G.R. No. 156262 July 14, 2005 "1. The sum of P1,750,050.
1. The sum of P1,750,050.00, with interests from
MARIA TUAZON, ALEJANDRO P. TUAZON,
MELECIO P. TUAZON, Spouses ANASTACIO and
MARY T. BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.
DECISION
PANGANIBAN, J.:
Stripped of nonessentials, the present case
involves the collection of a sum of money.
Specifically, this case arose from the failure of
petitioners to pay respondents predecessor-in-
interest. This fact was shown by the non-
encashment of checks issued by a third person, but
indorsed by herein Petitioner Maria Tuazon in favor
of the said predecessor. Under these
circumstances, to enable respondents to collect on
the indebtedness, the check drawer need not be
impleaded in the Complaint. Thus, the suit is
directed, not against the drawer, but against the
debtor who indorsed the checks in payment of the
obligation.
The Case
Before us is a Petition for Review1 under Rule 45 of
the Rules of Court, challenging the July 31, 2002
Decision2 of the Court of Appeals (CA) in CA-GR CV
No. 46535. The decretal portion of the assailed
Decision reads:
"WHEREFORE, the appeal is DISMISSED and the
appealed decision is AFFIRMED."
On the other hand, the affirmed Decision 3 of Branch
34 of the Regional Trial Court (RTC) of Gapan,
Nueva Ecija, disposed as follows:
"WHEREFORE, judgment is hereby rendered in
favor of the plaintiffs and against the defendants,
ordering the defendants spouses Leonilo Tuazon
and Maria Tuazon to pay the plaintiffs, as follows:
a son of spouses Tuazon, registered a fictitious
the filing of the second amended complaint;
"2. The sum of P50,000.00, as attorneys fees;
"3. The sum of P20,000.00, as moral damages
"4. And to pay the costs of suit.
x x x x x x x x x"4
The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of
May 2, 1988 and June 5, 1988, spouses Leonilo and
Maria Tuazon purchased a total of 8,326 cavans of
rice from [the deceased Bartolome] Ramos
[predecessor-in-interest of respondents]. That of
this [quantity,] x x x only 4,437 cavans [have been
paid for so far], leaving unpaid 3,889 cavans
valued at P1,211,919.00. In payment therefor, the
spouses Tuazon issued x x x [several] Traders Royal
Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of
the checks bounced due to insufficiency of funds.
[Respondents] advanced that before issuing said
checks[,] spouses Tuazon already knew that they
had no available fund to support the checks, and
they failed to provide for the payment of these
despite repeated demands made on them.
"[Respondents] averred that because spouses
Tuazon anticipated that they would be sued, they
conspired with the other [defendants] to defraud
them as creditors by executing x x x fictitious sales
of their properties. They executed x x x simulated
sale[s] [of three lots] in favor of the x x x spouses
Buenaventura x x x[,] as well as their residential lot
and the house thereon[,] all located at Nueva Ecija,
and another simulated deed of sale dated July 12,
1988 of a Stake Toyota registered with the Land
Transportation Office of Cabanatuan City on
September 7, 1988. [Co-petitioner] Melecio Tuazon,
Deed of Sale on July 19, 1988 x x x over a
residential lot located at Nueva Ecija. Another
simulated sale of a Toyota Willys was executed on
January 25, 1988 in favor of their other son, [co-
petitioner] Alejandro Tuazon x x x. As a result of the
said sales, the titles of these properties issued in
the names of spouses Tuazon were cancelled and
new ones were issued in favor of the
[co-]defendants spouses Buenaventura, Alejandro
Tuazon and Melecio Tuazon. Resultantly, by the said
ante-dated and simulated sales and the
corresponding transfers there was no more
property left registered in the names of spouses
Tuazon answerable to creditors, to the damage and
prejudice of [respondents].
"For their part, defendants denied having
purchased x x x rice from [Bartolome] Ramos. They
alleged that it was Magdalena Ramos, wife of said
deceased, who owned and traded the merchandise
and Maria Tuazon was merely her agent. They
argued that it was Evangeline Santos who was the
buyer of the rice and issued the checks to Maria
Tuazon as payments therefor. In good faith[,] the
checks were received [by petitioner] from
Evangeline Santos and turned over to Ramos
without knowing that these were not funded. And it
is for this reason that [petitioners] have been
insisting on the inclusion of Evangeline Santos as
an indispensable party, and her non-inclusion was
a fatal error. Refuting that the sale of several
properties were fictitious or simulated, spouses
Tuazon contended that these were sold because
they were then meeting financial difficulties but the
disposals were made for value and in good faith
and done before the filing of the instant suit. To
dispute the contention of plaintiffs that they were
the buyers of the rice, they argued that there was
no sales invoice, official receipts or like evidence to
prove this. They assert that they were merely
agents and should not be held answerable."5
The corresponding civil and criminal cases were
filed by respondents against Spouses Tuazon.
Those cases were later consolidated and amended
to include Spouses Anastacio and Mary
Buenaventura, with Alejandro Tuazon and Melecio
Tuazon as additional defendants. Having passed
away before the pretrial, Bartolome Ramos was
substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an
indispensable party in the case, petitioners moved
to file a third-party complaint against her.
Allegedly, she was primarily liable to respondents,
because she was the one who had purchased the
merchandise from their predecessor, as evidenced
by the fact that the checks had been drawn in her
name. The RTC, however, denied petitioners
Motion.
Since the trial court acquitted petitioners in all
three of the consolidated criminal cases, they
appealed only its decision finding them civilly liable
to respondents.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioners
had failed to prove the existence of an agency
between respondents and Spouses Tuazon. The
appellate court disbelieved petitioners contention
that Evangeline Santos should have been
impleaded as an indispensable party. Inasmuch as
all the checks had been indorsed by Maria Tuazon,
who thereby became liable to subsequent holders
for the amounts stated in those checks, there was
no need to implead Santos.
Hence, this Petition.6
Issues
Petitioners raise the following issues for our
consideration:
"1. Whether or not the Honorable Court of Appeals
erred in ruling that petitioners are not agents of the
respondents.
"2. Whether or not the Honorable Court of Appeals
erred in rendering judgment against the petitioners
despite x x x the failure of the respondents to
include in their action Evangeline Santos, an
indispensable party to the suit."7
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Agency
Well-entrenched is the rule that the Supreme
Courts role in a petition under Rule 45 is limited to
reviewing errors of law allegedly committed by the
Court of Appeals. Factual findings of the trial court,
especially when affirmed by the CA, are conclusive
on the parties and this Court. 8 Petitioners have not
given us sufficient reasons to deviate from this
rule.
In a contract of agency, one binds oneself to render
some service or to do something in representation
or on behalf of another, with the latters consent or
authority.9 The following are the elements of
agency: (1) the partiesconsent, express or implied,
to establish the relationship; (2) the object, which is
the execution of a juridical act in relation to a third
person; (3) the representation, by which the one
who acts as an agent does so, not for oneself, but
as a representative; (4) the limitation that the
agent acts within the scope of his or her
authority.10 As the basis of agency is
representation, there must be, on the part of the
principal, an actual intention to appoint, an
intention naturally inferable from the principals
words or actions. In the same manner, there must
be an intention on the part of the agent to accept
the appointment and act upon it. Absent such
mutual intent, there is generally no agency.11
This Court finds no reversible error in the findings
of the courts a quo that petitioners were the rice
buyers themselves; they were not mere agents of
respondents in their rice dealership. The question
of whether a contract is one of sale or of agency
depends on the intention of the parties.12
The declarations of agents alone are generally
insufficient to establish the fact or extent of their
authority.13 The law makes no presumption of
agency; proving its existence, nature and extent is
incumbent upon the person alleging it.14 In the
present case, petitioners raise the fact of agency as
an affirmative defense, yet fail to prove its
existence.
The Court notes that petitioners, on their own
behalf, sued Evangeline Santos for collection of the
amounts represented by the bounced checks, in a
separate civil case that they sought to be
consolidated with the current one. If, as they claim,
they were mere agents of respondents, petitioners
should have brought the suit against Santos for and
on behalf of their alleged principal, in accordance
with Section 2 of Rule 3 of the Rules on Civil
Procedure.15 Their filing a suit against her in their
own names negates their claim that they acted as
mere agents in selling the rice obtained from
Bartolome Ramos.
Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not
allowing Evangeline Santos to be impleaded as an
indispensable party. They insist that respondents
Complaint against them is based on the bouncing
checks she issued; hence, they point to her as the
person primarily liable for the obligation.
We hold that respondents cause of action is clearly
founded on petitioners failure to pay the purchase
price of the rice. The trial court held that Petitioner
Maria Tuazon had indorsed the questioned checks
in favor of respondents, in accordance with
Sections 31 and 63 of the Negotiable Instruments
Law.16 That Santos was the drawer of the checks is
thus immaterial to the respondents cause of
action.
As indorser, Petitioner Maria Tuazon warranted that
upon due presentment, the checks were to be
accepted or paid, or both, according to their
tenor; and that in case they were dishonored, she
would pay the corresponding amount.17 After an
instrument is dishonored by nonpayment, indorsers
cease to be merely secondarily liable; they become
principal debtors whose liability becomes identical
to that of the original obligor. The holder of a
negotiable instrument need not even proceed
against the maker before suing the
indorser.18 Clearly, Evangeline Santos -- as the
drawer of the checks -- is not an indispensable
party in an action against Maria Tuazon, the
indorser of the checks.
Indispensable parties are defined as "parties in
interest without whom no final determination can
be had."19 The instant case was originally one for
the collection of the purchase price of the rice
bought by Maria Tuazon from respondents
predecessor. In this case, it is clear that there is no
privity of contract between respondents and
Santos. Hence, a final determination of the rights
and interest of the parties may be made without
any need to implead her.

WHEREFORE, the Petition is DENIED and the

assailed Decision AFFIRMED. Costs against
petitioners.

SO ORDERED.
G.R. No. 117356 June 19, 2000
VICTORIAS MILLING CO., INC., petitioner,
vs.
COURT OF APPEALS and CONSOLIDATED
SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under
Rule 45 of the Rules of Court assailing the decision
of the Court of Appeals dated February 24, 1994, in
CA-G.R. CV No. 31717, as well as the respondent
court's resolution of September 30, 1994 modifying
said decision. Both decision and resolution
amended the judgment dated February 13, 1991,
of the Regional Trial Court of Makati City, Branch
147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and
appellate courts are as follows:
St. Therese Merchandising (hereafter STM)
regularly bought sugar from petitioner Victorias
Milling Co., Inc., (VMC). In the course of their
dealings, petitioner issued several Shipping
List/Delivery Receipts (SLDRs) to STM as proof of
purchases. Among these was SLDR No. 1214M,
which gave rise to the instant case. Dated October
16, 1989, SLDR No. 1214M covers 25,000 bags of
sugar. Each bag contained 50 kilograms and priced
at P638.00 per bag as "per sales order VMC
Marketing No. 042 dated October 16, 1989." 1 The
transaction it covered was a "direct sale." 2 The
SLDR also contains an additional note which reads:
"subject for (sic) availability of a (sic) stock at
NAWACO (warehouse)."3
On October 25, 1989, STM sold to private
respondent Consolidated Sugar Corporation (CSC)
its rights in SLDR No. 1214M for P 14,750,000.00.
CSC issued one check dated October 25, 1989 and
three checks postdated November 13, 1989 in
payment. That same day, CSC wrote petitioner that
it had been authorized by STM to withdraw the
sugar covered by SLDR No. 1214M. Enclosed in the
letter were a copy of SLDR No. 1214M and a letter
of authority from STM authorizing CSC "to withdraw
for and in our behalf the refined sugar covered by
Shipping List/Delivery Receipt-Refined Sugar (SDR)
No. 1214 dated October 16, 1989 in the total
quantity of 25,000 bags."4
On October 27, 1989, STM issued 16 checks in the
total amount of P31,900,000.00 with petitioner as
payee. The latter, in turn, issued Official Receipt
No. 33743 dated October 27, 1989 acknowledging
receipt of the said checks in payment of 50,000
bags. Aside from SLDR No. 1214M, said checks also
covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No.
1214M to the petitioner's NAWACO warehouse and
was allowed to withdraw sugar. However, after
2,000 bags had been released, petitioner refused
to allow further withdrawals of sugar against SLDR
No. 1214M. CSC then sent petitioner a letter dated
January 23, 1990 informing it that SLDR No. 1214M
had been "sold and endorsed" to it but that it had
been refused further withdrawals of sugar from
petitioner's warehouse despite the fact that only
2,000 bags had been withdrawn.5 CSC thus
inquired when it would be allowed to withdraw the
remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could
not allow any further withdrawals of sugar against
SLDR No. 1214M because STM had already
dwithdrawn all the sugar covered by the cleared
checks.6
On March 2, 1990, CSC sent petitioner a letter
demanding the release of the balance of 23,000
bags.
Seven days later, petitioner reiterated that all the
sugar corresponding to the amount of STM's
cleared checks had been fully withdrawn and
hence, there would be no more deliveries of the
commodity to STM's account. Petitioner also noted
that CSC had represented itself to be STM's agent
as it had withdrawn the 2,000 bags against SLDR
No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific
performance, docketed as Civil Case No. 90-1118.
Defendants were Teresita Ng Sy (doing business
under the name of St. Therese Merchandising) and
herein petitioner. Since the former could not be
served with summons, the case proceeded only
against the latter. During the trial, it was
discovered that Teresita Ng Go who testified for
CSC was the same Teresita Ng Sy who could not be
reached through summons.7 CSC, however, did not
bother to pursue its case against her, but instead
used her as its witness.
CSC's complaint alleged that STM had fully paid
petitioner for the sugar covered by SLDR No.
1214M. Therefore, the latter had no justification for
refusing delivery of the sugar. CSC prayed that
petitioner be ordered to deliver the 23,000 bags
covered by SLDR No. 1214M and sought the award
of P1,104,000.00 in unrealized profits,
P3,000,000.00 as exemplary damages,
P2,200,000.00 as attorney's fees and litigation
expenses.
Petitioner's primary defense a quo was that it was
an unpaid seller for the 23,000 bags.8 Since STM
had already drawn in full all the sugar
corresponding to the amount of its cleared checks,
it could no longer authorize further delivery of
sugar to CSC. Petitioner also contended that it had
no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had
issued, were not documents of title, but mere
delivery receipts issued pursuant to a series of
transactions entered into between it and STM. The
SLDRs prescribed delivery of the sugar to the party
specified therein and did not authorize the transfer
of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the
SLDR and was actually STM's co-conspirator to
defraud it through a misrepresentation that CSC
was an innocent purchaser for value and in good
faith. Petitioner then prayed that CSC be ordered to
pay it the following sums: P10,000,000.00 as moral
damages; P10,000,000.00 as exemplary damages;
and P1,500,000.00 as attorney's fees. Petitioner
also prayed that cross-defendant STM be ordered
to pay it P10,000,000.00 in exemplary damages,
and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the
trial court heard the case on the merits.
As earlier stated, the trial court rendered its
judgment favoring private respondent CSC, as
follows:
"WHEREFORE, in view of the foregoing, the Court
hereby renders judgment in favor of the plaintiff
and against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling
Company to deliver to the plaintiff 23,000
bags of refined sugar due under SLDR No.
1214;
"2) Ordering defendant Victorias Milling
Company to pay the amount of
P920,000.00 as unrealized profits, the
amount of P800,000.00 as exemplary
damages and the amount of
P1,357,000.00, which is 10% of the
acquisition value of the undelivered bags
of refined sugar in the amount of
P13,570,000.00, as attorney's fees, plus
the costs.
"SO ORDERED."9
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng
Go, that she had fully paid the purchase price of
P15,950,000.00 of the 25,000 bags of sugar bought
by her covered by SLDR No. 1214 as well as the
purchase price of P15,950,000.00 for the 25,000
bags of sugar bought by her covered by SLDR No.
1213 on the same date, October 16, 1989 (date of
the two SLDRs) is duly supported by Exhibits C to
C-15 inclusive which are post-dated checks dated
October 27, 1989 issued by St. Therese
Merchandising in favor of Victorias Milling Company
at the time it purchased the 50,000 bags of sugar
covered by SLDR No. 1213 and 1214. Said checks
appear to have been honored and duly credited to
the account of Victorias Milling Company because
on October 27, 1989 Victorias Milling Company
issued official receipt no. 34734 in favor of St.
Therese Merchandising for the amount of
P31,900,000.00 (Exhibits B and B-1). The testimony
of Teresita Ng Go is further supported by Exhibit F,
which is a computer printout of defendant Victorias
Milling Company showing the quantity and value of
the purchases made by St. Therese Merchandising,
the SLDR no. issued to cover the purchase, the
official reciept no. and the status of payment. It is
clear in Exhibit 'F' that with respect to the sugar
covered by SLDR No. 1214 the same has been fully
paid as indicated by the word 'cleared' appearing
under the column of 'status of payment.'
"On the other hand, the claim of defendant
Victorias Milling Company that the purchase price
of the 25,000 bags of sugar purchased by St.
Therese Merchandising covered by SLDR No. 1214
has not been fully paid is supported only by the
testimony of Arnulfo Caintic, witness for defendant
Victorias Milling Company. The Court notes that the
testimony of Arnulfo Caintic is merely a sweeping
barren assertion that the purchase price has not
been fully paid and is not corroborated by any
positive evidence. There is an insinuation by
Arnulfo Caintic in his testimony that the postdated
checks issued by the buyer in payment of the
purchased price were dishonored. However, said
witness failed to present in Court any dishonored
check or any replacement check. Said witness
likewise failed to present any bank record showing
that the checks issued by the buyer, Teresita Ng
Go, in payment of the purchase price of the sugar
covered by SLDR No. 1214 were dishonored." 10
Petitioner appealed the trial courts decision to the
Court of Appeals.
On appeal, petitioner averred that the dealings
between it and STM were part of a series of
transactions involving only one account or one
general contract of sale. Pursuant to this contract,
STM or any of its authorized agents could withdraw
bags of sugar only against cleared checks of STM.
SLDR No. 21214M was only one of 22 SLDRs issued
to STM and since the latter had already withdrawn
its full quota of sugar under the said SLDR, CSC
was already precluded from seeking delivery of the
23,000 bags of sugar.
Private respondent CSC countered that the sugar
purchases involving SLDR No. 1214M were
separate and independent transactions and that
the details of the series of purchases were
contained in a single statement with a consolidated
summary of cleared check payments and sugar
stock withdrawals because this a more convenient
system than issuing separate statements for each
purchase.
The appellate court considered the following
issues: (a) Whether or not the transaction between
petitioner and STM involving SLDR No. 1214M was
a separate, independent, and single transaction;
(b) Whether or not CSC had the capacity to sue on
its own on SLDR No. 1214M; and (c) Whether or not
CSC as buyer from STM of the rights to 25,000 bags
of sugar covered by SLDR No. 1214M could compel
petitioner to deliver 23,000 bagsallegedly
unwithdrawn.
On February 24, 1994, the Court of Appeals
rendered its decision modifying the trial court's
judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the
assailed judgment and orders defendant-appellant
to:
"1) Deliver to plaintiff-appellee 12,586
bags of sugar covered by SLDR No.
1214M;
"2) Pay to plaintiff-appellee P792,918.00
which is 10% of the value of the
undelivered bags of refined sugar, as
attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."11
Both parties then seasonably filed separate
motions for reconsideration.
In its resolution dated September 30, 1994, the
appellate court modified its decision to read:
"WHEREFORE, the Court hereby modifies the
assailed judgment and orders defendant-appellant
to:
"(1) Deliver to plaintiff-appellee 23,000
bags of refined sugar under SLDR No.
1214M;
 "(2) Pay costs of suit.
reason to overturn the findings of the trial court on
this point."13
"SO ORDERED."12
Hence, the instant petition, positing the following
The appellate court explained the rationale for the
errors as grounds for review:
modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit F' We relied upon in fixing the number of
bags of sugar which remained undelivered as
12,586 cannot be made the basis for such a
finding. The rule is explicit that courts should
consider the evidence only for the purpose for
which it was offered. (People v. Abalos, et al, 1
CA Rep 783). The rationale for this is to afford the
party against whom the evidence is presented to
object thereto if he deems it necessary. Plaintiff-
appellee is, therefore, correct in its argument that
Exhibit F' which was offered to prove that checks
in the total amount of P15,950,000.00 had been
cleared. (Formal Offer of Evidence for Plaintiff,
Records p. 58) cannot be used to prove the
proposition that 12,586 bags of sugar remained
undelivered.
"Testimonial evidence (Testimonies of Teresita Ng
[TSN, 10 October 1990, p. 33] and Marianito L.
Santos [TSN, 17 October 1990, pp. 16, 18, and
36]) presented by plaintiff-appellee was to the
effect that it had withdrawn only 2,000 bags of
sugar from SLDR after which it was not allowed to
withdraw anymore. Documentary evidence (Exhibit
I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-
appellee had sent demand letters to defendant-
appellant asking the latter to allow it to withdraw
the remaining 23,000 bags of sugar from SLDR
1214M. Defendant-appellant, on the other hand,
alleged that sugar delivery to the STM
corresponded only to the value of cleared checks;
and that all sugar corresponded to cleared checks
had been withdrawn. Defendant-appellant did not
rebut plaintiff-appellee's assertions. It did not
present evidence to show how many bags of sugar
had been withdrawn against SLDR No. 1214M,
precisely because of its theory that all sales in
question were a series of one single transaction
and withdrawal of sugar depended on the clearing
of checks paid therefor.
"After a second look at the evidence, We see no
"1. The Court of Appeals erred in not
holding that STM's and private
respondent's specially informing petitioner
that respondent was authorized by buyer
STM to withdraw sugar against SLDR No.
1214M "for and in our (STM) behalf,"
(emphasis in the original) private
respondent's withdrawing 2,000 bags of
sugar for STM, and STM's empowering
other persons as its agents to withdraw
sugar against the same SLDR No. 1214M,
rendered respondent like the other
persons, an agent of STM as held in Rallos
v. Felix Go Chan & Realty Corp., 81 SCRA
252, and precluded it from subsequently
claiming and proving being an assignee of
SLDR No. 1214M and from suing by itself
for its enforcement because it was
conclusively presumed to be an agent
(Sec. 2, Rule 131, Rules of Court) and
estopped from doing so. (Art. 1431, Civil
Code).
"2. The Court of Appeals erred in
manifestly and arbitrarily ignoring and
disregarding certain relevant and
undisputed facts which, had they been
considered, would have shown that
petitioner was not liable, except for 69
bags of sugar, and which would justify
review of its conclusion of facts by this
Honorable Court.
"3. The Court of Appeals misapplied the
law on compensation under Arts. 1279,
1285 and 1626 of the Civil Code when it
ruled that compensation applied only to
credits from one SLDR or contract and not
to those from two or more distinct
contracts between the same parties; and
erred in denying petitioner's right to setoff
all its credits arising prior to notice of
assignment from other sales or SLDRs
against private respondent's claim as
assignee under SLDR No. 1214M, so as to
extinguish or reduce its liability to 69
bags, because the law on
compensation applies precisely to two or
more distinct contracts between the same
parties (emphasis in the original).
"4. The Court of Appeals erred in
concluding that the settlement or
liquidation of accounts in Exh. F between
petitioner and STM, respondent's
admission of its balance, and STM's
acquiescence thereto by silence for almost
one year did not render Exh. `F' an
account stated and its balance binding.
"5. The Court of Appeals erred in not
holding that the conditions of the assigned
SLDR No. 1214, namely, (a) its subject
matter being generic, and (b) the sale of
sugar being subject to its availability at
the Nawaco warehouse, made the sale
conditional and prevented STM or private
respondent from acquiring title to the
sugar; and the non-availability of sugar
freed petitioner from further obligation.
"6. The Court of Appeals erred in not
holding that the "clean hands" doctrine
precluded respondent from seeking
judicial reliefs (sic) from petitioner, its only
remedy being against its assignor." 14
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals
erred in not ruling that CSC was an agent
of STM and hence, estopped to sue upon
SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals
erred in applying the law on compensation
to the transaction under SLDR No. 1214M
so as to preclude petitioner from offsetting
its credits on the other SLDRs.
(3)....Whether or not the Court of Appeals
erred in not ruling that the sale of sugar
under SLDR No. 1214M was a conditional
sale or a contract to sell and hence freed
petitioner from further obligations.
 (4)....Whether or not the Court of Appeals
committed an error of law in not applying
the "clean hands doctrine" to preclude
CSC from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that
petitioner raised this issue for the first time on
appeal.1avvphi1 It is settled that an issue which
was not raised during the trial in the court below
could not be raised for the first time on appeal as
to do so would be offensive to the basic rules of fair
play, justice, and due process.15 Nonetheless, the
Court of Appeals opted to address this issue,
hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of
authority allowing CSC to withdraw sugar against
SLDR No. 1214M to show that the latter was STM's
agent. The pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar
Corporation or its representative to withdraw for
and in our behalf (stress supplied) the refined sugar
covered by Shipping List/Delivery Receipt =
Refined Sugar (SDR) No. 1214 dated October 16,
1989 in the total quantity of 25, 000 bags."16
The Civil Code defines a contract of agency as
follows:
"Art. 1868. 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."
It is clear from Article 1868 that the basis of agency
is representation.17 On the part of the principal,
there must be an actual intention to appoint 18 or an
intention naturally inferable from his words or
actions;19 and on the part of the agent, there must
be an intention to accept the appointment and act
on it,20 and in the absence of such intent, there is
generally no agency.21 One factor which most
clearly distinguishes agency from other legal
concepts is control; one person - the agent - agrees
to act under the control or direction of another - the
principal. Indeed, the very word "agency" has come
to connote control by the principal.22 The control
factor, more than any other, has caused the courts
to put contracts between principal and agent in a
separate category.23 The Court of Appeals, in
finding that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of
agency is dependent upon the acts of the parties,
the law makes no presumption of agency, and it is
always a fact to be proved, with the burden of proof
resting upon the persons alleging the agency, to
show not only the fact of its existence, but also its
nature and extent (Antonio vs. Enriquez[CA], 51
O.G. 3536]. Here, defendant-appellant failed to
sufficiently establish the existence of an agency
relation between plaintiff-appellee and STM. The
fact alone that it (STM) had authorized withdrawal
of sugar by plaintiff-appellee "for and in our (STM's)
behalf" should not be eyed as pointing to the
existence of an agency relation ...It should be
viewed in the context of all the circumstances
obtaining. Although it would seem STM represented
plaintiff-appellee as being its agent by the use of
the phrase "for and in our (STM's) behalf" the
matter was cleared when on 23 January 1990,
plaintiff-appellee informed defendant-appellant
that SLDFR No. 1214M had been "sold and
endorsed" to it by STM (Exhibit I, Records, p. 78).
Further, plaintiff-appellee has shown that the 25,
000 bags of sugar covered by the SLDR No. 1214M
were sold and transferred by STM to it ...A
conclusion that there was a valid sale and transfer
to plaintiff-appellee may, therefore, be made thus
capacitating plaintiff-appellee to sue in its own
name, without need of joining its imputed principal
STM as co-plaintiff."24
In the instant case, it appears plain to us that
private respondent CSC was a buyer of the SLDFR
form, and not an agent of STM. Private respondent
CSC was not subject to STM's control. The question
of whether a contract is one of sale or agency
depends on the intention of the parties as gathered
from the whole scope and effect of the language
employed.25 That the authorization given to CSC
contained the phrase "for and in our
(STM's) behalf" did not establish an agency.
Ultimately, what is decisive is the intention of the
parties.26 That no agency was meant to be
established by the CSC and STM is clearly shown by
CSC's communication to petitioner that SLDR No.
1214M had been "sold and endorsed" to it.27 The
use of the words "sold and endorsed" means that
STM and CSC intended a contract of sale, and not
an agency. Hence, on this score, no error was
committed by the respondent appellate court when
it held that CSC was not STM's agent and could
independently sue petitioner.
On the second issue, proceeding from the theory
that the transactions entered into between
petitioner and STM are but serial parts of one
account, petitioner insists that its debt has been
offset by its claim for STM's unpaid purchases,
pursuant to Article 1279 of the Civil
Code.28 However, the trial court found, and the
Court of Appeals concurred, that the purchase of
sugar covered by SLDR No. 1214M was a separate
and independent transaction; it was not a serial
part of a single transaction or of one account
contrary to petitioner's insistence. Evidence on
record shows, without being rebutted, that
petitioner had been paid for the sugar purchased
under SLDR No. 1214M. Petitioner clearly had the
obligation to deliver said commodity to STM or its
assignee. Since said sugar had been fully paid for,
petitioner and CSC, as assignee of STM, were not
mutually creditors and debtors of each other. No
reversible error could thereby be imputed to
respondent appellate court when, it refused to
apply Article 1279 of the Civil Code to the present
case.
Regarding the third issue, petitioner contends that
the sale of sugar under SLDR No. 1214M is a
conditional sale or a contract to sell, with title to
the sugar still remaining with the vendor.
Noteworthy, SLDR No. 1214M contains the
following terms and conditions:
"It is understood and agreed that by payment by
buyer/trader of refined sugar and/or receipt of this
document by the buyer/trader personally or
through a representative, title to refined sugar is
transferred to buyer/trader and delivery to him/it is
deemed effected and completed (stress supplied)
and buyer/trader assumes full responsibility
therefore"29
The aforequoted terms and conditions clearly show
that petitioner transferred title to the sugar to the
buyer or his assignee upon payment of the
purchase price. Said terms clearly establish a
contract of sale, not a contract to sell. Petitioner is
now estopped from alleging the contrary. The
contract is the law between the contracting
parties.30 And where the terms and conditions so
stipulated are not contrary to law, morals, good
customs, public policy or public order, the contract
is valid and must be upheld.31 Having transferred
title to the sugar in question, petitioner is now
obliged to deliver it to the purchaser or its
assignee.

As to the fourth issue, petitioner submits that STM

and private respondent CSC have entered into a
conspiracy to defraud it of its sugar. This
conspiracy is allegedly evidenced by: (a) the fact
that STM's selling price to CSC was below its
purchasing price; (b) CSC's refusal to pursue its
case against Teresita Ng Go; and (c) the authority
given by the latter to other persons to withdraw
sugar against SLDR No. 1214M after she had sold
her rights under said SLDR to CSC. Petitioner prays
that the doctrine of "clean hands" should be
applied to preclude CSC from seeking judicial relief.
However, despite careful scrutiny, we find here the
records bare of convincing evidence whatsoever to
support the petitioner's allegations of fraud. We are
now constrained to deem this matter purely
speculative, bereft of concrete proof.

WHEREFORE, the instant petition is DENIED for

lack of merit. Costs against petitioner.

SO ORDERED.
G.R. No. 120465 September 9, 1999 Upon appeal by petitioners, the Court of Appeals the Deed of Absolute
reversed the decision of the trial court and entered Sale covering TCT Nos.
a new one dismissing the complaint. It held that 10998, 10999 and
WILLIAM UY and RODEL ROXAS, petitioners,
since there was "sufficient justifiable basis" in 11292 (Prayer
vs.
cancelling the sale, "it saw no reason" for the complaint, page 5, RTC
COURT OF APPEALS, HON. ROBERT BALAO
award of damages. The Court of Appeals also noted records), it becomes
and NATIONAL HOUSING
that petitioners were mere attorneys-in-fact and, obviously indispensable
AUTHORITY, respondents.
therefore, not the real parties-in-interest in the that the lot owners be
action before the trial court. included, mentioned and
KAPUNAN, J.: named as party-
plaintiffs, being the real
. . . In paragraph 4 of the
Petitioners William Uy and Rodel Roxas are agents party-in-interest. UY and
complaint, plaintiffs
authorized to sell eight parcels of land by the Roxas, as attorneys-in-
alleged themselves to
owners thereof. By virtue of such authority, fact or apoderados,
be "sellers' agents" for
petitioners offered to sell the lands, located in cannot by themselves
the several owners of
Tuba, Tadiangan, Benguet to respondent National lawfully commence this
the 8 lots subject matter
Housing Authority (NHA) to be utilized and action, more so, when
of the case. Obsviously,
developed as a housing project. the supposed special
William Uy and Rodel
power of attorney, in
Roxas in filing this case
their favor, was never
On February 14, 1989, the NHA Board passed acted as attorneys-in-
presented as an
Resolution No. 1632 approving the acquisition of fact of the lot owners
evidence in this case.
said lands, with an area of 31.8231 hectares, at the who are the real parties
Besides, even if herein
cost of P23.867 million, pursuant to which the in interest but who were
plaintiffs Uy and Roxas
parties executed a series of Deeds of Absolute Sale omitted to be pleaded
were authorized by the
covering the subject lands. Of the eight parcels of as party-plaintiffs in the
lot owners to commence
land, however, only five were paid for by the NHA case. This omission is
this action, the same
because of the report 1 it received from the Land fatal. Where the action
must still be filed in the
Geosciences Bureau of the Department of is brought by an
name of the principal,
Environment and Natural Resources (DENR) that attorney-in-fact of a land
(Filipino Industrial
the remaining area is located at an active landslide owner in his name, (as
Corporation vs. San
area and therefore, not suitable for development in our present action)
Diego, 23 SCRA 706
into a housing project. and not in the name of
[1968]). As such
his principal, the action
indispensable party,
was properly dismissed
On 22 November 1991, the NHA issued Resolution their joinder in the
(Ferrer vs. Villamor, 60
No. 2352 cancelling the sale over the three parcels action is mandatory and
SCRA 406 [1974];
of land. The NHA, through Resolution No. 2394, the complaint may be
Marcelo vs. de Leon, 105
subsecguently offered the amount of P1.225 million dismissed if not so
Phil. 1175) because the
to the landowners as daos perjuicios. impleaded (NDC vs. CA,
rule is that every action
211 SCRA 422 [1992]). 2
must be prosecuted in
On 9 March 1992, petitioners filed before the the name of the real
Regional Trial Court (RTC) of Quezon City a parties-in-interest Their motion for reconsideration having been
Complaint for Damages against NHA and its (Section 2, Rule 3, Rules denied, petitioners seek relief from this Court
General Manager Robert Balao. of Court). contending that:

After trial, the RTC rendered a decision declaring When plaintiffs UY and I. THE RESPONDENT CA
the cancellation of the contract to be justified. The Roxas sought payment ERRED IN DECLARING
trial court nevertheless awarded damages to of damages in their THAT RESPONDENT NHA
plaintiffs in the sum of P1.255 million, the same favor in view of the HAD ANY LEGAL BASIS
amount initially offered by NHA to petitioners as partial rescission of FOR RESCINDING THE
damages. Resolution No. 1632 and SALE INVOLVING THE
 LAST THREE (3) Sec. 2, Rule 3 of the Rules of Court requires that person. (Emphasis
PARCELS COVERED BY every action must be prosecuted and defended in supplied.)
NHA RESOLUTION NO. the name of the real party-in-interest. The real
1632. party-in-interest is the party who stands to be Petitioners are not parties to the contract of sale
benefited or injured by the judgment or the party between their principals and NHA. They are mere
entitled to the avails of the suit. "Interest, within
II. GRANTING agents of the owners of the land subject of the
the meaning of the rule, means material interest,
ARGUENDO THAT THE sale. As agents, they only render some service or
an interest in the issue and to be affected by the
RESPONDENT NHA HAD do something in representation or on behalf of their
decree, as distinguished from mere interest in the
LEGAL BASIS TO principals. 8 The rendering of such service did not
question involved, or a mere incidental
RESCIND THE SUBJECT make them parties to the contracts of sale
interest. 6 Cases construing the real party-in-
SALE, THE RESPONDENT executed in behalf of the latter. Since a contract
interest provision can be more easily understood if
CA NONETHELESS may be violated only by the parties thereto as
it is borne in mind that the true meaning of real
ERRED IN DENYING against each other, the real parties-in-interest,
party-in-interest may be summarized as follows: An
HEREIN PETITIONERS' either as plaintiff or defendant, in an action upon
action shall be prosecuted in the name of the party
CLAIM TO DAMAGES, that contract must, generally, either be parties to
who, by the substantive law, has the right sought
CONTRARY TO THE said contract. 9
to be enforced. 7
PROVISIONS OF ART.
1191 OF THE CIVIL Neither has there been any allegation, much less
CODE. Do petitioners, under substantive law, possess the proof, that petitioners are the heirs of their
right they seek to enforce? We rule in the negative. principals.
III. THE RESPONDENT CA
ERRED IN DISMISSING The applicable substantive law in this case is Are petitioners assignees to the rights under the
THE SUBJECT Article 1311 of the Civil Code, which states: contract of sale? In McMicking vs. Banco Espaol-
COMPLAINT FINDING Filipino, 10 we held that the rule requiring every
THAT THE PETITIONERS Contracts take effect action to be prosecuted in the name of the real
FAILED TO JOIN AS only between the party-in-interest.
INDISPENSABLE PARTY parties, their assigns,
PLAINTIFF THE SELLING and heirs, except in case
LOT-OWNERS. 3 . . . recognizes the
where the rights and assignments of rights of
obligations arising from action and also
We first resolve the issue raised in the the third the contract are not recognizes that when
assignment of error. transmissible by their one has a right of action
nature, or by stipulation, assigned to him he is
or by provision of
Petitioners claim that they lodged the complaint then the real party in
law. . . .
not in behalf of their principals but in their own interest and may
name as agents directly damaged by the maintain an action upon
termination of the contract. The damages prayed If a contract should such claim or right. The
for were intended not for the benefit of their contain some stipulation purpose of [this rule] is
principals but to indemnify petitioners for the in favor of a third to require the plaintiff to
losses they themselves allegedly incurred as a person, he may demand be the real party in
result of such termination. These damages consist its fulfillment provided interest, or, in other
mainly of "unearned income" and he communicated his words, he must be the
advances. 4 Petitioners, thus, attempt to distinguish acceptance to the person to whom the
the case at bar from those involving agents obligor before its proceeds of the action
or apoderedos instituting actions in their own name revocation. A mere shall belong, and to
but in behalf of their principals. 5 Petitioners in this incidental benefit or prevent actions by
case purportedly brought the action for damages in interest of a person is persons who have no
their own name and in their own behalf. not sufficient. The interest in the result of
contracting parties must the same. . . .
have clearly and
We find this contention unmeritorious.
deliberately conferred a Thus, an agent, in his own behalf, may bring an
favor upon a third action founded on a contract made for his principal,
as an assignee of such contract. We find the the chose in action. He second paragraph of Article 1311 of the Civil Code.
following declaration in Section 372 (1) of the has an irrevocable Indeed, there is no stipulation in any of the Deeds
Restatement of the Law on Agency (Second): 11 power to sue in his of Absolute Sale "clearly and deliberately"
principal's name. . . . conferring a favor to any third person.
And, under the statutes
Sec. 372. Agent as Owner of Contract Right
which permit the real That petitioners did not obtain their commissions or
party in interest to sue, recoup their advances because of the non-
(1) Unless otherwise he can maintain an performance of the contract did not entitle them to
agreed, an agent who action in his own name. file the action below against respondent NHA.
has or who acquires an This power to sue is not Section 372 (2) of the Restatement of the Law on
interest in a contract affected by a settlement Agency (Second) states:
which he makes on between the principal
behalf of his principal and the obligor if the
can, although not a latter has notice of the (2) An agent does not have such
promisee, maintain such agent's interest. . . . an interest in a contract as to
action thereon maintain Even though the agent entitle him to maintain an action
such action thereon as has not settled with his at law upon it in his own name
might a transferee principal, he may, by merely because he is entitled to a
having a similar interest. agreement with the portion of the proceeds as
principal, have a right to compensation for making it or
receive payment and because he is liable for its
The Comment on subsection (1) states:
out of the proceeds to breach.
reimburse himself for
a. Agent a transferee. advances and The following Comment on the above
One who has made a commissions before subsection is illuminating:
contract on behalf of turning the balance over
another may become an to the principal. In such
assignee of the contract The fact that an agent who
a case, although there is
and bring suit against makes a contract for his principal
no formal assignment,
the other party to it, as will gain or suffer loss by the
the agent is in the
any other transferee. performance or nonperformance
position of a transferee
The customs of business of the contract by the principal or
of the whole claim for
or the course of conduct by the other party thereto does
security; he has an
between the principal not entitle him to maintain an
irrevocable power to sue
and the agent may action on his own behalf against
in his principal's name
indicate that an agent the other party for its breach. An
and, under statutes
who ordinarily has agent entitled to receive a
which permit the real
merely a security commission from his principal
party in interest to sue,
interest is a transferee upon the performance of a
he can maintain an
of the principals rights contract which he has made on
action in his own name.
under the contract and his principal's account does not,
as such is permitted to from this fact alone, have any
bring suit. If the agent Petitioners, however, have not shown that they are claim against the other party for
has settled with his assignees of their principals to the subject breach of the contract, either in
principal with the contracts. While they alleged that they made an action on the contract or
understanding that he is advances and that they suffered loss of otherwise. An agent who is not a
to collect the claim commissions, they have not established any promisee cannot maintain an
against the obligor by agreement granting them "the right to receive action at law against a purchaser
way of reimbursing payment and out of the proceeds to reimburse merely because he is entitled to
himself for his advances [themselves] for advances and commissions before have his compensation or
and commissions, the turning the balance over to the principal[s]." advances paid out of the
agent is in the position purchase price before payment to
of an assignee who is Finally, it does not appear that petitioners are the principal. . . .
the beneficial owner of beneficiaries of a stipulation pour autrui under the
Thus, in Hopkins vs. Ives, 12 the Supreme Court of rescission or, more accurately, resolution, of a acquisition of the land. 22 The motive of the NHA,
Arkansas, citing Section 372 (2) above, denied the party to an obligation under Article 1191 is on the other hand, is to use said lands for housing.
claim of a real estate broker to recover his alleged predicated on a breach of faith by the other party This is apparent from the portion of the Deeds of
commission against the purchaser in an agreement that violates the reciprocity between them. 16 The Absolute Sale 23 stating:
to purchase property. power to rescind, therefore, is given to the injured
party. 17 Article 1191 states: WHEREAS, under the Executive
13
In Goduco vs. Court of appeals, this Court held Order No. 90 dated December 17,
that: The power to rescind obligations 1986, the VENDEE is mandated
is implied in reciprocal ones, in to focus and concentrate its
case one of the obligors should efforts and resources in providing
. . . granting that
not comply with what is housing assistance to the lowest
appellant had the
incumbent upon him. thirty percent (30%) of urban
authority to sell the
income earners, thru slum
property, the same did
upgrading and development of
not make the buyer The injured party may choose
sites and services projects;
liable for the between the fulfillment and the
commission she rescission of the obligation, with
claimed. At most, the the payment of damages in WHEREAS, Letters of Instructions
owner of the property either case. He may also seek Nos. 555 and 557 [as] amended
and the one who rescission, even after he has by Letter of Instruction No. 630,
promised to give her a chosen fulfillment, if the latter prescribed slum improvement
commission should be should become impossible. and upgrading, as well as the
the one liable to pay the development of sites and
same and to whom the services as the principal housing
In this case, the NHA did not rescind the contract.
claim should have been strategy for dealing with slum,
Indeed, it did not have the right to do so for the
directed. . . . squatter and other blighted
other parties to the contract, the vendors, did not
communities;
commit any breach, much less a substantial
As petitioners are not parties, heirs, assignees, or breach, 18 of their obligation. Their obligation was
beneficiaries of a stipulation pour autrui under the merely to deliver the parcels of land to the NHA, an xxx xxx xxx
contracts of sale, they do not, under substantive obligation that they fulfilled. The NHA did not suffer
law, possess the right they seek to enforce. any injury by the performance thereof. WHEREAS, the VENDEE, in
Therefore, they are not the real parties-in-interest pursuit of and in compliance with
in this case. The cancellation, therefore, was not a rescission the above-stated purposes offers
under Article 1191. Rather, the cancellation was to buy and the VENDORS, in a
Petitioners not being the real parties-in-interest, based on the negation of the cause arising from the gesture of their willing to
any decision rendered herein would be pointless realization that the lands, which were the object of cooperate with the above policy
since the same would not bind the real parties-in- the sale, were not suitable for housing. and commitments, agree to sell
interest. 14 the aforesaid property together
with all the existing
Cause is the essential reason which moves the
improvements there or belonging
Nevertheless, to forestall further litigation on the contracting parties to enter into it. 19 In other
to the VENDORS;
substantive aspects of this case, we shall proceed words, the cause is the immediate, direct and
to rule on me merits. 15 proximate reason which justifies the creation of an
obligation through the will of the contracting NOW, THEREFORE, for and in
parties. 20 Cause, which is the essential reason for consideration of the foregoing
Petitioners submit that respondent NHA had no
the contract, should be distinguished from motive, premises and the terms and
legal basis to "rescind" the sale of the subject three
which is the particular reason of a contracting party conditions hereinbelow
parcels of land. The existence of such legal basis,
which does not affect the other party. 21 stipulated, the VENDORS hereby,
notwithstanding, petitioners argue that they are
sell, transfer, cede and convey
still entitled to an award of damages.
unto the VENDEE, its assigns, or
For example, in a contract of sale of a piece of land,
successors-in-interest, a parcel of
such as in this case, the cause of the vendor
Petitioners confuse the cancellation of the contract land located at Bo. Tadiangan,
(petitioners' principals) in entering into the contract
by the NHA as a rescission of the contract under Tuba, Benguet containing a total
is to obtain the price. For the vendee, NHA, it is the
Article 1191 of the Civil Code. The right of area of FIFTY SIX THOUSAND
 EIGHT HUNDRED NINETEEN sufficient basis for the cancellation of the sale, xxx xxx xxx
(56,819) SQUARE METERS, more thus:
or less . . . . Actually there is a need
In Tadiangan, Tuba, the to conduct further
Ordinarily, a party's motives for entering into the housing site is situated geottechnical [sic]
contract do not affect the contract. However, when in an area of moderate studies in the NHA
the motive predetermines the cause, the motive topography. There [are] property. Standard
may be regarded as the cause. In Liguez vs. Court more areas of less Penetration Test (SPT)
of Appeals, 24 this Court, speaking through Justice sloping ground must be carried out to
J.B.L. REYES, HELD: apparently habitable. give an estimate of the
The site is underlain by . degree of compaction
. . thick slide deposits (the relative density) of
. . . it is well to note,
(4-45m) consisting of the slide deposit and
however, that Manresa
huge conglomerate also the bearing
himself (Vol. 8, pp. 641-
boulders (see Photo No. capacity of the soil
642), while maintaining
2) mix[ed] with silty clay materials. Another thing
the distinction and
materials. These clay to consider is the
upholding the
particles when saturated vulnerability of the area
inoperativeness of the
have some swelling to landslides and other
motives of the parties to
characteristics which is mass movements due to
determine the validity of
dangerous for any civil thick soil cover.
the contract, expressly
structures especially Preventive physical
excepts from the rule
mass housing mitigation methods such
those contracts that are
development. 25 as surface and
conditioned upon the
subsurface drainage and
attainment of the
regrading of the slope
motives of either party. Petitioners contend that the report was merely
must be done in the
"preliminary," and not conclusive, as indicated in
area. 27
its title:
The same view is held
by the Supreme Court of
We read the quoted portion, however, to mean only
Spain, in its decisions of MEMORANDUM
that further tests are required to determine the
February 4, 1941, and
"degree of compaction," "the bearing capacity of
December 4, 1946, TO: EDWIN G. DOMINGO the soil materials," and the "vulnerability of the
holding that the motive
area to landslides," since the tests already
may be regarded
Chief, Lands Geology conducted were inadequate to ascertain such
as causa when it
Division geological attributes. It is only in this sense that
predetermines the
the assessment was "preliminary."
purpose of the contract.
FROM: ARISTOTLE A.
RILLON Accordingly, we hold that the NHA was justified in
In this case, it is clear, and petitioners do not
canceling the contract. The realization of the
dispute, that NHA would not have entered into the
mistake as regards the quality of the land resulted
contract were the lands not suitable for housing. In Geologist II in the negation of the motive/cause thus rendering
other words, the quality of the land was an implied
the contract inexistent. 28 Article 1318 of the Civil
condition for the NHA to enter into the contract. On
SUBJECT: Preliminary Code states that:
the part of the NHA, therefore, the motive was the
Assessment of
cause for its being a party to the sale.
Art. 1318. There is no
Tadiangan Housing contract unless the
Were the lands indeed unsuitable for housing as
Project in Tuba, following requisites
NHA claimed?
Benguet 26 concur:

We deem the findings contained in the report of the

Thus, page 2 of the report states in part: (1) Consent of the
Land Geosciences Bureau dated 15 July 1991
contracting parties;
 (2) Object certain which
is the subject matter of
the contract;

(3) Cause of the

obligation which is
established. (Emphasis
supplied.)

Therefore, assuming that petitioners are parties,

assignees or beneficiaries to the contract of sale,
they would not be entitled to any award of
damages.

WHEREFORE, the instant petition is hereby DENIED.

