III.

OBLIGATIONS OF THE AGENT

E. DUTY OF DILIGENCE
BRITISH AIRWAYS, petitioner, vs. COURT OF APPEALS, GOP MAHTANI, and
PHILIPPINE AIRLINES, respondents. G.R. No. 121824 January 29, 1998
ROMERO, J.:
In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the
decision of respondent Court of Appeals 1 promulgated on September 7, 1995, which
affirmed the award of damages and attorney's fees made by the Regional Trial Court of
Cebu, 7th Judicial Region, Branch 17, in favor of private respondent GOP Mahtani as
well as the dismissal of its third-party complaint against Philippine Airlines (PAL). 2
The material and relevant facts are as follows:
On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In
anticipation of his visit, he obtained the services of a certain Mr. Gumar to prepare his
travel plans. The latter, in turn, purchased a ticket from BA where the following
itinerary was indicated: 3
CARRIER

FLIGHT

DATE

TIME

STATUS

MANILA

MNL

PR 310 Y

16 APR.

1730

OK

HONGKONG

HKG

BA 20 M

16 APR.

2100

OK

BOMBAY

BOM

BA 19 M

23 APR.

0840

OK

HONGKONG

HKG

PR 311 Y

MANILA

MNL

Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to
Hongkong via PAL, and upon arrival in Hongkong he had to take a connecting flight to
Bombay on board BA.
Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of
luggage containing his clothings and personal effects, confident that upon reaching
Hongkong, the same would be transferred to the BA flight bound for Bombay.
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was
missing and that upon inquiry from the BA representatives, he was told that the same
1

might have been diverted to London. After patiently waiting for his luggage for one
week, BA finally advised him to file a claim by accomplishing the "Property Irregularity
Report." 4
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for
damages and attorney's fees5 against BA and Mr. Gumar before the trial court,
docketed as Civil Case No. CEB-9076.
On September 4, 1990, BA filed its answer with counter claim 6 to the complaint raising,
as special and affirmative defenses, that Mahtani did not have a cause of action against
it. Likewise, on November 9, 1990, BA filed a third-party complaint 7 against PAL
alleging that the reason for the non-transfer of the luggage was due to the latter's late
arrival in Hongkong, thus leaving hardly any time for the proper transfer of Mahtani's
luggage to the BA aircraft bound for Bombay.
On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it
disclaimed any liability, arguing that there was, in fact, adequate time to transfer the
luggage to BA facilities in Hongkong. Furthermore, the transfer of the luggage to
Hongkong authorities should be considered as transfer to BA. 8
After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its
decision in favor of Mahtani,9 the dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is rendered for the plaintiff and
against the defendant for which defendant is ordered to pay plaintiff the sum of
Seven Thousand (P7,000.00) Pesos for the value of the two (2) suit cases; Four
Hundred U.S. ($400.00) Dollars representing the value of the contents of
plaintiff's luggage; Fifty Thousand (P50,000.00) Pesos for moral and actual
damages and twenty percent (20%) of the total amount imposed against the
defendant for attorney's fees and costs of this action.
The Third-Party Complaint against third-party defendant Philippine Airlines is
DISMISSED for lack of cause of action.
SO ORDERED.
Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial
court's findings. Thus:
WHEREFORE, in view of all the foregoing considerations, finding the Decision
appealed from to be in accordance with law and evidence, the same is hereby
AFFIRMED in toto, with costs against defendant-appellant.
SO ORDERED.

10

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

In essence, BA assails the award of compensatory damages and attorney's fees, as well
as the dismissal of its third-party complaint against PAL. 11
Regarding the first assigned issue, BA asserts that the award of compensatory damages
in the separate sum of P7,000.00 for the loss of Mahtani's two pieces of luggage was
without basis since Mahtani in his complaint 12stated the following as the value of his
personal belongings:
8. On the said travel, plaintiff took with him the following items and its
corresponding value, to wit:
1. personal belonging P10,000.00
2. gifts for his parents and relatives $5,000.00
Moreover, he failed to declare a higher valuation with respect to his luggage, a
condition provided for in the ticket, which reads: 13
Liability for loss, delay, or damage to baggage is limited unless a higher value is
declared in advance and additional charges are paid:
1. For most international travel (including domestic corporations of international
journeys) the liability limit is approximately U.S. $9.07 per pound (U.S. $20.000)
per kilo for checked baggage and U.S. $400 per passenger for unchecked
baggage.
Before we resolve the issues raised by BA, it is needful to state that the nature of an
airline's contract of carriage partakes of two types, namely: a contract to deliver a cargo
or merchandise to its destination and a contract to transport passengers to their
destination. A business intended to serve the traveling public primarily, it is imbued with
public interest, hence, the law governing common carriers imposes an exacting
standard. 14 Neglect or malfeasance by the carrier's employees could predictably furnish
bases for an action for damages. 15
In the instant case, it is apparent that the contract of carriage was between Mahtani
and BA. Moreover, it is indubitable that his luggage never arrived in Bombay on time.
Therefore, as in a number of cases 16 we have assessed the airlines' culpability in the
form of damages for breach of contract involving misplaced luggage.
In determining the amount of compensatory damages in this kind of cases, it is vital
that the claimant satisfactorily prove during the trial the existence of the factual basis of
the damages and its causal connection to defendant's acts. 17
3

In this regard, the trial court granted the following award as compensatory damages:
Since plaintiff did not declare the value of the contents in his luggage and even
failed to show receipts of the alleged gifts for the members of his family in
Bombay, the most that can be expected for compensation of his lost luggage (2
suit cases) is Twenty U.S. Dollars ($20.00) per kilo, or combined value of Four
Hundred ($400.00) U.S. Dollars for Twenty kilos representing the contents plus
Seven Thousand (P7,000.00) Pesos representing the purchase price of the two
(2) suit cases.
However, as earlier stated, it is the position of BA that there should have been no
separate award for the luggage and the contents thereof since Mahtani failed to declare
a separate higher valuation for the luggage, 18 and therefore, its liability is limited, at
most, only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a higher value
is needed to recover a greater amount. Article 22(1) of the Warsaw
Convention, 19 provides as follows:
xxx xxx xxx
(2) In the transportation of checked baggage and goods, the liability of the
carrier shall be limited to a sum of 250 francs per kilogram, unless the consignor
has made, at time the package was handed over to the carrier, a special
declaration of the value at delivery and has paid a supplementary sum if the case
so requires. In that case the carrier will be liable to pay a sum not exceeding the
declared sum, unless he proves that the sum is greater than the actual value to
the consignor at delivery.
American jurisprudence provides that an air carrier is not liable for the loss of baggage
in an amount in excess of the limits specified in the tariff which was filed with the
proper authorities, such tariff being binding, on the passenger regardless of the
passenger's lack of knowledge thereof or assent thereto. 20 This doctrine is recognized
in this jurisdiction. 21
Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on
adhesion contracts where the facts and circumstances justify that they should be
disregarded. 22
In addition, we have held that benefits of limited liability are subject to waiver such as
when the air carrier failed to raise timely objections during the trial when questions and
answers regarding the actual claims and damages sustained by the passenger were
asked. 23
4

Given the foregoing postulates, the inescapable conclusion is that BA had waived the
defense of limited liability when it allowed Mahtani to testify as to the actual damages
he incurred due to the misplacement of his luggage, without any objection. In this
regard, we quote the pertinent transcript of stenographic notes of Mahtani's direct
testimony: 24
Q How much are you going to ask from this court?
A P100,000.00.
Q What else?
A Exemplary damages.
Q How much?
A P100,000.00.
Q What else?
A The things I lost, $5,000.00 for the gifts I lost and my
personal belongings, P10,000.00.
Q What about the filing of this case?
A The court expenses and attorney's fees is 30%.
Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed
by counsel of the adverse party to be inadmissible for any reason, the latter has the
right to object. However, such right is a mere privilege which can be waived.
Necessarily, the objection must be made at the earliest opportunity, lest silence when
there is opportunity to speak may operate as a waiver of objections. 25 BA has precisely
failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely objection,
but even conducted his own cross-examination as well. 26 In the early case of Abrenica
v. Gonda, 27 we ruled that:
. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or
objection against the admission of any evidence must be made at the proper
time, and that if not so made it will be understood to have been waived. The
proper time to make a protest or objection is when, from the question addressed
to the witness, or from the answer thereto, or from the presentation of proof,
the inadmissibility of evidence is, or may be inferred.
5

Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals,
are entitled to great respect. 28 Since the actual value of the luggage involved
appreciation of evidence, a task within the competence of the Court of Appeals, its
ruling regarding the amount is assuredly a question of fact, thus, a finding not
reviewable by this Court.29
As to the issue of the dismissal of BA's third-party complaint against PAL, the Court of
Appeals justified its ruling in this wise, and we quote: 30
Lastly, we sustain the trial court's ruling dismissing appellant's third-party
complaint against PAL.
The contract of air transportation in this case pursuant to the ticket issued by
appellant to plaintiff-appellee was exclusively between the plaintiff Mahtani and
defendant-appellant BA. When plaintiff boarded the PAL plane from Manila to
Hongkong, PAL was merely acting as a subcontractor or agent of BA. This is
shown by the fact that in the ticket issued by appellant to plaintiff-appellee, it is
specifically provided on the "Conditions of Contract," paragraph 4 thereof that:
4. . . . carriage to be performed hereunder by several successive
carriers is regarded as a single operation.
The rule that carriage by plane although performed by successive carriers is regarded
as a single operation and that the carrier issuing the passenger's ticket is considered
the principal party and the other carrier merely subcontractors or agent, is a settled
issue.
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the Philippines v. Tempengko, 31 we
expounded on the nature of a third-party complaint thus:
The third-party complaint is, therefore, a procedural device whereby a "third
party" who is neither a party nor privy to the act or deed complained of by the
plaintiff, may be brought into the case with leave of court, by the defendant,
who acts, as third-party plaintiff to enforce against such third-party defendant a
right for contribution, indemnity, subrogation or any other relief, in respect of the
plaintiff's claim. The third-party complaint is actually independent of and
separate and distinct from the plaintiff's complaint. Were it not for this provision
of the Rules of Court, it would have to be filed independently and separately
from the original complaint by the defendant against the third-party. But the
Rules permit defendant to bring in a third-party defendant or so to speak, to
litigate his separate cause of action in respect of plaintiff's claim against a thirdparty in the original and principal case with the object of avoiding circuitry of
6

action and unnecessary proliferation of law suits and of disposing expeditiously in

one litigation the entire subject matter arising from one particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view
of their contract of carriage. Yet, BA adamantly disclaimed its liability and instead
imputed it to PAL which the latter naturally denies. In other words, BA and PAL are
blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation was
exclusively between Mahtani and BA, the latter merely endorsing the Manila to
Hongkong leg of the former's journey to PAL, as its subcontractor or agent. In fact, the
fourth paragraph of the "Conditions of Contracts" of the ticket 32 issued by BA to
Mahtani confirms that the contract was one of continuous air transportation from Manila
to Bombay.
4. . . . carriage to be performed hereunder by several successive carriers is
regarded as a single operation.
Prescinding from the above discussion, it is undisputed that PAL, in transporting
Mahtani from Manila to Hongkong acted as the agent of BA.
Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule
that an agent is also responsible for any negligence in the performance of its
function. 33 and is liable for damages which the principal may suffer by reason of its
negligent act. 34 Hence, the Court of Appeals erred when it opined that BA, being the
principal, had no cause of action against PAL, its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the International Air
Transport Association (IATA), wherein member airlines are regarded as agents of each
other in the issuance of the tickets and other matters pertaining to their
relationship. 35 Therefore, in the instant case, the contractual relationship between BA
and PAL is one of agency, the former being the principal, since it was the one which
issued the confirmed ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa
German Airlines v. Court of Appeals. 36 In that case, Lufthansa issued a confirmed ticket
to Tirso Antiporda covering five-leg trip aboard different airlines. Unfortunately, Air
Kenya, one of the airlines which was to carry Antiporda to a specific destination
"bumped" him off.
An action for damages was filed against Lufthansa which, however, denied any liability,
contending that its responsibility towards its passenger is limited to the occurrence of a
mishap on its own line. Consequently, when Antiporda transferred to Air Kenya, its
obligation as a principal in the contract of carriage ceased; from there on, it merely
acted as a ticketing agent for Air Kenya.
7

In rejecting Lufthansa's argument, we ruled:

In the very nature of their contract, Lufthansa is clearly the principal in the
contract of carriage with Antiporda and remains to be so, regardless of those
instances when actual carriage was to be performed by various carriers. The
issuance of confirmed Lufthansa ticket in favor of Antiporda covering his entire
five-leg trip abroad successive carriers concretely attest to this.
Since the instant petition was based on breach of contract of carriage, Mahtani can only
sue BA alone, and not PAL, since the latter was not a party to the contract. However,
this is not to say that PAL is relieved from any liability due to any of its negligent acts.
In China Air Lines, Ltd. v. Court of Appeals, 37 while not exactly in point, the case,
however, illustrates the principle which governs this particular situation. In that case,
we recognized that a carrier (PAL), acting as an agent of another carrier, is also liable
for its own negligent acts or omission in the performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a third-party complaint against
PAL for the purpose of ultimately determining who was primarily at fault as between
them, is without legal basis. After all, such proceeding is in accord with the doctrine
against multiplicity of cases which would entail receiving the same or similar evidence
for both cases and enforcing separate judgments therefor. It must be borne in mind
that the purpose of a third-party complaint is precisely to avoid delay and circuitry of
action and to enable the controversy to be disposed of in one suit. 38 It is but logical,
fair and equitable to allow BA to sue PAL for indemnification, if it is proven that the
latter's negligence was the proximate cause of Mahtani's unfortunate experience,
instead of totally absolving PAL from any liability.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R.
CV No. 43309 dated September 7, 1995 is hereby MODIFIED, reinstating the third-party
complaint filed by British Airways dated November 9, 1990 against Philippine Airlines.
No costs. SO ORDERED.

VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO

VDA. DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR,
IRENE and JOSELITO, all surnamed DOMINGO, petitioners-appellants, vs.
GREGORIO
M.
DOMINGO, respondent-appellee, TEOFILO
P.
PURISIMA, intervenor-respondent. G.R. No. L-30573 October 29, 1971
MAKASIAR, J.:
Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs,
Antonina Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion,
Irene and Joselito, all surnamed Domingo, sought the reversal of the majority decision
8

dated, March 12, 1969 of the Special Division of Five of the Court of Appeals affirming
the judgment of the trial court, which sentenced the said Vicente M. Domingo to pay
Gregorio M. Domingo P2,307.50 and the intervenor Teofilo P. Purisima P2,607.50 with
interest on both amounts from the date of the filing of the complaint, to pay Gregorio
Domingo P1,000.00 as moral and exemplary damages and P500.00 as attorney's fees
plus costs.
The following facts were found to be established by the majority of the Special Division
of Five of the Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted
Gregorio Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of
Piedad Estate with an area of about 88,477 square meters at the rate of P2.00 per
square meter (or for P176,954.00) with a commission of 5% on the total price, if the
property is sold by Vicente or by anyone else during the 30-day duration of the agency
or if the property is sold by Vicente within three months from the termination of the
agency to apurchaser to whom it was submitted by Gregorio during the continuance of
the agency with notice to Vicente. The said agency contract was in triplicate, one copy
was given to Vicente, while the original and another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a
buyer, promising him one-half of the 5% commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective
buyer.
Oscar de Leon submitted a written offer which was very much lower than the price of
P2.00 per square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to
raise his offer. After several conferences between Gregorio and Oscar de Leon, the
latter raised his offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit "C", to
which Vicente agreed by signing Exhibit "C". Upon demand of Vicente, Oscar de Leon
issued to him a check in the amount of P1,000.00 as earnest money, after which
Vicente advanced to Gregorio the sum of P300.00. Oscar de Leon confirmed his former
offer to pay for the property at P1.20 per square meter in another letter, Exhibit "D".
Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest money,
which Oscar de Leon promised to deliver to him. Thereafter, Exhibit "C" was amended
to the effect that Oscar de Leon will vacate on or about September 15, 1956 his house
and lot at Denver Street, Quezon City which is part of the purchase price. It was again
amended to the effect that Oscar will vacate his house and lot on December 1, 1956,
because his wife was on the family way and Vicente could stay in lot No. 883 of Piedad
Estate until June 1, 1957, in a document dated June 30, 1956 (the year 1957 therein is
a mere typographical error) and marked Exhibit "D". Pursuant to his promise to
Gregorio, Oscar gave him as a gift or propina the sum of One Thousand Pesos
(P1,000.00) for succeeding in persuading Vicente to sell his lot at P1.20 per square
9

meter or a total in round figure of One Hundred Nine Thousand Pesos (P109,000.00).
This gift of One Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente.
Neither did Oscar pay Vicente the additional amount of One Thousand Pesos
(P1,000.00) by way of earnest money. In the deed of sale was not executed on August
1, 1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended by Vicente,
Oscar told Gregorio that he did not receive his money from his brother in the United
States, for which reason he was giving up the negotiation including the amount of One
Thousand Pesos (P1,000.00) given as earnest money to Vicente and the One Thousand
Pesos (P1,000.00) given to Gregorio as propina or gift. When Oscar did not see him
after several weeks, Gregorio sensed something fishy. So, he went to Vicente and read
a portion of Exhibit "A" marked habit "A-1" to the effect that Vicente was still committed
to pay him 5% commission, if the sale is consummated within three months after the
expiration of the 30-day period of the exclusive agency in his favor from the execution
of the agency contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente
during the said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to
pieces. Gregorio held his peace, not wanting to antagonize Vicente further, because he
had still duplicate of Exhibit "A". From his meeting with Vicente, Gregorio proceeded to
the office of the Register of Deeds of Quezon City, where he discovered Exhibit "G'
deed of sale executed on September 17, 1956 by Amparo Diaz, wife of Oscar de Leon,
over their house and lot No. 40 Denver Street, Cubao, Quezon City, in favor Vicente as
down payment by Oscar de Leon on the purchase price of Vicente's lot No. 883 of
Piedad Estate. Upon thus learning that Vicente sold his property to the same buyer,
Oscar de Leon and his wife, he demanded in writting payment of his commission on the
sale price of One Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". He also
conferred with Oscar de Leon, who told him that Vicente went to him and asked him to
eliminate Gregorio in the transaction and that he would sell his property to him for One
Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's letter,
Exhibit "H", Vicente stated that Gregorio is not entitled to the 5% commission because
he sold the property not to Gregorio's buyer, Oscar de Leon, but to another buyer,
Amparo Diaz, wife of Oscar de Leon.
The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency
contract, is genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the
sale by Vicente of his property is practically a sale to Oscar de Leon since husband and
wife have common or identical interests; that Gregorio and intervenor Teofilo Purisima
were the efficient cause in the consummation of the sale in favor of the spouses Oscar
de Leon and Amparo Diaz; that Oscar de Leon paid Gregorio the sum of One Thousand
Pesos (P1,000.00) as "propina" or gift and not as additional earnest money to be given
to the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar de Leon with
respect to the additional earnest money, does not appear to have been answered by
Oscar de Leon and therefore there is no writing or document supporting Oscar de
Leon's testimony that he paid an additional earnest money of One Thousand Pesos
(P1,000.00) to Gregorio for delivery to Vicente, unlike the first amount of One
Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente as earnest money,
10

evidenced by the letter Exhibit "4"; and that Vicente did not even mention such
additional earnest money in his two replies Exhibits "I" and "J" to Gregorio's letter of
demand of the 5% commission.
The three issues in this appeal are (1) whether the failure on the part of Gregorio to
disclose to Vicente the payment to him by Oscar de Leon of the amount of One
Thousand Pesos (P1,000.00) as gift or "propina" for having persuaded Vicente to
reduce the purchase price from P2.00 to P1.20 per square meter, so constitutes fraud
as to cause a forfeiture of his commission on the sale price; (2) whether Vicente or
Gregorio should be liable directly to the intervenor Teofilo Purisima for the latter's share
in the expected commission of Gregorio by reason of the sale; and (3) whether the
award of legal interest, moral and exemplary damages, attorney's fees and costs, was
proper.
Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred
in by Justice Juan Enriquez did not touch on these issues which were extensively
discussed by Justice Magno Gatmaitan in his dissenting opinion. However, Justice
Esguerra, in his concurring opinion, affirmed that it does not constitute breach of trust
or fraud on the part of the broker and regarded same as merely part of the whole
process of bringing about the meeting of the minds of the seller and the purchaser and
that the commitment from the prospect buyer that he would give a reward to Gregorio
if he could effect better terms for him from the seller, independent of his legitimate
commission, is not fraudulent, because the principal can reject the terms offered by the
prospective buyer if he believes that such terms are onerous disadvantageous to him.
On the other hand, Justice Gatmaitan, with whom Justice Antonio Cafizares corner held
the view that such an act on the part of Gregorio was fraudulent and constituted a
breach of trust, which should deprive him of his right to the commission.
The duties and liabilities of a broker to his employer are essentially those which an
agent owes to his principal. 1
Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the
New Civil Code.
Art. 1891. Every agent is bound to render an account of his transactions
and to deliver to the principal whatever he may have received by virtue of
the agency, even though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an
account shall be void.
xxx xxx xxx

