PLEASANTVILLE DEVELOPMENT CORPORATION, petitioner, vs.

COURT OF APPEALS,
WILSON KEE, C.T. TORRES ENTERPRISES, INC. and ELDRED JARDINICO, respondents.
DECISION
PANGANIBAN, J.:
Is a lot buyer who constructs improvements on the wrong property erroneously
delivered by the owners agent, a builder in good faith? This is the main issue
resolved in this petition for review on certiorari to reverse the Decision[1] of the
Court of Appeals[2] in CA-G.R. SP No. 11040, promulgated on August 20, 1987.
By resolution dated November 13, 1995, the First Division of this Court resolved to
transfer this case (along with several others) to the Third Division. After due
deliberation and consultation, the Court assigned the writing of this Decision to the
undersigned ponente.
The Facts
The facts, as found by respondent Court, are as follows:
Edith Robillo purchased from petitioner a parcel of land designated as Lot 9, Phase II
and located at Taculing Road, Pleasantville Subdivision, Bacolod City. In 1975,
respondent Eldred Jardinico bought the rights to the lot from Robillo. At that time,
Lot 9 was vacant.
Upon completing all payments, Jardinico secured from the Register of Deeds of
Bacolod City on December 19, 1978 Transfer Certificate of Title No. 106367 in his
name. It was then that he discovered that improvements had been introduced on
Lot 9 by respondent Wilson Kee, who had taken possession thereof.
It appears that on March 26, 1974, Kee bought on installment Lot 8 of the same
subdivision from C.T. Torres Enterprises, Inc. (CTTEI), the exclusive real estate agent
of petitioner. Under the Contract to Sell on Installment, Kee could possess the lot
even before the completion of all installment payments. On January 20, 1975, Kee
paid CTTEI the relocation fee of P50.00 and another P50.00 on January 27, 1975, for
the preparation of the lot plan. These amounts were paid prior to Kees taking actual
possession of Lot 8. After the preparation of the lot plan and a copy thereof given to
Kee, CTTEI through its employee, Zenaida Octaviano, accompanied Kees wife,
Donabelle Kee, to inspect Lot 8. Unfortunately, the parcel of land pointed by
Octaviano was Lot 9. Thereafter, Kee proceeded to construct his residence, a store,
an auto repair shop and other improvements on the lot.
After discovering that Lot 9 was occupied by Kee, Jardinico confronted him. The
parties tried to reach an amicable settlement, but failed.
On January 30, 1981, Jardinicos lawyer wrote Kee, demanding that the latter remove
all improvements and vacate Lot 9. When Kee refused to vacate Lot 9, Jardinico filed
with the Municipal Trial Court in Cities, Branch 3, Bacolod City (MTCC), a complaint
for ejectment with damages against Kee.
Kee, in turn, filed a third-party complaint against petitioner and CTTEI.

The MTCC held that the erroneous delivery of Lot 9 to Kee was attributable to CTTEI.
It further ruled that petitioner and CTTEI could not successfully invoke as a defense
the failure of Kee to give notice of his intention to begin construction required under
paragraph 22 of the Contract to Sell on Installment and his having built a sari-sari
store without. the prior approval of petitioner required under paragraph 26 of said
contract, saying that the purpose of these requirements was merely to regulate the
type of improvements to be constructed on the lot[3].
However, the MTCC found that petitioner had already rescinded its contract with
Kee over Lot 8 for the latters failure to pay the installments due, and that Kee had
not contested the rescission. The rescission was effected in 1979, before the
complaint was instituted. The MTCC concluded that Kee no longer had any right
over the lot subject of the contract between him and petitioner. Consequently, Kee
must pay reasonable rentals for the use of Lot 9, and, furthermore, he cannot claim
reimbursement for the improvements he introduced on said lot.
The MTCC thus disposed:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered as follows:
1. Defendant Wilson Kee is ordered to vacate tithe premises of Lot 9, covered by
TCT No. 106367 and to remove all structures and improvements he introduced
thereon;
2. Defendant Wilson Kee is ordered to pay to the plaintiff rentals at the rate of P
15.00 a day computed from the time this suit was filed on March 12, 1981 until he
actually vacates the premises. This amount shall bear interests (sic) at the rate of
12 per cent (sic) per annum.
3. Third-Party Defendant CT. Torres Enterprises, Inc. and Pleasantville Subdivision
are ordered to pay the plaintiff jointly and severally the sum of P3,000.00 as
attorneys fees and P700.00 as cost and litigation expenses.[4]
On appeal, the Regional Trial Court, Branch 48, Bacolod City (RTC) ruled that
petitioner and CTTEI were not at fault or were not negligent, there being no
preponderant evidence to show that they directly participated in the delivery of Lot
9 to Kee.[5] It found Kee a builder in bad faith. It further ruled that even assuming
arguendo that Kee was acting in good faith, he was, nonetheless, guilty of
unlawfully usurping the possessory right of Jardinico over Lot 9 from the time he
was served with notice to vacate said lot, and thus was liable for rental.
The RTC thus disposed:
WHEREFORE, the decision appealed from is affirmed with respect to the order
against the defendant to vacate the premises of Lot No. 9 covered by Transfer
Certificate of Title No. T-106367 of the land records of Bacolod City; the removal of
all structures and improvements introduced thereon at his expense and the
payment to plaintiff (sic) the sum of Fifteen (P 15.00) Pesos a day as reasonable
rental to be computed from January 30, 1981, the date of the demand, and not from

the date of the filing of the complaint, until he had vacated (sic) the premises, with
interest thereon at 12% per annum. This Court further renders judgment against the
defendant to pay the plaintiff the sum of Three Thousand (P3,000.00) Pesos as
attorneys fees, plus costs of litigation.
The third-party complaint against Third-Party Defendants Pleasantville Development
Corporation and C.T. Torres Enterprises, Inc. is dismissed. The order against ThirdParty Defendants to pay attorneys fees to plaintiff and costs of litigation is reversed.
[6]
Following the denial of his motion for reconsideration on October 20, 1986, Kee
appealed directly to the Supreme Court, which referred the matter to the Court of
Appeals.
The appellate court ruled that Kee was a builder in good faith, as he was unaware of
the mix-up when he began construction of the improvements on Lot 8. It further
ruled that the erroneous delivery was due to the negligence of CTTEI, and that such
wrong delivery was likewise imputable to its principal, petitioner herein. The
appellate court also ruled that the award of rentals was without basis.
Thus, the Court of Appeals disposed:
WHEREFORE, the petition is GRANTED, the appealed decision is REVERSED, and
judgment is rendered as follows:
1. Wilson Kee is declared a builder in good faith with respect to the improvements
he introduced on Lot 9, and is entitled to the rights granted him under Articles 448,
546 and 548 of the New Civil Code.
2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development
Corporation are solidarily liable under the following circumstances:
a. If Eldred Jardinico decides to appropriate the improvements and, thereafter,
remove these structures, the third-party defendants shall answer for all demolition
expenses and the value of the improvements thus destroyed or rendered useless;
b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer
for the amount representing the value of Lot 9 that Kee should pay to Jardinico.
3. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development
Corporation are ordered to pay in solidum the amount of P3,000.00 to Jardinico as
attorneys fees, as well as litigation expenses.
4. The award of rentals to Jardinico is dispensed with.
Furthermore, the case is REMANDED to the court of origin for the determination of
the actual value of the improvements and the property (Lot 9), as well as for further
proceedings in conformity with Article 448 of the New Civil Code.[7]
Petitioner then filed the instant petition against Kee, Jardinico and CTTEI.

The Issues
The petition submitted the following grounds to justify a review of the respondent
Courts Decision, as follows:
1. The Court of Appeals has decided the case in a way probably not in accord with
law or the the (sic) applicable decisions of the Supreme Court on third-party
complaints, by ordering third-party defendants to pay the demolition expenses
and/or price of the land;
2. The Court of Appeals has so far departed from the accepted course of judicial
proceedings, by granting to private respondent-Kee the rights of a builder in good
faith in excess of what the law provides, thus enriching private respondent Kee at
the expense of the petitioner;
3. In the light of the subsequent events or circumstances which changed the rights
of the parties, it becomes imperative to set aside or at least modify the judgment of
the Court of Appeals to harmonize with justice and the facts;
4. Private respondent-Kee in accordance with the findings of facts of the lower court
is clearly a builder in bad faith, having violated several provisions of the contract to
sell on installments;
5. The decision of the Court of Appeals, holding the principal, Pleasantville
Development Corporation (liable) for the acts made by the agent in excess of its
authority is clearly in violation of the provision of the law;
6. The award of attorneys fees is clearly without basis and is equivalent to putting a
premium in (sic) court litigation.
From these grounds, the issues could be re-stated as follows:
(1) Was Kee a builder in good faith?
(2) What is the liability, if any, of petitioner and its agent, C.T. Torres Enterprises,
Inc.? and
(3) Is the award of attorneys fees proper?
The First Issue: Good Faith
Petitioner contends that the Court of Appeals erred in reversing the RTCs ruling that
Kee was a builder in bad faith.
Petitioner fails to persuade this Court to abandon the findings and conclusions of the
Court of Appeals that Kee was a builder in good faith. We agree with the following
observation of the Court of Appeals:

The roots of the controversy can be traced directly to the errors committed by
CTTEI, when it pointed the wrong property to Wilson Kee and his wife. It is highly
improbable that a purchaser of a lot would knowingly and willingly build his
residence on a lot owned by another, deliberately exposing himself and his family to
the risk of being ejected from the land and losing all improvements thereon, not to
mention the social humiliation that would follow.
Under the circumstances, Kee had acted in the manner of a prudent man in
ascertaining the identity of his property. Lot 8 is covered by Transfer Certificate of
Title No. T-69561, while Lot 9 is identified in Transfer Certificate of Title No. T106367. Hence, under the Torrens system of land registration, Kee is presumed to
have knowledge of the metes and bounds of the property with which he is dealing. x
xx
xxx xxx xxx
But as Kee is a layman not versed in the technical description of his property, he
had to find a way to ascertain that what was described in TCT No. 69561 matched
Lot 8. Thus, he went to the subdivision developers agent and applied and paid for
the relocation of the lot, as well as for the production of a lot plan by CTTEIs
geodetic engineer. Upon Kees receipt of the map, his wife went to the subdivision
site accompanied by CTTEIs employee, Octaviano, who authoritatively declared that
the land she was pointing to was indeed Lot 8. Having full faith and confidence in
the reputation of CTTEI, and because of the companys positive identification of the
property, Kee saw no reason to suspect that there had been a misdelivery. The steps
Kee had taken to protect his interests were reasonable. There was no need for him
to have acted ex-abundantia cautela, such as being present during the geodetic
engineers relocation survey or hiring an independent geodetic engineer to
countercheck for errors, for the final delivery of subdivision lots to their owners is
part of the regular course of everyday business of CTTEI. Because of CTTEIs blunder,
what Kee had hoped to forestall did in fact transpire. Kees efforts all went to naught.
[8]
Good faith consists in the belief of the builder that the land he is building on is his
and his ignorance of any defect or flaw in his title.[9] And as good faith is presumed,
petitioner has the burden of proving bad faith on the part of Kee.[10]
At the time he built improvements on Lot 8, Kee believed that said lot was what he
bought from petitioner. He was not aware that the lot delivered to him was not Lot
8. Thus, Kees good faith. Petitioner failed to prove otherwise.
To demonstrate Kees bad faith, petitioner points to Kees violation of paragraphs 22
and 26 of the Contract of Sale on Installment.
We disagree. Such violations have no bearing whatsoever on whether Kee was a
builder in good faith, that is, on his state of mind at the time he built the
improvements on Lot 9. These alleged violations may give rise to petitioners cause
of action against Kee under the said contract (contractual breach), but may not be
bases to negate the presumption that Kee was a builder in good faith.

Petitioner also points out that, as found by the trial court, the Contract of Sale on
Installment covering Lot 8 between it and Kee was rescinded long before the
present action was instituted. This has no relevance on the liability of petitioner, as
such fact does not negate the negligence of its agent in pointing out the wrong lot
to Kee. Such circumstance is relevant only as it gives Jardinico a cause of action for
unlawful detainer against Kee.
Petitioner next contends that Kee cannot claim that another lot was erroneously
pointed out to him because the latter agreed to the following provision in the
Contract of Sale on Installment, to wit:
13. The Vendee hereby declares that prior to the execution of his contract he/she
has personally examined or inspected the property made subject-matter hereof, as
to its location, contours, as well as the natural condition of the lots and from the
date hereof whatever consequential change therein made due to erosion, the said
Vendee shall bear the expenses of the necessary fillings, when the same is so
desired by him/her.[11]
The subject matter of this provision of the contract is the change of the location,
contour and condition of the lot due to erosion. It merely provides that the vendee,
having examined the property prior to the execution of the contract, agrees to
shoulder the expenses resulting from such change.
We do not agree with the interpretation of petitioner that Kee contracted away his
right to recover damages resulting from petitioners negligence. Such waiver would
be contrary to public policy and cannot be allowed. Rights may be waived, unless
the waiver is contrary to law, public order, public policy, morals, or good customs, or
prejudicial to a third person with a right recognized by law.[12]
The Second Issue: Petitioners Liability
Kee filed a third-party complaint against petitioner and CTTEI, which was dismissed
by the RTC after ruling that there was no evidence from which fault or negligence on
the part of petitioner and CTTEI can be inferred. The Court of Appeals disagreed and
found CTTEI negligent for the erroneous delivery of the lot by Octaviano, its
employee.
Petitioner does not dispute the fact that CTTEI was its agent. But it contends that
the erroneous delivery of Lot 9 to Kee was an act which was clearly outside the
scope of its authority, and consequently, CTTEI alone should be liable. It asserts that
while [CTTEI] was authorized to sell the lot belonging to the herein petitioner, it was
never authorized to deliver the wrong lot to Kee.[13]
Petitioners contention is without merit.
The rule is that the principal is responsible for the acts of the agent, done within the
scope of his authority, and should bear the damage caused to third persons.[14] On
the other hand, the agent who exceeds his authority is personally liable for the
damage.[15]

CTTEI was acting within its authority as the sole real estate representative of
petitioner when it made the delivery to Kee. In acting within its scope of authority, it
was, however, negligent. It is this negligence that is the basis of petitioners liability,
as principal of CTTEI, per Articles 1909 and 1910 of the Civil Code.
Pending resolution of the case before the Court of Appeals, Jardinico and Kee on July
24, 1987 entered into a deed of sale, wherein the former sold Lot 9 to Kee. Jardinico
and Kee did not inform the Court of Appeals of such deal.
The deed of sale contained the following provision:
1. That Civil Case No. 3815 entitled Jardinico vs. Kee which is now pending appeal
with the Court of Appeals, regardless of the outcome of the decision shall be
mutually disregarded and shall not be pursued by the parties herein and shall be
considered dismissed and without effect whatsoever;[16]
Kee asserts though that the terms and conditions in said deed of sale are strictly for
the parties thereto and that (t)here is no waiver made by either of the parties in
said deed of whatever favorable judgment or award the honorable respondent Court
of Appeals may make in their favor against herein petitioner Pleasantville
Development Corporation and/or private respondent C.T. Torres Enterprises, Inc.[17]
Obviously, the deed of sale can have no effect on the liability of petitioner. As we
have earlier stated, petitioners liability is grounded on the negligence of its agent.
On the other hand, what the deed of sale regulates are the reciprocal rights of Kee
and Jardinico; it stressed that they had reached an agreement independent of the
outcome of the case.
Petitioner further assails the following holding of the Court of Appeals:
2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development
Corporation are solidarily liable under the following circumstances:
a. If Eldred Jardinico decides to appropriate the improvements and, thereafter,
remove these structures, the third-party defendants shall answer for all demolition
expenses and the value of the improvements thus destroyed or rendered useless;
b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer
for the amount representing the value of Lot 9 that Kee should pay to Jardinico.[18]
Petitioner contends that if the above holding would be carried out, Kee would be
unjustly enriched at its expense. In other words, Kee would be -able to own the lot,
as buyer, without having to pay anything on it, because the aforequoted portion of
respondent Courts Decision would require petitioner and CTTEI jointly and solidarily
to answer or reimburse Kee there for.
We agree with petitioner.
Petitioners liability lies in the negligence of its agent CTTEI. For such negligence, the
petitioner should be held liable for damages. Now, the extent and/or amount of

damages to be awarded is a factual issue which should be determined after

evidence is adduced. However, there is no showing that such evidence was actually
presented in the trial court; hence no damages could now be awarded.
The rights of Kee and Jardinico vis-a-vis each other, as builder in good faith and
owner in good faith, respectively, are regulated by law (i.e., Arts. 448, 546 and 548
of the Civil Code). It was error for the Court of Appeals to make a slight modification
in the application of such law, on the ground of equity. At any rate, as it stands now,
Kee and Jardinico have amicably settled through their deed of sale their rights and
obligations with regards to Lot 9. Thus, we delete items 2 (a) and (b) of the
dispositive portion of the Court of Appeals Decision [as reproduced above] holding
petitioner and CTTEI solidarily liable.
The Third Issue: Attorneys Fees
The MTCC awarded Jardinico attorneys fees and costs in the amount of P3,000.00
and P700.00, respectively, as prayed for in his complaint. The RTC deleted the
award, consistent with its ruling that petitioner was without fault or negligence. The
Court of Appeals, however, reinstated the award of attorneys fees after ruling that
petitioner was liable for its agents negligence.
The award of attorneys fees lies within the discretion of the court and depends upon
the circumstances of each case.[19] We shall not interfere with the discretion of the
Court of Appeals. Jardinico was compelled to litigate for the protection of his
interests and for the recovery of damages sustained as a result of the negligence of
petitioners agent.[20]
In sum, we rule that Kee is a builder in good faith. The disposition of the Court of
Appeals that Kee is entitled to the rights granted him under Articles 448, 546 and
548 of the New Civil Code is deleted, in view of the deed of sale entered into by Kee
and Jardinico, which deed now governs the rights of Jardinico and Kee as to each
other. There is also no further need, as ruled by the appellate Court, to remand the
case to the court of origin for determination of the actual value of the improvements
and the property (Lot 9), as well as for further proceedings in conformity with Article
448 of the New Civil Code.
WHEREFORE, the petition is partially GRANTED. The Decision of the Court of Appeals
is hereby MODIFIED as follows:
(1) Wilson Kee is declared a builder in good faith;
(2) Petitioner Pleasantville Development Corporation and respondent C.T. Tones
Enterprises, Inc. are declared solidarily liable for damages due to negligence;
however, since the amount and/or extent of such damages was not proven during
the trial, the same cannot now be quantified and awarded;
(3) Petitioner Pleasantville Develpment Corporation and respondent C.T. Torres
Enterprises, Inc. are ordered to pay in solidum the amount of P3,000.00 to Jardinico
as attorneys fees, as well as litigation expenses; and

(4) The award of rentals to Jardinico is dispensed with.