SO ORDERED.
G.R. No. 167552 April 23, 2007
EUROTECH INDUSTRIAL TECHNOLOGIES,
INC., Petitioner,
vs.
EDWIN CUIZON and ERWIN
CUIZON, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review by certiorari
assailing the Decision1 of the Court of Appeals
dated 10 August 2004 and its Resolution2 dated 17
March 2005 in CA-G.R. SP No. 71397 entitled,
"Eurotech Industrial Technologies, Inc. v. Hon.
Antonio T. Echavez." The assailed Decision and
Resolution affirmed the Order3 dated 29 January
2002 rendered by Judge Antonio T. Echavez
ordering the dropping of respondent EDWIN Cuizon
(EDWIN) as a party defendant in Civil Case No.
CEB-19672.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation
and distribution of various European industrial
equipment for customers here in the Philippines. It
has as one of its customers Impact Systems Sales
("Impact Systems") which is a sole proprietorship
owned by respondent ERWIN Cuizon (ERWIN).
Respondent EDWIN is the sales manager of Impact
Systems and was impleaded in the court a quo in
said capacity.
From January to April 1995, petitioner sold to
Impact Systems various products allegedly
amounting to ninety-one thousand three hundred
thirty-eight (P91,338.00) pesos. Subsequently,
respondents sought to buy from petitioner one unit
of sludge pump valued at P250,000.00 with
respondents making a down payment of fifty
thousand pesos (P50,000.00).4 When the sludge
pump arrived from the United Kingdom, petitioner
refused to deliver the same to respondents without
their having fully settled their indebtedness to
petitioner. Thus, on 28 June 1995, respondent
EDWIN and Alberto de Jesus, general manager of
petitioner, executed a Deed of Assignment of
receivables in favor of petitioner, the pertinent part
of which states:
1.) That ASSIGNOR5 has an outstanding
receivables from Toledo Power Corporation
in the amount of THREE HUNDRED SIXTY
FIVE THOUSAND (P365,000.00) PESOS as
payment for the purchase of one unit of
Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby
ASSIGN, TRANSFER, and CONVEY unto the
ASSIGNEE6 the said receivables from
Toledo Power Corporation in the amount of
THREE HUNDRED SIXTY FIVE THOUSAND
(P365,000.00) PESOS which receivables
the ASSIGNOR is the lawful recipient;
3.) That the ASSIGNEE does hereby accept
this assignment.7
Following the execution of the Deed of Assignment,
petitioner delivered to respondents the sludge
pump as shown by Invoice No. 12034 dated 30
June 1995.8
Allegedly unbeknownst to petitioner, respondents,
despite the existence of the Deed of Assignment,
proceeded to collect from Toledo Power Company
the amount of P365,135.29 as evidenced by Check
Voucher No. 09339prepared by said power company
and an official receipt dated 15 August 1995 issued
by Impact Systems.10Alarmed by this development,
petitioner made several demands upon
respondents to pay their obligations. As a result,
respondents were able to make partial payments to
petitioner. On 7 October 1996, petitioners counsel
sent respondents a final demand letter wherein it
was stated that as of 11 June 1996, respondents
total obligations stood at P295,000.00 excluding
interests and attorneys fees.11 Because of
respondents failure to abide by said final demand
letter, petitioner instituted a complaint for sum of
money, damages, with application for preliminary
attachment against herein respondents before the
Regional Trial Court of Cebu City.12
On 8 January 1997, the trial court granted
petitioners prayer for the issuance of writ of
preliminary attachment.13
On 25 June 1997, respondent EDWIN filed his
Answer14 wherein he admitted petitioners
allegations with respect to the sale transactions
entered into by Impact Systems and petitioner
between January and April 1995.15 He, however,
disputed the total amount of Impact Systems
indebtedness to petitioner which, according to him,
amounted to only P220,000.00.16
By way of special and affirmative defenses,
respondent EDWIN alleged that he is not a real
party in interest in this case. According to him, he
was acting as mere agent of his principal, which
was the Impact Systems, in his transaction with
petitioner and the latter was very much aware of
this fact. In support of this argument, petitioner
points to paragraphs 1.2 and 1.3 of petitioners
Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal
age, married, a resident of Cebu City. He is
the proprietor of a single proprietorship
business known as Impact Systems Sales
("Impact Systems" for brevity), with office
located at 46-A del Rosario Street, Cebu
City, where he may be served summons
and other processes of the Honorable
Court.
1.3. Defendant Edwin B. Cuizon is of legal
age, Filipino, married, a resident of Cebu
City. He is the Sales Manager of Impact
Systems and is sued in this action in such
capacity.17
On 26 June 1998, petitioner filed a Motion to
Declare Defendant ERWIN in Default with Motion
for Summary Judgment. The trial court granted
petitioners motion to declare respondent ERWIN in
default "for his failure to answer within the
prescribed period despite the opportunity
granted"18 but it denied petitioners motion for
summary judgment in its Order of 31 August 2001
and scheduled the pre-trial of the case on 16
October 2001.19However, the conduct of the pre-
trial conference was deferred pending the
resolution by the trial court of the special and
affirmative defenses raised by respondent EDWIN.20
After the filing of respondent EDWINs
Memorandum21 in support of his special and
affirmative defenses and petitioners
opposition22 thereto, the trial court rendered its
assailed Order dated 29 January 2002 dropping
respondent EDWIN as a party defendant in this
case. According to the trial court
A study of Annex "G" to the complaint shows that
in the Deed of Assignment, defendant Edwin B.
Cuizon acted in behalf of or represented [Impact]
Systems Sales; that [Impact] Systems Sale is a
single proprietorship entity and the complaint
shows that defendant Erwin H. Cuizon is the
proprietor; that plaintiff corporation is represented
by its general manager Alberto de Jesus in the
contract which is dated June 28, 1995. A study of
Annex "H" to the complaint reveals that [Impact]
Systems Sales which is owned solely by defendant
Erwin H. Cuizon, made a down payment
of P50,000.00 that Annex "H" is dated June 30,
1995 or two days after the execution of Annex "G",
thereby showing that [Impact] Systems Sales
ratified the act of Edwin B. Cuizon; the records
further show that plaintiff knew that [Impact]
Systems Sales, the principal, ratified the act of
Edwin B. Cuizon, the agent, when it accepted the
down payment of P50,000.00. Plaintiff, therefore,
cannot say that it was deceived by defendant
Edwin B. Cuizon, since in the instant case the
principal has ratified the act of its agent and
plaintiff knew about said ratification. Plaintiff could
not say that the subject contract was entered into
by Edwin B. Cuizon in excess of his powers since
[Impact] Systems Sales made a down payment
of P50,000.00 two days later.
In view of the Foregoing, the Court directs that
defendant Edwin B. Cuizon be dropped as party
defendant.23
Aggrieved by the adverse ruling of the trial court,
petitioner brought the matter to the Court of
Appeals which, however, affirmed the 29 January
2002 Order of the court a quo. The dispositive
portion of the now assailed Decision of the Court of
Appeals states:
WHEREFORE, finding no viable legal ground to
reverse or modify the conclusions reached by the
public respondent in his Order dated January 29,
2002, it is hereby AFFIRMED.24
Petitioners motion for reconsideration was denied
by the appellate court in its Resolution
promulgated on 17 March 2005. Hence, the present
petition raising, as sole ground for its allowance,
the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR WHEN IT RULED THAT RESPONDENT EDWIN
CUIZON, AS AGENT OF IMPACT SYSTEMS
SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE,
BECAUSE HE HAS NEITHER ACTED BEYOND THE
SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN
THE PERPETUATION OF A FRAUD.25
To support its argument, petitioner points to Article
1897 of the New Civil Code which states:
Art. 1897. The agent who acts as such is not
personally liable to the party with whom he
contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving
such party sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed
to appreciate the effect of ERWINs act of collecting
the receivables from the Toledo Power Corporation
notwithstanding the existence of the Deed of
Assignment signed by EDWIN on behalf of Impact
Systems. While said collection did not revoke the
agency relations of respondents, petitioner insists
that ERWINs action repudiated EDWINs power to
sign the Deed of Assignment. As EDWIN did not
sufficiently notify it of the extent of his powers as
an agent, petitioner claims that he should be made
personally liable for the obligations of his
principal.26
Petitioner also contends that it fell victim to the
fraudulent scheme of respondents who induced it
into selling the one unit of sludge pump to Impact
Systems and signing the Deed of Assignment.
Petitioner directs the attention of this Court to the
fact that respondents are bound not only by their
principal and agent relationship but are in fact full-
blooded brothers whose successive contravening
acts bore the obvious signs of conspiracy to
defraud petitioner.27
In his Comment,28 respondent EDWIN again posits
the argument that he is not a real party in interest
in this case and it was proper for the trial court to
have him dropped as a defendant. He insists that
he was a mere agent of Impact Systems which is
owned by ERWIN and that his status as such is
known even to petitioner as it is alleged in the
Complaint that he is being sued in his capacity as
the sales manager of the said business venture.
Likewise, respondent EDWIN points to the Deed of
Assignment which clearly states that he was acting
as a representative of Impact Systems in said
transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to
render some service or to do something in
representation or on behalf of another with the
latters consent.29 The underlying principle of the
contract of agency is to accomplish results by using
the services of others to do a great variety of
things like selling, buying, manufacturing, and
transporting.30 Its purpose is to extend the
personality of the principal or the party for whom
another acts and from whom he or she derives the
authority to act.31 It is said that the basis of agency
is representation, that is, the agent acts for and on
behalf of the principal on matters within the scope
of his authority and said acts have the same legal
effect as if they were personally executed by the
principal.32 By this legal fiction, the actual or real
absence of the principal is converted into his legal
or juridical presence qui facit per alium facit per
se.33
The elements of the contract of agency are: (1)
consent, express or implied, of the parties to
establish the relationship; (2) the object is the
execution of a juridical act in relation to a third
person; (3) the agent acts as a representative and
not for himself; (4) the agent acts within the scope
of his authority.34
In this case, the parties do not dispute the
existence of the agency relationship between
respondents ERWIN as principal and EDWIN as
agent. The only cause of the present dispute is
whether respondent EDWIN exceeded his authority
when he signed the Deed of Assignment thereby
binding himself personally to pay the obligations to
petitioner. Petitioner firmly believes that
respondent EDWIN acted beyond the authority
granted by his principal and he should therefore
bear the effect of his deed pursuant to Article 1897
of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an
agent, who acts as such, is not personally liable to
the party with whom he contracts. The same
provision, however, presents two instances when
an agent becomes personally liable to a third
person. The first is when he expressly binds himself
to the obligation and the second is when he
exceeds his authority. In the last instance, the
agent can be held liable if he does not give the
third party sufficient notice of his powers. We hold
that respondent EDWIN does not fall within any of
the exceptions contained in this provision.
The Deed of Assignment clearly states that
respondent EDWIN signed thereon as the sales
manager of Impact Systems. As discussed
elsewhere, the position of manager is unique in
that it presupposes the grant of broad powers with
which to conduct the business of the principal,
thus:
The powers of an agent are particularly broad in
the case of one acting as a general agent or
manager; such a position presupposes a degree of
confidence reposed and investiture with liberal
powers for the exercise of judgment and discretion
in transactions and concerns which are incidental
or appurtenant to the business entrusted to his
care and management. In the absence of an
agreement to the contrary, a managing agent may
enter into any contracts that he deems reasonably
necessary or requisite for the protection of the
interests of his principal entrusted to his
management. x x x.35
Applying the foregoing to the present case, we hold
that Edwin Cuizon acted well-within his authority
when he signed the Deed of Assignment. To recall,
petitioner refused to deliver the one unit of sludge
pump unless it received, in full, the payment for
Impact Systems indebtedness.36 We may very well
assume that Impact Systems desperately needed
the sludge pump for its business since after it paid WHEREFORE, premises considered, the present
the amount of fifty thousand pesos (P50,000.00) as petition is DENIED and the Decision dated 10
down payment on 3 March 1995, 37 it still persisted August 2004 and Resolution dated 17 March 2005
in negotiating with petitioner which culminated in of the Court of Appeals in CA-G.R. SP No. 71397,
the execution of the Deed of Assignment of its affirming the Order dated 29 January 2002 of the
receivables from Toledo Power Company on 28 June Regional Trial Court, Branch 8, Cebu City, is
1995.38The significant amount of time spent on the AFFIRMED.
negotiation for the sale of the sludge pump
underscores Impact Systems perseverance to get
Let the records of this case be remanded to the
hold of the said equipment. There is, therefore, no Regional Trial Court, Branch 8, Cebu City, for the
doubt in our mind that respondent EDWINs continuation of the proceedings against respondent
participation in the Deed of Assignment was Erwin Cuizon.
"reasonably necessary" or was required in order for
him to protect the business of his principal. Had he
not acted in the way he did, the business of his SO ORDERED.
principal would have been adversely affected and
he would have violated his fiduciary relation with
his principal.
We likewise take note of the fact that in this case,
petitioner is seeking to recover both from
respondents ERWIN, the principal, and EDWIN, the
agent. It is well to state here that Article 1897 of
the New Civil Code upon which petitioner anchors
its claim against respondent EDWIN "does not hold
that in case of excess of authority, both the agent
and the principal are liable to the other contracting
party."39 To reiterate, the first part of Article 1897
declares that the principal is liable in cases when
the agent acted within the bounds of his authority.
Under this, the agent is completely absolved of any
liability. The second part of the said provision
presents the situations when the agent himself
becomes liable to a third party when he expressly
binds himself or he exceeds the limits of his
authority without giving notice of his powers to the
third person. However, it must be pointed out that
in case of excess of authority by the agent, like
what petitioner claims exists here, the law does not
say that a third person can recover from both the
principal and the agent.40
As we declare that respondent EDWIN acted within
his authority as an agent, who did not acquire any
right nor incur any liability arising from the Deed of
Assignment, it follows that he is not a real party in
interest who should be impleaded in this case. A
real party in interest is one who "stands to be
benefited or injured by the judgment in the suit, or
the party entitled to the avails of the suit." 41 In this
respect, we sustain his exclusion as a defendant in
the suit before the court a quo.
G.R. No. 149353 June 26, 2006
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari
under Rule 45 of the Rules of Court questioning the
Decision1dated April 30, 2001 of the Court of
Appeals (CA) in C.A.-G.R. CV No. 66985, which
reversed the Decision dated July 29, 1998 of the
Regional Trial Court (RTC), Branch 21, City of
Manila; and the CA Resolution 2 dated August 6,
2001 which denied petitioners Motion for
Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles
(respondent) filed with the RTC a complaint for
Specific Performance with Damages against Jocelyn
B. Doles (petitioner), docketed as Civil Case No. 97-
82716. Respondent alleged that petitioner was
indebted to the former in the concept of a personal
loan amounting to P405,430.00 representing the
principal amount and interest; that on October 5,
1996, by virtue of a "Deed of Absolute
Sale",3petitioner, as seller, ceded to respondent, as
buyer, a parcel of land, as well as the
improvements thereon, with an area of 42 square
meters, covered by Transfer Certificate of Title No.
382532,4 and located at a subdivision project
known as Camella Townhomes Sorrente in Bacoor,
Cavite, in order to satisfy her personal loan with
respondent; that this property was mortgaged to
National Home Mortgage Finance Corporation
(NHMFC) to secure petitioners loan in the sum
of P337,050.00 with that entity; that as a condition
for the foregoing sale, respondent shall assume the
undue balance of the mortgage and pay the
monthly amortization of P4,748.11 for the
remainder of the 25 years which began on
September 3, 1994; that the property was at that
time being occupied by a tenant paying a monthly
rent of P3,000.00; that upon verification with the
NHMFC, respondent learned that petitioner had
incurred arrearages amounting to P26,744.09,
inclusive of penalties and interest; that upon
informing the petitioner of her arrears, petitioner
denied that she incurred them and refused to pay
the same; that despite repeated demand,
petitioner refused to cooperate with respondent to
execute the necessary documents and other
formalities required by the NHMFC to effect the
transfer of the title over the property; that
petitioner collected rent over the property for the
month of January 1997 and refused to remit the
proceeds to respondent; and that respondent
suffered damages as a result and was forced to
litigate.
Petitioner, then defendant, while admitting some
allegations in the Complaint, denied that she
borrowed money from respondent, and averred
that from June to September 1995, she referred her
friends to respondent whom she knew to be
engaged in the business of lending money in
exchange for personal checks through her capitalist
Arsenio Pua. She alleged that her friends, namely,
Zenaida Romulo, Theresa Moratin, Julia Inocencio,
Virginia Jacob, and Elizabeth Tomelden, borrowed
money from respondent and issued personal
checks in payment of the loan; that the checks
bounced for insufficiency of funds; that despite her
efforts to assist respondent to collect from the
borrowers, she could no longer locate them; that,
because of this, respondent became furious and
threatened petitioner that if the accounts were not
settled, a criminal case will be filed against her;
that she was forced to issue eight checks
amounting to P350,000 to answer for the bounced
checks of the borrowers she referred; that prior to
the issuance of the checks she informed
respondent that they were not sufficiently funded
but the latter nonetheless deposited the checks
and for which reason they were subsequently
dishonored; that respondent then threatened to
initiate a criminal case against her for violation
of Batas Pambansa Blg. 22; that she was forced by
respondent to execute an "Absolute Deed of Sale"
over her property in Bacoor, Cavite, to avoid
criminal prosecution; that the said deed had no
valid consideration; that she did not appear before
a notary public; that the Community Tax Certificate
number on the deed was not hers and for which
respondent may be prosecuted for falsification and
perjury; and that she suffered damages and lost
rental as a result.
The RTC identified the issues as follows: first,
whether the Deed of Absolute Sale is valid; second;
if valid, whether petitioner is obliged to sign and
execute the necessary documents to effect the
transfer of her rights over the property to the
respondent; and third, whether petitioner is liable
for damages.
On July 29, 1998, the RTC rendered a decision the
dispositive portion of which states:
WHEREFORE, premises considered, the Court
hereby orders the dismissal of the complaint for
insufficiency of evidence. With costs against
plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of
cause or consideration:5
Plaintiff Angeles admission that the borrowers are
the friends of defendant Doles and further
admission that the checks issued by these
borrowers in payment of the loan obligation
negates [sic] the cause or consideration of the
contract of sale executed by and between plaintiff
and defendant. Moreover, the property is not solely
owned by defendant as appearing in Entry No.
9055 of Transfer Certificate of Title No. 382532
(Annex A, Complaint), thus:
"Entry No. 9055. Special Power of Attorney in favor
of Jocelyn Doles covering the share of Teodorico
Doles on the parcel of land described in this
certificate of title by virtue of the special power of
attorney to mortgage, executed before the notary
public, etc."
The rule under the Civil Code is that contracts
without a cause or consideration produce no effect
whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief,
respondent interposed her sole assignment of
error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE
AT BAR ON THE GROUND OF [sic] THE DEED OF
SALE BETWEEN THE PARTIES HAS NO
CONSIDERATION OR INSUFFICIENCY OF EVIDENCE.6
On April 30, 2001, the CA promulgated its Decision,
the dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this
appeal is hereby GRANTED. The Decision of the
lower court dated July 29, 1998 is REVERSED and
SET ASIDE. A new one is entered ordering
defendant-appellee to execute all necessary
documents to effect transfer of subject property to
plaintiff-appellant with the arrearages of the
formers loan with the NHMFC, at the latters
expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower
and, in turn, would "re-lend" the amount borrowed
from the respondent to her friends. Hence, the
Deed of Absolute Sale was supported by a valid
consideration, which is the sum of money petitioner
owed respondent amounting to P405,430.00,
representing both principal and interest.
The CA took into account the following
circumstances in their entirety: the supposed
friends of petitioner never presented themselves to
respondent and that all transactions were made by
and between petitioner and respondent;7 that the
money borrowed was deposited with the bank
account of the petitioner, while payments made for
the loan were deposited by the latter to
respondents bank account;8 that petitioner herself
admitted in open court that she was "re-lending"
the money loaned from respondent to other
individuals for profit;9 and that the documentary
evidence shows that the actual borrowers, the
friends of petitioner, consider her as their creditor
and not the respondent.10
Furthermore, the CA held that the alleged threat or
intimidation by respondent did not vitiate consent,
since the same is considered just or legal if made
to enforce ones claim through competent authority
under Article 133511of the Civil Code;12 that with
respect to the arrearages of petitioner on her
monthly amortization with the NHMFC in the sum
of P26,744.09, the same shall be deemed part of
the balance of petitioners loan with the NHMFC
which respondent agreed to assume; and that the
amount of P3,000.00 representing the rental for
January 1997 supposedly collected by petitioner, as
well as the claim for damages and attorneys fees,
is denied for insufficiency of evidence.13
On May 29, 2001, petitioner filed her Motion for
Reconsideration with the CA, arguing that
respondent categorically admitted in open court
that she acted only as agent or representative of
Arsenio Pua, the principal financier and, hence, she
had no legal capacity to sue petitioner; and that
the CA failed to consider the fact that petitioners
father, who co-owned the subject property, was not
impleaded as a defendant nor was he indebted to
the respondent and, hence, she cannot be made to
sign the documents to effect the transfer of
ownership over the entire property.
On August 6, 2001, the CA issued its Resolution
denying the motion on the ground that the
foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of
the CA Resolution. On August 28, 2001, petitioner
filed the present Petition and raised the following
issues:
I.
WHETHER OR NOT THE PETITIONER CAN
BE CONSIDERED AS A DEBTOR OF THE
RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS
NOT AUTHORIZED BY THE PRINCIPAL TO
COLLECT DEBT IN HIS BEHALF COULD
DIRECTLY COLLECT PAYMENT FROM THE
DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF
SALE WAS EXECUTED FOR A CAUSE.14
Although, as a rule, it is not the business of this
Court to review the findings of fact made by the
lower courts, jurisprudence has recognized several
exceptions, at least three of which are present in
the instant case, namely: when the judgment is
based on a misapprehension of facts; when the
findings of facts of the courts a quo are conflicting;
and when the CA manifestly overlooked certain
relevant facts not disputed by the parties, which, if
properly considered, could justify a different
conclusion.15 To arrive at a proper judgment,
therefore, the Court finds it necessary to re-
examine the evidence presented by the contending
parties during the trial of the case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute
Sale is supported by a valid consideration.
1. Petitioner argues that since she is merely the
agent or representative of the alleged debtors,
then she is not a party to the loan; and that the
Deed of Sale executed between her and the
respondent in their own names, which was
predicated on that pre-existing debt, is void for lack
of consideration.
Indeed, the Deed of Absolute Sale purports to be
supported by a consideration in the form of a price
certain in money16 and that this sum indisputably
pertains to the debt in issue. This Court has
consistently held that a contract of sale is null and
void and produces no effect whatsoever where the
same is without cause or consideration. 17 The
question that has to be resolved for the moment is
whether this debt can be considered as a valid
cause or consideration for the sale.
To restate, the CA cited four instances in the record
to support its holding that petitioner "re-lends" the
amount borrowed from respondent to her friends:
first, the friends of petitioner never presented
themselves to respondent and that all transactions
were made by and between petitioner and
respondent;18 second; the money passed through
the bank accounts of petitioner and
respondent;19 third, petitioner herself admitted that
she was "re-lending" the money loaned to other
individuals for profit;20 and fourth, the documentary
evidence shows that the actual borrowers, the
friends of petitioner, consider her as their creditor
and not the respondent.21
On the first, third, and fourth points, the CA cites q. Did the plaintiff personally see the a. Yes, sir.
the testimony of the petitioner, then defendant, transactions with your friends?
during her cross-examination:22 Atty. Diza:
witness:
Atty. Diza: q. What profit do you have, do you have
a. No, sir. commission?
q. You also mentioned that you were not
the one indebted to the plaintiff? Atty. Diza: witness:

witness: q. Your friends and the plaintiff did not a. Yes, sir.
meet personally?
a. Yes, sir. Atty. Diza:
witness:
Atty. Diza: q. How much?
a. Yes, sir.
q. And you mentioned the persons[,] witness:
namely, Elizabeth Tomelden, Teresa Atty. Diza:
Moraquin, Maria Luisa Inocencio, Zenaida
Romulo, they are your friends? a. Two percent to Tomelden, one percent
q. You are intermediaries? to Jacob and then Inocencio and my
friends none, sir.
witness:
witness:
Based on the foregoing, the CA concluded
a. Inocencio and Moraquin are my friends that petitioner is the real borrower, while
while [as to] Jacob and Tomelden[,] they a. We are both intermediaries. As
the respondent, the real lender.
were just referred. evidenced by the checks of the debtors
they were deposited to the name of
Arsenio Pua because the money came But as correctly noted by the RTC,
Atty. Diza: from Arsenio Pua. respondent, then plaintiff, made the
following admission during her cross
q. And you have transact[ed] with the examination:23
xxxx
plaintiff?
Atty. Villacorta:
Atty. Diza:
witness:
q. Who is this Arsenio Pua?
q. Did the plaintiff knew [sic] that you will
a. Yes, sir. lend the money to your friends specifically
the one you mentioned [a] while ago? witness:
Atty. Diza:
witness: a. Principal financier, sir.
q. What is that transaction?
a. Yes, she knows the money will go to Atty. Villacorta:
witness: those persons.
q. So the money came from Arsenio Pua?
a. To refer those persons to Aura and to Atty. Diza:
refer again to Arsenio Pua, sir. witness:
q. You are re-lending the money?
Atty. Diza: a. Yes, because I am only representing
witness: him, sir.
Other portions of the testimony of q. And these friends of the defendant witness:
respondent must likewise be considered:24 borrowed money from you with the
assurance of the defendant? a. Yes, sir.
Atty. Villacorta:
witness: Atty. Villacorta:
q. So it is not actually your money but the
money of Arsenio Pua? a. They go direct to Jocelyn because I q. And some of the checks that were
dont know them. issued by the friends of the defendant
witness: bounced, am I correct?
xxxx
a. Yes, sir. witness:
Atty. Villacorta:
Court: a. Yes, sir.
q. And is it not also a fact Madam witness
that everytime that the defendant
q. It is not your money? Atty. Villacorta:
borrowed money from you her friends who
[are] in need of money issued check[s] to
witness: you? There were checks issued to you? q. And because of that Arsenio Pua got
mad with you?
a. Yes, Your Honor. witness:
witness:
Atty. Villacorta: a. Yes, there were checks issued.
a. Yes, sir.
q. Is it not a fact Ms. Witness that the Atty. Villacorta:
defendant borrowed from you to Respondent is estopped to deny that she herself
accommodate somebody, are you aware acted as agent of a certain Arsenio Pua, her
q. By the friends of the defendant, am I
of that? disclosed principal. She is also estopped to deny
correct? that petitioner acted as agent for the alleged
debtors, the friends whom she (petitioner) referred.
witness:
witness:
This Court has affirmed that, under Article 1868 of
a. I am aware of that.
a. Yes, sir. the Civil Code, the basis of agency is
representation.25 The question of whether an
Atty. Villacorta: agency has been created is ordinarily a question
Atty. Villacorta:
which may be established in the same way as any
q. More or less she [accommodated] other fact, either by direct or circumstantial
q. And because of your assistance, the evidence. The question is ultimately one of
several friends of the defendant?
friends of the defendant who are in need intention.26Agency may even be implied from the
of money were able to obtain loan to [sic] words and conduct of the parties and the
witness: Arsenio Pua through your assistance? circumstances of the particular case.27 Though the
fact or extent of authority of the agents may not,
a. Yes, sir, I am aware of that. witness: as a general rule, be established from the
declarations of the agents alone, if one professes to
act as agent for another, she may be estopped to
xxxx a. Yes, sir. deny her agency both as against the asserted
principal and the third persons interested in the
Atty. Villacorta: Atty. Villacorta: transaction in which he or she is engaged.28

q. So that occasion lasted for more than a

year?
In this case, petitioner knew that the financier of
respondent is Pua; and respondent knew that the
borrowers are friends of petitioner.
The CA is incorrect when it considered the fact that
the "supposed friends of [petitioner], the actual
borrowers, did not present themselves to
[respondent]" as evidence that negates the agency
relationshipit is sufficient that petitioner disclosed
to respondent that the former was acting in behalf
of her principals, her friends whom she referred to
respondent. For an agency to arise, it is not
necessary that the principal personally encounter
the third person with whom the agent interacts.
The law in fact contemplates, and to a great
degree, impersonal dealings where the principal
need not personally know or meet the third person
with whom her agent transacts: precisely, the
purpose of agency is to extend the personality of
the principal through the facility of the agent. 29
In the case at bar, both petitioner and respondent
have undeniably disclosed to each other that they
are representing someone else, and so both of
them are estopped to deny the same. It is evident
from the record that petitioner merely refers actual
borrowers and then collects and disburses the
amounts of the loan upon which she received a
commission; and that respondent transacts on
behalf of her "principal financier", a certain Arsenio
Pua. If their respective principals do not actually
and personally know each other, such ignorance
does not affect their juridical standing as agents,
especially since the very purpose of agency is to
extend the personality of the principal through the
facility of the agent.
With respect to the admission of petitioner that she
is "re-lending" the money loaned from respondent
to other individuals for profit, it must be stressed
that the manner in which the parties designate the
relationship is not controlling. If an act done by one
person in behalf of another is in its essential nature
one of agency, the former is the agent of the latter
notwithstanding he or she is not so called. 30 The
question is to be determined by the fact that one
represents and is acting for another, and if
relations exist which will constitute an agency, it
will be an agency whether the parties understood
the exact nature of the relation or not.31
That both parties acted as mere agents is shown by Teodorico Doles on the parcel of land described in
the undisputed fact that the friends of petitioner this certificate,"37 it cannot be inferred from this
issued checks in payment of the loan in the name bare notation, nor from any other evidence on the
of Pua. If it is true that petitioner was "re-lending", record, that the petitioner or her father held any
then the checks should have been drawn in her direct interest on the property in question so as to
name and not directly paid to Pua. validly constitute a mortgage thereon 38 and, with
more reason, to effect the delivery of the object of
the sale at the consummation stage. 39 What is
With respect to the second point, particularly, the
worse, there is a notation that the TCT itself has
finding of the CA that the disbursements and
been "cancelled."40
payments for the loan were made through the bank
accounts of petitioner and respondent,
In view of these anomalies, the Court cannot
entertain the
suffice it to say that in the normal course of
commercial dealings and for reasons of
convenience and practical utility it can be possibility that respondent agreed to assume the
reasonably expected that the facilities of the agent, balance of the mortgage loan which petitioner
such as a bank account, may be employed, and allegedly owed to the NHMFC, especially since the
that a sub-agent be appointed, such as the bank record is bereft of any factual finding that
itself, to carry out the task, especially where there petitioner was, in the first place, endowed with any
is no stipulation to the contrary.32 ownership rights to validly mortgage and convey
the property. As the complainant who initiated the
case, respondent bears the burden of proving the
In view of the two agency relationships, petitioner
basis of her complaint. Having failed to discharge
and respondent are not privy to the contract of
such burden, the Court has no choice but to declare
loan between their principals. Since the sale is
the sale void for lack of cause. And since the sale is
predicated on that loan, then the sale is void for
void, the Court finds it unnecessary to dwell on the
lack of consideration.
issue of whether duress or intimidation had been
foisted upon petitioner upon the execution of the
2. A further scrutiny of the record shows, however, sale.
that the sale might have been backed up by
another consideration that is separate and distinct
Moreover, even assuming the mortgage validly
from the debt: respondent averred in her complaint
exists, the Court notes respondents allegation that
and testified that the parties had agreed that as a
the mortgage with the NHMFC was for 25 years
condition for the conveyance of the property the
which began September 3, 1994. Respondent filed
respondent shall assume the balance of the
her Complaint for Specific Performance in 1997.
mortgage loan which petitioner allegedly owed to
Since the 25 years had not lapsed, the prayer of
the NHMFC.33 This Court in the recent past has
respondent to compel petitioner to execute
declared that an assumption of a mortgage debt
necessary documents to effect the transfer of title
may constitute a valid consideration for a sale. 34
is premature.
Although the record shows that petitioner admitted
WHEREFORE, the petition is granted. The Decision
at the time of trial that she owned the property
and Resolution of the Court of Appeals
described in the TCT,35 the Court must stress that
are REVERSED andSET ASIDE. The complaint of
the Transfer Certificate of Title No. 38253236 on its
respondent in Civil Case No. 97-82716
face shows that the owner of the property which
is DISMISSED.
admittedly forms the subject matter of the Deed of
Absolute Sale refers neither to the petitioner nor to
her father, Teodorico Doles, the alleged co-owner. SO ORDERED.
Rather, it states that the property is registered in
the name of "Household Development
Corporation." Although there is an entry to the
effect that the petitioner had been granted a
special power of attorney "covering the shares of
G.R. No. 141485 June 30, 2005
PABLITO MURAO and NELIO
HUERTAZUELA, petitioners,.
vs.
PEOPLE OF THE PHILIPPINES, respondent.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari under Rule
45 of the Rules of Court, petitioners pray for the
reversal of the Decision of the Court of Appeals in
CA-G.R. CR No. 21134, dated 31 May
1999,1 affirming with modification the Judgment of
the Regional Trial Court (RTC) of Puerto Princesa
City, Palawan, in Criminal Case No. 11943, dated
05 May 1997,2 finding petitioners guilty beyond
reasonable doubt of the crime of estafa under
Article 315(1)(b) of the Revised Penal Code.
Petitioner Pablito Murao is the sole owner of Lorna
Murao Industrial Commercial Enterprises (LMICE), a
company engaged in the business of selling and
refilling fire extinguishers, with branches in
Palawan, Naga, Legaspi, Mindoro, Aurora, Quezon,
Isabela, and Laguna. Petitioner Nelio Huertazuela is
the Branch Manager of LMICE in Puerto Princesa
City, Palawan.3
On 01 September 1994, petitioner Murao and
private complainant Chito Federico entered into a
Dealership Agreement for the marketing,
distribution, and refilling of fire extinguishers within
Puerto Princesa City.4 According to the Dealership
Agreement, private complainant Federico, as a
dealer for LMICE, could obtain fire extinguishers
from LMICE at a 50% discount, provided that he
sets up his own sales force, acquires and issues his
own sales invoice, and posts a bond with LMICE as
security for the credit line extended to him by
LMICE. Failing to comply with the conditions under
the said Dealership Agreement, private
complainant Federico, nonetheless, was still
allowed to act as a part-time sales agent for LMICE
entitled to a percentage commission from the sales
of fire extinguishers.5
The amount of private complainant Federicos
commission as sales agent for LMICE was under
contention. Private complainant Federico claimed
that he was entitled to a commission equivalent to
50% of the gross sales he had made on behalf of
LMICE,6 while petitioners maintained that he should
receive only 30% of the net sales. Petitioners even
contended that as company policy, part-time sales
agents were entitled to a commission of only 25%
of the net sales, but since private complainant
Federico helped in establishing the LMICE branch
office in Puerto Princesa City, he was to receive the
same commission as the full-time sales agents of
LMICE, which was 30% of the net sales.7
Private complainant Federicos first successful
transaction as sales agent of LMICE involved two
fire extinguishers sold to Landbank of the
Philippines (Landbank), Puerto Princesa City
Branch, for the price of P7,200.00. Landbank issued
a check, dated 08 November 1993, pay to the
order of "L.M. Industrial Comml. Enterprises c/o
Chito Federico," for the amount of P5,936.40,8 after
deducting from the original sales price the 15%
discount granted by private complainant Federico
to Landbank and the 3% withholding tax. Private
complainant Federico encashed the check at
Landbank and remitted only P2,436.40 to LMICE,
while he kept P3,500.00 for himself as his
commission from the sale.9
Petitioners alleged that it was contrary to the
standard operating procedure of LMICE that private
complainant Federico was named payee of the
Landbank check on behalf of LMICE, and that
private complainant Federico was not authorized to
encash the said check. Despite the supposed
irregularities committed by private complainant
Federico in the collection of the payment from
Landbank and in the premature withholding of his
commission from the said payment, petitioners
forgave private complainant Federico because the
latter promised to make-up for his misdeeds in the
next transaction.10
Private complainant Federico, on behalf of LMICE,
subsequently facilitated a transaction with the City
Government of Puerto Princesa for the refill of 202
fire extinguishers. Because of the considerable
cost, the City Government of Puerto Princesa
requested that the transaction be split into two
purchase orders, and the City Government of
Puerto Princesa shall pay for each of the purchase
orders separately.11 Pursuant to the two purchase
orders, LMICE refilled and delivered all 202 fire
extinguishers to the City Government of Puerto
Princesa: 154 units on 06 January 1994, 43 more
units on 12 January 1994, and the last five units on
13 January 1994.12
The subject of this Petition is limited to the first
purchase order, Purchase Order No. GSO-856,
dated 03 January 1994, for the refill of 99 fire
extinguishers, with a total cost
of P309,000.00.13 On 16 June 1994, the City
Government of Puerto Princesa issued Check No.
611437 to LMICE to pay for Purchase Order No.
GSO-856, in the amount of P300,572.73, net of the
3% withholding tax.14 Within the same day,
petitioner Huertazuela claimed Check No. 611437
from the City Government of Puerto Princesa and
deposited it under the current account of LMICE
with PCIBank.15
On 17 June 1994, private complainant Federico
went to see petitioner Huertazuela at the LMICE
branch office in Puerto Princesa City to demand for
the amount of P154,500.00 as his commission from
the payment of Purchase Order No. GSO-856 by the
City Government of Puerto Princesa. Petitioner
Huertazuela, however, refused to pay private
complainant Federico his commission since the two
of them could not agree on the proper amount
thereof.16
Also on 17 June 1994, private complainant Federico
went to the police station to file an Affidavit-
Complaint for estafa against
petitioners.17 Petitioners submitted their Joint
Counter-Affidavit on 12 July 1994.18 The City
Prosecution Office of Puerto Princesa City issued a
Resolution, dated 15 August 1994, finding that
a prima faciecase for estafa existed against the
petitioners and recommending the filing of an
information for estafa against both of them.19
The Information, docketed as Criminal Case No.
11943 and raffled to the RTC of Puerto Princesa
City, Palawan, Branch 52, reads as follows
INFORMATION
The undersigned accuses PABLITO MURAO and
NELIO C. HUERTAZUELA of the crime of ESTAFA,
committed as follows:
That on or about the 16th day of June, 1994, at
Puerto Princesa City, Philippines, and within the
jurisdiction of this Honorable Court, the said
accused, conspiring and confederating together
and mutually helping one another, after having
received the amount of P309,000.00 as payment of
the 99 tanks of refilled fire extinguisher (sic) from
the City Government of Puerto Princesa, through
deceit, fraud and misrepresentation, did then and
there willfully, unlawfully and feloniously defraud
one Chito Federico in the following manner, to wit:
said accused, well knowing that Chito Federico
agent of LM Industrial Commercial Enterprises is
entitled to 50% commission of the gross sales as
per their Dealership Contract or the amount
of P154,500.00 as his commission for his sale of 99
refilled fire extinguishers worth P309,000.00, and
accused once in possession of said amount
of P309,000.00 misappropriate, misapply and
convert the amount of P154,500.00 for their own
personal use and benefit and despite repeated
demands made upon them by complainant to
deliver the amount of P154,500.00, accused failed
and refused and still fails and refuses to do so, to
the damage and prejudice of said Chito Federico in
the amount of P154,500.00, Philippine Currency.20
After holding trial, the RTC rendered its Judgment
on 05 May 1997 finding petitioners guilty beyond
reasonable doubt as co-principals of the crime of
estafa defined and penalized in Article 315(1)(b) of
the Revised Penal Code. Estafa, under the said
provision, is committed by
ART. 315. Swindling (estafa). Any person who
shall defraud another by any of the means
mentioned hereinbelow . . .
1. With unfaithfulness or abuse of confidence,
namely:
(a)
(b) By misappropriating or converting, to
the prejudice of another, money, goods, or
any other personal property received by
the offender in trust or on commission, or
for administration, or under any other
obligation involving the duty to make
delivery of or to return the same, even
though such obligation be totally or
partially guaranteed by a bond; or by
denying having received such money,
goods, or other property; . . .
In the same Judgment, the RTC expounded on its
finding of guilt, thus
For the afore-quoted provision of the Revised Penal
Code to be committed, the following requisites
must concur:
1. That money, goods or other personal
property be received by the offender in
trust, or on commission, or for
administration, or under any other
obligation involving the duty to make
delivery of, or to return, the same;
2. That there be misappropriation or
conversion of such money or property by
the offender, or denial on his part of such
receipt;
3. That such misappropriation or
conversion or denial is to the prejudice of
another; and
4. That there is demand made by the
offended party to the offender. (Reyes,
Revised Penal Code of the Philippines, p.
716; Manuel Manahan, Jr. vs. Court of
Appeals, Et Al., G.R. No. 111656, March
20, 1996)
All the foregoing elements are present in this case.
The aborted testimony of Mrs. Norma Dacuan,
Cashier III of the Treasurers Office of the City of
Puerto Princesa established the fact that indeed, on
June 16, 1994, co-accused Nelio Huertazuela took
delivery of Check No. 611437 with face value
of P300,572.73, representing payment for the refill
of 99 cylinders of fire extinguishers. Although the
relationship between complaining witness Chito
Federico and LMIC is not fiduciary in nature, still the
clause "any other obligation involving the duty to
make delivery of or to return" personal property is
broad enough to include a "civil obligation"
(Manahan vs. C.A., Et. Al., Mar. 20, 1996).
The second element cannot be gainsaid. Both
Pablito Murao and Nelio Huertazuela categorically
admitted that they did not give to Chito Federico
his commission. Instead, they deposited the full
amount of the consideration, with the PCIBank in
the Current Account of LMIC.
The refusal by the accused to give Chito Federico
what ever percentage his commission necessarily
caused him prejudice which constitute the third
element of estafa. Demand for payment, although
not an essential element of estafa was nonetheless
made by the complainant but was rebuffed by the
accused. The fraudulent intent by the accused is
indubitably indicated by their refusal to pay Chito
Federico any percentage of the gross sales as
commission. If it were true that what the
dealer/sales Agent is entitled to by way of
commission is only 30% of the gross sales, then by
all means the accused should have paid Chito
Federico 30%. If he refused, they could have it
deposited in his name. In that way they may not be
said to have misappropriated for themselves what
pertained to their Agent by way of commission.
WHEREFORE, premises considered judgment is
hereby rendered finding the accused PABLITO
MURAO and NELIO HUERTAZUELA guilty beyond
reasonable doubt as co-principals, of the crime of
estafa defined and penalized in Article 315 par.
1(b) of the Revised Penal Code, and applying the
provisions of the Indeterminate Sentence Law, both
accused are hereby sentenced to an indeterminate
penalty ranging from a minimum of TWO (2)
YEARS, FOUR (4) MONTHS and ONE (1) DAY of
prision correccional in its medium period, to a
maximum of TWENTY (20) YEARS of reclusion
temporal in its maximum period; to pay Chito
Federico, jointly and severally:
a. Sales Commission equivalent to
50% of P309,000.00 or
------------------- P154,500.00
 with legal interest thereon from
June 17, 1994 until fully paid;
b. Attorneys
---------------------------- P 30,0000.00.21
Resolving the appeal filed by the petitioners before
it, the Court of Appeals, in its Decision, dated 31
May 1999, affirmed the aforementioned RTC
Judgment, finding petitioners guilty of estafa, but
modifying the sentence imposed on the petitioners.
The dispositive portion of the Decision of the Court
of Appeals reads
WHEREFORE, the appealed decision is hereby
AFFIRMED with the MODIFICATION that appellants
PABLITO MURAO and NELIO HUERTAZUELA are
hereby each sentenced to an indeterminate
penalty of eight (8) years and One (1) day
of prision mayor, as minimum, to Twenty (20) years
of reclusion temporal, as maximum. The award for
attorneys fee of P30,000.00 is deleted because the
prosecution of criminal action is the task of the
State prosecutors. All other aspects of the
appealed decision are maintained.22
When the Court of Appeals, in its Resolution, dated
19 January 2000,23 denied their Motion for
Reconsideration, petitioners filed the present
Petition for Review24 before this Court, raising the
following errors allegedly committed by the Court
of Appeals in its Decision, dated 31 May 1999
I contract whereby "a person binds himself to render
WITH DUE RESPECT, THE HONORABLE COURT OF
APPEALS GRAVELY ERRED WHEN IT RULED THAT
PETITIONERS ARE LIABLE FOR ESTAFA UNDER
ARTICLE 315 1(B) OF THE REVISED PENAL CODE
UNDER THE FOREGOING SET OF FACTS, WHEN IT IS
CLEAR FROM THE SAID UNDISPUTED FACTS THAT
THE LIABILITY IS CIVIL IN NATURE.
II
WITH DUE RESPECT, THE HONORABLE COURT
ERRED WHEN IT UPHOLD (sic) PRIVATE
COMPLAINANTS CLAIM THAT HE IS ENTITLED TO A
FIFTY (50%) PERCENT COMMISSION WITHOUT
EVIDENCE TO SUPPORT SUCH CLAIM.
This Court finds the instant Petition impressed with
merit. Absent herein are two essential elements of
fees
the crime of estafa by misappropriation or
conversion under Article 315(1)(b) of the Revised
Penal Code, namely: (1) That money, goods or
other personal property be received by the
offender in trust, or on commission, or for
administration, or under any other obligation
involving the duty to make delivery of, or to return,
the same; and (2) That there be a misappropriation
or conversion of such money or property by the
offender.
The findings of the RTC and the Court of Appeals
that petitioners committed estafa rest on the
erroneous belief that private complainant Federico,
due to his right to commission, already owned 50%
of the amount paid by the City Government of
Puerto Princesa to LMICE by virtue of Check No.
611437, so that the collection and deposit of the
said check by petitioners under the account of
LMICE constituted misappropriation or conversion
of private complainant Federicos commission.
However, his right to a commission does not
make private complainant Federico a joint
owner of the money paid to LMICE by the City
Government of Puerto Princesa, but merely
establishes the relation of agent and principal. 25 It
is unequivocal that an agency existed between
LMICE and private complainant Federico. Article
1868 of the Civil Code defines agency as a special
some service or to do something in representation
or on behalf of another, with the consent or
authority of the latter." Although private
complainant Federico never had the opportunity to
operate as a dealer for LMICE under the terms of
the Dealership Agreement, he was allowed to act
as a sales agent for LMICE. He can negotiate for
and on behalf of LMICE for the refill and delivery of
fire extinguishers, which he, in fact, did on two
occasions with Landbank and with the City
Government of Puerto Princesa. Unlike the
Dealership Agreement, however, the agreement
that private complainant Federico may act as sales
agent of LMICE was based on an oral agreement.26
As a sales agent, private complainant Federico
entered into negotiations with prospective clients
for and on behalf of his principal, LMICE. When
negotiations for the sale or refill of fire
extinguishers were successful, private complainant
Federico prepared the necessary documentation.
Purchase orders, invoices, and receipts were all in
the name of LMICE. It was LMICE who had the
primary duty of picking up the empty fire
extinguishers, filling them up, and delivering the
refilled tanks to the clients, even though private
complainant Federico personally helped in hauling
and carrying the fire extinguishers during pick-up
from and delivery to clients.
All profits made and any advantage gained by an
agent in the execution of his agency should belong
to the principal.27 In the instant case, whether the
transactions negotiated by the sales agent were for
the sale of brand new fire extinguishers or for the
refill of empty tanks, evidently, the business
belonged to LMICE. Consequently, payments made
by clients for the fire extinguishers pertained to
LMICE. When petitioner Huertazuela, as the Branch
Manager of LMICE in Puerto Princesa City, with the
permission of petitioner Murao, the sole proprietor
of LMICE, personally picked up Check No. 611437
from the City Government of Puerto Princesa, and
deposited the same under the Current Account of
LMICE with PCIBank, he was merely collecting what
rightfully belonged to LMICE. Indeed, Check No.
611437 named LMICE as the lone payee. Private
complainant Federico may claim commission,
allegedly equivalent to 50% of the payment
received by LMICE from the City Government of
Puerto Princesa, based on his right to just
compensation under his agency contract with
LMICE,28 but not as the automatic owner of the 50%
portion of the said payment.
Since LMICE is the lawful owner of the entire
proceeds of the check payment from the City
Government of Puerto Princesa, then the
petitioners who collected the payment on behalf of
LMICE did not receive the same or any part thereof
in trust, or on commission, or for administration, or
under any other obligation involving the duty to
make delivery of, or to return, the same to private
complainant Federico, thus, the RTC correctly found
that no fiduciary relationship existed between
petitioners and private complainant Federico. A
fiduciary relationship between the complainant and
the accused is an essential element of estafa by
misappropriation or conversion, without which the
accused could not have committed estafa. 29
The RTC used the case of Manahan, Jr. v. Court of
Appeals30 to support its position that even in the
absence of a fiduciary relationship, the petitioners
still had the civil obligation to return and deliver to
private complainant Federico his commission. The
RTC failed to discern the substantial differences in
the factual background of theManahan case from
the present Petition. The Manahan case involved
the lease of a dump truck. Although a contract of
lease may not be fiduciary in character, the lessee
clearly had the civil obligation to return the truck to
the lessor at the end of the lease period; and
failure of the lessee to return the truck as provided
for in the contract may constitute estafa. The
phrase "or any other obligation involving the duty
to make delivery of, or to return the same" refers to
contracts of bailment, such as, contract of lease of
personal property, contract of deposit,
and commodatum, wherein juridical possession of
the thing was transferred to the lessee, depositary
or borrower, and wherein the latter is obligated to
return the same thing.31
In contrast, the current Petition concerns an agency
contract whereby the principal already received
payment from the client but refused to give the
sales agent, who negotiated the sale, his
commission. As has been established by this Court
in the foregoing paragraphs, LMICE had a right to
the full amount paid by the City Government of
Puerto Princesa. Since LMICE, through petitioners,
directly collected the payment, then it was already
in possession of the amount, and no transfer of
juridical possession thereof was involved herein.
Given that private complainant Federico could not
claim ownership over the said payment or any
portion thereof, LMICE had nothing at all to deliver
and return to him. The obligation of LMICE to pay
private complainant Federico his commission does
not arise from any duty to deliver or return the
money to its supposed owner, but rather from the
duty of a principal to give just compensation to its
agent for the services rendered by the latter.
Furthermore, the Court of Appeals, in its Decision,
dated 31 May 1999, defined the words "convert"
and "misappropriate" in the following manner
The High Court in Saddul v. Court of Appeals [192 1999, affirming with modification the Judgment of
SCRA 277] enunciated that the words "convert" and the RTC of Puerto Princesa City, Palawan, in
"misappropriate" in the crime of estafa punished Criminal Case No. 11943, dated 05 May 1997,
under Art. 315, par. 1(b) connote an act of using or finding petitioners guilty beyond reasonable doubt
disposing of anothers property as if it were ones of estafa by conversion or misappropriation under
own, or if devoting it to a purpose or use different Article 315(1)(b) of the Revised Penal Code, and
from that agreed upon. To misappropriate to ones awarding the amount of P154,500.00 as sales
use includes, not only conversion to ones personal commission to private complainant Federico, is
advantage, but also every attempt to dispose of hereby REVERSED and SET ASIDE. A new Judgment
the property of another without right.32 is hereby entered ACQUITTING petitioners based on
the foregoing findings of this Court that their
actions did not constitute the crime of estafa by
Based on the very same definition, this Court finds
conversion or misappropriation under Article 315(1)
that petitioners did not convert nor misappropriate
(b) of the Revised Penal Code. The cash bonds
the proceeds from Check No. 611437 because the
posted by the petitioners for their provisional
same belonged to LMICE, and was not "anothers
liberty are hereby ordered RELEASED and the
property." Petitioners collected the said check from
amounts thereof RETURNED to the petitioners,
the City Government of Puerto Princesa and
subject to the usual accounting and auditing
deposited the same under the Current Account of
procedures.
LMICE with PCIBank. Since the money was already
with its owner, LMICE, it could not be said that the
same had been converted or misappropriated for SO ORDERED.
one could not very well fraudulently appropriate to
himself money that is his own.33
Although petitioners refusal to pay private
complainant Federico his commission caused
prejudice or damage to the latter, said act does not
constitute a crime, particularly estafa by
conversion or misappropriation punishable under
Article 315(1)(b) of the Revised Penal Code.
Without the essential elements for the commission
thereof, petitioners cannot be deemed to have
committed the crime.
While petitioners may have no criminal liability,
petitioners themselves admit their civil liability to
the private complainant Federico for the latters
commission from the sale, whether it be 30% of the
net sales or 50% of the gross sales. However, this
Court is precluded from making a determination
and an award of the civil liability for the reason that
the said civil liability of petitioners to pay private
complainant Federico his commission arises from a
violation of the agency contract and not from a
criminal act.34 It would be improper and
unwarranted for this Court to impose in a criminal
action the civil liability arising from a civil contract,
which should have been the subject of a separate
and independent civil action.35
WHEREFORE, the assailed Decision of the Court of
Appeals in CA-G.R. CR No. 21134, dated 31 May
G.R. No. 148775 January 13, 2004
SHOPPERS PARADISE REALTY &
DEVELOPMENT CORPORATION, petitioner,
vs.
EFREN P. ROQUE, respondent.
DECISION
VITUG, J.:
On 23 December 1993, petitioner Shoppers
Paradise Realty & Development Corporation,
represented by its president, Veredigno Atienza,
entered into a twenty-five year lease with Dr. Felipe
C. Roque, now deceased, over a parcel of land, with
an area of two thousand and thirty six (2,036)
square meters, situated at Plaza Novaliches,
Quezon City, covered by Transfer of Certificate of
Title (TCT) No. 30591 of the Register of Deeds of
Quezon City in the name of Dr. Roque. Petitioner
issued to Dr. Roque a check for P250,000.00 by
way of "reservation payment." Simultaneously,
petitioner and Dr. Roque likewise entered into a
memorandum of agreement for the construction,
development and operation of a commercial
building complex on the property. Conformably with
the agreement, petitioner issued a check for
another P250,000.00 "downpayment" to Dr. Roque.
The contract of lease and the memorandum of
agreement, both notarized, were to be annotated
on TCT No. 30591 within sixty (60) days from 23
December 1993 or until 23 February 1994. The
annotations, however, were never made because of
the untimely demise of Dr. Felipe C. Roque. The
death of Dr. Roque on 10 February 1994
constrained petitioner to deal with respondent
Efren P. Roque, one of the surviving children of the
late Dr. Roque, but the negotiations broke down
due to some disagreements. In a letter, dated 3
November 1994, respondent advised petitioner "to
desist from any attempt to enforce the
aforementioned contract of lease and
memorandum of agreement". On 15 February
1995, respondent filed a case for annulment of the
contract of lease and the memorandum of
agreement, with a prayer for the issuance of a
preliminary injunction, before Branch 222 of the
Regional Trial Court of Quezon City. Efren P. Roque
alleged that he had long been the absolute owner
of the subject property by virtue of a deed of
donation inter vivos executed in his favor by his
parents, Dr. Felipe Roque and Elisa Roque, on 26
December 1978, and that the late Dr. Felipe Roque
had no authority to enter into the assailed
agreements with petitioner. The donation was
made in a public instrument duly acknowledged by
the donor-spouses before a notary public and duly
accepted on the same day by respondent before
the notary public in the same instrument of
donation. The title to the property, however,
remained in the name of Dr. Felipe C. Roque, and it
was only transferred to and in the name of
respondent sixteen years later, or on 11 May 1994,
under TCT No. 109754 of the Register of Deeds of
Quezon City. Respondent, while he resided in the
United States of America, delegated to his father
the mere administration of the property.
Respondent came to know of the assailed contracts
with petitioner only after retiring to the Philippines
upon the death of his father.
On 9 August 1996, the trial court dismissed the
complaint of respondent; it explained:
"Ordinarily, a deed of donation need not
be registered in order to be valid between
the parties. Registration, however, is
important in binding third persons. Thus,
when Felipe Roque entered into a leased
contract with defendant corporation,
plaintiff Efren Roque (could) no longer
assert the unregistered deed of donation
and say that his father, Felipe, was no
longer the owner of the subject property
at the time the lease on the subject
property was agreed upon.
"The registration of the Deed of Donation
after the execution of the lease contract
did not affect the latter unless he had
knowledge thereof at the time of the
registration which plaintiff had not been
able to establish. Plaintiff knew very well
of the existence of the lease. He, in fact,
met with the officers of the defendant
corporation at least once before he caused
the registration of the deed of donation in
his favor and although the lease itself was
not registered, it remains valid considering
that no third person is involved. Plaintiff
cannot be the third person because he is
the successor-in-interest of his father,
Felipe Roque, the lessor, and it is a rule
that contracts take effect not only
between the parties themselves but also
between their assigns and heirs (Article
1311, Civil Code) and therefore, the lease
contract together with the memorandum
of agreement would be conclusive on
plaintiff Efren Roque. He is bound by the
contract even if he did not participate
therein. Moreover, the agreements have
been perfected and partially executed by
the receipt of his father of the
downpayment and deposit totaling to
P500,000.00."1
The Trial court ordered respondent to surrender TCT
No. 109754 to the Register of Deeds of Quezon City
for the annotation of the questioned Contract of
Lease and Memorandum of Agreement.
On appeal, the Court of Appeals reversed the
decision of the trial court and held to be invalid the
Contract of Lease and Memorandum of Agreement.
While it shared the view expressed by the trial
court that a deed of donation would have to be
registered in order to bind third persons, the
appellate court, however, concluded that petitioner
was not a lessee in good faith having had prior
knowledge of the donation in favor of respondent,
and that such actual knowledge had the effect of
registration insofar as petitioner was concerned.
The appellate court based its findings largely on
the testimony of Veredigno Atienza during cross-
examination, viz;
"Q. Aside from these two lots, the first in
the name of Ruben Roque and the second,
the subject of the construction involved in
this case, you said there is another lot
which was part of development project?
"A. Yes, this was the main concept of Dr.
Roque so that the adjoining properties of
his two sons, Ruben and Cesar, will
comprise one whole. The other whole
property belongs to Cesar.
"Q. You were informed by Dr. Roque that
this property was given to his three (3)
sons; one to Ruben Roque, the other to
Efren, and the other to Cesar Roque?
"A. Yes.
"Q. You did the inquiry from him, how was
this property given to them?
"A. By inheritance.
"Q. Inheritance in the form of donation?
"A. I mean inheritance.
"Q. What I am only asking you is, were you
told by Dr. Felipe C. Roque at the time of
your transaction with him that all these
three properties were given to his children
by way of donation?
"A. What Architect Biglang-awa told us in
his exact word: "Yang mga yan pupunta sa
mga anak. Yong kay Ruben pupunta kay
Ruben. Yong kay Efren palibhasa nasa
America sya, nasa pangalan pa ni Dr.
Felipe C. Roque."
"x x x xxx xxx
"Q. When was the information supplied to
you by Biglang-awa? Before the execution
of the Contract of Lease and Memorandum
of Agreement?
"A. Yes.
"Q. That being the case, at the time of the
execution of the agreement or soon
before, did you have such information
confirmed by Dr. Felipe C. Roque himself?
"A. Biglang-awa did it for us.
"Q. But you yourself did not?
"A. No, because I was doing certain things.
We were a team and so Biglang-awa did it
for us.
"Q. So in effect, any information gathered
by Biglang-awa was of the same effect as
if received by you because you were
members of the same team?
"A. Yes."2
In the instant petition for review, petitioner seeks a
reversal of the decision of the Court of Appeals and
the reinstatement of the ruling of the Regional Trial
Court; it argues that the presumption of good faith
it so enjoys as a party dealing in registered land
has not been overturned by the aforequoted
testimonial evidence, and that, in any event,
respondent is barred by laches and estoppel from
denying the contracts.
The existence, albeit unregistered, of the donation
in favor of respondent is undisputed. The trial court
and the appellate court have not erred in holding
that the non-registration of a deed of donation does
not affect its validity. As being itself a mode of
acquiring ownership, donation results in an
effective transfer of title over the property from the
donor to the donee.3 In donations of immovable
property, the law requires for its validity that it
should be contained in a public document,
specifying therein the property donated and the
value of the charges which the donee must
satisfy.4 The Civil Code provides, however, that
"titles of ownership, or other rights over immovable
property, which are not duly inscribed or annotated
in the Registry of Property (now Registry of Land
Titles and Deeds) shall not prejudice third
persons."5 It is enough, between the parties to a
donation of an immovable property, that the
donation be made in a public document but, in
order to bind third persons, the donation must be
registered in the registry of Property (Registry of
Land Titles and Deeds).6 Consistently, Section 50 of
Act No. 496 (Land Registration Act), as so amended
by Section 51 of P.D. No. 1529 (Property
Registration Decree), states:
"SECTION 51. Conveyance and other
dealings by registered owner.- An owner
of registered land may convey, mortgage,
lease, charge or otherwise deal with the
same in accordance with existing laws. He
may use such forms of deeds, mortgages,
leases or other voluntary instruments as
are sufficient in law. But no deed,
mortgage, lease, or other voluntary
instrument, except a will purporting to
convey or affect registered land shall take
effect as a conveyance or bind the land,
but shall operate only as a contract
between the parties and as evidence of
authority to the Register of Deeds to make
registration.
"The act of registration shall be the
operative act to convey or affect the land
insofar as third persons are
concerned, and in all cases under this
Decree, the registration shall be made in
the office of the Register of Deeds for the
province or city where the land lies."
(emphasis supplied)
A person dealing with registered land may thus
safely rely on the correctness of the certificate of
title issued therefore, and he is not required to go
beyond the certificate to determine the condition of
the property7 but, where such party has knowledge
of a prior existing interest which is unregistered at
the time he acquired a right thereto, his knowledge
of that prior unregistered interest would have the
effect of registration as regards to him.8
The appellate court was not without substantial
basis when it found petitioner to have had
knowledge of the donation at the time it entered
into the two agreements with Dr. Roque. During
their negotiation, petitioner, through its
representatives, was apprised of the fact that the
subject property actually belonged to respondent.
It was not shown that Dr. Felipe C. Roque had been
an authorized agent of respondent.
In a contract of agency, the agent acts in
representation or in behalf of another with the
consent of the latter.9Article 1878 of the Civil Code
expresses that a special power of attorney is
necessary to lease any real property to another
person for more than one year. The lease of real
property for more than one year is considered not
merely an act of administration but an act of strict
dominion or of ownership. A special power of
attorney is thus necessary for its execution through entered into between Dr. Felipe C. Roque and
an agent.1awphil.ne+ Shoppers Paradise Realty & Development
Corporation not to be binding on respondent is
AFFIRMED. No costs.
The Court cannot accept petitioners argument that
respondent is guilty of laches. Laches, in its real
sense, is the failure or neglect, for an unreasonable SO ORDERED.
and unexplained length of time, to do that which,
by exercising due diligence, could or should have
been done earlier; it is negligence or omission to
assert a right within a reasonable time, warranting
a presumption that the party entitled to assert it
either has abandoned or declined to assert it.10

Respondent learned of the contracts only in

February 1994 after the death of his father, and in
the same year, during November, he assailed the
validity of the agreements. Hardly, could
respondent then be said to have neglected to
assert his case for unreasonable length of time.

Neither is respondent estopped from repudiating

the contracts. The essential elements of estoppel in
pais, in relation to the party sought to be estopped,
are: 1) a clear conduct amounting to false
representation or concealment of material facts or,
at least, calculated to convey the impression that
the facts are otherwise than, and inconsistent with,
those which the party subsequently attempts to
assert; 2) an intent or, at least, an expectation,
that this conduct shall influence, or be acted upon
by, the other party; and 3) the knowledge, actual
or constructive, by him of the real facts. 11 With
respect to the party claiming the estoppel, the
conditions he must satisfy are: 1) lack of
knowledge or of the means of knowledge of the
truth as to the facts in question; 2) reliance, in
good faith, upon the conduct or statements of the
party to be estopped; and 3) action or inaction
based thereon of such character as to change his
position or status calculated to cause him injury or
prejudice.12 It has not been shown that respondent
intended to conceal the actual facts concerning the
property; more importantly, petitioner has been
shown not to be totally unaware of the real
ownership of the subject property.

Altogether, there is no cogent reason to reverse the

Court of Appeals in its assailed decision.