11

Art. 1909. The agent is responsible not only for fraud but also for
negligence, which shall be judged with more less rigor by the courts,
according to whether the agency was or was not for a compensation.
Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code
which provides that:
Art. 1720. Every agent is bound to give an account of his transaction and
to pay to the principal whatever he may have received by virtue of the
agency, even though what he has received is not due to the principal.
The modification contained in the first paragraph Article 1891 consists in changing the
phrase "to pay" to "to deliver", which latter term is more comprehensive than the
former.
Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that
is required to an agent condemning as void any stipulation exempting the agent from
the duty and liability imposed on him in paragraph one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the
old Spanish Civil Code which reads thus:
Art. 1726. The agent is liable not only for fraud, but also for negligence,
which shall be judged with more or less severity by the courts, according
to whether the agency was gratuitous or for a price or reward.
The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and
fairness on the part of the agent, the real estate broker in this case, to his principal, the
vendor. The law imposes upon the agent the absolute obligation to make a full
disclosure or complete account to his principal of all his transactions and other material
facts relevant to the agency, so much so that the law as amended does not
countenance any stipulation exempting the agent from such an obligation and considers
such an exemption as void. The duty of an agent is likened to that of a trustee. This is
not a technical or arbitrary rule but a rule founded on the highest and truest principle of
morality as well as of the strictest justice. 2
Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal
benefit from the vendee, without revealing the same to his principal, the vendor, is
guilty of a breach of his loyalty to the principal and forfeits his right to collect the
commission from his principal, even if the principal does not suffer any injury by reason
of such breach of fidelity, or that he obtained better results or that the agency is a
gratuitous one, or that usage or custom allows it; because the rule is to prevent the
possibility of any wrong, not to remedy or repair an actual damage. 3 By taking such
profit or bonus or gift or propina from the vendee, the agent thereby assumes a
position wholly inconsistent with that of being an agent for hisprincipal, who has a right
12

to treat him, insofar as his commission is concerned, as if no agency had existed. The
fact that the principal may have been benefited by the valuable services of the said
agent does not exculpate the agent who has only himself to blame for such a result by
reason of his treachery or perfidy.
This Court has been consistent in the rigorous application of Article 1720 of the old
Spanish Civil Code. Thus, for failure to deliver sums of money paid to him as an
insurance agent for the account of his employer as required by said Article 1720, said
insurance agent was convicted estafa. 4 An administrator of an estate was likewise
under the same Article 1720 for failure to render an account of his administration to the
heirs unless the heirs consented thereto or are estopped by having accepted the
correctness of his account previously rendered. 5
Because of his responsibility under the aforecited article 1720, an agent is likewise liable
for estafa for failure to deliver to his principal the total amount collected by him in
behalf of his principal and cannot retain the commission pertaining to him by
subtracting the same from his collections. 6
A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the
money and property received by him for his client despite his attorney's lien. 7 The duty
of a commission agent to render a full account his operations to his principal was
reiterated in Duhart, etc. vs. Macias. 8
The American jurisprudence on this score is well-nigh unanimous.
Where a principal has paid an agent or broker a commission while
ignorant of the fact that the latter has been unfaithful, the principal may
recover back the commission paid, since an agent or broker who has been
unfaithful is not entitled to any compensation.
xxx xxx xxx
In discussing the right of the principal to recover commissions retained by
an unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94
NE 260, 34 LRA (NS) 1046, said: "It is well settled that the agent is bound
to exercise the utmost good faith in his dealings with his principal. As Lord
Cairns said, this rule "is not a technical or arbitrary rule. It is a rule
founded on the highest and truest principles, of morality." Parker vs.
McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent does not conduct
himself with entire fidelity towards his principal, but is guilty of taking a
secret profit or commission in regard the matter in which he is employed,
he loses his right to compensation on the ground that he has taken a
position wholly inconsistent with that of agent for his employer, and which
gives his employer, upon discovering it, the right to treat him so far as
13

compensation, at least, is concerned as if no agency had existed. This

may operate to give to the principal the benefit of valuable services
rendered by the agent, but the agent has only himself to blame for that
result."
xxx xxx xxx
The intent with which the agent took a secret profit has been held
immaterial where the agent has in fact entered into a relationship
inconsistent with his agency, since the law condemns the corrupting
tendency of the inconsistent relationship. Little vs. Phipps (1911) 94 NE
260. 9
As a general rule, it is a breach of good faith and loyalty to his principal
for an agent, while the agency exists, so to deal with the subject matter
thereof, or with information acquired during the course of the agency, as
to make a profit out of it for himself in excess of his lawful compensation;
and if he does so he may be held as a trustee and may be compelled to
account to his principal for all profits, advantages, rights, or privileges
acquired by him in such dealings, whether in performance or in violation
of his duties, and be required to transfer them to his principal upon being
reimbursed for his expenditures for the same, unless the principal has
consented to or ratified the transaction knowing that benefit or profit
would accrue or had accrued, to the agent, or unless with such knowledge
he has allowed the agent so as to change his condition that he cannot be
put in status quo. The application of this rule is not affected by the fact
that the principal did not suffer any injury by reason of the agent's
dealings or that he in fact obtained better results; nor is it affected by the
fact that there is a usage or custom to the contrary or that the agency is a
gratuitous one. (Emphasis applied.) 10
In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift
or propina in the amount of One Thousand Pesos (P1,000.00) from the prospective
buyer Oscar de Leon, without the knowledge and consent of his principal, herein
petitioner-appellant Vicente Domingo. His acceptance of said substantial monetary gift
corrupted his duty to serve the interests only of his principal and undermined his loyalty
to his principal, who gave him partial advance of Three Hundred Pesos (P300.00) on his
commission. As a consequence, instead of exerting his best to persuade his prospective
buyer to purchase the property on the most advantageous terms desired by his
principal, the broker, herein defendant-appellee Gregorio Domingo, succeeded in
persuading his principal to accept the counter-offer of the prospective buyer to
purchase the property at P1.20 per square meter or One Hundred Nine Thousand Pesos
(P109,000.00) in round figure for the lot of 88,477 square meters, which is very much
lower the the price of P2.00 per square meter or One Hundred Seventy-Six Thousand
14

Nine Hundred Fifty-Four Pesos (P176,954.00) for said lot originally offered by his
principal.
The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or
broker acted only as a middleman with the task of merely bringing together the vendor
and vendee, who themselves thereafter will negotiate on the terms and conditions of
the transaction. Neither would the rule apply if the agent or broker had informed the
principal of the gift or bonus or profit he received from the purchaser and his principal
did not object therto. 11 Herein defendant-appellee Gregorio Domingo was not merely a
middleman of the petitioner-appellant Vicente Domingo and the buyer Oscar de Leon.
He was the broker and agent of said petitioner-appellant only. And therein petitionerappellant was not aware of the gift of One Thousand Pesos (P1,000.00) received by
Gregorio Domingo from the prospective buyer; much less did he consent to his agent's
accepting such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar
de Leon, does not materially alter the situation; because the transaction, to be valid,
must necessarily be with the consent of the husband Oscar de Leon, who is the
administrator of their conjugal assets including their house and lot at No. 40 Denver
Street, Cubao, Quezon City, which were given as part of and constituted the down
payment on, the purchase price of herein petitioner-appellant's lot No. 883 of Piedad
Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer.
As a necessary consequence of such breach of trust, defendant-appellee Gregorio
Domingo must forfeit his right to the commission and must return the part of the
commission he received from his principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio
Domingo his one-half share of whatever amounts Gregorio Domingo received by virtue
of the transaction as his sub-agency contract was with Gregorio Domingo alone and not
with Vicente Domingo, who was not even aware of such sub-agency. Since Gregorio
Domingo received from Vicente Domingo and Oscar de Leon respectively the amounts
of Three Hundred Pesos (P300.00) and One Thousand Pesos (P1,000.00) or a total of
One Thousand Three Hundred Pesos (P1,300.00), one-half of the same, which is Six
Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo
Purisima.
Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo
mental anguish and serious anxiety as well as wounded feelings, petitioner-appellant
Vicente Domingo should be awarded moral damages in the reasonable amount of One
Thousand Pesos (P1,000.00) attorney's fees in the reasonable amount of One Thousand
Pesos (P1,000.00), considering that this case has been pending for the last fifteen (15)
years from its filing on October 3, 1956.

15

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

I.

POWER OF AGENT TO APPOINT A SUBSTITUTE

CORAZON L. ESCUETA, assisted by her husband EDGAR ESCUETA, IGNACIO E.

RUBIO, THE HEIRS OF LUZ R. BALOLOY, namely, ALEJANDRINO R. BALOLOY
and BAYANI R. BALOLOY, Petitioners, vs. RUFINA LIM, Respondent. G.R. No.
137162 January 24, 2007
DECISION
AZCUNA, J.:
This is an appeal by certiorari1 to annul and set aside the Decision and Resolution of the
Court of Appeals (CA) dated October 26, 1998 and January 11, 1999, respectively, in
CA-G.R. CV No. 48282, entitled "Rufina Lim v. Corazon L. Escueta, etc., et. al."
The facts2 appear as follows:
Respondent Rufina Lim filed an action to remove cloud on, or quiet title to, real
property, with preliminary injunction and issuance of [a hold-departure order] from the
Philippines against Ignacio E. Rubio. Respondent amended her complaint to include
specific performance and damages.
In her amended complaint, respondent averred inter alia that she bought the hereditary
shares (consisting of 10 lots) of Ignacio Rubio [and] the heirs of Luz Baloloy, namely:
Alejandrino, Bayani, and other co-heirs; that said vendors executed a contract of sale
dated April 10, 1990 in her favor; that Ignacio Rubio and the heirs of Luz Baloloy
received [a down payment] or earnest money in the amount of P102,169.86
and P450,000, respectively; that it was agreed in the contract of sale that the vendors
would secure certificates of title covering their respective hereditary shares; that the
balance of the purchase price would be paid to each heir upon presentation of their
individual certificate[s] of [title]; that Ignacio Rubio refused to receive the other half of
the down payment which isP[100,000]; that Ignacio Rubio refused and still refuses to
deliver to [respondent] the certificates of title covering his share on the two lots; that
with respect to the heirs of Luz Baloloy, they also refused and still refuse to perform the
delivery of the two certificates of title covering their share in the disputed lots; that
respondent was and is ready and willing to pay Ignacio Rubio and the heirs of Luz
16

Baloloy upon presentation of their individual certificates of title, free from whatever lien
and encumbrance;
As to petitioner Corazon Escueta, in spite of her knowledge that the disputed lots have
already been sold by Ignacio Rubio to respondent, it is alleged that a simulated deed of
sale involving said lots was effected by Ignacio Rubio in her favor; and that the
simulated deed of sale by Rubio to Escueta has raised doubts and clouds over
respondents title.
In their separate amended answers, petitioners denied the material allegations of the
complaint and alleged inter alia the following:
For the heirs of Luz Baloloy (Baloloys for brevity):
Respondent has no cause of action, because the subject contract of sale has no more
force and effect as far as the Baloloys are concerned, since they have withdrawn their
offer to sell for the reason that respondent failed to pay the balance of the purchase
price as orally promised on or before May 1, 1990.
For petitioners Ignacio Rubio (Rubio for brevity) and Corazon Escueta (Escueta for
brevity):
Respondent has no cause of action, because Rubio has not entered into a contract of
sale with her; that he has appointed his daughter Patricia Llamas to be his attorney-infact and not in favor of Virginia Rubio Laygo Lim (Lim for brevity) who was the one who
represented him in the sale of the disputed lots in favor of respondent; that
theP100,000 respondent claimed he received as down payment for the lots is a simple
transaction by way of a loan with Lim.
The Baloloys failed to appear at the pre-trial. Upon motion of respondent, the trial court
declared the Baloloys in default. They then filed a motion to lift the order declaring
them in default, which was denied by the trial court in an order dated November 27,
1991. Consequently, respondent was allowed to adduce evidence ex parte. Thereafter,
the trial court rendered a partial decision dated July 23, 1993 against the Baloloys, the
dispositive portion of which reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of [respondent]
and against [petitioners, heirs] of Luz R. Balolo[y], namely: Alejandrino Baloloy and
Bayani Baloloy. The [petitioners] Alejandrino Baloloy and Bayani Baloloy are ordered to
immediately execute an [Absolute] Deed of Sale over their hereditary share in the
properties covered by TCT No. 74392 and TCT No. 74394, after payment to them by
[respondent] the amount of P[1,050,000] or consignation of said amount in Court. [For]
failure of [petitioners] Alejandrino Baloloy and Bayani Baloloy to execute the Absolute
Deed of Sale over their hereditary share in the property covered by TCT No. T-74392
and TCT No. T-74394 in favor of [respondent], the Clerk of Court is ordered to execute
17

the necessary Absolute Deed of Sale in behalf of the Baloloys in favor of [respondent,]
with a consideration ofP[1,500,000]. Further[,] [petitioners] Alejandrino Baloloy and
Bayani Baloloy are ordered to jointly and severally pay [respondent] moral damages in
the amount of P[50,000] and P[20,000] for attorneys fees. The adverse claim
annotated at the back of TCT No. T-74392 and TCT No. T-74394[,] insofar as the
shares of Alejandrino Baloloy and Bayani Baloloy are concerned[,] [is] ordered
cancelled.
With costs against [petitioners] Alejandrino Baloloy and Bayani Baloloy.
SO ORDERED.3
The Baloloys filed a petition for relief from judgment and order dated July 4, 1994 and
supplemental petition dated July 7, 1994. This was denied by the trial court in an order
dated September 16, 1994. Hence, appeal to the Court of Appeals was taken
challenging the order denying the petition for relief.
Trial on the merits ensued between respondent and Rubio and Escueta. After trial, the
trial court rendered its assailed Decision, as follows:
IN VIEW OF THE FOREGOING, the complaint [and] amended complaint are dismissed
against [petitioners] Corazon L. Escueta, Ignacio E. Rubio[,] and the Register of Deeds.
The counterclaim of [petitioners] [is] also dismissed. However, [petitioner] Ignacio E.
Rubio is ordered to return to the [respondent], Rufina Lim[,] the amount
of P102,169.80[,] with interest at the rate of six percent (6%) per annum from April 10,
[1990] until the same is fully paid. Without pronouncement as to costs.
SO ORDERED.4
On appeal, the CA affirmed the trial courts order and partial decision, but reversed the
later decision. The dispositive portion of its assailed Decision reads:
WHEREFORE, upon all the foregoing premises considered, this Court rules:
1. the appeal of the Baloloys from the Order denying the Petition for Relief from
Judgment and Orders dated July 4, 1994 and Supplemental Petition dated July 7,
1994 is DISMISSED. The Order appealed from is AFFIRMED.
2. the Decision dismissing [respondents] complaint is REVERSED and SET ASIDE
and a new one is entered. Accordingly,
a. the validity of the subject contract of sale in favor of [respondent] is
upheld.