SO ORDERED.

HARRY E. KEELER ELECTRIC CO., INC., plaintiff-appellant,

vs.
DOMINGO RODRIGUEZ, defendant-appellee.
Hartford Beaumont for appellant.
Ross and Lawrence and Antonio T. Carrascoso, Jr., for appellee.
STATEMENT
The plaintiff is a domestic corporation with its principal office in the city of Manila
and engaged in the electrical business, and among other things in the sale of what
is known as the "Matthews" electric plant, and the defendant is a resident of Talisay,
Occidental Negros, and A. C. Montelibano was a resident of Iloilo.
Having this information, Montelibano approached plaintiff at its Manila office,
claiming that he was from Iloilo and lived with Governor Yulo; that he could find
purchaser for the "Matthews" plant, and was told by the plaintiff that for any plant
that he could sell or any customer that he could find he would be paid a commission
of 10 per cent for his services, if the sale was consummated. Among other persons.
Montelibano interviews the defendant, and, through his efforts, one of the
"Matthews" plants was sold by the plaintiff to the defendant, and was shipped from
Manila to Iloilo, and later installed on defendant's premises after which, without the
knowledge of the plaintiff, the defendant paid the purchase price to Montelibano. As
a result, plaintiff commenced this action against the defendant, alleging that about
August 18, 1920, it sold and delivered to the defendant the electric plant at the
agreed price of P2,513.55 no part of which has been paid, the demands judgment
for the amount with interest from October 20, 1920.
For answer, the defendant admits the corporation of the plaintiff, and denies all
other material allegations of the complaint, and, as an affirmative defense, alleges
"that on or about the 18th of August, 1920, the plaintiff sold and delivered to the
defendant a certain electric plant and that the defendant paid the plaintiff the value
of said electric plant, to wit: P2,513.55."
Upon such issues the testimony was taken, and the lower court rendered judgment
for the defendant, from which the plaintiff appeals, claiming that the court erred in
holding that the payment to A. C. Montelibano would discharge the debt of
defendant, and in holding that the bill was given to Montelibano for collection
purposes, and that the plaintiff had held out Montelibano to the defendant as an
agent authorized to collect, and in rendering judgment for the defendant, and in not
rendering judgment for the plaintiff.

JOHNS, J.:
The testimony is conclusive that the defendant paid the amount of plaintiff's claim
to Montelibano, and that no part of the money was ever paid to the plaintiff. The
defendant, having alleged that the plaintiff sold and delivered the plant to him, and

that he paid the plaintiff the purchase price, it devolved upon the defendant to
prove the payment to the plaintiff by a preponderance of the evidence.
It appears from the testimony of H. E. Keeler that he was president of the plaintiff
and that the plant in question was shipped from Manila to Iloilo and consigned to
the plaintiff itself, and that at the time of the shipment the plaintiff sent Juan Cenar,
one of its employees, with the shipment, for the purpose of installing the plant on
defendant's premises. That plaintiff gave Cenar a statement of the account,
including some extras and the expenses of the mechanic, making a total of
P2,563,95. That Montelibano had no authority from the plaintiff to receive or receipt
for money. That in truth and in fact his services were limited and confined to the
finding of purchasers for the "Matthews" plant to whom the plaintiff would later
make and consummate the sale. That Montelibano was not an electrician, could not
install the plant and did not know anything about its mechanism.
Cenar, as a witness for the plaintiff, testified that he went with shipment of the plant
from Manila to Iloilo, for the purpose of installing, testing it, and to see that
everything was satisfactory. That he was there about nine days, and that he
installed the plant, and that it was tested and approved by the defendant. He also
says that he personally took with him the statement of account of the plaintiff
against the defendant, and that after he was there a few days, the defendant asked
to see the statement, and that he gave it to him, and the defendant said, "he was
going to keep it." I said that was all right "if you want." "I made no effort at all to
collect the amount from him because Mr. Rodriguez told me he was going to pay for
the plant here in Manila." That after the plant was installed and approved, he
delivered it to the defendant and returned to Manila.
The only testimony on the part of the defendant is that of himself in the form of a
deposition in which he says that Montelibano sold and delivered the plant to him,
and "was the one who ordered the installation of that electrical plant," and he
introduced in evidence as part of his deposition a statement and receipt which
Montelibano signed to whom he paid the money. When asked why he paid the
money to Montelibano, the witness says:
Because he was the one who sold, delivered, and installed the electrical plant, and
he presented to me the account, Exhibits A and A-I, and he assured me that he was
duly authorized to collect the value of the electrical plant.
The receipt offered in evidence is headed:
STATEMENT

Folio No. 2494

Mr. DOMINGO RODRIGUEZ,

Iloilo, Iloilo, P.I.
In account with
HARRY E. KEELER ELECTRIC COMPANY, INC.
221 Calle Echaque, Quiapo, Manila, P.I.
MANILA, P.I., August 18, 1920.

The answer alleges and the receipt shows upon its face that the plaintiff sold the
plant to the defendant, and that he bought it from the plaintiff. The receipt is signed
as follows:
Received payment
HARRY E. KEELER ELECTRIC CO. Inc.,
Recibi
(Sgd.) A. C. MONTELIBANO.
There is nothing on the face of this receipt to show that Montelibano was the agent
of, or that he was acting for, the plaintiff. It is his own personal receipt and his own
personal signature. Outside of the fact that Montelibano received the money and
signed this receipt, there is no evidence that he had any authority, real or apparent,
to receive or receipt for the money. Neither is there any evidence that the plaintiff
ever delivered the statement to Montelibano, or authorized anyone to deliver it to
him, and it is very apparent that the statement in question is the one which was
delivered by the plaintiff to Cenar, and is the one which Cenar delivered to the
defendant at the request of the defendant.
The evidence of the defendant that Montelibano was the one who sold him the plant
is in direct conflict with his own pleadings and the receipt statement which he
offered in evidence. This statement also shows upon its face that P81.60 of the bill
is for:
To Passage round trip, 1st Class @
P40.80 a trip ........................................... P81.60.
Plus Labor @ P5.00 per day
Machine's transportation ................. 9.85.
This claim must be for the expenses of Cenar in going to Iloilo from Manila and
return, to install the plant, and is strong evidence that it was Cenar and not
Montelibano who installed the plant. If Montelibano installed the plant, as defendant
claims, there would not have been any necessity for Cenar to make this trip at the
expense of the defendant. After Cenar's return to Manila, the plaintiff wrote a letter
to the defendant requesting the payment of its account, in answer to which the
defendant on September 24 sent the following telegram:
Electric plant accessories and installation are paid to Montelibano about three
weeks Keeler Company did not present bill.
This is in direct conflict with the receipted statement, which the defendant offered in
evidence, signed by Montelibano. That shows upon its face that it was an itemized
statement of the account of plaintiff with the defendant. Again, it will be noted that
the receipt which Montelibano signed is not dated, and it does not show when the
money was paid: Speaking of Montelibano, the defendant also testified: "and he
assured me that he was duly authorized to collect the value of the electrical plant."
This shows upon its face that the question of Montelibano's authority to receive the
money must have been discussed between them, and that, in making the payment,