WHEREFORE, the petition is DENIED, and the

decision of the Court of Appeals declaring the
contract of lease and memorandum of agreement
G.R. No. 151963 September 9, 2004 Philippines, via Subic Bay International "On November 6, 1997, IBASPI, through
Airport, at Olongapo City. API, through counsel, sent another letter to API
Captain Alex Villacampa, its Vice-President demanding the payment of the said
AIR PHILIPPINES CORPORATION, petitioner,
for Operations, engaged the services amount of US$65,131.55 and 10%
vs.
of International Business Aviation commission. API ignored the letter.
INTERNATIONAL BUSINESS AVIATION
Services Phils., Inc.,IBASPI for Another letter of demand was sent to API
SERVICES PHILS., INC., respondent.
brevity, as its agent to look for and by IBASPI, on December 1, 1997, to no
engage, for API, a business enterprise to avail. On January 6, 1998, IBASPI wrote
DECISION ferry the airplane. IBASPI did engage the another letter of demand to API enclosing
services of Universal Weather [&] Aviation, therein a Summary Statement of
PANGANIBAN, J.: Inc., UWAI for brevity, to ferry the Account of Air Philippines, Inc. on the
airplane x x x to the Philippines, via the disputed amount of US $37,400.00,
International Airport at Subic Bay, appending thereto the
Simple negligence of counsel binds the client. This Olongapo City, where API took delivery of documentations/billings in support of said
is especially true in this case in which the client the plane. claim and 10% commission. On February
was as negligent as its lawyer. Hence, petitioner 26, 1998, API drew Check No. 0521300
must bear the consequences and accept its defeat. against its account, with the Bank of
After all, the winning party did not take advantage "UWAI sent its Billings to API, through
Philippine Islands, in the amount
of petitioners fault, but merely complied with the IBASPI, in the total amount of
of P200,000.00, payable to the order of
law in prosecuting its valid and proven claims. US$65,131.55 for its services for the ferry
IBASPI, and offered the same in partial
of the airplane. API failed to pay its
first payment of its account with IBASPI
account. On December 2, 1996, the
The Case for the amount of US$65,131.55 as stated
[respondent] wrote a letter to the
in the letter of the [petitioner]. The
[petitioner] urging the payment of the bills
[respondent] accepted the said check with
Before us is a Petition for Review1 under Rule 45 of of UWAI. The [petitioner] refused.
a simultaneous Receipt/Agreement
the Rules of Court, assailing the September 28, Exasperated, UWAI blamed IBASPI for the
executed by IBASPI and API, the latter,
2001 Decision2 and the January 25, 2002 intransigence of API. IBASPI was impelled
through Atty. Manolito A. Manalo, the
Resolution3 of the Court of Appeals (CA) in CA-GR to write a letter to UWAI to clarify critical
Officer-in-Charge of the Legal Department
CV No. 64283. The dispositive part of the assailed points of APIs account. Unable to bear the
of the API, obliging itself to pay the
Decision reads: pressure of UWAI and to avoid corporate
balance of its account. API in the said
embarrassment for APIs intransigence,
Agreement waived demand by IBASPI.
IBASPI was impelled to advance and pay
"IN THE LIGHT OF ALL THE Despite demands of IBASPI, via its letter,
to UWAI the said amount of US$65,131.55
FOREGOING, the appeal of the dated April 22, 1998, API refused to pay
for the account of API. The latter was
[petitioner] is partially GRANTED in that the balance of its account with IBASPI.
informed by UWAI of the payment of said
the Decision appealed from
account by IBASPI via its letter dated May
is AFFIRMED with the modification that
12, 1997. "On June 24, 1998, IBASPI filed a
the award for a brokers fee in favor of the
complaint against API, with the Regional
[respondent] is deleted."4
Trial Court of Pasay City, for the collection
"IBASPI forthwith wrote a letter to API
of its account, including a 10% brokers
demanding refund to IBASPI the amount it
The assailed Resolution denied reconsideration of fee, praying that, after due proceedings,
advanced to UWAI for the account of API.
the Decision. judgment be rendered in its favor as
IBASPI received, via an informant, a copy
follows:
of a Memorandum of Rodolfo Estrellado,
The Facts the President and Chief Executive Officer
of API, dated July 29, 1997, to the WHEREFORE, [respondent]
The facts are narrated by the CA as follows: President of API, recommending that the respectfully prays of this
latter pay only the amount of Honorable Court to render
US$27,730.60, with a recommendation judgment:
"The Air Philippines, Inc., API for brevity, that IBASPI be required to submit
was in need of the services of a business documentations/billings in support of the
establishment to ferry its B-737 airplane, 1) Ordering the
difference of US$37,400.00. However, no
with Registry Number RP C1938, from the [petitioner] to pay the
payment was effected by API.
United States of America to the [respondent] the sum of
 US$59,798.22 x x x or
its equivalent in legal
tender with interest at
the legal rate from May
1997 until full payment;
2) Ordering the
[petitioner] to pay the
[respondent] further
sum of US$6,513.00 or
its equivalent in legal
tender as intermediarys receipt of their demand letter[.]
commission;
3) Ordering the
[petitioner] to pay the
[respondent] another
sum of US$13,026.00 or
its equivalent in legal
tender as actual
damages in the form of
attorneys fees; [petitioner] would be more than
4) Ordering the
[petitioner] to pay the
[respondent] expenses
of litigation as can be
proved;
5) Ordering the
[petitioner] to pay the
costs of the suit; and,
6) [Respondent] prays
for such further or other
relief as may be deemed
just or equitable.
"The [respondent] appended to its
complaint the Receipt/Agreement
executed by the [petitioner], on March 20,
1998. In its Unverified Answer, API
alleged, inter alia, by way of
Affirmative Allegations, that:
8. In support of the foregoing
denials and by way of affirmative
allegations, [petitioner] states:
9. On 6 November 1997, we
received a letter from
[respondent] demanding
payment of $65,131.00 allegedly
for the ferry flight services
rendered by Universal and
brokered by [respondent].
10. On 1 December 1997 and 12
January 1998, we sent letters to
[respondent] acknowledging
However, we mentioned in the
letters that we needed time to
process the documents
submitted by [respondent] to
support their claim.
11. APC made it very clear that if
an obligation on the part of
[petitioner] is proven to exist,
willing to settle the obligation.
12. In fact, as mentioned in the
complaint, [petitioner] made a
payment of P200,000.00 to cover
claims which [petitioner] did not
contest; [petitioner] opted not to
settle the balance of the claim
pending verification of the
submitted supporting documents.
13. [Petitioner] verbally
requested [respondent] to further
substantiate its claim by sending
their accountants to the offices of
APC[.]
14. [Respondent] did not heed
allowing the [respondent] to adduce its
this request; thus, APC could not
release any other amounts to
Clerk of Court, who was designated, as
cover the claim of [respondent.]
the [respondent], ex parte. On January
15. The documents sent by
[respondent] were not
accompanied by any explanation
and were merely a loose
collection of statements from
various companies[.]
16. Thus, [petitioner] was
surprised when [respondent] filed
the instant complaint[,] for[,] as
far as the former [was]
concerned[,] the accounting of
the claim was nowhere near
definite nor clear[.]
"On November 17, 1998, the Court issued
a Pre-Trial Notice setting the pre-trial
conference on December 7, 1998, at 8:30
x x x in the morning, requiring the parties
to file their respective Pre-Trial Brief at
least two (2) days before the scheduled
pre-trial. The [respondent] did file its Pre-
Trial Brief[,] but the [petitioner] did not.
During the pre-trial, on December 7, 1998,
Atty. Manolito Manalo, counsel of the
[petitioner], appeared[,] but without any
Special Power of Attorney from the
[petitioner]. The Court granted the
[petitioner] a period of ten (10) days, from
said date, within which to file its Pre-Trial
Brief and Special Power of Attorney
executed by the [petitioner] in favor of its
counsel. In the meantime, the pre-trial
was reset to January 11, 1999 at the same
time. However, the [petitioner] failed to
file its Pre-Trial Brief. On January 11,
1999, at 9:20 x x x in the morning, the
[petitioner] filed an Urgent Ex-Parte
Motion for Extension of Time to File
Pre-Trial Brief and For Resetting of
Pre-Trial Conference, with a plea to the
Branch Clerk of Court to submit the said
motion for consideration of the Court
immediately upon receipt thereof. When
the case was called for pre-trial, there was
no appearance for the [petitioner] and its
counsel. The Court issued an Order
denying the motion of the [petitioner] and
evidence, ex parte, before the Branch
Commissioner, to receive the evidence of
13, 1999, the [petitioner] filed with the
Court another Urgent Ex-Parte Motion
for Extension of Time to File Pre-Trial
Brief and for Resetting of Pre-Trial
Conference. On January 15, 1999, the
[petitioner] filed a Motion for
Reconsideration of the Order of the
Court, dated January 11, 1999. The
[petitioner] appended to its motion the
Affidavit of Atty. Manolito Manalo, its
counsel, stating the reason for his failure
to appear at the pre-trial conference on
January 11, 1999. On January 22, 1999,
the Court issued an Order denying the
Motion for Reconsideration of the
[petitioner]. On January 25, 1999, the
[respondent] did adduce testimonial and
documentary evidence in support of its
complaint.
"Among the documentary evidence
adduced by the [respondent] were the
xerox copy of the Certification of
Captain Alex Villacampa, and the
Memorandum of Rodolfo Estrellado.
"On April 7, 1999, the Court rendered
judgment in favor of the [respondent] and
against the [petitioner], the decretal
portion of which reads as follows:
WHEREFORE, IN VIEW OF THE
FOREGOING uncontroverted and
substantiated evidences of the
[respondent], judgment is hereby
rendered in favor of the
[respondent] and against the
[petitioner] ordering the latter to
pay the former the following:
1. the amount of
US59,798.22 dollars or
its equivalent in legal
tender plus interest at
the legal rate from May,
1997 until fully paid;
2. the amount of
US6,513.00 or its
equivalent as
intermediarys
commission;
3. [P]50,000.00 as and
for attorneys fees; and,
Costs of suit.
SO ORDERED.
"The [petitioner] filed a Motion for New
Trial on the grounds that: (a) it was
deprived of its day in court due to the
gross negligence of its former counsel,
Atty. Manolito A. Manalo; (b) the
Receipt/Agreement executed by Atty.
Manolito A. Manalo, in behalf of the
[petitioner], was unauthorized as there
was no Resolution of the Board of
Directors authorizing him to execute said
Receipt/Agreement and, hence, said
counsel acted beyond the scope of his
authority; (c) the claim of IBASPI was
excessive and unjustified; [and] (d) the
[petitioner] never agreed to pay the
[respondent] a commission of 10% of the
billings of UWAI.
"On July 26, 1999, the Court issued a
Resolution denying the Motion for
New Trial of the [petitioner]. The latter
forthwith interposed its appeal, from said
Decision and Resolution of the Court a
quo."5
Ruling of the Court of Appeals
Affirming the Decision of the lower court with some
modification, the CA ruled that under the Rules of
Civil Procedure, petitioner could not avail itself of a
new trial, because its former counsel was guilty of
only simple -- not gross -- negligence. In addition,
petitioner, being equally negligent as its counsel,
could notbe relieved from the effects of its
negligence. Thus, it was held liable for
US$59,798.22 and attorneys fees, but not for the
10 percent commission or brokers fee, for which
the requisite quantum of evidence in its favor had
not been mustered by respondent.
Hence this Petition.6
The Issues
Petitioner submits the following issues for our
consideration:
"1. Whether or not the Honorable Court of
Appeals ruled in accordance with
prevailing laws and jurisprudence when it
upheld the ruling of the Honorable Trial
Court denying the Motion for New Trial
dated April 27, 1999 despite the fact that
the gross negligence, incompetence and
dishonesty of Petitioner APCs former
counsel, Atty. Manolito A. Manalo, have
effectively denied Petitioner APC of its day
in court.
"2. Whether or not the Honorable Court of
Appeals ruled in accordance with
prevailing laws and jurisprudence when it
took cognizance of and/or gave credence
to the Memorandum of Rodolfo
Estrellado, and the Billings of Universal
Weather as well as the
documents/receipts in support thereof
despite the fact that they are clearly
hearsay and have no probative value
considering that Luisito Nazareno, the lone
witness of Respondent IBAS, had no
personal knowledge of the contents and/or
factual bases thereof and failed to
properly authenticate and/or identify the
same.
"3. Whether or not the Honorable Court of
Appeals ruled in accordance with
prevailing laws and jurisprudence when it
took cognizance of and/or gave credence
to the Receipt/Agreement dated March 20,
1998 despite the fact that Atty. Manolito A.
Manalo was not authorized to execute
[the] same for and [in] behalf of Petitioner
APC.
"4. Whether or not the Honorable Court of
Appeals ruled in accordance with
prevailing laws and jurisprudence when it
upheld the ruling of the Honorable Trial
Court that Petitioner APC is liable to pay
and/or reimburse Respondent IBAS for the
payments allegedly made by the latter to
Universal Weather despite the fact that
the claims submitted by Universal
Weather and/or Respondent IBAS were
patently baseless and/or unsubstantiated.
 "5. Whether or not the Honorable Court of
Appeals ruled in accordance with
prevailing laws and jurisprudence when it
upheld the ruling of the Honorable Trial
Court that Respondent IBAS is entitled to
legal interest and attorneys fees despite
the fact that it has failed to establish its
claims against Petitioner APC."7
These issues all boil down into two: first, whether
the Motion for New Trial should be denied; and
second, in the event of such denial, whether the
monetary awards were duly proven.
The Courts Ruling
The Petition has no merit.
First Issue:
New Trial Not Warranted by Simple
Negligence of Counsel
Axiomatic is the rule that "negligence of counsel
binds the client."8 The basis is the tenet that an act
performed by counsel within the scope of a
"general or implied authority"9 is regarded as an
act of the client.10 "Consequently, the mistake or
negligence of counsel may result in the rendition of
an unfavorable judgment against the client."11
While the application of this general rule certainly
depends upon the surrounding circumstances of a
given case,12 there are exceptions recognized by
this Court: "(1) where reckless or gross negligence
of counsel deprives the client of due process of
law;13 (2) when its application will result in outright
deprivation of the clients liberty or property; 14 or
(3) where the interests of justice 15 so
require."16 Woefully none of these exceptions apply
herein. Thus, the Court cannot "step in and accord
relief"17 to petitioner, even if it may have
suffered18 by reason of its own arrant fatuity.
First, as aptly determined by the appellate court,
petitioners counsel is guilty of simple, not gross,
negligence. We cannot consider as gross
negligence his resort to dilatory schemes, such as
(1) the filing of at least three motions to extend the
filing of petitioners Answer; (2) his nonappearance
during the scheduled pretrials; and (3) the failure
to file petitioners pretrial Brief, even after the filing
of several Motions to extend the date for
filing.19 There was only a plain "disregard of some
duty imposed by law,"20 a slight want of care that
"circumstances reasonably impose," 21 and a mere
failure to exercise that degree of care 22 that an
ordinarily prudent person would take under the
circumstances. There was neither a total
abandonment or disregard of petitioners case nor
a showing of conscious indifference to or utter
disregard of consequences.23
Because "pre-trial is essential in the simplification
and the speedy disposition of
disputes,"24 nonobservance of its rules "may result
in prejudice to a partys substantive rights." 25 Such
rules are "not technicalities which the parties may
ignore or trifle with."26 The Rules of Court cannot be
"ignored at will and at random to the prejudice of
the orderly presentation and assessment of the
issues and their just resolution."27
Counsels patent carelessness in citing conflicting
reasons in his Motions for Reconsideration verily
displays his lack of competence,28 diligence29 and
candor,30 but not his recklessness or total want of
care.
Indeed, the lawyers failure to live up to the
dictates of the canons of the legal profession
makes him answerable to both his profession and
his employer.31
Second, the negligence of petitioner and that of its
counsel are concurrent.32 As an artificial being
whose juridical personality is created by fiction of
law,33 petitioner "can only exercise its powers and
transact its business through the instrumentalities
of its board of directors, and through its officers
and agents, when authorized by resolution or its
by-laws."34 Atty. Manalo is an employee, not an
outsider hired by petitioner on a retainer basis. In
fact, he is the officer-in-charge of its Legal
Department.
There is no showing that he was not authorized to
exercise the powers of the corporation or to
transact its business, particularly the handling of its
legal affairs. Besides, it is presumed that the
ordinary course of business has been
followed.35 Therefore, counsels corporate acts are
supposed to be known and assented to by
petitioner.
For petitioner to feign and repeatedly insist upon a
lack of awareness of the progress of an important
litigation is to unmask a penchant for the ludicrous.
Although it expects counsel to amply protect its
interest, it cannot just sit back, relax and await the
outcome of its case.36 In keeping with the normal
course of events, it should have taken the initiative
"of making the proper inquiries from its counsel
and the trial court as to the status of its case" 37 and
of extending to him the "necessary
assistance."38 For its failure to do so, it has only
itself to blame. Indeed, from lethargy is misfortune
born.
It is of no consequence that its Human Resources
and Personnel Departments were not aware of the
progress of its case. Of judicial notice is the fact
that a corporation has much leeway in determining
which of its units, singly or in consonance with
others, is responsible for specific functions. Yet, it is
unusual that these departments were tasked with
monitoring the progress of legal matters involving
petitioner. Nonetheless, having assigned these
matters to them, it should have undertaken prompt
and proper monitoring and reporting thereof. Again,
for its failure to do so, it has only itself to blame.
These departments do get involved in finance and
accounting, especially in budget preparation and
payroll computation, but billing and collection are
hardly tangential to their concerns.
Third, there was no denial of due process 39 to
petitioner. Under the Rules of Court, an aggrieved
party may ask for a new trial on the ground of
excusable negligence,40 but this was not proved in
this case.41 "Negligence, to be excusable, must be
one which ordinary diligence and prudence could
not have guarded against"42 and by reason of which
the rights of an aggrieved party have probably
been impaired.43
The test of excusable negligence is whether a party
has acted "with ordinary prudence while x x x
transacting important business." 44 The reasons
raised by petitioner in urging for a new trial do not
meet this test; they are flimsy. As we mentioned
nearly thirty years ago, "[p]arties and counsel
would be well advised to avoid such attempts to
befuddle the issues as invariably they will be
exposed for what they are, certainly unethical and
degrading to the dignity of the law profession." 45
"The essence of due process is to be found in the
reasonable opportunity to be heard and submit any
evidence one may have in support of ones
defense."46 Where the opportunity to be heard,
either through verbal arguments or pleadings, is
accorded, and the party can "present its side"47 or
defend its "interest in due course,"48 "there is no
denial of procedural due process."49 Petitioner has
been given its chance, and after being declared in
default, judgment has not been automatically
"rendered in favor of the non-defaulting party." 50
Rather, judgment was made only after carefully
weighing the evidence presented. Substantive and
adjective laws do complement each other 51 "in the
just and speedy resolution of the dispute between
the parties."52
Petitioner was not deprived of its day in court.
Actually, it never even complained against the
manner in which its counsel had handled the
case,53 until late in the day. It must therefore "bear
the consequences"54 of its faulty choice of counsel
whom it hired itself and whom it had "full authority
to fire at any time and replace with
another."55 Moreover, in all the pertinent cases
cited by petitioner, the denial of due process was
attributable to the gross negligence of retained
counsels, who had either been single practitioners
or law firms; none had referred to counsels who,
like Atty. Manalo, were employees of the aggrieved
party.
Fourth, the negligence of petitioners counsel did
not result in the outright deprivation of its property.
In fact, it intractably refused to comply with its
obligation to reimburse respondent, after having
already generated profits from operating the
ferried unit. When sued, it simply relied upon its
own dillydallying counsel without even monitoring
the progress of his work. Now it tries to pass the
buck entirely to him, after he has been relieved and
replaced by another. Throughout the course of
litigation, none of its assets was reduced; on the
contrary, its fleet of aircraft even increased. While
it has incurred legal expenses, it has also earned
interest on money that should have been
reimbursed to respondent.
Fifth, the interests of justice require that positive
law be equally observed. Petitioner has not
sufficiently proved the injustice of holding it liable
for the negligence of its counsel. On the contrary,
there is a preponderance of evidence56 to
demonstrate that both law and justice demand
otherwise. Much leniency has already been shown
by the lower court to petitioner, but "aequetas
nunquam contravenit legis."57 Equity never
contravenes the law.58
For these reasons, the rendition of an unfavorable
judgment against petitioner by reason of its
counsels simple negligence is therefore apropos.
To hold otherwise and grant a new trial will never
put an end to any litigation,59"as there is a new
counsel to be hired every time it is shown that the
prior one had not been sufficiently diligent,
experienced or learned."60
Second Issue:
Monetary Awards Sufficiently Established by
a Preponderance of Evidence
As correctly put by the appellate court, the
Receipt/Agreement executed by the parties
validated the inter-office Memorandum that
petitioner issued on July 29, 1997, and the set of
Billings it had received from respondent in 1996.
Liability per Receipt/Agreement and Interest
Thereon
First, the Receipt/Agreement was entered into by
respondent and petitioner, which was represented
by its agent Atty. Manalo. As an agent, he rendered
service to, and did something in representation 61 or
on behalf of, his principal62 and with its
consent63 and authority. It cannot be denied that,
on its part, there was an actual intent to appoint its
counsel;64 and, on the latters part, 65 to accept the
appointment and "act on it." 66
A corporation, as "a juridical person separate and
distinct from its stockholders," 67 may act "through
its officers or agents in the normal course of
business."68 Thus, the general principles of agency
govern its relationship with its officers or agents,
subject to the articles of incorporation, bylaws and
other relevant provisions of law.69
Second, even assuming that Atty. Manalo exceeded
his authority, petitioner is solidarily liable with him
if it allowed him "to act as though he had full
powers."70 Moreover, as for any obligation wherein
the agent has exceeded his power, the principal is
not bound except when there is
ratification,71 express or tacit.72
Estoppel likewise applies. For one, respondent
lacked "knowledge and x x x the means of
knowledge of the truth as to the facts in
question";73 namely, whether petitioners counsel
had any authority to bind his principal. Moreover,
respondent relied "in good faith" 74 upon petitioners
conduct and statements; and its action "based
thereon [was] of such character as to change the
position or status of the party claiming the
estoppel, to his injury, detriment or prejudice." 75 If
it was also true that petitioners counsel exceeded
his authority in entering into the
Receipt/Agreement, the negligence or omission of
petitioner to assert its right within a reasonable
time only warranted a presumption that it either
abandoned or declined to assert it.76
Third, while it is true that a special power of
attorney (SPA) is necessary to a compromise, it is
equally true that the herein Receipt/Agreement was
not a compromise.77 The payment was made in the
ordinary course of business. Whether total or
partial, the payment of an ordinary obligation 78 is
neither included among nor of a character similar
to the instances enumerated in Article 1878 of the
Civil Code.79 All that the law requires is a general
power,80 not an SPA.
Moreover, the Receipt/Agreement is not a promise
to pay that "amounts to an offer to compromise
and requires a special power of attorney or the
express consent of petitioner." 81 A compromise
agreement is "a contract whereby the parties, by
making reciprocal concessions, avoid a litigation or
put an end to one already commenced." 82 No such
reciprocal concessions83 were made in this case.
Thus, the Receipt/Agreement is but an outright
admission of petitioner of its obligation, after
making partial payment, to pay the balance of its
account. And even if we were to consider the same
as a compromise, from its nature as a contract, the
absence of an SPA does not render it void, but
merely unenforceable.84
Fourth, in its Answer,85 petitioner failed to deny
under oath the genuineness and due execution of
the Receipt/Agreement, which is thus deemed
admitted.86 Indeed, before a private document
offered as authentic is received in evidence, its due
execution and authenticity must be proved.
However, after it has been offered, failure to deny
it under oath87 amounts to its admissibility.88 The
"party whose signature it bears admits that he
signed it or that it was signed by another for him
with his authority;89 that at the time it was signed it
was in words and figures exactly as set out in the
pleading of the party relying upon it; that the
document was delivered; and that any formal
requisites required by law, x x x which it lacks, are
waived by him."90 The Receipt/Agreement is thus
an instrument that is admittedly not "spurious,
counterfeit or of different import on its face from
the one executed."91
Fifth, what respondent has paid, it may demand
from petitioner; and even if the payment was made
without the knowledge or against the will of the
latter, respondent can still recover insofar as such
payment was beneficial to petitioner.92 Such
payment cannot be considered as one that is
neither due under the provisions of solutio
indebiti93 nor recoverable from the creditor by
respondent;94 the latters right is against petitioner
whose obligation it has paid in advance.95
Sixth, the Memorandum and the Billings have
probative value. While it is true that Nazareno 96 did
not have any personal knowledge of the contents
thereof, nevertheless, these two documents were
validated by the Receipt/Agreement. Petitioners
Memorandum contained a recommendation to pay
respondent the amount of US$27,730.60 and to
require additional documentation in support of the
balance. In compliance, a Summary of Statement
of Account dated January 6, 199897 was sent to and
received by petitioner, substantiating it to the
extent of US$37,400.95. Not only did these
amounts sum up to a total of US$65,131.55, the
unsettled account indicated in the Billings, but
these are also unrefuted by petitioner. In fact, the
Receipt/Agreement executed two months later did
not contest this balance, although unvalued
therein. When a party fails to object to hearsay
evidence,98 such party is deemed to have waived
its right to do so; thus, "the evidence offered may
be admitted,"99 though its weight must still be
measured by the court.
Seventh, the accounting required by petitioner was
not a legal impediment to the obligation. There was
in fact no indication that the obligation was subject
to such a condition. A pure obligation is
demandable at once,100 and there is nothing to
exempt petitioner from compliance therewith. 101 In
addition, it would be preposterous for it to issue a
corporate check102 -- without any condition or
reservation -- and even waive a demand for
payment of the balance, if it did not recognize its
obligation in the first place.
Eighth, the obligation consisted in the payment of a
sum of money, and petitioner incurred in delay;
hence, there being no stipulation to the contrary,
the indemnity for damages shall be the payment of
legal interest, which is six percent (6%) per
annum.103 Such interest may be allowed upon
damages awarded for a clear breach of contract.104
Commission or Brokers Fee
Indeed, "only questions of law105 may be raised in a
petition for review on certiorari under Rule 45 of
the Rules of Court."106 Questions of fact cannot be
the subject of this mode of appeal,107 for this Court
-- we have repeatedly emphasized -- is "not a trier
of facts."108 One of the exceptions to this rule,
however, is when the factual findings of the CA and
the trial court are contradictory.109
The lower court held petitioner liable for the 10
percent brokers fee, but the appellate court found
otherwise. It is true that respondent -- on
commission basis -- engaged itself as a broker to
negotiate "contracts relative to property," 110 the
custody of which it had no concern over; to never
act "in its own name but in the name of those who
employed"111 it; and "to bring parties together x x x
in matters of trade, commerce or
navigation."112However, we agree with the CA that
respondents entitlement to a brokers fee should
have been adequately proven.
The March 19, 1997 Certification issued by Captain
Villacampa is inadmissible in evidence. It was a
mere reproduction of an original that had never
been produced or offered in evidence.113 Under the
best evidence rule114 as applied to documentary
evidence, no evidence shall be admissible other
than the original itself when the subject of inquiry
is its contents.115 Since none of the exceptions to
this rule has been proven,116 "secondary or
substitutionary evidence"117 is not permitted.118
It is of no moment that Nazareno testified as to the
intermediarys commission in open court. Whether
the Certification has actually been executed cannot
be proved by his mere testimony, because he was
not a signatory to the document. His assertion was
bare and untested. Without substantiation, "such
testimony is considered hearsay."119 Witnesses can
testify only to those facts that they know of their
personal knowledge or are derived from their own
perception.120 Unlike the unvalued balance in the
Receipt/Agreement, the brokers fee herein has not
been supported by any admissible evidence other
than the demand letters sent by respondents
counsel.
Attorneys Fees
Attorneys fees may be recovered, since petitioner
has compelled respondent to incur expenses to
protect the latters interest121 in reimbursement.
Besides, it is clear from the Receipt/Agreement that
petitioner is obliged to pay 10 percent of the
principal, as attorneys fees.
In sum, petitioner is liable for the unpaid balance of
respondents claim amounting to US$59,798.22 or
its equivalent in legal tender under the
Receipt/Agreement, including legal interest from
May 12, 1997 until fully paid; and for attorneys
fees of 10 percent of this unpaid balance, excluding
interest. No brokers fee can be charged, as it has
not been proven by respondent. Since the counsel
of petitioner is guilty of simple negligence only, and
since it was equally negligent as he, no new trial
can be allowed.
WHEREFORE, the Petition is hereby DENIED, and
the assailed Decision and Resolution AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 140667 August 12, 2004
WOODCHILD HOLDINGS, INC., petitioner,
vs.
ROXAS ELECTRIC AND CONSTRUCTION
COMPANY, INC., respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the
Decision1 of the Court of Appeals in CA-G.R. CV No.
56125 reversing the Decision 2 of the Regional Trial
Court of Makati, Branch 57, which ruled in favor of
the petitioner.
The Antecedents
The respondent Roxas Electric and Construction
Company, Inc. (RECCI), formerly the Roxas Electric
and Construction Company, was the
owner of two parcels of land, identified as Lot No.
491-A-3-B-1 covered by Transfer Certificate of Title
(TCT) No. 78085 and Lot No. 491-A-3-B-2 covered
by TCT No. 78086. A portion of Lot No. 491-A-3-B-1
which abutted Lot No. 491-A-3-B-2 was a dirt road
accessing to the Sumulong Highway, Antipolo,
Rizal.
At a special meeting on May 17, 1991, the
respondent's Board of Directors approved a
resolution authorizing the corporation, through its
president, Roberto B. Roxas, to sell Lot No. 491-A-3-
B-2 covered by TCT No. 78086, with an area of
7,213 square meters, at a price and under such
terms and conditions which he deemed most
reasonable and advantageous to the corporation;
and to execute, sign and deliver the pertinent sales
documents and receive the proceeds of the sale for
and on behalf of the company.3
Petitioner Woodchild Holdings, Inc. (WHI) wanted to
buy Lot No. 491-A-3-B-2 covered by TCT No. 78086
on which it planned to construct its warehouse
building, and a portion of the adjoining lot, Lot No.
491-A-3-B-1, so that its 45-foot container van would
be able to readily enter or leave the property. In a
Letter to Roxas dated June 21, 1991, WHI President
Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2
under stated terms and conditions for P1,000 per
square meter or at the price of P7,213,000. 4 One of
the terms incorporated in Dy's offer was the
following provision:
5. This Offer to Purchase is made on the
representation and warranty of the
OWNER/SELLER, that he holds a good and
registrable title to the property, which
shall be conveyed CLEAR and FREE of all
liens and encumbrances, and that the
area of 7,213 square meters of the subject
property already includes the area on
which the right of way traverses from the
main lot (area) towards the exit to the
Sumulong Highway as shown in the
location plan furnished by the
Owner/Seller to the buyer. Furthermore, in
the event that the right of way is
insufficient for the buyer's purposes
(example: entry of a 45-foot container),
the seller agrees to sell additional square
meter from his current adjacent property
to allow the buyer to full access and full
use of the property.5
Roxas indicated his acceptance of the offer on page
2 of the deed. Less than a month later or on July 1,
1991, Roxas, as President of RECCI, as vendor, and
Dy, as President of WHI, as vendee, executed a
contract to sell in which RECCI bound and obliged
itself to sell to Dy Lot No. 491-A-3-B-2 covered by
TCT No. 78086 for P7,213,000. 6 On September 5,
1991, a Deed of Absolute Sale 7 in favor of WHI was
issued, under which Lot No. 491-A-3-B-2 covered by
TCT No. 78086 was sold for P5,000,000, receipt of
which was acknowledged by Roxas under the
following terms and conditions:
The Vendor agree (sic), as it hereby
agrees and binds itself to give Vendee the
beneficial use of and a right of way from
Sumulong Highway to the property herein
conveyed consists of 25 square meters
wide to be used as the latter's egress from
and ingress to and an additional 25 square
meters in the corner of Lot No. 491-A-3-B-
1, as turning and/or maneuvering area for
Vendee's vehicles.
The Vendor agrees that in the event that
the right of way is insufficient for the
Vendee's use (ex entry of a 45-foot
container) the Vendor agrees to sell
additional square meters from its current
adjacent property to allow the Vendee full
access and full use of the property.
lessor, and Ponderosa, as lessee, executed a
The Vendor hereby undertakes and
agrees, at its account, to defend the title
of the Vendee to the parcel of land and
improvements herein conveyed, against
all claims of any and all persons or
entities, and that the Vendor hereby
warrants the right of the Vendee to
possess and own the said parcel of land
and improvements thereon and will
defend the Vendee against all present and
future claims and/or action in relation
thereto, judicial and/or administrative. In
particular, the Vendor shall eject all
existing squatters and occupants of the
premises within two (2) weeks from the
signing hereof. In case of failure on the
part of the Vendor to eject all occupants
and squatters within the two-week period
or breach of any of the stipulations,
covenants and terms and conditions
herein provided and that of contract to sell
dated 1 July 1991, the Vendee shall have
the right to cancel the sale and demand
reimbursement for all payments made to
the Vendor with interest thereon at 36%
per annum.8
On September 10, 1991, the Wimbeco Builder's,
Inc. (WBI) submitted its quotation for P8,649,000 to
WHI for the construction of the warehouse building
on a portion of the property with an area of 5,088
square meters.9 WBI proposed to start the project
on October 1, 1991 and to turn over the building to
WHI on February 29, 1992.10
In a Letter dated September 16, 1991, Ponderosa
Leather Goods Company, Inc. confirmed its lease
agreement with WHI of a 5,000-square-meter
portion of the warehouse yet to be constructed at
the rental rate of P65 per square meter. Ponderosa
emphasized the need for the warehouse to be
ready for occupancy before April 1, 1992. 11 WHI
accepted the offer. However, WBI failed to
commence the construction of the warehouse in
October 1, 1991 as planned because of the
presence of squatters in the property and
suggested a renegotiation of the contract after the
squatters shall have been evicted.12 Subsequently,
the squatters were evicted from the property.
On March 31, 1992, WHI and WBI executed a
Letter-Contract for the construction of the
warehouse building for P11,804,160.13 The
contractor started construction in April 1992 even
before the building officials of Antipolo City issued
a building permit on May 28, 1992. After the
warehouse was finished, WHI issued on March 21,
1993 a certificate of occupancy by the building
official. Earlier, or on March 18, 1993, WHI, as
contract of lease over a portion of the property for
a monthly rental of P300,000 for a period of three
years from March 1, 1993 up to February 28,
1996.14
In the meantime, WHI complained to Roberto Roxas
that the vehicles of RECCI were parked on a portion
of the property over which WHI had been granted a
right of way. Roxas promised to look into the
matter. Dy and Roxas discussed the need of the
WHI to buy a 500-square-meter portion of Lot No.
491-A-3-B-1 covered by TCT No. 78085 as provided
for in the deed of absolute sale. However, Roxas
died soon thereafter. On April 15, 1992, the WHI
wrote the RECCI, reiterating its verbal requests to
purchase a portion of the said lot as provided for in
the deed of absolute sale, and complained about
the latter's failure to eject the squatters within the
three-month period agreed upon in the said deed.
The WHI demanded that the RECCI sell a portion of
Lot No. 491-A-3-B-1 covered by TCT No. 78085 for
its beneficial use within 72 hours from notice
thereof, otherwise the appropriate action would be
filed against it. RECCI rejected the demand of WHI.
WHI reiterated its demand in a Letter dated May
29, 1992. There was no response from RECCI.
On June 17, 1992, the WHI filed a complaint against
the RECCI with the Regional Trial Court of Makati,
for specific performance and damages, and
alleged, inter alia, the following in its complaint:
5. The "current adjacent property" referred
to in the aforequoted paragraph of the
Deed of Absolute Sale pertains to the
property covered by Transfer Certificate of
Title No. N-78085 of the Registry of Deeds
of Antipolo, Rizal, registered in the name
of herein defendant Roxas Electric.
6. Defendant Roxas Electric in patent
violation of the express and valid terms of
the Deed of Absolute Sale unjustifiably
refused to deliver to Woodchild Holdings
the stipulated beneficial use and right of
way consisting of 25 square meters and
55 square meters to the prejudice of the
plaintiff.
7. Similarly, in as much as the 25 square
meters and 55 square meters alloted to
Woodchild Holdings for its beneficial use is
inadequate as turning and/or maneuvering
area of its 45-foot container van,
Woodchild Holdings manifested its
intention pursuant to para. 5 of the Deed
of Sale to purchase additional square
meters from Roxas Electric to allow it full
access and use of the purchased property,
however, Roxas Electric refused and failed
to merit Woodchild Holdings' request
contrary to defendant Roxas Electric's
obligation under the Deed of Absolute Sale
(Annex "A").
8. Moreover, defendant, likewise, failed to
eject all existing squatters and occupants
of the premises within the stipulated time
frame and as a consequence thereof,
plaintiff's planned construction has been
considerably delayed for seven (7) months
due to the squatters who continue to
trespass and obstruct the subject
property, thereby Woodchild Holdings
incurred substantial losses amounting to
P3,560,000.00 occasioned by the
increased cost of construction materials
and labor.
9. Owing further to Roxas Electric's
deliberate refusal to comply with its
obligation under Annex "A," Woodchild
Holdings suffered unrealized income of
P300,000.00 a month or P2,100,000.00
supposed income from rentals of the
subject property for seven (7) months.
10. On April 15, 1992, Woodchild Holdings
made a final demand to Roxas Electric to
comply with its obligations and warranties
under the Deed of Absolute Sale but
notwithstanding such demand, defendant
Roxas Electric refused and failed and
continue to refuse and fail to heed
plaintiff's demand for compliance.
Copy of the demand letter dated April 15,
1992 is hereto attached as Annex "B" and
made an integral part hereof.
11. Finally, on 29 May 1991, Woodchild
Holdings made a letter request addressed
to Roxas Electric to particularly annotate
on Transfer Certificate of Title No. N-78085
the agreement under Annex "A" with
respect to the beneficial use and right of
way, however, Roxas Electric unjustifiably
ignored and disregarded the same.
Copy of the letter request dated 29 May
1992 is hereto attached as Annex "C" and
made an integral part hereof.
12. By reason of Roxas Electric's
continuous refusal and failure to comply
with Woodchild Holdings' valid demand for
compliance under Annex "A," the latter
was constrained to litigate, thereby
incurring damages as and by way of
attorney's fees in the amount of
P100,000.00 plus costs of suit and
expenses of litigation.15
The WHI prayed that, after due proceedings,
judgment be rendered in its favor, thus:
WHEREFORE, it is respectfully prayed that
judgment be rendered in favor of
Woodchild Holdings and ordering Roxas
Electric the following:
a) to deliver to Woodchild Holdings the
beneficial use of the stipulated 25 square
meters and 55 square meters;
b) to sell to Woodchild Holdings additional
25 and 100 square meters to allow it full
access and use of the purchased property
pursuant to para. 5 of the Deed of
Absolute Sale;
c) to cause annotation on Transfer
Certificate of Title No. N-78085 the
beneficial use and right of way granted to
Woodchild Holdings under the Deed of
Absolute Sale;
d) to pay Woodchild Holdings the amount
of P5,660,000.00, representing actual
damages and unrealized income;
e) to pay attorney's fees in the amount of
P100,000.00; and
f) to pay the costs of suit.
Other reliefs just and equitable are prayed
for.16
In its answer to the complaint, the RECCI alleged
that it never authorized its former president,
Roberto Roxas, to grant the beneficial use of any
portion of Lot No. 491-A-3-B-1, nor agreed to sell
any portion thereof or create a lien or burden
thereon. It alleged that, under the Resolution
approved on May 17, 1991, it merely authorized
Roxas to sell Lot No. 491-A-3-B-2 covered by TCT
No. 78086. As such, the grant of a right of way and
the agreement to sell a portion of Lot No. 491-A-3-
B-1 covered by TCT No. 78085 in the said deed
are ultra vires. The RECCI further alleged that the
provision therein that it would sell a portion of Lot
No. 491-A-3-B-1 to the WHI lacked the essential
elements of a binding contract.17
In its amended answer to the complaint, the RECCI
alleged that the delay in the construction of its
warehouse building was due to the failure of the
WHI's contractor to secure a building permit
thereon.18
During the trial, Dy testified that he told Roxas that
the petitioner was buying a portion of Lot No. 491-
A-3-B-1 consisting of an area of 500 square meters,
for the price of P1,000 per square meter.
On November 11, 1996, the trial court rendered
judgment in favor of the WHI, the decretal portion
of which reads:
WHEREFORE, judgment is hereby
rendered directing defendant:
(1) To allow plaintiff the beneficial use of
the existing right of way plus the
stipulated 25 sq. m. and 55 sq. m.;
(2) To sell to plaintiff an additional area of
500 sq. m. priced at P1,000 per sq. m. to
allow said plaintiff full access and use of
the purchased property pursuant to Par. 5
of their Deed of Absolute Sale;
(3) To cause annotation on TCT No. N-
78085 the beneficial use and right of way
granted by their Deed of Absolute Sale;
(4) To pay plaintiff the amount of
P5,568,000 representing actual damages
and plaintiff's unrealized income;
(5) To pay plaintiff P100,000 representing
attorney's fees; and
To pay the costs of suit.
SO ORDERED.19
The trial court ruled that the RECCI was estopped
from disowning the apparent authority of Roxas
under the May 17, 1991 Resolution of its Board of
Directors. The court reasoned that to do so would
prejudice the WHI which transacted with Roxas in
good faith, believing that he had the authority to
bind the WHI relating to the easement of right of
way, as well as the right to purchase a portion of
Lot No. 491-A-3-B-1 covered by TCT No. 78085.
The RECCI appealed the decision to the CA, which
rendered a decision on November 9, 1999
reversing that of the trial court, and ordering the
dismissal of the complaint. The CA ruled that,
under the resolution of the Board of Directors of the
RECCI, Roxas was merely authorized to sell Lot No.
491-A-3-B-2 covered by TCT No. 78086, but not to
grant right of way in favor of the WHI over a portion
of Lot No. 491-A-3-B-1, or to grant an option to the
petitioner to buy a portion thereof. The appellate
court also ruled that the grant of a right of way and
an option to the respondent were so lopsided in
favor of the respondent because the latter was
authorized to fix the location as well as the price of
the portion of its property to be sold to the
respondent. Hence, such provisions contained in
the deed of absolute sale were not binding on the
RECCI. The appellate court ruled that the delay in
the construction of WHI's warehouse was due to its
fault.
The Present Petition
The petitioner now comes to this Court asserting
that:
I.
THE COURT OF APPEALS ERRED IN
HOLDING THAT THE DEED OF ABSOLUTE
SALE (EXH. "C") IS ULTRA VIRES.
II.
THE COURT OF APPEALS GRAVELY ERRED
IN REVERSING THE RULING OF THE COURT
A QUO ALLOWING THE PLAINTIFF-
APPELLEE THE BENEFICIAL USE OF THE
EXISTING RIGHT OF WAY PLUS THE
STIPULATED 25 SQUARE METERS AND 55
SQUARE METERS BECAUSE THESE ARE
VALID STIPULATIONS AGREED BY BOTH
PARTIES TO THE DEED OF ABSOLUTE SALE
(EXH. "C").
III.
THERE IS NO FACTUAL PROOF OR
EVIDENCE FOR THE COURT OF APPEALS
TO RULE THAT THE STIPULATIONS OF THE
DEED OF ABSOLUTE SALE (EXH. "C")
WERE DISADVANTAGEOUS TO THE
APPELLEE, NOR WAS APPELLEE DEPRIVED
OF ITS PROPERTY WITHOUT DUE
PROCESS.
IV.
IN FACT, IT WAS WOODCHILD WHO WAS
DEPRIVED OF PROPERTY WITHOUT DUE
PROCESS BY THE ASSAILED DECISION.
V.
THE DELAY IN THE CONSTRUCTION WAS
DUE TO THE FAILURE OF THE APPELLANT
TO EVICT THE SQUATTERS ON THE LAND
AS AGREED IN THE DEED OF ABSOLUTE
SALE (EXH. "C").
VI.
THE COURT OF APPEALS GRAVELY ERRED
IN REVERSING THE RULING OF THE COURT
A QUO DIRECTING THE DEFENDANT TO
PAY THE PLAINTIFF THE AMOUNT OF
P5,568,000.00 REPRESENTING ACTUAL
DAMAGES AND PLAINTIFF'S UNREALIZED
INCOME AS WELL AS ATTORNEY'S FEES.20
The threshold issues for resolution are the
following: (a) whether the respondent is bound by
the provisions in the deed of absolute sale granting
to the petitioner beneficial use and a right of way
over a portion of Lot
No. 491-A-3-B-1 accessing to the Sumulong
Highway and granting the option to the petitioner
to buy a portion thereof, and, if so, whether such
agreement is enforceable against the respondent;
(b) whether the respondent failed to eject the
squatters on its property within two weeks from the
execution of the deed of absolute sale; and, (c)
whether the respondent is liable to the petitioner
for damages.
On the first issue, the petitioner avers that, under
its Resolution of May 17, 1991, the respondent
authorized Roxas, then its president, to grant a
right of way over a portion of Lot No. 491-A-3-B-1 in
favor of the petitioner, and an option for the
respondent to buy a portion of the said property.
The petitioner contends that when the respondent
sold Lot No. 491-A-3-B-2 covered by TCT No. 78086,
it (respondent) was well aware of its obligation to
provide the petitioner with a means of ingress to or
egress from the property to the Sumulong
Highway, since the latter had no adequate outlet to
the public highway. The petitioner asserts that it
agreed to buy the property covered by TCT No.
78085 because of the grant by the respondent of a
right of way and an option in its favor to buy a
portion of the property covered by TCT No. 78085.
It contends that the respondent never objected to
Roxas' acceptance of its offer to purchase the
property and the terms and conditions therein; the
respondent even allowed Roxas to execute the
deed of absolute sale in its behalf. The petitioner
asserts that the respondent even received the
purchase price of the property without any
objection to the terms and conditions of the said
deed of sale. The petitioner claims that it acted in
good faith, and contends that after having been
benefited by the said sale, the respondent is
estopped from assailing its terms and conditions.
The petitioner notes that the respondent's Board of
Directors never approved any resolution rejecting
the deed of absolute sale executed by Roxas for
and in its behalf. As such, the respondent is obliged
to sell a portion of Lot No. 491-A-3-B-1 covered by
TCT No. 78085 with an area of 500 square meters
at the price of P1,000 per square meter, based on
its evidence and Articles 649 and 651 of the New
Civil Code.
For its part, the respondent posits that Roxas was
not so authorized under the May 17, 1991
Resolution of its Board of Directors to impose a
burden or to grant a right of way in favor of the
petitioner on Lot No. 491-A-3-B-1, much less
convey a portion thereof to the petitioner. Hence,
the respondent was not bound by such provisions
contained in the deed of absolute sale. Besides, the
respondent contends, the petitioner cannot enforce
its right to buy a portion of the said property since
there was no agreement in the deed of absolute
sale on the price thereof as well as the specific
portion and area to be purchased by the petitioner.
We agree with the respondent.
In San Juan Structural and Steel Fabricators, Inc. v.
Court of Appeals,21 we held that:
A corporation is a juridical person separate
and distinct from its stockholders or
members. Accordingly, the property of the
corporation is not the property of its
stockholders or members and may not be
sold by the stockholders or members
without express authorization from the
corporation's board of directors. Section
23 of BP 68, otherwise known as the
Corporation Code of the Philippines,
provides:
"SEC. 23. The Board of Directors
or Trustees. Unless otherwise
provided in this Code, the
corporate powers of all
corporations formed under this
Code shall be exercised, all
business conducted and all
property of such corporations
controlled and held by the board
of directors or trustees to be
elected from among the holders
of stocks, or where there is no
stock, from among the members
of the corporation, who shall hold
office for one (1) year and until
their successors are elected and
qualified."
Indubitably, a corporation may act only
through its board of directors or, when
authorized either by its by-laws or by its
board resolution, through its officers or
agents in the normal course of business.
 The general principles of agency govern
the relation between the corporation and
its officers or agents, subject to the
articles of incorporation, by-laws, or
relevant provisions of law. 22
Generally, the acts of the corporate officers within
the scope of their authority are binding on the
corporation. However, under Article 1910 of the
New Civil Code, acts done by such officers beyond
the scope of their authority cannot bind the
corporation unless it has ratified such acts
expressly or tacitly, or is estopped from denying
them:
Art. 1910. The principal must comply with
all the obligations which the agent may
have contracted within the scope of his
authority.
As for any obligation wherein the agent
has exceeded his power, the principal is
not bound except when he ratifies it
expressly or tacitly.
Thus, contracts entered into by corporate
officers beyond the scope of authority are
unenforceable against the corporation
unless ratified by the corporation.23
In BA Finance Corporation v. Court of Appeals,24 we
also ruled that persons dealing with an assumed
agency, whether the assumed agency be a general
or special one, are bound at their peril, if they
would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of
authority, and in case either is controverted, the
burden of proof is upon them to establish it.
In this case, the respondent denied authorizing its
then president Roberto B. Roxas to sell a portion of
Lot No. 491-A-3-B-1 covered by TCT No. 78085, and
to create a lien or burden thereon. The petitioner
was thus burdened to prove that the respondent so
authorized Roxas to sell the same and to create a
lien thereon.
Central to the issue at hand is the May 17, 1991
Resolution of the Board of Directors of the
respondent, which is worded as follows:
RESOLVED, as it is hereby resolved, that
the corporation, thru the President, sell to
any interested buyer, its 7,213-sq.-meter
property at the Sumulong Highway,
Antipolo, Rizal, covered by Transfer
Certificate of Title No. N-78086, at a price
and on terms and conditions which he
deems most reasonable and
advantageous to the corporation;
FURTHER RESOLVED, that Mr. ROBERTO B.
ROXAS, President of the corporation, be,
as he is hereby authorized to execute,
sign and deliver the pertinent sales
documents and receive the proceeds of
sale for and on behalf of the company.25
Evidently, Roxas was not specifically authorized
under the said resolution to grant a right of way in
favor of the petitioner on a portion of Lot No. 491-
A-3-B-1 or to agree to sell to the petitioner a
portion thereof. The authority of Roxas, under the
resolution, to sell Lot No. 491-A-3-B-2 covered by
TCT No. 78086 did not include the authority to sell
a portion of the adjacent lot, Lot No. 491-A-3-B-1, or
to create or convey real rights thereon. Neither
may such authority be implied from the authority
granted to Roxas to sell Lot No. 491-A-3-B-2 to the
petitioner "on such terms and conditions which he
deems most reasonable and advantageous." Under
paragraph 12, Article 1878 of the New Civil Code, a
special power of attorney is required to convey real
rights over immovable property.26 Article 1358 of
the New Civil Code requires that contracts which
have for their object the creation of real rights over
immovable property must appear in a public
document.27 The petitioner cannot feign ignorance
of the need for Roxas to have been specifically
authorized in writing by the Board of Directors to
be able to validly grant a right of way and agree to
sell a portion of Lot No. 491-A-3-B-1. The rule is
that if the act of the agent is one which requires
authority in writing, those dealing with him are
charged with notice of that fact.28
Powers of attorney are generally construed strictly
and courts will not infer or presume broad powers
from deeds which do not sufficiently include
property or subject under which the agent is to
deal.29 The general rule is that the power of
attorney must be pursued within legal strictures,
and the agent can neither go beyond it; nor beside
it. The act done must be legally identical with that
authorized to be done. 30 In sum, then, the consent
of the respondent to the assailed provisions in the
deed of absolute sale was not obtained; hence, the
assailed provisions are not binding on it.
We reject the petitioner's submission that, in
allowing Roxas to execute the contract to sell and
the deed of absolute sale and failing to reject or
disapprove the same, the respondent thereby gave
him apparent authority to grant a right of way over
Lot No. 491-A-3-B-1 and to grant an option for the
respondent to sell a portion thereof to the
petitioner. Absent estoppel or ratification, apparent
authority cannot remedy the lack of the written
power required under the statement of frauds. 31 In
addition, the petitioner's fallacy is its wrong
assumption of the unproved premise that the
respondent had full knowledge of all the terms and
conditions contained in the deed of absolute sale
when Roxas executed it.
It bears stressing that apparent authority is based
on estoppel and can arise from two instances: first,
the principal may knowingly permit the agent to so
hold himself out as having such authority, and in
this way, the principal becomes estopped to claim
that the agent does not have such authority;
second, the principal may so clothe the agent with
the indicia of authority as to lead a reasonably
prudent person to believe that he actually has such
authority.32 There can be no apparent authority of
an agent without acts or conduct on the part of the
principal and such acts or conduct of the principal
must have been known and relied upon in good
faith and as a result of the exercise of reasonable
prudence by a third person as claimant and such
must have produced a change of position to its
detriment. The apparent power of an agent is to be
determined by the acts of the principal and not by
the acts of the agent.33
For the principle of apparent authority to apply, the
petitioner was burdened to prove the following: (a)
the acts of the respondent justifying belief in the
agency by the petitioner; (b) knowledge thereof by
the respondent which is sought to be held; and, (c)
reliance thereon by the petitioner consistent with
ordinary care and prudence.34 In this case, there is
no evidence on record of specific acts made by the
respondent35 showing or indicating that it had full
knowledge of any representations made by Roxas
to the petitioner that the respondent had
authorized him to grant to the respondent an
option to buy a portion of Lot No. 491-A-3-B-1
covered by TCT No. 78085, or to create a burden or
lien thereon, or that the respondent allowed him to
do so.
The petitioner's contention that by receiving and
retaining the P5,000,000 purchase price of Lot No.
491-A-3-B-2, the respondent effectively and
impliedly ratified the grant of a right of way on the
adjacent lot, Lot No. 491-A-3-B-1, and to grant to
the petitioner an option to sell a portion thereof, is
barren of merit. It bears stressing that the
