree.

A contract is perfected by mere consent.7 More particularly, a contract of sale is perfected at the
moment there is a meeting of minds upon the thing which is the object of the contract and upon the
price.8 This meeting of the minds speaks of the intent of the parties in entering into the contract
respecting the subject matter and the consideration thereof. If the words of the contract appear to be
contrary to the evident intention of the parties, the latter shall prevail over the former.9 In the case at
bench, the evidence is sufficient to warrant a finding that petitioner and Parangan merely intended to
consolidate the former's indebtedness to the latter in a single instrument and to secure the same
with the subject property. Even when a document appears on its face to be a sale, the owner of the
property may prove that the contract is really a loan with mortgage by raising as an issue the fact
that the document does not express the true intent of the parties. In this case, parol evidence then
becomes competent and admissible to prove that the instrument was in truth and in fact given
merely as a security for the repayment of a loan. And upon proof of the truth of such allegations, the
court will enforce the agreement or understanding in consonance with the true intent of the parties at
the time of the execution of the contract. 10

Articles 1602 and 1604 of the Civil Code respectively provide:

The contract shall be presumed to be an equitable mortgage in any of the following

cases:

1) When the price of a sale with right to repurchase is unusually inadequate;

2) When the vendor remains in possession as lessor or otherwise;

3) When upon or after the expiration of the right to repurchase, another instrument
extending the period of redemption or granting a new period is executed;

4) When the vendor binds himself to pay the taxes on the thing sold;

5) When the purchaser retains for himself a part of the purchase price;

6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the performance
of any other obligation.

Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to
be an absolute sale.

From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise,
we must first satisfy two requisites namely: that the parties entered into a contract denominated as a
contract of sale and that their intention was to secure an existing debt by way of mortgage. Under
Art. 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an
equitable mortgage should any of the conditions in Art. 1602 be present. The existence of any of the
circumstances therein, not a concurrence nor an overwhelming number of such circumstances,
suffices to give rise to the presumption that the contract is an equitable mortgage. 11

Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable
mortgage in any other case where it may be fairly inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any other obligation. That
the case clearly falls under this category can be inferred from the circumstances surrounding the
transaction as herein set forth:

Petitioner had no knowledge that the contract 12 she signed is a deed of sale. The contents of the
same were not read nor explained to her so that she may intelligibly formulate in her mind the
consequences of her conduct and the nature of the rights she was ceding in favor of Parangan.
Petitioner is illiterate and her condition constrained her to merely rely on Parangan's assurance that
the contract only evidences her indebtedness to the latter. When one of the contracting parties is
unable to read, or if the contract is in a language not understood by him, and mistake or fraud is
alleged, the person enforcing the contract must show that the terms thereof have been fully
explained to the former. 13 Settled is the rule that where a party to a contract is illiterate or cannot
read or cannot understand the language in which the contract is written, the burden is on the party
interested in enforcing the contract to prove that the terms thereof are fully explained to the former in
a language understood by him.14 To our mind, this burden has not been satisfactorily discharged.

We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and
explained to petitioner worthy of credit. The assessment by the trial court of the credibility of
witnesses is entitled to great respect and weight for having had the opportunity of observing the
conduct and demeanor of the witnesses while testifying. 15 The lower court may not have
categorically declared Cabial's testimony as doubtful but this fact is readily apparent when it ruled on
the basis of petitioner's evidence in total disregard of the positive testimony on Parangan's side. We
have subjected the records to a thorough examination, and a reading of the transcript of
stenographic notes would bear out that the court a quo is correct in its assessment. The CA
committed a reversible error when it relied on the testimony of Cabial in upholding the validity of the
Deed of Definite Sale. For one, there are noted major contradictions between the testimonies of
Cabial and Judge Lebaquin, who notarized the purported Deed of Definite Sale. While the former
testified that receipts were presented before Judge Lebaquin, who in turn made an accounting to
determine the price of the land 16, the latter categorically denied the allegation. 17 This contradiction
casts doubt on the credibility of Cabial as it is ostensible that her version of the story is concocted.