defendant relied upon Montelibano's own statements and representation, as to his

authority, to receipt for the money.
In the final analysis, the plant was sold by the plaintiff to the defendant, and was
consigned by the plaintiff to the plaintiff at Iloilo where it was installed by Cenar,
acting for, and representing, the plaintiff, whose expense for the trip is included in,
and made a part of, the bill which was receipted by Montelibano.
There is no evidence that the plaintiff ever delivered any statements to
Montelibano, or that he was authorized to receive or receipt for the money, and
defendant's own telegram shows that the plaintiff "did not present bill" to
defendant. He now claims that at the very time this telegram was sent, he had the
receipt of Montelibano for the money upon the identical statement of account which
it is admitted the plaintiff did render to the defendant.
Article 1162 of the Civil Code provides:
Payment must be made to the persons in whose favor the obligation is constituted,
or to another authorized to receive it in his name.
And article 1727 provides:
The principal shall be liable as to matters with respect to which the agent has
exceeded his authority only when he ratifies the same expressly or by implication.
In the case of Ormachea Tin-Conco vs. Trillana (13 Phil., 194), this court held:
The repayment of a debt must be made to the person in whose favor the obligation
is constituted, or to another expressly authorized to receive the payment in his
name.
Mechem on Agency, volume I, section 743, says:
In approaching the consideration of the inquiry whether an assumed authority exist
in a given case, there are certain fundamental principles which must not be
overlooked. Among these are, as has been seen, (1) that the law indulges in no bare
presumptions that an agency exists: it must be proved or presumed from facts; (2)
that the agent cannot establish his own authority, either by his representations or
by assuming to exercise it; (3) that an authority cannot be established by mere
rumor or general reputation; (4)that even a general authority is not an unlimited
one; and (5) that every authority must find its ultimate source in some act or
omission of the principal. An assumption of authority to act as agent for another of
itself challenges inquiry. Like a railroad crossing, it should be in itself a sign of
danger and suggest the duty to "stop, look, and listen." It is therefore declared to be
a fundamental rule, never to be lost sight of and not easily to be overestimated,
that persons dealing with an assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the principal, to
ascertain not only the fact of the agency but the nature and extent of the authority,
and in case either is controverted, the burden of proof is upon them to establish it.

. . . It is, moreover, in any case entirely within the power of the person dealing with
the agent to satisfy himself that the agent has the authority he assumes to exercise,
or to decline to enter into relations with him. (Melchem on Agency, vol. I, sec. 746.)
The person dealing with the agent must also act with ordinary prudence and
reasonable diligence. Obviously, if he knows or has good reason to believe that the
agent is exceeding his authority, he cannot claim protection. So if the suggestions
of probable limitations be of such a clear and reasonable quality, or if the character
assumed by the agent is of such a suspicious or unreasonable nature, or if the
authority which he seeks to exercise is of such an unusual or improbable character,
as would suffice to put an ordinarily prudent man upon his guard, the party dealing
with him may not shut his eyes to the real state of the case, but should either refuse
to deal with the agent at all, or should ascertain from the principal the true
condition of affairs. (Mechem on Agency, vol. I, sec 752.)
And not only must the person dealing with the agent ascertain the existence of the
conditions, but he must also, as in other cases, be able to trace the source of his
reliance to some word or act of the principal himself if the latter is to be held
responsible. As has often been pointed out, the agent alone cannot enlarge or
extend his authority by his own acts or statements, nor can he alone remove
limitations or waive conditions imposed by his principal. To charge the principal in
such a case, the principal's consent or concurrence must be shown. (Mechem on
Agency, vol. I, section 757.)
This was a single transaction between the plaintiff and the defendant.lawph!l.net
Applying the above rules, the testimony is conclusive that the plaintiff never
authorized Montelibano to receive or receipt for money in its behalf, and that the
defendant had no right to assume by any act or deed of the plaintiff that
Montelibano was authorized to receive the money, and that the defendant made the
payment at his own risk and on the sole representations of Montelibano that he was
authorized to receipt for the money.
The judgment of the lower court is reversed, and one will be entered here in favor of
the plaintiff and against the defendant for the sum of P2,513.55 with interest at the
legal rate from January 10, 1921, with costs in favor of the appellant. So ordered.
Araullo, C. J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand, and
Romualdez, JJ., concur.

BANK OF COMMERCE,
Petitioner,

- versus -

SPS. PRUDENCIO SAN PABLO, JR., and NATIVIDAD O. SAN PABLO,

Respondents.
G.R. No. 167848
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
CHICO-NAZARIO, and
NACHURA, JJ.

Promulgated:
April 27, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised
Rules of Court, filed by petitioner Bank of Commerce seeking to reverse and set
aside the Decision[1] of the Court of Appeals dated 10 September 2004, and its
Resolution[2] dated 10 March 2005. The Court of Appeals, in its assailed Decision
and Resolution reversed the Decision[3] of the Regional Trial Court (RTC) of
Mandaue City, Branch 56 dated 25 June 2002, which affirmed the Decision,[4] of the
Municipal Trial Court (MTC) of Mandaue City, Branch 2, dismissing for lack of merit
the complaint against Melencio Santos (Santos) and the Bank of Commerce filed by
the respondent Spouses Prudencio (Prudencio) and Natividad (Natividad) San Pablo

for the declaration of nullity of the Special Power of Attorney (SPA) and cancellation
of Real Estate Mortgage. The dispositive portion of the Court of Appeals Decision
reads:
WHEREFORE, the Petition for review is GRANTED and the assailed Decision and
Order of the Regional Trial Court, Branch 56, Mandaue City, Cebu, in Civil Case
4135-A must be as they are hereby, SET ASIDE. We therefore declare the so-called
Special Power of Attorney, the Deed of Real Estate Mortgage and the Foreclosure
proceedings to be NULL and VOID ab initio. And, in the meantime, if the subject Lot
No. 1882-C-1-A covered by Transfer Certificate of Title No. (26469)-7561 has been
sold and a new transfer certificate of title had been issued, let the Registry of deeds
of Mandaue City cancel the new title and issue a new one in favor of Natividad O.
San Pablo, unless the new title holder is a purchaser in good faith and for value. In
the latter case, respondent Bank of Commerce and respondent Melencio G. Santos
are hereby held jointly and severally liable to petitioners for the fair market value of
the property as of the date of finality of this decision. Moreover, private respondents
are likewise held jointly and severally liable to petitioners P50,000.00 as moral
damages, P25,000.00 as exemplary damages, P25,000.00 plus P1,000.00 per count
appearance as attorneys fees and P10,000.00 as litigation expenses. No costs.
The antecedent factual and procedural facts of this case are as follows:
On 20 December 1994, Santos obtained a loan from Direct Funders Management
and Consultancy Inc., (Direct Funders) in the amount of P1,064,000.40.[5]
As a security for the loan obligation, Natividad executed a SPA[6] in favor of Santos,
authorizing the latter to mortgage to Direct Funders a paraphernal real property
registered under her name and covered by Transfer Certificate of Title (TCT) No.
(26469)-7561[7] (subject property).
In the Deed of Real Estate Mortgage[8] executed in favor of Direct Funders,
Natividad and her husband, Prudencio, signed as the co-mortgagors of Santos. It
was, however, clear between the parties that the loan obligation was for the sole
benefit of Santos and the spouses San Pablo merely signed the deed in order to
accommodate the former.
The aforesaid accommodation transaction was made possible because Prudencio
and Santos were close friends and business associates. Indeed, Prudencio was an
incorporator and a member of the Board of Directors of Intergems Fashion Jewelries
Corporation (Intergems), a domestic corporation in which Santos acted as the
President.
Sometime in June 1995, the spouses San Pablo received a letter from Direct Funders
informing them that Santos failed to pay his loan obligation with the latter. When
confronted with the matter, Santos promised to promptly settle his obligation with
Direct Funders, which he actually did the following month.
Upon learning that Santos debt with Direct Funders had been fully settled, the
spouses San Pablo then demanded from Santos to turn over to them the TCT of the
subject property but the latter failed to do so despite repeated demands. Such
refusal prompted the spouses San Pablo to inquire as to the status of the TCT of the
subject property with the Register of Deeds of Mandaue City and to their surprise,

they discovered that the property was again used by Santos as collateral for
another loan obligation he secured from the Bank of Commerce.
As shown in the annotation stamped at the back of the title, the spouses San Pablo
purportedly authorized Santos to mortgage the subject property to the Bank of
Commerce, as evidenced by the SPA allegedly signed by Natividad on 29 March
1995. It was further shown from the annotation at the back of the title that the
spouses San Pablo signed a Deed of Real Estate Mortgage over the subject property
in favor of Bank of Commerce, which they never did.[9]
In order to free the subject property from unauthorized encumbrances, the spouses
San Pablo, on 22 December 1995, filed a Complaint seeking for the Quieting of Title
and Nullification of the SPA and the deed of real estate mortgage with the prayer for
damages against Santos and the Bank of Commerce before the MTC of Mandaue
City, Branch 2.
In their complaint, the spouses San Pablo claimed that their signatures on the SPA
and the Deed of Real Estate Mortgage allegedly executed to secure a loan with the
Bank of Commerce were forged. They claimed that while the loan with the Direct
Funders was obtained with their consent and direct participation, they never
authorized the subsequent loan obligation with the Bank of Commerce.
During the pendency of the case, the Bank of Commerce, for non-payment of the
loan, initiated the foreclosure proceedings on the strength of the contested Deed of
Real Estate Mortgage. During the auction sale, the Bank of Commerce emerged as
the highest bidder and thus a Certificate of Sale was issued under its name.
Accordingly, the spouses San Pablo amended their complaint to include the prayer
for annulment of the foreclosure sale.[10]
In his Answer,[11] Santos countered that the loan with the Bank of Commerce was
deliberately resorted to with the consent, knowledge and direct participation of the
spouses San Pablo in order to pay off the obligation with Direct Funders. In fact, it
was Prudencio who caused the preparation of the SPA and together with Santos,
they went to the Bank of Commerce, Cebu City Branch to apply for the loan. In
addition, Santos averred that the spouses San Pablo were receiving consideration
from Intergems for extending accommodation transactions in favor of the latter.
For its part, Bank of Commerce filed an Answer with Compulsory Counterclaim,[12]
alleging that the spouses San Pablo, represented by their attorney-in-fact, Santos,
together with Intergems, obtained a loan in the amount of P1,218,000.00. It denied
the allegation advanced by the spouses San Pablo that the SPA and the Deed of
Real Estate Mortgage were spurious. Since the loan already became due and
demandable, the Bank of Commerce sought the foreclosure of the subject property.
After the Pre-Trial Conference, trial on the merits ensued.
During the trial, Anastacio Barbarona, Jr., the Manager of the Bank of Commerce,
Cebu City Branch, testified that the spouses San Pablo personally signed the Deed
of Real Estate Mortgage in his presence.[13] The testimony of a document examiner
and a handwriting expert, however, belied this claim. The expert witness, after
carefully examining the loan documents with the Bank of Commerce, attested that