respondent sold Lot No. 491-A-3-B-2 to the
petitioner, and the latter had taken possession of
the property. As such, the respondent had the right
to retain the P5,000,000, the purchase price of the
property it had sold to the petitioner. For an act of
the principal to be considered as an implied
ratification of an unauthorized act of an agent,
such act must be inconsistent with any other
hypothesis than that he approved and intended to
adopt what had been done in his
name.36 Ratification is based on waiver the
intentional relinquishment of a known right.
Ratification cannot be inferred from acts that a
principal has a right to do independently of the
unauthorized act of the agent. Moreover, if a
writing is required to grant an authority to do a
particular act, ratification of that act must also be
in writing.37 Since the respondent had not ratified
the unauthorized acts of Roxas, the same are
unenforceable.38 Hence, by the respondent's
retention of the amount, it cannot thereby be
implied that it had ratified the unauthorized acts of
its agent, Roberto Roxas.
On the last issue, the petitioner contends that the
CA erred in dismissing its complaint for damages
against the respondent on its finding that the delay
in the construction of its warehouse was due to its
(petitioner's) fault. The petitioner asserts that the
CA should have affirmed the ruling of the trial court
that the respondent failed to cause the eviction of
the squatters from the property on or before
September 29, 1991; hence, was liable for
P5,660,000. The respondent, for its part, asserts
that the delay in the construction of the petitioner's
warehouse was due to its late filing of an
application for a building permit, only on May 28,
1992.
The petitioner's contention is meritorious. The
respondent does not deny that it failed to cause
the eviction of the squatters on or before
September 29, 1991. Indeed, the respondent does
not deny the fact that when the petitioner wrote
the respondent demanding that the latter cause
the eviction of the squatters on April 15, 1992, the
latter were still in the premises. It was only after
receiving the said letter in April 1992 that the
respondent caused the eviction of the squatters,
which thus cleared the way for the petitioner's
contractor to commence the construction of its
warehouse and secure the appropriate building
permit therefor.
The petitioner could not be expected to file its
application for a building permit before April 1992
because the squatters were still occupying the
property. Because of the respondent's failure to
cause their eviction as agreed upon, the
petitioner's contractor failed to commence the
construction of the warehouse in October 1991 for
the agreed price of P8,649,000. In the meantime,
costs of construction materials spiraled. Under the
construction contract entered into between the
petitioner and the contractor, the petitioner was
obliged to pay P11,804,160,39including the
additional work costing P1,441,500, or a net
increase of P1,712,980.40 The respondent is liable
for the difference between the original cost of
construction and the increase thereon, conformably
to Article 1170 of the New Civil Code, which reads:
Art. 1170. Those who in the performance
of their obligations are guilty of fraud,
negligence, or delay and those who in any
manner contravene the tenor thereof, are
liable for damages.
The petitioner, likewise, lost the amount of
P3,900,000 by way of unearned income from the
lease of the property to the Ponderosa Leather
Goods Company. The respondent is, thus, liable to
the petitioner for the said amount, under Articles
2200 and 2201 of the New Civil Code:
Art. 2200. Indemnification for damages
shall comprehend not only the value of
the loss suffered, but also that of the
profits which the obligee failed to obtain.
Art. 2201. In contracts and quasi-
contracts, the damages for which the
obligor who acted in good faith is liable
shall be those that are the natural and
probable consequences of the breach of
the obligation, and which the parties have
foreseen or could have reasonably
foreseen at the time the obligation was
constituted.
In case of fraud, bad faith, malice or
wanton attitude, the obligor shall be
responsible for all damages which may be
reasonably attributed to the non-
performance of the obligation.
In sum, we affirm the trial court's award of
damages and attorney's fees to the petitioner.
IN LIGHT OF ALL THE FOREGOING, judgment is
hereby rendered AFFIRMING the assailed Decision
of the Court of Appeals WITH MODIFICATION. The
respondent is ordered to pay to the petitioner the
amount of P5,612,980 by way of actual damages
and P100,000 by way of attorney's fees. No costs.
SO ORDERED.
G.R. No. 129919 February 6, 2002 "In due time, third-party defendant Austria filed his
answer.
DOMINION INSURANCE
CORPORATION, petitioner, "Thereafter the pre-trial conference was set on the
vs. following dates: October 18, 1991, November 12,
COURT OF APPEALS, RODOLFO S. GUEVARRA, 1991, March 29, 1991, December 12, 1991, January
and FERNANDO AUSTRIA, respondents. 17, 1992, January 29, 1992, February 28, 1992,
March 17, 1992 and April 6, 1992, in all of which
dates no pre-trial conference was held. The record
DECISION
shows that except for the settings on October 18,
1991, January 17, 1992 and March 17, 1992 which
PARDO, J.: were cancelled at the instance of defendant, third-
party defendant and plaintiff, respectively, the rest
were postponed upon joint request of the parties.
The Case
This is an appeal via certiorari1 from the decision of "On May 22, 1992 the case was again called for
the Court of Appeals2 affirming the decision3 of the pre-trial conference. Only plaintiff and counsel were
Regional Trial Court, Branch 44, San Fernando, present. Despite due notice, defendant and counsel
Pampanga, which ordered petitioner Dominion did not appear, although a messenger, Roy
Insurance Corporation (Dominion) to pay Rodolfo S. Gamboa, submitted to the trial court a handwritten
Guevarra (Guevarra) the sum of note sent to him by defendants counsel which
P156,473.90 representing the total amount instructed him to request for postponement.
Plaintiffs counsel objected to the desired
advanced by Guevarra in the payment of the
postponement and moved to have defendant
claims of Dominions clients.
declared as in default. This was granted by the trial
court in the following order:
The Facts
"ORDER
The facts, as found by the Court of Appeals, are as
follows:
"When this case was called for pre-trial this
afternoon only plaintiff and his counsel Atty. Romeo
"On January 25, 1991, plaintiff Rodolfo S. Guevarra
Maglalang appeared. When shown a note dated
instituted Civil Case No. 8855 for sum of money
May 21, 1992 addressed to a certain Roy who was
against defendant Dominion Insurance Corporation.
requested to ask for postponement, Atty. Maglalang
Plaintiff sought to recover thereunder the sum of
vigorously objected to any postponement on the
P156,473.90 which he claimed to have advanced in
ground that the note is but a mere scrap of paper
his capacity as manager of defendant to satisfy
and moved that the defendant corporation be
certain claims filed by defendants clients.
declared as in default for its failure to appear in
court despite due notice.
"In its traverse, defendant denied any liability to
plaintiff and asserted a counterclaim for
"Finding the verbal motion of plaintiffs counsel to
P249,672.53, representing premiums that plaintiff
be meritorious and considering that the pre-trial
allegedly failed to remit. conference has been repeatedly postponed on
motion of the defendant Corporation, the
"On August 8, 1991, defendant filed a third-party defendant Dominion Insurance Corporation is
complaint against Fernando Austria, who, at the hereby declared (as) in default and plaintiff is
time relevant to the case, was its Regional Manager allowed to present his evidence on June 16, 1992 at
for Central Luzon area. 9:00 oclock in the morning.
"The plaintiff and his counsel are notified of this
order in open court.
"SO ORDERED.
"Plaintiff presented his evidence on June 16, 1992.
This was followed by a written offer of
documentary exhibits on July 8 and a supplemental
offer of additional exhibits on July 13, 1992. The
exhibits were admitted in evidence in an order
dated July 17, 1992.
"On August 7, 1992 defendant corporation filed a
MOTION TO LIFT ORDER OF DEFAULT. It alleged
therein that the failure of counsel to attend the pre-
trial conference was due to an unavoidable
circumstance and that counsel had sent his
representative on that date to inform the trial court
of his inability to appear. The Motion was
vehemently opposed by plaintiff.
"On August 25, 1992 the trial court denied
defendants motion for reasons, among others, that
it was neither verified nor supported by an affidavit
of merit and that it further failed to allege or
specify the facts constituting his meritorious
defense.
"On September 28, 1992 defendant moved for
reconsideration of the aforesaid order. For the first
time counsel revealed to the trial court that the
reason for his nonappearance at the pre-trial
conference was his illness. An Affidavit of Merit
executed by its Executive Vice-President purporting
to explain its meritorious defense was attached to
the said Motion. Just the same, in an Order dated
November 13, 1992, the trial court denied said
Motion.
"On November 18, 1992, the court a quo rendered
judgment as follows:
"WHEREFORE, premises considered, judgment is
hereby rendered ordering:
"1. The defendant Dominion Insurance
Corporation to pay plaintiff the sum of
P156,473.90 representing the total
amount advanced by plaintiff in the
 payment of the claims of defendants
clients;
"2. The defendant to pay plaintiff
P10,000.00 as and by way of attorneys
fees;
"3. The dismissal of the counter-claim of
the defendant and the third-party
complaint;
"4. The defendant to pay the costs of
suit."4
On December 14, 1992, Dominion appealed the
decision to the Court of Appeals.5
On July 19, 1996, the Court of Appeals promulgated
a decision affirming that of the trial court. 6 On
September 3, 1996, Dominion filed with the Court
of Appeals a motion for reconsideration. 7 On July
16, 1997, the Court of Appeals denied the motion. 8
Hence, this appeal.9
The Issues
The issues raised are: (1) whether respondent
Guevarra acted within his authority as agent for
petitioner, and (2) whether respondent Guevarra is
entitled to reimbursement of amounts he paid out
of his personal money in settling the claims of
several insured.
The Court's Ruling
The petition is without merit.
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.10 The basis for
agency is representation.11 On the part of the
principal, there must be an actual intention to
appoint12 or an intention naturally inferrable from
his words or actions;13 and on the part of the agent,
there must be an intention to accept the
appointment and act on it,14 and in the absence of
such intent, there is generally no agency.15
A perusal of the Special Power of Attorney 16 would The agency comprises all the business of the
show that petitioner (represented by third-party principal,20 but, couched in general terms, it is
defendant Austria) and respondent Guevarra limited only to acts of administration.21
intended to enter into a principal-agent
relationship. Despite the word "special" in the title
A general power permits the agent to do all acts for
of the document, the contents reveal that what was
which the law does not require a special
constituted was actually a general agency. The power.22 Thus, the acts enumerated in or similar to
terms of the agreement read: those enumerated in the Special Power of Attorney
do not require a special power of attorney.
"That we, FIRST CONTINENTAL ASSURANCE
COMPANY, INC.,17 a corporation duly organized and Article 1878, Civil Code, enumerates the instances
existing under and by virtue of the laws of the when a special power of attorney is required. The
Republic of the Philippines, xxx represented by the pertinent portion that applies to this case provides
undersigned as Regional Manager, xxx do hereby that:
appoint RSG Guevarra Insurance Services
represented by Mr. Rodolfo Guevarra xxx to be our
Agency Manager in San Fdo., for our place and "Article 1878. Special powers of attorney are
stead, to do and perform the following acts and necessary in the following cases:
things:
"(1) To make such payments as are not usually
"1. To conduct, sign, manager (sic), carry considered as acts of administration;
on and transact Bonding and Insurance
business as usually pertain to a Agency "x x x xxx xxx
Office, or FIRE, MARINE, MOTOR CAR,
PERSONAL ACCIDENT, and BONDING with
"(15) Any other act of strict dominion."
the right, upon our prior written consent,
to appoint agents and sub-agents.
The payment of claims is not an act of
administration. The settlement of claims is not
"2. To accept, underwrite and subscribed
included among the acts enumerated in the Special
(sic) cover notes or Policies of Insurance
Power of Attorney, neither is it of a character
and Bonds for and on our behalf.
similar to the acts enumerated therein. A special
power of attorney is required before respondent
"3. To demand, sue, for (sic) collect, Guevarra could settle the insurance claims of the
deposit, enforce payment, deliver and insured.
transfer for and receive and give effectual
receipts and discharge for all money to
Respondent Guevarras authority to settle claims is
which the FIRST CONTINENTAL
embodied in the Memorandum of Management
ASSURANCE COMPANY, INC.,18 may
Agreement23dated February 18, 1987 which
hereafter become due, owing payable or
enumerates the scope of respondent Guevarras
transferable to said Corporation by reason
duties and responsibilities as agency manager for
of or in connection with the above-
San Fernando, Pampanga, as follows:
mentioned appointment.
"x x x xxx xxx
"4. To receive notices, summons, and legal
processes for and in behalf of the FIRST
CONTINENTAL ASSURANCE COMPANY, "1. You are hereby given authority to
INC., in connection with actions and all settle and dispose of all motor car claims
legal proceedings against the said in the amount of P5,000.00 with prior
Corporation."19 [Emphasis supplied] approval of the Regional Office.
 "2. Full authority is given you on TPPI
claims settlement.
"xxx xxx x x x "24
In settling the claims mentioned above, respondent
Guevarras authority is further limited by the
written standard authority to pay,25 which states
that the payment shall come from respondent
Guevarras revolving fund or collection. The
authority to pay is worded as follows:
"This is to authorize you to withdraw from your
revolving fund/collection the amount of PESOS
__________________ (P ) representing the payment on
the _________________ claim of assured
_______________ under Policy No. ______ in that
accident of ___________ at ____________.
"It is further expected, release papers will be
signed and authorized by the concerned and
attached to the corresponding claim folder after
effecting payment of the claim.
"(sgd.) FERNANDO C. AUSTRIA
Regional Manager"26
[Emphasis supplied]
The instruction of petitioner as the principal could
not be any clearer.1wphi1 Respondent Guevarra
was authorized to pay the claim of the insured, but
the payment shall come from the revolving fund or
collection in his possession.
Having deviated from the instructions of the
principal, the expenses that respondent Guevarra
incurred in the settlement of the claims of the
insured may not be reimbursed from petitioner
Dominion. This conclusion is in accord with Article
1918, Civil Code, which states that:
"The principal is not liable for the expenses
incurred by the agent in the following cases:
"(1) If the agent acted in contravention of
the principals instructions, unless the
latter should wish to avail himself of the
benefits derived from the contract;
"xxx xxx xxx" The Fallo
However, while the law on agency prohibits IN VIEW WHEREOF, we DENY the Petition.
respondent Guevarra from obtaining However, we MODIFY the decision of the Court of
reimbursement, his right to recover may still be Appeals28 and that of the Regional Trial Court,
justified under the general law on obligations and Branch 44, San Fernando, Pampanga, 29 in that
contracts. petitioner is ordered to pay respondent Guevarra
the amount of P112,672.11 representing the total
amount advanced by the latter in the payment of
Article 1236, second paragraph, Civil Code,
the claims of petitioners clients.
provides:
No costs in this instance.
"Whoever pays for another may demand from the
debtor what he has paid, except that if he paid
without the knowledge or against the will of the SO ORDERED.
debtor, he can recover only insofar as the payment
has been beneficial to the debtor."
In this case, when the risk insured against
occurred, petitioners liability as insurer
arose.1wphi1 This obligation was extinguished
when respondent Guevarra paid the claims and
obtained Release of Claim Loss and Subrogation
Receipts from the insured who were paid.
Thus, to the extent that the obligation of the
petitioner has been extinguished, respondent
Guevarra may demand for reimbursement from his
principal. To rule otherwise would result in unjust
enrichment of petitioner.
The extent to which petitioner was benefited by the
settlement of the insurance claims could best be
proven by the Release of Claim Loss and
Subrogation Receipts27 which were attached to the
original complaint as Annexes C-2, D-1, E-1, F-1, G-
1, H-1, I-1 and J-l, in the total amount of
P116,276.95.
However, the amount of the revolving
fund/collection that was then in the possession of
respondent Guevarra as reflected in the statement
of account dated July 11, 1990 would be deducted
from the above amount.
The outstanding balance and the
production/remittance for the period corresponding
to the claims was P3,604.84. Deducting this from
P116,276.95, we get P112,672.11. This is the
amount that may be reimbursed to respondent
Guevarra.
G.R. No. 171460 July 24, 2007
LILLIAN N. MERCADO, CYNTHIA M. FEKARIS,
and JULIAN MERCADO, JR., represented by
their Attorney-In-Fact, ALFREDO M.
PEREZ, Petitioners,
vs.
ALLIED BANKING CORPORATION, Respondent.
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 petitioners Lillian N. Mercado,
Cynthia M. Fekaris and Julian Mercado, Jr.,
represented by their Attorney-In-Fact, Alfredo M.
Perez, seeking to reverse and set aside the
Decision1 of the Court of Appeals dated 12 October
2005, and its Resolution2 dated 15 February 2006
in CA-G.R. CV No. 82636. The Court of Appeals, in
its assailed Decision and Resolution, reversed the
Decision3 of the Regional Trial Court (RTC) of
Quezon City, Branch 220 dated 23 September
2003, declaring the deeds of real estate mortgage
constituted on TCT No. RT-18206 (106338) null and
void. The dispositive portion of the assailed Court
of Appeals Decision thus reads:
WHEREFORE, the appealed decision is REVERSED
and SET ASIDE, and a new judgment is hereby
entered dismissing the [petitioners] complaint.4
Petitioners are heirs of Perla N. Mercado (Perla).
Perla, during her lifetime, owned several pieces of
real property situated in different provinces of the
Philippines.
Respondent, on the other hand, is a banking
institution duly authorized as such under the
Philippine laws.
On 28 May 1992, Perla executed a Special Power of
Attorney (SPA) in favor of her husband, Julian D.
Mercado (Julian) over several pieces of real
property registered under her name, authorizing
the latter to perform the following acts:
1. To act in my behalf, to sell, alienate,
mortgage, lease and deal otherwise over
the different parcels of land described
hereinafter, to wit:
a) Calapan, Oriental Mindoro
Properties covered by Transfer
Certificates of Title Nos. T-53618 -
3,522 Square Meters, T-46810
3,953 Square Meters, T-53140
177 Square Meters, T-21403
263 square Meters, T- 46807 39
Square Meters of the Registry of
Deeds of Oriental Mindoro;
b) Susana Heights, Muntinlupa
covered by Transfer Certificates
of Title Nos. T-108954 600
Square Meters and RT-106338
805 Square Meters of the
Registry of Deeds of Pasig (now
Makati);
c) Personal property 1983 Car
with Vehicle Registration No. R-
16381; Model 1983; Make
Toyota; Engine No. T- 2464
2. To sign for and in my behalf any act of
strict dominion or ownership any sale,
disposition, mortgage, lease or any other
transactions including quit-claims, waiver
and relinquishment of rights in and over
the parcels of land situated in General
Trias, Cavite, covered by Transfer
Certificates of Title Nos. T-112254 and T-
112255 of the Registry of Deeds of Cavite,
in conjunction with his co-owner and in
the person ATTY. AUGUSTO F. DEL
ROSARIO;
3. To exercise any or all acts of strict
dominion or ownership over the above-
mentioned properties, rights and interest
therein. (Emphasis supplied.)
On the strength of the aforesaid SPA, Julian, on 12
December 1996, obtained a loan from the
respondent in the amount of P3,000,000.00,
secured by real estate mortgage constituted on
TCT No. RT-18206 (106338) which covers a parcel
of land with an area of 805 square meters,
registered with the Registry of Deeds of Quezon
City (subject property).5
Still using the subject property as security, Julian
obtained an additional loan from the respondent in
the sum ofP5,000,000.00, evidenced by a
Promissory Note6 he executed on 5 February 1997
as another real estate mortgage (REM).
It appears, however, that there was no property
identified in the SPA as TCT No. RT 18206
(106338) and registered with the Registry of Deeds
of Quezon City. What was identified in the SPA
instead was the property covered by TCT No. RT-
106338 registered with the Registry of Deeds of
Pasig.
Subsequently, Julian defaulted on the payment of
his loan obligations. Thus, respondent initiated
extra-judicial foreclosure proceedings over the
subject property which was subsequently sold at
public auction wherein the respondent was
declared as the highest bidder as shown in the
Sheriffs Certificate of Sale dated 15 January 1998.7
On 23 March 1999, petitioners initiated with the
RTC an action for the annulment of REM constituted
over the subject property on the ground that the
same was not covered by the SPA and that the said
SPA, at the time the loan obligations were
contracted, no longer had force and effect since it
was previously revoked by Perla on 10 March 1993,
as evidenced by the Revocation of SPA signed by
the latter.8
Petitioners likewise alleged that together with the
copy of the Revocation of SPA, Perla, in a Letter
dated 23 January 1996, notified the Registry of
Deeds of Quezon City that any attempt to
mortgage or sell the subject property must be with
her full consent documented in the form of an SPA
duly authenticated before the Philippine Consulate
General in New York. 9
In the absence of authority to do so, the REM
constituted by Julian over the subject property was
null and void; thus, petitioners likewise prayed that
the subsequent extra-judicial foreclosure
proceedings and the auction sale of the subject
property be also nullified.
In its Answer with Compulsory
Counterclaim,10 respondent averred that, contrary
to petitioners allegations, the SPA in favor of Julian
included the subject property, covered by one of
the titles specified in paragraph 1(b) thereof, TCT
No. RT- 106338 registered with the Registry of
Deeds of Pasig (now Makati). The subject property
was purportedly registered previously under TCT
No. T-106338, and was only subsequently
reconstituted as TCT RT-18206 (106338). Moreover,
TCT No. T-106338 was actually registered with the
Registry of Deeds of Quezon City and not before
the Registry of Deeds of Pasig (now Makati).
Respondent explained that the discrepancy in the
designation of the Registry of Deeds in the SPA was
merely an error that must not prevail over the clear
intention of Perla to include the subject property in
the said SPA. In sum, the property referred to in the
SPA Perla executed in favor of Julian as covered by
TCT No. 106338 of the Registry of Deeds of Pasig
(now Makati) and the subject property in the case
at bar, covered by RT 18206 (106338) of the
Registry of Deeds of Quezon City, are one and the
same.
On 23 September 2003, the RTC rendered a
Decision declaring the REM constituted over the
subject property null and void, for Julian was not
authorized by the terms of the SPA to mortgage the
same. The court a quo likewise ordered that the
foreclosure proceedings and the auction sale
conducted pursuant to the void REM, be nullified.
The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the [herein petitioners]
and against the [herein respondent] Bank:
1. Declaring the Real Estate Mortgages
constituted and registered under Entry
Nos. PE-4543/RT-18206 and 2012/RT-
18206 annotated on TCT No. RT-18206
(106338) of the Registry of Deeds of
Quezon City as NULL and VOID;
2. Declaring the Sheriffs Sale and
Certificate of Sale under FRE No. 2217
dated January 15, 1998 over the property
covered by TCT No. RT-18206 (106338) of
the Registry of Deeds of Quezon City as
NULL and VOID;
3. Ordering the defendant Registry of
Deeds of Quezon City to cancel the
annotation of Real Estate Mortgages
appearing on Entry Nos. PE-4543/RT-
18206 and 2012/RT-18206 on TCT No. RT-
18206 (106338) of the Registry of Deeds
of Quezon City;
4. Ordering the [respondent] Bank to
deliver/return to the [petitioners]
represented by their attorney-in-fact
Alfredo M. Perez, the original Owners
Duplicate Copy of TCT No. RT-18206
(106338) free from the encumbrances
referred to above; and
5. Ordering the [respondent] Bank to pay
the [petitioners] the amount
of P100,000.00 as for attorneys fees plus
cost of the suit.
The other claim for damages and counterclaim are
hereby DENIED for lack of merit.11
Aggrieved, respondent appealed the adverse
Decision before the Court of Appeals.
In a Decision dated 12 October 2005, the Court of
Appeals reversed the RTC Decision and upheld the
validity of the REM constituted over the subject
property on the strength of the SPA. The appellate
court declared that Perla intended the subject
property to be included in the SPA she executed in
favor of Julian, and that her subsequent revocation
of the said SPA, not being contained in a public
instrument, cannot bind third persons.
The Motion for Reconsideration interposed by the
petitioners was denied by the Court of Appeals in
its Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision
and Resolution rendered by the Court of Appeals
raising several issues, which are summarized as
follows:
I WHETHER OR NOT THERE WAS A VALID
MORTGAGE CONSTITUTED OVER SUBJECT
PROPERTY.
II WHETHER OR NOT THERE WAS A VALID
REVOCATION OF THE SPA.
III WHETHER OR NOT THE RESPONDENT
WAS A MORTGAGEE-IN- GOOD FAITH.
For a mortgage to be valid, Article 2085 of the Civil
Code enumerates the following essential requisites:
Art. 2085. The following requisites are essential to
the contracts of pledge and mortgage:
(1) That they be constituted to secure the
fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the
absolute owner of the thing pledged or
mortgaged;
(3) That the persons constituting the
pledge or mortgage have the free disposal
of their property, and in the absence
thereof, that they be legally authorized for
the purpose.
Third persons who are not parties to the principal
obligation may secure the latter by pledging or
mortgaging their own property.
In the case at bar, it was Julian who obtained the
loan obligations from respondent which he secured
with the mortgage of the subject property. The
property mortgaged was owned by his wife, Perla,
considered a third party to the loan obligations
between Julian and respondent. It was, thus, a
situation recognized by the last paragraph of
Article 2085 of the Civil Code afore-quoted.
However, since it was not Perla who personally
mortgaged her own property to secure Julians loan
obligations with respondent, we proceed to
determining if she duly authorized Julian to do so
on her behalf.
Under Article 1878 of the Civil Code, a special
power of attorney is necessary in cases where real
rights over immovable property are created or
conveyed.12 In the SPA executed by Perla in favor of
Julian on 28 May 1992, the latter was conferred
with the authority to "sell, alienate, mortgage,
lease and deal otherwise" the different pieces of
real and personal property registered in Perlas
name. The SPA likewise authorized Julian "[t]o
exercise any or all acts of strict dominion or
ownership" over the identified properties, and
rights and interest therein. The existence and due
execution of this SPA by Perla was not denied or
challenged by petitioners.
There is no question therefore that Julian was
vested with the power to mortgage the pieces of
property identified in the SPA. However, as to
whether the subject property was among those
identified in the SPA, so as to render Julians
mortgage of the same valid, is a question we still
must resolve.
Petitioners insist that the subject property was not
included in the SPA, considering that it contained
an exclusive enumeration of the pieces of property
over which Julian had authority, and these include
only: (1) TCT No. T-53618, with an area of 3,522
square meters, located at Calapan, Oriental
Mindoro, and registered with the Registry of Deeds
of Oriental Mindoro; (2) TCT No. T-46810, with an
area of 3,953 square meters, located at Calapan,
Oriental Mindoro, and registered with the Registry
of Deeds of Oriental Mindoro; (3) TCT No. T-53140,
with an area of 177 square meters, located at
Calapan, Oriental Mindoro, and registered with the
Registry of Deeds of Oriental Mindoro; (4) TCT No.
T-21403, with an area of 263 square meters,
located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental
Mindoro; (5) TCT No. T- 46807, with an area of 39
square meters, located at Calapan, Oriental
Mindoro, and registered with the Registry of Deeds
of Oriental Mindoro; (6) TCT No. T-108954, with an
area of 690 square meters and located at Susana
Heights, Muntinlupa; (7) RT-106338 805 Square
Meters registered with the Registry of Deeds of
Pasig (now Makati); and (8) Personal Property
consisting of a 1983 Car with Vehicle Registration
No. R-16381, Model 1983, Make Toyota, and
Engine No. T- 2464. Nowhere is it stated in the SPA
that Julians authority extends to the subject
property covered by TCT No. RT 18206 (106338)
registered with the Registry of Deeds of Quezon
City. Consequently, the act of Julian of constituting
a mortgage over the subject property is
unenforceable for having been done without stipulation shall control. When the language of the
authority. contract is explicit, leaving no doubt as to the
intention of the drafters, the courts may not read
into it [in] any other intention that would contradict
Respondent, on the other hand, mainly hinges its
its main import. The clear terms of the contract
argument on the declarations made by the Court of
should never be the subject matter of
Appeals that there was no property covered by TCT
interpretation. Neither abstract justice nor the rule
No. 106338 registered with the Registry of Deeds of
on liberal interpretation justifies the creation of a
Pasig (now Makati); but there exists a property, the
contract for the parties which they did not make
subject property herein, covered by TCT No. RT-
themselves or the imposition upon one party to a
18206 (106338) registered with the Registry of
contract or obligation not assumed simply or
Deeds of Quezon City. Further verification would
merely to avoid seeming hardships. The true
reveal that TCT No. RT-18206 is merely a
meaning must be enforced, as it is to be presumed
reconstitution of TCT No. 106338, and the property
that the contracting parties know their scope and
covered by both certificates of title is actually
effects.14
situated in Quezon City and not Pasig. From the
foregoing circumstances, respondent argues that
Perla intended to include the subject property in Equally relevant is the rule that a power of attorney
the SPA, and the failure of the instrument to reflect must be strictly construed and pursued. The
the recent TCT Number or the exact designation of instrument will be held to grant only those powers
the Registry of Deeds, should not defeat Perlas which are specified therein, and the agent may
clear intention. neither go beyond nor deviate from the power of
attorney.15 Where powers and duties are specified
and defined in an instrument, all such powers and
After an examination of the literal terms of the SPA,
duties are limited and are confined to those which
we find that the subject property was not among
are specified and defined, and all other powers and
those enumerated therein. There is no obvious
duties are excluded.16 This is but in accord with the
reference to the subject property covered by TCT
disinclination of courts to enlarge the authority
No. RT-18206 (106338) registered with the Registry
granted beyond the powers expressly given and
of Deeds of Quezon City.
those which incidentally flow or derive therefrom as
being usual and reasonably necessary and proper
There was also nothing in the language of the SPA for the performance of such express powers.17
from which we could deduce the intention of Perla
to include the subject property therein. We cannot
Even the commentaries of renowned Civilist
attribute such alleged intention to Perla who
Manresa18 supports a strict and limited construction
executed the SPA when the language of the
of the terms of a power of attorney:
instrument is bare of any indication suggestive of
such intention. Contrariwise, to adopt the intent
theory advanced by the respondent, in the absence The law, which must look after the interests of all,
of clear and convincing evidence to that effect, cannot permit a man to express himself in a vague
would run afoul of the express tenor of the SPA and and general way with reference to the right he
thus defeat Perlas true intention. confers upon another for the purpose of alienation
or hypothecation, whereby he might be despoiled
of all he possessed and be brought to ruin, such
In cases where the terms of the contract are clear
excessive authority must be set down in the most
as to leave no room for interpretation, resort to
formal and explicit terms, and when this is not
circumstantial evidence to ascertain the true intent
done, the law reasonably presumes that the
of the parties, is not countenanced. As aptly stated
principal did not mean to confer it.
in the case of JMA House, Incorporated v. Sta.
Monica Industrial and Development
Corporation,13 thus: In this case, we are not convinced that the property
covered by TCT No. 106338 registered with the
Registry of Deeds of Pasig (now Makati) is the same
[T]he law is that if the terms of a contract are clear
as the subject property covered by TCT No. RT-
and leave no doubt upon the intention of the
18206 (106338) registered with the Registry of
contracting parties, the literal meaning of its
Deeds of Quezon City. The records of the case are
stripped of supporting proofs to verify the
respondents claim that the two titles cover the
same property. It failed to present any certification
from the Registries of Deeds concerned to support
its assertion. Neither did respondent take the effort
of submitting and making part of the records of this
case copies of TCTs No. RT-106338 of the Registry
of Deeds of Pasig (now Makati) and RT-18206
(106338) of the Registry of Deeds of Quezon City,
and closely comparing the technical descriptions of
the properties covered by the said TCTs. The bare
and sweeping statement of respondent that the
properties covered by the two certificates of title
are one and the same contains nothing but empty
imputation of a fact that could hardly be given any
evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not
conferred by Perla with the authority to mortgage
the subject property under the terms of the SPA,
the real estate mortgages Julian executed over the
said property are therefore unenforceable.
Assuming arguendo that the subject property was
indeed included in the SPA executed by Perla in
favor of Julian, the said SPA was revoked by virtue
of a public instrument executed by Perla on 10
March 1993. To address respondents assertion that
the said revocation was unenforceable against it as
a third party to the SPA and as one who relied on
the same in good faith, we quote with approval the
following ruling of the RTC on this matter:
Moreover, an agency is extinguished, among
others, by its revocation (Article 1999, New Civil
Code of the Philippines). The principal may revoke
the agency at will, and compel the agent to return
the document evidencing the agency. Such
revocation may be express or implied (Article
1920, supra).
In this case, the revocation of the agency or Special
Power of Attorney is expressed and by a public
document executed on March 10, 1993.
The Register of Deeds of Quezon City was even
notified that any attempt to mortgage or sell the
property covered by TCT No. [RT-18206] 106338
located at No. 21 Hillside Drive, Blue Ridge, Quezon
City must have the full consent documented in the
form of a special power of attorney duly
authenticated at the Philippine Consulate General,
New York City, N.Y., U.S.A.
The non-annotation of the revocation of the Special
Power of Attorney on TCT No. RT-18206 is of no
consequence as far as the revocations existence
and legal effect is concerned since actual notice is
always superior to constructive notice. The actual
notice of the revocation relayed to defendant
Registry of Deeds of Quezon City is not denied by
either the Registry of Deeds of Quezon City or the
defendant Bank. In which case, there appears no
reason why Section 52 of the Property Registration
Decree (P.D. No. 1529) should not apply to the
situation. Said Section 52 of P.D. No. 1529 provides:
"Section 52. Constructive notice upon registration.
Every conveyance, mortgage, lease, lien,
attachment, order, judgment, instrument or entry
affecting registered land shall, if registered, filed or
entered in the Office of the Register of Deeds for
the province or city where the land to which it
relates lies, be constructive notice to all persons
from the time of such registering, filing or entering.
(Pres. Decree No. 1529, Section 53) (emphasis
ours)
It thus developed that at the time the first loan
transaction with defendant Bank was effected on
December 12, 1996, there was on record at the
Office of the Register of Deeds of Quezon City that
the special power of attorney granted Julian, Sr. by
Perla had been revoked. That notice, works as
constructive notice to third parties of its being filed,
effectively rendering Julian, Sr. without authority to
act for and in behalf of Perla as of the date the
revocation letter was received by the Register of
Deeds of Quezon City on February 7, 1996.19
Given that Perla revoked the SPA as early as 10
March 1993, and that she informed the Registry of
Deeds of Quezon City of such revocation in a letter
dated 23 January 1996 and received by the latter
on 7 February 1996, then third parties to the SPA
are constructively notified that the same had been
revoked and Julian no longer had any authority to
mortgage the subject property. Although the
revocation may not be annotated on TCT No. RT-
18206 (106338), as the RTC pointed out, neither
the Registry of Deeds of Quezon City nor
respondent denied that Perlas 23 January 1996
letter was received by and filed with the Registry of
Deeds of Quezon City. Respondent would have
undoubtedly come across said letter if it indeed
diligently investigated the subject property and the
circumstances surrounding its mortgage.
The final issue to be threshed out by this Court is
whether the respondent is a mortgagee-in-good
faith. Respondent fervently asserts that it exercised
reasonable diligence required of a prudent man in
dealing with the subject property.
Elaborating, respondent claims to have carefully
verified Julians authority over the subject property
which was validly contained in the SPA. It stresses
that the SPA was annotated at the back of the TCT
of the subject property. Finally, after conducting an
investigation, it found that the property covered by
TCT No. 106338, registered with the Registry of
Deeds of Pasig (now Makati) referred to in the SPA,
and the subject property, covered by TCT No.
18206 (106338) registered with the Registry of
Deeds of Quezon City, are one and the same
property. From the foregoing, respondent concluded
that Julian was indeed authorized to constitute a
mortgage over the subject property.
We are unconvinced. The property listed in the real
estate mortgages Julian executed in favor of PNB is
the one covered by "TCT#RT-18206(106338)." On
the other hand, the Special Power of Attorney
referred to TCT No. "RT-106338 805 Square
Meters of the Registry of Deeds of Pasig now
Makati." The palpable difference between the TCT
numbers referred to in the real estate mortgages
and Julians SPA, coupled with the fact that the said
TCTs are registered in the Registries of Deeds of
different cities, should have put respondent on
guard. Respondents claim of prudence is debunked
by the fact that it had conveniently or otherwise
overlooked the inconsistent details appearing on
the face of the documents, which it was relying on
for its rights as mortgagee, and which significantly
affected the identification of the property being
mortgaged. In Arrofo v. Quio,20 we have elucidated
that:
[Settled is the rule that] a person dealing with
registered lands [is not required] to inquire further
than what the Torrens title on its face indicates.
This rule, however, is not absolute but admits of
exceptions. Thus, while its is true, x x x that a
person dealing with registered lands need
not go beyond the certificate of title, it is
likewise a well-settled rule that a purchaser
or mortgagee cannot close his eyes to facts
which should put a reasonable man on his
guard, and then claim that he acted in good
faith under the belief that there was no
defect in the title of the vendor or mortgagor.
His mere refusal to face up the fact that such
defect exists, or his willful closing of his eyes to the
possibility of the existence of a defect in the
vendors or mortgagors title, will not make him an
innocent purchaser for value, if it afterwards
develops that the title was in fact defective, and it
appears that he had such notice of the defect as
would have led to its discovery had he acted with
the measure of precaution which may be required
of a prudent man in a like situation.
By putting blinders on its eyes, and by refusing to
see the patent defect in the scope of Julians
authority, easily discernable from the plain terms of
the SPA, respondent cannot now claim to be an
innocent mortgagee.
Further, in the case of Abad v. Guimba,21 we laid
down the principle that 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, thus:
While [the] one who buys from the registered
owner does not need to look behind the certificate
of title, one who buys from [the] one who is not
[the] registered owner is expected to examine not
only the certificate of title but all 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."22
This principle is applied more strenuously when the
mortgagee is a bank or a banking institution. Thus,
in the case of Cruz v. Bancom
Finance Corporation,23 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.24
Hence, considering that the property being
mortgaged by Julian was not his, and there are
Julian over the subject property cannot be enforced
additional doubts or suspicions as to the real
identity of the same, the respondent bank should
have proceeded with its transactions with Julian
only with utmost caution. As a bank, respondent
must subject all its transactions to the most rigid
scrutiny, since its business is impressed with public
interest and its fiduciary character requires high
standards of integrity and performance.25 Where
respondent acted in undue haste in granting the
mortgage loans in favor of Julian and disregarding
the apparent defects in the latters authority as
agent, it failed to discharge the degree of diligence
required of it as a banking corporation.1awphil
Thus, even granting for the sake of argument that
the subject property and the one identified in the
SPA are one and the same, it would not elevate
respondents status to that of an innocent
mortgagee. As a banking institution, jurisprudence
stringently requires that respondent should take
more precautions than an ordinary prudent man
should, to ascertain the status and condition of the
properties offered as collateral and to verify the
scope of the authority of the agents dealing with
these. Had respondent acted with the required
degree of diligence, it could have acquired
knowledge of the letter dated 23 January 1996 sent
by Perla to the Registry of Deeds of Quezon City
which recorded the same. The failure of the
respondent to investigate into the circumstances
surrounding the mortgage of the subject property
belies its contention of good faith.
On a last note, we find that the real estate
mortgages constituted over the subject property
are unenforceable and not null and void, as ruled
by the RTC. It is best to reiterate that the said
mortgage was entered into by Julian on behalf of
Perla without the latters authority and
consequently, unenforceable under Article 1403(1)
of the Civil Code. Unenforceable contracts are
those which cannot be enforced by a proper action
in court, unless they are ratified, because either
they are entered into without or in excess of
authority or they do not comply with the statute of
frauds or both of the contracting parties do not
possess the required legal capacity. 26 An
unenforceable contract may be ratified, expressly
or impliedly, by the person in whose behalf it has
been executed, before it is revoked by the other
contracting party.27 Without Perlas ratification of
the same, the real estate mortgages constituted by
by any action in court against Perla and/or her
successors in interest.
In sum, we rule that the contracts of real estate
mortgage constituted over the subject property
covered by TCT No. RT 18206 (106338) registered
with the Registry of Deeds of Quezon City are
unenforceable. Consequently, the foreclosure
proceedings and the auction sale of the subject
property conducted in pursuance of these
unenforceable contracts are null and void. This,
however, is without prejudice to the right of the
respondent to proceed against Julian, in his
personal capacity, for the amount of the loans.
WHEREFORE, IN VIEW OF THE FOREGOING, the
instant petition is GRANTED. The Decision dated 12
October 2005 and its Resolution dated 15 February
2006 rendered by the Court of Appeals in CA-G.R.
CV No. 82636, are hereby REVERSED. The Decision
dated 23 September 2003 of the Regional Trial
Court of Quezon City, Branch 220, in Civil Case No.
Q-99-37145, is hereby REINSTATED and
AFFIRMED with modification that the real estate
mortgages constituted over TCT No. RT 18206
(106338) are not null and void but
UNENFORCEABLE. No costs.
SO ORDERED.
G.R. No. 82040 August 27, 1991
BA FINANCE CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS, Hon. Presiding
Judge of Regional Trial Court of Manila,
Branch 43, MANUEL CUADY and LILIA
CUADY, respondents.
Valera, Urmeneta & Associates for petitioner.
Pompeyo L. Bautista for private respondents.
PARAS, J.:p
This is a petition for review on certiorari which
seeks to reverse and set aside (1) the decision of
the Court of Appeals dated July 21, 1987 in CA-G.R.
No. CV-06522 entitled "B.A. Finance Corporation,
Plaintiff-Appellant, vs. Manuel Cuady and Lilia
Cuady, Defendants-Appellees," affirming the
decision of the Regional Trial Court of Manila,
Branch 43, which dismissed the complaint in Civil
Case No. 82-10478, and (2) the resolution dated
February 9, 1988 denying petitioner's motion for
reconsideration.
As gathered from the records, the facts are as
follows:
On July 15, 1977, private respondents Manuel
Cuady and Lilia Cuady obtained from Supercars,
Inc. a credit of P39,574.80, which amount covered
the cost of one unit of Ford Escort 1300, four-door
sedan. Said obligation was evidenced by a
promissory note executed by private respondents
in favor of Supercars, Inc., obligating themselves to
pay the latter or order the sum of P39,574.80,
inclusive of interest at 14% per annum, payable on
monthly installments of P1,098.00 starting August
16, 1977, and on the 16th day of the next 35
months from September 16, 1977 until full
payment thereof. There was also stipulated a
penalty of P10.00 for every month of late
installment payment. To secure the faithful and
prompt compliance of the obligation under the said
promissory note, the Cuady spouses constituted a
chattel mortage on the aforementioned motor
vehicle. On July 25, 1977, Supercars, Inc. assigned
the promissory note, together with the chattel
mortgage, to B.A. Finance Corporation. The Cuadys
paid a total of P36,730.15 to the B.A. Finance
Corporation, thus leaving an unpaid balance of
P2,344.65 as of July 18, 1980. In addition thereto,
the Cuadys owe B.A. Finance Corporation P460.00
representing penalties or surcharges for tardy
monthly installments (Rollo, pp. 27-29).
Parenthetically, the B.A. Finance Corporation, as
the assignee of the mortgage lien obtained the
renewal of the insurance coverage over the
aforementioned motor vehicle for the year 1980
with Zenith Insurance Corporation, when the
Cuadys failed to renew said insurance coverage
themselves. Under the terms and conditions of the
said insurance coverage, any loss under the policy
shall be payable to the B.A. Finance Corporation
(Memorandum for Private Respondents, pp. 3-4).
On April 18, 1980, the aforementioned motor
vehicle figured in an accident and was badly
damaged. The unfortunate happening was reported
to the B.A. Finance Corporation and to the insurer,
Zenith Insurance Corporation. The Cuadys asked
the B.A. Finance Corporation to consider the same
as a total loss, and to claim from the insurer the
face value of the car insurance policy and apply the
same to the payment of their remaining account
and give them the surplus thereof, if any. But
instead of heeding the request of the Cuadys, B.A.
Finance Corporation prevailed upon the former to
just have the car repaired. Not long thereafter,
however, the car bogged down. The Cuadys wrote
B.A. Finance Corporation requesting the latter to
pursue their prior instruction of enforcing the total
loss provision in the insurance coverage. When B.A.
Finance Corporation did not respond favorably to
their request, the Cuadys stopped paying their
monthly installments on the promissory note (Ibid.,
pp. 45).
On June 29, 1982, in view of the failure of the
Cuadys to pay the remaining installments on the
note, B.A. Finance Corporation sued them in the
Regional Trial Court of Manila, Branch 43, for the
recovery of the said remaining installments
(Memorandum for the Petitioner, p. 1).
After the termination of the pre-trial conference,
the case was set for trial on the merits on April 25,
1984. B.A. Finance Corporation's evidence was
presented on even date and the presentation of
Cuady's evidence was set on August 15, 1984. On
August 7,1984, Atty. Noel Ebarle, counsel for the
petitioner, filed a motion for postponement, the
reason being that the "handling" counsel, Atty.
Ferdinand Macibay was temporarily assigned in
Cebu City and would not be back until after August
15, 1984. Said motion was, however, denied by the
trial court on August 10, 1984. On August 15, 1984,
the date of hearing, the trial court allowed private
respondents to adduce evidence ex-parte in the
form of an affidavit to be sworn to before any
authorized officer. B.A. Finance Corporation filed a
motion for reconsideration of the order of the trial
court denying its motion for postponement. Said
motion was granted in an order dated September
26, 1984, thus:
The Court grants plaintiff's
motion for reconsideration dated
August 22, 1984, in the sense
that plaintiff is allowed to adduce
evidence in the form of counter-
affidavits of its witnesses, to be
sworn to before any person
authorized to administer oaths,
within ten days from notice
hereof. (Ibid., pp. 1-2).
B.A. Finance Corporation, however, never complied
with the above-mentioned order, paving the way
for the trial court to render its decision on January
18, 1985, the dispositive portion of which reads as
follows:
IN VIEW WHEREOF, the Court
DISMISSES the complaint without
costs.
SO ORDERED. (Rollo, p. 143)
On appeal, the respondent appellate court *
affirmed the decision of the trial court. The decretal
portion of the said decision reads as follows:
WHEREFORE, after consultation
among the undersigned members
 of this Division, in compliance
with the provision of Section 13,
Article VIII of the Constitution;
and finding no reversible error in
the judgment appealed from, the
same is hereby AFFIRMED,
without any pronouncement as to
costs. (Ibid., p. 33)
B.A. Finance Corporation moved for the
reconsideration of the above decision, but the
motion was denied by the respondent appellate
court in a resolution dated February 9, 1988 (Ibid.,
p. 38).
Hence, this present recourse.
On July 11, 1990, this Court gave due course to the
petition and required the parties to submit their
respective memoranda. The parties having
complied with the submission of their memoranda,
the case was submitted for decision.
The real issue to be resolved in the case at bar is
whether or not B.A. Finance Corporation has waived
its right to collect the unpaid balance of the Cuady
spouses on the promissory note for failure of the
former to enforce the total loss provision in the
insurance coverage of the motor vehicle subject of
the chattel mortgage.
It is the contention of B.A. Finance Corporation that
even if it failed to enforce the total loss provision in
the insurance policy of the motor vehicle subject of
the chattel mortgage, said failure does not operate
to extinguish the unpaid balance on the promissory
note, considering that the circumstances obtaining
in the case at bar do not fall under Article 1231 of
the Civil Code relative to the modes of
extinguishment of obligations (Memorandum for
the Petitioner, p. 11).
On the other hand, the Cuadys insist that owing to
its failure to enforce the total loss provision in the
insurance policy, B.A. Finance Corporation lost not
only its opportunity to collect the insurance
proceeds on the mortgaged motor vehicle in its
capacity as the assignee of the said insurance
proceeds pursuant to the memorandum in the
insurance policy which states that the "LOSS: IF
ANY, under this policy shall be payable to BA
FINANCE CORP., as their respective rights and
interest may appear" (Rollo, p. 91) but also the
remaining balance on the promissory note
(Memorandum for the Respondents, pp. 16-17).
The petition is devoid of merit.
B.A. Finance Corporation was deemed subrogated
to the rights and obligations of Supercars, Inc.
when the latter assigned the promissory note,
together with the chattel mortgage constituted on
the motor vehicle in question in favor of the former.
Consequently, B.A. Finance Corporation is bound by
the terms and conditions of the chattel mortgage
executed between the Cuadys and Supercars, Inc.
Under the deed of chattel mortgage, B.A. Finance
Corporation was constituted attorney-in-fact with
full power and authority to file, follow-up,
prosecute, compromise or settle insurance claims;
to sign execute and deliver the corresponding
papers, receipts and documents to the Insurance
Company as may be necessary to prove the claim,
and to collect from the latter the proceeds of
insurance to the extent of its interests, in the event
that the mortgaged car suffers any loss or damage
(Rollo, p. 89). In granting B.A. Finance Corporation
the aforementioned powers and prerogatives, the
Cuady spouses created in the former's favor an
agency. Thus, under Article 1884 of the Civil Code
of the Philippines, B.A. Finance Corporation is
bound by its acceptance to carry out the agency,
and is liable for damages which, through its non-
performance, the Cuadys, the principal in the case
at bar, may suffer.
Unquestionably, the Cuadys suffered pecuniary loss
in the form of salvage value of the motor vehicle in
question, not to mention the amount equivalent to
the unpaid balance on the promissory note, when
B.A. Finance Corporation steadfastly refused and
refrained from proceeding against the insurer for
the payment of a clearly valid insurance claim, and
continued to ignore the yearning of the Cuadys to
enforce the total loss provision in the insurance
policy, despite the undeniable fact that Rea Auto
Center, the auto repair shop chosen by the insurer
itself to repair the aforementioned motor vehicle,
misrepaired and rendered it completely useless and
unserviceable (Ibid., p. 31).
Accordingly, there is no reason to depart from the
ruling set down by the respondent appellate court.
In this connection, the Court of Appeals said:
... Under the established facts
and circumstances, it is unjust,
unfair and inequitable to require
the chattel mortgagors, appellees
herein, to still pay the unpaid
balance of their mortgage debt
on the said car, the non-payment
of which account was due to the
stubborn refusal and failure of
appellant mortgagee to avail of
the insurance money which
became due and demandable
after the insured motor vehicle
was badly damaged in a
vehicular accident covered by the
insurance risk. ... (Ibid.)
On the allegation that the respondent court's
findings that B.A. Finance Corporation failed to
claim for the damage to the car was not supported
by evidence, the records show that instead of
acting on the instruction of the Cuadys to enforce
the total loss provision in the insurance policy, the
petitioner insisted on just having the motor vehicle
repaired, to which private respondents reluctantly
acceded. As heretofore mentioned, the repair shop
chosen was not able to restore the aforementioned
motor vehicle to its condition prior to the accident.
Thus, the said vehicle bogged down shortly
thereafter. The subsequent request of the Cuadys
for the B.A. Finance Corporation to file a claim for
total loss with the insurer fell on deaf ears,
prompting the Cuadys to stop paying the remaining
balance on the promissory note (Memorandum for
the Respondents, pp. 4-5).
Moreover, B.A. Finance Corporation would have this
Court review and reverse the factual findings of the
respondent appellate court. This, of course, the
Court cannot and will not generally do. It is
axiomatic that the judgment of the Court of
Appeals is conclusive as to the facts and may not
ordinarily be reviewed by the Supreme Court. The
doctrine is, to be sure, subject to certain specific
exceptions none of which, however, obtains in the
instant case (Luzon Brokerage Corporation v. Court
of Appeals, 176 SCRA 483 [1989]).
Finally, B.A. Finance Corporation contends that
respondent trial court committed grave abuses of
discretion in two instances: First, when it denied
the petitioner's motion for reconsideration praying
that the counsel be allowed to cross-examine the
affiant, and; second, when it seriously considered
the evidence adduced ex-parte by the Cuadys, and
heavily relied thereon, when in truth and in fact,
the same was not formally admitted as part of the
evidence for the private respondents
(Memorandum for the Petitioner, p. 10). This Court
does not have to unduly dwell on this issue which
was only raised by B.A. Finance Corporation for the
first time on appeal. A review of the records of the
case shows that B.A. Finance Corporation failed to
directly raise or ventilate in the trial court nor in
the respondent appellate court the validity of the
evidence adduced ex-parte by private respondents.
It was only when the petitioner filed the instant
petition with this Court that it later raised the
aforementioned issue. As ruled by this Court in a
long line of cases, issues not raised and/or
ventilated in the trial court, let alone in the Court of
Appeals, cannot be raised for the first time on
appeal as it would be offensive to the basic rules of
fair play, justice and due process (Galicia v. Polo,
179 SCRA 375 [1989]; Ramos v. Intermediate
Appellate Court, 175 SCRA 70 [1989]; Dulos Realty
& Development Corporation v. Court of Appeals,
157 SCRA 425 [1988]; Dihiansan, et al. v. Court of
Appeals, et al., 153 SCRA 712 [1987]; De la Santa
v. Court of Appeals, et al., 140 SCRA 44 [1985]).