18

b. Rubio is directed to execute a Deed of Absolute Sale conditioned upon

the payment of the balance of the purchase price by [respondent] within
30 days from the receipt of the entry of judgment of this Decision.
c. the contracts of sale between Rubio and Escueta involving Rubios
share in the disputed properties is declared NULL and VOID.
d. Rubio and Escueta are ordered to pay jointly and severally the
[respondent] the amount ofP[20,000] as moral damages and P[20,000] as
attorneys fees.
3. the appeal of Rubio and Escueta on the denial of their counterclaim is
DISMISSED.
SO ORDERED.5
Petitioners Motion for Reconsideration of the CA Decision was denied. Hence, this
petition.
The issues are:
I
THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE PETITION FOR RELIEF
FROM JUDGMENT FILED BY THE BALOLOYS.
II
THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE COMPLAINT AND
IN AWARDING MORAL DAMAGES AND ATTORNEYS FEES IN FAVOR OF RESPONDENT
RUFINA L. LIM CONSIDERING THAT:
A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALE BETWEEN
VIRGINIA LAYGO-LIM AND RUFINA LIM.
B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND VIRGINIA
LAYGO-LIM IS A CONTRACT TO SELL AND NOT A CONTRACT OF SALE.
C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER OBLIGATIONS
UNDER THE CONTRACT TO SELL THEREBY WARRANTING THE CANCELLATION
THEREOF.
D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERING INTO
THE CONTRACT OF SALE WITH IGNACIO E. RUBIO.
19

III
THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO AND
CORAZON L. ESCUETA IS VALID.
IV
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS
COUNTERCLAIMS.
Briefly, the issue is whether the contract of sale between petitioners and respondent is
valid.
Petitioners argue, as follows:
First, the CA did not consider the circumstances surrounding petitioners failure to
appear at the pre-trial and to file the petition for relief on time.
As to the failure to appear at the pre-trial, there was fraud, accident and/or excusable
neglect, because petitioner Bayani was in the United States. There was no service of
the notice of pre-trial or order. Neither did the former counsel of record inform him.
Consequently, the order declaring him in default is void, and all subsequent
proceedings, orders, or decision are void.
Furthermore, petitioner Alejandrino was not clothed with a power of attorney to appear
on behalf of Bayani at the pre-trial conference.
Second, the sale by Virginia to respondent is not binding. Petitioner Rubio did not
authorize Virginia to transact business in his behalf pertaining to the property. The
Special Power of Attorney was constituted in favor of Llamas, and the latter was not
empowered to designate a substitute attorney-in-fact. Llamas even disowned her
signature appearing on the "Joint Special Power of Attorney," which constituted Virginia
as her true and lawful attorney-in-fact in selling Rubios properties.
Dealing with an assumed agent, respondent should ascertain not only the fact of
agency, but also the nature and extent of the formers authority. Besides, Virginia
exceeded the authority for failing to comply with her obligations under the "Joint
Special Power of Attorney."
The amount encashed by Rubio represented not the down payment, but the payment
of respondents debt. His acceptance and encashment of the check was not a
ratification of the contract of sale.
Third, the contract between respondent and Virginia is a contract to sell, not a contract
of sale. The real character of the contract is not the title given, but the intention of the
20

parties. They intended to reserve ownership of the property to petitioners pending full
payment of the purchase price. Together with taxes and other fees due on the
properties, these are conditions precedent for the perfection of the sale. Even assuming
that the contract is ambiguous, the same must be resolved against respondent, the
party who caused the same.
Fourth, Respondent failed to faithfully fulfill her part of the obligation. Thus, Rubio had
the right to sell his properties to Escueta who exercised due diligence in ascertaining
ownership of the properties sold to her. Besides, a purchaser need not inquire beyond
what appears in a Torrens title.
The petition lacks merit. The contract of sale between petitioners and respondent is
valid.lawphil.net
Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. In the
Baloloys answer to the original complaint and amended complaint, the allegations
relating to the personal circumstances of the Baloloys are clearly admitted.
"An admission, verbal or written, made by a party in the course of the proceedings in
the same case, does not require proof."6 The "factual admission in the pleadings on
record [dispenses] with the need x x x to present evidence to prove the admitted
fact."7 It cannot, therefore, "be controverted by the party making such admission, and
[is] conclusive"8 as to them. All proofs submitted by them "contrary thereto or
inconsistent therewith should be ignored whether objection is interposed by a party or
not."9 Besides, there is no showing that a palpable mistake has been committed in their
admission or that no admission has been made by them.
Pre-trial is mandatory.10 The notices of pre-trial had been sent to both the Baloloys and
their former counsel of record. Being served with notice, he is "charged with the duty of
notifying the party represented by him."11 He must "see to it that his client receives
such notice and attends the pre-trial."12 What the Baloloys and their former counsel
have alleged instead in their Motion to Lift Order of As In Default dated December 11,
1991 is the belated receipt of Bayani Baloloys special power of attorney in favor of their
former counsel, not that they have not received the notice or been informed of the
scheduled pre-trial. Not having raised the ground of lack of a special power of attorney
in their motion, they are now deemed to have waived it. Certainly, they cannot raise it
at this late stage of the proceedings. For lack of representation, Bayani Baloloy was
properly declared in default.
Section 3 of Rule 38 of the Rules of Court states:
SEC. 3. Time for filing petition; contents and verification. A petition provided for in
either of the preceding sections of this Rule must be verified, filed within sixty (60) days
after the petitioner learns of the judgment, final order, or other proceeding to be set
21

aside, and not more than six (6) months after such judgment or final order was
entered, or such proceeding was taken; and must be accompanied with affidavits
showing the fraud, accident, mistake, or excusable negligence relied upon, and the
facts constituting the petitioners good and substantial cause of action or defense, as
the case may be.
There is no reason for the Baloloys to ignore the effects of the above-cited rule. "The
60-day period is reckoned from the time the party acquired knowledge of the order,
judgment or proceedings and not from the date he actually read the same."13 As aptly
put by the appellate court:
The evidence on record as far as this issue is concerned shows that Atty. Arsenio
Villalon, Jr., the former counsel of record of the Baloloys received a copy of the partial
decision dated June 23, 1993 on April 5, 1994. At that time, said former counsel is still
their counsel of record. The reckoning of the 60 day period therefore is the date when
the said counsel of record received a copy of the partial decision which was on April 5,
1994. The petition for relief was filed by the new counsel on July 4, 1994 which means
that 90 days have already lapsed or 30 days beyond the 60 day period. Moreover, the
records further show that the Baloloys received the partial decision on September 13,
1993 as evidenced by Registry return cards which bear the numbers 02597 and 02598
signed by Mr. Alejandrino Baloloy.
The Baloloys[,] apparently in an attempt to cure the lapse of the aforesaid reglementary
period to file a petition for relief from judgment[,] included in its petition the two Orders
dated May 6, 1994 and June 29, 1994. The first Order denied Baloloys motion to fix the
period within which plaintiffs-appellants pay the balance of the purchase price. The
second Order refers to the grant of partial execution, i.e. on the aspect of damages.
These Orders are only consequences of the partial decision subject of the petition for
relief, and thus, cannot be considered in the determination of the reglementary period
within which to file the said petition for relief.
Furthermore, no fraud, accident, mistake, or excusable negligence exists in order that
the petition for relief may be granted.14 There is no proof of extrinsic fraud that
"prevents a party from having a trial x x x or from presenting all of his case to the
court"15 or an "accident x x x which ordinary prudence could not have guarded against,
and by reason of which the party applying has probably been impaired in his
rights."16 There is also no proof of either a "mistake x x x of law"17 or an excusable
negligence "caused by failure to receive notice of x x x the trial x x x that it would not
be necessary for him to take an active part in the case x x x by relying on another
person to attend to the case for him, when such other person x x x was chargeable
with that duty x x x, or by other circumstances not involving fault of the moving
party."18
Article 1892 of the Civil Code provides:
22

Art. 1892. The agent may appoint a substitute if the principal has not prohibited him
from doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one x x x.
Applying the above-quoted provision to the special power of attorney executed by
Ignacio Rubio in favor of his daughter Patricia Llamas, it is clear that she is not
prohibited from appointing a substitute. By authorizing Virginia Lim to sell the subject
properties, Patricia merely acted within the limits of the authority given by her father,
but she will have to be "responsible for the acts of the sub-agent,"19 among which is
precisely the sale of the subject properties in favor of respondent.
Even assuming that Virginia Lim has no authority to sell the subject properties, the
contract she executed in favor of respondent is not void, but simply unenforceable,
under the second paragraph of Article 1317 of the Civil Code which reads:
Art. 1317. x x x
A contract entered into in the name of another by one who has no authority or 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.
Ignacio Rubio merely denies the contract of sale. He claims, without substantiation, that
what he received was a loan, not the down payment for the sale of the subject
properties. His acceptance and encashment of the check, however, constitute
ratification of the contract of sale and "produce the effects of an express power of
agency."20 "[H]is action necessarily implies that he waived his right of action to avoid
the contract, and, consequently, it also implies the tacit, if not express, confirmation of
the said sale effected" by Virginia Lim in favor of respondent.
Similarly, the Baloloys have ratified the contract of sale when they accepted and
enjoyed its benefits. "The doctrine of estoppel applicable to petitioners here is not only
that which prohibits a party from assuming inconsistent positions, based on the
principle of election, but that which precludes him from repudiating an obligation
voluntarily assumed after having accepted benefits therefrom. To countenance such
repudiation would be contrary to equity, and would put a premium on fraud or
misrepresentation."21
Indeed, Virginia Lim and respondent have entered into a contract of sale. Not only has
the title to the subject properties passed to the latter upon delivery of the thing sold,
but there is also no stipulation in the contract that states the ownership is to be
reserved in or "retained by the vendor until full payment of the price."22

23

Applying Article 1544 of the Civil Code, a second buyer of the property who may have
had actual or constructive knowledge of such defect in the sellers title, or at least was
charged with the obligation to discover such defect, cannot be a registrant in good
faith. Such second buyer cannot defeat the first buyers title. In case a title is issued to
the second buyer, the first buyer may seek reconveyance of the property subject of the
sale.23 Even the argument that a purchaser need not inquire beyond what appears in a
Torrens title does not hold water. A perusal of the certificates of title alone will reveal
that the subject properties are registered in common, not in the individual names of the
heirs.
Nothing in the contract "prevents the obligation of the vendor to convey title from
becoming effective"24 or gives "the vendor the right to unilaterally resolve the contract
the moment the buyer fails to pay within a fixed period."25Petitioners themselves have
failed to deliver their individual certificates of title, for which reason it is obvious that
respondent cannot be expected to pay the stipulated taxes, fees, and expenses.
"[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are
present, such as: (1) consent or meeting of the minds; (2) determinate subject matter;
and (3) price certain in money or its equivalent."26 Ignacio Rubio, the Baloloys, and
their co-heirs sold their hereditary shares for a price certain to which respondent agreed
to buy and pay for the subject properties. "The offer and the acceptance are
concurrent, since the minds of the contracting parties meet in the terms of the
agreement."27
In fact, earnest money has been given by respondent. "[I]t shall be considered as part
of the price and as proof of the perfection of the contract.28 It constitutes an advance
payment to "be deducted from the total price."29
Article 1477 of the same Code also states that "[t]he ownership of the thing sold shall
be transferred to the vendee upon actual or constructive delivery thereof."30 In the
present case, there is actual delivery as manifested by acts simultaneous with and
subsequent to the contract of sale when respondent not only took possession of the
subject properties but also allowed their use as parking terminal for jeepneys and
buses. Moreover, the execution itself of the contract of sale is constructive delivery.
Consequently, Ignacio Rubio could no longer sell the subject properties to Corazon
Escueta, after having sold them to respondent. "[I]n a contract of sale, the vendor loses
ownership over the property and cannot recover it until and unless the contract is
resolved or rescinded x x x."31 The records do not show that Ignacio Rubio asked for a
rescission of the contract. What he adduced was a belated revocation of the special
power of attorney he executed in favor of Patricia Llamas. "In the sale of immovable
property, even though it may have been stipulated that upon failure to pay the price at
the time agreed upon the rescission of the contract shall of right take place, the vendee

24

may pay, even after the expiration of the period, as long as no demand for rescission of
the contract has been made upon him either judicially or by a notarial act."32
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 48282, dated
October 26, 1998 and January 11, 1999, respectively, are hereby AFFIRMED. Costs
against petitioners. SO ORDERED.

J. FIDUCIARY DUTIES OF AGENTS TO THIRD PARTIES

LAUREANO T. ANGELES, Petitioner, vs. PHILIPPINE NATIONAL RAILWAYS
(PNR) AND RODOLFO FLORES, 1Respondents. G.R. No. 150128 August 31,
2006
DECISION
GARCIA, J.:
Under consideration is this petition for review under Rule 45 of the Rules of Court
assailing and seeking to set aside the following issuances of the Court of Appeals (CA)
in CA-G.R. CV No. 54062, to wit:
1. Decision 2 dated June 4, 2001, affirming an earlier decision of the Regional Trial
Court (RTC) of Quezon City, Branch 79, which dismissed the complaint for specific
performance and damages thereat commenced by the petitioner against the herein
respondents; and
2. Resolution 3 dated September 17, 2001, denying the petitioner's motion for
reconsideration.
25

The facts:
On May 5, 1980, the respondent Philippine National Railways (PNR) informed a certain
Gaudencio Romualdez (Romualdez, hereinafter) that it has accepted the latters offer to
buy, on an "AS IS, WHERE IS" basis, the PNRs scrap/unserviceable rails located in Del
Carmen and Lubao, Pampanga at P1,300.00 and P2,100.00 per metric ton, respectively,
for the total amount of P96,600.00. After paying the stated purchase price, Romualdez
addressed a letter to Atty. Cipriano Dizon, PNRs Acting Purchasing Agent. Bearing date
May 26, 1980, the letter reads:
Dear Atty. Dizon:
This is to inform you as President of San Juanico Enterprises, that I have authorized the
bearer, LIZETTE R. WIJANCO of No. 1606 Aragon St., Sta. Cruz, Manila, to be my lawful
representative in the withdrawal of the scrap/unserviceable rails awarded to me.
For this reason, I have given her the original copy of the award, dated May 5, 1980 and
O.R. No. 8706855 dated May 20, 1980 which will indicate my waiver of rights, interests
and participation in favor of LIZETTE R. WIJANCO.
Thank you for your cooperation.
Very truly yours,
(Sgd.) Gaudencio Romualdez
The Lizette R. Wijanco mentioned in the letter was Lizette Wijanco- Angeles, petitioner's
now deceased wife. That very same day May 26, 1980 Lizette requested the PNR to
transfer the location of withdrawal for the reason that the scrap/unserviceable rails
located in Del Carmen and Lubao, Pampanga were not ready for hauling. The PNR
granted said request and allowed Lizette to withdraw scrap/unserviceable rails in
Murcia, Capas and San Miguel, Tarlac instead. However, the PNR subsequently
suspended the withdrawal in view of what it considered as documentary discrepancies
coupled by reported pilferages of over P500,000.00 worth of PNR scrap properties in
Tarlac.
Consequently, the spouses Angeles demanded the refund of the amount of P96,000.00.
The PNR, however, refused to pay, alleging that as per delivery receipt duly signed by
Lizette, 54.658 metric tons of unserviceable rails had already been withdrawn which,
at P2,100.00 per metric ton, were worth P114,781.80, an amount that exceeds the
claim for refund.
On August 10, 1988, the spouses Angeles filed suit against the PNR and its corporate
secretary, Rodolfo Flores, among others, for specific performance and damages before
the Regional Trial Court of Quezon City. In it, they prayed that PNR be directed to
26

deliver 46 metric tons of scrap/unserviceable rails and to pay them damages and
attorney's fees.
Issues having been joined following the filing by PNR, et al., of their answer, trial
ensued. Meanwhile, Lizette W. Angeles passed away and was substituted by her heirs,
among whom is her husband, herein petitioner Laureno T. Angeles.
On April 16, 1996, the trial court, on the postulate that the spouses Angeles are not the
real parties-in-interest, rendered judgment dismissing their complaint for lack of cause
of action. As held by the court, Lizette was merely a representative of Romualdez in the
withdrawal of scrap or unserviceable rails awarded to him and not an assignee to the
latter's rights with respect to the award.
Aggrieved, the petitioner interposed an appeal with the CA, which, as stated at the
threshold hereof, in its decision of June 4, 2001, dismissed the appeal and affirmed that
of the trial court. The affirmatory decision was reiterated by the CA in its resolution of
September 17, 2001, denying the petitioners motion for reconsideration.
Hence, the petitioners present recourse on the submission that the CA erred in
affirming the trial court's holding that petitioner and his spouse, as plaintiffs a quo, had
no cause of action as they were not the real parties-in-interest in this case.
We DENY the petition.
At the crux of the issue is the matter of how the aforequoted May 26, 1980 letter of
Romualdez to Atty. Dizon of the PNR should be taken: was it meant to designate, or
has it the effect of designating, Lizette W. Angeles as a mere agent or as an assignee of
his (Romualdez's) interest in the scrap rails awarded to San Juanico Enterprises? The
CAs conclusion, affirmatory of that of the trial court, is that Lizette was not an
assignee, but merely an agent whose authority was limited to the withdrawal of the
scrap rails, hence, without personality to sue.
Where agency exists, the third party's (in this case, PNR's) liability on a contract is to
the principal and not to the agent and the relationship of the third party to the principal
is the same as that in a contract in which there is no agent. Normally, the agent has
neither rights nor liabilities as against the third party. He cannot thus sue or be sued on
the contract. Since a contract may be violated only by the parties thereto as against
each other, the real party-in-interest, either as plaintiff or defendant in an action upon
that contract must, generally, be a contracting party.
The legal situation is, however, different where an agent is constituted as an assignee.
In such a case, the agent may, in his own behalf, sue on a contract made for his
principal, as an assignee of such contract. The rule

27

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

recognizes the assignment of rights of action and also recognizes
that when one has a right assigned to him, he is then the real party-in-interest and may
maintain an action upon such claim or right. 4
Upon scrutiny of the subject Romualdez's letter to Atty. Cipriano Dizon dated May 26,
1980, it is at once apparent that Lizette was to act just as a "representative" of
Romualdez in the "withdrawal of rails," and not an assignee. For perspective, we
reproduce the contents of said letter:
This is to inform you as President of San Juanico Enterprises, that I
have authorized the bearer, LIZETTE R. WIJANCO x x x to be my lawful
representative in the withdrawal of the scrap/unserviceable rails awarded to
me.
For this reason, I have given her the original copy of the award, dated May 5, 1980
and O.R. No. 8706855 dated May 20, 1980 which will indicate my waiver of rights,
interests and participation in favor of LIZETTE R. WIJANCO. (Emphasis added)
If Lizette was without legal standing to sue and appear in this case, there is more
reason to hold that her petitioner husband, either as her conjugal partner or her heir, is
also without such standing.
Petitioner makes much of the fact that the
used in the Romualdez letter aforestated.
"principal" and "agent," are not the only
agency relation. The agent may also be
here, representative.

terms "agent" or "attorney-in-fact" were not

It bears to stress, however, that the words
terms used to designate the parties in an
called an attorney, proxy, delegate or, as

It cannot be over emphasized that Romualdez's use of the active verb "authorized,"
instead of "assigned," indicated an intent on his part to keep and retain his interest in
the subject matter. Stated a bit differently, he intended to limit Lizettes role in the
scrap transaction to being the representative of his interest therein.
Petitioner submits that the second paragraph of the Romualdez letter, stating - "I have
given [Lizette] the original copy of the award x x x which will indicate my waiver of
rights, interests and participation in favor of Lizette R. Wijanco" - clarifies that Lizette
was intended to be an assignee, and not a mere agent.
We are not persuaded. As it were, the petitioner conveniently omitted an important
phrase preceding the paragraph which would have put the whole matter in context. The
phrase is "For this reason," and the antecedent thereof is his (Romualdez) having
appointed Lizette as his representative in the matter of the withdrawal of the scrap
items. In fine, the key phrase clearly conveys the idea that Lizette was given the
28

original copy of the contract award to enable her to withdraw the rails as Romualdezs
authorized representative.
Article 1374 of the Civil Code provides that the various stipulations of a contract shall be
read and interpreted together, attributing to the doubtful ones that sense which may
result from all of them taken jointly. In fine, the real intention of the parties is primarily
to be determined from the language used and gathered from the whole instrument.
When put into the context of the letter as a whole, it is abundantly clear that the rights
which Romualdez waived or ceded in favor of Lizette were those in furtherance of the
agency relation that he had established for the withdrawal of the rails.
At any rate, any doubt as to the intent of Romualdez generated by the way his letter
was couched could be clarified by the acts of the main players themselves. Article 1371
of the Civil Code provides that to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. In other words,
in case of doubt, resort may be made to the situation, surroundings, and relations of
the parties.
The fact of agency was, as the trial court aptly observed, 5 confirmed in subsequent
letters from the Angeles spouses in which they themselves refer to Lizette as
"authorized representative" of San Juanico Enterprises. Mention may also be made that
the withdrawal receipt which Lizette had signed indicated that she was doing so in a
representative capacity. One professing to act as agent for another is estopped to deny
his agency both as against his asserted principal and third persons interested in the
transaction which he engaged in.
Whether or not an agency has been created is a question to be determined by the fact
that one represents and is acting for another. The appellate court, and before it, the
trial court, had peremptorily determined that Lizette, with respect to the withdrawal of
the scrap in question, was acting for Romualdez. And with the view we take of this
case, there were substantial pieces of evidence adduced to support this determination.
The desired reversal urged by the petitioner cannot, accordingly, be granted. For,
factual findings of the trial court, adopted and confirmed by the CA, are, as a rule, final
and conclusive and may not be disturbed on appeal. 6 So it must be here.
Petitioner maintains that the Romualdez letter in question was not in the form of a
special power of attorney, implying that the latter had not intended to merely authorize
his wife, Lizette, to perform an act for him (Romualdez). The contention is specious. In
the absence of statute, no form or method of execution is required for a valid power of
attorney; it may be in any form clearly showing on its face the agents authority. 7
A power of attorney is only but an instrument in writing by which a person, as principal,
appoints another as his agent and confers upon him the authority to perform certain
specified acts on behalf of the principal. The written authorization itself is the power of
29

attorney, and this is clearly indicated by the fact that it has also been called a "letter of
attorney." Its primary purpose is not to define the authority of the agent as between
himself and his principal but to evidence the authority of the agent to third parties with
whom the agent deals. 8 The letter under consideration is sufficient to constitute a
power of attorney. Except as may be required by statute, a power of attorney is valid
although no notary public intervened in its execution. 9
A power of attorney must be strictly construed and pursued. The instrument will be
held to grant only those powers which are specified therein, and the agent may neither
go beyond nor deviate from the power of attorney. 10Contextually, all that Lizette was
authorized to do was to withdraw the unserviceable/scrap railings. Allowing her
authority to sue therefor, especially in her own name, would be to read something not
intended, let alone written in the Romualdez letter.
Finally, the petitioner's claim that Lizette paid the amount of P96,000.00 to the PNR
appears to be a mere afterthought; it ought to be dismissed outright under the estoppel
principle. In earlier proceedings, petitioner himself admitted in his complaint that it was
Romualdez who paid this amount.
WHEREFORE, the petition is DENIED and the assailed decision of the CA
is AFFIRMED. Costs against the petitioner. SO ORDERED.