the signatures of the spouses San Pablo on the SPA and the Deed of Real Estate
Mortgage were forged.[14]
On 10 July 2001, the MTC rendered a Decision,[15] dismissing the complaint for lack
of merit. The MTC declared that while it was proven that the signatures of the
spouses San Pablo on the loan documents were forged, the Bank of Commerce was
nevertheless in good faith. The dispositive portion of the decision reads:
WHEREFORE, foregoing considered, the instant complaint is hereby ordered
DISMISSED for lack of merit. The dismissal of this case is without prejudice to the
filing of the appropriate criminal action against those responsible for the falsification
of the questioned special power of attorney and deed of real estate mortgage.
Aggrieved, the spouses San Pablo appealed the adverse decision to the RTC of
Mandaue City, Branch 56, which, in turn, affirmed the unfavorable ruling of the MTC
in its Decision[16] promulgated on 25 June 2002. The decretal part of the said
decision reads:
WHEREFORE, in view of the foregoing, the Court hereby resolves to affirm the
assailed Decision.
Similarly ill-fated was the Motion for Reconsideration filed by the spouses San Pablo
which was denied by the RTC for lack of merit.[17]
Unyielding, the spouses San Pablo elevated the matter before the Court of Appeals
through a Petition for Review under Rule 42 of the Revised Rules of Court,[18]
assailing the adverse decisions of the MTC and RTC.
In a Decision[19] dated 10 September 2004, the appellate court granted the
petition filed by the spouses San Pablo and reversed the decisions of the MTC and
RTC. In setting aside the rulings of the lower courts, the Court of Appeals ruled that
since it was duly proven that the signatures of the spouses San Pablo on the loan
documents were forged, then such spurious documents could never become a valid
source of title. The mortgage contract executed by Santos over the subject property
in favor of Bank of Commerce, without the authority of the spouses San Pablo, was
therefore unenforceable, unless ratified.
The Bank of Commerce is now before this Court assailing the adverse decision
rendered by the Court of Appeals.[20] For the resolution of this Court are the
following issues:
I.
WHETHER OR NOT THE MTC HAS JURISDICTION TO HEAR THE CASE FILED BY THE
SPOUSES SAN PABLO.
II.
WHETHER OR NOT THE FORGED SPA AND SPECIAL POWER OF ATTORNEY COULD
BECOME A VALID SOURCE OF A RIGHT TO FORECLOSE A PROPERTY.
III.

WHETHER OR NOT THE AWARDS OF DAMAGES, ATTRONEYS FEES AND LITIGATION

EXPENSES ARE PROPER IN THE INSTANT CASE.
In questioning the adverse ruling of the appellate court, the Bank of Commerce, for
the first time in more than 10 years of pendency of the instant case, raises the issue
of jurisdiction. It asseverates that since the subject matter of the case is incapable
of pecuniary estimation, the complaint for quieting of title and annulment of the
SPA, the Deed of Real Estate Mortgage, and foreclosure proceedings should have
been originally filed with the RTC and not with the MTC. The decision rendered by
the MTC, which did not acquire jurisdiction over the subject matter of the case, is
therefore void from the very beginning. Necessarily, the Court of Appeals erred in
giving due course to the petition when the tribunal originally trying the case had no
authority to try the issue.
We do not agree.
Upon cursory reading of the records, we gathered that the case filed by the spouses
San Pablo before the MTC was an action for quieting of title, and nullification of the
SPA, Deed of Real Estate Mortgage, and foreclosure proceedings. While the body of
the complaint consists mainly of allegations of forgery, however, the primary object
of the spouses San Pablo in filing the same was to effectively free the title from any
unauthorized lien imposed upon it.
Clearly, the crux of the controversy before the MTC chiefly hinges on the question of
who has the better title over the subject property. Is it the spouses San Pablo who
claim that their signatures on the loan document were forged? Or is it the Bank of
Commerce which maintains that the SPA and the Deed of Real Estate Mortgage
were duly executed and, therefore, a valid source of its right to foreclose the subject
property for non-payment of loan?
An action for quieting of title is a common law remedy for the removal of any cloud
upon or doubt or uncertainty with respect to title to real property. As clarified by this
Court in Baricuatro, Jr. v. Court of Appeals[21]:
x x x Originating in equity jurisprudence, its purpose is to secure an adjudication
that a claim of title to or an interest in property, adverse to that of the complainant,
is invalid, so that the complainant and those claiming under him may be forever
afterward free from any danger or hostile claim. In an action for quieting of title, the
competent court is tasked to determine the respective rights of the complainant and
other claimants, not only to place things in their proper place, to make the one who
has no rights to said immovable respect and not disturb the other, but also for the
benefit of both, so that he who has the right would see every cloud of doubt over
the property dissipated, and he could afterwards without fear introduce the
improvements he may desire, to use, and even to abuse the property as he deems
best (citation omitted). Such remedy may be availed of under the circumstances
enumerated in the Civil Code:

ART. 476. Whenever there is a cloud on title to real property or any interest therein,
by reason of any instrument, record, claim, encumbrance or proceeding which is
apparently valid or effective but is in truth and in fact invalid, ineffective, voidable,
or unenforceable, and may be prejudicial to said title, an action may be brought to
remove such cloud or to quiet the title,
An action may also be brought to prevent a cloud from being cast upon title to real
property or any interest therein.
The mortgage of the subject property to the Bank of Commerce, annotated on the
Spouses San Pablos TCT, constitutes a cloud on their title to the subject property,
which may, at first, appear valid and effective, but is allegedly invalid or voidable
for having been made without their knowledge and authority as registered owners.
We thus have established that the case filed by the spouses San Pablo before the
MTC is actually an action for quieting of title, a real action, the jurisdiction over
which is determined by the assessed value of the property.[22] The assessed value
of the subject property located in Mandaue City, as alleged in the complaint, is
P4,900.00, which aptly falls within the jurisdiction of the MTC.
According to Section 33 of Batas Pambansa Blg. 129, as amended, otherwise known
as The Judiciary Reorganization Act of 1980:
Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts in Civil Cases. Metropolitan Trial Courts, Municipal Trial Courts,
and Municipal Circuit Trial Courts shall exercise:
xxxx
(3) Exclusive original jurisdiction in all civil actions which involve title to, or
possession of, real property, or any interest therein where the assessed value of the
property or interest therein does not exceed twenty thousand pesos (P20,000.00)
or, in civil actions in Metro Manila, where such assessed value does not exceed Fifty
thousand pesos (P50,000.0) exclusive of interest, damages of whatever kind,
attorneys fees litigation expenses and costs: Provided, That in cases of land not
declared for taxation purposes, the value of such property shall be determined by
the assessed value of the adjacent lots. (As amended, R.A. No. 7691.)
Even granting for the sake of argument that the MTC did not have jurisdiction over
the case, the Bank of Commerce is nevertheless estopped from repudiating the
authority of the court to try and decide the case after having actively participated in
the proceedings before it and invoking its jurisdiction by seeking an affirmative
relief therefrom.
As we have explained quite frequently, a party may be barred from raising
questions of jurisdiction when estoppel by laches has set in. Estoppel by laches is
failure or neglect for unreasonable and unexplained length of time to do what, by
exercising due diligence, ought to have been done earlier, warranting the
presumption that the party entitled to assert it has either abandoned it or has
acquiesced to the correctness or fairness of its resolution. This doctrine is based on
grounds of public policy which, for the peace of the society, requires the