PREMISES CONSIDERED, the instant petition is

DENIED, and the decision appealed from is
AFFIRMED.

SO ORDERED.
G.R. No. 151319 November 22, 2004
MANILA MEMORIAL PARK CEMETERY,
INC., petitioner,
vs.
PEDRO L. LINSANGAN, respondent.
DECISION
TINGA, J.:
For resolution in this case is a classic and
interesting texbook question in the law on agency.
This is a petition for review assailing the
Decision1 of the Court of Appeals dated 22 June
2001, and its Resolution2 dated 12 December 2001
in CA G.R. CV No. 49802 entitled "Pedro L.
Linsangan v. Manila Memorial Cemetery, Inc. et
al.," finding Manila Memorial Park Cemetery, Inc.
(MMPCI) jointly and severally liable with Florencia
C. Baluyot to respondent Atty. Pedro L. Linsangan.
The facts of the case are as follows:
Sometime in 1984, Florencia Baluyot offered Atty.
Pedro L. Linsangan a lot called Garden State at the
Holy Cross Memorial Park owned by petitioner
(MMPCI). According to Baluyot, a former owner of a
memorial lot under Contract No. 25012 was no
longer interested in acquiring the lot and had opted
to sell his rights subject to reimbursement of the
amounts he already paid. The contract was for
P95,000.00. Baluyot reassured Atty. Linsangan that
once reimbursement is made to the former buyer,
the contract would be transferred to him. Atty.
Linsangan agreed and gave Baluyot P35,295.00
representing the amount to be reimbursed to the
original buyer and to complete the down payment
to MMPCI.3 Baluyot issued handwritten and
typewritten receipts for these payments. 4
Sometime in March 1985, Baluyot informed Atty.
Linsangan that he would be issued Contract No.
28660, a new contract covering the subject lot in
the name of the latter instead of old Contract No.
25012. Atty. Linsangan protested, but Baluyot
assured him that he would still be paying the old
price of P95,000.00 with P19,838.00 credited as full
down payment leaving a balance of about
P75,000.00.5
Subsequently, on 8 April 1985, Baluyot brought an
Offer to Purchase Lot No. A11 (15), Block 83,
Garden Estate I denominated as Contract No.
28660 and the Official Receipt No. 118912 dated 6
April 1985 for the amount of P19,838.00. Contract
No. 28660 has a listed price of P132,250.00. Atty.
Linsangan objected to the new contract price, as
the same was not the amount previously agreed
upon. To convince Atty. Linsangan, Baluyot
executed a document6 confirming that while the
contract price is P132,250.00, Atty. Linsangan
would pay only the original price of P95,000.00.
The document reads in part:
The monthly installment will start April 6,
1985; the amount of P1,800.00 and the
difference will be issued as discounted to
conform to the previous price as
previously agreed upon. --- P95,000.00
Prepared by:
(Signed)
(MRS.) FLORENCIA C. BALUYOT
Agency Manager
Holy Cross Memorial Park
4/18/85
Dear Atty. Linsangan:
This will confirm our agreement that while
the offer to purchase under Contract No.
28660 states that the total price of
P132,250.00 your undertaking is to pay
only the total sum of P95,000.00 under
the old price. Further the total sum of
P19,838.00 already paid by you under O.R.
# 118912 dated April 6, 1985 has been
credited in the total purchase price
thereby leaving a balance of P75,162.00
on a monthly installment of P1,800.00
including interests (sic) charges for a
period of five (5) years.
(Signed)
FLORENCIA C. BALUYOT
By virtue of this letter, Atty. Linsangan signed
Contract No. 28660 and accepted Official Receipt
No. 118912. As requested by Baluyot, Atty.
Linsangan issued twelve (12) postdated checks of
P1,800.00 each in favor of MMPCI. The next year,
or on 29 April 1986, Atty. Linsangan again issued
twelve (12) postdated checks in favor of MMPCI.
On 25 May 1987, Baluyot verbally advised Atty.
Linsangan that Contract No. 28660 was cancelled
for reasons the latter could not explain, and
presented to him another proposal for the purchase
of an equivalent property. He refused the new
proposal and insisted that Baluyot and MMPCI
honor their undertaking.
For the alleged failure of MMPCI and Baluyot to
conform to their agreement, Atty. Linsangan filed a
Complaint7for Breach of Contract and Damages
against the former.
Baluyot did not present any evidence. For its part,
MMPCI alleged that Contract No. 28660 was
cancelled conformably with the terms of the
contract8 because of non-payment of
arrearages.9 MMPCI stated that Baluyot was not an
agent but an independent contractor, and as such
was not authorized to represent MMPCI or to use its
name except as to the extent expressly stated in
the Agency Manager Agreement.10 Moreover,
MMPCI was not aware of the arrangements entered
into by Atty. Linsangan and Baluyot, as it in fact
received a down payment and monthly
installments as indicated in the contract. 11 Official
receipts showing the application of payment were
turned over to Baluyot whom Atty. Linsangan had
from the beginning allowed to receive the same in
his behalf. Furthermore, whatever misimpression
that Atty. Linsangan may have had must have been
rectified by the Account Updating Arrangement
signed by Atty. Linsangan which states that he
"expressly admits that Contract No. 28660 'on
account of serious delinquencyis now due for
cancellation under its terms and conditions.'''12
The trial court held MMPCI and Baluyot jointly and
severally liable.13 It found that Baluyot was an
agent of MMPCI and that the latter was estopped
from denying this agency, having received and
enchased the checks issued by Atty. Linsangan and
given to it by Baluyot. While MMPCI insisted that
Baluyot was authorized to receive only the down
payment, it allowed her to continue to receive
postdated checks from Atty. Linsangan, which it in
turn consistently encashed.14
The dispositive portion of the decision reads:
WHEREFORE, judgment by preponderance
of evidence is hereby rendered in favor of
plaintiff declaring Contract No. 28660 as
valid and subsisting and ordering
defendants to perform their undertakings
thereof which covers burial lot No. A11
(15), Block 83, Section Garden I, Holy
Cross Memorial Park located at
Novaliches, Quezon City. All payments
made by plaintiff to defendants should be
credited for his accounts. NO DAMAGES,
NO ATTORNEY'S FEES but with costs
against the defendants.
The cross claim of defendant Manila
Memorial Cemetery Incorporated as
against defendant Baluyot is GRANTED up
to the extent of the costs.
SO ORDERED.15
MMPCI appealed the trial court's decision to the
Court of Appeals.16 It claimed that Atty. Linsangan
is bound by the written contract with MMPCI, the
terms of which were clearly set forth therein and
read, understood, and signed by the former. 17 It
also alleged that Atty. Linsangan, a practicing
lawyer for over thirteen (13) years at the time he
entered into the contract, is presumed to know his
contractual obligations and is fully aware that he
cannot belatedly and unilaterally change the terms
of the contract without the consent, much less the
knowledge of the other contracting party, which
was MMPCI. And in this case, MMPCI did not agree
to a change in the contract and in fact
implemented the same pursuant to its clear terms.
In view thereof, because of Atty. Linsangan's
delinquency, MMPCI validly cancelled the contract.
MMPCI further alleged that it cannot be held jointly
and solidarily liable with Baluyot as the latter
exceeded the terms of her agency, neither did
MMPCI ratify Baluyot's acts. It added that it cannot
be charged with making any misrepresentation, nor
of having allowed Baluyot to act as though she had
full powers as the written contract expressly stated
the terms and conditions which Atty. Linsangan
accepted and understood. In canceling the
contract, MMPCI merely enforced the terms and
conditions imposed therein.18
Imputing negligence on the part of Atty. Linsangan,
MMPCI claimed that it was the former's obligation,
as a party knowingly dealing with an alleged agent,
to determine the limitations of such agent's
authority, particularly when such alleged agent's
actions were patently questionable. According to
MMPCI, Atty. Linsangan did not even bother to
verify Baluyot's authority or ask copies of official
receipts for his payments.19
The Court of Appeals affirmed the decision of the
trial court. It upheld the trial court's finding that
Baluyot was an agent of MMPCI at the time the
disputed contract was entered into, having
represented MMPCI's interest and acting on its
behalf in the dealings with clients and customers.
Hence, MMPCI is considered estopped when it
allowed Baluyot to act and represent MMPCI even
beyond her authority. 20 The appellate court likewise
found that the acts of Baluyot bound MMPCI when
the latter allowed the former to act for and in its
behalf and stead. While Baluyot's authority "may
not have been expressly conferred upon her, the
same may have been derived impliedly by habit or
custom, which may have been an accepted
practice in the company for a long period of
time."21 Thus, the Court of Appeals noted, innocent
third persons such as Atty. Linsangan should not be
prejudiced where the principal failed to adopt the
needed measures to prevent misrepresentation.
Furthermore, if an agent misrepresents to a
purchaser and the principal accepts the benefits of
such misrepresentation, he cannot at the same
time deny responsibility for such
misrepresentation.22 Finally, the Court of Appeals
declared:
There being absolutely nothing on the record that
would show that the court a quo overlooked,
disregarded, or misinterpreted facts of weight and
significance, its factual findings and conclusions
must be given great weight and should not be
disturbed by this Court on appeal.
WHEREFORE, in view of the foregoing, the
appeal is hereby DENIED and the
appealed decision in Civil Case No. 88-
1253 of the Regional Trial Court, National
Capital Judicial Region, Branch 57 of
Makati, is hereby AFFIRMED in toto.
SO ORDERED.23
MMPCI filed its Motion for Reconsideration,24 but the
same was denied for lack of merit.25
In the instant Petition for Review, MMPCI claims
that the Court of Appeals seriously erred in
disregarding the plain terms of the written contract
and Atty. Linsangan's failure to abide by the terms
thereof, which justified its cancellation. In addition,
even assuming that Baluyot was an agent of
MMPCI, she clearly exceeded her authority and
Atty. Linsangan knew or should have known about
this considering his status as a long-practicing
lawyer. MMPCI likewise claims that the Court of
Appeals erred in failing to consider that the facts
and the applicable law do not support a judgment
against Baluyot only "up to the extent of costs." 26
Atty. Linsangan argues that he did not violate the
terms and conditions of the contract, and in fact
faithfully performed his contractual obligations and
complied with them in good faith for at least two
years.27 He claims that contrary to MMPCI's
position, his profession as a lawyer is immaterial to
the validity of the subject contract and the case at
bar.28 According to him, MMPCI had practically
admitted in its Petition that Baluyot was its agent,
and thus, the only issue left to be resolved is
whether MMPCI allowed Baluyot to act as though
she had full powers to be held solidarily liable with
the latter.29
We find for the petitioner MMPCI.
The jurisdiction of the Supreme Court in a petition
for review under Rule 45 of the Rules of Court is
limited to reviewing only errors of law, not fact,
unless the factual findings complained of are
devoid of support by the evidence on record or the
assailed judgment is based on misapprehension of
facts.30 In BPI Investment Corporation v. D.G.
Carreon Commercial Corporation,31 this Court ruled:
There are instances when the findings of
fact of the trial court and/or Court of
Appeals may be reviewed by the Supreme
Court, such as (1) when the conclusion is a
finding grounded entirely on speculation,
surmises and conjectures; (2) when the
inference made is manifestly mistaken,
absurd or impossible; (3) where there is a
grave abuse of discretion; (4) when the
judgment is based on a misapprehension
of facts; (5) when the findings of fact are
conflicting; (6) when the Court of Appeals,
in making its findings, went beyond the
issues of the case and the same is
contrary to the admissions of both
appellant and appellee; (7) when the
findings are contrary to those of the trial
court; (8) when the findings of fact are
conclusions without citation of specific
evidence on which they are based; (9)
when the facts set forth in the petition as
well as in the petitioners' main and reply
briefs are not disputed by the
respondents; and (10) the findings of fact
of the Court of Appeals are premised on
the supposed absence of evidence and
contradicted by the evidence on record.32
In the case at bar, the Court of Appeals committed
several errors in the apprehension of the facts of
the case, as well as made conclusions devoid of
evidentiary support, hence we review its findings of
fact.
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.33 Thus, the
elements of agency are (i) consent, express or
implied, of the parties to establish the relationship;
(ii) the object is the execution of a juridical act in
relation to a third person; (iii) the agent acts as a
representative and not for himself; and (iv) the
agent acts within the scope of his authority. 34
In an attempt to prove that Baluyot was not its
agent, MMPCI pointed out that under its Agency
Manager Agreement; an agency manager such as
Baluyot is considered an independent contractor
and not an agent.35However, in the same contract,
Baluyot as agency manager was authorized to
solicit and remit to MMPCI offers to purchase
interment spaces belonging to and sold by the
latter.36 Notwithstanding the claim of MMPCI that
Baluyot was an independent contractor, the fact
remains that she was authorized to solicit solely for
and in behalf of MMPCI. As properly found both by
the trial court and the Court of Appeals, Baluyot
was an agent of MMPCI, having represented the
interest of the latter, and having been allowed by
MMPCI to represent it in her dealings with its
clients/prospective buyers.
Nevertheless, contrary to the findings of the Court
of Appeals, MMPCI cannot be bound by the contract
procured by Atty. Linsangan and solicited by
Baluyot.
Baluyot was authorized to solicit and remit to
MMPCI offers to purchase interment spaces
obtained on forms provided by MMPCI. The terms of
the offer to purchase, therefore, are contained in
such forms and, when signed by the buyer and an
authorized officer of MMPCI, becomes binding on
both parties.
The Offer to Purchase duly signed by Atty.
Linsangan, and accepted and validated by MMPCI
showed a total list price of P132,250.00. Likewise, it
was clearly stated therein that "Purchaser agrees
that he has read or has had read to him this
agreement, that he understands its terms and
conditions, and that there are no covenants,
conditions, warranties or representations other
than those contained herein." 37 By signing the Offer
to Purchase, Atty. Linsangan signified that he
understood its contents. That he and Baluyot had
an agreement different from that contained in the
Offer to Purchase is of no moment, and should not
affect MMPCI, as it was obviously made outside
Baluyot's authority. To repeat, Baluyot's authority
was limited only to soliciting purchasers. She had
no authority to alter the terms of the written
contract provided by MMPCI. The document/letter
"confirming" the agreement that Atty. Linsangan
would have to pay the old price was executed by
Baluyot alone. Nowhere is there any indication that
the same came from MMPCI or any of its officers.
It is a settled rule that persons dealing with an
agent are bound at their peril, if they would hold
the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority,
and in case either is controverted, the burden of
proof is upon them to establish it. 38 The basis for
agency is representation and a person dealing with
an agent is put upon inquiry and must discover
upon his peril the authority of the agent. 39 If he
does not make such an inquiry, he is chargeable
with knowledge of the agent's authority and his
ignorance of that authority will not be any excuse. 40
As noted by one author, the ignorance of a person
dealing with an agent as to the scope of the latter's
authority is no excuse to such person and the fault
cannot be thrown upon the principal. 41 A person
dealing with an agent assumes the risk of lack of
authority in the agent. He cannot charge the
principal by relying upon the agent's assumption of
authority that proves to be unfounded. The
principal, on the other hand, may act on the
presumption that third persons dealing with his
agent will not be negligent in failing to ascertain
the extent of his authority as well as the existence
of his agency.42
In the instant case, it has not been established that
Atty. Linsangan even bothered to inquire whether
Baluyot was authorized to agree to terms contrary
to those indicated in the written contract, much
less bind MMPCI by her commitment with respect
to such agreements. Even if Baluyot was Atty.
Linsangan's friend and known to be an agent of
MMPCI, her declarations and actions alone are not
sufficient to establish the fact or extent of her
authority.43 Atty. Linsangan as a practicing lawyer
for a relatively long period of time when he signed
the contract should have been put on guard when
their agreement was not reflected in the contract.
More importantly, Atty. Linsangan should have
been alerted by the fact that Baluyot failed to
effect the transfer of rights earlier promised, and
was unable to make good her written commitment,
nor convince MMPCI to assent thereto, as
evidenced by several attempts to induce him to
enter into other contracts for a higher
consideration. As properly pointed out by MMPCI,
as a lawyer, a greater degree of caution should be
expected of Atty. Linsangan especially in dealings
involving legal documents. He did not even bother
to ask for official receipts of his payments, nor
inquire from MMPCI directly to ascertain the real
status of the contract, blindly relying on the
representations of Baluyot. A lawyer by profession,
he knew what he was doing when he signed the
written contract, knew the meaning and value of
every word or phrase used in the contract, and
more importantly, knew the legal effects which said
document produced. He is bound to accept
responsibility for his negligence.
The trial and appellate courts found MMPCI liable
based on ratification and estoppel. For the trial
court, MMPCI's acts of accepting and encashing the
checks issued by Atty. Linsangan as well as
allowing Baluyot to receive checks drawn in the
name of MMPCI confirm and ratify the contract of
agency. On the other hand, the Court of Appeals
faulted MMPCI in failing to adopt measures to
prevent misrepresentation, and declared that in
view of MMPCI's acceptance of the benefits of
Baluyot's misrepresentation, it can no longer deny
responsibility therefor.
The Court does not agree. Pertinent to this case are
the following provisions of the Civil Code:
Art. 1898. If the agent contracts in the
name of the principal, exceeding the
scope of his authority, and the principal
does not ratify the contract, it shall be
void if the party with whom the agent
contracted is aware of the limits of the
powers granted by the principal. In this
case, however, the agent is liable if he
undertook to secure the principal's
ratification.
Art. 1910. The principal must comply with
all the obligations that the agent may
have contracted within the scope of his
authority.
As for any obligation wherein the agent
has exceeded his power, the principal is
not bound except when he ratifies it
expressly or tacitly.
Art. 1911. Even when the agent has
exceeded his authority, the principal is
solidarily liable with the agent if the
former allowed the latter to act as though
he had full powers.
Thus, the acts of an agent beyond the scope of his
authority do not bind the principal, unless he
ratifies them, expressly or impliedly. Only the
principal can ratify; the agent cannot ratify his own
unauthorized acts. Moreover, the principal must
have knowledge of the acts he is to ratify.44
Ratification in agency is the adoption or
confirmation by one person of an act performed on
his behalf by another without authority. The
substance of the doctrine is confirmation after
conduct, amounting to a substitute for a prior
authority. Ordinarily, the principal must have full
knowledge at the time of ratification of all the
material facts and circumstances relating to the
unauthorized act of the person who assumed to act
as agent. Thus, if material facts were suppressed or
unknown, there can be no valid ratification and this
regardless of the purpose or lack thereof in
concealing such facts and regardless of the parties
between whom the question of ratification may
arise.45Nevertheless, this principle does not apply if
the principal's ignorance of the material facts and
circumstances was willful, or that the principal
chooses to act in ignorance of the facts. 46 However,
in the absence of circumstances putting a
reasonably prudent man on inquiry, ratification
cannot be implied as against the principal who is
ignorant of the facts.47
No ratification can be implied in the instant case.
A perusal of Baluyot's Answer48 reveals that the
real arrangement between her and Atty. Linsangan
was for the latter to pay a monthly installment of
P1,800.00 whereas Baluyot was to shoulder the
counterpart amount of P1,455.00 to meet the
P3,255.00 monthly installments as indicated in the
contract. Thus, every time an installment falls due,
payment was to be made through a check from
Atty. Linsangan for P1,800.00 and a cash
component of P1,455.00 from Baluyot. 49 However,
it appears that while Atty. Linsangan issued the
post-dated checks, Baluyot failed to come up with
her part of the bargain. This was supported by
Baluyot's statements in her letter 50 to Mr. Clyde
Williams, Jr., Sales Manager of MMPCI, two days
after she received the copy of the Complaint. In the
letter, she admitted that she was remiss in her
duties when she consented to Atty. Linsangan's
proposal that he will pay the old price while the
difference will be shouldered by her. She likewise
admitted that the contract suffered arrearages
because while Atty. Linsangan issued the agreed
checks, she was unable to give her share of
P1,455.00 due to her own financial difficulties.
Baluyot even asked for compassion from MMPCI for
the error she committed.
Atty. Linsangan failed to show that MMPCI had
knowledge of the arrangement. As far as MMPCI is
concerned, the contract price was P132,250.00, as
stated in the Offer to Purchase signed by Atty.
Linsangan and MMPCI's authorized officer. The
down payment of P19,838.00 given by Atty.
Linsangan was in accordance with the contract as
well. Payments of P3,235.00 for at least two
installments were likewise in accord with the
contract, albeit made through a check and partly in
cash. In view of Baluyot's failure to give her share
in the payment, MMPCI received only P1,800.00
checks, which were clearly insufficient payment. In
fact, Atty. Linsangan would have incurred
arrearages that could have caused the earlier
cancellation of the contract, if not for MMPCI's
application of some of the checks to his account.
However, the checks alone were not sufficient to
cover his obligations.
If MMPCI was aware of the arrangement, it would
have refused the latter's check payments for being
insufficient. It would not have applied to his
account the P1,800.00 checks. Moreover, the fact
that Baluyot had to practically explain to MMPCI's
Sales Manager the details of her "arrangement"
with Atty. Linsangan and admit to having made an
error in entering such arrangement confirm that
MMCPI had no knowledge of the said agreement. It
was only when Baluyot filed her Answer that she
claimed that MMCPI was fully aware of the
agreement.
Neither is there estoppel in the instant case. The
essential elements of estoppel are (i) conduct of a
party amounting to false representation or
concealment of material facts or at least calculated
to convey the impression that the facts are
otherwise than, and inconsistent with, those which
the party subsequently attempts to assert; (ii)
intent, or at least expectation, that this conduct
shall be acted upon by, or at least influence, the
other party; and (iii) knowledge, actual or
constructive, of the real facts.51
While there is no more question as to the agency
relationship between Baluyot and MMPCI, there is
no indication that MMPCI let the public, or
specifically, Atty. Linsangan to believe that Baluyot
had the authority to alter the standard contracts of
the company. Neither is there any showing that
prior to signing Contract No. 28660, MMPCI had any
knowledge of Baluyot's commitment to Atty.
Linsangan. One who claims the benefit of an
estoppel on the ground that he has been misled by
the representations of another must not have been
misled through his own want of reasonable care
and circumspection.52 Even assuming that Atty.
Linsangan was misled by MMPCI's actuations, he
still cannot invoke the principle of estoppel, as he
was clearly negligent in his dealings with Baluyot,
and could have easily determined, had he only
been cautious and prudent, whether said agent
was clothed with the authority to change the terms
of the principal's written contract. Estoppel must be
intentional and unequivocal, for when misapplied, it
can easily become a most convenient and effective
means of injustice.53 In view of the lack of sufficient
proof showing estoppel, we refuse to hold MMPCI
liable on this score.
Likewise, this Court does not find favor in the Court
of Appeals' findings that "the authority of
defendant Baluyot may not have been expressly
conferred upon her; however, the same may have
been derived impliedly by habit or custom which
may have been an accepted practice in their
company in a long period of time." A perusal of the
records of the case fails to show any indication that
there was such a habit or custom in MMPCI that
allows its agents to enter into agreements for lower
prices of its interment spaces, nor to assume a
portion of the purchase price of the interment
spaces sold at such lower price. No evidence was
ever presented to this effect.
As the Court sees it, there are two obligations in
the instant case. One is the Contract No. 28660
between MMPCI and by Atty. Linsangan for the
purchase of an interment space in the former's
cemetery. The other is the agreement between
Baluyot and Atty. Linsangan for the former to
shoulder the amount P1,455.00, or the difference
between P95,000.00, the original price, and
P132,250.00, the actual contract price.
To repeat, the acts of the agent beyond the scope
of his authority do not bind the principal unless the
latter ratifies the same. It also bears emphasis that
when the third person knows that the agent was
acting beyond his power or authority, the principal
cannot be held liable for the acts of the agent. If
the said third person was aware of such limits of
authority, he is to blame and is not entitled to
recover damages from the agent, unless the latter
undertook to secure the principal's ratification. 54
This Court finds that Contract No. 28660 was
validly entered into both by MMPCI and Atty.
Linsangan. By affixing his signature in the contract,
Atty. Linsangan assented to the terms and
conditions thereof. When Atty. Linsangan incurred
delinquencies in payment, MMCPI merely enforced
its rights under the said contract by canceling the
same.
Being aware of the limits of Baluyot's authority,
Atty. Linsangan cannot insist on what he claims to
be the terms of Contract No. 28660. The
agreement, insofar as the P95,000.00 contract
price is concerned, is void and cannot be enforced
as against MMPCI. Neither can he hold Baluyot
liable for damages under the same contract, since
there is no evidence showing that Baluyot
undertook to secure MMPCI's ratification. At best,
the "agreement" between Baluyot and Atty.
Linsangan bound only the two of them. As far as
MMPCI is concerned, it bound itself to sell its
interment space to Atty. Linsangan for P132,250.00
under Contract No. 28660, and had in fact received
several payments in accordance with the same
contract. If the contract was cancelled due to
arrearages, Atty. Linsangan's recourse should only
be against Baluyot who personally undertook to
pay the difference between the true contract price
of P132,250.00 and the original proposed price of
P95,000.00. To surmise that Baluyot was acting on
behalf of MMPCI when she promised to shoulder the
said difference would be to conclude that MMPCI
undertook to pay itself the difference, a conclusion
that is very illogical, if not antithetical to its
business interests.
However, this does not preclude Atty. Linsangan
from instituting a separate action to recover
damages from Baluyot, not as an agent of MMPCI,
but in view of the latter's breach of their separate
agreement. To review, Baluyot obligated herself to
pay P1,455.00 in addition to Atty. Linsangan's
P1,800.00 to complete the monthly installment
payment under the contract, which, by her own
admission, she was unable to do due to personal
financial difficulties. It is undisputed that Atty.
Linsangan issued the P1,800.00 as agreed upon,
and were it not for Baluyot's failure to provide the
balance, Contract No. 28660 would not have been
cancelled. Thus, Atty. Linsangan has a cause of
action against Baluyot, which he can pursue in
another case.
WHEREFORE, the instant petition is GRANTED. The
Decision of the Court of Appeals dated 22 June
2001 and its Resolution dated 12 December 2001
in CA- G.R. CV No. 49802, as well as the Decision in
Civil Case No. 88-1253 of the Regional Trial Court,
Makati City Branch 57, are hereby REVERSED and
SET ASIDE. The Complaint in Civil Case No. 88-1253
is DISMISSED for lack of cause of action. No
pronouncement as to costs.
SO ORDERED.
G.R. No. 126751 March 28, 2001
SAFIC ALCAN & CIE, petitioner,
vs.
IMPERIAL VEGETABLE OIL CO.,
INC., respondent.
YNARES-SANTIAGO, J.:
Petitioner Safic Alcan & Cie (hereinafter, "Safic") is
a French corporation engaged in the international
purchase, sale and trading of coconut oil. It filed
with the Regional Trial Court of Manila, Branch XXV,
a complaint dated February 26, 1987 against
private respondent Imperial Vegetable Oil Co., Inc.
(hereinafter, "IVO"), docketed as Civil Case No. 87-
39597. Petitioner Safic alleged that on July 1, 1986
and September 25, 1986, it placed purchase orders
with IVO for 2,000 long tons of crude coconut oil,
valued at US$222.50 per ton, covered by Purchase
Contract Nos. A601446 and A601655, respectively,
to be delivered within the month of January 1987.
Private respondent, however, failed to deliver the
said coconut oil and, instead, offered a "wash out"
settlement, whereby the coconut oil subject of the
purchase contracts were to be "sold back" to IVO at
the prevailing price in the international market at
the time of wash out. Thus, IVO bound itself to pay
to Safic the difference between the said prevailing
price and the contract price of the 2,000 long tons
of crude coconut oil, which amounted to
US$293,500.00. IVO failed to pay this amount
despite repeated oral and written demands.
Under its second cause of action, Safic alleged that
on eight occasions between April 24, 1986 and
October 31, 1986, it placed purchase orders with
IVO for a total of 4,750 tons of crude coconut oil,
covered by Purchase Contract Nos. A601297A/B,
A601384, A601385, A601391, A601415, A601681,
A601683 and A601770A/B/C/. When IVO failed to
honor its obligation under the wash out settlement
narrated above, Safic demanded that IVO make
marginal deposits within forty-eight hours on the
eight purchase contracts in amounts equivalent to
the difference between the contract price and the
market price of the coconut oil, to compensate it
for the damages it suffered when it was forced to
acquire coconut oil at a higher price. IVO failed to
make the prescribed marginal deposits on the eight
contracts, in the aggregate amount of
US$391,593.62, despite written demand therefor.
The demand for marginal deposits was based on
the customs of the trade, as governed by the
provisions of the standard N.I.O.P. Contract arid the
FOSFA Contract, to wit:
N.I.O.P. Contract, Rule 54 - If the financial
condition of either party to a contract
subject to these rules becomes so
impaired as to create a reasonable doubt
as to the ability of such party to perform
its obligations under the contract, the
other party may from time to time
demand marginal deposits to be made
within forty-eight (48) hours after receipt
of such demand, such deposits not to
exceed the difference between the
contract price and the market price of the
goods covered by the contract on the day
upon which such demand is made, such
deposit to bear interest at the prime rate
plus one percent (1%) per annum. Failure
to make such deposit within the time
specified shall constitute a breach of
contract by the party upon whom demand
for deposit is made, and all losses and
expenses resulting from such breach shall
be for the account of the party upon
whom such demand is made.
(Underscoring ours.)1
FOSFA Contract, Rule 54 - authority; the subject contracts were speculative
BANKRUPTCY/INSOLVENCY: If before the
fulfillment of this contract either party
shall suspend payment, commit an act of
bankruptcy, notify any of his creditors that
he is unable to meet his debts or that he
has suspended payment or that he is
about to suspend payment of his debts,
convene, call or hold a meeting either of
his creditors or to pass a resolution to go
into liquidation (except for a voluntary
winding up of a solvent company for the
purpose of reconstruction or
amalgamation) or shall apply for an official
moratorium, have a petition presented for
winding up or shal1i have a Receiver
appointed, the contract shall forthwith be
closed either at the market price then
current for similar goods or, at the option
of the other party at a price to be
ascertained by repurchase or resale and
the difference between the contract price
and such closing-out price shall be the
amount which the other party shall be
entitled to claim shall be liable to account
for under this contract (sic). Should either
party be dissatisfied with the price, the
matter shall be referred to arbitration.
Where no such resale or repurchase takes
place, the closing-out price shall be fixed
by a Price Settlement Committee
appointed by the Federation.
(Underscoring ours.)2
Hence, Safic prayed that IVO be ordered to pay the
sums of US$293,500.00 and US$391,593.62, plus
attorney's fees and litigation expenses. The
complaint also included an application for a writ of
preliminary attachment against the properties of
IVO.
Upon Safic's posting of the requisite bond, the trial
court issued a writ of preliminary attachment.
Subsequently, the trial court ordered that the
assets of IVO be placed under receivership, in order
to ensure the preservation of the same.
In its answer, IVO raised the following special
affirmative defenses: Safic had no legal capacity to
sue because it was doing business in the
Philippines without the requisite license or
contracts entered into by IVO's then President,
Dominador Monteverde, in contravention of the
prohibition by the Board of Directors against
engaging in speculative paper trading, and despite
IVO's lack of the necessary license from Central
Bank to engage in such kind of trading activity; and
that under Article 2018 of the Civil Code, if a
contract which purports to be for the delivery of
goods, securities or shares of stock is entered into
with the intention that the difference between the
price stipulated and the exchange or market price
at the time of the pretended delivery shall be paid
by the loser to the winner, the transaction is null
and void.1wphi1.nt
IVO set up counterclaims anchored on harassment,
paralyzation of business, financial losses, rumor-
mongering and oppressive action. Later, IVO filed a
supplemental counterclaim alleging that it was
unable to operate its business normally because of
the arrest of most of its physical assets; that its
suppliers were driven away; and that its major
creditors have inundated it with claims for
immediate payment of its debts, and China
Banking Corporation had foreclosed its chattel and
real estate mortgages.
During the trial, the lower court found that in 1985,
prior to the date of the contracts sued upon, the
parties had entered into and consummated a
number of contracts for the sale of crude coconut
oil. In those transactions, Safic placed several
orders and IVO faithfully filled up those orders by
shipping out the required crude coconut oil to Safic,
totaling 3,500 metric tons. Anent the 1986
contracts being sued upon, the trial court refused
to declare the same as gambling transactions, as
defined in Article 2018 of the Civil Code, although
they involved some degree of speculation. After all,
the court noted, every business enterprise carries
with it a certain measure of speculation or risk.
However, the contracts performed in 1985, on one
hand, and the 1986 contracts subject of this case,
on the other hand, differed in that under the 1985
contracts, deliveries were to be made within two
months. This, as alleged by Safic, was the time
needed for milling and building up oil inventory.
Meanwhile, the 1986 contracts stipulated that the
coconut oil were to be delivered within period
ranging from eight months to eleven to twelve
months after the placing of orders. The coconuts
that were supposed to be milled were in all
likelihood not yet growing when Dominador
Monteverde sold the crude coconut oil. As such, the
1986 contracts constituted trading in futures or in
mere expectations.
The lower court further held that the subject
contracts were ultra vires and were entered into by
Dominador Monteverde without authority from the
Board of Directors. It distinguished between the
1985 contracts, where Safic likewise dealt with
Dominador Monteverde, who was presumably
authorized to bind IVO, and the 1986 contracts,
which were highly speculative in character.
Moreover, the 1985 contracts were covered by
letters of credit, while the 1986 contracts were
payable by telegraphic transfers, which were
nothing more than mere promises to pay once the
shipments became ready. For these reasons, the
lower court held that Safic cannot invoke the 1985
contracts as an implied corporate sanction for the
high-risk 1986 contracts, which were evidently
entered into by Monteverde for his personal
benefit.
The trial court ruled that Safic failed to substantiate
its claim for actual damages. Likewise, it rejected
IVO's counterclaim and supplemental counterclaim.
Thus, on August 28, 1992, the trial court rendered
judgment as follows:
WHEREFORE, judgment is hereby
rendered dismissing the complaint of
plaintiff Safic Alcan & Cie, without
prejudice to any action it might
subsequently institute against Dominador
Monteverde, the former President of
Imperial Vegetable Oil Co., Inc., arising
from the subject matter of this case. The
counterclaim and supplemental
counterclaim of the latter defendant are
likewise hereby dismissed for lack of
merit. No pronouncement as to costs.
The writ of preliminary attachment issued
in this case as well as the order placing
Imperial Vegetable Oil Co., Inc. under
receivership are hereby dissolved and set
aside.3
Both IVO and Safic appealed to the Court of
Appeals, jointly docketed as CA-G.R. CV No.40820.
IVO raised only one assignment of error, viz:
THE TRIAL COURT ERRED IN HOLDING
'I'HAT THE ISSUANCE OF THE WRIT OF
PRELIMINARY ATTACHMENT WAS NOT THE
MAIN CAUSE OF THE DAMAGES SUFFERED
BY DEFENDANT AND IN NOT AWARDING
DEFENDANT-APPELLANT SUCH DAMAGES.
For its part, Safic argued that:
THE TRIAL COURT ERRED IN HOLDING
THAT IVO'S PRESIDENT, DOMINADOR
MONTEVERDE, ENTERED INTO
CONTRACTS WHICH WERE ULTRA
VIRES AND WHICH DID NOT BIND OR
MAKE IVO LIABLE.
THE TRIAL COURT ERRED IN HOLDING THA
SAFIC WAS UNABLE TO PROVE THE
DAMAGES SUFFERED BY IT AND IN NOT
AWARDING SUCH DAMAGES.
THE TRIAL COURT ERRED IN NOT HOLDING
THAT IVO IS LIABLE UNDER THE WASH
OUT CONTRACTS.
On September 12, 1996, the Court of Appeals
rendered the assailed Decision dismissing the,
appeals and affirming the judgment appealed from
in toto.4
Hence, Safic filed the instant petition for review
with this Court, substantially reiterating the errors
it raised before the Court of Appeals and
maintaining that the Court of Appeals grievously
erred when:
a. it declared that the 1986 forward
contracts (i.e., Contracts Nos. A601446
and A60155 (sic) involving 2,000 long tons
of crude coconut oil, and Contracts Nos.
A60l297A/B, A601385, A60l39l, A60l4l5,
A601681. A601683 and A60l770A/B/C
involving 4,500 tons of crude coconut oil)
were unauthorized acts of Dominador
Monteverde which do not bind IVO in
whose name they were entered into. In
this connection, the Court of Appeals erred
when (i) it ignored its own finding that (a)
Dominador Monteverde, as IVO's
President, had "an implied authority to
make any contract necessary or
appropriate to the contract of the ordinary
business of the company"; and (b)
Dominador Monteverde had validly
entered into similar forward contracts for
and on behalf of IVO in 1985; (ii) it
distinguished between the 1986 forward
contracts despite the fact that the Manila
RTC has struck down IVO's objection to the
1986 forward contracts (i.e. that they
were highly speculative paper trading
which the IVO Board of Directors had
prohibited Dominador Monteverde from
engaging in because it is a form of
gambling where the parties do not intend
 actual delivery of the coconut oil sold) and
instead found that the 1986 forward
contracts were not gambling; (iii) it relied
on the testimony of Mr. Rodrigo
Monteverde in concluding that the IVO
Board of Directors did not authorize its
President, Dominador Monteverde, to
enter into the 1986 forward contracts; and
(iv) it did not find IVO, in any case,
estopped from denying responsibility for,
and liability under, the 1986 forward
contracts because IVO had recognized
itself bound to similar forward contracts
which Dominador Monteverde entered into
(for and on behalf of IVO) with Safic in
1985 notwithstanding that Dominador
Monteverde was (like in the 1986 forward
contracts) not expressly authorized by the
IVO Board of Directors to enter into such
forward contracts;
b. it declared that Safic was not able, to
prove damages suffered by it, despite the
fact that Safic had presented not only
testimonial, but also documentary,
evidence which proved the higher amount
it had to pay for crude coconut oil (vis--
vis the contract price it was to pay to IVO)
when IVO refused to deliver the crude
coconut oil bought by Safic under the
1986 forward contracts; and
c. it failed to resolve the issue of whether
or not IVO is liable to Safic under the wash
out contracts involving Contracts Nos.
A601446 and A60155 (sic), despite the
fact that Safic had properly raised the
issue on its appeal, and the evidence and
the law support Safic's position that IVO is
so liable to Safic.
In fine, Safic insists that the appellate court
grievously erred when it did not declare that IVO's
President, Dominador Monteverde, validly entered
into the 1986 contracts for and on behalf of IVO.
We disagree.
Article III, Section 3 [g] of the By-Laws 5 of IVO
provides, among others, that
Section 3. Powers and Duties of the
President. - The President shall be elected
by the Board of Directors from their own
number .
He shall have the following duties:
xxxxxxxxx
[g] Have direct and active management of
the business and operation of the
corporation, conducting the same
according to, the orders, resolutions and
instruction of the Board of Directors and
according to his own discretion whenever
and wherever the same is not expressly
limited by such orders, resolutions and
instructions.
It can be clearly seen from the foregoing provision
of IVO's By-laws that Monteverde had no blanket
authority to bind IVO to any contract. He must act
according to the instructions of the Board of
Directors. Even in instances when he was
authorized to act according to his discretion, that
discretion must not conflict with prior Board orders,
resolutions and instructions. The evidence shows
that the IVO Board knew nothing of the 1986
contracts6 and that it did not authorize Monteverde
to enter into speculative contracts.7 In fact,
Monteverde had earlier proposed that the company
engage in such transactions but the IVO Board
rejected his proposal.8 Since the 1986 contracts
marked a sharp departure from past IVO
transactions, Safic should have obtained from
Monteverde the prior authorization of the IVO
Board. Safic can not rely on the doctrine of implied
agency because before the controversial 1986
contracts, IVO did not enter into identical contracts
with Safic. The basis for agency is representation
and a person dealing with an agent is put upon
inquiry and must discover upon his peril the
authority of the agent.9 In the case of Bacaltos Coal
Mines v. Court of Appeals,10 we elucidated the rule
on dealing with an agent thus:
Every person dealing with an agent is put
upon inquiry and must discover upon his
peril the authority of the agent. If he does
not make such inquiry, he is chargeable
with knowledge of the agent's authority,
and his ignorance of that authority will not
be any excuse. 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 also the nature and extent
of the authority, and in case either is
controverted, the burden of proof is upon
them to establish it.11
The most prudent thing petitioner should have
done was to ascertain the extent of the authority of
Dominador Monteverde. Being remiss in this
regard, petitioner can not seek relief on the basis of
a supposed agency.
Under Article 189812 of the Civil Code, the acts of
an agent beyond the scope of his authority do not
bind the principal unless the latter ratifies the same
expressly or impliedly. It also bears emphasizing
that when the third person knows that the agent
was acting beyond his power or authority, the
principal can not be held liable for the acts of the
agent. If the said third person is aware of such
limits of authority, he is to blame, and is not
entitled to recover damages from the agent, unless
the latter undertook to secure the principal's
ratification.13
There was no such ratification in this case. When
Monteverde entered into the speculative contracts
with Safic, he did not secure the Board's
approval.14 He also did not submit the contracts to
the Board after their consummation so there was,
in fact, no occasion at all for ratification. The
contracts were not reported in IVO's export sales
book and turn-out book.15 Neither were they
reflected in other books and records of the
corporation.16 It must be pointed out that the Board
of Directors, not Monteverde, exercises corporate
power.17 Clearly, Monteverde's speculative
contracts with Safic never bound IVO and Safic can
not therefore enforce those contracts against IVO.
To bolster its cause, Safic raises the novel point
that the IVO Board of Directors did not set
limitations on the extent of Monteverde's authority
to sell coconut oil. It must be borne in mind in this
regard that a question that was never raised in the
courts below can not be allowed to be raised for
the first time on appeal without offending basic
rules of fair play, justice and due process. 18 Such an
issue was not brought to the fore either in the trial
court or the appellate court, and would have been
disregarded by the latter tribunal for the reasons
previously stated. With more reason, the same
does not deserve consideration by this Court.
Be that as it may, Safic's belated contention that
the IVO Board of Directors did not set limitations on
Monteverde's authority to sell coconut oil is belied
by what appears on the record. Rodrigo
Monteverde, who succeeded Dominador
Monteverde as IVO President, testified that the IVO
Board had set down the policy of engaging in
purely physical trading thus:
Q. Now you said that IVO is engaged in
trading. With whom does, it usually trade
its oil?
A. I am not too familiar with trading
because as of March 1987, I was not yet
an officer of the corporation, although I
was at the time already a stockholder, I
think IVO is engaged in trading oil.
Q. As far as you know, what kind of
trading was IVO engaged with?
A. It was purely on physical trading.
Q. How did you know this?
A. As a stockholder, rather as member of
[the] Board of Directors, I frequently
visited the plant and from my observation,
as I have to supervise and monitor
purchases of copras and also the sale of
the same, I observed that the policy of the
corporation is for the company to engaged
(sic) or to purely engaged (sic) in physical
trading.
Q. What do you mean by physical trading?
A. Physical Trading means - we buy and
sell copras that are only available to us.
We only have to sell the available stocks
in our inventory.
Q. And what is the other form of trading?
Atty. Fernando A. As far as I know it was sometime in
1985.
No basis, your Honor.
Q. Do you know why the Board of
Directors rejected the proposal of
Atty. Abad
Dominador Monteverde that the company
should engaged (sic) in future[s]
Well, the witness said they are contracts?
engaged in physical trading and
what I am saying [is] if there are
Atty. Fernando
any other kind or form of trading.
Objection, your Honor, no basis.
Court
Court
Witness may answer if he knows.
Why don't you lay the basis?
Witness
Atty. Abad
A. Trading future[s] contracts
wherein the trader commits a
price and to deliver coconut oil in Q. Were you a member of the board at the
the future in which he is yet to time?
acquire the stocks in the future.
A. In 1975, I am already a stockholder and
Atty. Abad a member.
Q. Who established the so-called physical Q. Then would [you] now answer my
trading in IVO? question?
A. The Board of Directors, sir. Atty. Fernando
Atty. Abad. No basis, your Honor. What we
are talking is about 1985.
Q. How did you know that?
Atty. Abad
A. There was a meeting held in the office
at the factory and it was brought out and Q. When you mentioned about the
suggested by our former president, meeting in 1985 wherein the Board of
Dominador Monteverde, that the company Directors rejected the future[s]
should engaged (sic) in future[s] contract[s], were you already a member of
contract[s] but it was rejected by the the Board of Directors at that time?
Board of Directors. It was only Ador
Monteverde who then wanted to engaged A. Yes, sir.
(sic) in this future[s] contract[s].
Q. Do you know the reason why the said
Q. Do you know where this meeting took proposal of Mr. Dominador Monteverde to
place? engage in future[s] contract[s] was
rejected by the Board of Directors?
A. Because this future[s] contract is too
risky and it partakes of gambling.
Q. Do you keep records of the Board
meetings of the company?
A. Yes, sir.
Q. Do you have a copy of the minutes of
your meeting in 1985?
A. Incidentally our Secretary of the Board
of Directors, Mr. Elfren Sarte, died in 1987
or 1988, and despite [the] request of our
office for us to be furnished a copy he was
not able to furnish us a copy.19
xxxxxxxxx
Atty. Abad
Q. You said the Board of Directors were
against the company engaging in future[s]
contracts. As far as you know, has this
policy of the Board of Directors been
observed or followed?
Witness
A. Yes, sir.
Q. How far has this Dominador
Monteverde been using the name of I.V.0.
in selling future contracts without the
proper authority and consent of the
company's Board of Directors?
A. Dominador Monteverde never records
those transactions he entered into in
connection with these future[s] contracts
in the company's books of accounts.
Atty. Abad
Q. What do you mean by that the future[s]
contracts were not entered into the books
of accounts of the company?
Witness
A. Those were not recorded at all in the
books of accounts of the company, sir.20
xxxxxxxxx
Q. What did you do when you discovered
these transactions?
A. There was again a meeting by the
Board of Directors of the corporation and
that we agreed to remove the president
and then I was made to replace him as
president.
Q. What else?
A. And a resolution was passed disowning
the illegal activities of the former
president.21
Petitioner next argues that there was actually no
difference between the 1985 physical contracts
and the 1986 futures contracts.
The contention is unpersuasive for, as aptly
pointed out by the trial court and sustained by the
appellate court
Rejecting IVO's position, SAFIC claims that
there is no distinction between the 1985
and 1986 contracts, both of which groups
of contracts were signed or authorized by
IVO's President, Dominador Monteverde.
The 1986 contracts, SAFIC would bewail,
were similarly with their 1985
predecessors, forward sales contracts in
which IVO had undertaken to deliver the
crude coconut oil months after such
contracts were entered into. The lead time
between the closing of the deal and the
delivery of the oil supposedly allowed the
seller to accumulate enough copra to mill
and to build up its inventory and so meet
its delivery commitment to its foreign
buyers. SAFIC concludes that the 1986
contracts were equally binding, as the
1985 contracts were, on IVO.
Subjecting the evidence on both sides to
close scrutiny, the Court has found some
remarkable distinctions between the 1985
and 1986 contracts. x x x
1. The 1985 contracts were performed
within an average of two months from the
date of the sale. On the other hand, the
1986 contracts were to be performed
within an average of eight and a half
months from the dates of the sale. All the
supposed performances fell in 1987.
Indeed, the contract covered by Exhibit J
was to be performed 11 to 12 months
from the execution of the contract. These
pattern (sic) belies plaintiffs contention
that the lead time merely allowed for
milling and building up of oil inventory. It
is evident that the 1986 contracts
constituted trading in futures or in mere
expectations. In all likelihood, the
coconuts that were supposed to be milled
for oil were not yet on their trees when
Dominador Monteverde sold the crude oil
to SAFIC.
2. The mode of payment agreed on by the
parties in their 1985 contracts was
uniformly thru the opening of a letter of
credit LC by SAFIC in favor of IVO. Since
the buyer's letter of credit guarantees
payment to the seller as soon as the latter
is able to present the shipping documents
covering the cargo, its opening usually
mark[s] the fact that the transaction
would be consummated. On the other
hand, seven out of the ten 1986 contracts
were to be paid by telegraphic transfer
upon presentation of the shipping
documents. Unlike the letter of credit, a
mere promise to pay by telegraphic
transfer gives no assurance of [the]
buyer's compliance with its contracts. This
fact lends an uncertain element in the
1986 contracts.1wphi1.nt
3. Apart from the above, it is not disputed
that with respect to the 1985 contracts,
IVO faithfully complied with Central Bank
Circular No. 151 dated April 1, 1963,
requiring a coconut oil exporter to submit
a Report of Foreign Sales within twenty-
 four (24) hours "after the closing of the
relative sales contract" with a foreign
buyer of coconut oil. But with respect to
the disputed 1986 contracts, the parties
stipulated during the hearing that none of
these contracts were ever reported to the
Central Bank, in violation of its above
requirement. (See Stipulation of Facts
dated June 13, 1990). The 1986 sales
were, therefore suspect.
4. It is not disputed that, unlike the 1985
contacts, the 1986 contracts were never
recorded either in the 1986 accounting
books of IVO or in its annual financial
statement for 1986, a document that was
prepared prior to the controversy. (Exhibits
6 to 6-0 and 7 to 7-1). Emelita Ortega,
formerly an assistant of Dominador
Monteverde, testified that they were
strange goings-on about the 1986
contract. They were neither recorded in
the books nor reported to the Central
Bank. What is more, in those unreported
cases where profits were made, such
profits were ordered remitted to unknown
accounts in California, U.S.A., by
Dominador Monteverde.
xxxxxxxxx
Evidently, Dominador Monteverde made
business or himself, using the name of IVO
but concealing from it his speculative
transactions.
Petitioner further contends that both the trial and
appellate courts erred in concluding that Safic was
not able to prove its claim for damages. Petitioner
first points out that its wash out agreements with
Monteverde where IVO allegedly agreed to pay
US$293,500.00 for some of the failed contracts was
proof enough and, second, that it presented
purchases of coconut oil it made from others during
the period of IVO's default.
We remain unconvinced. The so-called "wash out"
agreements are clearly ultra vires and not binding
on IVO. Furthermore, such agreements did not
prove Safic's actual losses in the transactions in
question. The fact is that Safic did not pay for the
coconut oil that it supposedly ordered from IVO
through Monteverede. Safic only claims that, since
it was ready to pay when IVO was not ready to
deliver, Safic suffered damages to the extent that
they had to buy the same commodity from others
at higher prices.
The foregoing claim of petitioner is not, however,
substantiated by the evidence and only raises
several questions, to wit: 1.] Did Safic commit to
deliver the quantity of oil covered by the 1986
contracts to its own buyers? Who were these
buyers? What were the terms of those contracts
with respect to quantity, price and date of delivery?
2.] Did Safic pay damages to its buyers? Where
were the receipts? Did Safic have to procure the
equivalent oil from other sources? If so, who were
these sources? Where were their contracts and
what were the terms of these contracts as to
quantity, price and date of delivery?
The records disclose that during the course of the
proceedings in the trial court, IVO filed an amended
motion22for production and inspection of the
following documents: a.] contracts of resale of
coconut oil that Safic bought from IVO; b.] the
records of the pooling and sales contracts covering
the oil from such pooling, if the coconut oil has
been pooled and sold as general oil; c.] the
contracts of the purchase of oil that, according to
Safic, it had to resort to in order to fill up alleged
undelivered commitments of IVO; d.] all other
contracts, confirmations, invoices, wash out
agreements and other documents of sale related to
(a), (b) and (c). This amended motion was opposed
by Safic.23 The trial court, however, in its
September 16, 1988 Order ,24 ruled that:
From the analysis of the parties'
respective positions, conclusion can easily
be drawn therefrom that there is
materiality in the defendant's move:
firstly, plaintiff seeks to recover damages
from the defendant and these are
intimately related to plaintiffs alleged
losses which it attributes to the default of
the defendant in its contractual
commitments; secondly, the documents
are specified in the amended motion. As
such, plaintiff would entertain no
confusion as to what, which documents to
locate and produce considering plaintiff to
be (without doubt) a reputable going
concern in the management of the affairs
which is serviced by competent,
industrious, hardworking and diligent
personnel; thirdly, the desired production
and inspection of the documents was
precipitated by the testimony of plaintiffs
witness (Donald O'Meara) who admitted,
in open court, that they are available. If
the said witness represented that the
documents, as generally described, are
available, reason there would be none for
the same witness to say later that they
could not be produced, even after they
have been clearly described.
Besides, if the Court may additionally
dwell on the issue of damages, the
production and inspection of the desired
documents would be of tremendous help
in the ultimate resolution thereof. Plaintiff
claims for the award of liquidated or
actual damages to the tune of
US$391,593.62 which, certainly, is a huge
amount in terms of pesos, and which
defendant disputes. As the defendant
cannot be precluded in taking exceptions
to the correctness and validity of such
claim which plaintiffs witness (Donald
O'Meara) testified to, and as, by this
nature of the plaintiffs claim for damages,
proof thereof is a must which can be
better served, if not amply ascertained by
examining the records of the related sales
admitted to be in plaintiffs possession, the
amended motion for production and
inspection of the defendant is in order.
The interest of justice will be served best,
if there would be a full disclosure by the
parties on both sides of all documents
related to the transactions in litigation.
Notwithstanding the foregoing ruling of the trial
court, Safic did not produce the required
documents, prompting the court a quo to assume
that if produced, the documents would have been
adverse to Safic's cause. In its efforts to bolster its
claim for damages it purportedly sustained, Safic
suggests a substitute mode of computing its
damages by getting the average price it paid for
certain quantities of coconut oil that it allegedly
bought in 1987 and deducting this from the
average price of the 1986 contracts. But this mode
of computation if flawed .because: 1.] it is
conjectural since it rests on average prices not on
actual prices multiplied by the actual volume of
coconut oil per contract; and 2.] it is based on the
unproven assumption that the 1987 contracts of
purchase provided the coconut oil needed to make
up for the failed 1986 contracts. There is also no
evidence that Safic had contracted to supply third
parties with coconut oil from the 1986 contracts
and that Safic had to buy such oil from others to
meet the requirement.

Along the same vein, it is worthy to note that the

quantities of oil covered by its 1987 contracts with
third parties do not match the quantities of oil
provided under the 1986 contracts. Had Safic
produced the documents that the trial court
required, a substantially correct determination of
its actual damages would have been possible. This,
unfortunately, was not the case. Suffice it to state
in this regard that "[T]he power of the courts to
grant damages and attorney's fees demands
factual, legal and equitable justification; its basis
cannot be left to speculation and conjecture."25

WHEREFORE, in view of all the foregoing, the

petition is DENIED for lack of merit. SO
ORDERED.
G.R. No. 159489 February 4, 2008
FILIPINAS LIFE ASSURANCE COMPANY (now
AYALA LIFE ASSURANCE, INC.), petitioner,
vs.
CLEMENTE N. PEDROSO, TERESITA O.
PEDROSO and JENNIFER N. PALACIO thru her
Attorney-in-Fact PONCIANO C.
MARQUEZ, respondents.
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
Decision3 dated October 10, 1989 of the Regional
Trial Court (RTC) of Manila, Branch 3, finding
petitioner as defendant and the co-defendants
below jointly and severally liable to the plaintiffs,
now herein respondents.
The antecedent facts are as follows:
Respondent Teresita O. Pedroso is a policyholder of
a 20-year endowment life insurance issued by
petitioner Filipinas Life Assurance Company
(Filipinas Life). Pedroso claims Renato Valle was her
insurance agent since 1972 and Valle collected her
monthly premiums. In the first week of January
1977, Valle told her that the Filipinas Life Escolta
Office was holding a promotional investment
program for policyholders. It was offering 8%
prepaid interest a month for certain amounts
deposited on a monthly basis. Enticed, she initially
invested and issued a post-dated check dated
January 7, 1977 for P10,000.4 In return, Valle issued
Pedroso his personal check forP800 for the
8%5 prepaid interest and a Filipinas Life "Agents
Receipt" No. 807838.6
Subsequently, she called the Escolta office and
talked to Francisco Alcantara, the administrative
assistant, who referred her to the branch manager,
Angel Apetrior. Pedroso inquired about the
promotional investment and Apetrior confirmed
that there was such a promotion. She was even
told she could "push through with the check" she
issued. From the records, the check, with the
endorsement of Alcantara at the back, was
deposited in the account of Filipinas Life with the
Commercial Bank and Trust Company (CBTC),
Escolta Branch.
Relying on the representations made by the
petitioners duly authorized representatives
Apetrior and Alcantara, as well as having known
agent Valle for quite some time, Pedroso waited for
the maturity of her initial investment. A month
after, her investment of P10,000 was returned to
her after she made a written request for its refund.
The formal written request, dated February 3,
1977, was written on an inter-office memorandum
form of Filipinas Life prepared by Alcantara. 7 To
collect the amount, Pedroso personally went to the
Escolta branch where Alcantara gave her
the P10,000 in cash. After a second investment,
she made 7 to 8 more investments in varying
amounts, totaling P37,000 but at a lower rate of
5%8 prepaid interest a month. Upon maturity of
Pedrosos subsequent investments, Valle would
take back from Pedroso the corresponding yellow-
colored agents receipt he issued to the latter.
Pedroso told respondent Jennifer N. Palacio, also a
Filipinas Life insurance policyholder, about the
investment plan. Palacio made a total investment
of P49,5509 but at only 5% prepaid interest.
However, when Pedroso tried to withdraw her
investment, Valle did not want to return
some P17,000 worth of it. Palacio also tried to
withdraw hers, but Filipinas Life, despite demands,
refused to return her money. With the assistance of
their lawyer, they went to Filipinas Life Escolta
Office to collect their respective investments, and
to inquire why they had not seen Valle for quite
some time. But their attempts were futile. Hence,
respondents filed an action for the recovery of a
sum of money.
After trial, the RTC, Branch 3, Manila, held Filipinas
Life and its co-defendants Valle, Apetrior and
Alcantara jointly and solidarily liable to the
respondents.
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.
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.