On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor
explained to petitioner. We believe that this witness gave a more accurate account of the
circumstances surrounding the transaction. He has no motive to prevaricate or concoct a story as he
witnessed the execution of the document at the behest of Parangan himself who, at the outset,
informed him that he will witness a document consolidating petitioner's debts. He thus testified:

Q: In (sic) May 4, 1979, you remember having went (sic) to the

Municipality of Calinog?

A: Yes, sir.

Q: Who invited you to go there?

A: Parangan.

Q: You mean Nicolas Parangan?

A: Yes, sir.

Q: What did Nicolas tell you why he invited you to go there?

A: He told me that I will witness on the indebtedness of Adoracion to

Parangan.

Q: Before Adoracion Lustan signed her name in this Exh. "4", was
this document read to her?

A: No, sir.

Q: Did Nicolas Parangan right in that very room tell Adoracion what
she was signing?
 A: No, sir.

xxx xxx xxx

Q: What did you have in mind when you were signing this document,
Exh. "4"?

A: To show that Adoracion Lustan has debts with Nicolas

Parangan. 18

Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that
the deed of sale was read and explained by him to petitioner. When asked if witness has any
knowledge whether petitioner knows how to read or write, he answered in the negative. 19 This latter
admission impresses upon us that the contract was not at all read or explained to petitioner for had
he known that petitioner is illiterate, his assistance would not have been necessary.

The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails.
The contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in
favor of Parangan, did not embody the true intention of the parties. The evidence speaks clearly of
the nature of the agreement — it was one executed to secure some loans.

Anent the issue of whether the outstanding mortgages on the subject property can be enforced
against petitioner, we rule in the affirmative.

Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their
own property. 20So long as valid consent was given, the fact that the loans were solely for the benefit
of Parangan would not invalidate the mortgage with respect to petitioner's property. In consenting
thereto, even granting that petitioner may not be assuming personal liability for the debt, her property
shall nevertheless secure and respond for the performance of the principal obligation. 21 It is admitted
that petitioner is the owner of the parcel of land mortgaged to PNB on five (5) occasions by virtue of
the Special Powers of Attorney executed by petitioner in favor of Parangan. Petitioner argues that
the last three mortgages were void for lack of authority. She totally failed to consider that said
Special Powers of Attorney are a continuing one and absent a valid revocation duly furnished to the
mortgagee, the same continues to have force and effect as against third persons who had no
knowledge of such lack of authority. Article 1921 of the Civil Code provides:

Art. 1921. If the agency has been entrusted for the purpose of contracting with
specified persons, its revocation shall not prejudice the latter if they were not given
notice thereof.

The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter
to represent and act on behalf of the former. Having done so, petitioner clothed Parangan with
authority to deal with PNB on her behalf and in the absence of any proof that the bank had
knowledge that the last three loans were without the express authority of petitioner, it cannot be
prejudiced thereby. As far as third persons are concerned, an act is deemed to have been performed
within the scope of the agent's authority if such is within the terms of the power of attorney as written
even if the agent has in fact exceeded the limits of his authority according to the understanding
between the principal and the agent. 22 The Special Power of Attorney particularly provides that the
same is good not only for the principal loan but also for subsequent commercial, industrial,
agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power of
attorney is revoked in a public instrument and a copy of which is furnished to PNB. 23 Even when the
agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed
the latter to act as though he had full powers (Article 1911, Civil Code). 24 The mortgage directly and
immediately subjects the property upon which it is imposed. 25 The property of third persons which
has been expressly mortgaged to guarantee an obligation to which the said persons are foreign, is
directly and jointly liable for the fulfillment thereof; it is therefore subject to execution and sale for the
purpose of paying the amount of the debt for which it is liable. 26 However, petitioner has an
unquestionable right to demand proportional indemnification from Parangan with respect to the sum
paid to PNB from the proceeds of the sale of her property 27 in case the same is sold to satisfy the
unpaid debts.

WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with
the following MODIFICATIONS:

1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE;

2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION

OF THE SUBJECT LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF
P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS DECISION;

3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY
THEREFORE BE SUBJECTED TO EXECUTION SALE.

4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF

P15,000.00 BY WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT.

SO ORDERED.