NICHOLAS Y. CERVANTES, petitioner, vs. COURT OF APPEALS AND THE

PHILIPPINE AIR LINES, INC.,respondent. [G.R. No. 125138. March 2, 1999]
DECISION
PURISIMA, J.:
This Petition for Review on certiorari assails the 25 July 1995 decision of the Court
of Appeals[1] in CA GR CV No. 41407, entitled Nicholas Y. Cervantes vs. Philippine Air
Lines Inc., affirming in toto the judgment of the trial court dismissing petitioners
complaint for damages.
On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued to
the herein petitioner, Nicholas Cervantes (Cervantes), a round trip plane ticket for
Manila-Honolulu-Los Angeles-Honolulu-Manila, which ticket expressly provided an expiry
of date of one year from issuance, i.e., until March 27, 1990. The issuance of the said
plane ticket was in compliance with a Compromise Agreement entered into between the
contending parties in two previous suits, docketed as Civil Case Nos. 3392 and 3451
before the Regional Trial Court in Surigao City.[2]
On March 23, 1990, four days before the expiry date of subject ticket, the petitioner
used it. Upon his arrival in Los Angeles on the same day, he immediately booked his
30

Los Angeles-Manila return ticket with the PAL office, and it was confirmed for the April
2, 1990 flight.
Upon learning that the same PAL plane would make a stop-over in San Francisco,
and considering that he would be there on April 2, 1990, petitioner made arrangements
with PAL for him to board the flight in San Francisco instead of boarding in Los Angeles.
On April 2, 1990, when the petitioner checked in at the PAL counter in San
Francisco, he was not allowed to board. The PAL personnel concerned marked the
following notation on his ticket: TICKET NOT ACCEPTED DUE EXPIRATION OF
VALIDITY.
Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach of
contract of carriage docketed as Civil Case No. 3807 before Branch 32 of the Regional
Trial Court of Surigao del Norte in Surigao City. But the said complaint was dismissed
for lack of merit.[3]
On September 20, 1993, petitioner interposed an appeal to the Court of Appeals,
which came out with a Decision, on July 25, 1995, upholding the dismissal of the case.
On May 22, 1996, petitioner came to this Court via the Petition for Review under
consideration.
The issues raised for resolution are: (1) Whether or not the act of the PAL agents in
confirming subject ticket extended the period of validity of petitioners ticket; (2)
Whether or not the defense of lack of authority was correctly ruled upon; and (3)
Whether or not the denial of the award for damages was proper.
To rule on the first issue, there is a need to quote the findings below. As a rule,
conclusions and findings of fact arrived at by the trial court are entitled to great weight
on appeal and should not be disturbed unless for strong and cogent reasons.[4]
The facts of the case as found by the lower court[5] are, as follows:
The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant) provides that it is
not valid after March 27, 1990. (Exhibit 1-F). It is also stipulated in paragraph 8 of the
Conditions of Contract (Exhibit 1, page 2) as follows:
"8. This ticket is good for carriage for one year from date of issue, except as
otherwise provided in this ticket, in carriers tariffs, conditions of carriage, or related
regulations. The fare for carriage hereunder is subject to change prior to
commencement of carriage. Carrier may refuse transportation if the applicable fare has
not been paid.[6]
The question on the validity of subject ticket can be resolved in light of the ruling in
the case of Lufthansa vs. Court of Appeals[7]. In the said case, the Tolentinos were
issued first class tickets on April 3, 1982, which will be valid until April 10,1983. On
June 10, 1982, they changed their accommodations to economy class but the
31

replacement tickets still contained the same restriction. On May 7, 1983, Tolentino
requested that subject tickets be extended, which request was refused by the petitioner
on the ground that the said tickets had already expired. The non-extension of their
tickets prompted the Tolentinos to bring a complaint for breach of contract of carriage
against the petitioner. In ruling against the award of damages, the Court held that the
ticket constitute the contract between the parties. It is axiomatic that when the terms
are clear and leave no doubt as to the intention of the contracting parties, contracts are
to be interpreted according to their literal meaning.
In his effort to evade this inevitable conclusion, petitioner theorized that the
confirmation by the PALs agents in Los Angeles and San Francisco changed the
compromise agreement between the parties.
As aptly ruled by the appellate court:
xxx on March 23, 1990, he was aware of the risk that his ticket could expire, as it did,
before he returned to the Philippines. (pp. 320-321, Original Records)[8]
The question is: Did these two (2) employees, in effect , extend the validity or
lifetime of the ticket in question? The answer is in the negative. Both had no authority
to do so. Appellant knew this from the very start when he called up the Legal
Department of appellee in the Philippines before he left for the United States of
America. He had first hand knowledge that the ticket in question would expire on
March 27,1990 and that to secure an extension, he would have to file a written request
for extension at the PALs office in the Philippines (TSN, Testimony of Nicholas
Cervantes, August 2, 1991, pp 20-23). Despite this knowledge, appellant persisted to
use the ticket in question.[9]
From the aforestated facts, it can be gleaned that the petitioner was fully aware
that there was a need to send a letter to the legal counsel of PAL for the extension of
the period of validity of his ticket.
Since the PAL agents are not privy to the said Agreement and petitioner knew that
a written request to the legal counsel of PAL was necessary, he cannot use what the
PAL agents did to his advantage. The said agents, according to the Court of
Appeals,[10] acted without authority when they confirmed the flights of the petitioner.
Under Article 1898[11] of the New Civil Code, the acts of an agent beyond the scope
of his authority do not bind the principal, unless the latter ratifies the same expressly or
impliedly. Furthermore, when the third person (herein petitioner) knows that the agent
was acting beyond his power or authority, the principal cannot be held liable for the
acts of the agent. If the said third person is aware of such limits of authority, he is to
blame, and is not entitled to recover damages from the agent, unless the latter
undertook to secure the principals ratification.[12]
Anent the second issue, petitioners stance that the defense of lack of authority
on the part of the PAL employees was deemed waived under Rule 9, Section 2 of the
32

Revised Rules of Court, is unsustainable. Thereunder, failure of a party to put up

defenses in their answer or in a motion to dismiss is a waiver thereof.
Petitioner stresses that the alleged lack of authority of the PAL employees was
neither raised in the answer nor in the motion to dismiss. But records show that the
question of whether there was authority on the part of the PAL employees was acted
upon by the trial court when Nicholas Cervantes was presented as a witness and the
depositions of the PAL employees, Georgina M. Reyes and Ruth Villanueva, were
presented.
The admission by Cervantes that he was told by PALs legal counsel that he had to
submit a letter requesting for an extension of the validity of subject tickets was
tantamount to knowledge on his part that the PAL employees had no authority to
extend the validity of subject tickets and only PALs legal counsel was authorized to do
so.
However, notwithstanding PALs failure to raise the defense of lack of authority of
the said PAL agents in its answer or in a motion to dismiss, the omission was cured
since the said issue was litigated upon, as shown by the testimony of the petitioner in
the course of trial. Rule 10, Section 5 of the 1997 Rules of Civil Procedure provides:
Sec. 5. Amendment to conform or authorize presentation of evidence. - When issues
not raised by the pleadings are tried with express or implied consent of the parties,
as if they had been raised in the pleadings. Such amendment of the pleadings as may
be necessary to cause them to conform to the evidence and to raise these issues may
be made upon motion of any party at any time, even after judgment; but failure to
amend does not affect the result of the trial of these issues. xxx
Thus, when evidence is presented by one party, with the express or implied
consent of the adverse party, as to issues not alleged in the pleadings, judgment may
be rendered validly as regards the said issue, which shall be treated as if they have
been raised in the pleadings. There is implied consent to the evidence thus presented
when the adverse party fails to object thereto.[13]
Re: the third issue, an award of damages is improper because petitioner failed to
show that PAL acted in bad faith in refusing to allow him to board its plane in San
Francisco.
In awarding moral damages for breach of contract of carriage, the breach must be
wanton and deliberately injurious or the one responsible acted fraudulently or with
malice or bad faith.[14] Petitioner knew there was a strong possibility that he could not
use the subject ticket, so much so that he bought a back-up ticket to ensure his
departure. Should there be a finding of bad faith, we are of the opinion that it should
be on the petitioner. What the employees of PAL did was one of simple negligence. No
injury resulted on the part of petitioner because he had a back-up ticket should PAL
refuse to accommodate him with the use of subject ticket.
33

Neither can the claim for exemplary damages be upheld. Such kind of damages is
imposed by way of example or correction for the public good, and the existence of bad
faith is established. The wrongful act must be accompanied by bad faith, and an award
of damages would be allowed only if the guilty party acted in a wanton, fraudulent,
reckless or malevolent manner.[15] Here, there is no showing that PAL acted in such a
manner. An award for attorneys fees is also improper.
WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals
dated July 25, 1995 AFFIRMED in toto. No pronouncement as to costs. SO
ORDERED.
MONICA CASON,Plaintiff-Appellant, vs. FRANCISCO WALTERIO RICKARDS, ET
AL.,Defendants-Appellees. G.R. No. L-2437 February 13, 1906
WILLARD, J.:
From the 1st day of November, 1895, until the 31st day of October, 1896, the
defendant Rickards was the agent at Dagupan, in the Province of Pangasinan, of the
other defendant, Smith, Bell & Co. While he was such agent he received from the
plaintiff, as a deposit, the sum of 2,000 pesos. When he left the employ of the
defendant company the 2,000 pesos were, by his orders, delivered to another agent of
Smith, Bell & Co. in that province, and Smith, Bell & Co. received ad used the same.
This money was not mingled with other money belonging either to Richards or to
Smith, Bell & Co., and at the time of its delivery by Rickards to the other agent he
notified Smith, Bell & Co. that it was not the money of Smith, Bell & Co., but was the
money of the plaintiff. The judgment of the court below holding Smith, Bell & Co.,
responsible for this amount was clearly right. The question as to whether Rickards was
authorized by Smith, Bell & Co. to receive deposits of this character for third persons is
a matter of no consequence. The identical money which he received from the plaintiff
was by him turned over to Smith, Bell & Co., with notice that it was the money of the
plaintiff, and they now have it in their possession, and are therefore bound to pay it to
her.
At the trial of this case Rickards testified that a few days after he received the 2,000
pesos from the plaintiff, and about the 8th day of October, 1896, he received from her
an order or warrant upon the Spanish treasury for the sum of 4,200 pesos; that he
wrote Smith, Bell & Co., asking if it could be collected; that they told him to send it to
Manila. It was sent to Manila, and collected through the Hongkong and Shanghai Bank.
Rickards testified that he received the money from the Hongkong and Shanghai Bank,
and paid all of it out in the business of Smith, Bell & Co.; that after he had received it
he entered upon the books of Smith, Bell & Co. at Dagupan a credit in favor of the
plaintiff of 4,200 pesos, less 5 per cent commission for collection, of which commission
Smith, Bell & Co. received the benefit. He testified that all these transactions took place
prior to the 31st day of October, 1896, when he left the employ of Smith, Bell & Co. He
also testified that he had seen the books of Smith, Bell & Co.; that they were in court in
34

an action commenced in regard to this same amount in 1896 or 1897, and that the
books which were then produced in court by Smith, Bell & Co. contained an entry or
entries of the receipt by Smith, Bell & Co. of this 4,200 pesos. If this testimony is to be
believed there is no doubt as to the liability of Smith, Bell & Co. to repay to the plaintiff
the sum of 4,200 pesos, less the commission of 5 per cent.
The question as to the general authority of Rickards to receive money on deposit for
Smith, Bell & Co. has nothing to do with this cause of action, for Rickards testified that
he received express directions in regard to this particular transaction. Rickards in his
testimony stated that he had had several conversations with different agents and
employees of Smith, Bell & Co. in Manila in regard to the transaction. At the trial of this
case Smith, Bell & Co. did not present as witnesses any of these employees or agents,
and did not present any of their books which the witness Rickards declared would
corroborate his statement, if produced, but contented themselves with calling as a
witness one who was then a bookkeeper of the Hongkong and Shanghai Bank. He,
testifying from entries which appeared in the books of that bank, stated that there was
received for Rickards, in November, 1896, 4,200 pesos, a part of which was credited to
his accounts in that bank, and the balance, amounting to about 2,616 pesos, was paid
in cash. The witness could not testify to whom this cash was paid. Although he testified
that he had some independent recollection of this transaction, yet it is apparent that his
testimony is substantially, if not entirely, based upon the entries made in the books of
the bank, which were in his handwriting.
The question in this case is this: Can the positive testimony of Rickards, which has been
set forth above, be overcome by the testimony of the agent of the bank in view of the
fact that Smith, Bell & Co. had it in their power to demonstrate the falsity of the
testimony of Rickards by producing their books? No reason appears in the case why the
books were not produced. The trial was had in Manila, where is located the main office
of Smith, Bell & Co. Rickards gave his testimony at the opening of the trial. If it were
false its falsity could have been easily proved by the introduction of these books, and
their production was more imperatively demanded considering the statement of
Rickards that he had seen them, and that they did contain the entries in regard to this
amount of 4,200 pesos.
Under these circumstances the judgment of the court below relieving Smith, Bell & Co.
of the responsibility for this 4,200 pesos can not be affirmed. The evidence as it stands
in the record strongly preponderates against them, and the judgment must be reversed.
The question arises as to what disposition should be made of this case; whether final
judgment should be entered in this court against Smith, Bell & Co., or whether the case
should be remanded for further proceedings. Under the Code of Civil Procedure we
have authority, when the judgment must be reversed, either to enter final judgment in
this court or to remand the case for a new trial or for further proceedings. In the
present case we think that the ends of justice require that there should be a new trial
35

as to the 4,200 pesos. (Regalado vs. Luchsinger & Co., 1 Phil. Rep., 619.) If at the new
trial Smith, Bell & Co. still fail to produce their books, and no additional evidence is
offered to overcome the testimony of Rickards, final judgment should be entered
against them in reference to this 4,200 pesos. In accordance with the provisions of
section 505 of the Code of Civil Procedure, upon the new trial it will not be necessary to
retake any of the evidence which has already been taken.
The judgment is reversed, and the case is remanded to the court below for a new trial
only of the issue relating to the 4,200 pesos. After the new trial judgment will, as a
matter of course, be entered for the plaintiff against Smith, Bell & Co. in reference to
the 2,000 pesos, and for or against them in respect to the 4,200 pesos, as the results of
the new trial may require. No costs will be allowed to either party in this court. So
ordered.

BEHN, MEYER & CO., LTD.,Plaintiffs-Appellees, v.EL BANCO

FILIPINO,Defendant-Appellant. G.R. No. 4395 September 9, 1908

ESPAOL-

WILLARD, J.:
On the 3d of November, 1906, at Hongkong, Sander, Wieler and Co., as agents for the
German steamship Hilary, chartered her to the interveners, Sin Liong, and Co., of
Manila. By the terms of the charter party, she was to proceed to the port of Saigon Bay,
to load there or at Phu Yen Harbor as many head of cattle as the steamer could safely,
carry, and being loaded, then to proceed to the port of Manila and so end the voyage.
There is no competent evidence to show when the boat arrived at Saigon, but being
there, she loaded the rice and then proceeded to Phu Yen Harbor, where she arrived on
the 18th day of November, in the afternoon. The witness, Ullman, was there at the
time, acting as agent for Pujalte and Co., of Manila. The firm had made a contract with
the interveners for the transportation from Phu Yen Harbor to Manila of 200 head of
cattle. Ullman had been notified of this contract and upon the arrival of the ship there
on the 18th of November, he was all ready to proceed with the loading. He went on
board the vessel the afternoon of her arrival and told the captain that he was prepared
to load 202 head of cattle. One hundred and fifty of those were cows and 52 carabaos.
The captain told him that he might load the cows, but that he could not load the
carabaos. The matter was discussed by them until half past 1 in the morning, the
captain still refusing to permit the carabaos to come on board. Ullman then went on
shore and early in the morning went to the town of Sung Cau, where he laid the matter
before the governor, who advise him to procure a notary and make a protest. He
procured the notary and returned with him to Phu Yen, where she arrived at about 10
o'clock in the morning. The whether was then very stormy and he did not succeed in
getting on board until half past 1 in the afternoon. The captain then consented to
36

receive the carabaos on board. The whether, however, was so bad that they could not
be shipped, and it remained in this condition from that time until the 27th, when the
ship sailed for Manila without the cattle. At no time during this period was it possible to
load them.
When the vessel arrived on the 18th, the whether was fine and continued so until about
10 o'clock in the morning of the 19th. During this time the cattle could have been
loaded, so far as the whether was concerned, and some cattle belonging to Lichauco
were, in fact, taken on board during the time. If the captain had permitted Ullman,
when he first saw him, to load the carabaos, they could all have been taken on board
on the 19th and the vessel could have left that day for Manila.
The above facts in relation to what took place at Phu Yen are clearly established by the
evidence. Why the captain at first refused to take the carabaos on board does not
appear. He was not a witness in the case. No reason for this refusal appears anywhere
in the record. He, in fact, had at that time on board some carabaos and there was
plenty of room to take all that Ullman wished to load; in fact the captain afterwards
consented to do so. The refusal aforesaid was not justified and was a violation of the
terms of the charter party and was the immediate and proximate cause of the failure to
bring the cattle of Pujalte from Phu Yen to Manila.
The captain cabled to the charterers on the 22d of November stating that he could not
ship the cattle on account of bad weather and asking for instructions as to how long he
should remain. The interveners answered that he should wait to load the cattle. On the
24th of November, he again cabled the interveners, stating that he could not wait any
longer than the 26th of November; that he had not sufficient water for the cattle then
on board, and that Lopez, who was on board as the agent of Lichauco, was getting
impatient, and that the weather continued very boisterous. On the 26th of November
he made demand on Ullman for 30 tons of fresh water, saying that Ullman would not
be permitted to ship his cattle unless he brought with them that amount. Ullman stated
that he was unable to do so, and on the 27th of November the captain wrote a letter to
Ullman telling him that he saw that it was impossible for him to load the cattle or to
bring the water, and that he would leave that afternoon of Manila, which he did.
The vessel arrived in Manila on the 3rd of December, which was Sunday. The
interveners, the charters, desiring to unload part of the rice at Iloilo, as soon as the
boat arrived made a contract by cable with Sander, Wieler and Co., in Hongkong, for a
voyage to Iloilo, agreeing to pay therefor 800 Hongkong dollars. As soon as the boat
arrived the captain applied to the plaintiffs to act his agents and to attend to the
business while here. Before that time that plaintiffs had never acted as the agents for
the steamer.
By the terms of the charter party, the freight for the voyage from Saigon to Manila,
which was 9,250 Hongkong dollars, was to be paid on or before the delivery of the
37

cargo and cattle at Manila. The charterers did not desire to make that payment until the
balance of the cargo had been unloaded at Iloilo. Behn, Meyer and Co. would not allow
the vessels to leave for Iloilo until the freight and all claims for demurrage had been
paid or secured. Thereupon the charterers deposited P13,000 with the defendant bank,
and it wrote the following letter to Behn, Meyer and Co:
MANILA, December 4, 1906.
Messrs. BEHN, MEYER AND CO., Present.
GENTLEMEN: Our clients, Messrs. Sin Liong and CO., have advised us that it is to their
best interest to completely unload the steamer Hilary, chartered to you, before paying
the amount of the freight and demurrage, and inasmuch as you have required them to
furnish a guaranty by a bank, we now have the honor to inform that we guarantee the
said Siu Liong and Co., in the sum of P12,00, during the unloading of the said steamer;
and if upon the completion of the unloading, the price stipulated in the agreement and
the demurrage is not paid by said parties, this bank binds itself to make such payment.
We will be obliged if you will favor us with your acknowledgment of this letter, and we
remain,
Your obedient servants,
EL BANCO ESPANOL-FILIPINO,
PER EUGENIO DEL
Director in charge.