discouragement of stale claims, and, unlike the statute of limitations, is not a mere
question of time but is principally an issue of inequity or unfairness in permitting a
right or claim to be enforced or espoused.[23]
In Soliven v. Fastforms Philippines, Inc., we thus ruled:
While it is true that jurisdiction may be raised at any time, this rule presupposes
that estoppel has not supervened. In the instant case, respondent actively
participated in all stages of the proceedings before the trial court and invoked its
authority by asking for an affirmative relief. Clearly, respondent is estopped from
challenging the trial courts jurisdiction, especially when the adverse judgment is
rendered.[24]
Participation in all stages before the trial court, that included invoking its authority
in asking for affirmative relief, effectively bars the party by estoppel from
challenging the courts jurisdiction.[25] The Court frowns upon the undesirable
practice of a party participating in the proceedings and submitting his case for
decision and then accepting the judgment, only if favorable, and attacking it for lack
of jurisdiction when adverse.[26]
We now proceed to resolve the issue of whether a forged SPA or Deed of Real Estate
Mortgage could be a source of a valid title. Settled is the fact, as found by the MTC
and as affirmed by both the RTC and the Court of Appeals, that the SPA and the
Deed of Real Estate Mortgage had been forged. Such fact is no longer disputed by
the parties. Thus, the only issue remaining to be threshed out in the instant petition
is whether the Bank of Commerce is a mortgagee in good faith. The MTC and the
RTC held that the Bank of Commerce acted in good faith in entering into the loan
transaction with Santos, while the Court of Appeals, on the other hand, ruled
otherwise.
The Bank of Commerce posits that it is a mortgagee in good faith and therefore
entitled to protection under the law. It strenuously asserts that it is an innocent
party who had no knowledge that the right of Santos to mortgage the subject
property was merely simulated.
In Cavite Development Bank v. Spouses Lim, [27] the Court explained the doctrine
of mortgagee in good faith, thus:
There is, however, a situation where, despite the fact that the mortgagor is not the
owner of the mortgaged property, his title being fraudulent, the mortgage contract
and any foreclosure sale arising there from are given effect by reason of public
policy. This is the doctrine of the mortgagee in good faith based on the rule that all
persons dealing with property covered by the Torrens Certificates of Title, as buyers
or mortgagees, are not required to go beyond what appears on the face of the title.
The public interest in upholding the indefeasibility of a certificate of title, as
evidence of lawful ownership of the land or of any encumbrance thereon, protects a
buyer or mortgagee who, in good faith, relied upon what appears on the face of the
certificate of title.

Indeed, a mortgagee has a right to rely in good faith on the certificate of title of the
mortgagor of the property given as security, and in the absence of any sign that
might arouse suspicion, the mortgagee has no obligation to undertake further
investigation. This doctrine pre-supposes, however, that the mortgagor, who is not
the rightful owner of the property, has already succeeded in obtaining Torrens title
over the property in his name and that, after obtaining the said title, he succeeds in
mortgaging the property to another who relies on what appears on the title. This is
not the situation in the case at bar since Santos was not the registered owner for he
merely represented himself to be the attorney-in-fact of the spouses San Pablo.
In cases where the mortgagee does not directly deal with the registered owner of
real property, the law requires that a higher degree of prudence be exercised by the
mortgagee. As we have enunciated in the case of Abad v. Guimba:[28]
x x x While one who buys from the registered owner does not need to look behind
the certificate of title, one who buys from one who is not a registered owner is
expected to examine not only the certificate of title but all the factual
circumstances necessary for [one] to determine if there are any flaws in the title of
the transferor, or in [the] capacity to transfer the land. Although the instant case
does not involve a sale but only a mortgage, the same rule applies inasmuch as the
law itself includes a mortgagee in the term purchaser.
This principle is applied more strenuously when the mortgagee is a bank or a
banking institution. In the case of Cruz v. Bancom Finance Corporation, We ruled:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As
such, unlike private individuals, it is expected to exercise greater care and prudence
in its dealings, including those involving registered lands. A banking institution is
expected to exercise due diligence before entering into a mortgage contract. The
ascertainment of the status or condition of a property offered to it as security for a
loan must be a standard and indispensable part of its operations.[29]
We never fail to stress the remarkable significance of a banking institution to
commercial transactions, in particular, and to the countrys economy in general. The
banking system is an indispensable institution in the modern world and plays a vital
role in the economic life of every civilized nation. Whether as mere passive entities
for the safekeeping and saving of money or as active instruments of business and
commerce, banks have become an ubiquitous presence among the people, who
have come to regard them with respect and even gratitude and, most of all,
confidence.[30] Consequently, the highest degree of diligence is expected, and high
standards of integrity and performance are even required, of it. [31]
The Bank of Commerce clearly failed to observe the required degree of caution in
ascertaining the genuineness and extent of the authority of Santos to mortgage the
subject property. It should not have simply relied on the face of the documents
submitted by Santos, as its undertaking to lend a considerable amount of money
required of it a greater degree of diligence. That the person applying for the loan is
other than the registered owner of the real property being mortgaged should have
already raised a red flag and which should have induced the Bank of Commerce to
make inquiries into and confirm Santos authority to mortgage the Spouses San

Pablos property. A person who deliberately ignores a significant fact that could
create suspicion in an otherwise reasonable person is not an innocent purchaser for
value.[32]
Having laid that the bank of Commerce is not in good faith necessitates us to award
moral damages, exemplary damages, attorneys fees and costs of litigation in favor
of the spouses San Pablo. Moral damages are not awarded to penalize the
defendant but to compensate the plaintiff for the injuries he may have suffered.[33]
Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due.[34] In
the instant case, we find that the award of moral damages is proper. The Bank of
Commerce, in allowing Santos to secure a loan out of the property belonging to the
spouses San Pablo, without taking the necessary precaution demanded by the
circumstances owing to the public policy imbued in the banking business, caused
injury to the latter which calls for the imposition of moral damages. As for the award
of exemplary damages, we deem that the same is proper for the Bank of Commerce
was remiss in its obligation to inquire into the veracity of Santos authority to
mortgage the subject property, causing damage to the spouses San Pablo.[35]
Finally, we rule that the award of attorneys fees and litigation expenses is valid
since the spouses San Pablo were compelled to litigate and thus incur expenses in
order to protect its rights over the subject property.[36]
Prescinding from the above, we thus rule that the forged SPA and Deed of Real
Estate Mortgage is void ab initio. Consequently, the foreclosure proceedings
conducted on the strength of the said SPA and Deed of Real Estate Mortgage, is
likewise void ab initio. Since the Bank of Commerce is not a mortgagee in good faith
or an innocent purchaser for value on the auction sale, it is not entitled to the
protection of its rights to the subject property. Considering further that it was not
shown that the Bank of Commerce has already transferred the subject property to a
third person who is an innocent purchaser for value (since no intervention or thirdparty claim was interposed during the pendency of this case), it is but proper that
the subject property should be retained by the Spouses San Pablo.
WHEREFORE, in view of the foregoing, the instant petition is DENIED. The Decision
dated 10 September 2004 rendered by the Court of Appeals in CA-G.R. SP No.
76562, is hereby AFFIRMED. The SPA, the Deed of Real Estate Mortgage, and the
Foreclosure Proceedings conducted in pursuant to said deed, are hereby declared
VOID AB INITIO. The Register of Deeds of Mandaue City is hereby DIRECTED to
cancel Entry Nos. 9089-V.9-D.B and 9084-V.9-D.B annotated on TCT No.-(26469)7561 in the name of Natividad Opolontesima San Pablo. The Bank of Commerce is
hereby ORDERED to pay the spouses San Pablo P50,000.00 as moral damages,
P25,000.00 as exemplary damages, P20,000.00 as attorneys fees and P20,000.00
as litigation expenses. Cost against the petitioner.
SO ORDERED.

FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE ASSURANCE, INC.),

Petitioner,
G.R. No. 159489
Present:

- versus QUISUMBING, J., Chairperson,

CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
CLEMENTE N. PEDROSO,
TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her Attorney-in-Fact
PONCIANO C. MARQUEZ,
Respondents.

Promulgated:
February 4, 2008
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DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the Decision[1] 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
Decision[3] 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:
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 for P800 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
P49,550[9] 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.
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
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.