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
G.R. No. 137162 January 24, 2007
CORAZON L. ESCUETA, assisted by her
husband EDGAR ESCUETA, IGNACIO E. RUBIO,
THE HEIRS OF LUZ R. BALOLOY, namely,
ALEJANDRINO R. BALOLOY and BAYANI R.
BALOLOY, Petitioners,
vs.
RUFINA LIM, Respondent.
DECISION
AZCUNA, J.:
This is an appeal by certiorari1 to annul and set
aside the Decision and Resolution of the Court of
Appeals (CA) dated October 26, 1998 and January
11, 1999, respectively, in CA-G.R. CV No. 48282,
entitled "Rufina Lim v. Corazon L. Escueta, etc., et.
al."
The facts2 appear as follows:
Respondent Rufina Lim filed an action to remove
cloud on, or quiet title to, real property, with
preliminary injunction and issuance of [a hold-
departure order] from the Philippines against
Ignacio E. Rubio. Respondent amended her
complaint to include specific performance and
damages.
In her amended complaint, respondent averred
inter alia that she bought the hereditary shares
(consisting of 10 lots) of Ignacio Rubio [and] the
heirs of Luz Baloloy, namely: Alejandrino, Bayani,
and other co-heirs; that said vendors executed a
contract of sale dated April 10, 1990 in her favor;
that Ignacio Rubio and the heirs of Luz Baloloy
received [a down payment] or earnest money in
the amount of P102,169.86 and P450,000,
respectively; that it was agreed in the contract of
sale that the vendors would secure certificates of
title covering their respective hereditary shares;
that the balance of the purchase price would be
paid to each heir upon presentation of their
individual certificate[s] of [title]; that Ignacio Rubio
refused to receive the other half of the down
payment which is P[100,000]; that Ignacio Rubio
refused and still refuses to deliver to [respondent]
the certificates of title covering his share on the
two lots; that with respect to the heirs of Luz
Baloloy, they also refused and still refuse to
perform the delivery of the two certificates of title
covering their share in the disputed lots; that
respondent was and is ready and willing to pay
Ignacio Rubio and the heirs of Luz Baloloy upon
presentation of their individual certificates of title,
free from whatever lien and encumbrance;
As to petitioner Corazon Escueta, in spite of her
knowledge that the disputed lots have already
been sold by Ignacio Rubio to respondent, it is
alleged that a simulated deed of sale involving said
lots was effected by Ignacio Rubio in her favor; and
that the simulated deed of sale by Rubio to Escueta
has raised doubts and clouds over respondents
title.
In their separate amended answers, petitioners
denied the material allegations of the complaint
and alleged inter alia the following:
For the heirs of Luz Baloloy (Baloloys for brevity):
Respondent has no cause of action, because the
subject contract of sale has no more force and
effect as far as the Baloloys are concerned, since
they have withdrawn their offer to sell for the
reason that respondent failed to pay the balance of
the purchase price as orally promised on or before
May 1, 1990.
For petitioners Ignacio Rubio (Rubio for brevity) and
Corazon Escueta (Escueta for brevity):
Respondent has no cause of action, because Rubio
has not entered into a contract of sale with her;
that he has appointed his daughter Patricia Llamas
to be his attorney-in-fact and not in favor of Virginia
Rubio Laygo Lim (Lim for brevity) who was the one
who represented him in the sale of the disputed
lots in favor of respondent; that theP100,000
respondent claimed he received as down payment
for the lots is a simple transaction by way of a loan
with Lim.
The Baloloys failed to appear at the pre-trial. Upon
motion of respondent, the trial court declared the
Baloloys in default. They then filed a motion to lift
the order declaring them in default, which was
denied by the trial court in an order dated
November 27, 1991. Consequently, respondent was
allowed to adduce evidence ex parte. Thereafter,
the trial court rendered a partial decision dated July
23, 1993 against the Baloloys, the dispositive
portion of which reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby
rendered in favor of [respondent] and against
[petitioners, heirs] of Luz R. Balolo[y], namely:
Alejandrino Baloloy and Bayani Baloloy. The
[petitioners] Alejandrino Baloloy and Bayani Baloloy
are ordered to immediately execute an [Absolute]
Deed of Sale over their hereditary share in the
properties covered by TCT No. 74392 and TCT No.
74394, after payment to them by [respondent] the
amount of P[1,050,000] or consignation of said
amount in Court. [For] failure of [petitioners]
Alejandrino Baloloy and Bayani Baloloy to execute
the Absolute Deed of Sale over their hereditary
share in the property covered by TCT No. T-74392
and TCT No. T-74394 in favor of [respondent], the
Clerk of Court is ordered to execute the necessary
Absolute Deed of Sale in behalf of the Baloloys in
favor of [respondent,] with a consideration
ofP[1,500,000]. Further[,] [petitioners] Alejandrino
Baloloy and Bayani Baloloy are ordered to jointly
and severally pay [respondent] moral damages in
the amount of P[50,000] and P[20,000] for
attorneys fees. The adverse claim annotated at the
back of TCT No. T-74392 and TCT No. T-74394[,]
insofar as the shares of Alejandrino Baloloy and
Bayani Baloloy are concerned[,] [is] ordered
cancelled.
With costs against [petitioners] Alejandrino Baloloy
and Bayani Baloloy.
SO ORDERED.3
The Baloloys filed a petition for relief from
judgment and order dated July 4, 1994 and
supplemental petition dated July 7, 1994. This was
denied by the trial court in an order dated
September 16, 1994. Hence, appeal to the Court of
Appeals was taken challenging the order denying
the petition for relief.
Trial on the merits ensued between respondent and
Rubio and Escueta. After trial, the trial court
rendered its assailed Decision, as follows:
IN VIEW OF THE FOREGOING, the complaint [and]
amended complaint are dismissed against
[petitioners] Corazon L. Escueta, Ignacio E. Rubio[,]
and the Register of Deeds. The counterclaim of
[petitioners] [is] also dismissed. However,
[petitioner] Ignacio E. Rubio is ordered to return to
the [respondent], Rufina Lim[,] the amount
of P102,169.80[,] with interest at the rate of six
percent (6%) per annum from April 10, [1990] until
the same is fully paid. Without pronouncement as
to costs.
SO ORDERED.4
On appeal, the CA affirmed the trial courts order
and partial decision, but reversed the later
decision. The dispositive portion of its assailed
Decision reads:
WHEREFORE, upon all the foregoing premises
considered, this Court rules:
1. the appeal of the Baloloys from the
Order denying the Petition for Relief from
Judgment and Orders dated July 4, 1994
and Supplemental Petition dated July 7,
1994 is DISMISSED. The Order appealed
from is AFFIRMED.
2. the Decision dismissing [respondents]
complaint is REVERSED and SET ASIDE
and a new one is entered. Accordingly,
a. the validity of the subject
contract of sale in favor of
[respondent] is upheld.
b. Rubio is directed to execute a
Deed of Absolute Sale
conditioned upon the payment of
the balance of the purchase price
by [respondent] within 30 days
from the receipt of the entry of
judgment of this Decision.
c. the contracts of sale between
Rubio and Escueta involving
Rubios share in the disputed
properties is declared NULL and
VOID.
d. Rubio and Escueta are ordered
to pay jointly and severally the
[respondent] the amount
ofP[20,000] as moral damages
and P[20,000] as attorneys fees.
3. the appeal of Rubio and Escueta on the
denial of their counterclaim is DISMISSED.
SO ORDERED.5
Petitioners Motion for Reconsideration of the CA
Decision was denied. Hence, this petition.
The issues are:
I
THE HONORABLE COURT OF APPEALS ERRED IN
DENYING THE PETITION FOR RELIEF FROM
JUDGMENT FILED BY THE BALOLOYS.
II
THE HONORABLE COURT OF APPEALS ERRED IN
REINSTATING THE COMPLAINT AND IN AWARDING
MORAL DAMAGES AND ATTORNEYS FEES IN FAVOR
OF RESPONDENT RUFINA L. LIM CONSIDERING
THAT:
A. IGNACIO E. RUBIO IS NOT BOUND BY
THE CONTRACT OF SALE BETWEEN
VIRGINIA LAYGO-LIM AND RUFINA LIM.
B. THE CONTRACT ENTERED INTO
BETWEEN RUFINA LIM AND VIRGINIA
LAYGO-LIM IS A CONTRACT TO SELL AND
NOT A CONTRACT OF SALE.
C. RUFINA LIM FAILED TO FAITHFULLY
COMPLY WITH HER OBLIGATIONS UNDER
THE CONTRACT TO SELL THEREBY
WARRANTING THE CANCELLATION
THEREOF.
D. CORAZON L. ESCUETA ACTED IN
UTMOST GOOD FAITH IN ENTERING INTO
THE CONTRACT OF SALE WITH IGNACIO E.
RUBIO.
III
THE CONTRACT OF SALE EXECUTED
BETWEEN IGNACIO E. RUBIO AND
CORAZON L. ESCUETA IS VALID.
IV
THE HONORABLE COURT OF APPEALS
ERRED IN DISMISSING PETITIONERS
COUNTERCLAIMS.
Briefly, the issue is whether the contract of sale
between petitioners and respondent is valid.
Petitioners argue, as follows:
First, the CA did not consider the circumstances
surrounding petitioners failure to appear at the
pre-trial and to file the petition for relief on time.
As to the failure to appear at the pre-trial, there
was fraud, accident and/or excusable neglect,
because petitioner Bayani was in the United States.
There was no service of the notice of pre-trial or
order. Neither did the former counsel of record
inform him. Consequently, the order declaring him
in default is void, and all subsequent proceedings,
orders, or decision are void.
Furthermore, petitioner Alejandrino was not clothed
with a power of attorney to appear on behalf of
Bayani at the pre-trial conference.
Second, the sale by Virginia to respondent is not
binding. Petitioner Rubio did not authorize Virginia
to transact business in his behalf pertaining to the
property. The Special Power of Attorney was
constituted in favor of Llamas, and the latter was
not empowered to designate a substitute attorney-
in-fact. Llamas even disowned her signature
appearing on the "Joint Special Power of Attorney,"
which constituted Virginia as her true and lawful
attorney-in-fact in selling Rubios properties.
Dealing with an assumed agent, respondent should
ascertain not only the fact of agency, but also the
nature and extent of the formers authority.
Besides, Virginia exceeded the authority for failing
to comply with her obligations under the "Joint
Special Power of Attorney."
The amount encashed by Rubio represented not
the down payment, but the payment of
respondents debt. His acceptance and
encashment of the check was not a ratification of
the contract of sale.
Third, the contract between respondent and
Virginia is a contract to sell, not a contract of sale.
The real character of the contract is not the title
given, but the intention of the parties. They
intended to reserve ownership of the property to
petitioners pending full payment of the purchase
price. Together with taxes and other fees due on
the properties, these are conditions precedent for
the perfection of the sale. Even assuming that the
contract is ambiguous, the same must be resolved
against respondent, the party who caused the
same.
Fourth, Respondent failed to faithfully fulfill her part
of the obligation. Thus, Rubio had the right to sell
his properties to Escueta who exercised due
diligence in ascertaining ownership of the
properties sold to her. Besides, a purchaser need
not inquire beyond what appears in a Torrens title.
The petition lacks merit. The contract of sale
between petitioners and respondent is
valid.lawphil.net
Bayani Baloloy was represented by his attorney-in-
fact, Alejandrino Baloloy. In the Baloloys answer to
the original complaint and amended complaint, the
allegations relating to the personal circumstances
of the Baloloys are clearly admitted.
"An admission, verbal or written, made by a party
in the course of the proceedings in the same case,
does not require proof."6 The "factual admission in
the pleadings on record [dispenses] with the need
x x x to present evidence to prove the admitted
fact."7 It cannot, therefore, "be controverted by the
party making such admission, and [is]
conclusive"8 as to them. All proofs submitted by
them "contrary thereto or inconsistent therewith
should be ignored whether objection is interposed
by a party or not."9 Besides, there is no showing
that a palpable mistake has been committed in
their admission or that no admission has been
made by them.
Pre-trial is mandatory.10 The notices of pre-trial had
been sent to both the Baloloys and their former
counsel of record. Being served with notice, he is
"charged with the duty of notifying the party
represented by him."11 He must "see to it that his
client receives such notice and attends the pre-
trial."12 What the Baloloys and their former counsel
have alleged instead in their Motion to Lift Order of
As In Default dated December 11, 1991 is the
belated receipt of Bayani Baloloys special power of
attorney in favor of their former counsel, not that
they have not received the notice or been informed
of the scheduled pre-trial. Not having raised the
ground of lack of a special power of attorney in
their motion, they are now deemed to have waived
it. Certainly, they cannot raise it at this late stage
of the proceedings. For lack of representation,
Bayani Baloloy was properly declared in default.
Section 3 of Rule 38 of the Rules of Court states:
SEC. 3. Time for filing petition; contents and
verification. A petition provided for in either of the
preceding sections of this Rule must be verified,
filed within sixty (60) days after the petitioner
learns of the judgment, final order, or other
proceeding to be set aside, and not more than six
(6) months after such judgment or final order was
entered, or such proceeding was taken; and must
be accompanied with affidavits showing the fraud,
accident, mistake, or excusable negligence relied
upon, and the facts constituting the petitioners
good and substantial cause of action or defense, as
the case may be.
There is no reason for the Baloloys to ignore the
effects of the above-cited rule. "The 60-day period
is reckoned from the time the party acquired
knowledge of the order, judgment or proceedings
and not from the date he actually read the
same."13 As aptly put by the appellate court:
The evidence on record as far as this issue is
concerned shows that Atty. Arsenio Villalon, Jr., the
former counsel of record of the Baloloys received a
copy of the partial decision dated June 23, 1993 on
April 5, 1994. At that time, said former counsel is
still their counsel of record. The reckoning of the 60
day period therefore is the date when the said
counsel of record received a copy of the partial
decision which was on April 5, 1994. The petition
for relief was filed by the new counsel on July 4,
1994 which means that 90 days have already
lapsed or 30 days beyond the 60 day period.
Moreover, the records further show that the
Baloloys received the partial decision on
September 13, 1993 as evidenced by Registry
return cards which bear the numbers 02597 and
02598 signed by Mr. Alejandrino Baloloy.
The Baloloys[,] apparently in an attempt to cure
the lapse of the aforesaid reglementary period to
file a petition for relief from judgment[,] included in
its petition the two Orders dated May 6, 1994 and
June 29, 1994. The first Order denied Baloloys
motion to fix the period within which plaintiffs-
appellants pay the balance of the purchase price.
The second Order refers to the grant of partial
execution, i.e. on the aspect of damages. These
Orders are only consequences of the partial
decision subject of the petition for relief, and thus,
cannot be considered in the determination of the
reglementary period within which to file the said
petition for relief.
Furthermore, no fraud, accident, mistake, or
excusable negligence exists in order that the
petition for relief may be granted. 14 There is no
proof of extrinsic fraud that "prevents a party from
having a trial x x x or from presenting all of his
case to the court"15 or an "accident x x x which
ordinary prudence could not have guarded against,
and by reason of which the party applying has
probably been impaired in his rights." 16 There is
also no proof of either a "mistake x x x of law" 17 or
an excusable negligence "caused by failure to
receive notice of x x x the trial x x x that it would
not be necessary for him to take an active part in
the case x x x by relying on another person to
attend to the case for him, when such other person
x x x was chargeable with that duty x x x, or by
other circumstances not involving fault of the
moving party."18
Article 1892 of the Civil Code provides:
Art. 1892. The agent may appoint a substitute if
the principal has not prohibited him from doing so;
but he shall be responsible for the acts of the
substitute:
(1) When he was not given the power to appoint
one x x x.
Applying the above-quoted provision to the special
power of attorney executed by Ignacio Rubio in
favor of his daughter Patricia Llamas, it is clear that
she is not prohibited from appointing a substitute.
By authorizing Virginia Lim to sell the subject
properties, Patricia merely acted within the limits of
the authority given by her father, but she will have
to be "responsible for the acts of the sub-
agent,"19 among which is precisely the sale of the
subject properties in favor of respondent.
Even assuming that Virginia Lim has no authority to
sell the subject properties, the contract she
executed in favor of respondent is not void, but
simply unenforceable, under the second paragraph
of Article 1317 of the Civil Code which reads:
Art. 1317. x x x
A contract entered into in the name of another by
one who has no authority or legal representation,
or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other
contracting party.
Ignacio Rubio merely denies the contract of sale.
He claims, without substantiation, that what he
received was a loan, not the down payment for the
sale of the subject properties. His acceptance and
encashment of the check, however, constitute
ratification of the contract of sale and "produce the
effects of an express power of agency."20"[H]is
action necessarily implies that he waived his right
of action to avoid the contract, and, consequently,
it also implies the tacit, if not express, confirmation
of the said sale effected" by Virginia Lim in favor of
respondent.
Similarly, the Baloloys have ratified the contract of
sale when they accepted and enjoyed its benefits.
"The doctrine of estoppel applicable to petitioners
here is not only that which prohibits a party from
assuming inconsistent positions, based on the
principle of election, but that which precludes him
from repudiating an obligation voluntarily assumed
after having accepted benefits therefrom. To
countenance such repudiation would be contrary to
equity, and would put a premium on fraud or
misrepresentation."21
Indeed, Virginia Lim and respondent have entered
into a contract of sale. Not only has the title to the
subject properties passed to the latter upon
delivery of the thing sold, but there is also no
stipulation in the contract that states the
ownership is to be reserved in or "retained by the
vendor until full payment of the price."22
Applying Article 1544 of the Civil Code, a second
buyer of the property who may have had actual or
constructive knowledge of such defect in the
sellers title, or at least was charged with the
obligation to discover such defect, cannot be a
registrant in good faith. Such second buyer cannot
defeat the first buyers title. In case a title is issued
to the second buyer, the first buyer may seek
reconveyance of the property subject of the
sale.23 Even the argument that a purchaser need
not inquire beyond what appears in a Torrens title
does not hold water. A perusal of the certificates of
title alone will reveal that the subject properties are
registered in common, not in the individual names
of the heirs.
Nothing in the contract "prevents the obligation of
the vendor to convey title from becoming
effective"24 or gives "the vendor the right to
unilaterally resolve the contract the moment the
buyer fails to pay within a fixed
period."25Petitioners themselves have failed to
deliver their individual certificates of title, for which
reason it is obvious that respondent cannot be
expected to pay the stipulated taxes, fees, and
expenses.
"[A]ll the elements of a valid contract of sale under
Article 1458 of the Civil Code are present, such as:
(1) consent or meeting of the minds; (2)
determinate subject matter; and (3) price certain in
money or its equivalent."26Ignacio Rubio, the
Baloloys, and their co-heirs sold their hereditary
shares for a price certain to which respondent
agreed to buy and pay for the subject properties.
"The offer and the acceptance are concurrent,
since the minds of the contracting parties meet in
the terms of the agreement."27
In fact, earnest money has been given by
respondent. "[I]t shall be considered as part of the
price and as proof of the perfection of the
contract.28 It constitutes an advance payment to
"be deducted from the total price." 29
Article 1477 of the same Code also states that
"[t]he ownership of the thing sold shall be
transferred to the vendee upon actual or
constructive delivery thereof."30 In the present
case, there is actual delivery as manifested by acts
simultaneous with and subsequent to the contract
of sale when respondent not only took possession
of the subject properties but also allowed their use
as parking terminal for jeepneys and buses.
Moreover, the execution itself of the contract of
sale is constructive delivery.
Consequently, Ignacio Rubio could no longer sell
the subject properties to Corazon Escueta, after
having sold them to respondent. "[I]n a contract of
sale, the vendor loses ownership over the property
and cannot recover it until and unless the contract
is resolved or rescinded x x x." 31 The records do not
show that Ignacio Rubio asked for a rescission of
the contract. What he adduced was a belated
revocation of the special power of attorney he
executed in favor of Patricia Llamas. "In the sale of
immovable property, even though it may have
been stipulated that upon failure to pay the price at
the time agreed upon the rescission of the contract
shall of right take place, the vendee may pay, even
after the expiration of the period, as long as no
demand for rescission of the contract has been
made upon him either judicially or by a notarial
act."32
WHEREFORE, the petition is DENIED. The
Decision and Resolution of the Court of Appeals in
CA-G.R. CV No. 48282, dated
October 26, 1998 and January 11, 1999,
respectively, are hereby AFFIRMED. Costs against
petitioners.
SO ORDERED.
G.R. No. 136433 December 6, 2006
ANTONIO B. BALTAZAR, petitioner,
vs.
HONORABLE OMBUDSMAN, EULOGIO M.
MARIANO, JOSE D. JIMENEZ, JR., TORIBIO E.
ILAO, JR. and ERNESTO R.
SALENGA, respondents.
VELASCO, JR., J.:
The Case
Ascribing grave abuse of discretion to respondent
Ombudsman, this Petition for Review on
Certiorari,1 under Rule 45 pursuant to Section 27 of
RA 6770,2 seeks to reverse and set aside the
November 26, 1997 Order3 of the Office of the
Special Prosecutor (OSP) in OMB-1-94-3425 duly
approved by then Ombudsman Aniano Desierto on
August 21, 1998, which recommended the
dismissal of the Information4 in Criminal Case No.
23661 filed before the Sandiganbayan against
respondents Pampanga Provincial Adjudicator
Toribio E. Ilao, Jr., Chief Legal Officer Eulogio M.
Mariano and Legal Officer Jose D. Jimenez, Jr. (both
of the DAR Legal Division in San Fernando,
Pampanga), and Ernesto R. Salenga. The petition
likewise seeks to set aside the October 30, 1998
Memorandum5 of the OSP duly approved by the
Ombudsman on November 27, 1998 which denied
petitioner's Motion for Reconsideration.6 Previously,
the filing of the Information against said
respondents was authorized by the May 10, 1996
Resolution7 and October 3, 1996 Order8 of the
Ombudsman which found probable cause that they
granted unwarranted benefits, advantage, and
preference to respondent Salenga in violation of
Section 3 (e) of RA 3019.9
The Facts
Paciencia Regala owns a seven (7)-hectare fishpond
located at Sasmuan, Pampanga. Her Attorney-in-
Fact Faustino R. Mercado leased the fishpond for
PhP 230,000.00 to Eduardo Lapid for a three (3)-
year period, that is, from August 7, 1990 to August
7, 1993.10 Lessee Eduardo Lapid in turn sub-leased
the fishpond to Rafael Lopez for PhP 50,000.00
during the last seven (7) months of the original
lease, that is, from January 10, 1993 to August 7,
1993.11 Respondent Ernesto Salenga was hired by
Eduardo Lapid as fishpond watchman (bante-
encargado). In the sub-lease, Rafael Lopez rehired
respondent Salenga.
Meanwhile, on March 11, 1993, respondent
Salenga, through a certain Francis Lagman, sent his
January 28, 1993 demand letter 12 to Rafael Lopez
and Lourdes Lapid for unpaid salaries and non-
payment of the 10% share in the harvest.
On June 5, 1993, sub-lessee Rafael Lopez wrote a
letter to respondent Salenga informing the latter
that for the last two (2) months of the sub-lease, he
had given the rights over the fishpond to Mario
Palad and Ambit Perez for PhP 20,000.00. 13 This
prompted respondent Salenga to file a OMB-1-94-3425 entitled Antonio B. Baltazar v.
Complaint14 before the Provincial Agrarian Reform
Adjudication Board (PARAB), Region III, San
Fernando, Pampanga docketed as DARAB Case No.
552-P93 entitled Ernesto R. Salenga v. Rafael L.
Lopez and Lourdes L. Lapid for Maintenance of
Peaceful Possession, Collection of Sum of Money
and Supervision of Harvest. The Complaint was
signed by respondent Jose D. Jimenez, Jr., Legal
Officer of the Department of Agrarian Reform (DAR)
Region III Office in San Fernando, Pampanga, as
counsel for respondent Salenga; whereas
respondent Eulogio M. Mariano was the Chief Legal
Officer of DAR Region III. The case was assigned to
respondent Toribio E. Ilao, Jr., Provincial Adjudicator
of DARAB, Pampanga.
On May 10, 1993, respondent Salenga amended his
complaint.15 The amendments included a prayer for
the issuance of a temporary restraining order (TRO)
and preliminary injunction. However, before the
prayer for the issuance of a TRO could be acted
upon, on June 16, 1993, respondent Salenga filed a
Motion to Maintain Status Quo and to Issue
Restraining Order16 which was set for hearing on
June 22, 1993. In the hearing, however, only
respondent Salenga with his counsel appeared
despite notice to the other parties. Consequently,
the ex-partepresentation of respondent Salengas
evidence in support of the prayer for the issuance
of a restraining order was allowed, since the motion
was unopposed, and on July 21, 1993, respondent
Ilao, Jr. issued a TRO.17
Thereafter, respondent Salenga asked for
supervision of the harvest, which the board sheriff
did. Accordingly, defendants Lopez and Lapid
received their respective shares while respondent
Salenga was given his share under protest. In the
subsequent hearing for the issuance of a
preliminary injunction, again, only respondent
Salenga appeared and presented his evidence for
the issuance of the writ.
Pending resolution of the case, Faustino Mercado,
as Attorney-in-Fact of the fishpond owner Paciencia
Regala, filed a motion to intervene which was
granted by respondent Ilao, Jr. through the
November 15, 1993 Order. After the trial,
respondent Ilao, Jr. rendered a Decision on May 29,
1995 dismissing the Complaint for lack of merit;
but losing plaintiff, respondent Salenga, appealed
the decision before the DARAB Appellate Board.
Complaint Before the Ombudsman
On November 24, 1994, pending resolution of the
agrarian case, the instant case was instituted by
petitioner Antonio Baltazar, an alleged nephew of
Faustino Mercado, through a Complaint-
Affidavit18 against private respondents before the
Office of the Ombudsman which was docketed as
Eulogio Mariano, Jose Jimenez, Jr., Toribio Ilao, Jr.
and Ernesto Salenga for violation of RA 3019.
Petitioner charged private respondents of
conspiracy through the issuance of the TRO in
allowing respondent Salenga to retain possession
of the fishpond, operate it, harvest the produce,
and keep the sales under the safekeeping of other
private respondents. Moreover, petitioner
maintains that respondent Ilao, Jr. had no
jurisdiction to hear and act on DARAB Case No.
552-P93 filed by respondent Salenga as there was
no tenancy relation between respondent Salenga
and Rafael L. Lopez, and thus, the complaint was
dismissible on its face.
Through the December 14, 1994 Order, 19 the
Ombudsman required private respondents to file
their counter-affidavits, affidavits of their
witnesses, and other controverting evidence. While
the other respondents submitted their counter-
affidavits, respondent Ilao, Jr. instead filed his
February 9, 1995 motion to dismiss, February 21,
1995 Reply, and March 24, 1995 Rejoinder.
Ombudsmans Determination of Probable
Cause
On May 10, 1996, the Ombudsman issued a
Resolution20 finding cause to bring respondents to
court, denying the motion to dismiss of respondent
Ilao, Jr., and recommending the filing of an
Information for violation of Section 3 (e) of RA
3019. Subsequently, respondent Ilao, Jr. filed his
September 16, 1996 Motion for Reconsideration
and/or Re-investigation21 which was denied through
the October 3, 1996 Order.22Consequently, the
March 17, 1997 Information23 was filed against all
the private respondents before the Sandiganbayan
which was docketed as Criminal Case No. 23661.
Before the graft court, respondent Ilao, Jr. filed his
May 19, 1997 Motion for Reconsideration and/or
Re-investigation which was granted through the
August 29, 1997 Order.24 On September 8, 1997,
respondent Ilao, Jr. subsequently filed his Counter-
Affidavit25 with attachments while petitioner did not
file any reply-affidavit despite notice to him. The
OSP of the Ombudsman conducted the re-
investigation; and the result of the re-investigation
was embodied in the assailed November 26, 1997
Order26 which recommended the dismissal of the
complaint in OMB-1-94-3425 against all private
respondents. Upon review, the Ombudsman
approved the OSPs recommendation on August 21,
1998.
Petitioners Motion for Reconsideration27 was
likewise denied by the OSP through the October 30,
1998 Memorandum28 which was approved by the
Ombudsman on November 27, 1998.
Consequently, the trial prosecutor moved orally
before the Sandiganbayan for the dismissal of
Criminal Case No. 23661 which was granted
through the December 11, 1998 Order.29
Thus, the instant petition is before us.
The Issues
Petitioner raises two assignments of errors, to wit:
THE HONORABLE OMBUDSMAN ERRED IN
GIVING DUE COURSE A MISPLACED
COUNTER-AFFIDAVIT FILED AFTER THE
TERMINATION OF THE PRELIMINARY
INVESTIGATION AND/OR THE CASE WAS
ALREADY FILED BEFORE THE
SANDIGANBAYAN.
ASSUMING OTHERWISE, THE HONORABLE
OMBUDSMAN LIKEWISE ERRED IN
REVERSING HIS OWN RESOLUTION WHERE
IT WAS RESOLVED THAT ACCUSED AS
PROVINCIAL AGRARIAN ADJUDICATOR HAS
NO JURISDICTION OVER A COMPLAINT
WHERE THERE EXIST [sic] NO TENANCY
RELATIONSHIP CONSIDERING [sic]
COMPLAINANT IS NOT A TENANT BUT A
"BANTE-ENCARGADO" OR WATCHMAN-
OVERSEER HIRED FOR A SALARY OF
P3,000.00 PER MONTH AS ALLEGED IN HIS
OWN COMPLAINT.30
Before delving into the errors raised by petitioner,
we first address the preliminary procedural issue of
the authority and locus standi of petitioner to
pursue the instant petition.
Preliminary Issue: Legal Standing
Locus standi is defined as "a right of appearance in
a court of justice x x x on a given question." 31 In
private suits, standing is governed by the "real-
parties-in interest" rule found in Section 2, Rule 3 of
the 1997 Rules of Civil Procedure which provides
that "every action must be prosecuted or defended
in the name of the real party in interest."
Accordingly, the "real-party-in interest" is "the
party who stands to be benefited or injured by the
judgment in the suit or the party entitled to the
avails of the suit."32 Succinctly put, the plaintiffs
standing is based on their own right to the relief
sought.
The records show that petitioner is a non-lawyer
appearing for himself and conducting litigation in
person. Petitioner instituted the instant case before
the Ombudsman in his own name. In so far as the
Complaint-Affidavit filed before the Office of the
Ombudsman is concerned, there is no question on
his authority and legal standing. Indeed, the Office
of the Ombudsman is mandated to "investigate and
prosecute on its own or on complaint by any
person, any act or omission of any public officer or
employee, office or agency, when such act or
omission appears to be illegal, unjust, improper or
inefficient (emphasis supplied)."33 The Ombudsman
can act on anonymous complaints and motu
proprio inquire into alleged improper official acts or
omissions from whatever source, e.g., a presented a Special Power of Attorney35 (SPA) from
newspaper.34 Thus, any complainant may be
entertained by the Ombudsman for the latter to
initiate an inquiry and investigation for alleged
irregularities.
However, filing the petition in person before this
Court is another matter. The Rules allow a non-
lawyer to conduct litigation in person and appear
for oneself only when he is a party to a legal
controversy. Section 34 of Rule 138 pertinently
provides, thus:
SEC. 34. By whom litigation conducted.
In the court of a justice of the peace a
party may conduct his litigation in person,
with the aid of an agent or friend
appointed by him for that purpose, or with
the aid of an attorney. In any other court,
a party may conduct his litigation
personally or by aid of an attorney,
and hisappearance must be
either personal or by a duly authorized
member of the bar (emphases supplied).
Petitioner has no legal standing
Is petitioner a party or a real party in interest to
have the locus standi to pursue the instant
petition? We answer in the negative.
While petitioner may be the complainant in OMB-1-
94-3425, he is not a real party in interest. Section
2, Rule 3 of the 1997 Rules of Civil Procedure
stipulates, thus:
SEC. 2. Parties in interest. A real party in
interest is the party who stands to be
benefited or injured by the judgment in
the suit, or the party entitled to the avails
of the suit. Unless otherwise authorized by
law or these Rules, every action must be
prosecuted or defended in the name of
the real party in interest.
The same concept is applied in criminal and
administrative cases.
In the case at bar which involves a criminal
proceeding stemming from a civil (agrarian) case, it
is clear that petitioner is not a real party in interest.
Except being the complainant, the records show
that petitioner is a stranger to the agrarian case. It
must be recalled that the undisputed owner of the
fishpond is Paciencia Regala, who intervened in
DARAB Case No. 552-P93 through her Attorney-in-
Fact Faustino Mercado in order to protect her
interest. The motion for intervention filed by
Faustino Mercado, as agent of Paciencia Regala,
was granted by respondent Provincial Adjudicator
Ilao, Jr. through the November 15, 1993 Order in
DARAB Case No. 552-P93.
Agency cannot be further delegated
Petitioner asserts that he is duly authorized by
Faustino Mercado to institute the suit and
Faustino Mercado. However, such SPA is unavailing
for petitioner. For one, petitioners principal,
Faustino Mercado, is an agent himself and as such
cannot further delegate his agency to another.
Otherwise put, an agent cannot delegate to
another the same agency. The legal
maxim potestas delegata non delegare potest; a
power once delegated cannot be re-delegated,
while applied primarily in political law to the
exercise of legislative power, is a principle of
agency.36 For another, a re-delegation of the
agency would be detrimental to the principal as the
second agent has no privity of contract with the
former. In the instant case, petitioner has no privity
of contract with Paciencia Regala, owner of the
fishpond and principal of Faustino Mercado.
Moreover, while the Civil Code under Article
189237 allows the agent to appoint a substitute,
such is not the situation in the instant case. The
SPA clearly delegates the agency to petitioner to
pursue the case and not merely as a substitute.
Besides, it is clear in the aforecited Article that
what is allowed is a substitute and not a delegation
of the agency.
Clearly, petitioner is neither a real party in interest
with regard to the agrarian case, nor is he a real
party in interest in the criminal proceedings
conducted by the Ombudsman as elevated to the
Sandiganbayan. He is not a party who will be
benefited or injured by the results of both cases.
Petitioner: a stranger and not an injured
private complainant
Petitioner only surfaced in November 1994 as
complainant before the Ombudsman. Aside from
that, not being an agent of the parties in the
agrarian case, he has no locus standi to pursue this
petition. He cannot be likened to an injured private
complainant in a criminal complaint who has direct
interest in the outcome of the criminal case.
More so, we note that the petition is not pursued as
a public suit with petitioner asserting a "public
right" in assailing an allegedly illegal official action,
and doing so as a representative of the general
public. He is pursuing the instant case as an agent
of an ineffective agency.
Petitioner has not shown entitlement to
judicial protection
Even if we consider the instant petition as a public
suit, where we may consider petitioner suing as a
"stranger," or in the category of a "citizen," or
"taxpayer," still petitioner has not adequately
shown that he is entitled to seek judicial protection.
In other words, petitioner has not made out a
sufficient interest in the vindication of the public
order and the securing of relief as a "citizen" or
"taxpayer"; more so when there is no showing that
he was injured by the dismissal of the criminal
complaint before the Sandiganbayan.
Based on the foregoing discussion, petitioner
indubitably does not have locus standi to pursue
this action and the instant petition must be
forthwith dismissed on that score. Even
granting arguendo that he has locus standi,
nonetheless, petitioner fails to show grave abuse of
discretion of respondent Ombudsman to warrant a
reversal of the assailed November 26, 1997 Order
and the October 30, 1998 Memorandum.
First Issue: Submission of Counter-Affidavit
The Sandiganbayan, not the Ombudsman,
ordered re-investigation
On the substantive aspect, in the first assignment
of error, petitioner imputes grave abuse of
discretion on public respondent Ombudsman for
allowing respondent Ilao, Jr. to submit his Counter-
Affidavit when the preliminary investigation was
already concluded and an Information filed with the
Sandiganbayan which assumed jurisdiction over
the criminal case. This contention is utterly
erroneous.
The facts clearly show that it was not the
Ombudsman through the OSP who allowed
respondent Ilao, Jr. to submit his Counter-Affidavit.
It was the Sandiganbayan who granted the prayed
for re-investigation and ordered the OSP to conduct
the re-investigation through its August 29, 1997
Order, as follows:
Considering the manifestation of
Prosecutor Cicero Jurado, Jr. that accused
Toribio E. Ilao, Jr. was not able to file his
counter-affidavit in the preliminary
investigation, there appears to be some
basis for granting the motion of said
accused for reinvestigation.
WHEREFORE, accused Toribio E. Ilao,
Jr. may file his counter-affidavit, with
documentary evidence attached, if any,
with the Office of the Special Prosecutor
within then (10) days from today.
Theprosecution is ordered to conduct
a reinvestigation within a period of
thirty (30) days.38 (Emphases supplied.)
As it is, public respondent Ombudsman through the
OSP did not exercise any discretion in allowing
respondent Ilao, Jr. to submit his Counter-Affidavit.
The OSP simply followed the graft courts directive
to conduct the re-investigation after the Counter-
Affidavit of respondent Ilao, Jr. was filed. Indeed,
petitioner did not contest nor question the August
29, 1997 Order of the graft court. Moreover,
petitioner did not file any reply-affidavit in the re-
investigation despite notice.
Re-investigation upon sound discretion of
graft court
Furthermore, neither can we fault the graft court in
granting the prayed for re-investigation as it can
readily be seen from the antecedent facts that
respondent Ilao, Jr. was not given the opportunity
to file his Counter-Affidavit. Respondent Ilao, Jr.
filed a motion to dismiss with the Ombudsman but
such was not resolved before the Resolution
finding cause to bring respondents to trialwas
issued. In fact, respondent Ilao, Jr.s motion to
dismiss was resolved only through the May 10,
1996 Resolution which recommended the filing of
an Information. Respondent Ilao, Jr.s Motion for
Reconsideration and/or Re-investigation was denied
and the Information was filed with the graft court.
Verily, courts are given wide latitude to accord the
accused ample opportunity to present
controverting evidence even before trial as
demanded by due process. Thus, we held
in Villaflor v. Vivar that "[a] component part of due
process in criminal justice, preliminary
investigation is a statutory and substantive right
accorded to the accused before trial. To deny their
claim to a preliminary investigation would be to
deprive them of the full measure of their right to
due process."39
Second Issue: Agrarian Dispute
Anent the second assignment of error, petitioner
contends that DARAB Case No. 552-P93 is not an
agrarian dispute and therefore outside the
jurisdiction of the DARAB. He maintains that
respondent Salenga is not an agricultural tenant
but a mere watchman of the fishpond owned by
Paciencia Regala. Moreover, petitioner further
argues that Rafael Lopez and Lourdes Lapid, the
respondents in the DARAB case, are not the owners
of the fishpond.
Nature of the case determined by allegations
in the complaint
This argument is likewise bereft of merit. Indeed, as
aptly pointed out by respondents and as borne out
by the antecedent facts, respondent Ilao, Jr. could
not have acted otherwise. It is a settled rule that
jurisdiction over the subject matter is determined
by the allegations of the complaint.40 The nature of
an action is determined by the material averments
in the complaint and the character of the relief
sought,41 not by the defenses asserted in the
answer or motion to dismiss.42 Given that
respondent Salengas complaint and its attachment
clearly spells out the jurisdictional allegations that
he is an agricultural tenant in possession of the
fishpond and is about to be ejected from it, clearly,
respondent Ilao, Jr. could not be faulted in
assuming jurisdiction as said allegations
characterize an agricultural dispute. Besides,
whatever defense asserted in an answer or motion
to dismiss is not to be considered in resolving the
issue on jurisdiction as it cannot be made
dependent upon the allegations of the defendant.
Issuance of TRO upon the sound discretion of
hearing officer
As regards the issuance of the TRO, considering the
proper assumption of jurisdiction by respondent
Ilao, Jr., it can be readily culled from the antecedent
facts that his issuance of the TRO was a proper
exercise of discretion. Firstly, the averments with
evidence as to the existence of the need for the
issuance of the restraining order were manifest in
respondent Salengas Motion to Maintain Status
Quo and to Issue Restraining Order,43 the attached
Police Investigation Report,44 and Medical
Certificate.45 Secondly, only respondent Salenga
attended the June 22, 1993 hearing despite notice
to parties. Hence, Salengas motion was not only
unopposed but his evidence adduced ex-parte also
adequately supported the issuance of the
restraining order.
Premises considered, respondent Ilao, Jr. has
correctly assumed jurisdiction and properly
exercised his discretion in issuing the TROas
respondent Ilao, Jr. aptly maintained that giving
due course to the complaint and issuing the TRO do
not reflect the final determination of the merits of
the case. Indeed, after hearing the case,
respondent Ilao, Jr. rendered a Decision on May 29,
1995 dismissing DARAB Case No. 552-P93 for lack
of merit.
Court will not review prosecutors
determination of probable cause
Finally, we will not delve into the merits of the
Ombudsmans reversal of its initial finding of
probable cause or cause to bring respondents to
trial. Firstly, petitioner has not shown that the
Ombudsman committed grave abuse of discretion
in rendering such reversal. Secondly, it is clear
from the records that the initial finding embodied in
the May 10, 1996 Resolution was arrived at before
the filing of respondent Ilao, Jr.s Counter-Affidavit.
Thirdly, it is the responsibility of the public
prosecutor, in this case the Ombudsman, to uphold
the law, to prosecute the guilty, and to protect the
innocent. Lastly, the function of determining the
existence of probable cause is proper for the
Ombudsman in this case and we will not tread on
the realm of this executive function to examine and
assess evidence supplied by the parties, which is
supposed to be exercised at the start of criminal
proceedings. In Perez v. Hagonoy Rural Bank,
Inc.,46 as cited in Longos Rural Waterworks and
Sanitation Association, Inc. v. Hon. Desierto,47 we
had occasion to rule that we cannot pass upon the
sufficiency or insufficiency of evidence to
determine the existence of probable cause. 48
WHEREFORE, the instant petition is DENIED for
lack of merit, and the November 26, 1997 Order
and the October 30, 1998 Memorandum of the
Office of the Special Prosecutor in Criminal Case
No. 23661 (OMB-1-94-3425) are
hereby AFFIRMED IN TOTO, with costs against
petitioner.SO ORDERED.
G.R. No. 130423 November 18, 2002
VIRGIE SERONA, petitioner,
vs.
HON. COURT OF APPEALS and THE PEOPLE OF
THE PHILIPPINES, respondents.
DECISION
YNARES-SANTIAGO, J.:
During the period from July 1992 to September
1992, Leonida Quilatan delivered pieces of jewelry
to petitioner Virgie Serona to be sold on
commission basis. By oral agreement of the
parties, petitioner shall remit payment or return the
pieces of jewelry if not sold to Quilatan, both within
30 days from receipt of the items.
Upon petitioners failure to pay on September 24,
1992, Quilatan required her to execute an
acknowledgment receipt (Exhibit B) indicating their
agreement and the total amount due, to wit:
Ako, si Virginia Serona, nakatira sa Mother Earth
Subd., Las Pinas, ay kumuha ng mga alahas kay
Gng. Leonida Quilatan na may kabuohang halaga
na P567,750.00 para ipagbili para ako
magkakomisyon at ibibigay ang benta kung
mabibili o ibabalik sa kanya ang mga nasabing
alahas kung hindi mabibili sa loob ng 30 araw.
Las Pinas, September 24, 1992.1
The receipt was signed by petitioner and a witness,
Rufina G. Navarette.
Unknown to Quilatan, petitioner had earlier
entrusted the jewelry to one Marichu Labrador for
the latter to sell on commission basis. Petitioner
was not able to collect payment from Labrador,
which caused her to likewise fail to pay her
obligation to Quilatan.
Subsequently, Quilatan, through counsel, sent a
formal letter of demand2 to petitioner for failure to
settle her obligation. Quilatan executed a
complaint affidavit3 against petitioner before the
Office of the Assistant Provincial Prosecutor.
Thereafter, an information for estafa under Article
315, paragraph 1(b)4 of the Revised Penal Code
was filed against petitioner, which was raffled to
Branch 255 of the Regional Trial Court of Las Pinas.
The information alleged:
That on or about and sometime during the period
from July 1992 up to September 1992, in the
Municipality of Las Pinas, Metro Manila, Philippines,
and within the jurisdiction of this Honorable Court,
the said accused received in trust from the
complainant Leonida E. Quilatan various pieces of
jewelry in the total value of P567,750.00 to be sold
on commission basis under the express duty and
obligation of remitting the proceeds thereof to the
said complainant if sold or returning the same to
the latter if unsold but the said accused once in
possession of said various pieces of jewelry, with
unfaithfulness and abuse of confidence and with
intent to defraud, did then and there willfully,
provided under the first paragraph of Article 315 of
unlawfully and feloniously misappropriate and
convert the same for her own personal use and
benefit and despite oral and written demands, she
failed and refused to account for said jewelry or the
proceeds of sale thereof, to the damage and
prejudice of complainant Leonida E. Quilatan in the
aforestated total amount of P567,750.00.
CONTRARY TO LAW.5
Petitioner pleaded not guilty to the charge upon
arraignment.6 Trial on the merits thereafter ensued.
Quilatan testified that petitioner was able to remit
P100,000.00 and returned P43,000.00 worth of
jewelriy;7 that at the start, petitioner was prompt in
settling her obligation; however, subsequently the
payments were remitted late;8 that petitioner still
owed her in the amount of P424,750.00.9
On the other hand, petitioner admitted that she
received several pieces of jewelry from Quilatan
and that she indeed failed to pay for the same. She
claimed that she entrusted the pieces of jewelry to
Marichu Labrador who failed to pay for the same,
thereby causing her to default in paying
Quilatan.10 She presented handwritten receipts
(Exhibits 1 & 2)11 evidencing payments made to
Quilatan prior to the filing of the criminal case.
Marichu Labrador confirmed that she received
pieces of jewelry from petitioner worth
P441,035.00. She identified an acknowledgment
receipt (Exhibit 3)12 signed by her dated July 5,
1992 and testified that she sold the jewelry to a
person who absconded without paying her.
Labrador also explained that in the past, she too
had directly transacted with Quilatan for the sale of
jewelry on commission basis; however, due to her
outstanding account with the latter, she got jewelry
from petitioner instead.13
On November 17, 1994, the trial court rendered a
decision finding petitioner guilty of estafa, the
dispositive portion of which reads:
WHEREFORE, in the light of the foregoing, the court
finds the accused Virgie Serona guilty beyond
reasonable doubt, and as the amount
misappropriated is P424,750.00 the penalty
the Revised Penal Code has to be imposed which
shall be in the maximum period plus one (1) year
for every additional P10,000.00.
Applying the Indeterminate Sentence Law, the said
accused is hereby sentenced to suffer the penalty
of imprisonment ranging from FOUR (4) YEARS and
ONE (1) DAY of prision correccional as minimum to
TEN (10) YEARS and ONE (1) DAY of prision mayor
as maximum; to pay the sum of P424,750.00 as
cost for the unreturned jewelries; to suffer the
accessory penalties provided by law; and to pay
the costs.
SO ORDERED.14
Petitioner appealed to the Court of Appeals, which
affirmed the judgment of conviction but modified
the penalty as follows:
WHEREFORE, the appealed decision finding the
accused-appellant guilty beyond reasonable doubt
of the crime of estafa is hereby AFFIRMED with the
following MODIFICATION:
Considering that the amount involved is
P424,750.00, the penalty should be imposed in its
maximum period adding one (1) year for each
additional P10,000.00 albeit the total penalty
should not exceed Twenty (20) Years (Art. 315).
Hence, accused-appellant is hereby SENTENCED to
suffer the penalty of imprisonment ranging from
Four (4) Years and One (1) Day of Prision
Correccional as minimum to Twenty (20) Years of
Reclusion Temporal.
SO ORDERED.15
Upon denial of her motion for
reconsideration,16 petitioner filed the instant
petition under Rule 45, alleging that:
I element of misappropriation or conversion to be
RESPONDENT COURT OF APPEALS SERIOUSLY
ERRED IN CONCLUDING THAT THERE WAS AN
ABUSE OF CONFIDENCE ON THE PART OF
PETITIONER IN ENTRUSTING THE SUBJECT
JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON
COMMISSION TO PROSPECTIVE BUYERS.
II
RESPONDENT COURT OF APPEALS SERIOUSLY
ERRED IN CONCLUDING THAT THERE WAS
MISAPPROPRIATION OR CONVERSION ON THE PART
OF PETITIONER WHEN SHE FAILED TO RETURN THE
SUBJECT JEWELRIES (sic) TO PRIVATE
COMPLAINANT.17
Petitioner argues that the prosecution failed to
establish the elements of estafa as penalized under
Article 315, par. 1(b) of the Revised Penal Code. In
particular, she submits that she neither abused the
confidence reposed upon her by Quilatan nor
converted or misappropriated the subject jewelry;
that her giving the pieces of jewelry to a sub-agent
for sale on commission basis did not violate her
undertaking with Quilatan. Moreover, petitioner
delivered the jewelry to Labrador under the same
terms upon which it was originally entrusted to her.
It was established that petitioner had not derived
any personal benefit from the loss of the jewelry.
Consequently, it cannot be said that she
misappropriated or converted the same.
We find merit in the petition.
The elements of estafa through misappropriation or
conversion as defined in Article 315, par. 1(b) of
the Revised Penal Code are: (1) that the money,
good or other personal property is received by the
offender in trust, or on commission, or for
administration, or under any other obligation
involving the duty to make delivery of, or to return,
the same; (2) that there be misappropriation or
conversion of such money or property by the
offender or denial on his part of such receipt; (3)
that such misappropriation or conversion or denial
is to the prejudice of another; and (4) that there is
a demand made by the offended party on the
offender.18 While the first, third and fourth elements
are concededly present, we find the second
lacking in the case at bar.
Petitioner did not ipso facto commit the crime of
estafa through conversion or misappropriation by
delivering the jewelry to a sub-agent for sale on
commission basis. We are unable to agree with the
lower courts conclusion that this fact alone is
sufficient ground for holding that petitioner
disposed of the jewelry "as if it were hers, thereby
committing conversion and a clear breach of
trust."19
It must be pointed out that the law on agency in
our jurisdiction allows the appointment by an agent
of a substitute or sub-agent in the absence of an
express agreement to the contrary between the
agent and the principal.20 In the case at bar, the
appointment of Labrador as petitioners sub-agent
was not expressly prohibited by Quilatan, as the
acknowledgment receipt, Exhibit B, does not
contain any such limitation. Neither does it appear
that petitioner was verbally forbidden by Quilatan
from passing on the jewelry to another person
before the acknowledgment receipt was executed
or at any other time. Thus, it cannot be said that
petitioners act of entrusting the jewelry to
Labrador is characterized by abuse of confidence
because such an act was not proscribed and is, in
fact, legally sanctioned.
The essence of estafa under Article 315, par. 1(b) is
the appropriation or conversion of money or
property received to the prejudice of the owner.
The words "convert" and "misappropriated"
connote an act of using or disposing of anothers
property as if it were ones own, or of devoting it to
a purpose or use different from that agreed upon.
To misappropriate for ones own use includes not
only conversion to ones personal advantage, but
also every attempt to dispose of the property of
another without right.21
In the case at bar, it was established that the
inability of petitioner as agent to comply with her
duty to return either the pieces of jewelry or the
proceeds of its sale to her principal Quilatan was
due, in turn, to the failure of Labrador to abide by
her agreement with petitioner. Notably, Labrador
testified that she obligated herself to sell the
jewelry in behalf of petitioner also on commission
basis or to return the same if not sold. In other
words, the pieces of jewelry were given by
petitioner to Labrador to achieve the very same
end for which they were delivered to her in the first
place. Consequently, there is no conversion since
the pieces of jewelry were not devoted to a
purpose or use different from that agreed upon.
Similarly, it cannot be said that petitioner
misappropriated the jewelry or delivered them to
Labrador "without right." Aside from the fact that
no condition or limitation was imposed on the
mode or manner by which petitioner was to effect
the sale, it is also consistent with usual practice for
the seller to necessarily part with the valuables in
order to find a buyer and allow inspection of the
items for sale. In People v. Nepomuceno, 22 the
accused-appellant was acquitted of estafa on facts
similar to the instant case. Accused-appellant
therein undertook to sell two diamond rings in
behalf of the complainant on commission basis,
with the obligation to return the same in a few days
if not sold. However, by reason of the fact that the
rings were delivered also for sale on commission to
sub-agents who failed to account for the rings or
the proceeds of its sale, accused-appellant likewise
failed to make good his obligation to the
complainant thereby giving rise to the charge of
estafa. In absolving the accused-appellant of the
crime charged, we held:
Where, as in the present case, the agents to whom
personal property was entrusted for sale,
conclusively proves the inability to return the same
is solely due to malfeasance of a subagent to
whom the first agent had actually entrusted the
property in good faith, and for the same purpose
for which it was received; there being no
prohibition to do so and the chattel being delivered
to the subagent before the owner demands its
return or before such return becomes due, we hold
that the first agent can not be held guilty of estafa
by either misappropriation or conversion. The
abuse of confidence that is characteristic of this
offense is missing under the circumstances. 23
Accordingly, petitioner herein must be acquitted.
The lower courts reliance on People v. Flores 24 and
U.S. v. Panes25 to justify petitioners conviction is
misplaced, considering that the factual background
of the cited cases differ from those which obtain in
the case at bar. In Flores, the accused received a
ring to sell under the condition that she would
return it the following day if not sold and without
authority to retain the ring or to give it to a sub-
agent. The accused in Panes, meanwhile, was
obliged to return the jewelry he received upon
demand, but passed on the same to a sub-agent
even after demand for its return had already been
made. In the foregoing cases, it was held that there
was conversion or misappropriation.
Furthermore, in Lim v. Court of Appeals,26 the Court,
citing Nepomuceno and the case of People v.
Trinidad,27held that:
jewelry or its value. Consequently, there is no
estafa within contemplation of the law.
Notwithstanding the above, however, petitioner is
not entirely free from any liability towards Quilatan.
The rule is that an accused acquitted of estafa may
nevertheless be held civilly liable where the facts
established by the evidence so warrant. Then too,
an agent who is not prohibited from appointing a
sub-agent but does so without express authority is
responsible for the acts of the sub-
agent.29 Considering that the civil action for the
recovery of civil liability arising from the offense is
deemed instituted with the criminal
action,30 petitioner is liable to pay complainant
Quilatan the value of the unpaid pieces of jewelry.
WHEREFORE, the petition is GRANTED. The decision
of the Court of Appeals in CA-G.R. CR No. 17222
dated April 30,1997 and its resolution dated August
28, 1997 are REVERSED and SET ASIDE. Petitioner
Virgie Serona is ACQUITTED of the crime charged,
but is held civilly liable in the amount of
P424,750.00 as actual damages, plus legal interest,
without subsidiary imprisonment in case of
insolvency. SO ORDERED.

In cases of estafa the profit or gain must be

obtained by the accused personally, through his
own acts, and his mere negligence in permitting
another to take advantage or benefit from the
entrusted chattel cannot constitute estafa under
Article 315, paragraph 1-b, of the Revised Penal
Code; unless of course the evidence should
disclose that the agent acted in conspiracy or
connivance with the one who carried out the actual
misappropriation, then the accused would be
answerable for the acts of his co-conspirators. If
there is no such evidence, direct or circumstantial,
and if the proof is clear that the accused herself
was the innocent victim of her sub-agents
faithlessness, her acquittal is in order.28 (Italics
copied)

Labrador admitted that she received the jewelry

from petitioner and sold the same to a third person.
She further acknowledged that she owed petitioner
P441,035.00, thereby negating any criminal intent
on the part of petitioner. There is no showing that
petitioner derived personal benefit from or
conspired with Labrador to deprive Quilatan of the
G.R. No. L-55630 March 6, 1990
IMPERIAL INSURANCE, INC. represented by
the IMPERIAL INSURANCE, INC., Cagayan de
Oro Branch Office Manager BERNARDITO R.
PULVERA, petitioner,
vs.
THE HONORABLE EULALIO D. ROSETE, Judge
of the Court of First Instance of Misamis
Oriental, Branch V, and CHIU ENG
HUA respondents.
Ariston M. Magallanes and Jesus Ma. Jajalla for
petitioner.
Quimpo, Willkom , Dadole & Mutia for private
respondent.
GANCAYCO, J.:
Section 2, Rule 1 of the Rules of Court provides for
the basic rule of thumb that said "rules shall be
liberally construed in order to promote its objective
and to assist the parties in obtaining just, speedy,
and inexpensive determination of every action and
proceeding." Its application is put into test in the
present case.
The antecedent facts are undisputed. Private
respondent filed a complaint for specific
performance and damages against petitioner dated
April 11, 1980 in the Court of First Instance of
Misamis Oriental, docketed as Civil Case No. 7072.
After receipt of service of summons petitioner filed
an answer with counterclaim within the
reglementary period.
The case was set for pre-trial conference on August
5, 1980 of which the parties and their counsel were
duly notified. At said pre-trial conference petitioner
was represented by Atty. Arturo A. Magallanes who
presented a special power of attorney executed by
Bernardito R. Pulvera, regional branch manager of
petitioner for Mindanao and Visayas, authorizing
said counsel to represent petitioner at the pre-trial
conference, to enter into any amicable settlement
and to do such other acts as may be necessary to
implement the authority. The presiding judge
refused to honor the same and observed that it is
only the Board of Directors of the petitioner who
may authorize the appearance of the regional
manager in behalf of petitioner and that he cannot
delegate his functions. Counsel for private
respondent stated he was willing to give petitioner
a chance to produce the appropriate authority.
Nevertheless, the respondent judge declared the
petitioner in default in an order dated August 5,
1980 and set the reception of the evidence for the
private respondent on August 12, 1980. 1
A motion to set aside the said order of default was
filed by petitioner, stating therein that the rules of
court should be liberally construed, that the special
power of attorney was submitted in good faith and
that there are meritorious and good defenses as
shown in the attached affidavit showing that as
early as June 1980 Pulvera had asked for such a
special power of attorney from the main office in
Manila but the same had not yet arrived and will be
submitted upon receipt. The motion was denied in
an order dated August 27, 1980.
A motion for reconsideration of the denial was filed
by the petitioner alleging that it is within the
implied powers and duties of the regional branch
manager of petitioner to represent the petitioner
and in the process to settle claims against
petitioner as this has been done in a similar case
that was amicably settled before the same court
docketed as Civil Case No. 6316; and that the
special power of attorney of Atty. Arturo Magallanes
to represent the petitioner was executed in good
faith. The motion for reconsideration was likewise
denied for lack of merit on October 17, 1982.
Hence, the herein petition
for certiorari and/or mandamus wherein petitioner
alleges that the respondent judge acted without or
in excess of jurisdiction and in grave abuse of
discretion in declaring petitioner in default and in
denying the motion for reconsideration of the order
of default.
The petition is impressed with merit.
In Civil Case No. 6316 entitled "Heirs of Ruiz
Dosdos, et al. vs. Andres Tan; and Andres Tan as
third party plaintiff vs. Imperial Insurance, third
party defendant", filed in the Court of First Instance
of Misamis Oriental, Cagayan de Oro City, presided
by the respondent Judge, a special power of
attorney was presented dated June 20, 1979
executed by the same regional manager of
petitioner in favor of Carmelito Gaburno, production
manager of sales of petitioner, to appear in behalf
of petitioner in all stages of the case and to enter
into any stipulation of facts. 2 A compromise
agreement was entered into by the parties assisted
by their respective counsel and the same was
submitted for approval of the court wherein
Carmelito Gaburno signed for and in behalf of
petitioner. In an order dated November 27, 1979
the respondent judge approved the compromise
agreement by rendering judgment in accordance
therewith. 3
Thus, when at the pre-trial conference of Civil Case
No. 7072 before the same respondent judge a
special power of attorney executed by Pulvera on
July 31, 1980 in favor of Atty. Magallanes to appear
in behalf of petitioner and to enter into any
amicable settlement 4 was presented, the court
finds no cogent reason why the respondent judge
refused to honor the said special power of attorney
for purposes of the pre-trial and instead declared
the petitioner to be in default.
Obviously in the earlier case, Civil Case No. 6316,
the respondent judge accepted and/or
acknowledged the authority of Pulvera as regional
branch manager of the petitioner to represent the
petitioner, to enter into a compromise agreement
and as such to execute a special power of attorney
in favor of another person to act in his place and to
represent the petitioner in the litigation.
Indeed, in another case docketed as Civil Case No.
2899 entitled Gil Ecleo vs. Lydia Sacal and Imperial
Insurance, Inc., in the Court of First Instance of
Surigao del Norte, Surigao City a similar special
power of attorney for purposes of pre-trial was
executed by regional branch manager Pulvera in
favor of Atty. Magallanes dated December 9,
1980. 5 A compromise agreement was entered into
by Magallanes in behalf of petitioner which was
duly approved by the trial court on January 13,
1981. 6
There can be no doubt therefore that regional
branch manager Pulvera, as regional manager for
Visayas and Mindanao of petitioner, was authorized
to represent petitioner in any litigation and in the
process to enter into a compromise agreement or
settlement thereof. As such agent of petitioner he
may appoint a substitute as he was not prohibited
from doing so by his principal. 7

Moreover, even assuming for the sake of argument

that the observations of the respondent judge is
correct in that a board resolution of the petitioner is
required for the purposes of authorizing Pulvera
and/or Magallanes to bind the petitioner, the
counsel for the private respondent manifested to
the respondent judge his willingness to give the
petitioner an opportunity to comply with the
requirement of the court. Just the same, the
respondent judge declared petitioner to be in
default. No doubt, the respondent judge was
unnecessarily harsh when the Rules call for
liberality in such cases.

This is a case where petitioner filed an answer with

counterclaim and advanced apparently a
meritorious and valid defense. It should be given its
day in court and the opportunity to prove its
assertions. This is the situation contemplated by
the Rules. The courts must lean in favor of
affording substantial justice as against a technical
requirement.

WHEREFORE, the questioned orders of the

respondent judge dated August 6, 1980, August 27,
1980 and October 17, 1980 are hereby REVERSED
AND SET ASIDE and the record of this case is
remanded to the trial court for further proceedings.
No costs in this instance.