SAZ-OROZCO,

The vessel finished unloading here on the 5th of December and then went to Iloilo. On
the 10th of December, Behn, Meyer and Co. presented to the charterers, the
interveners, an account amounting to 12,350 Hongkong dollars. The charterers refused
to pay it; application was then made by Behn, Meyer and Co. to the defendant bank,
and it refused to pay, and thereafter, and on the 5th of March, 1907, this action was
commenced by Behn, Meyer and Co. against the defendant bank. During the progress
thereof, the charterers, Siu Liong and Co., were permitted, against the objection and
exception of the plaintiffs, to intervene in the action and to join with the bank in
opposing the complaint. In their answer they denied all of the damages caused to them
by the violation on the part of the captain of the terms of the charter party in refusing
to receive the cattle on board at Phu Yen on the 19th of November. The amount of the
counterclaim exceeded the claim of the plaintiffs by P13,673.33 and they asked
judgments against the plaintiffs for the amount.

38

The court below did not sustain the counterclaim and ordered judgment against the
bank and the interveners for the sum of P12,081, with interest and costs. From that
judgment the defendants have appealed.
Passing for the present the questions which are raised relating to procedure, and
coming to the merits of the case, we think it very clear, as before stated, that the
captain violated the terms of the charter party in refusing on the 18th day of November
to receive on board the carabaos which Ullman then had ready to embark. The court
below in its decision said that the captain was not at fault in not receiving the carabaos,
because by the terms of the charter party the charters were bound to furnish water and
food for the cattle and when, on the 26th of November the captain made a demand on
Ullman for 30 tons of water and Ullman refused to furnish it, he was justified in sailing
without the cattle, and that his failure of the charterers to comply with the terms of
charter party in furnishing water.
We do not think that the evidence supports this view of the case. On the contrary, it
clearly appears that if the captain had agreed to take the carabaos on board when he
was first asked to, he would then left Phu Yen on the 19th in the afternoon. The
evidence shows that the journey from Phu Yen to Manila is one of about four days, and
if he had left on the 19th he would have had on board plenty of water for his trip to
Manila. Moreover, there was evidence undisputed that, although by the terms of the
charter party the charterers were bound to pay for the water, yet it was the universal
custom for the captain to furnish the water and discharge the charterers therefor.
The captain having violated the terms of the contract, the next question is, what
damages did the charterers suffer by reason of his violation? It was proven that they
had made a contract with Pujalte and Co., by the terms of which they had agreed to
transport 200 head of cattle from Phu Yen to Manila in this boat and were to receive
therefor P12 for each cow and P13 for each carabao. Pujalte and Co. had ready for
transportation 202 heads of cattle and the testimony was that, although the contract
mentioned 200, yet they had a right thereunder to transport 200, or 202, or 204. This
freight, amounting to P2,476, the charterers have never received from Phu Yen and
Co., and of course have no claim against them therefor. Their failure to receive it was
directly due and the violation of the terms of the contract by the captain in his refusal
to take the cattle on board when they were ready to be shipped, and that violation was
the direct and proximate cause of the loss to the charterers of this P2,476.
It is suggested in the brief of the appellee that Ullman might have loaded the cows and
left the carabaos there. There is nothing in this suggestion. The testimony shows that
Ullman himself intended to come to the Hilary, and as he very well said, he was under
no obligation to leave a part of his stock there. (Gould vs. Grafflin, 62 Fed. Rep., 605.)

39

The interveners claim damages also for the difference between the value of their rice
on the day on which it arrived and its value on the day when it would have arrived if
the ship had left Phu Yen on the 19th of November.
As has been stated, the interveners, on the 24th of November, directed the captain to
wait at Phu Yen. For the delay after that time, the ship was not responsible. There is no
evidence to show what the price of the rice was the day the ship would have arrived if
she had sailed on the 24th. The interveners are entitled theretofore to recover nothing
upon this item for their claim.
They claim damages also for losses which Pujalte and Lichauco suffered by reason of
delay at Phu Yen. These losses consisted of the death of the some of the cattle and
their depreciation in value at the time they arrived in Manila.
The interveners have paid nothing to either Lichauco or Pujalte and Co. an account
thereof and neither one of these persons has commenced any action against the
interveners for damages. Whether the interveners will ever be compelled to pay
anything to them can not now be known. These damages are, in our opinion, too
remote to the subject of an adjudication of this case. Moreover, as to the greater part
of them, namely the depreciation in the value of the stock, the same can be said as was
said in reference to the claim for the loss upon the rice. The charterers were possible
for the delay from the 24th to the 27th of November, and there is no evidence to fix the
value of the stock or what is condition would have been if the ship sailed from Phu Yen
on the 24th.
The charter party provided for nine lay days during which the cargo should be taken on
board and discharged, and for five days of demurrage at the rate of 250 Hongkong
dollars a day. The plaintiffs make a claim for demurrage for six days.
We do not think that this claim can be sustained. There is nothing in the case to show
how many lay days were consumed in taking on cargo at Saigon and the most that we
can assume is that one day was so employed. If the captain had complied with the
contract and loaded the cattle at Phu Yen when he should have done so, not more than
two days would have been used there. The time employed at Iloilo does not appear and
in no event could that be considered, for that voyage was the subject of a special
contract. So that even if the delay from the 24th of November to the 27th be charged
to the charterers, no more than nine days were consumed, which was the time by the
charter party.
The interveners admitted at the trial that they owed 9,250 Hongkong dollars, the freight
to Manila, and 800 dollars, to freight to Iloilo, and these are the only amounts which, in
our opinion, the plaintiffs are entitled to recover. The evidence indicates that the
contract made by the bank was made after the contract with reference to the voyage of
Iloilo, and we think that from all the evidence in the case that the bank's contract
40

covers 800 dollars freight to Iloilo. Reduced to Philippine money at the rate found by
the court below the amounts to P10,753.50. From that amount should be deducted the
P2,476 above-mentioned, leaving a balance of P8,277.50 as the amount that the
plaintiffs are entitled to recover.
Coming to the questions of procedure; the most difficult one is that raised by the first
assignment of error, to the effect that the plaintiffs are not the real parties in interest in
this case, the claim of the appellants being that the action should have been brought in
the name of the owners of the vessel, and that Behn, Meyer and Co. were not the real
parties in interest, as that term is used in section 144 of the Code of Civil Procedure.
That section is in part as follows:
Every action must be prosecuted in the name of the real party in interest. But in a case
of assignment of a right of action, an action by the assignee shall be without prejudice
to any set-off or other defense existing at the time of or before notice of the
assignment; but this last provision shall not apply to a negotiable promissory note, or a
draft or a bill of exchange, transferred in good faith and upon good consideration
before maturity. And an executor or administrator or legal representative of a deceased
person, or a trustee of an express trust, or a person expressly authorized by law so to
do, or a lawfully appointed guardian of a person of unsound mind, or of a minor, may
sue or be sued without joining with him the person for whose benefit the action is
prosecuted or defended.
Otherwise than as provided in this section, all persons having an interest in the subject
of the action and in obtaining the relief demanded shall be joined as plaintiffs.
The matter is further complicated by the title of the case, which is as follows: "Behn,
Meyer and Co., Ltd., in representation of themselves and of the steamer Hilary, and of
Messrs. Sander, Wieler and Co., owners of said steamer, plaintiffs," and by allegation in
the complaint that the contract made by the defendant bank on the 4th of December
was made with the plaintiffs in their capacity as agents of the steamer and of the said
owners of the same.
If Behn, Meyer and Co. had brought this action upon the charter party itself to recover
the freight therein mentioned, it is very clear that it could not be maintained. They were
not parties to that contract and had no interest to the only parties are the defendant
bank and Behn, Meyer and Co. The defendant bank contracted directly with Behn,
Meyer and Co. and no mention is made in the contract of owners of the streamer.
After considerable hesitation, we have reached the conclusion that the action can be
maintained by Behn, Meyer and Co. in their own names by virtue of article 246 of the
Code of Commerce, which is as follows:

41

When the agent transacts business in his own name, it shall not be necessary for him to
state who is the principal and he shall be directly liable, as if the business were for his
own account, to the persons with whom he transacts the same, said persons not having
any right of action against the principal, nor the latter against the former, the liabilities
of the principal and of the agent to each other always being reserved.
The evidence shows that Behn, Meyer and Co. were agents of the capital and that the
transaction to which their agency relates was a mercantile one. Being such agents, they
made a contract in their own names with the defendant bank. It appears from the
testimony of the manager of the bank that he was not notified and never knew for
whom Behn, Meyer and Co. where acting. The document itself shows that he
contracted with them in their own names and there is no evidence to show Behn, Meyer
and Co. disclosed to the bank the names of the persons for whom they were acting.
The manager of the bank never saw the charter party and knew nothing about its
contents. The provisions of article 246 of the Code of Commerce are substantive law
and are not repealed or modified by section 114 of the procedural law above referred
to. ( See Castle Brothers, Wolfe and Sanz, vs. Go-Juno, 7 Phil. Rep., 114;
Pastells vs. Hollman, 2 Phil. Rep., 235; Herranz vs. Ker, 8, Phil. Rep., 162.)
The plaintiffs excepted to the order of the court below permitting the charterers to
intervene in this proceeding, but they have not appeared from the judgment. In any
event, it seems very clear that, the action being brought against a surety, the principal
debtor would have a right to intervene and join with the defendant in opposing the
claim under the provisions of section 121 of the Code of Civil Procedure. The principal
debtor has a direct, legal interest in defeating the claim against his surety.
The judgment of the court below is modified, and judgment is ordered in favor of the
plaintiffs and against the defendants for the sum of P8,277.50, with interest thereon at
the rate of 6 per cent per annum since the eight day of December, 1906, and for the
costs of the First Instance. No costs will be allowed to either party in this court. So
ordered.

RURAL BANK OF BOMBON (CAMARINES SUR), INC., petitioner, vs. HON.

COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO and RUFINO
S. AQUINO,respondents. G.R. No. 95703 August 3, 1992
GRIO-AQUINO, J.:
This petition for review seeks reversal of the decision dated September 18, 1990 of the
Court of Appeals, reversing the decision of the Regional Trial Court of Makati, Branch
150, which dismissed the private respondents' complaint and awarded damages to the
petitioner, Rural Bank of Bombon.
42

On January 12, 1981, Ederlinda M. Gallardo, married to Daniel Manzo, executed a

special power of attorney in favor of Rufina S. Aquino authorizing him:
1. To secure a loan from any bank or lending institution for any amount or
otherwise mortgage the property covered by Transfer Certificate of Title
No. S-79238 situated at Las Pias, Rizal, the same being my paraphernal
property, and in that connection, to sign, or execute any deed of
mortgage and sign other document requisite and necessary in securing
said loan and to receive the proceeds thereof in cash or in check and to
sign the receipt therefor and thereafter endorse the check representing
the proceeds of loan. (p. 10, Rollo.)
Thereupon, Gallardo delivered to Aquino both the special power of attorney and her
owner's copy of Transfer Certificate of Title No. S-79238 (19963-A).
On August 26, 1981, a Deed of Real Estate Mortgage was executed by Rufino S. Aquino
in favor of the Rural Bank of Bombon (Camarines Sur), Inc. (hereafter, defendant Rural
Bank) over the three parcels of land covered by TCT No. S-79238. The deed stated that
the property was being given as security for the payment of "certain loans, advances,
or other accommodations obtained by the mortgagor from the mortgagee in the total
sum of Three Hundred Fifty Thousand Pesos only (P350,000.00), plus interest at the
rate of fourteen (14%) per annum . . ." (p. 11, Rollo).
On January 6, 1984, the spouses Ederlinda Gallardo and Daniel Manzo filed an action
against Rufino Aquino and the Bank because Aquino allegedly left his residence at San
Pascual, Hagonoy, Bulacan, and transferred to an unknown place in Bicol. She
discovered that Aquino first resided at Sta. Isabel, Calabanga, Camarines Sur, and then
later, at San Vicente, Calabanga, Camarines Sur, and that they (plaintiffs) were
allegedly surprised to discover that the property was mortgaged to pay personal loans
obtained by Aquino from the Bank solely for personal use and benefit of Aquino; that
the mortgagor in the deed was defendant Aquino instead of plaintiff Gallardo whose
address up to now is Manuyo, Las Pias, M.M., per the title (TCT No. S-79238) and in
the deed vesting power of attorney to Aquino; that correspondence relative to the
mortgage was sent to Aquino's address at "Sta. Isabel, Calabanga, Camarines Sur"
instead of Gallardo's postal address at Las Pias, Metro Manila; and that defendant
Aquino, in the real estate mortgage, appointed defendant Rural Bank as attorney in
fact, and in case of judicial foreclosure as receiver with corresponding power to sell and
that although without any express authority from Gallardo, defendant Aquino waived
Gallardo's rights under Section 12, Rule 39, of the Rules of Court and the proper venue
of the foreclosure suit.
On January 23, 1984, the trial court, thru the Honorable Fernando P. Agdamag,
temporarily restrained the Rural Bank "from enforcing the real estate mortgage and

43

from foreclosing it either judicially or extrajudicially until further orders from the court"
(p.36, Rollo).
Rufino S. Aquino in his answer said that the plaintiff authorized him to mortgage her
property to a bank so that he could use the proceeds to liquidate her obligation of
P350,000 to him. The obligation to pay the Rural Bank devolved on Gallardo. Of late,
however, she asked him to pay the Bank but defendant Aquino set terms and
conditions which plaintiff did not agree to. Aquino asked for payment to him of moral
damages in the sum of P50,000 and lawyer's fees of P35,000.
The Bank moved to dismiss the complaint and filed counter-claims for litigation
expenses, exemplary damages, and attorney's fees. It also filed a crossclaim against
Aquino for P350,000 with interest, other bank charges and damages if the mortgage be
declared unauthorized.
Meanwhile, on August 30, 1984, the Bank filed a complaint against Ederlinda Gallardo
and Rufino Aquino for "Foreclosure of Mortgage" docketed as Civil Case No. 8330 in
Branch 141, RTC Makati. On motion of the plaintiff, the foreclosure case and the
annulment case (Civil Case No. 6062) were consolidated.
On January 16, 1986, the trial court rendered a summary judgment in Civil Case No.
6062, dismissing the complaint for annulment of mortgage and declaring the Rural Bank
entitled to damages the amount of which will be determined in appropriate
proceedings. The court lifted the writ of preliminary injunction it previously issued.
On April 23, 1986, the trial court, in Civil Case No. 8330, issued an order suspending
the foreclosure proceedings until after the decision in the annulment case (Civil Case
No. 6062) shall have become final and executory.
The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals, which on
September 18, 1990, reversed the trial court. The dispositive portion of the decision
reads:
UPON ALL THESE, the summary judgment entered by the lower court is
hereby REVERSED and in lieu thereof, judgment is hereby RENDERED,
declaring the deed of real estate mortgage dated August 26, 1981,
executed between Rufino S. Aquino with the marital consent of his wife
Bibiana Aquino with the appellee Rural Bank of Bombon, Camarines Sur,
unauthorized, void and unenforceable against plaintiff Ederlinda Gallardo;
ordering the reinstatement of the preliminary injunction issued at the
onset of the case and at the same time, ordering said injunction made
permanent.
Appellee Rural Bank to pay the costs. (p. 46, Rollo.)
44