ALFRED HAHN, petitioner, vs. COURT OF APPEALS and BAYERISCHE MOTOREN

WERKE AKTIENGESELLSCHAFT (BMW), respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision[1] of the Court of Appeals dismissing a
complaint for specific performance which petitioner had filed against private
respondent on the ground that the Regional Trial Court of Quezon City did not
acquire jurisdiction over private respondent, a nonresident foreign corporation, and
of the appellate court's order denying petitioner's motion for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style
"Hahn-Manila." On the other hand, private respondent Bayerische Motoren Werke
Aktiengesellschaft (BMW) is a nonresident foreign corporation existing under the
laws of the former Federal Republic of Germany, with principal office at Munich,
Germany.
On March 7, 1967, petitioner executed in favor of private respondent a "Deed of
Assignment with Special Power of Attorney," which reads in full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark
and device in the Philippines which ASSIGNOR uses and has been using on the
products manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized
exclusive Dealer of the ASSIGNEE in the Philippines, the same being evidenced by
certificate of registration issued by the Director of Patents on 12 December 1963
and is referred to as Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said
transfer of the said BMW trademark and device in favor of the ASSIGNEE herein with
the Philippines Patent Office;
NOW THEREFORE, in view of the foregoing and in consideration of the stipulations
hereunder stated, the ASSIGNOR hereby affirms the said assignment and transfer in
favor of the ASSIGNEE under the following terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user other than
ASSIGNOR or infringer of the BMW trademark in the Philippines, for such purpose,
the ASSIGNOR shall inform the ASSIGNEE immediately of any such use or
infringement of the said trademark which comes to his knowledge and upon such
information the ASSIGNOR shall automatically act as Attorney-In-Fact of the
ASSIGNEE for such case, with full power, authority and responsibility to prosecute
unilaterally or in concert with ASSIGNEE, any such infringer of the subject mark and
for purposes hereof the ASSIGNOR is hereby named and constituted as ASSIGNEE's
Attorney-In-Fact, but any such suit without ASSIGNEE's consent will exclusively be
the responsibility and for the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has
been usual in the past without a formal contract, and for that purpose, the

dealership of ASSIGNOR shall cover the ASSIGNEE's complete production program

with the only limitation that, for the present, in view of ASSIGNEE's limited
production, the latter shall not be able to supply automobiles to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has been usual in
the past without a formal contract." But on February 16, 1993, in a meeting with a
BMW representative and the president of Columbia Motors Corporation (CMC), Jose
Alvarez, petitioner was informed that BMW was arranging to grant the exclusive
dealership of BMW cars and products to CMC, which had expressed interest in
acquiring the same. On February 24, 1993, petitioner received confirmation of the
information from BMW which, in a letter, expressed dissatisfaction with various
aspects of petitioner's business, mentioning among other things, decline in sales,
deteriorating services, and inadequate showroom and warehouse facilities, and
petitioner's alleged failure to comply with the standards for an exclusive BMW
dealer.[2] Nonetheless, BMW expressed willingness to continue business relations
with the petitioner on the basis of a "standard BMW importer" contract, otherwise, it
said, if this was not acceptable to petitioner, BMW would have no alternative but to
terminate petitioner's exclusive dealership effective June 30, 1993.
Petitioner protested, claiming that the termination of his exclusive dealership would
be a breach of the Deed of Assignment.[3] Hahn insisted that as long as the
assignment of its trademark and device subsisted, he remained BMW's exclusive
dealer in the Philippines because the assignment was made in consideration of the
exclusive dealership. In the same letter petitioner explained that the decline in sales
was due to lower prices offered for BMW cars in the United States and the fact that
few customers returned for repairs and servicing because of the durability of BMW
parts and the efficiency of petitioner's service.
Because of Hahn's insistence on the former business relation, BMW withdrew on
March 26, 1993 its offer of a "standard importer contract" and terminated the
exclusive dealer relationship effective June 30, 1993.[4] At a conference of BMW
Regional Importers held on April 26, 1993 in Singapore, Hahn was surprised to find
Alvarez among those invited from the Asian region. On April 29, 1993, BMW
proposed that Hahn and CMC jointly import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for
specific performance and damages against BMW to compel it to continue the
exclusive dealership. Later he filed an amended complaint to include an application
for temporary restraining order and for writs of preliminary, mandatory and
prohibitory injunction to enjoin BMW from terminating his exclusive dealership.
Hahn's amended complaint alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the Philippines with
principal offices at Munich, Germany. It may be served with summons and other
court processes through the Secretary of the Department of Trade and Industry of
the Philippines. . . .
....

5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of

Assignment with Special Power of Attorney covering the trademark and in
consideration thereof, under its first whereas clause, Plaintiff was duly
acknowledged as the "exclusive Dealer of the Assignee in the Philippines" . . . .
....
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in
the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA"
and without any monetary contribution from defendant BMW, established BMW's
goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff has
invested a lot of money and resources in order to single-handedly compete against
other motorcycle and car companies .... Moreover, Plaintiff has built buildings and
other infrastructures such as service centers and showrooms to maintain and
promote the car and products of defendant BMW.
....
10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was
willing to maintain with Plaintiff a relationship but only "on the basis of a standard
BMW importer contract as adjusted to reflect the particular situation in the
Philippines" subject to certain conditions, otherwise, defendant BMW would
terminate Plaintiff's exclusive dealership and any relationship for cause effective
June 30, 1993. . . .
....
15. The actuations of defendant BMW are in breach of the assignment agreement
between itself and plaintiff since the consideration for the assignment of the BMW
trademark is the continuance of the exclusive dealership agreement. It thus, follows
that the exclusive dealership should continue for so long as defendant BMW enjoys
the use and ownership of the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104 of
the Quezon City Regional Trial Court, which on June 14, 1993 issued a temporary
restraining order. Summons and copies of the complaint and amended complaint
were thereafter served on the private respondent through the Department of Trade
and Industry, pursuant to Rule 14, 14 of the Rules of Court. The order, summons and
copies of the complaint and amended complaint were later sent by the DTI to BMW
via registered mail on June 15, 1993[5] and received by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the application
for the writ of preliminary injunction proceeded ex parte, with petitioner Hahn
testifying. On June 30, 1993, the trial court issued an order granting the writ of
preliminary injunction upon the filing of a bond of P100,000.00. On July 13, 1993,
following the posting of the required bond, a writ of preliminary injunction was
issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did
not acquire jurisdiction over it through the service of summons on the Department

of Trade and Industry, because it (BMW) was a foreign corporation and it was not
doing business in the Philippines. It contended that the execution of the Deed of
Assignment was an isolated transaction; that Hahn was not its agent because the
latter undertook to assemble and sell BMW cars and products without the
participation of BMW and sold other products; and that Hahn was an indentor or
middleman transacting business in his own name and for his own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business
in the Philippines through him as its agent, as shown by the fact that BMW invoices
and order forms were used to document his transactions; that he gave warranties as
exclusive BMW dealer; that BMW officials periodically inspected standards of service
rendered by him; and that he was described in service booklets and international
publications of BMW as a "BMW Importer" or "BMW Trading Company" in the
Philippines.
The trial court[6] deferred resolution of the Motion to dismiss until after trial on the
merits for the reason that the grounds advanced by BMW in its motion did not seem
to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed a petition
for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE
INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE WRIT OF
PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE TERMS FOR THE ISSUANCE
THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING RESOLUTION OF THE
MOTION TO DISMISS ON THE GROUND OF LACK OF JURISDICTION, AND THEREBY
FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order and, after
hearing, for a writ of preliminary injunction, to enjoin the trial court from proceeding
further in Civil Case No. Q-93-15933. Private respondent pointed out that, unless the
trial court's order was set aside, it would be forced to submit to the jurisdiction of
the court by filing its answer or to accept judgment in default, when the very
question was whether the court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's complaint. On
December 20, 1993, it rendered judgment finding the trial court guilty of grave
abuse of discretion in deferring resolution of the motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court before it came out
with its questioned order of July 26, 1993, we rule and so hold that petitioner's
(BMW) motion to dismiss could be resolved then and there, and that the respondent
judge's deferment of his action thereon until after trial on the merit constitutes, to
our mind, grave abuse of discretion.
....

. . . [T]here is not much appreciable disagreement as regards the factual matters

relating, to the motion to dismiss. What truly divide (sic) the parties and to which
they greatly differ is the legal conclusions they respectively draw from such facts,
(sic) with Hahn maintaining that on the basis thereof, BMW is doing business in the
Philippines while the latter asserts that it is not.
Then, after stating that any ruling which the trial court might make on the motion to
dismiss would anyway be elevated to it on appeal, the Court of Appeals itself
resolved the motion. It ruled that BMW was not doing business in the country and,
therefore, jurisdiction over it could not be acquired through service of summons on
the DTI pursuant to Rule 14, Section 14. The court upheld private respondent's
contention that Hahn acted in his own name and for his own account and
independently of BMW, based on Alfred Hahn's allegations that he had invested his
own money and resources in establishing BMW's goodwill in the Philippines and on
BMW's claim that Hahn sold products other than those of BMW. It held that
petitioner was a mere indentor or broker and not an agent through whom private
respondent BMW transacted business in the Philippines. Consequently, the Court of
Appeals dismissed petitioner's complaint against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in finding
that the trial court gravely abused its discretion in deferring action on the motion to
dismiss and (2) in finding that private respondent BMW is not doing business in the
Philippines and, for this reason, dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon foreign corporations. If the defendant is a foreign corporation, or a
nonresident joint stock company or association, doing business in the Philippines,
service may be made on its resident agent designated in accordance with law for
that purpose, or, if there be no such agent, on the government official designated
by law to that effect, or on any of its officers or agents within the Philippines.
(Emphasis added)
What acts are considered "doing business in the Philippines" are enumerated in 3(d)
of the Foreign Investments Act of 1991 (R.A. No. 7042) as follows:[7]
d) the phrase "doing business" shall include soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches, appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods totalling one hundred eighty (180)
days or more; participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and any other act
or acts that imply a continuity of commercial dealings or arrangements and
contemplate to that extent the performance of acts or works, or the exercise of
some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization:
Provided, however, That the phrase "doing business" shall not be deemed to include
mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor; nor having,
a nominee director or officer to represent its interests in such corporation; nor