SO ORDERED.
THIRD DIVISION covering Lots 1 and 2 of Block 17 in favor of Oscar
C. Ventanilla and Carmen Gloria Diaz for the
[G.R. No. 82978. November 22, 1990.] combined contract price of P66,571.00 payable
monthly for ten years. 2 As thus agreed in the
THE MANILA REMNANT CO., INC., Petitioner, contracts to sell, the Ventanillas paid the down
v. THE HONORABLE COURT OF APPEALS and payments on the two lots even before the formal
OSCAR VENTANILLA, JR. and CARMEN GLORIA contract was signed on March 3, 1970.
DIAZ, Respondents.
Ten (10) days after the signing of the contracts with
Bede S. Talingcos, for Petitioners. the Ventanillas or on March 13, 1970, Artemio U.
Valencia, as President of Manila Remnant, and
Augusto Gatmaytan for Private Respondent. without the knowledge of the Ventanilla couple,
sold Lots 1 and 2 of Block 17 again, this time in
favor of Carlos Crisostomo, one of his sales agents
DECISION without any consideration. 3 Artemio Valencia then
transmitted the fictitious Crisostomo contracts to
Manila Remnant while he kept in his files the
contracts to sell in favor of the Ventanillas. All the
FERNAN, J.: amounts paid by the Ventanillas were deposited in
Valencias bank account.
Like any other couple, Oscar Ventanilla and his wife Beginning March 13, 1970, upon orders of Artemio
Carmen, both faculty members of the University of Valencia, the monthly payments of the Ventanillas
the Philippines and renting a faculty unit, dreamed were remitted to Manila Remnant as payments of
of someday owning a house and lot. Instead of Crisostomo for which the former issued receipts in
attaining this dream, they became innocent victims favor of Crisostomo. Since Valencia kept the
of deceit and found themselves in the midst of an receipts in his files and never transmitted the same
ensuing squabble between a subdivision owner and to Crisostomo, the latter and the Ventanillas
its real estate agent. remained ignorant of Valencias scheme. Thus, the
Ventanillas continued paying their monthly
The facts as found by the trial court and adopted installments.chanrobles virtual lawlibrary
by the Appellate Court are as follows:chanrob1es
virtual 1aw library Subsequently, the harmonious business
relationship between Artemio Valencia and Manila
Petitioner Manila Remnant Co., Inc. is the owner of Remnant ended. On May 30, 1973, Manila
the parcels of land situated in Quezon City covered Remnant, through its General Manager Karl
by Transfer Certificates of Title Nos. 26400, 26401, Landahl, wrote Artemio Valencia informing him that
30783 and 31986 and constituting the subdivision Manila Remnant was terminating its existing
known as Capital Homes Subdivision Nos. I and II. collection agreement with his firm on account of
On July 25, 1972, Manila Remnant and A.U. the considerable amount of discrepancies and
Valencia & Co. Inc. entered into a written irregularities discovered in its collections and
agreement entitled "Confirmation of Land remittances by virtue of confirmations received
Development and Sales Contract" to formalize an from lot buyers. 4 As a consequence, on June 6,
earlier verbal agreement whereby for a 1973, Artemio Valencia was removed as President
consideration of 17 and 1/2% fee, including sales by the Board of Directors of Manila Remnant.
commission and management fee, A.U. Valencia Therefore, from May of 1973, Valencia stopped
and Co., Inc. was to develop the aforesaid transmitting Ventanillas monthly installments
subdivision with authority to manage the sales which at that time had already amounted to
thereof, execute contracts to sell to lot buyers and P17,925.40 for Lot 1 and P18,141.95 for Lot 2,
issue official receipts. 1 (which appeared in Manila Remnants record as
credited in the name of Crisostomo). 5
At that time the President of both A.U. Valencia and
Co. Inc. and Manila Remnant Co., Inc. was Artemio On June 8, 1973, A.U. Valencia and Co. sued Manila
U. Valencia.cralawnad Remnant before Branch 19 of the then Court of
First Instance of Manila 6 to impugn the abrogation
On March 3, 1970, Manila Remnant thru A.U. of their agency agreement. On June 10 and July 10,
Valencia and Co. executed two "contracts to sell" 1973, said court ordered all lot buyers to deposit
their monthly amortizations with the court. 7 But
on July 17, 1973, A.U. Valencia and Co. wrote the
Ventanillas that it was still authorized by the court
to collect the monthly amortizations and requested
them to continue remitting their amortizations with
the assurance that said payments would be
deposited later in court. 8 On May 22, 1974, the
trial court issued an order prohibiting A.U. Valencia
and Co. from collecting the monthly installments. 9
On July 22, 1974 and February 6, 1976 the same
court ordered the Valencia firm to furnish the court
with a complete list of all lot buyers who had
already made down payments to Manila Remnant
before December 1972. 10 Valencia complied with
the courts order on August 6, 1974 by submitting a
list which excluded the name of the Ventanillas. 11
Since A.U. Valencia and Co. failed to forward its
collections after May 1973, Manila Remnant caused
on August 20, 1976 the publication in the Times
Journal of a notice cancelling the contracts to sell of
some lot buyers including that of Carlos Crisostomo
in whose name the payments of the Ventanillas had
been credited. 12
To prevent the effective cancellation of their
contracts, Artemio Valencia instigated on
September 22, 1976 the filing by Carlos Crisostomo
and seventeen (17) other lot vendees of a
complaint for specific performance with damages
against Manila Remnant before the Court of First
Instance of Quezon City. The complaint alleged that
Crisostomo had already paid a total of P17,922.40
and P18,136.85 on Lots 1 and 2, respectively. 13
It was not until March 1978 when the Ventanillas,
after learning of the termination of the agency
agreement between Manila Remnant and A.U.
Valencia & Co., decided to stop paying their
amortizations to the latter. The Ventanillas,
believing that they had already remitted
P37,007.00 for Lot 1 and P36,911.00 for Lot 2 or a
grand total, inclusive of interest, of P73,122.35 for
the two lots, thereby leaving a balance of
P13,531.58 for Lot 1 and P13,540.22 for Lot 2, went
directly to Manila Remnant and offered to pay the
entire outstanding balance of the purchase price.
14 To their shock and utter consternation, they
discovered from Gloria Caballes, an accountant of
Manila Remnant, that their names did not appear in
the records of A.U. Valencia and Co. as lot buyers.
Caballes showed the Ventanillas copies of the
contracts to sell in favor of Carlos Crisostomo, duly
signed by Artemio U. Valencia as President of
Manila Remnant. 15 Whereupon, Manila Remnant
refused the offer of the Ventanillas to pay for the
remainder of the contract price because they did
not have the personality to do so. Furthermore,
they were shown the published Notice of
Cancellation in the January 29, 1978 issue of the
Times Journal rescinding the contracts of
delinquent buyers including Crisostomo.
Thus, on November 21, 1978, the Ventanillas
commenced an action for specific performance,
annulment of deeds and damages against Manila
Remnant, A.U. Valencia and Co. and Carlos
Crisostomo before the Court of First Instance of
Quezon City, Branch 17-B. 16 Crisostomo was
declared in default for failure to file an
answer.chanrobles.com:cralaw:red
On November 17, 1980, the trial court rendered a
decision 1) declaring the contracts to sell issued in
favor of the Ventanillas valid and subsisting and
annulling the contracts to sell in Crisostomos
favor; 2) ordering Manila Remnant to execute in
favor of the Ventanillas an Absolute Deed of Sale
free from all liens and encumbrances; and 3)
condemning defendants A.U. Valencia and Co. Inc.,
Manila Remnant and Carlos Crisostomo jointly and
severally to pay the Ventanillas the amount of
P100,000.00 as moral damages, P100,000.00 as
exemplary damages, and P100,000.00 as
attorneys fees. The lower court also added that if,
for any legal reason, the transfer of the lots could
no longer be effected, the defendants should
reimburse jointly and severally to the Ventanillas
the total amount of P73,122.35 representing the
total amount paid for the two lots plus legal
interest thereon from March 1970 plus damages as
aforestated. With regard to the cross claim of
Manila Remnant against Valencia, the court found
that Manila Remnant could have not been dragged
into this suit without the fraudulent manipulations
of Valencia. Hence, it adjudged A.U. Valencia and
Co. to pay the Manila Remnant P5,000.00 as moral
damages and exemplary damages and P5,000.00
as attorneys fees. 17
Subsequently, Manila Remnant and A.U. Valencia
and Co. elevated the lower courts decision to the
Court of Appeals through separate appeals. On
October 13, 1987, the Appellate Court affirmed in
toto the decision of the lower court.
Reconsideration sought by petitioner Manila
Remnant was denied, hence the instant petition.
There is no question that the contracts to sell in
favor of the Ventanilla spouses are valid and
subsisting. The only issue remaining is whether or
not petitioner Manila Remnant should be held
solidarily liable together with A.U. Valencia and Co.
and Carlos Crisostomo for the payment of moral,
exemplary damages and attorneys fees in favor of
the Ventanillas. 18
While petitioner Manila Remnant has not refuted
the legality of the award of damages per se, it
believes that it cannot be made jointly and
severally liable with its agent A.U. Valencia and Co.
since it was not aware of the illegal acts
perpetrated nor did it consent or ratify said acts of
its agent.
The argument is devoid of merit.
In the case at bar, the Valencia realty firm had
clearly overstepped the bounds of its authority as
agent and for that matter, even the law when
it undertook the double sale of the disputed lots.
Such being the case, the principal, Manila
Remnant, would have been in the clear pursuant to
Article 1897 of the Civil Code which states that"
(t)he agent who acts as such is not personally
liable to that party with whom he contracts, unless
he expressly binds himself or exceeds the limits of
his authority without giving such party sufficient
notice of his powers." chanrobles.com.ph : virtual
law library
However, the unique relationship existing between
the principal and the agent at the time of the dual
sale must be underscored. Bear in mind that the
president then of both firms was Artemio U.
Valencia, the individual directly responsible for the
sale scam. Hence, despite the fact that the double
sale was beyond the power of the agent, Manila
Remnant as principal was chargeable with the
knowledge or constructive notice of that fact and
not having done anything to correct such an
irregularity was deemed to have ratified the same.
19
More in point, we find that by the principle of
estoppel, Manila Remnant is deemed to have
allowed its agent to act as though it had plenary
powers. Article 1911 of the Civil Code
provides:jgc:chanrobles.com.ph
"Even when the agent has exceeded his authority,
the principal is solidarily liable with the agent if the
former allowed the latter to act as though he had
full powers." (Emphasis supplied)
The above-quoted article is new. It is intended to
protect the rights of innocent persons. In such a
situation, both the principal and the agent may be
considered as joint feasors whose liability is joint
and solidary. 20
Authority by estoppel has arisen in the instant case
because by its negligence, the principal, Manila
Remnant, has permitted its agent, A.U. Valencia
and Co., to exercise powers not granted to it. That
the principal might not have had actual knowledge
of the agents misdeed is of no moment. Consider
the following circumstances:chanrob1es virtual 1aw
library
Firstly, Manila Remnant literally gave carte blanche
to its agent A.U. Valencia and Co. in the sale and
disposition of the subdivision lots. As a disclosed
principal in the contracts to sell in favor of the
Ventanilla couple, there was no doubt that they
were in fact contracting with the principal. Section
7 of the Ventanillas contracts to sell
states:jgc:chanrobles.com.ph
"7. That all payments whether deposits, down
payment and monthly installment agreed to be
made by the vendee shall be payable to A.U.
Valencia and Co., Inc. It is hereby expressly
understood that unauthorized payments made to
real estate brokers or agents shall be the sole and
exclusive responsibility and at the risk of the
vendee and any and all such payments shall not be
recognized by the vendors unless the official
receipts therefor shall have been duly signed by
the vendors duly authorized agent, A.U. Valencia
and Co., Inc." (Emphasis supplied)
Indeed, once Manila Remnant had been furnished
with the usual copies of the contracts to sell, its
only participation then was to accept the
collections and pay the commissions to the agent.
The latter had complete control of the business
arrangement. 21
Secondly, it is evident from the records that Manila
Remnant was less than prudent in the conduct of
its business as a subdivision owner. For instance,
Manila Remnant failed to take immediate steps to
avert any damage that might be incurred by the lot
buyers as a result of its unilateral abrogation of the
agency contract. The publication of the cancelled
contracts to sell in the Times Journal came three
years after Manila Remnant had revoked its
agreement with A.U. Valencia and Co.chanrobles
virtual lawlibrary
Moreover, Manila Remnant also failed to check the
records of its agent immediately after the
revocation of the agency contract despite the fact
that such revocation was due to reported
anomalies in Valencias collections. Altogether, as
pointed out by the counsel for the Ventanillas,
Manila Remnant could and should have devised a
system whereby it could monitor and require a
regular accounting from A.U. Valencia and Co., its
agent. Not having done so, Manila Remnant has
made itself liable to those who have relied on its
agent and the representation that such agent was
clothed with sufficient powers to act on behalf of
the principal.

Even assuming that Manila Remnant was as much

a victim as the other innocent lot buyers, it cannot
be gainsaid that it was precisely its negligence and
laxity in the day to day operations of the real
estate business which made it possible for the
agent to deceive unsuspecting vendees like the
Ventanillas.

In essence, therefore, the basis for Manila

Remnants solidary liability is estoppel which, in
turn, is rooted in the principals neglectfulness in
failing to properly supervise and control the affairs
of its agent and to adopt the needed measures to
prevent further misrepresentation. As a
consequence, Manila Remnant is considered
estopped from pleading the truth that it had no
direct hand in the deception employed by its agent.
22

A final word. The Court cannot help but be alarmed

over the reported practice of supposedly reputable
real estate brokers of manipulating prices by
allowing their own agents to "buy" lots in their
names in the hope of reselling the same at a higher
price to the prejudice of bona fide lot buyers, as
precisely what the agent had intended to happen in
the present case. This is a serious matter that must
be looked into by the appropriate government
housing authority.chanrobles.com.ph : virtual law
library

WHEREFORE, in view of the foregoing, the

appealed decision of the Court of Appeals dated
October 13, 1987 sustaining the decision of the
Quezon City trial court dated November 17, 1980 is
AFFIRMED. This judgment is immediately executory.
Costs against petitioner.

SO ORDERED.
G.R. No. 125138 March 2, 1999
NICHOLAS Y. CERVANTES, petitioner,
vs.
COURT OF APPEALS AND THE PHILIPPINE AIR
LINES, INC., respondent.
PURISMA, J.:
This Petition for Review on certiorari assails the 25
July 1995 decision of the Court of Appeals 1 in CA
GR CV No. 41407, entitled "Nicholas Y. Cervantes
vs. Philippine Air Lines Inc.", affirming in toto the
judgment of the trial court dismissing petitioner's
complaint for damages.
On March 27, 1989, the private respondent,
Philippines Air Lines, Inc. (PAL), issued to the herein
petitioner, Nicholas Cervantes (Cervantes), a round
trip plane ticket for Manila-Honolulu-Los Angeles-
Honolulu-Manila, which ticket expressly provided an
expiry of date of one year from issuance, i.e., until
March 27, 1990. The issuance of the said plane
ticket was in compliance with a Compromise
Agreement entered into between the contending
parties in two previous suits, docketed as Civil Case
Nos. 3392 and 3451 before the Regional Trial Court
in Surigao City. 2
On March 23, 1990, four days before the expiry
date of subject ticket, the petitioner used it. Upon
his arrival in Los Angeles on the same day, he
immediately booked his Los Angeles-Manila return
ticket with the PAL office, and it was confirmed for
the April 2, 1990 flight.
Upon learning that the same PAL plane would make
a stop-over in San Francisco, and considering that
he would be there on April 2, 1990, petitioner made
arrangements with PAL for him to board the flight
In San Francisco instead of boarding in Las Angeles.
On April 2, 1990, when the petitioner checked in at
the PAL counter in San Francisco, he was not
allowed to board. The PAL personnel concerned
marked the following notation on his ticket: "TICKET
NOT ACCEPTED DUE EXPIRATION OF VALIDITY."
Aggrieved, petitioner Cervantes filed a Complaint provided in this
for Damages, for breach of contract of carriage ticket, in
docketed as Civil Case No. 3807 before Branch 32 carrier's tariffs,
of the Regional Trial Court of Surigao del Norte in conditions of
Surigao City. But the said complaint was dismissed carriage, or
for lack of merit. 3 related
regulations.
The fare for
On September 20, 1993, petitioner interposed an
carriage
appeal to the Court of Appeals, which came out
hereunder is
with a Decision, on July 25, 1995, upholding the
subject to
dismissal of the case.
change prior to
commencemen
On May 22, 1996, petitioner came to this Court via t of carriage.
the Petition for Review under consideration. Carrier may
refuse
The issues raised for resolution are: (1) Whether or transportation
not the act of the PAL agents in confirming subject if the applicable
ticket extended the period of validity of petitioner's fare has not
ticket; (2) Whether or not the defense of lack of been paid. 6
authority was correctly ruled upon; and (3)
Whether or not the denial of the award for The question on the validity of subject ticket can be
damages was proper. resolved in light of the ruling in the case
of Lufthansa vs. Court of Appeals. 7 In the said
To rule on the first issue, there is a need to quote case, the Tolentinos were issued first class tickets
the findings below. As a rule, conclusions and on April 3, 1982, which will be valid until April 10,
findings of fact arrived at by the trial court are 1983. On June 10, 1982, they changed their
entitled to great weight on appeal and should not accommodations to economy class but the
be disturbed unless for strong and cogent replacement tickets still contained the same
reasons. 4 restriction. On May 7, 1983, Tolentino requested
that subject tickets be extended, which request
was refused by the petitioner on the ground that
The facts of the case as found by the lower the said tickets had already expired. The non-
court 5 are, as follows: extension of their tickets prompted the Tolentinos
to bring a complaint for breach of contract of
The plane ticket itself (Exhibit A carriage against the petitioner. In ruling against the
for plaintiff; Exhibit 1 for award of damages, the Court held that the "ticket
defendant) provides that it is not constitute the contract between the parties. It is
valid after March 27, 1990. axiomatic that when the terms are clear and leave
(Exhibit 1-F). It is also stipulated no doubt as to the intention of the contracting
in paragraph 8 of the Conditions parties, contracts are to be interpreted according to
of Contract (Exhibit 1, page 2) as their literal meaning."
follows:
In his effort to evade this inevitable conclusion,
8. This ticket is petitioner theorized that the confirmation by the
good for PAL's agents in Los Angeles and San Francisco
carriage for changed the compromise agreement between the
one year from parties.
date of
issue, except as As aptly by the appellate court:
otherwise
. . . on March (TSN, acted upon by the trial court when Nicholas
23, 1990, he Testimony of Cervantes was presented as a witness and the
was aware of Nicholas depositions of the PAL employees, Georgina M.
the risk that his Cervantes, Reyes and Ruth Villanueva, were presented.
ticket could August 2, 1991,
expire, as it did, pp. 20-23). The admission by Cervantes that he was told by
before he Despite this PAL's legal counsel that he had to submit a letter
returned to the knowledge, requesting for an extension of the validity of
Philippines.' appellant subject tickets was tantamount to knowledge on
(pp. 320-321, persisted to use his part that the PAL employees had no authority to
Original the ticket in extend the validity of subject tickets and only PAL's
Records) 8 question." 9 legal counsel was authorized to do so.

The question is: From the aforestated facts, it can be gleaned that However, notwithstanding PAL's failure to raise the
"Did these two the petitioner was fully aware that there was a defense of lack of authority of the said PAL agents
(2) employees, need to send a letter to the legal counsel of PAL for in its answer or in a motion to dismiss, the omission
in effect, the extension of the period of validity of his ticket. was cured since the said issue was litigated upon,
extend the as shown by the testimony of the petitioner in the
validity or Since the PAL agents are not privy to the said course of trial. Rule 10, Section 5 of the 1997 Rules
lifetime of the Agreement and petitioner knew that a written of Civil Procedure provides:
ticket in request to the legal counsel of PAL was necessary,
question? The he cannot use what the PAL agents did to his
answer is in the Sec. 5. Amendment to conform,
advantage. The said agents, according to the Court
negative. Both or authorize presentation of
of Appeals, 10 acted without authority when they
had no evidence. When issues not
confirmed the flights of the petitioner.
authority to do raised by the pleadings are tried
so. Appellant with express or implied consent
knew this from Under Article 1989 11 of the New Civil Code, the of the parties, as if they had been
the very start acts an agent beyond the scope of his authority do raised in the pleadings. Such
when he called not bind the principal, unless the latter ratifies the amendment of the pleadings as
up the Legal same expressly or impliedly. Furthermore, when the may be necessary to cause them
Department of third person (herein petitioner) knows that the to conform to the evidence and
appellee in the agent was acting beyond his power or authority, to raise these issues may be
Philippines the principal cannot be held liable for the acts of made upon motion of any party
before he left the agent. If the said third person is aware of such at any time, even after judgment;
for the United limits of authority, he is to blame, and is not but failure to amend does not
States of entitled to recover damages from the agent, unless affect the result of the trial of
America. He the latter undertook to secure the principal's these issues. . . .
had first hand ratification. 12
knowledge that Thus, "when evidence is presented by one party,
the ticket in Anent the second issue, petitioner's stance that the with the express or implied consent of the adverse
question would defense of lack of authority on the part of the PAL party, as to issues not alleged in the pleadings,
expire on March employees was deemed waived under Rule 9, judgment may be rendered validly as regards the
27, 1990 and Section 2 of the Revised Rules of Court, is said issue, which shall be treated as if they have
that to secure unsustainable. Thereunder, failure of a party to put been raised in the pleadings. There is implied
an extension, up defenses in their answer or in a motion to consent to the evidence thus presented when the
he would have dismiss is a waiver thereof. adverse party fails to object thereto." 13
to file a written
request for
Petitioner stresses that the alleged lack of authority Re: the third issue, an award of damages is
extension at
of the PAL employees was neither raised in the improper because petitioner failed to show that PAL
the PAL's office
answer nor in the motion to dismiss. But records acted in bad faith in refusing to allow him to board
in the
show that the question of whether there was its plane in San Francisco.
Philippines
authority on the part of the PAL employees was
In awarding moral damages for breach of contract
of carriage, the breach must be wanton and
deliberately injurious or the one responsible acted
fraudulently or with malice or bad
faith. 14 Petitioner knew there was a strong
possibility that he could not use the subject ticket,
so much so that he bought a back-up ticket to
ensure his departure. Should there be a finding of
bad faith, we are of the opinion that it should be on
the petitioner. What the employees of PAL did was
one of simple negligence. No injury resulted on the
part of petitioner because he had a back-up ticket
should PAL refuse to accommodate him with the
use of subject ticket.

Neither can the claim for exemplary damages be

upheld. Such kind of damages is imposed by way of
example or correction for the public good, and the
existence of bad faith is established. The wrongful
act must be accompanied by bad faith, and an
award of damages would be allowed only if the
guilty party acted in a wanton, fraudulent, reckless
or malevolent manner. 15 Here, there is no showing
that PAL acted in such a manner. An award for
attorney's fees is also improper.

WHEREFORE, the Petition is DENIED and the

decision of the Court of Appeals dated July 25,
1995 AFFIRMED in toto. No pronouncement as to
costs.

SO ORDERED.
G.R. No. 129039. September 17, 2002]
SIREDY ENTERPRISES, INC. petitioner, vs.
HON. COURT OF APPEALS and CONRADO DE
GUZMAN, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review seeking to
annul the decision[1] dated April 26, 1996 of the
Court of Appeals in CA-G.R. CV No. 30374,
reversing the decision of the Regional Trial Court of
Malolos, Bulacan, and the resolution [2] dated April
22, 1997, denying petitioners motion for
reconsideration.
The following are the facts as found by the
Court of Appeals,[3] undisputed by the parties and
adopted by petitioner:[4]
Private respondent Conrado De Guzman is an
architect-contractor doing business under the
name and style of Jigscon Construction. Herein
petitioner Siredy Enterprises, Inc. (hereafter Siredy)
is the owner and developer of Ysmael Village, a
subdivision in Sta. Cruz, Marilao, Bulacan. [5] The
president of Siredy is Ismael E. Yanga.[6]
As stated in its Articles of Incorporation, [7] the
primary corporate purpose of Siredy is to acquire
lands, subdivide and develop them, erect buildings
and houses thereon, and sell, lease or otherwise
dispose of said properties to interested buyers.[8]
Sometime before October 1978, Yanga
executed an undated Letter of Authority,
[9]
hereunder reproduced verbatim:
KNOW ALL MEN BY THESE PRESENTS:
That I, DR. ISMAEL E. YANGA, SR., of legal age,
Filipino, married, resident of and with Postal
address at Poblacion, Bocaue, Bulacan and duly
authorized to execute this LETTER OF AUTHORITY,
do hereby authorize MR. HERMOGENES B. SANTOS
of legal age, Filipino, married, resident of and with
Postal Address at 955 Banawe St., Quezon City to 2.) That, the site of the said housing
do and execute all or any of the following acts: project is at YSMAEL VILLAGE, Bo.
Sta. Rosa, Marilao, Bulacan owned
and developed by SIREDY
1. To negotiate and enter into contract or contracts
ENTERPRISES and Mr. Ismael E.
to build Housing Units on our subdivision lots in
Yanga, Sr.;
Ysmael Village, Sta. Rosa, Marilao, Bulacan.
However, all proceeds from said contract or
contracts shall be deposited in my name, payments 3.) That, the PRINCIPAL has contracted
of all obligation in connection with the said contract to build the said units at the amount
or contracts should be made and the remainder will of FORTY FIVE THOUSAND
be paid to MR. HERMOGENES B. SANTOS. (P45,000.00) PESOS for the 2-
bedroom single and SIXTY NINE
THOUSAND (P69,000.00) PESOS,
2. To sell lots on our subdivisions and;
Philippine Currency for the duplex
residences;
3. To represent us, intercede and agree for or make
agreements for all payments in our favor, provided
4.) That, the CONTRACTOR intends to
that actual receipts thereof shall be made by the
build for the PRINCIPAL eighty (80)
undersigned.
units singles and eighteen (18) units
duplex residences at the cost above
( mentioned or a lump sum total of
SGD) DR. ISMAEL E. YANGA, SR. FOUR MILLION, EIGHT HUNDRED
FORTY TWO THOUSAND
F (P4,842,000.00) PESOS, Philippine
or myself and in my capacity as Currency;
President
5.) That, the CONTRACTOR agrees to
o supply all Construction Materials,
f SIREDY ENTERPRISE, INCORPORATED labor, tools and equipments
necessary for the completion of the
said housing units;
P
RINCIPAL
6.) That, the PRINCIPAL agrees to pay all
necessary permits and papers in
On October 15, 1978, Santos entered into a
accordance with Government rules
Deed of Agreement[10] with De Guzman. The deed
and regulations;
expressly stated that Santos was representing
Siredy Enterprises, Inc. Private respondent was
referred to as contractor while petitioner Siredy 7.) That, the PRINCIPAL agrees to supply
was cited as principal. water and electrical facilities needed
during the time of construction;
In said Deed of Agreement we find the
following stipulations: 8.) That, the manner of payment shall be
in accordance with SSS releases.
Should the SSS fail to pay the
1.) That, the PRINCIPAL has contracts PRINCIPAL, the PRINCIPAL is still in
with different SSS members obligation to pay the CONTRACTOR
employed with different domestic for whatever accomplishments the
entities to build for them 2-bedroom CONTRACTOR have
single housing units and 4-bedroom finished provided, that the failure of
duplex housing units;
 the SSS to pay is not due to
defective work of the CONTRACTOR;
9.) That, the CONTRACTOR promises to
finish the project at the rate of TEN
(10) units in THIRTY (30) days or a
total of THREE HUNDRED (300)
working days;
10.) That, the integral part of this
CONTRACT are:
a. Plans and Specifications
b. Subdivision Plan indicating
the Lot location of each unit
c. Authority of the National
Housing Authority;
11.) That, the CONTRACTOR agree[s] to
start work on the housing units thirty
(30) days after signing of this
CONTRACT.
NOW THEREFORE, for and in consideration of the
amount of FOUR MILLION, EIGHT HUNDRED FORTY
TWO THOUSAND (P4,842,000.00) PESOS, Philippine
Currency, the PARTIES agree and herein set their
hands on the date and place above-mentioned.
xxx
From October 1978 to April 1990, De Guzman
constructed 26 residential units at Ysmael
Village. Thirteen (13) of these were fully paid but
the other 13 remained unpaid. The total
contractual price of these 13 unpaid houses is
P412,154.93 which was verified and confirmed to
be correct by Santos, per an Accomplishment
Billing[11] that the latter signed.
De Guzman tried but failed to collect the
unpaid account from petitioner. Thus, he instituted
the action below for specific performance against
Siredy, Yanga, and Santos who all denied liability.
During the trial, Santos disappeared and his
whereabouts remain unknown.
In its defense, petitioner presented
testimonial evidence to the effect that Siredy had
no contract with De Guzman and had not
authorized Santos to enter into a contract with
anyone for the construction of housing units at
Ysmael Village.
The trial court agreed with petitioner based
on the doctrine of privity of contract and gave the
following rationale:[12]
The Deed of Agreement (Exh. A and A-1) clearly
reflects that the said contract was entered into by
and between plaintiff De Guzman, on one hand,
and defendant Hermogenes B. Santos as purported
authorized representative of defendant Siredy
Enterprises, on the other. Plainly and clearly
enough, defendants Siredy Enterprises and Ismael
Yanga, Sr. were neither parties nor signatories to
the same. It does not bear any legal significance
that Dr. Yanga appears to have signed the Letter of
Authority (Exh. B) designating defendant Santos as
the authorized representative for myself and as
president of the Siredy Enterprises, Inc. For the
evidentiary fact remains that Siredy Enterprises
and Dr. Yanga had absolutely had nothing to do
with the fulfillment of the terms and conditions
stipulated in the Deed of Agreement, much less
had they benefited in any perceptible degree
therefrom.
In the light of the foregoing circumstances, Siredy
Enterprises and Dr. Yanga cannot be held liable in
favor of the plaintiff in any manner whatsoever
respecting the unpaid residential units constructed
by the plaintiff. This is as it should be, because
contracts take effect only between the parties,
their assigns and heirs, except only in the cases
provided for by law. (Art. 1311, Civil Code of the
Philippines). Not one of the exceptions obtains in
this case.[13]
Thus, the trial court disposed of the case as
follows:
WHEREFORE, premises considered, judgment is
hereby rendered:
a) directing defendant Hermogenes B.
Santos to pay unto plaintiff Conrado
de Guzman the amount of
P412,154.93 as actual damages with
legal interest thereon from the filing
of the complaint on July 29, 1982
until the same shall have been fully
paid, and P25,000.00 as attorneys
fees, plus costs;
b) dismissing the above-entitled case as
against defendants Siredy
Enterprises, Inc. and Dr. Ismael
Yanga, Sr.
SO ORDERED.[14]
On appeal, De Guzman obtained a favorable
judgment from the Court of Appeals. The appellate
court held that the Letter of Authority duly signed
by Yanga clearly constituted Santos as Siredys
agent,[15] whose authority included entering into a
contract for the building of housing units at Ysmael
Village. Consequently, Siredy cannot deny liability
for the Deed of Agreement with private respondent
De Guzman, since the same contract was entered
into by Siredys duly designated agent,
Santos. There was no need for Yanga himself to be
a signatory to the contract, for him and Siredy to
be bound by the terms thereof.
Hence, the Court of Appeals held:
WHEREFORE, We find merit in the appeal and We
hereby REVERSE the appealed Decision. In its
stead, we render the following verdict: Appellee
Siredy Enterprises. Inc. is ordered to pay appellant
Conrado de Guzman cost (sic) and P412,154.93 as
actual damage plus legal interest thereon from the
filing of the Complaint on July 29, 1982 until full
payment thereof. All other claims and
counterclaims are dismissed.
SO ORDERED.[16]
Petitioner Siredy Enterprises, Inc. now comes
to us via a petition for review on certiorari [17] under
Rule 45 of the Rules of Court, on the following
grounds:
I. RESPONDENT COURT ERRED IN
HOLDING THAT A VALID AGENCY WAS
CONSTITUTED DESPITE THE FACT
 THAT PETITIONER WAS NOT
INVOLVED IN THE CONSTRUCTION
BUSINESS;
II. RESPONDENT COURT ERRED IN
FAILING TO CONSIDER A VITAL
PROVISION IN THE DEED OF
AGREEMENT (PAR. 8), WHEN IT
RENDERED ITS DECISION; and
III. RESPONDENT COURT ERRED IN
FAILING TO CONSIDER THAT PRIVATE
RESPONDENT WAS NOT ENTITLED TO
HIS CLAIM AS HE WAS THE PARTY
WHO VIOLATED THE CONTRACT.[18]
We find two main issues presented for
resolution: First, whether or not Hermogenes B.
Santos was a duly constituted agent of Siredy, with
authority to enter into contracts for the
construction of residential units in Ysmael Village
and thus the capacity to bind Siredy to the Deed of
Agreement; and Second, assuming arguendo that
Siredy was bound by the acts of Santos, whether or
not under the terms of the Deed of Agreement,
Siredy can be held liable for the amount sought to
be collected by private respondent De Guzman.
By the relationship of agency, one party
called the principal authorizes another called the
agent to act for and in his behalf in transactions
with third persons. The authority of the agent to act
emanates from the powers granted to him by his
principal; his act is the act of the principal if done
within the scope of the authority. He who acts
through another acts himself.[19]
Was Santos then an agent of Siredy? Was he
acting within the scope of his authority?
Resolution of the first issue necessitates a
review of the Letter of Authority executed by
Ismael E. Yanga as president of Siredy in favor of
Santos. Within its terms can be found the nature
and extent of the authority granted to Santos
which, in turn, determines the extent of Siredys
participation in the Deed of Agreement.
On its face, the instrument executed by Yanga
clearly and unequivocally constituted Santos to do
and execute, among other things, the act of
negotiating and entering into contract or
contracts to build Housing Units on our subdivision
lots in Ysmael Village, Sta. Rosa, Marilao, Bulacan.
[20]
Nothing could be more express than the written
stipulations contained therein.
It was upon the authority of this document
that De Guzman transacted business with Santos
that resulted in the construction contract
denominated as the Deed of Agreement.
However, petitioner denies any liability by
stating that: (1) the nature of Siredys business did
not involve the construction of housing units since
it was merely engaged in the selling of empty lots;
(2) the Letter of Authority is defective, and hence
needed reformation; (3) Santos entering into the
Deed of Agreement was invalid because the same
was in excess of his authority; and (4) there is now
implied revocation of such Letter of Authority.
Testifying on the nature of the business and
the business practices of Siredy, its owner Yanga
testified[21] that Siredy was interested only in the
sale of lots. It was up to the buyers, as owners, to
construct their houses in the particular style they
prefer. It was allegedly never the practice of the
company to sell lots with houses already erected
thereon. On the basis of the foregoing testimony,
petitioner states that despite the letter of authority,
it is quite certain that such provision would go
against the nature of the business of Siredy as the
same has absolutely no capability of undertaking
such a task as constructing houses.
However, the self-serving contention of
petitioner cannot stand against the documentary
evidence clearly showing the companys liability to
De Guzman. As we stated in the case ofCuizon vs.
Court of Appeals:[22]
As it is, the mere denial of petitioner cannot
outweigh the strength of the documentary
evidence presented by and the positive testimony
of private respondents. As a jurist once said, I
would sooner trust the smallest slip of paper for
truth than the strongest and most retentive
memory ever bestowed on moral man.[23]
Aside from the Letter of Authority, Siredys
Articles of Incorporation, duly approved by the
Securities and Exchange Commission, shows that
Siredy may also undertake to erect buildings and
houses on the lots and sell, lease, or otherwise
dispose of said properties to interested buyers.
[24]
Such Articles, coupled with the Letter of
Authority, is sufficient to have given De Guzman
reason to believe that Santos was duly authorized
to represent Siredy for the purpose stated in the
Deed of Agreement. Petitioners theory that it
merely sold lots is effectively debunked.
Thus, it was error for the trial court to have
ignored the Letter of Authority. As correctly held by
the Court of Appeals:
There is absolutely no question that the Letter of
Authority (Exhibit B) executed by appellee Yanga
constituted defendant Santos as his and appellee
Siredys agent. As agent, he was empowered inter
alia to enter into a contract to build housing units
in the Ysmael Village. This was in furtherance of
appellees business of developing and subdividing
lands, erecting houses thereon, and selling them to
the public.
[25]
xxx
We find that a valid agency was created
between Siredy and Santos, and the authority
conferred upon the latter includes the power to
enter into a construction contract to build houses
such as the Deed of Agreement between Santos
and De Guzmans Jigscon Construction. Hence, the
inescapable conclusion is that Siredy is bound by
the contract through the representation of its agent
Santos.
The basis of agency is representation, that is, the
agent acts for and in behalf of the principal on
matters within the scope of his authority (Art,
1881) and said acts have the same legal effect as if
they were personally done by the principal. By this
legal fiction of representation, the actual or legal
absence of the principal is converted into his legal
or juridical presence.[26]
Moreover, even if arguendo Santos mandate
was only to sell subdivision lots as Siredy asserts,
the latter is still bound to pay De Guzman. De
Guzman is considered a third party to the agency
agreement who had no knowledge of the specific
instructions or agreements between Siredy and its
agent. What De Guzman only saw was the written
Letter of Authority where Santos appears to be duly
authorized. Article 1900 of the Civil Code provides:
Art. 1900. So far as third persons are concerned, an
act is deemed to have been performed within the
scope of the agents authority, if such act is within
the terms of the power of attorney, as written, even
if the agent has in fact exceeded the limits of his
authority according to an understanding between
the principal and the agent.
The scope of the agents authority is what
appears in the written terms of the power of
attorney. While third persons are bound to inquire
into the extent or scope of the agents authority,
they are not required to go beyond the terms of the
written power of attorney. Third persons cannot be
adversely affected by an understanding between
the principal and his agent as to the limits of the
latters authority. In the same way, third persons
need not concern themselves with instructions
given by the principal to his agent outside of the
written power of attorney.
The essence of agency being the
representation of another, it is evident that the
obligations contracted are for and on behalf of the
principal. This is what gives rise to the juridical
relation. A consequence of this representation is
the liability of the principal for the acts of his agent
performed within the limits of his authority that is
equivalent to the performance by the principal
himself who should answer therefor.[27]
Petitioner belatedly asserts, however, that the
Letter of Authority was defective as it allegedly
failed to reduce into writing the real intentions of
the parties, and insists on its reformation.
Such an argument deserves scant
consideration. As found by the Court of Appeals,
being a doctor of medicine and a businessman,
Yanga knew the meaning and import of this
document and had in fact admitted having signed
it. As aptly observed by the Court of Appeals, there
is no evidence that ante litem, he abrogated the
Letter of Authority and withdrew the power
conferred on Santos.
Siredys contention that the present case is in
effect a revocation of the Letter of Authority also
deserves scant consideration. This is a patently
erroneous claim considering that it was, in fact,
private respondent De Guzman who instituted the
civil case before the RTC.
With regard to the second issue put forth by
petitioner, this Court notes that this issue is being
raised for the first time on appeal. From the trial in
the RTC to the appeal before the Court of Appeals,
the alleged violation of the Deed of Agreement by
Conrado de Guzman was never put in
issue. Heretofore, the substance of petitioners
defense before the courts a quoconsisted of its
denial of any liability under the Deed of Agreement.
As we held in the case of Safic Alcan & Cie vs.
Imperial Vegetable Oil Co., Inc.:[28]
It must be borne in mind that a question that was
never raised in the courts below cannot be allowed
to be raised for the first time on appeal without
offending basic rules of fair play, justice and due
process. Such an issue was not brought to the fore
either in the trial court or the appellate court, and
would have been disregarded by the latter tribunal
for the reasons previously stated. With more
reason, the same does not deserve consideration
by this Court.[29]
WHEREFORE, this petition is DENIED for lack
of merit. The Decision of the Court of Appeals
dated April 26, 1996, in CA-G.R. CV No. 30374, is
hereby AFFIRMED. Petitioner Siredy Enterprises,
Inc. is ordered to pay Conrado de Guzman actual
damages in the amount of P412,154.93, with legal
interest thereon from the time the case was filed
until its full payment.Costs against petitioner.
SO ORDERED.
G.R. No. 85685 September 11, 1991
LAURO CRUZ, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and
PURE FOODS CORP., respondents.
DAVIDE, JR., J.:p
In C.A.-G.R. CV No. 07859 (entitled Pure Foods
Corporation versus Lauro Cruz, doing business
under the name and style Mang Uro Store), a
decision was promulgated on 9 August 1988 by
respondent Court of Appeals 1affirming in toto the
decision promulgated on 28 February 1985 of the
Regional Trial Court of Pasig (Branch 151) of the
National Capital Judicial Region in Civil Case No.
49672 2 which, by reason of its unusual brevity, is
fully reproduced as follows:
DECISION
This is an action for sum of
money. From the record, the
following facts are gathered: The
plaintiff is a domestic corporation
engaged in the manufacture,
processing and selling of various
meat products while the
defendant is the owner/manager
of Mang Uro Store in Dela Paz
Street, Marikina, Metro Manila.
Sometime in November 1977, the
defendant was granted by the
plaintiff a credit line on which the
defendant, on several occasions,
bought on credit several
Purefoods products. The
defendant had an unpaid balance
with the plaintiff in the amount of
P57,897.63, from which the
former was credited the amount
of P2,651.42 representing the
amount of returned goods,
thereby leaving the balance of P
55,246.21. Demands were made
upon the defendant for him to
settle his account with the
plaintiff. A demand letter dated
January 17, 1983 was sent to and
was received by the defendant The antecedent facts are not disputed.
who failed to heed the same. The
plaintiff, to protect its interest,
On 15 April 1983, private respondent Pure Foods
was constrained to hire the
Corporation filed with the trial court a
services of counsel.
complaint 4 for sum of money against petitioner
alleging therein that sometime in November 1977,
WHEREFORE, judgment is hereby petitioner applied for a credit line with the plaintiff
rendered in favor of the plaintiff which was consequently approved by the latter
and against the defendant, subject to the conditions therein stated; pursuant
ordering the latter to pay the to said approved credit arrangement, defendant
former the following: (petitioner herein) made various purchases from
plaintiff until the early part of 1982, when he
accumulated a total unpaid account of P57,897.63
1. The sum of P 55,246.21,
as evidenced by short payment notices and
representing his outstanding
invoices; against this obligation, defendant was
unpaid account plus interest of
credited with the amount of P2,651.42 representing
12% percent per annum to be
the value of returned goods, thereby leaving a
counted from the date of the
balance of P55,246.21, which remained unpaid
filing of this case on April 15,
despite numerous demands made upon him.
1983 until fully paid; and
The parties who signed the Credit Application card
2. The sum equivalent to 15% of
as applicants are Me Cruz, who signed over the
the total amount due as and for
printed wordsname of signatory, and Marilou L.
attorney's fees and litigation
Cruz, who signed over the printed
expenses.
words Authorized Signature. The opening
paragraph thereof reads:
Costs against the defendant.
I/We hereby apply for a charge
SO ORDERED. account in the amount stated
above, and herewith are the
information for your
His motion for reconsideration having been denied
consideration as a basis for the
in the resolution of respondent Court on 27 October
extension of credit to us:
1988, 3petitioner filed the instant appeal by
certiorari under Rule 45 of the Rules of Court urging
Us to annul and set aside the aforesaid decision TRADE NAME: MANG URO STORE
and resolution because respondent Court
committed the following errors which are the
Owner/Manager: Lauro Cruz
very errors he ascribed to the trial court: (a) in not
holding that petitioner is not a signatory to the
credit application card attached as Annex "A" of xxx xxx xxx
private respondent's complaint as clearly
evidenced by the fact that only the signatures
Petitioner did not sign any of the invoices attached
of Me Cruz and Marilou Cruz, who are not
to the complaint.
impleaded as party defendants, appear therein; (b)
in not holding that his signature does not appear in
For failure to file an answer within the
the invoices submitted by private respondent; (c) in
reglementary period, and upon motion of private
not holding that he did not receive the letters of
respondent, the trial court issued an Order on 29
demand; (d) in not finding and concluding that
September 1983 declaring the petitioner in default
private respondent failed to comply with the Order
and authorizing the private respondent to present
of the trial court to amend the complaint; and (e) in
its evidence ex parte on 4 October 1983. 5
denying his motion for reconsideration.
On 19 October 1983, petitioner filed a motion to
set aside the order of default 6 alleging therein that
he did not file an answer anymore because upon
examination of the records of the case, he
discovered that it was his son Rodolfo who received
the summons and copy of the complaint; he never
entered into any transaction with private
respondent and that although the store referred to
is still licensed in his name, it has, since 1977, been
owned and operated by his son Rodolfo Cruz for the
reason that he "is getting old already and
moreover, because of deteriorating physical
condition;" and according to his son Rodolfo, he
had already settled the matter with the private
respondent under an agreement whereby Rodolfo
would make partial payments and the private
respondent would dismiss the case.
In its Order of 9 November 1983, 7 the trial court
granted the aforesaid motion, required petitioner to
file his responsive pleading within five (5) days,
and to present his evidence on 6 January 1984.
Petitioner filed an Answer With Counterclaim on 28
March 1983. 8 He reiterates therein his allegations
in the motion to lift the default order and further
avers that his signature does not even appear on
the credit application card. On the counter-claim,
he prays for judgment awarding him moral
damages in an amount to be proved at the trial,
and attorney's fees in the amount of P15,000.00.
Pre-trial was set on 2 January 1984. It was reset by
the trial court for 19 January 1984, and further
reset for 21 February 1984 at 1:00 P.M. upon
motion of private respondent. On the last
mentioned date, however, petitioner arrived late
and by then, the court had already issued an order
declaring him in default for failure to appear at the
pre-trial. Forthwith, he filed a motion for
reconsideration which the trial court granted in its
order of 22 February 1984. Pre-trial was reset to 27
March 1984. 9
Pre-trial was held as above scheduled and was
concluded with the issuance of the following order:
As prayed for, the plaintiff is
given ten (10) days from today to
file amended complaint.
By agreement, the presentation
of defendant's evidence is set for
May 16, 1984, at 8:30 a.m.,
without prejudice to the filing of a
compromise agreement. 10
As stated by petitioner, 11 which is not denied by
private respondent, the purpose of the amendment
was to implead Me Cruz and Marilou Cruz as parties
defendants since they are the applicants in the
credit application card.
Both parties did not appear on 16 May 1984.
Thereupon, the trial court issued an order declaring
the case as submitted for decision on the basis of
the evidence on record. 12
As adverted to earlier, on 28 February 1985, the
trial court rendered its decision against petitioner
who, on 21 March 1985, filed a motion to
reconsider 13 the decision, which the trial court
denied for lack of merit in its order of 16 May
1985. 14
Petitioner appealed from the decision to the then
Intermediate Appellate Court, now Court of
Appeals.
The appeal was docketed as C.A.-G.R. CV No.
07859.
In his Brief in said case, petitioner attributes to the
trial court the errors 15 which, as earlier mentioned,
are the very same errors submitted before Us as
having been committed by the respondent court.
According to the respondent Court, these errors
bring into focus one crucial issue: the liability of
petitioner for the amounts adjudged by the trial
court in favor of private respondent. It held that
petitioner is liable because in his motion to set
aside the order of default, he admitted that the
Mang Uro Store is still licensed under his name and
the credit application card indicates that he is the
owner/manager thereof. Hence, even on the
assumption that there had been a transfer of
ownership and management of the store to Rodolfo
Cruz, previous to the transactions made with
appellee, petitioner permitted the business to be
carried on in his name as its ostensible owner.
Private respondent should not be expected to be
aware of such a transfer and whatever agreement
or understanding appellant had with petitioner's
son Rodolfo regarding the store cannot bind or
affect private respondent, for matters
accomplished between two parties ought not to
operate to the prejudice of a third
person.16 Accordingly, it also finds as superfluous
the amendment of the complaint for the purpose of
impleading Rodolfo Cruz, Marilou Cruz and Me Cruz;
moreover, it contends that failure to amend the
complaint is no cause for reversal because these
persons were known to private respondent as
petitioner's "progeny"; besides, the transfer of
business, if indeed there was such, is a matter of
defense which need not be "negatived" in the
complaint. A complaint should not, by the
averments, anticipate a defense thereto.
In respect to the failure of private respondent to
comply with the order of 27 March 1984 directing it
to amend the complaint, respondent Court held
that the non-compliance was "muted by the
subsequent order of 16 May 1984 which considered
the case submitted for decision." By such order,
the trial court gave its assent to resolving the case
on the basis of the unamended complaint. Section
11 of Rule 3 (erroneously stated as Section 3 of
Rule 11) of the Rules of Court provides that parties
may be dropped or added by order of the court on
motion of any party or on its own initiative at any
stage of the action and on such terms as are just;
in the instant case, it may be inferred that the trial
court opted to resolve the case without the
proposed change in parties defendants.
Finally, it ruled that both oral and documentary
evidence presented at the hearing on 3 October
1983 proved petitioner's unsatisfied obligation to
the private respondent.
To bring this petition within Our authority,
petitioner asserts, in effect, that at the bottom of
the assigned errors is the issue of whether the
respondent Court has made conclusions of fact
which are not substantiated by the evidence on
record. Petitioner asserts that it did.
We have held in a long line of cases that findings of
facts of the Court of Appeals are conclusive upon
this Court.17 There are, however, recognized
exceptions to this rule, 18 as where the findings are
totally devoid of support in the record, or are
glaringly erroneous as to constitute serious abuse
of discretion, 19 or when the findings are grounded
entirely on speculation, surmise or conjecture. 20
Deliberating on this case, We hold that the findings
and conclusions of both the trial court and the
respondent Court are not supported by the
evidence and that such conclusions are glaringly
erroneous. This petition is impressed with merit.
In its very brief decision, the trial court, without
even laying the factual premises, made a sweeping
conclusion that it was the petitioner who applied
for a credit line with private respondent and which
the latter approved for him; on the basis of such
approval, he subsequently bought Purefoods
products on credit from private respondent.
Evidently, the trial court may have in mind the
Credit Application Card 21 and the several invoices
for the delivery of the goods. 22 But as correctly
pointed out by the petitioner, and as the
documents themselves show, he did not sign any
of them.
It is the respondent Court which endeavored to
supply the arguments in support of the foregoing
conclusion. According to the respondent court:
In his Motion to Set Aside Order
of Default filed on October 19,
1983 appellant 23 admitted that
subject store is still licensed
under his name ... Also, the credit
application card accomplished in
behalf of the store clearly
indicates appellant as
owner/manager thereof ... Hence,
even on the assumption that
there really had been a transfer
of ownership and management of
the "Mang Uro Store" to Rodolfo
Cruz previous to the transactions
made with appellee 24 the fact is
that appellant permitted the
carrying of the business of Id
store with him as ostensible
owner. Appellee should not be
expected to be aware of such
transfer. Whatever private
agreement or understanding
appellant made with his son
Rodolfo regarding the store
cannot bind or affect appellee. agency, and that private or secret orders and
Insofar as the latter is concerned, instructions of the principal do not prejudice third
the store is business property of persons who have relied upon the power of
appellant. The maxim res inter attorney or instructions shown them.
alios acta alteri nocere non
debet is square. Matters
In short, petitioner is not under estoppel, as against
accomplished between two
the claim of private respondent, which seems to be
parties ought not to operate to
at the bottom of the respondent Court's
the prejudice of a third person
rationalization.
(Blanza vs. Arcangel, 21 SCRA 4;
Perez vs. Mendoza, 65 SCRA 493;
Tinitigan vs. Tinitigan 100 SCRA In Kalalo vs. Luz, 27 We held that the essential
636). 25 elements of estoppel in respect to the party
claiming it are: (a) lack of knowledge and of the
means of knowledge of the truth as the facts in
Unfortunately, however, this conclusion is bereft of
question; (b) reliance, in good faith, upon the
substantial factual basis and disregards
conduct or statements of the party to be estopped;
fundamental principles concerning the primary
and (c) action or inaction based thereon of such
duty of persons dealing with parties who act for
character as to change the position or status of the
others, and of estoppel. Indisputably, the credit
party claiming the estoppel, to his injury,
application card is a form prepared and supplied by
detriment, or prejudice.
private respondent. There is no evidence, much
less an allegation by private respondent, that it
was petitioner who filled up the entries in said The above disquisitions ineluctably show the
form. It is logical to presume then that the parties absence of said elements in this case.
who signed it (Me Cruz and Marilou L. Cruz), or
anyone of them, made or accomplished the entries. In the instant case, there is no showing at all that
Needless to state, since on the face of the private respondent tried to ascertain the ownership
document, the "owner/manager" of the "Mang Uro of Mang Uro Store and the extent of the authority
Store", which is written on the column Trade Name, of the applicants to represent Lauro Cruz at any
is Lauro Cruz, and not the parties signing the same, time before it approved the credit application card.
it was incumbent upon the private respondent to
inquire into the relationship of the signatories to
There is as well no evidence, much less any claim
the petitioner or to satisfy itself as to their
by private respondent, that before Me Cruz and
authority to act for or represent the petitioner.
Marilou Cruz signed the credit application card, it
Under the circumstances, it is apparent that
had been dealing with petitioner or the Mang Uro
petitioner had no direct participation and that the
Store, or that for sometime prior thereto, petitioner
two applicants could have acted without authority
ever represented to it as the owner of the store
from him or as his duly authorized representatives.
that he has authorized the above signatories to
In either case, for the protection of its interest,
represent him in any transaction. Clearly, it was
private respondent should have made the
error for the respondent Court to conclude that
necessary inquiry verification as to the authority of
petitioner should be held liable to private
the applicants and to find out from them whether
respondent on account of the credit application
Lauro Cruz is both the owner and manager or
card on the theory that he permitted the carrying
merely the owner or the manager, for that is what
of the business of the store. This theory further
"owner/manager" in its form could signify.
erroneously assumes that the business of the store
before the filing of the credit application card
A person dealing with an agent is put upon inquiry included the sale of products of private respondent.
and must discover upon his peril the authority of There is evidence on this appoint.
the agent. 26It is for this reason that under Article
No. 1902 of the Civil Code, a third person with
Moreover, it is apparent that the purpose of the
whom the agent wishes to contract on behalf of the
request of private respondent to file an amended
principal may require the presentation of the power
complaint within ten (10) days from 27 March
of attorney, or the instructions as regards the
1984, the date when the pre-trial was held, which
the trial court granted, 28 was precisely to implead
the signatories to the credit application card. This
was precisely prompted by the insistence of
petitioner that he is not liable for the claims in the
complaint because he did not sign the credit card
application and the invoices. In short, he is
erroneously impleaded as defendant. Since among
the matters to be considered at pre-trial is the
necessity or desirability of amendments to
pleadings, 29 the request was seasonably and
properly made.

Private respondent did not amend the complaint

within the period aforesaid. So, when the case was
caned for heating on 16 May 1984, pursuant to the
Order of 27 March 1984, and the parties did not
appear, the trial court should have dismissed the
case for failure on the part of private respondent to
file the amended complaint. Such dismissal is
authorized under Section 3 of Rule 17 of the Rules
of Court. The respondent Court, however, brushed
aside this point by holding that the non-compliance
by private respondent "was muted by the
subsequent order dated May 16, 1984 which
submitted the case for decision;" and that by said
order "the trial court appears to have given its
assent to resolving the case on the basis of the
unamended complaint," which is authorized by
Section 11 of Rule 3 of the Rules of Court. Although
this justification is flimsy and begs the question,
the foregoing resolution on the issue of petitioner's
liability to the private respondent renders
unnecessary further discussion on the remaining
assigned errors.

WHEREFORE, the instant petition is GRANTED, and

the decision of the respondent Court of Appeals of
9 August 1988 and its resolution of 27 October
1988 in C.A.-G.R. CV No. 07859, as well as the
decision of the trial court of 28 February 1985 in
Civil Case No. 49672, are hereby REVERSED and
SET ASIDE. With costs against private respondent.