Hence, this petition for review by the Rural Bank of Bombon, Camarines Sur, alleging
that the Court of Appeals erred:
1. in declaring that the Deed of Real Estate Mortgage was unauthorized,
void, and unenforceable against the private respondent Ederlinda
Gallardo; and
2. in not upholding the validity of the Real Estate Mortgage executed by
Rufino S. Aquino as attorney-in-fact for Gallardo, in favor of the Rural
Bank of Bombon, (Cam. Sur), Inc.
Both assignments of error boil down to the lone issue of the validity of the Deed of Real
Estate Mortgage dated August 26, 1981, executed by Rufino S. Aquino, as attorney-infact of Ederlinda Gallardo, in favor of the Rural Bank of Bombon (Cam. Sur), Inc.
The Rural Bank contends that the real estate mortgage executed by respondent Aquino
is valid because he was expressly authorized by Gallardo to mortgage her property
under the special power of attorney she made in his favor which was duly registered
and annotated on Gallardo's title. Since the Special Power of Attorney did not specify or
indicate that the loan would be for Gallardo's benefit, then it could be for the use and
benefit of the attorney-in-fact, Aquino.
However, the Court of Appeals ruled otherwise. It held:
The Special Power of Attorney above quoted shows the extent of authority
given by the plaintiff to defendant Aquino. But defendant Aquino in
executing the deed of Real Estate Mortgage in favor of the rural bank over
the three parcels of land covered by Gallardo's title named himself as the
mortgagor without stating that his signature on the deed was for and in
behalf of Ederlinda Gallardo in his capacity as her attorney-in-fact.
At the beginning of the deed mention was made of "attorney-in-fact of
Ederlinda H. Gallardo," thus: " (T)his MORTGAGE executed by Rufino S.
Aquino attorney in fact of Ederlinda H. Gallardo, of legal age, Filipino,
married to Bibiana Panganiban with postal address at Sta. Isabel . . .," but
which of itself, was merely descriptive of the person of defendant Aquino.
Defendant Aquino even signed it plainly as mortgagor with the marital
consent yet of his wife Bibiana P. Aquino who signed the deed as "wife of
mortgagor."
xxx xxx xxx
The three (3) promissory notes respectively dated August 31, 1981,
September 23, 1981 and October 26, 1981, were each signed by Rufino
Aquino on top of a line beneath which is written "signature of mortgagor"
45

and by Bibiana P. Aquino on top of a line under which is written "signature

of spouse," without any mention that execution thereof was for and in
behalf of the plaintiff as mortgagor. It results, borne out from what were
written on the deed, that the amounts were the personal loans of
defendant Aquino. As pointed out by the appellant, Aquino's wife has not
been appointed co-agent of defendant Aquino and her signature on the
deed and on the promissory notes can only mean that the obligation was
personally incurred by them and for their own personal account.
The deed of mortgage stipulated that the amount obtained from the loans
shall be used or applied only for "fishpond (bangus and sugpo
production)." As pointed out by the plaintiff, the defendant Rural Bank in
its Answer had not categorically denied the allegation in the complaint
that defendant Aquino in the deed of mortgage was the intended user and
beneficiary of the loans and not the plaintiff. And the special power of
attorney could not be stretched to include the authority to obtain a loan in
said defendant Aquino's own benefit. (pp. 40-41, Rollo.)
The decision of the Court of Appeals is correct. This case is governed by the general
rule in the law of agency which this Court, applied in "Philippine Sugar Estates
Development Co. vs. Poizat," 48 Phil. 536, 538:
It is a general rule in the law of agency that, in order to bind the principal
by a mortgage on real property executed by an agent, it must upon its
face purport to be made, signed and sealed in the name of the principal,
otherwise, it will bind the agent only. It is not enough merely that the
agent was in fact authorized to make the mortgage, if he has not acted in
the name of the principal. Neither is it ordinarily sufficient that in the
mortgage the agent describes himself as acting by virtue of a power of
attorney, if in fact the agent has acted in his own name and has set his
own hand and seal to the mortgage. This is especially true where the
agent himself is a party to the instrument. However clearly the body of
the mortgage may show and intend that it shall be the act of the principal,
yet, unless in fact it is executed by the agent for and on behalf of his
principal and as the act and deed of the principal, it is not valid as to the
principal.
In view of this rule, Aquino's act of signing the Deed of Real Estate Mortgage in his
name alone as mortgagor, without any indication that he was signing for and in behalf
of the property owner, Ederlinda Gallardo, bound himself alone in his personal capacity
as a debtor of the petitioner Bank and not as the agent or attorney-in-fact of Gallardo.
The Court of Appeals further observed:

46

It will also be observed that the deed of mortgage was executed on

August 26, 1981 therein clearly stipulating that it was being executed "as
security for the payment of certain loans, advances or other
accommodation obtained by the Mortgagor from the Mortgagee in the
total sum of Three Hundred Fifty Thousand Pesos only (P350,000.00)"
although at the time no such loan or advance had been obtained. The
promissory notes were dated August 31, September 23 and October 26,
1981 which were subsequent to the execution of the deed of mortgage.
The appellant is correct in claiming that the defendant Rural Bank should
not have agreed to extend or constitute the mortgage on the properties of
Gallardo who had no existing indebtedness with it at the time.
Under the facts the defendant Rural Bank appeared to have ignored the
representative capacity of Aquino and dealt with him and his wife in their
personal capacities. Said appellee Rural Bank also did not conduct an
inquiry on whether the subject loans were to benefit the interest of the
principal (plaintiff Gallardo) rather than that of the agent although the
deed of mortgage was explicit that the loan was for purpose of the
bangus and sugpo production of defendant Aquino.
In effect, with the execution of the mortgage under the circumstances and
assuming it to be valid but because the loan taken was to be used
exclusively for Aquino's business in the "bangus" and "sugpo" production,
Gallardo in effect becomes a surety who is made primarily answerable for
loans taken by Aquino in his personal capacity in the event Aquino
defaults in such payment. Under Art. 1878 of the Civil Code, to obligate
the principal as a guarantor or surety, a special power of attorney is
required. No such special power of attorney for Gallardo to be a surety of
Aquino had been executed. (pp. 42-43, Rollo.)
Petitioner claims that the Deed of Real Estate Mortgage is enforceable against Gallardo
since it was executed in accordance with Article 1883 which provides:
Art. 1883. If an agent acts in his own name, the principal has no right of
action against the persons with whom the agent has contracted; neither
have such persons against the principal.
In such case the agent is the one directly bound in favor of the person
with whom he has contracted, as if the transaction were his own, except
when the contract involves things belonging to the principal.
The above provision of the Civil Code relied upon by the petitioner Bank, is not
applicable to the case at bar. Herein respondent Aquino acted purportedly as an agent
of Gallardo, but actually acted in his personal capacity. Involved herein are properties
47

titled in the name of respondent Gallardo against which the Bank proposes to foreclose
the mortgage constituted by an agent (Aquino) acting in his personal capacity. Under
these circumstances, we hold, as we did in Philippine Sugar Estates Development Co.
vs. Poizat, supra, that Gallardo's property is not liable on the real estate mortgage:
There is no principle of law by which a person can become liable on a real
mortgage which she never executed either in person or by attorney in
fact. It should be noted that this is a mortgage upon real property, the
title to which cannot be divested except by sale on execution or the
formalities of a will or deed. For such reasons, the law requires that a
power of attorney to mortgage or sell real property should be executed
with all of the formalities required in a deed. For the same reason that the
personal signature of Poizat, standing alone, would not convey the title of
his wife in her own real property, such a signature would not bind her as
a mortgagor in real property, the title to which was in her name. (p. 548.)
WHEREFORE, finding no reversible error in the decision of the Court of Appeals, we
AFFIRM it in toto. Costs against the petitioner. SO ORDERED.

IV. OBLIGATIONS OF THE PRINCIPAL

FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE ASSURANCE,
INC.), petitioner, vs. CLEMENTE N. PEDROSO, TERESITA O. PEDROSO and
JENNIFER N. PALACIO thru her Attorney-in-Fact PONCIANO C.
MARQUEZ, respondents. G.R. No. 159489 February 4, 2008
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the Decision1 and
Resolution,2 dated November 29, 2002 and August 5, 2003, respectively, of the Court of
Appeals in CA-G.R. CV No. 33568. The appellate court had affirmed the Decision3 dated
October 10, 1989 of the Regional Trial Court (RTC) of Manila, Branch 3, finding
petitioner as defendant and the co-defendants below jointly and severally liable to the
plaintiffs, now herein respondents.
The antecedent facts are as follows:

48

Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment life insurance

issued by petitioner Filipinas Life Assurance Company (Filipinas Life). Pedroso claims
Renato Valle was her insurance agent since 1972 and Valle collected her monthly
premiums. In the first week of January 1977, Valle told her that the Filipinas Life
Escolta Office was holding a promotional investment program for policyholders. It was
offering 8% prepaid interest a month for certain amounts deposited on a monthly basis.
Enticed, she initially invested and issued a post-dated check dated January 7, 1977
for P10,000.4 In return, Valle issued Pedroso his personal check forP800 for the
8%5 prepaid interest and a Filipinas Life "Agents Receipt" No. 807838.6
Subsequently, she called the Escolta office and talked to Francisco Alcantara, the
administrative assistant, who referred her to the branch manager, Angel Apetrior.
Pedroso inquired about the promotional investment and Apetrior confirmed that there
was such a promotion. She was even told she could "push through with the check" she
issued. From the records, the check, with the endorsement of Alcantara at the back,
was deposited in the account of Filipinas Life with the Commercial Bank and Trust
Company (CBTC), Escolta Branch.
Relying on the representations made by the petitioners duly authorized representatives
Apetrior and Alcantara, as well as having known agent Valle for quite some time,
Pedroso waited for the maturity of her initial investment. A month after, her investment
of P10,000 was returned to her after she made a written request for its refund. The
formal written request, dated February 3, 1977, was written on an inter-office
memorandum form of Filipinas Life prepared by Alcantara.7 To collect the amount,
Pedroso personally went to the Escolta branch where Alcantara gave her the P10,000 in
cash. After a second investment, she made 7 to 8 more investments in varying
amounts, totaling P37,000 but at a lower rate of 5%8 prepaid interest a month. Upon
maturity of Pedrosos subsequent investments, Valle would take back from Pedroso the
corresponding yellow-colored agents receipt he issued to the latter.
Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance policyholder,
about the investment plan. Palacio made a total investment of P49,5509 but at only 5%
prepaid interest. However, when Pedroso tried to withdraw her investment, Valle did
not want to return some P17,000 worth of it. Palacio also tried to withdraw hers, but
Filipinas Life, despite demands, refused to return her money. With the assistance of
their lawyer, they went to Filipinas Life Escolta Office to collect their respective
investments, and to inquire why they had not seen Valle for quite some time. But their
attempts were futile. Hence, respondents filed an action for the recovery of a sum of
money.
After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co-defendants Valle,
Apetrior and Alcantara jointly and solidarily liable to the respondents.

49

On appeal, the Court of Appeals affirmed the trial courts ruling and subsequently
denied the motion for reconsideration.
Petitioner now comes before us raising a single issue:
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR AND GRAVELY ABUSED ITS DISCRETION IN AFFIRMING THE DECISION
OF THE LOWER COURT HOLDING FLAC [FILIPINAS LIFE] TO BE JOINTLY AND
SEVERALLY LIABLE WITH ITS CO-DEFENDANTS ON THE CLAIM OF
RESPONDENTS INSTEAD OF HOLDING ITS AGENT, RENATO VALLE, SOLELY
LIABLE TO THE RESPONDENTS.10
Simply put, did the Court of Appeals err in holding petitioner and its co-defendants
jointly and severally liable to the herein respondents?
Filipinas Life does not dispute that Valle was its agent, but claims that it was only a life
insurance company and was not engaged in the business of collecting investment
money. It contends that the investment scheme offered to respondents by Valle,
Apetrior and Alcantara was outside the scope of their authority as agents of Filipinas
Life such that, it cannot be held liable to the respondents.11
On the other hand, respondents contend that Filipinas Life authorized Valle to solicit
investments from them. In fact, Filipinas Lifes official documents and facilities were
used in consummating the transactions. These transactions, according to respondents,
were confirmed by its officers Apetrior and Alcantara. Respondents assert they
exercised all the diligence required of them in ascertaining the authority of petitioners
agents; and it is Filipinas Life that failed in its duty to ensure that its agents act within
the scope of their authority.
Considering the issue raised in the light of the submissions of the parties, we find that
the petition lacks merit. The Court of Appeals committed no reversible error nor abused
gravely its discretion in rendering the assailed decision and resolution.
It appears indisputable that respondents Pedroso and Palacio had invested P47,000
and P49,550, respectively. These were received by Valle and remitted to Filipinas Life,
using Filipinas Lifes official receipts, whose authenticity were not disputed. Valles
authority to solicit and receive investments was also established by the parties. When
respondents sought confirmation, Alcantara, holding a supervisory position, and
Apetrior, the branch manager, confirmed that Valle had authority. While it is true that a
person dealing with an agent is put upon inquiry and must discover at his own peril the
agents authority, in this case, respondents did exercise due diligence in removing all
doubts and in confirming the validity of the representations made by Valle.
Filipinas Life, as the principal, is liable for obligations contracted by its agent Valle. By
the contract of agency, a person binds himself to render some service or to do
50

something in representation or on behalf of another, with the consent or authority of

the latter.12 The general rule is that the principal is responsible for the acts of its agent
done within the scope of its authority, and should bear the damage caused to third
persons.13 When the agent exceeds his authority, the agent becomes personally liable
for the damage.14 But even when the agent exceeds his authority, the principal is still
solidarily liable together with the agent if the principal allowed the agent to act as
though the agent had full powers.15 In other words, the acts of an agent beyond the
scope of his authority do not bind the principal, unless the principal ratifies them,
expressly or impliedly.16 Ratification in agency is the adoption or confirmation by one
person of an act performed on his behalf by another without authority.17
Filipinas Life cannot profess ignorance of Valles acts. Even if Valles representations
were beyond his authority as a debit/insurance agent, Filipinas Life thru Alcantara and
Apetrior expressly and knowingly ratified Valles acts. It cannot even be denied that
Filipinas Life benefited from the investments deposited by Valle in the account of
Filipinas Life. In our considered view, Filipinas Life had clothed Valle with apparent
authority; hence, it is now estopped to deny said authority. Innocent third persons
should not be prejudiced if the principal failed to adopt the needed measures to prevent
misrepresentation, much more so if the principal ratified his agents acts beyond the
latters authority. The act of the agent is considered that of the principal itself. Qui per
alium facit per seipsum facere videtur. "He who does a thing by an agent is considered
as doing it himself."18
WHEREFORE, the petition is DENIED for lack of merit. The Decision and Resolution,
dated November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in
CA-G.R. CV No. 33568 are AFFIRMED.
Costs against the petitioner. SO ORDERED.

PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA (represented by

Mother and Attorney-in-Fact VIRGINIA CASTILLA), Petitioners, vs. COURT OF
APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA OCAMPO, EUFEMIA
SAN AGUSTIN-MAGSINO, ZENAIDA SAN AGUSTIN-McCRAE, MILAGROS SAN
AGUSTIN-FORTMAN, MINERVA SAN AGUSTIN-ATKINSON, FERDINAND SAN
AGUSTIN, RAUL SAN AGUSTIN, ISABELITA SAN AGUSTIN-LUSTENBERGER
and VIRGILIO SAN AGUSTIN, Respondents. G.R. No. 160346 August 25, 2009
DECISION
NACHURA, J.:
For our resolution is a petition for review on certiorari assailing the April 23, 2003
Decision1 and October 8, 2003 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV
51

No. 59426. The appellate court, in the said decision and resolution, reversed and set
aside the January 14, 1998 Decision3 of the Regional Trial Court (RTC), which ruled in
favor of petitioners.
The dispute stemmed from the following facts.
During their lifetime, spouses Pedro San Agustin and Agatona Genil were able to
acquire a 246-square meter parcel of land situated in Barangay Anos, Los Baos,
Laguna and covered by Original Certificate of Title (OCT) No. O-(1655) 0-15.4 Agatona
Genil died on September 13, 1990 while Pedro San Agustin died on September 14,
1991. Both died intestate, survived by their eight (8) children: respondents Eufemia,
Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of
Undivided Shares5conveying in favor of petitioners (the Pahuds, for brevity) their
respective shares from the lot they inherited from their deceased parents
for P525,000.00.6 Eufemia also signed the deed on behalf of her four (4) other co-heirs,
namely: Isabelita on the basis of a special power of attorney executed on September
28, 1991,7 and also for Milagros, Minerva, and Zenaida but without their apparent
written authority.8 The deed of sale was also not notarized.9
On July 21, 1992, the Pahuds paid P35,792.31 to the Los Baos Rural Bank where the
subject property was mortgaged.10 The bank issued a release of mortgage and turned
over the owners copy of the OCT to the Pahuds.11 Over the following months, the
Pahuds made more payments to Eufemia and her siblings totaling
toP350,000.00.12 They agreed to use the remaining P87,500.0013 to defray the payment
for taxes and the expenses in transferring the title of the property.14 When Eufemia and
her co-heirs drafted an extra-judicial settlement of estate to facilitate the transfer of the
title to the Pahuds, Virgilio refused to sign it.15
On July 8, 1993, Virgilios co-heirs filed a complaint16 for judicial partition of the subject
property before the RTC of Calamba, Laguna. On November 28, 1994, in the course of
the proceedings for judicial partition, a Compromise Agreement17 was signed with seven
(7) of the co-heirs agreeing to sell their undivided shares to Virgilio forP700,000.00. The
compromise agreement was, however, not approved by the trial court because Atty.
Dimetrio Hilbero, lawyer for Eufemia and her six (6) co-heirs, refused to sign the
agreement because he knew of the previous sale made to the Pahuds.18lawphil.net
On December 1, 1994, Eufemia acknowledged having received P700,000.00 from
Virgilio.19 Virgilio then sold the entire property to spouses Isagani Belarmino and Leticia
Ocampo (Belarminos) sometime in 1994. The Belarminos immediately constructed a
building on the subject property.