appointing a representative or distributor domiciled in the Philippines which

transacts business in its own name and for its own account. (Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors in the
Philippines" but not when the representative or distributor "transacts business in its
name and for its own account." In addition, Section 1(f)(1) of the Rules and
Regulations implementing (IRR) the Omnibus Investment Code of 1987 (E.O. No.
226) provided:
(f) "Doing business" shall be any act or combination of acts, enumerated in Article
44 of the Code. In particular, "doing business" includes:
(1).... A foreign firm which does business through middlemen acting in their own
names, such as indentors, commercial brokers or commission merchants, shall not
be deemed doing business in the Philippines. But such indentors, commercial
brokers or commission merchants shall be the ones deemed to be doing business in
the Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor in the
Philippines of private respondent BMW. If he is, BMW may be considered doing
business in the Philippines and the trial court acquired jurisdiction over it (BMW) by
virtue of the service of summons on the Department of Trade and Industry.
Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of
BMW cars and products, BMW, a foreign corporation, is not considered doing
business in the Philippines within the meaning of the Foreign Investments Act of
1991 and the IRR, and the trial court did not acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for
his own account and not as agent or distributor in the Philippines of BMW on the
ground that "he alone had contacts with individuals or entities interested in
acquiring BMW vehicles. Independence characterizes Hahn's undertakings, for
which reason he is to be considered, under governing statutes, as doing business."
(p. 13) In support of this conclusion, the appellate court cited the following
allegations in Hahn's amended complaint:
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in
the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA"
and without any monetary contributions from defendant BMW; established BMW's
goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff invested
a lot of money and resources in order to single-handedly compete against other
motorcycle and car companies.... Moreover, Plaintiff has built buildings and other
infrastructures such as service centers and showrooms to maintain and promote the
car and products of defendant BMW.
As the above quoted allegations of the amended complaint show, however, there is
nothing to support the appellate court's finding that Hahn solicited orders alone and
for his own account and without "interference from, let alone direction of, BMW." (p.
13) To the contrary, Hahn claimed he took orders for BMW cars and transmitted
them to BMW. Upon receipt of the orders, BMW fixed the down payment and pricing
charges, notified Hahn of the scheduled production month for the orders, and

reconfirmed the orders by signing and returning to Hahn the acceptance sheets.
Payment was made by the buyer directly to BMW. Title to cars purchased passed
directly to the buyer and Hahn never paid for the purchase price of BMW cars sold
in the Philippines. Hahn was credited with a commission equal to 14% of the
purchase price upon the invoicing of a vehicle order by BMW. Upon confirmation in
writing that the vehicles had been registered in the Philippines and serviced by him,
Hahn received an additional 3% of the full purchase price. Hahn performed aftersale services, including, warranty services, for which he received reimbursement
from BMW. All orders were on invoices and forms of BMW.[8]
These allegations were substantially admitted by BMW which, in its petition for
certiorari before the Court of Appeals, stated:[9]
9.4. As soon as the vehicles are fully manufactured and full payment of the
purchase prices are made, the vehicles are shipped to the Philippines. (The
payments may be made by the purchasers or third-persons or even by Hahn.) The
bills of lading are made up in the name of the purchasers, but Hahn-Manila is
therein indicated as the person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of
conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the
purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a
commission of fourteen percent (14%) of the full purchase price thereof, and as
soon as he confirms in writing, that the vehicles have been registered in the
Philippines and have been serviced by him, he will receive an additional three
percent (3%) of the full purchase prices as commission.
Contrary to the appellate court's conclusion, this arrangement shows an agency. An
agent receives a commission upon the successful conclusion of a sale. On the other
hand, a broker earns his pay merely by bringing the buyer and the seller together,
even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at his own
expense, Hahn said that he had to follow BMW specifications as exclusive dealer of
BMW in the Philippines. According to Hahn, BMW periodically inspected the service
centers to see to it that BMW standards were maintained. Indeed, it would seem
from BMW's letter to Hahn that it was for Hahn's alleged failure to maintain BMW
standards that BMW was terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service centers and
showrooms does not necessarily prove that he is not an agent of BMW. For as
already noted, there are facts in the record which suggest that BMW exercised
control over Hahn's activities as a dealer and made regular inspections of Hahn's
premises to enforce compliance with BMW standards and specifications.[10] For
example, in its letter to Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions and letters that
we have to tackle the Philippine market more professionally and that we are through

your present activities not adequately prepared to cope with the forthcoming
challenges.[11]
In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of Appeals,
[12] in which the foreign corporation entered into a "Representative Agreement"
and a "Licensing Agreement" with a domestic corporation, by virtue of which the
latter was appointed "exclusive representative" in the Philippines for a stipulated
commission. Pursuant to these contracts, the domestic corporation sold products
exported by the foreign corporation and put up a service center for the products
sold locally. This Court held that these acts constituted doing business in the
Philippines. The arrangement showed that the foreign corporation's purpose was to
penetrate the Philippine market and establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive distributor in the
Philippines, even as it announced in the Asian region that Hahn was the "official
BMW agent" in the Philippines.[13]
The Court of Appeals also found that petitioner Alfred Hahn dealt in other products,
and not exclusively in BMW products, and, on this basis, ruled that Hahn was not an
agent of BMW. (p. 14) This finding is based entirely on allegations of BMW in its
motion to dismiss filed in the trial court and in its petition for certiorari before the
Court of Appeals.[14] But this allegation was denied by Hahn[15] and therefore the
Court of Appeals should not have cited it as if it were the fact.
Indeed this is not the only factual issue raised, which should have indicated to the
Court of Appeals the necessity of affirming the trial court's order deferring resolution
of BMW's motion to dismiss. Petitioner alleged that whether or not he is considered
an agent of BMW, the fact is that BMW did business in the Philippines because it
sold cars directly to Philippine buyers. [16] This was denied by BMW, which claimed
that Hahn was not its agent and that, while it was true that it had sold cars to
Philippine buyers, this was done without solicitation on its part.[17]
It is not true then that the question whether BMW is doing business could have been
resolved simply by considering the parties' pleadings. There are genuine issues of
facts which can only be determined on the basis of evidence duly presented. BMW
cannot short circuit the process on the plea that to compel it to go to trial would be
to deny its right not to submit to the jurisdiction of the trial court which precisely it
denies. Rule 16, 3 authorizes courts to defer the resolution of a motion to dismiss
until after the trial if the ground on which the motion is based does not appear to be
indubitable. Here the record of the case bristles with factual issues and it is not at
all clear whether some allegations correspond to the proof.
Anyway, private respondent need not apprehend that by responding to the
summons it would be waiving its objection to the trial court's jurisdiction. It is now
settled that. for purposes of having summons served on a foreign corporation in
accordance with Rule 14, 14, it is sufficient that it be alleged in the complaint that
the foreign corporation is doing business in the Philippines. The court need not go
beyond the allegations of the complaint in order to determine whether it has

jurisdiction.[18] A determination that the foreign corporation is doing business is

only tentative and is made only for the purpose of enabling the local court to
acquire jurisdiction over the foreign corporation through service of summons
pursuant to Rule 14, 14. Such determination does not foreclose a contrary finding
should evidence later show that it is not transacting business in the country. As this
Court has explained:
This is not to say, however, that the petitioner's right to question the jurisdiction of
the court over its person is now to be deemed a foreclosed matter. If it is true, as
Signetics claims, that its only involvement in the Philippines was through a passive
investment in Sigfil, which it even later disposed of, and that TEAM Pacific is not its
agent, then it cannot really be said to be doing business in the Philippines. It is a
defense, however, that requires the contravention of the allegations of the
complaint, as well as a full ventilation, in effect, of the main merits of the case,
which should not thus be within the province of a mere motion to dismiss. So, also,
the issue posed by the petitioner as to whether a foreign corporation which has
done business in the country, but which has ceased to do business at the time of
the filing, of a complaint, can still be made to answer for a cause of action which
accrued while it was doing, business, is another matter that would yet have to await
the reception and admission of evidence. Since these points have seasonably been
raised by the petitioner, there should be no real cause for what may understandably
be its apprehension, i.e., that by its participation during the trial on the merits, it
may, absent an invocation of separate or independent reliefs of its own, be
considered to have voluntarily submitted itself to the court's jurisdiction.[19]
Far from committing an abuse of discretion, the trial court properly deferred
resolution of the motion to dismiss and thus avoided prematurely deciding a
question which requires a factual basis, with the same result if it had denied the
motion and conditionally assumed jurisdiction. It is the Court of Appeals which, by
ruling that BMW is not doing business on the basis merely of uncertain allegations in
the pleadings, disposed of the whole case with finality and thereby deprived
petitioner of his right to be heard on his cause of action. Nor was there justification
for nullifying the writ of preliminary injunction issued by the trial court. Although the
injunction was issued ex parte, the fact is that BMW was subsequently heard on its
defense by filing a motion to dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is
REMANDED to the trial court for further proceedings.
SO ORDERED.