52

Alarmed and bewildered by the ongoing construction on the lot they purchased, the
Pahuds immediately confronted Eufemia who confirmed to them that Virgilio had sold
the property to the Belarminos.20 Aggrieved, the Pahuds filed a complaint in
intervention21 in the pending case for judicial partition.1avvphil
After trial, the RTC upheld the validity of the sale to petitioners. The dispositive portion
of the decision reads:
WHEREFORE, the foregoing considered, the Court orders:
1. the sale of the 7/8 portion of the property covered by OCT No. O (1655) O-15
by the plaintiffs as heirs of deceased Sps. Pedro San Agustin and Agatona Genil
in favor of the Intervenors-Third Party plaintiffs as valid and enforceable, but
obligating the Intervenors-Third Party plaintiffs to complete the payment of the
purchase price of P437,500.00 by paying the balance of P87,500.00 to defendant
Fe (sic) San Agustin Magsino. Upon receipt of the balance, the plaintiff shall
formalize the sale of the 7/8 portion in favor of the Intervenor[s]-Third Party
plaintiffs;
2. declaring the document entitled "Salaysay sa Pagsang-ayon sa Bilihan" (Exh.
"2-a") signed by plaintiff Eufemia San Agustin attached to the unapproved
Compromise Agreement (Exh. "2") as not a valid sale in favor of defendant
Virgilio San Agustin;
3. declaring the sale (Exh. "4") made by defendant Virgilio San Agustin of the
property covered by OCT No. O (1655)-O-15 registered in the names of Spouses
Pedro San Agustin and Agatona Genil in favor of Third-party defendant Spouses
Isagani and Leticia Belarmino as not a valid sale and as inexistent;
4. declaring the defendant Virgilio San Agustin and the Third-Party defendants
spouses Isagani and Leticia Belarmino as in bad faith in buying the portion of the
property already sold by the plaintiffs in favor of the Intervenors-Third Party
Plaintiffs and the Third-Party Defendant Sps. Isagani and Leticia Belarmino in
constructing the two-[storey] building in (sic) the property subject of this case;
and
5. declaring the parties as not entitled to any damages, with the parties
shouldering their respective responsibilities regarding the payment of attorney[]s
fees to their respective lawyers.
No pronouncement as to costs.
SO ORDERED.22

53

Not satisfied, respondents appealed the decision to the CA arguing, in the main, that
the sale made by Eufemia for and on behalf of her other co-heirs to the Pahuds should
have been declared void and inexistent for want of a written authority from her coheirs. The CA yielded and set aside the findings of the trial court. In disposing the issue,
the CA ruled:
WHEREFORE, in view of the foregoing, the Decision dated January 14, 1998, rendered
by the Regional Trial Court of Calamba, Laguna, Branch 92 in Civil Case No. 2011-93-C
for Judicial Partition is hereby REVERSED and SET ASIDE, and a new one entered, as
follows:
(1) The case for partition among the plaintiffs-appellees and appellant Virgilio is
now considered closed and terminated;
(2) Ordering plaintiffs-appellees to return to intervenors-appellees the total
amount they received from the latter, plus an interest of 12% per annum from
the time the complaint [in] intervention was filed on April 12, 1995 until actual
payment of the same;
(3) Declaring the sale of appellant Virgilio San Agustin to appellants spouses,
Isagani and Leticia Belarmino[,] as valid and binding;
(4) Declaring appellants-spouses as buyers in good faith and for value and are
the owners of the subject property.
No pronouncement as to costs.
SO ORDERED.23
Petitioners now come to this Court raising the following arguments:
I. The Court of Appeals committed grave and reversible error when it did not
apply the second paragraph of Article 1317 of the New Civil Code insofar as
ratification is concerned to the sale of the 4/8 portion of the subject property
executed by respondents San Agustin in favor of petitioners;
II. The Court of Appeals committed grave and reversible error in holding that
respondents spouses Belarminos are in good faith when they bought the subject
property from respondent Virgilio San Agustin despite the findings of fact by the
court a quo that they were in bad faith which clearly contravenes the presence of
long line of case laws upholding the task of giving utmost weight and value to
the factual findings of the trial court during appeals; [and]
III. The Court of Appeals committed grave and reversible error in holding that
respondents spouses Belarminos have superior rights over the property in
54

question than petitioners despite the fact that the latter were prior in possession
thereby misapplying the provisions of Article 1544 of the New Civil Code.24
The focal issue to be resolved is the status of the sale of the subject property by
Eufemia and her co-heirs to the Pahuds. We find the transaction to be valid and
enforceable.
Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void.
Also, under
enter into a
or acquired,
requirement

Article 1878,25 a special power of attorney is necessary for an agent to

contract by which the ownership of an immovable property is transmitted
either gratuitously or for a valuable consideration. Such stringent statutory
has been explained in Cosmic Lumber Corporation v. Court of Appeals:26

[T]he authority of an agent to execute a contract [of] sale of real estate must be
conferred in writing and must give him specific authority, either to conduct the general
business of the principal or to execute a binding contract containing terms and
conditions which are in the contract he did execute. A special power of attorney is
necessary to enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration. The express
mandate required by law to enable an appointee of an agency (couched) in general
terms to sell must be one that expressly mentions a sale or that includes a sale as a
necessary ingredient of the act mentioned. For the principal to confer the right upon an
agent to sell real estate, a power of attorney must so express the powers of the agent
in clear and unmistakable language. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be given the
document.27
In several cases, we have repeatedly held that the absence of a written authority to sell
a piece of land is, ipso jure, void,28 precisely to protect the interest of an unsuspecting
owner from being prejudiced by the unwarranted act of another.
Based on the foregoing, it is not difficult to conclude, in principle, that the sale made by
Eufemia, Isabelita and her two brothers to the Pahuds sometime in 1992 should be
valid only with respect to the 4/8 portion of the subject property. The sale with respect
to the 3/8 portion, representing the shares of Zenaida, Milagros, and Minerva, is void
because Eufemia could not dispose of the interest of her co-heirs in the said lot absent
any written authority from the latter, as explicitly required by law. This was, in fact, the
ruling of the CA.
Still, in their petition, the Pahuds argue that the sale with respect to the 3/8 portion of
the land should have been deemed ratified when the three co-heirs, namely: Milagros,
55

Minerva,
and
Zenaida,
executed
their
respective
special
power
of
attorneys29 authorizing Eufemia to represent them in the sale of their shares in the
subject property.30
While the sale with respect to the 3/8 portion is void by express provision of law and
not susceptible to ratification,31 we nevertheless uphold its validity on the basis of the
common law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person
relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was not armed with the requisite
special power of attorney to dispose of the 3/8 portion of the property. Initially, in their
answer to the complaint in intervention,32 Eufemia and her other co-heirs denied having
sold their shares to the Pahuds. During the pre-trial conference, however, they
admitted that they had indeed sold 7/8 of the property to the Pahuds sometime in
1992.33 Thus, the previous denial was superseded, if not accordingly amended, by their
subsequent admission.34 Moreover, in their Comment,35 the said co-heirs again
admitted the sale made to petitioners.36
Interestingly, in no instance did the three (3) heirs concerned assail the validity of the
transaction made by Eufemia to the Pahuds on the basis of want of written authority to
sell. They could have easily filed a case for annulment of the sale of their respective
shares against Eufemia and the Pahuds. Instead, they opted to remain silent and left
the task of raising the validity of the sale as an issue to their co-heir, Virgilio, who is not
privy to the said transaction. They cannot be allowed to rely on Eufemia, their attorneyin-fact, to impugn the validity of the first transaction because to allow them to do so
would be tantamount to giving premium to their sisters dishonest and fraudulent deed.
Undeniably, therefore, the silence and passivity of the three co-heirs on the issue bar
them from making a contrary claim.
It is a basic rule in the law of agency that a principal is subject to liability for loss
caused to another by the latters reliance upon a deceitful representation by an agent in
the course of his employment (1) if the representation is authorized; (2) if it is within
the implied authority of the agent to make for the principal; or (3) if it is apparently
authorized, regardless of whether the agent was authorized by him or not to make the
representation.37
By their continued silence, Zenaida, Milagros and Minerva have caused the Pahuds to
believe that they have indeed clothed Eufemia with the authority to transact on their

56

behalf. Clearly, the three co-heirs are now estopped from impugning the validity of the
sale from assailing the authority of Eufemia to enter into such transaction.
Accordingly, the subsequent sale made by the seven co-heirs to Virgilio was void
because they no longer had any interest over the subject property which they could
alienate at the time of the second transaction.38 Nemo dat quod non habet. Virgilio,
however, could still alienate his 1/8 undivided share to the Belarminos.
The Belarminos, for their part, cannot argue that they purchased the property from
Virgilio in good faith. As a general rule, a purchaser of a real property is not required to
make any further inquiry beyond what the certificate of title indicates on its face.39 But
the rule excludes those who purchase with knowledge of the defect in the title of the
vendor or of facts sufficient to induce a reasonable and prudent person to inquire into
the status of the property.40 Such purchaser cannot close his eyes to facts which should
put a reasonable man on guard, and later claim that he acted in good faith on the belief
that there was no defect in the title of the vendor. His mere refusal to believe that such
defect exists, or his obvious neglect by closing his eyes to the possibility of the
existence of a defect in the vendors title, will not make him an innocent purchaser for
value, if afterwards it turns out that the title was, in fact, defective. In such a case, he
is deemed to have bought the property at his own risk, and any injury or prejudice
occasioned by such transaction must be borne by him.41
In the case at bar, the Belarminos were fully aware that the property was registered not
in the name of the immediate transferor, Virgilio, but remained in the name of Pedro
San Agustin and Agatona Genil.42 This fact alone is sufficient impetus to make further
inquiry and, thus, negate their claim that they are purchasers for value in good
faith.43 They knew that the property was still subject of partition proceedings before the
trial court, and that the compromise agreement signed by the heirs was not approved
by the RTC following the opposition of the counsel for Eufemia and her six other coheirs.44 The Belarminos, being transferees pendente lite, are deemed buyers in mala
fide, and they stand exactly in the shoes of the transferor and are bound by any
judgment or decree which may be rendered for or against the
transferor.45 Furthermore, had they verified the status of the property by asking the
neighboring residents, they would have been able to talk to the Pahuds who occupy an
adjoining business establishment46 and would have known that a portion of the
property had already been sold. All these existing and readily verifiable facts are
sufficient to suggest that the Belarminos knew that they were buying the property at
their own risk.
WHEREFORE, premises considered, the April 23, 2003 Decision of the Court of Appeals
as well as its October 8, 2003 Resolution in CA-G.R. CV No. 59426, are REVERSED and
SET ASIDE. Accordingly, the January 14, 1998 Decision of Branch 92 of the Regional
Trial Court of Calamba, Laguna is REINSTATED with the MODIFICATION that the sale
made by respondent Virgilio San Agustin to respondent spouses Isagani Belarmino and
57

Leticia Ocampo is valid only with respect to the 1/8 portion of the subject property. The
trial court is ordered to proceed with the partition of the property with dispatch. SO
ORDERED.

VICENTE VERZOSA and RUIZ, REMENTERIA Y CIA., S. en C., plaintiffsappellants, vs. SILVINO LIM and SIY CONG BIENG and COMPANY,
INC., defendants-appellants. G.R. No. L-20145
November 15, 1923
STREET, J.:
This action was instituted in the Court of first Instance of the City of Manila by Vicente
Versoza and Ruiz, Rementeria y Compania, as owners of the coastwise vessel Perla,
against Silvino Lim and Siy Cong Bieng & Company, Inc., as owner and agent,
respectively, of the vessel Ban Yek, for the purpose of recovering a sum of money
alleged to be the damages resulting to the plaintiffs from a collision which occurred on
March 9, 1921, between the two vessels mentioned, it being alleged that said collision
was due to the experience, carelessness and lack of skill on the part of the captain of
the Ban Yek and to his failure to observe the rules of navigation appropriate to the
case. The defendants answered with a general denial, and by way of special defense
asserted, among other things, that the collision was due exclusively to the inexperience
and carelessness of the captain and officers of the steamship Perla; for which reason
the defendants in turn, by way of counterclaim, prayed judgment for the damages
suffered by the Ban Yek from the same collision. At the hearing the trial judge absolved
the defendants from the complaint and likewise absolved the plaintiffs from the
defendants' counterclaim. From this judgment both parties appealed.
It appears in evidence that at about five o'clock in the afternoon of March 9, 1921, the
coastwise steamer Ban Yekleft the port of Naga on the Bicol River, in the Province of
Camarines Sur, with destination to the City of Manila. At the time of her departure from
said port the sea was approaching to high tide but the current was still running in
through the Bicol River, with the result that the Ban Yek had the current against her. As
the ship approached the Malbong bend of the Bicol River, in the municipality of Gainza,
another vessel, the Perla, was sighted coming up the river on the way to Naga. While
the boats were yet more than a kilometer apart, the Ban Yek gave two blasts with her
whistle, thus indicating an intention to pass on the left, or to her own port side. In reply
to this signal thePerla gave a single blast, thereby indicating that she disagreed with the
signal given by the Ban Yek and would maintain her position on the right, that is, would
keep to the starboard. The Ban Yek made no reply to this signal. As the Perla was
navigating with the current, then running in from the sea, this vessel, under paragraph
163 of Customs Marine Circular No. 53, had the right of way over the Ban Yek, and the
officers of the Perla interpreted the action of the Ban Yek in not replying to

58

the Perla's signal as an indication of acquiescene of the officers of theBan Yek in the
determination of the Perla to keep to the starboard.
The river at this point is about two hundred and fifty feet wide, and the courses thus
being respectively pursued by the two vessels necessarily tended to bring them into a
head-on collision. When the danger of such an occurrence became imminent, Captain
Garrido of the Perla, seeing that he was shut off by the Ban Yek from passing to the
right, put his vessel to port, intending to avoid collision or minimize its impact by
getting farther out into the stream. An additional reason for this maneuver, as stated by
Captain Carrido, is that the captain of the Ban Yek waived his hand to Garrido,
indicating that the latter should turn his vessel towards the middle of the stream. At
about the same time that the Perla was thus deflected from her course the engine on
the Ban Yek was reversed and three blasts were given by this vessel to indicate that
she was backing.
Now, it appears that when the engine is reversed, a vessel swings to the right or left in
accordance with the direction in which the blades of the propeller are set; and as
the Ban Yek began to back, her bow was thrown out into the stream, a movement
which was assisted by the current of the river. By this means the Ban Yek was brought
to occupy an oblique position across the stream at the moment the Perla was passing;
and the bow of theBan Yek crashed into the starboard bumpers of the Perla, carrying
away external parts of the ship and inflicting material damage on the hull. To effect the
repairs thus made necessary to the Perla cost her owners the sum of P17,827, including
expenses of survey.
The first legal point presented in the case has reference to the sufficiency of the
protest. In this connection it appears that within twenty-four hours after the arrival of
the Perla at the port of Naga, Captain Garrido appeared before Vicente Rodi, the
auxiliary justice of the peace of the municipality of Naga, and made before that officer
the sworn protest which is in evidence as Exhibit B. This protest is sufficient in our
opinion to answer all the requirements of article 835 of the Code of Commerce. A
regular justice of the peace would without doubt be competent to take a marine
protest, and the same authority must be conceded to the auxiliary justice in the
absence of any showing in the record to the effect that the justice of the peace himself
was acting at the time in the municipality (Adm. Code, sec. 211; sec. 334, Code of Civ.
Proc., subsecs. 14, 15). We note that in his certificate to this protest Vicente Rodi
added to the appellation of auxiliary justice of the peace, following his name, the
additional designation "notary public ex-officio." However, under subsection (c) of
section 242 of the Administrative Code, it is plain that an auxiliary justice of the peace is
not an ex-officio notary public. It results that the taking of this protest must be ascribed
to the officer in his character as auxiliary justice of the peace and not in the character
of notary public ex-officio. It is hardly necessary to add that this court takes judicial
notice of the fact that Naga is not a port of entry and that no customs official of rank is
there stationed who could have taken cognizance of this protest.
59

Upon the point of responsibility for the collision we have no hesitancy in finding that the
fault is to be attributed exclusively to the negligence and inattention of the captain and
pilot in charge of the Ban Yek. The Perlaundoubtedly had the right of way, since this
vessel was navigating with the current, and the officers in charge of the Perla were
correct in assuming, from the failure of the Ban Yek to respond to the single blast of
the Perla, that the officers in charge of the Ban Yek recognized that the Perla had a
right of way and acquiesced in her resolution to keep to the right. The excuse urged for
the Ban Yek is that this vessel is somewhat larger than the Perla and that it was
desirable for the Ban Yek to keep on the side of the long arc of the curve of the river;
and in this connection it is suggested that the river is deeper on the outer edge of the
bend than on the inner edge. It is also stated that on a certain previous occasion
the Ban Yek on coming out from this port had gotten stuck in the mud in this bend by
keeping too far to the right. Moreover, it is said to be the practice of ships in navigating
this stream to keep nearer the outside than to the inside of the bend. These
suggestions are by no means convincing. It appears in evidence that the river bottom
here is composed of mud and silt, and as the tide at the time of this incident was nearly
at its flood, there was ample depth of water to have accommodated the Ban Yek if she
had kept to that part of the stream which it was proper for her to occupy. We may
further observe that the disparity in the size of the vessels was not such as to dominate
the situation and deprive the Perla of the right of way under the conditions stated.
Blame for the collision must therefore, as already stated, be attributed to the Ban Yek.
On the other hand no fault can be attributed to the officers navigating the Perla either
in maintaining the course which had been determined upon for that vessel in conformity
with the marine regulations applicable to the case or in deflecting the vessel towards
the middle of the stream after the danger of collision became imminent. The trial judge
suggests in his opinion that when Captain Garrido saw that the Ban Yek was holding
her course to the left, he (Garrido) should have changed the course of the Perla to port
more promptly. The validity of this criticism cannot be admitted. Among rules applicable
to navigation none is better founded on reason and experience than that which requires
the navigating officers of any vessel to assume that an approaching vessel will observe
the regulations prescribed for navigation (G. Urrutia & Co. vs. Baco River Plantation Co.,
26 Phil., 632, 637). Any other rule would introduce guess work into the control of ships
and produce uncertainty in the operation of the regulations.
Our conclusion is that his Honor, the trial judge, was in error in not awarding damages
to the Perla; but no error was committed in absolving the plaintiffs from the defendants'
cross-complaint.
The sum of P17,827 in our opinion represents the limit of the plaintiffs' right of
recovery. In the original complaint recovery is sought for an additional amount of
P18,000, most of which consists of damages supposed to have been incurred from the
inability of the Perla to maintain her regular schedule while laid up in the dock
undergoing repairs. The damages thus claimed, in addition to being somewhat of a
60

speculative nature, are in our opinion not sufficiently proved to warrant the court in
allowing the same. lawphil.net
Having determined the amount which the plaintiffs are entitled to recover, it becomes
necessary to consider the person, or persons, who must respond for these damages.
Upon this point we note that Silvino Lim is impleaded as owner; and Siy Cong Bieng &
Co. is impleaded as the shipping agent (casa naviera), or person in responsible control
of the Ban Yek at the time of the accident. We note further that in article 826 of the
Code of Commerce it is declared that the owner of any vessel shall be liable for the
indemnity due to any other vessel injured by the fault, negligence, or lack of skill of the
captain of the first. We say "owner," which is the word used in the current translation of
this article in the Spanish Code of Commerce. It is to be observed, however, that the
Spanish text itself uses the word naviero; and there is some ambiguity in the use of
said word in this article, owing to the fact that naviero in Spanish has several meanings.
The author of the article which appears under the word naviero in the Enciclopedia
Juridica Espaola tells us that in Spanish it may mean either owner, outfitter, charterer,
or agent, though he says that the fundamental and correct meaning of the word is that
of "owner." That naviero, as used in the Spanish text of article 826, means owner is
further to be inferred from article 837, which limits the civil liability expressed in article
826 to the value of the vessel with all her appurtenances and all the freight earned
during the voyage. There would have been no propriety in limiting liability to the value
of the vessel unless the owner were understood to be the person liable. It is therefore
clear that by special provision of the Code of Commerce the owner is made responsible
for the damage caused by an accident of the kind under consideration in this case; and
in more than one case this court has held the owner liable, when sued alone (Philippine
Shipping Co. vs.Garcia Vergara, 6 Phil., 281; G. Urrutia & Co. vs. Baco River Plantation
Co., 26 Phil., 632).
But while it is thus demonstrated that Silvino Lim is liable for these damages in the
character of owner, it does not necessarily follows that Siy Cong Bieng & Co., as
character or agent (casa naviera), is exempt from liability; and we are of the opinion
that both the owner and agent can be held responsible where both are impleaded
together. In Philippine Shipping Co., vs. Garcia Vergara (6 Phil., 281), it seems to have
been accepted as a matter of course that both owner and agent of the offending vessel
are liable for the damage done; and this must, we think, be true. The liability of
the naviero, in the sense of charterer or agent, if not expressed in article 826 of the
Code of Commerce, is clearly deducible from the general doctrine of jurisprudence
stated in article 1902 of the Civil Code, and it is also recognized, but more especially as
regards contractual obligations, in article 586 of the Code of Commerce. Moreover, we
are of the opinion that both the owner and agent (naviero) should be declared to be
jointly and severally liable, since the obligation which is the subject of this action had its
origin in a tortious act and did not arise from contract. Article 1137 of the Civil Code,
declaring that joint obligations shall be apportionable unless otherwise provided, has no
application to obligation arising from tort.
61

For the reasons stated the judgment appealed from will be affirmed in so far as it
absolves the plaintiffs from the defendants' cross-complaint but will be reversed in so
far as it absolves the defendants from the plaintiffs' complaint; and judgment will be
entered for the plaintiffs to recover jointly and severally from the defendants Silvino Lim
and Siy Cong Bieng & Co. the sum of seventeen thousand eight hundred and twentyseven pesos (P17,827), with interest from the date of the institution of the action,
without special pronouncement as to costs of either instance. So ordered.

CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners,

vs. COURT OF APPEALS and FRANCISCO ARTIGO, respondents. G.R. No.
115838
July 18, 2002
CARPIO, J.:
The Case
Before us is a Petition for Review on Certiorari1 seeking to annul the Decision of the
Court of Appeals2 dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in
toto the decision3 of the Regional Trial Court of Quezon City, Branch 80, in Civil Case
No. Q-89-2631. The trial court disposed as follows:
"WHEREFORE, the Court finds defendants Constante and Corazon Amor de
Castro jointly and solidarily liable to plaintiff the sum of:
a) P303,606.24 representing unpaid commission;
b) P25,000.00 for and by way of moral damages;
c) P45,000.00 for and by way of attorney's fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20, 1991."
The Antecedent Facts
On May 29, 1989, private respondent Francisco Artigo ("Artigo" for brevity) sued
petitioners Constante A. De Castro ("Constante" for brevity) and Corazon A. De Castro
("Corazon" for brevity) to collect the unpaid balance of his broker's commission from
the De Castros.4 The Court of Appeals summarized the facts in this wise:
"x x x. Appellants5 were co-owners of four (4) lots located at EDSA corner New
York and Denver Streets in Cubao, Quezon City. In a letter dated January 24,
62

1984 (Exhibit "A-1, p. 144, Records), appellee6 was authorized by appellants to

act as real estate broker in the sale of these properties for the amount
ofP23,000,000.00, five percent (5%) of which will be given to the agent as
commission. It was appellee who first found Times Transit Corporation,
represented by its president Mr. Rondaris, as prospective buyer which desired to
buy two (2) lots only, specifically lots 14 and 15. Eventually, sometime in May of
1985, the sale of lots 14 and 15 was consummated. Appellee received from
appellants P48,893.76 as commission.
It was then that the rift between the contending parties soon emerged. Appellee
apparently felt short changed because according to him, his total commission
should be P352,500.00 which is five percent (5%) of the agreed price
of P7,050,000.00 paid by Times Transit Corporation to appellants for the two (2)
lots, and that it was he who introduced the buyer to appellants and unceasingly
facilitated the negotiation which ultimately led to the consummation of the sale.
Hence, he sued below to collect the balance of P303,606.24 after having
received P48,893.76 in advance.1wphi1.nt
On the other hand, appellants completely traverse appellee's claims and
essentially argue that appellee is selfishly asking for more than what he truly
deserved as commission to the prejudice of other agents who were more
instrumental in the consummation of the sale. Although appellants readily
concede that it was appellee who first introduced Times Transit Corp. to them,
appellee was not designated by them as their exclusive real estate agent but that
in fact there were more or less eighteen (18) others whose collective efforts in
the long run dwarfed those of appellee's, considering that the first negotiation
for the sale where appellee took active participation failed and it was these other
agents who successfully brokered in the second negotiation. But despite this and
out of appellants' "pure liberality, beneficence and magnanimity", appellee
nevertheless was given the largest cut in the commission (P48,893.76), although
on the principle of quantum meruit he would have certainly been entitled to less.
So appellee should not have been heard to complain of getting only a pittance
when he actually got the lion's share of the commission and worse, he should
not have been allowed to get the entire commission. Furthermore, the purchase
price for the two lots was only P3.6 million as appearing in the deed of sale and
not P7.05 million as alleged by appellee. Thus, even assuming that appellee is
entitled to the entire commission, he would only be getting 5% of the P3.6
million, or P180,000.00."
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the decision of the trial court.

63

First. The Court of Appeals found that Constante authorized Artigo to act as agent in
the sale of two lots in Cubao, Quezon City. The handwritten authorization letter signed
by Constante clearly established a contract of agency between Constante and Artigo.
Thus, Artigo sought prospective buyers and found Times Transit Corporation ("Times
Transit" for brevity). Artigo facilitated the negotiations which eventually led to the sale
of the two lots. Therefore, the Court of Appeals decided that Artigo is entitled to the
5% commission on the purchase price as provided in the contract of agency.
Second. The Court of Appeals ruled that Artigo's complaint is not dismissible for failure
to implead as indispensable parties the other co-owners of the two lots. The Court of
Appeals explained that it is not necessary to implead the other co-owners since the
action is exclusively based on a contract of agency between Artigo and Constante.
Third. The Court of Appeals likewise declared that the trial court did not err in admitting
parol evidence to prove the true amount paid by Times Transit to the De Castros for the
two lots. The Court of Appeals ruled that evidencealiunde could be presented to prove
that the actual purchase price was P7.05 million and not P3.6 million as appearing in
the deed of sale. Evidence aliunde is admissible considering that Artigo is not a party,
but a mere witness in the deed of sale between the De Castros and Times Transit. The
Court of Appeals explained that, "the rule that oral evidence is inadmissible to vary the
terms of written instruments is generally applied only in suits between parties to the
instrument and strangers to the contract are not bound by it." Besides, Artigo was not
suing under the deed of sale, but solely under the contract of agency. Thus, the Court
of Appeals upheld the trial court's finding that the purchase price was P7.05 million and
not P3.6 million.
Hence, the instant petition.
The Issues
According to petitioners, the Court of Appeals erred in I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO
IMPLEAD INDISPENSABLE PARTIES-IN-INTEREST;
II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND
THAT ARTIGO'S CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER,
OR ABANDONMENT;
III. CONSIDERING INCOMPETENT EVIDENCE;
IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;
V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES;
64

VI. NOT AWARDING THE DE CASTRO'S MORAL AND EXEMPLARY DAMAGES,

AND ATTORNEY'S FEES.
The Court's Ruling
The petition is bereft of merit.

First Issue: whether the complaint merits dismissal for failure to implead
other co-owners as indispensable parties
The De Castros argue that Artigo's complaint should have been dismissed for failure to
implead all the co-owners of the two lots. The De Castros claim that Artigo always knew
that the two lots were co-owned by Constante and Corazon with their other siblings
Jose and Carmela whom Constante merely represented. The De Castros contend that
failure to implead such indispensable parties is fatal to the complaint since Artigo, as
agent of all the four co-owners, would be paid with funds co-owned by the four coowners.
The De Castros' contentions are devoid of legal basis.
An indispensable party is one whose interest will be affected by the court's action in the
litigation, and without whom no final determination of the case can be had.7 The
joinder of indispensable parties is mandatory and courts cannot proceed without their
presence.8 Whenever it appears to the court in the course of a proceeding that an
indispensable party has not been joined, it is the duty of the court to stop the trial and
order the inclusion of such party.9
However, the rule on mandatory joinder of indispensable parties is not applicable to the
instant case.
There is no dispute that Constante appointed Artigo in a handwritten note dated
January 24, 1984 to sell the properties of the De Castros for P23 million at a 5 percent
commission. The authority was on a first come, first serve basis. The authority reads in
full:
"24 Jan. 84
To Whom It May Concern:
This is to state that Mr. Francisco Artigo is authorized as our real estate broker in
connection with the sale of our property located at Edsa Corner New York &
Denver, Cubao, Quezon City.
Asking price P 23,000,000.00 with 5% commission as agent's fee.
65

C.C.
owner
co-owners

&

de

Castro
representing

This authority is on a first-come

First serve basis CAC"
Constante signed the note as owner and as representative of the other co-owners.
Under this note, a contract of agency was clearly constituted between Constante and
Artigo. Whether Constante appointed Artigo as agent, in Constante's individual or
representative capacity, or both, the De Castros cannot seek the dismissal of the case
for failure to implead the other co-owners as indispensable parties. The De Castros
admit that the other co-owners are solidarily liable under the contract of
agency,10 citing Article 1915 of the Civil Code, which reads:
Art. 1915. If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the agent for all the
consequences of the agency.
The solidary liability of the four co-owners, however, militates against the De Castros'
theory that the other co-owners should be impleaded as indispensable parties. A noted
commentator explained Article 1915 thus
"The rule in this article applies even when the appointments were made by the
principals in separate acts, provided that they are for the same transaction. The
solidarity arises from the common interest of the principals, and not
from the act of constituting the agency. By virtue of this solidarity, the
agent can recover from any principal the whole compensation and
indemnity owing to him by the others. The parties, however, may, by
express agreement, negate this solidary responsibility. The solidarity does not
disappear by the mere partition effected by the principals after the
accomplishment of the agency.
If the undertaking is one in which several are interested, but only some create
the agency, only the latter are solidarily liable, without prejudice to the effects
of negotiorum gestio with respect to the others. And if the power granted
includes various transactions some of which are common and others are not,
only those interested in each transaction shall be liable for it."11
When the law expressly provides for solidarity of the obligation, as in the liability of coprincipals in a contract of agency, each obligor may be compelled to pay the entire
obligation.12 The agent may recover the whole compensation from any one of the coprincipals, as in this case.
66

Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the
solidary debtors. This article reads:
Art. 1216. The creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made against one of them shall
not be an obstacle to those which may subsequently be directed against the
others, so long as the debt has not been fully collected.
Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co.,
Inc.13 that
"x x x solidarity does not make a solidary obligor an indispensable party
in a suit filed by the creditor. Article 1216 of the Civil Code says that the
creditor `may proceed against anyone of the solidary debtors or some or all of
them simultaneously'." (Emphasis supplied)

Second Issue: whether Artigo's claim has been extinguished by full payment,
waiver or abandonment
The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was
given "his proportionate share and no longer entitled to any balance." According to
them, Artigo was just one of the agents involved in the sale and entitled to a
"proportionate share" in the commission. They assert that Artigo did absolutely nothing
during the second negotiation but to sign as a witness in the deed of sale. He did not
even prepare the documents for the transaction as an active real estate broker usually
does.
The De Castros' arguments are flimsy.
A contract of agency which is not contrary to law, public order, public policy, morals or
good custom is a valid contract, and constitutes the law between the parties.14 The
contract of agency entered into by Constante with Artigo is the law between them and
both are bound to comply with its terms and conditions in good faith.
The mere fact that "other agents" intervened in the consummation of the sale and were
paid their respective commissions cannot vary the terms of the contract of agency
granting Artigo a 5 percent commission based on the selling price. These "other agents"
turned out to be employees of Times Transit, the buyer Artigo introduced to the De
Castros. This prompted the trial court to observe:
"The alleged `second group' of agents came into the picture only during the socalled `second negotiation' and it is amusing to note that these (sic) second
group, prominent among whom are Atty. Del Castillo and Ms. Prudencio,
happened to be employees of Times Transit, the buyer of the properties. And
their efforts were limited to convincing Constante to 'part away' with the
67

properties because the redemption period of the foreclosed properties is around

the corner, so to speak. (tsn. June 6, 1991).
xxx
To accept Constante's version of the story is to open the floodgates of fraud and
deceit. A seller could always pretend rejection of the offer and wait for sometime
for others to renew it who are much willing to accept a commission far less than
the original broker. The immorality in the instant case easily presents
itself if one has to consider that the alleged `second group' are the
employees of the buyer, Times Transit and they have not bettered the
offer secured by Mr. Artigo for P7 million.
It is to be noted also that while Constante was too particular about the
unrenewed real estate broker's license of Mr. Artigo, he did not bother at all to
inquire as to the licenses of Prudencio and Castillo. (tsn, April 11, 1991, pp. 3940)."15 (Emphasis supplied)
In any event, we find that the 5 percent real estate broker's commission is reasonable
and within the standard practice in the real estate industry for transactions of this
nature.
The De Castros also contend that Artigo's inaction as well as failure to protest estops
him from recovering more than what was actually paid him. The De Castros cite Article
1235 of the Civil Code which reads:
Art. 1235. When the obligee accepts the performance, knowing its
incompleteness and irregularity, and without expressing any protest or objection,
the obligation is deemed fully complied with.
The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's
acceptance of partial payment of his commission neither amounts to a waiver of the
balance nor puts him in estoppel. This is the import of Article 1235 which was explained
in this wise:
"The word accept, as used in Article 1235 of the Civil Code, means to take as
satisfactory or sufficient, or agree to an incomplete or irregular
performance. Hence, the mere receipt of a partial payment is not
equivalent to the required acceptance of performance as would
extinguish the whole obligation."16(Emphasis supplied)
There is thus a clear distinction between acceptance and mere receipt. In this case, it is
evident that Artigo merely received the partial payment without waiving the balance.
Thus, there is no estoppel to speak of.
68

The De Castros further argue that laches should apply because Artigo did not file his
complaint in court until May 29, 1989, or almost four years later. Hence, Artigo's claim
for the balance of his commission is barred by laches.
Laches means the failure or neglect, for an unreasonable and unexplained length of
time, to do that which by exercising due diligence could or should have been done
earlier. It is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned it or
declined to assert it.17
Artigo disputes the claim that he neglected to assert his rights. He was appointed as
agent on January 24, 1984. The two lots were finally sold in June 1985. As found by the
trial court, Artigo demanded in April and July of 1985 the payment of his commission by
Constante on the basis of the selling price of P7.05 million but there was no response
from Constante.18 After it became clear that his demands for payment have fallen on
deaf ears, Artigo decided to sue on May 29, 1989.
Actions upon a written contract, such as a contract of agency, must be brought within
ten years from the time the right of action accrues.19 The right of action accrues from
the moment the breach of right or duty occurs. From this moment, the creditor can
institute the action even as the ten-year prescriptive period begins to run.20
The De Castros admit that Artigo's claim was filed within the ten-year prescriptive
period. The De Castros, however, still maintain that Artigo's cause of action is barred by
laches. Laches does not apply because only four years had lapsed from the time of the
sale in June 1985. Artigo made a demand in July 1985 and filed the action in court on
May 29, 1989, well within the ten-year prescriptive period. This does not constitute an
unreasonable delay in asserting one's right. The Court has ruled, "a delay within the
prescriptive period is sanctioned by law and is not considered to be a delay
that would bar relief."21 In explaining that laches applies only in the absence of a
statutory prescriptive period, the Court has stated "Laches is recourse in equity. Equity, however, is applied only in the
absence, never in contravention, of statutory law. Thus, laches, cannot,
as a rule, be used to abate a collection suit filed within the prescriptive
period mandated by the Civil Code."22
Clearly, the De Castros' defense of laches finds no support in law, equity or
jurisprudence.

Third issue: whether the determination of the purchase price was made in
violation of the Rules on Evidence
The De Castros want the Court to re-examine the probative value of the evidence
adduced in the trial court to determine whether the actual selling price of the two lots
69

was P7.05 million and not P3.6 million. The De Castros contend that it is erroneous to
base the 5 percent commission on a purchase price of P7.05 million as ordered by the
trial court and the appellate court. The De Castros insist that the purchase price is P3.6
million as expressly stated in the deed of sale, the due execution and authenticity of
which was admitted during the trial.
The De Castros believe that the trial and appellate courts committed a mistake in
considering incompetent evidence and disregarding the best evidence and parole
evidence rules. They claim that the Court of Appeals erroneously affirmed sub
silentio the trial court's reliance on the various correspondences between Constante and
Times Transit which were mere photocopies that do not satisfy the best evidence rule.
Further, these letters covered only the first negotiations between Constante and Times
Transit which failed; hence, these are immaterial in determining the final purchase
price.
The De Castros further argue that if there was an undervaluation, Artigo who signed as
witness benefited therefrom, and being equally guilty, should be left where he presently
stands. They likewise claim that the Court of Appeals erred in relying on evidence which
were not offered for the purpose considered by the trial court. Specifically, Exhibits "B",
"C", "D" and "E" were not offered to prove that the purchase price was P7.05 Million.
Finally, they argue that the courts a quo erred in giving credence to the perjured
testimony of Artigo. They want the entire testimony of Artigo rejected as a falsehood
because he was lying when he claimed at the outset that he was a licensed real estate
broker when he was not.
Whether the actual purchase price was P7.05 Million as found by the trial court and
affirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros, is a
question of fact and not of law. Inevitably, this calls for an inquiry into the facts and
evidence on record. This we can not do.
It is not the function of this Court to re-examine the evidence submitted by the parties,
or analyze or weigh the evidence again.23 This Court is not the proper venue to consider
a factual issue as it is not a trier of facts. In petitions for review on certiorari as a mode
of appeal under Rule 45, a petitioner can only raise questions of law. Our
pronouncement in the case of Cormero vs. Court of Appeals24 bears reiteration:
"At the outset, it is evident from the errors assigned that the petition is anchored
on a plea to review the factual conclusion reached by the respondent court. Such
task however is foreclosed by the rule that in petitions for certiorari as a mode of
appeal, like this one, only questions of law distinctly set forth may be raised.
These questions have been defined as those that do not call for any examination
of the probative value of the evidence presented by the parties. (Uniland
Resources vs. Development Bank of the Philippines, 200 SCRA 751 [1991] citing
Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of
70

Appeals, 149 SCRA 67). And when this court is asked to go over the proof
presented by the parties, and analyze, assess and weigh them to ascertain if the
trial court and the appellate court were correct in according superior credit to
this or that piece of evidence and eventually, to the totality of the evidence of
one party or the other, the court cannot and will not do the same. (Elayda vs.
Court of Appeals, 199 SCRA 349 [1991]). Thus, in the absence of any showing
that the findings complained of are totally devoid of support in the record, or
that they are so glaringly erroneous as to constitute serious abuse of discretion,
such findings must stand, for this court is not expected or required to examine or
contrast the oral and documentary evidence submitted by the parties. (Morales
vs. Court of Appeals, 197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18
SCRA 973 [1966])."
We find no reason to depart from this principle. The trial and appellate courts are in a
much better position to evaluate properly the evidence. Hence, we find no other
recourse but to affirm their finding on the actual purchase price.1wphi1.nt

Fourth Issue: whether award of moral damages and attorney's fees is proper
The De Castros claim that Artigo failed to prove that he is entitled to moral damages
and attorney's fees. The De Castros, however, cite no concrete reason except to say
that they are the ones entitled to damages since the case was filed to harass and extort
money from them.
Law and jurisprudence support the award of moral damages and attorney's fees in
favor of Artigo. The award of damages and attorney's fees is left to the sound discretion
of the court, and if such discretion is well exercised, as in this case, it will not be
disturbed on appeal.25 Moral damages may be awarded when in a breach of contract
the defendant acted in bad faith, or in wanton disregard of his contractual
obligation.26 On the other hand, attorney's fees are awarded in instances where "the
defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's
plainly valid, just and demandable claim."27 There is no reason to disturb the trial
court's finding that "the defendants' lack of good faith and unkind treatment of the
plaintiff in refusing to give his due commission deserve censure." This warrants the
award of P25,000.00 in moral damages and P 45,000.00 in attorney's fees. The
amounts are, in our view, fair and reasonable. Having found a buyer for the two lots,
Artigo had already performed his part of the bargain under the contract of agency. The
De Castros should have exercised fairness and good judgment in dealing with Artigo by
fulfilling their own part of the bargain - paying Artigo his 5 percent broker's commission
based on the actual purchase price of the two lots.
WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of
Appeals dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto. SO
ORDERED.
71

72