SO ORDERED.
G.R. No. 88866 February 18, 1991
METROPOLITAN BANK & TRUST
COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS &
LOAN ASSOCIATION, INC., LUCIA CASTILLO,
MAGNO CASTILLO and GLORIA
CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for
petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson &
Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for
respondent Golden Savings & Loan Association,
Inc.
CRUZ, J.:
This case, for all its seeming complexity, turns on a
simple question of negligence. The facts, pruned of
all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a
commercial bank with branches throughout the
Philippines and even abroad. Golden Savings and
Loan Association was, at the time these events
happened, operating in Calapan, Mindoro, with the
other private respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened
an account with Golden Savings and deposited
over a period of two months 38 treasury warrants
with a total value of P1,755,228.37. They were all
drawn by the Philippine Fish Marketing Authority
and purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were
directly payable to Gomez while the others
appeared to have been indorsed by their respective
payees, followed by Gomez as second indorser. 1
On various dates between June 25 and July 16,
1979, all these warrants were subsequently
indorsed by Gloria Castillo as Cashier of Golden
Savings and deposited to its Savings Account No.
2498 in the Metrobank branch in Calapan, Mindoro.
They were then sent for clearing by the branch
office to the principal office of Metrobank, which
forwarded them to the Bureau of Treasury for
special clearing. 2
More than two weeks after the deposits, Gloria
Castillo went to the Calapan branch several times
to ask whether the warrants had been cleared. She
was told to wait. Accordingly, Gomez was
meanwhile not allowed to withdraw from his
account. Later, however, "exasperated" over
Gloria's repeated inquiries and also as an
accommodation for a "valued client," the petitioner
says it finally decided to allow Golden Savings to
withdraw from the proceeds of the
warrants. 3
The first withdrawal was made on July 9, 1979, in
the amount of P508,000.00, the second on July 13,
1979, in the amount of P310,000.00, and the third
on July 16, 1979, in the amount of P150,000.00.
The total withdrawal was P968.000.00. 4
In turn, Golden Savings subsequently allowed
Gomez to make withdrawals from his own account,
eventually collecting the total amount of
P1,167,500.00 from the proceeds of the apparently
cleared warrants. The last withdrawal was made on
July 16, 1979.
On July 21, 1979, Metrobank informed Golden
Savings that 32 of the warrants had been
dishonored by the Bureau of Treasury on July 19,
1979, and demanded the refund by Golden Savings
of the amount it had previously withdrawn, to make
up the deficit in its account.
The demand was rejected. Metrobank then sued
Golden Savings in the Regional Trial Court of
Mindoro. 5 After trial, judgment was rendered in
favor of Golden Savings, which, however, filed a
motion for reconsideration even as Metrobank filed
its notice of appeal. On November 4, 1986, the
lower court modified its decision thus:
ACCORDINGLY, judgment is hereby
rendered:
1. Dismissing the complaint with costs
against the plaintiff;
2. Dissolving and lifting the writ of
attachment of the properties of defendant
Golden Savings and Loan Association, Inc.
and defendant Spouses Magno Castillo
and Lucia Castillo;
3. Directing the plaintiff to reverse its
action of debiting Savings Account No.
2498 of the sum of P1,754,089.00 and to
reinstate and credit to such account such
amount existing before the debit was
made including the amount of
P812,033.37 in favor of defendant Golden
Savings and Loan Association, Inc. and
thereafter, to allow defendant Golden
Savings and Loan Association, Inc. to
withdraw the amount outstanding thereon
before the debit;
4. Ordering the plaintiff to pay the
defendant Golden Savings and Loan
Association, Inc. attorney's fees and
expenses of litigation in the amount of
P200,000.00.
5. Ordering the plaintiff to pay the
defendant Spouses Magno Castillo and
Lucia Castillo attorney's fees and
expenses of litigation in the amount of
P100,000.00.
SO ORDERED.
On appeal to the respondent court, 6 the decision
was affirmed, prompting Metrobank to file this
petition for review on the following grounds:
1. Respondent Court of Appeals erred in
disregarding and failing to apply the clear
contractual terms and conditions on the
deposit slips allowing Metrobank to charge
back any amount erroneously credited.
(a) Metrobank's right to charge
back is not limited to instances
where the checks or treasury
warrants are forged or
unauthorized.
(b) Until such time as Metrobank
is actually paid, its obligation is
that of a mere collecting agent
which cannot be held liable for its
failure to collect on the warrants.
2. Under the lower court's decision,
affirmed by respondent Court of Appeals,
Metrobank is made to pay for warrants
already dishonored, thereby perpetuating
the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in
not finding that as between Metrobank
and Golden Savings, the latter should bear
the loss.
4. Respondent Court of Appeals erred in
holding that the treasury warrants
involved in this case are not negotiable
instruments.
The petition has no merit.
From the above undisputed facts, it would appear
to the Court that Metrobank was indeed negligent
in giving Golden Savings the impression that the
treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to
withdraw the proceeds thereof from his account
with it. Without such assurance, Golden Savings
would not have allowed the withdrawals; with such
assurance, there was no reason not to allow the
withdrawal. Indeed, Golden Savings might even
have incurred liability for its refusal to return the
money that to all appearances belonged to the
depositor, who could therefore withdraw it any time
and for any reason he saw fit.
It was, in fact, to secure the clearance of the
treasury warrants that Golden Savings deposited
them to its account with Metrobank. Golden
Savings had no clearing facilities of its own. It
relied on Metrobank to determine the validity of the
warrants through its own services. The proceeds of
the warrants were withheld from Gomez until
Metrobank allowed Golden Savings itself to
withdraw them from its own deposit. 7 It was only
when Metrobank gave the go-signal that Gomez
was finally allowed by Golden Savings to withdraw
them from his own account.
The argument of Metrobank that Golden Savings
should have exercised more care in checking the
personal circumstances of Gomez before accepting
his deposit does not hold water. It was Gomez who
was entrusting the warrants, not Golden Savings
that was extending him a loan; and moreover, the
treasury warrants were subject to clearing, pending
which the depositor could not withdraw its
proceeds. There was no question of Gomez's
identity or of the genuineness of his signature as
checked by Golden Savings. In fact, the treasury
warrants were dishonored allegedly because of the
forgery of the signatures of the drawers, not of
Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted
with due care and diligence and cannot be faulted
for the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary
carelessness. The amount involved was not trifling
more than one and a half million pesos (and this
was 1979). There was no reason why it should not
have waited until the treasury warrants had been
cleared; it would not have lost a single centavo by
waiting. Yet, despite the lack of such clearance
and notwithstanding that it had not received a
single centavo from the proceeds of the treasury
warrants, as it now repeatedly stresses it
allowed Golden Savings to withdraw not once,
not twice, but thrice from the uncleared treasury
warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent
inquiries of Gloria Castillo about the clearance and
it also wanted to "accommodate" a valued client. It
"presumed" that the warrants had been cleared
simply because of "the lapse of one week." 8 For a
bank with its long experience, this explanation is
unbelievably naive.
And now, to gloss over its carelessness, Metrobank
would invoke the conditions printed on the dorsal
side of the deposit slips through which the treasury
warrants were deposited by Golden Savings with its
Calapan branch. The conditions read as follows:
Kindly note that in receiving items on
deposit, the bank obligates itself only as
the depositor's collecting agent, assuming
no responsibility beyond care in selecting
correspondents, and until such time as
actual payment shall have come into
possession of this bank, the right is
reserved to charge back to the depositor's
account any amount previously credited,
whether or not such item is returned. This
also applies to checks drawn on local
banks and bankers and their branches as
well as on this bank, which are unpaid due
to insufficiency of funds, forgery,
unauthorized overdraft or any other
reason. (Emphasis supplied.)
According to Metrobank, the said conditions clearly
show that it was acting only as a collecting agent
for Golden Savings and give it the right to "charge
back to the depositor's account any amount
previously credited, whether or not such item is
returned. This also applies to checks ". . . which are
unpaid due to insufficiency of funds, forgery,
unauthorized overdraft of any other reason." It is
claimed that the said conditions are in the nature
of contractual stipulations and became binding on
Golden Savings when Gloria Castillo, as its Cashier,
signed the deposit slips.
Doubt may be expressed about the binding force of
the conditions, considering that they have
apparently been imposed by the bank unilaterally,
without the consent of the depositor. Indeed, it
could be argued that the depositor, in signing the
deposit slip, does so only to identify himself and
not to agree to the conditions set forth in the given
permit at the back of the deposit slip. We do not
have to rule on this matter at this time. At any rate,
the Court feels that even if the deposit slip were
considered a contract, the petitioner could still not
validly disclaim responsibility thereunder in the
light of the circumstances of this case.
In stressing that it was acting only as a collecting
agent for Golden Savings, Metrobank seems to be
suggesting that as a mere agent it cannot be liable
to the principal. This is not exactly true. On the
contrary, Article 1909 of the Civil Code clearly
provides that
Art. 1909. The agent is responsible not
only for fraud, but also for negligence,
which shall be judged 'with more or less
rigor by the courts, according to whether
the agency was or was not for a
compensation.
The negligence of Metrobank has been sufficiently
established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings
it was already safe to allow Gomez to withdraw the
proceeds of the treasury warrants he had deposited
Metrobank misled Golden Savings. There may have
been no express clearance, as Metrobank insists
(although this is refuted by Golden Savings) but in
any case that clearance could be implied from its
allowing Golden Savings to withdraw from its
account not only once or even twice but three
times. The total withdrawal was in excess of its
original balance before the treasury warrants were
deposited, which only added to its belief that the
treasury warrants had indeed been cleared.
Metrobank's argument that it may recover the
disputed amount if the warrants are not paid for
any reason is not acceptable. Any reason does not
mean no reason at all. Otherwise, there would have
been no need at all for Golden Savings to deposit
the treasury warrants with it for clearance. There
would have been no need for it to wait until the
warrants had been cleared before paying the
proceeds thereof to Gomez. Such a condition, if
interpreted in the way the petitioner suggests, is
not binding for being arbitrary and unconscionable.
And it becomes more so in the case at bar when it
is considered that the supposed dishonor of the
warrants was not communicated to Golden Savings
before it made its own payment to Gomez.
The belated notification aggravated the petitioner's
earlier negligence in giving express or at least
implied clearance to the treasury warrants and
allowing payments therefrom to Golden Savings.
But that is not all. On top of this, the supposed
reason for the dishonor, to wit, the forgery of the
signatures of the general manager and the auditor
of the drawer corporation, has not been
established. 9 This was the finding of the lower
courts which we see no reason to disturb. And as
we said in MWSS v. Court of Appeals: 10
Forgery cannot be presumed (Siasat, et al.
v. IAC, et al., 139 SCRA 238). It must be
established by clear, positive and
convincing evidence. This was not done in
the present case.
A no less important consideration is the
circumstance that the treasury warrants in
question are not negotiable instruments. Clearly
stamped on their face is the word "non-negotiable."
Moreover, and this is of equal significance, it is
indicated that they are payable from a particular
fund, to wit, Fund 501.
The following sections of the Negotiable
Instruments Law, especially the underscored parts,
are pertinent:
Sec. 1. Form of negotiable instruments.
An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the
maker or drawer;
(b) Must contain an unconditional promise
or order to pay a sum certain in money;
(c) Must be payable on demand, or at a
fixed or determinable future time;
(d) Must be payable to order or to bearer;
and
(e) Where the instrument is addressed to
a drawee, he must be named or otherwise
indicated therein with reasonable
certainty.
xxx xxx xxx
Sec. 3. When promise is unconditional.
An unqualified order or promise to pay is
 unconditional within the meaning of this
Act though coupled with
(a) An indication of a particular fund out of
which reimbursement is to be made or a
particular account to be debited with the
amount; or
(b) A statement of the transaction which
gives rise to the instrument judgment.
But an order or promise to pay out of a
particular fund is not unconditional.
The indication of Fund 501 as the source of the
payment to be made on the treasury warrants
makes the order or promise to pay "not
unconditional" and the warrants themselves non-
negotiable. There should be no question that the
exception on Section 3 of the Negotiable
Instruments Law is applicable in the case at bar.
This conclusion conforms to Abubakar vs. Auditor
General 11 where the Court held:
The petitioner argues that he is a holder in
good faith and for value of a negotiable
instrument and is entitled to the rights
and privileges of a holder in due course,
free from defenses. But this treasury
warrant is not within the scope of the
negotiable instrument law. For one thing,
the document bearing on its face the
words "payable from the appropriation for
food administration, is actually an Order
for payment out of "a particular fund," and
is not unconditional and does not fulfill
one of the essential requirements of a
negotiable instrument (Sec. 3 last
sentence and section [1(b)] of the
Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the
warrants in general, Golden Savings assumed that
they were "genuine and in all respects what they
purport to be," in accordance with Section 66 of the
Negotiable Instruments Law. The simple reason is
that this law is not applicable to the non-negotiable
treasury warrants. The indorsement was made by
Gloria Castillo not for the purpose of guaranteeing
the genuineness of the warrants but merely to
deposit them with Metrobank for clearing. It was in
fact Metrobank that made the guarantee when it
stamped on the back of the warrants: "All prior
indorsement and/or lack of endorsements
guaranteed, Metropolitan Bank & Trust Co., Calapan
Branch."
The petitioner lays heavy stress on Jai Alai
Corporation v. Bank of the Philippine Islands, 12 but
we feel this case is inapplicable to the present
controversy.1wphi1 That case involved checks
whereas this case involves treasury warrants.
Golden Savings never represented that the
warrants were negotiable but signed them only for
the purpose of depositing them for clearance. Also,
the fact of forgery was proved in that case but not
in the case before us. Finally, the Court found the
Jai Alai Corporation negligent in accepting the
checks without question from one Antonio Ramirez
notwithstanding that the payee was the Inter-Island
Gas Services, Inc. and it did not appear that he was
authorized to indorse it. No similar negligence can
be imputed to Golden Savings.
We find the challenged decision to be basically
correct. However, we will have to amend it insofar
as it directs the petitioner to credit Golden Savings
with the full amount of the treasury checks
deposited to its account.
The total value of the 32 treasury warrants
dishonored was P1,754,089.00, from which Gomez
was allowed to withdraw P1,167,500.00 before
Golden Savings was notified of the dishonor. The
amount he has withdrawn must be charged not to
Golden Savings but to Metrobank, which must bear
the consequences of its own negligence. But the
balance of P586,589.00 should be debited to
Golden Savings, as obviously Gomez can no longer
be permitted to withdraw this amount from his
deposit because of the dishonor of the warrants.
Gomez has in fact disappeared. To also credit the
balance to Golden Savings would unduly enrich it
at the expense of Metrobank, let alone the fact that
it has already been informed of the dishonor of the
treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED,
with the modification that Paragraph 3 of the
dispositive portion of the judgment of the lower
court shall be reworded as follows:
3. Debiting Savings Account No. 2498 in
the sum of P586,589.00 only and
thereafter allowing defendant Golden
Savings & Loan Association, Inc. to
withdraw the amount outstanding thereon,
if any, after the debit.
SO ORDERED.
G.R. No. 94050 November 21, 1991
SYLVIA H. BEDIA and HONTIVEROS &
ASSOCIATED PRODUCERS PHILS. YIELDS,
INC., petitioners,
vs.
EMILY A. WHITE and HOLMAN T.
WHITE, respondents.
Ramon A. Gonzales for petitioner of the Court.
Renato S. Corpuz for private respondents.
CRUZ, J.:p
The basic issue before us is the capacity in which
petitioner Sylvia H. Bedia entered into the subject
contract with private respondent Emily A. White.
Both the trial court and the respondent court held
she was acting in her own personal behalf. She
faults this finding as reversible error and insists
that she was merely acting as an agent.
The case arose when Bedia and White entered into
a Participation Contract 1 reading in full as follows:
THE STATE FAIR OF TEXAS '80
PARTICIPATION CONTRACT
PARTICIPANT (COMPANY NAME)
EMILY WHITE
ENTERPRISES
I/We, the abovementioned
company hereby agrees to
participate in the 1980 Dallas
State Fair to be held in Dallas,
Texas on October 3, to October
19,1980. I/We request for a 15
square meter booth space worth
$2,250.00 U.S. Dollars.
I/We further understand that this
participation contract shall be
deemed non-cancellable after
payment of the said down
payment, and that any intention
on our part to cancel the same
shall render whatever amount we
have paid forfeited in favor of
HONTIVEROS & ASSOCIATED
PRODUCERS PHILIPPINE YIELDS,
INC.
FOR THE ABOVE CONSIDERATION,
I/We understand the
HONTIVEROS & ASSOCIATED
PRODUCERS PHIL. YIELDS, INC.
shall: Reserve said booth for our
exclusive perusal; We also
understand that the above cost
includes overall exterior booth
decoration and materials but
does not include interior designs
which will be per our
specifications and expenses.
PARTICIPANT'S PARTICIPATION
AUTHORIZED SIGNATURE:
ACCEPTED BY:
(SGD.) EMILY WHITE (SGD.)
SYLVIA H. BEDIA
DATE: 8/13/80 DATE: Aug. 1,
1980
On August 10, 1986, White and her husband filed a
complaint in the Regional Trial Court of Pasay City
for damages against Bedia and Hontiveros &
Associated Producers Phil. Yields, Inc. for damages
caused by their fraudulent violation of their
agreement. She averred that Bedia had
approached her and persuaded her to participate in
the State of Texas Fair, and that she made a down
payment of $500.00 to Bedia on the agreed display
space. In due time, she enplaned for Dallas with
her merchandise but was dismayed to learn later
that the defendants had not paid for or registered
any display space in her name, nor were they
authorized by the state fair director to recruit
participants. She said she incurred losses as a
result for which the defendants should be held
solidarily liable. 2
In their joint answer, the defendants denied the
plaintiff's allegation that they had deceived her and
explained that no display space was registered in
her name as she was only supposed to share the
space leased by Hontiveros in its name. She was
not allowed to display her goods in that space
because she had not paid her balance of
$1,750.00, in violation of their contract. Bedia also
made the particular averment that she did not sign
the Participation Contract on her own behalf but as
an agent of Hontiveros and that she had later
returned the advance payment of $500.00 to the
plaintiff. The defendants filed their own
counterclaim and complained of malice on the part
of the plaintiffs. 3
In the course of the trial, the complaint against
Hontiveros was dismissed on motion of the
plaintiffs. 4
In his decision dated May 29, 1986, Judge Fermin
Martin, Jr. found Bedia liable for fraud and awarded
the plaintiffs actual and moral damages plus
attorney's fees and the costs. The court said:
In claiming to be a mere agent of
Hontiveros & Associated
Producers Phil. Yields, Inc.,
defendant Sylvia H. Bedia
evidently attempted to escape
liability for herself. Unfortunately
for her, the "Participation
Contract" is not actually in
representation or in the name of
said corporation. It is a covenant
entered into by her in her
personal capacity, for no one
may contract in the name of
another without being authorized
by the latter, or unless she has
by law a right to represent her.
(Art. 1347, new Civil Code)
Sustaining the trail court on this point, the
respondent court 5 declared in its decision dated
March 30, 1990:
The evidence, on the whole,
shows that she definitely acted
on her own. She represented
herself asauthorized by the State
of Texas to solicit and assign
 booths at the Texas fair; she
assured the appellee that she
could give her booth. Under
Article 1883 of the New Civil
Code, if the agent acts in his own
name, the principal has no right
of action against the persons with
whom the agent had contracted.
We do not share these views.
It is noteworthy that in her letter to the Minister of
Trade dated December 23,1984, Emily White
began:
their common counsel, Hontiveros affirmed this
allegation.
If the plaintiffs had any doubt about the capacity in
which Bedia was acting, what they should have
done was verify the matter with Hontiveros. They
did not. Instead, they simply accepted Bedia's
representation that she was an agent of Hontiveros
and dealt with her as such. Under Article 1910 of
the Civil Code, "the principal must comply with all
the obligations which the agent may have
contracted within the scope of his authority."
Hence, the private respondents cannot now hold
Bedia liable for the acts performed by her for, and
imputable to, Hontiveros as her principal.

I am a local exporter who

The plaintiffs' position became all the more
was recruited by Hontiveros &
untenable when they moved on June 5, 1984, for
Associated Producers Phil. Yields,
the dismissal of the complaint against
Inc. to participate in the State
Hontiveros, 7 leaving Bedia as the sole defendant.
Fair of Dallas, Texas which was
Hontiveros had admitted as early as when it filed
held last Oct. 3 to 19,
its answer that Bedia was acting as its agent. The
1980. Hontiveros & Associated
effect of the motion was to leave the plaintiffs
charged me US$150.00 per
without a cause of action against Bedia for the
square meter for display booth of
obligation, if any, of Hontiveros.
said fair. I have paid an advance
of US$500.00 as partial payment
for the total space of 15 square Our conclusion is that since it has not been found
meter of which is $2,250.00 (Two that Bedia was acting beyond the scope of her
Thousand Two Hundred Fifty authority when she entered into the Participation
Dollars). 6 Contract on behalf of Hontiveros, it is the latter that
should be held answerable for any obligation
arising from that agreement. By moving to dismiss
As the Participation Contract was signed by Bedia,
the complaint against Hontiveros, the plaintiffs
the above statement was an acknowledgment by
virtually disarmed themselves and forfeited
White that Bedia was only acting for Hontiveros
whatever claims they might have proved against
when it recruited her as a participant in the Texas
the latter under the contract signed for it by Bedia.
State Fair and charged her a partial payment of
It should be obvious that having waived these
$500.00. This amount was to be fortified to
claims against the principal, they cannot now
Hontiveros in case of cancellation by her of the
assert them against the agent.
agreement. The fact that the contract was
typewritten on the letterhead stationery of
Hontiveros bolsters this conclusion in the absence WHEREFORE, the appealed decision dated March
of any showing that said stationery had been 30, 1990, of the respondent court is REVERSED and
illegally used by Bedia. a new judgment is rendered dismissing Civil Case
No. 9246-P in the Regional Trial Court of Pasay City.
Significantly, Hontiveros itself has not repudiated
Bedia's agency as it would have if she had really SO ORDERED.
not signed in its name. In the answer it filed with
Bedia, it did not deny the latter's allegation in
Paragraph 4 thereof that she was only acting as its
agent when she solicited White's participation. In
fact, by filing the answer jointly with Bedia through
G.R. No. 95641 September 22, 1994
SANTOS B. AREOLA and LYDIA D.
AREOLA, petitioners-appellants,
vs.
COURT OF APPEALS and PRUDENTIAL
GUARANTEE AND ASSURANCE,
INC., respondents-appellees.
ROMERO, J.:
On June 29, 1985, seven months after the issuance
of petitioner Santos Areola's Personal Accident
Insurance Policy No. PA-20015, respondent
insurance company unilaterally cancelled the same
since company records revealed that petitioner-
insured failed to pay his premiums.
On August 3, 1985, respondent insurance company
offered to reinstate same policy it had previously
cancelled and even proposed to extend its lifetime
to December 17, 1985, upon a finding that the
cancellation was erroneous and that the premiums
were paid in full by petitioner-insured but were not
remitted by Teofilo M. Malapit, respondent
insurance company's branch manager.
These, in brief, are the material facts that gave rise
to the action for damages due to breach of contract
instituted by petitioner-insured before
Branch 40 RTC, Dagupan City against respondent
insurance company.
There are two issues for resolution in this case:
(1) Did the erroneous act of cancelling subject
insurance policy entitle petitioner-insured to
payment of damages?
(2) Did the subsequent act of reinstating the
wrongfully cancelled insurance policy by
respondent insurance company, in an effort to
rectify such error, obliterate whatever liability for
damages it may have to bear, thus absolving it
therefrom?
From the factual findings of the trial court, it
appears that petitioner-insured, Santos Areola, a
lawyer from Dagupan City, bought, through
the Baguio City branch of Prudential Guarantee and
Assurance, Inc. (hereinafter referred to as
Prudential), a personal accident insurance policy
covering the one-year period between noon of
November 28, 1984 and noon of November 28,
1985. 1 Under the terms of the statement of
account issued by respondent insurance company,
petitioner-insured was supposed to pay the total
amount of P1,609.65 which included the premium
of P1,470.00, documentary stamp of P110.25 and
2% premium tax of P29.40. 2 At the lower left-hand
corner of the statement of account, the following is
legibly printed:
This Statement of Account must
not be considered a receipt.
Official Receipt will be issued to
you upon payment of this
account.
If payment is made to our
representative, demand for a
Provisional Receipt and if our
Official Receipts is (sic) not
received by you within 7 days
please notify us.
If payment is made to our office,
demand for an OFFICIAL RECEIPT.
On December 17, 1984, respondent insurance
company issued collector's provisional receipt No.
9300 to petitioner-insured for the amount of
P1,609.65 3 On the lower portion of the receipt the
following is written in capital letters:
Note: This collector's provisional
receipt will be confirmed by our
official receipt. If our official
receipt is not received by you
within 7 days, please notify us. 4
On June 29, 1985, respondent insurance company,
through its Baguio City manager, Teofilo M. Malapit,
sent petitioner-insured Endorsement
No. BG-002/85 which "cancelled flat" Policy No. PA
BG-20015 "for non-payment of premium effective
as of inception dated." 5 The same endorsement
also credited "a return premium of P1,609.65 plus
documentary stamps and premium tax" to the
account of the insured.
Shocked by the cancellation of the policy,
petitioner-insured confronted Carlito Ang, agent of
respondent insurance company, and demanded the
issuance of an official receipt. Ang told petitioner-
insured that the cancellation of the policy was a
mistake but he would personally see to its
rectification. However, petitioner-insured failed to
receive any official receipt from Prudential.
Hence, on July 15, 1985, petitioner-insured sent
respondent insurance company a letter demanding
that he be insured under the same terms and
conditions as those contained in Policy No. PA-BG-
20015 commencing upon its receipt of his letter, or
that the current commercial rate of increase on the
payment he had made under provisional receipt
No. 9300 be returned within five days. 6 Areola also
warned that should his demands be unsatisfied, he
would sue for damages.
On July 17, 1985, he received a letter from
production manager Malapit informing him that the
"partial payment" of P1,000.00 he had made on the
policy had been "exhausted pursuant to the
provisions of the Short Period Rate Scale" printed at
the back of the policy. Malapit warned Areola that
should be fail to pay the balance, the company's
liability would cease to operate. 7
In reply to the petitioner-insured's letter of July 15,
1985, respondent insurance company, through its
Assistant Vice-President Mariano M. Ampil III, wrote
Areola a letter dated July 25, 1985 stating that the
company was verifying whether the payment had
in fact been issued therefor. Ampil emphasized that
the official receipt should have been issued seven
days from the issuance of the provisional receipt
but because no official receipt had been issued in
Areola's name, there was reason to believe that no
payment had been made. Apologizing for the
inconvenience, Ampil expressed the company's
concern by agreeing "to hold you cover (sic) under
the terms of the referenced policy until such time
that this matter is cleared." 8
On August 3, 1985, Ampil wrote Areola another
letter confirming that the amount of P1,609.65
covered by provisional receipt No. 9300 was in fact
received by Prudential on December 17, 1984.
Hence, Ampil informed
Areola that Prudential was "amenable to extending
PGA-PA-BG-20015 up to December 17, 1985 or one
year from the date when payment was received."
Apologizing again for the inconvenience caused
Areola, Ampil exhorted him to indicate his
conformity to the proposal by signing on the space
provided for in the letter. 9
The letter was personally delivered by Carlito Ang
to Areola on
August 13, 1985 10 but unfortunately, Areola and
his wife, Lydia, as early as August 6, 1985 had filed
a complaint for breach of contract with damages
before the lower court.
In its Answer, respondent insurance company
admitted that the cancellation of petitioner-
insured's policy was due to the failure of Malapit to
turn over the premiums collected, for which reason
no official receipt was issued to him. However, it
argued that, by acknowledging the inconvenience
caused on petitioner-insured and after taking steps
to rectify its omission by reinstating the cancelled
policy prior to the filing of the complaint,
respondent insurance company had complied with
its obligation under the contract. Hence, it
concluded that petitioner-insured no longer has a
cause of action against it. It insists that it cannot be
held liable for damages arising from breach of
contract, having demonstrated fully well its
fulfillment of its obligation.
The trial court, on June 30, 1987, rendered a
judgment in favor of petitioner-insured, ordering
respondent insurance company to pay the former
the following:
a) P1,703.65 as actual damages;
b) P200,000.00 as moral
damages; and
c) P50,000.00 as exemplary
damages;
2. To pay to the plaintiff, as and
for attorney's fees the amount of
P10,000.00; and
3. To pay the costs. of the policy with a proposal to extend its effective
period to December 17, 1985; and (d) respondent
insurance company's apologies for the
In its decision, the court below declared that
"inconvenience" caused upon petitioner-insured.
respondent insurance company acted in bad faith
The appellate court added that respondent
in unilaterally cancelling subject insurance policy,
insurance company even relieved Malapit, its
having done so only after seven months from the
Baguio City manager, of his job by forcing him to
time that it had taken force and effect and despite
resign.
the fact of full payment of premiums and other
charges on the issued insurance policy.
Cancellation from the date of the policy's inception, Petitioner-insured moved for the reconsideration of
explained the lower court, meant that the the said decision which the Court of Appeals
protection sought by petitioner-insured from the denied. Hence, this petition for review
risks insured against was never extended by on certiorari anchored on these arguments:
respondent insurance company. Had the insured
met an accident at the time, the insurance I
company would certainly have disclaimed any
liability because technically, the petitioner could
not have been considered insured. Consequently, Respondent Court of Appeals is
the trial court held that there was breach of guilty of grave abuse of
contract on the part of respondent insurance discretion and committed a
company, entitling petitioner-insured to an award serious and reversible error in not
of the damages prayed for. holding Respondent Prudential
liable for the cancellation of the
insurance contract which was
This ruling was challenged on appeal by admittedly caused by the
respondent insurance company, denying bad faith fraudulent acts and bad faith of
on its part in unilaterally cancelling subject its own officers.
insurance policy.
II
After consideration of the appeal, the appellate
court issued a reversal of the decision of the trial
Respondent Court of Appeals
court, convinced that the latter had erred in finding
committed serious and reversible
respondent insurance company in bad faith for the
error and abused its discretion in
cancellation of petitioner-insured's policy. According
ruling that the defenses of good
to the Court of Appeals, respondent insurance
company was not motivated by negligence, malice faith and honest mistake can co-
or bad faith in cancelling subject policy. Rather, the exist with the admitted
cancellation of the insurance policy was based on fraudulent acts and evident bad
what the existing records showed, i.e., absence of faith.
an official receipt issued to petitioner-insured
confirming payment of premiums. Bad faith, said III
the Court of Appeals, is some motive of self-interest
or ill-will; a furtive design of ulterior purpose, proof
Respondent Court of Appeals
of which must be established convincingly. On the
committed a reversible error in
contrary, it further observed, the following acts
not finding that even without
indicate that respondent insurance company did
considering the fraudulent acts of
not act precipitately or willfully to inflict a wrong on
its own officer in
petitioner-insured:
misappropriating the premium
(a) the investigation conducted by Alfredo
payment, the act itself in
Bustamante to verify if petitioner-insured had
cancelling the insurance policy
indeed paid the premium; (b) the letter of August
was done with bad faith and/or
3, 1985 confirming that the premium had been
gross negligence and wanton
paid on December 17, 1984; (c) the reinstatement
attitude amounting to bad faith,
 because among others, it was
Mr. Malapit the person who
committed the fraud who sent
and signed the notice of
cancellation.
IV
Respondent Court of Appeals has
decided a question of substance
contrary to law and applicable
decision of the Supreme Court
when it refused to award
damages in favor of herein
Petitioner-Appellants.
It is petitioner-insured's submission that the
fraudulent act of Malapit, manager of respondent
insurance company's branch office in Baguio, in
misappropriating his premium payments is the
proximate cause of the cancellation of the
insurance policy. Petitioner-insured theorized that
Malapit's act of signing and even sending the
notice of cancellation himself, notwithstanding his
personal knowledge of petitioner-insured's full
payment of premiums, further reinforces the
allegation of bad faith. Such fraudulent act
committed by Malapit, argued petitioner-insured, is
attributable to respondent insurance company, an
artificial corporate being which can act only
through its officers or employees. Malapit's
actuation, concludes petitioner-insured, is therefore
not separate and distinct from that of respondent-
insurance company, contrary to the view held by
the Court of Appeals. It must, therefore, bear the
consequences of the erroneous cancellation of
subject insurance policy caused by the non-
remittance by its own employee of the premiums
paid. Subsequent reinstatement, according to
petitioner-insured, could not possibly absolve
respondent insurance company from liability, there
being an obvious breach of contract. After all,
reasoned out petitioner-insured, damage had
already been inflicted on him and no amount of
rectification could remedy the same.
Respondent insurance company, on the other hand,
argues that where reinstatement, the equitable
relief sought by petitioner-insured was granted at
an opportune moment, i.e. prior to the filing of the
complaint, petitioner-insured is left without a cause
of action on which to predicate his claim for
damages. Reinstatement, it further explained,
effectively restored petitioner-insured to all his
rights under the policy. Hence, whatever cause of
action there might have been against it, no longer
exists and the consequent award of damages
ordered by the lower court in unsustainable.
We uphold petitioner-insured's submission.
Malapit's fraudulent act of misappropriating the
premiums paid by petitioner-insured is beyond
doubt directly imputable to respondent insurance
company. A corporation, such as respondent
insurance company, acts solely thru its employees.
The latters' acts are considered as its own for
which it can be held to account. 11 The facts are
clear as to the relationship between private
respondent insurance company and Malapit. As
admitted by private respondent insurance company
in its answer, 12 Malapit was the manager of its
Baguio branch. It is beyond doubt that he
represented its interest and acted in its behalf. His
act of receiving the premiums collected is well
within the province of his authority. Thus, his
receipt of said premiums is receipt by private
respondent insurance company who, by provision
of law, particularly under Article 1910 of the Civil
Code, is bound by the acts of its agent.
Article 1910 thus reads:
Art. 1910. The principal must
comply with all the obligations
which the agent may have
contracted within the scope of his
authority.
As for any obligation wherein the
agent has exceeded his power,
the principal is not bound except
when he ratifies it expressly or
tacitly.
Malapit's failure to remit the premiums he received
cannot constitute a defense for private respondent
insurance company; no exoneration from liability
could result therefrom. The fact that private
respondent insurance company was itself
defrauded due to the anomalies that took place in
its Baguio branch office, such as the non-accrual of
said premiums to its account, does not free the
same from its obligation to petitioner Areola. As
held inPrudential Bank v. Court of Appeals 13 citing
the ruling in McIntosh v. Dakota Trust Co.: 14
A bank is liable for wrongful acts
of its officers done in the
interests of the bank or in the
course of dealings of the officers
in their representative capacity
but not for acts outside the scope
of their authority. A bank holding
out its officers and agent as
worthy of confidence will not be
permitted to profit by the frauds
they may thus be enabled to
perpetrate in the apparent scope
of their employment; nor will it
be permitted to shirk its
responsibility for such frauds,
even though no benefit may
accrue to the bank therefrom.
Accordingly, a banking
corporation is liable to innocent
third persons where the
representation is made in the
course of its business by an
agent acting within the general
scope of his authority even
though, in the particular case,
the agent is secretly abusing his
authority and attempting to
perpetrate a fraud upon his
principal or some other person,
for his own ultimate benefit.
Consequently, respondent insurance company is
liable by way of damages for the fraudulent acts
committed by Malapit that gave occasion to the
erroneous cancellation of subject insurance policy.
Its earlier act of reinstating the insurance policy
can not obliterate the injury inflicted on petitioner-
insured. Respondent company should be reminded
that a contract of insurance creates reciprocal
obligations for both insurer and insured. Reciprocal
obligations are those which arise from the same
cause and in which each party is both a debtor and
a creditor of the other, such that the obligation of
one is dependent upon the obligation of the
other. 15
Under the circumstances of instant case, the
relationship as creditor and debtor between the
parties arose from a common cause: i.e., by reason
of their agreement to enter into a contract of computed from date of filing of complaint until final
insurance under whose terms, respondent payment thereof.
insurance company promised to extend protection
to petitioner-insured against the risk insured for a SO ORDERED.
consideration in the form of premiums to be paid
by the latter. Under the law governing reciprocal
obligations, particularly the second paragraph of
Article 1191, 16 the injured party, petitioner-insured
in this case, is given a choice between fulfillment or
rescission of the obligation in case one of the
obligors, such as respondent insurance company,
fails to comply with what is incumbent upon him.
However, said article entitles the injured party to
payment of damages, regardless of whether he
demands fulfillment or rescission of the obligation.
Untenable then is reinstatement insurance
company's argument, namely, that reinstatement
being equivalent to fulfillment of its obligation,
divests petitioner-insured of a rightful claim for
payment of damages. Such a claim finds no
support in our laws on obligations and contracts.

The nature of damages to be awarded, however,

would be in the form of nominal
damages 17 contrary to that granted by the court
below. Although the erroneous cancellation of the
insurance policy constituted a breach of contract,
private respondent insurance company, within a
reasonable time took steps to rectify the wrong
committed by reinstating the insurance policy of
petitioner. Moreover, no actual or substantial
damage or injury was inflicted on petitioner Areola
at the time the insurance policy was cancelled.
Nominal damages are "recoverable where a legal
right is technically violated and must be vindicated
against an invasion that has produced no actual
present loss of any kind, or where there has been a
breach of contract and no substantial injury or
actual damages whatsoever have been or can be
shown. 18

WHEREFORE, the petition for review on certiorari is

hereby GRANTED and the decision of the Court of
Appeals in CA-G.R. No. 16902 on May 31, 1990,
REVERSED. The decision of Branch 40, RTC
Dagupan City, in Civil Case No. D-7972 rendered on
June 30, 1987 is hereby REINSTATED subject to the
following modifications: (a) that nominal damages
amounting to P30,000.00 be awarded petitioner in
lieu of the damages adjudicated by court a quo;
and (b) that in the satisfaction of the damages
awarded therein, respondent insurance company is
ORDERED to pay the legal rate of interest
G.R. No. 156335 November 28, 2007
SPOUSES RAUL and AMALIA
PANLILIO, Petitioners,
vs.
CITIBANK, N.A., Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review
on Certiorari under Rule 45 of the Rules of Court,
seeking to reverse the Decision 1 of the Court of
Appeals (CA) dated May 28, 2002 in CA-G.R. CV No.
66649 and its Resolution of December 11, 2002,
which reversed and set aside the Decision of the
Regional Trial Court (RTC) of Makati City.
The case originated as a Complaint 2 for a sum of
money and damages, filed with the RTC of Makati
City on March 2, 1999, by the spouses Raul and
Amalia Panlilio (petitioners) against Citibank N.A.
(respondent).
The factual antecedents are as follows:
On October 10, 1997, petitioner Amalia Panlilio
(Amalia) visited respondent's Makati City office and
deposited one million pesos (PhP1 million) in the
bank's "Citihi" account, a fixed-term savings
account with a higher-than-average interest. 3 On
the same day, Amalia also opened a current or
checking account with respondent, to which
interest earnings of the Citihi account were to be
credited.4 Respondent assigned one of its
employees, Jinky Suzara Lee (Lee), to personally
transact with Amalia and to handle the accounts.5
Amalia opened the accounts as ITF or "in trust for"
accounts, as they were intended to benefit her
minor children, Alejandro King Aguilar and Fe
Emanuelle C. Panlilio, in case she would meet an
untimely death.6 To open these accounts, Amalia
signed two documents: a Relationship Opening
Form (ROF)7 and an Investor Profiling and
Suitability Questionnaire (Questionnaire).8
Amalia's initial intention was to invest the money in
a Citibank product called the Peso Repriceable
Promissory Note (PRPN), a product which had a
higher interest. However, as the PRPN was not
available that day, Amalia put her money in the
Citihi savings account.9
More than a month later, or on November 28, 1997,
Amalia phoned Citibank saying she wanted to place
an investment, this time in the amount of three
million pesos (PhP3 million). Again, she spoke with
Lee, the bank employee, who introduced her to
Citibank's various investment offerings. After the
phone conversation, apparently decided on where
to invest the money, Amalia went to Citibank
bringing a PCIBank check in the amount of three
million pesos (PhP3 million). During the visit,
Amalia instructed Lee on what to do with the PhP3
million. Later, she learned that out of the said
amount, PhP2,134,635.87 was placed by Citibank
in a Long-Term Commercial Paper (LTCP), a debt
instrument that paid a high interest, issued by the
corporation Camella and Palmera Homes (C&P
Homes).10 The rest of the money was placed in two
PRPN accounts, in trust for each of Amalia's two
children.11
Allegations differ between petitioners and
respondent as to whether Amalia instructed Lee to
place the money in the LTCP of C&P Homes.12
An LTCP is an evidence of indebtedness, with a
maturity period of more than 365 days, issued by a
corporation to any person or entity. 13 It is in effect a
loan obtained by a corporation (as borrower) from
the investing public (as lender)14 and is one of
many instruments that investment banks can
legally buy on behalf of their clients, upon the
latter's express instructions, for investment
purposes.15 LTCPs' attraction is that they usually
have higher yields than most investment
instruments. In the case of the LTCP issued by C&P
Homes, the gross interest rate was 16.25% per
annum at the time Amalia made her investment.16
On November 28, 1997, the day she made the
PhP3million investment, Amalia signed the
following documents: a Directional Investment
Management Agreement (DIMA),17 Term Investment
Application (TIA),18 and Directional Letter/Specific
Instructions.19 Key features of the DIMA and the
Directional Letter are provisions that essentially
clear Citibank of any obligation to guarantee the
principal and interest of the investment, absent
fraud or negligence on the latter's part. The
provisions likewise state that all risks are to be
assumed by the investor (petitioner).
As to the amount invested, only PhP2,134,635.87
out of the PhP3 million brought by Amalia was
placed in the LTCP since, according to Lee, this was
the only amount of LTCP then available. 20 According
to Lee, the balance of the PhP3 million was placed
in two PRPN accounts, each one in trust for
Amalia's two children, per her instructions. 21
Following this investment, respondent claims to
have regularly sent confirmations of investment
(COIs) to petitioners.22 A COI is a one-page,
computer generated document informing the
customer of the investment earlier made with the
bank. The first of these COIs was received by
petitioners on or about December 9, 1997, as
admitted by Amalia, which is around a week after
the investment was made.23 Respondent claims
that other succeeding COIs were sent to and
received by petitioners.
Amalia claims to have called Lee as soon as she
received the first COI in December 1997, and
demanded that the investment in LTCP be
withdrawn and placed in a PRPN.24 Respondent,
however, denies this, claiming that Amalia merely
called to clarify provisions in the COI and did not
demand a withdrawal.25
On August 6, 1998, petitioners met with
respondent's other employee, Lizza Colet, to
preterminate the LTCP and their other investments.
Petitioners were told that as to the LTCP, liquidation
could be made only if there is a willing buyer, a
prospect which could be difficult at that time
because of the economic crisis. Still, petitioners
signed three sets of Sales Order Slip to sell the
LTCP and left these with Colet.26
On August 18, 1998, Amalia, through counsel, sent
her first formal, written demand to respondent "for
a withdrawal of her investment as soon as
possible."27 The same was followed by another
letter dated September 7, 1998, which reiterated
the same demands.28 In answer to the letters,
respondent noted that the investment had a 2003
maturity, was not a deposit, and thus, its return to
the investor was not guaranteed by respondent;
however, it added that the LTCP may be sold prior
to maturity and had in fact been put up for sale,
but such sale was "subject to the availability of
buyers in the secondary market." 29 At that time,
respondent was not able to find a buyer for the
LTCP. As this response did not satisfy petitioners,
Amalia again wrote respondent, this time a final
demand letter dated September 21, 1998, asking
for a reconsideration and a return of the money she
invested.30In reply, respondent wrote a letter dated
October 12, 1998 stating that despite efforts to sell
the LTCP, no willing buyers were found and that
even if a buyer would come later, the price would
be lower than Amalia's original investment.31
Thus, petitioners filed with the RTC their complaint
against respondent for a sum of money and
damages.
The Complaint32 essentially demanded a return of
the investment, alleging that Amalia never
instructed respondent's employee Lee to invest the
money in an LTCP; and that far from what Lee
executed, Amalia's instructions were to invest the
money in a "trust account" with an "interest of
around 16.25% with a term of 91 days." Further,
petitioners alleged that it was only later, or on
December 8, 1997, when Amalia received the first
confirmation of investment (COI) from respondent,
that she and her husband learned of Lee's infidelity
to her orders. The COI allegedly informed
petitioners that the money was placed in an LTCP of
C&P Homes with a maturity in 2003, and that the
investment was not guaranteed by respondent.
Petitioners also claimed that as soon as Amalia
received the COI, she immediately called Lee;
however, the latter allegedly convinced her to
ignore the COI, that C&P Homes was an Ayala
company, that the investment was secure, and that
it could be easily "withdrawn"; hence, Amalia
decided not to immediately "withdraw" the
investment. Several months later, or on August 6,
1998, petitioners allegedly wanted to "withdraw"
the investment to buy a property; however, they
failed to do so, since respondent told them the LTCP
had not yet matured, and that no buyers were
willing to buy it. Hence, they sent various demand
letters to respondent, asking for a return of their
money; and when these went unheeded, they filed
the complaint.
In its Answer,33 respondent admitted that, indeed,
Amalia was its client and that she invested the
amounts stated in the complaint. However,
respondent disputed the claim that Amalia opened
a "trust account" with a "request for an interest
rate of around 16.25% with a term of 91 days;"
instead, respondent presented documents stating
that Amalia opened a "directional investment
management account," with investments to be
made in C&P Homes' LTCP with a 2003 maturity.
Respondent disputed allegations that it violated
petitioners' express instructions. Respondent
likewise denied that Amalia, upon her receipt of the
COI, immediately called respondent and protested
the investment in LTCP, its 2003 maturity and
Citibank's lack of guarantee. According to
respondent, no such protest was made and
petitioners actually decided to liquidate their
investment only months later, after the
newspapers reported that Ayala Land, Inc. was
cancelling plans to invest in C&P Homes.
The rest of respondent's Answer denied (1) that it
convinced Amalia not to liquidate or "withdraw" her
investment or to ignore the contents of the COI; (2)
that it assured Amalia that the investment could be
easily or quickly "withdrawn" or sold; (3) that it
misrepresented that C&P was an Ayala company,
implying that C&P had secure finances; and (4) that
respondent had been unfaithful to and in breach of
its contractual obligations.
After trial, the RTC rendered its Decision,34 dated
February 16, 2000, the dispositive portion of which
states:
The foregoing considered, the court hereby rules in
favor of plaintiffs and order defendant to pay:
1. The sum of PhP2,134,635.87
representing the actual amount deposited
by plaintiffs with defendant plus interest
corresponding to time deposit during the
time material to this action from date of
filing of this case until fully paid;
2. The sum of PhP300,000.00 representing
moral damages;
3. The sum of PhP100,000.00 representing
attorney's fees;
4. Costs.
SO ORDERED.35
The RTC upheld all the allegations of petitioners
and concluded that Amalia never instructed
Citibank to invest the money in an LTCP. Thus, the
RTC found Citibank in violation of its contractual
and fiduciary duties and held it liable to return the
money invested by petitioners plus damages.
Respondent appealed to the CA.
On appeal, in its Decision promulgated on May 28,
2002, the CA reversed the Decision of the RTC,
thus:
WHEREFORE, premises considered, the assailed
decision dated 16 February 2000 is REVERSED and
SET ASIDE and a new one entered DISMISSING Civil
Case No. 99-500.36
The CA held that with respect to the amount of
PhP2,134,635.87, the account opened by Amalia
was an investment management account; as a
result, the money invested was the sole and
exclusive obligation of C&P Homes, the issuer of
the LTCP, and was not guaranteed or insured by
herein respondent Citibank;37 that Amalia opened
such an account as evidenced by the documents
she executed with Citibank, namely, the Directional
Investment Management Agreement (DIMA), Term
Investment Application (TIA), and Directional
Letter/Specific Instructions, which were all dated
November 28, 1997, the day Amalia brought the
money to Citibank. Further, the CA brushed aside
petitioners' arguments that Amalia failed to
understand the true nature of the LTCP investment,
and that she failed to read the documents as they
were written in fine print. The CA ruled that
petitioners could not seek the court's aid to
extricate them from their contractual obligations.
Citing jurisprudence, the CA held that the courts
protected only those who were innocent victims of
fraud, and not those who simply made bad
bargains or exercised unwise judgment.
On petitioners' motion for reconsideration, the CA
reiterated its ruling and denied the motion in a
Resolution38dated December 11, 2002.
Thus, the instant petition which raises issues,
summarized as follows: (1) whether petitioners are
bound by the terms and conditions of the
Directional Investment Management Agreement
(DIMA), Term Investment Application (TIA),
Directional Letter/Specific Instructions, and
Confirmations of Investment (COIs); (2) and
whether petitioners are entitled to take back the
money they invested from respondent bank; or
stated differently, whether respondent is obliged to
return the money to petitioners upon their demand
prior to maturity.
Petitioners contend that they are not bound by the
terms and conditions of the DIMA, Directional Letter
and COIs because these were inconsistent with the
TIA and other documents they signed. 39 Further,
they claim that the DIMA and the Directional letter
were signed in blank or contained unauthorized
intercalations by Citibank.40Petitioners argue that
contrary to the contents of the documents, they did
not instruct Citibank to invest in an LTCP or to put
their money in such high-risk, long-term
instruments.41
The Court notes the factual nature of the questions
raised in the petition. Although the general rule is
that only questions of law are entertained by the
Court in petitions for review on certiorari,42 as the
Court is not tasked to repeat the lower courts'
analysis or weighing of evidence,43 there are
instances when the Court may resolve factual
issues, such as (1) when the trial court
misconstrued facts and circumstances of substance
which if considered would alter the outcome of the
case;44 and (2) when the findings of facts of the CA
and the trial court differ.45
In the instant case, the CA completely reversed the
findings of facts of the trial court on the ground
that the RTC failed to appreciate certain facts and
circumstances. Thus, applying the standing
jurisprudence on the matter,46the Court proceeded
to examine the evidence on record.
The Court's Ruling
The Court finds no merit in the petition. After a
careful examination of the records, the Court
affirms the CA's ruling for being more in accord
with the facts and evidence on record.
On the first issue of whether petitioners are bound
by the terms and conditions of the DIMA, TIA,
Directional Letter and COIs, the Court holds in the
affirmative and finds for respondent.
The DIMA, Directional Letter and COIs are evidence
of the contract between the parties and are binding
on them, following Article 1159 of the Civil Code
which states that contracts have the force of law
between the parties and must be complied with in
good faith.47 In particular, petitioner Amalia affixed
her signatures on the DIMA, Directional Letter and
TIA, a clear evidence of her consent which, under
Article 1330 of the same Code, she cannot deny
absent any evidence of mistake, violence,
intimidation, undue influence or fraud.48
As the documents have the effect of law, an
examination is in order to reveal what underlies
petitioners' zeal to exclude these from
consideration.
Under the DIMA, the following provisions appear:
4. Nature of Agreement THIS AGREEMENT IS AN
AGENCY AND NOT A TRUST AGREEMENT. AS SUCH,
THE PRINCIPAL SHALL AT ALL TIMES RETAIN LEGAL
TITLE TO THE FUNDS AND PROPERTIES SUBJECT OF
THE ARRANGEMENT.
THIS AGREEMENT IS FOR FINANCIAL RETURN AND
FOR THE APPRECIATION OF ASSETS OF THE
ACCOUNT. THIS AGREEMENT DOES NOT
GUARANTEE A YIELD, RETURN OR INCOME BY THE
INVESTMENT MANAGER. AS SUCH, PAST
PERFORMANCE OF THE ACCOUNT IS NOT A
GUARANTY OF FUTURE PERFORMANCE AND THE
INCOME OF INVESTMENTS CAN FALL AS WELL AS
RISE DEPENDING ON PREVAILING MARKET
CONDITIONS.
IT IS UNDERSTOOD THAT THIS INVESTMENT
MANAGEMENT AGREEMENT IS NOT COVERED BY
THE PHILIPPINE DEPOSIT INSURANCE
CORPORATION (PDIC) AND THAT LOSSES, IF ANY,
SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL.
(Underscoring supplied.)
xxxx
6. Exemption from Liability. - In the absence of
fraud, bad faith, or gross or willful negligence on
the part of the INVESTMENT MANAGER or any
person acting in its behalf, the INVESTMENT
MANAGER shall not be liable for any loss or
damage to the Portfolio arising out of or in
connection with any act done or omitted or caused
to be done or omitted by the INVESTMENT
MANAGER pursuant to the terms and conditions
herein agreed upon, and pursuant to and in
accordance with the written instructions of the
PRINCIPAL to carry out the powers, duties and
purposes for which this Agreement is executed. The
PRINCIPAL will hold the INVESTMENT MANAGER free
and harmless from any liability, claim, damage or
fiduciary responsibility that may arise from any
investment made pursuant to this Agreement and
to such letters or instructions under Paragraph 3
hereof due to the default, bankruptcy or insolvency
of the Borrower/Issuer or the Broker/Dealer
handling the transaction and or their failure in any
manner to comply with any of their obligations
under the aforesaid transactions, it being the
PRINCIPAL'S understanding and intention that the
investments/reinvestments under this account shall
be strictly for his/its account and risk except as
indicated above.
The INVESTMENT MANAGER shall manage the
Portfolio with the skill, care, prudence, and
diligence necessary under the prevailing
circumstances that a good father of the family,
acting in a like capacity and familiar with such
matters, would exercise in the conduct of an
enterprise of like character and with similar aims.
(Underscoring supplied.)
xxxx
11. Withdrawal of Income/Principal Subject to
availability of funds and taking into consideration
the commitment of this account to third parties,
the PRINCIPAL may withdraw the income/principal
of the Portfolio or portion thereof upon request or
application thereof from the Bank. The
INVESTMENT MANAGER shall not be required to
inquire as to the income/principal so withdrawn
from the Portfolio. Any income of the Portfolio not
withdrawn shall be accumulated and added to the
principal of the Portfolio for further investment and
reinvestment.49 (Underscoring supplied.)
Under the Directional Letter, which constituted
petitioners' instructions to respondent, the
following provisions are found:
In the absence of fraud, bad faith or gross or willful
negligence on your part or any person acting in
your behalf, you shall not be held liable for any loss
or damage arising out of or in connection with any
act done or performed or caused to be done or
performed by you pursuant to the terms and
conditions of our Agreement. I/We shall hold you
free and harmless from any liability, claim,
damage, or fiduciary responsibility that may arise
from this investment made pursuant to the
foregoing due to the default, bankruptcy or
insolvency of the Borrower/Issuer, or the
Broker/Dealer handling the aforesaid
transactions/s, it being our intention and
understanding that the investment/reinvestment
under these transaction/s shall be strictly for
my/our account and risk.
In case of default of the Borrower/Issuers, we
hereby authorize you at your sole option, to
terminate the investment/s therein and deliver to
us the securities/loan documents then constituting
the assets of my/our DIMA/trust account with you
for me/us to undertake the necessary legal action
to collect and/or recover from the
borrower/issuers.50 (Underscoring supplied.)
The documents, characterized by the quoted
provisions, generally extricate respondent from
liability in case the investment is lost. Accordingly,
petitioners assumed all risks and the task of
collecting from the borrower/issuer C&P Homes.
In addition to the DIMA and Directional Letter,
respondent also sent petitioners the COIs on a
regular basis, the first of which was received by
petitioners on December 9, 1997. The COIs have
the following provisions in common:
xxxx
INVESTMENT IN
NATURE OF TRANSACTION
LTCP
NAME OF
C&P HOMES
BORROWER/ISSUER
xxxx
TENOR 91 DAYS
xxxx
MATURITY DATE 11/05/03
xxxx
REPRICEABLE
OTHERS
EVERY 91 DAYS
PURSUANT TO THE BANGKO SENTRAL
REGULATIONS, THE PRINCIPAL AND INTEREST OF
YOUR INVESTMENT ARE OBLIGATIONS OF THE
BORROWER AND NOT OF THE BANK. YOUR
INVESTMENT IS NOT A DEPOSIT AND IS NOT
GUARANTEED BY CITIBANK N.A.
xxxx
Please examine this Confirmation and notify us in
writing within seven (7) days from receipt hereof of
any deviation from your prior conformity to the
investment. If no notice is received by us within
this period, this Confirmation shall be deemed
correct and approved by you, and we shall be
released and discharged as to all items, particulars,
matters and things set forth in this Confirmation.51
Petitioners admit receiving only the first COI on
December 8, 1997.52 The evidence on record,
however, supports respondent's contentions that
petitioners received the three other COIs on
February 12, 1998,53 May 14, 1998,54and August 14,
1998,55 before petitioners' first demand letter dated
August 18, 1998.56
The DIMA, Directional Letter, TIA and COIs, read
together, establish the agreement between the
parties as an investment management agreement,
which created a principal-agent relationship
between petitioners as principals and respondent
as agent for investment purposes. The agreement
is not a trust or an ordinary bank deposit; hence,
no trustor-trustee-beneficiary or even borrower-
lender relationship existed between petitioners and
respondent with respect to the DIMA account.
Respondent purchased the LTCPs only as agent of
petitioners; thus, the latter assumed all obligations
or inherent risks entailed by the transaction under
Article 1910 of the Civil Code, which provides:
Article 1910. The principal must comply with all the
obligations which the agent may have contracted
within the scope of his authority.
As for any obligation wherein the agent has
exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
The transaction is perfectly legal, as investment
management activities may be exercised by a
banking institution, pursuant to Republic Act No.
337 or the General Banking Act of 1948, as
amended, which was the law then in
effect.1avvphi1 Section 72 of said Act provides:
Sec. 72. In addition to the operations specifically
authorized elsewhere in this Act, banking
institutions other than building and loan
associations may perform the following services:
(a) Receive in custody funds, documents,
and valuable objects, and rent safety
 deposit boxes for the safeguarding of such
effects;
(b) Act as financial agent and buy and
sell, by order of and for the account
of their customers, shares, evidences
of indebtedness and all types of
securities;
(c) Make collections and payments for the
account of others and perform such other
services for their customers as are not
incompatible with banking business.
(d) Upon prior approval of the Monetary
Board, act as managing agent, adviser,
consultant or administrator of investment
management/ advisory/consultancy
accounts.
The banks shall perform the services
permitted under subsections (a), (b) and (c)
of this section as depositories or as agents.
Accordingly, they shall keep the funds,
securities and other effects which they thus
receive duly separated and apart from the
bank's own assets and liabilities.
The Monetary Board may regulate the operations
authorized by this section in order to insure that
said operations do not endanger the interests of
the depositors and other creditors of the banks.
(Emphasis supplied.)
while Section 74 prohibits banks from guaranteeing
obligations of any person, thus:
Sec. 74. No bank or banking institution shall
enter, directly, or indirectly into any contract
of guaranty or suretyship, or shall guarantee
the interest or principal of any obligation of
any person, copartnership, association,
corporation or other entity. The provisions of
this section shall, however, not apply to the
following: (a) borrowing of money by banking
institution through the rediscounting of receivables;
(b) acceptance of drafts or bills of exchange (c)
certification of checks; (d) transactions involving
the release of documents attached to items
received for collection; (e) letters of credit
transaction, including stand-by arrangements; (f)
repurchase agreements; (g) shipside bonds; (h)
ordinary guarantees or indorsements in favor of
foreign creditors where the principal obligation
involves loans and credits extended directly by
foreign investment purposes; and (i) other
transactions which the Monetary Board may, by
regulation, define or specify as not covered by the
prohibition. (Emphasis supplied.)
Nothing also taints the legality of the LTCP bought
in behalf of petitioners. C&P Homes' LTCP was duly
registered with the Securities and Exchange
Commission while the issuer was accredited by the
Philippine Trust Committee.57
The evidence also sustains respondent's claim that
its trust department handled the account only
because it was the department tasked to oversee
the trust, and other fiduciary and investment
management services of the bank.58 Contrary to
petitioners' claim, this did not mean that
petitioners opened a "trust account." This is
consistent with Bangko Sentral ng Pilipinas (BSP)
regulations, specifically the Manual of Regulations
for Banks (MORB), which groups a bank's trust, and
other fiduciary and investment management
activities under the same set of regulations, to wit:
PART FOUR: TRUST, OTHER FIDUCIARY BUSINESS
AND INVESTMENT MANAGEMENT ACTIVITIES
xxxx
Sec. X402 Scope of Regulations. These regulations
shall govern the grant of authority to and the
management, administration and conduct of trust,
other fiduciary business and investment
management activities (as these terms are defined
in Sec. X403) of banks. The regulations are divided
into three (3)
Sub-Parts where:
A. Trust and Other Fiduciary Business shall
apply to banks authorized to engage in
trust and other fiduciary business
including investment management
activities;
B. Investment Management Activities
shall apply to banks without trust
authority but with authority to
engage in investment management
activities; and
C. General Provisions shall apply to both.
xxxx
Sec. X403 Definitions. For purposes of regulating
the operations of trust and other fiduciary business
and investment management activities, unless the
context clearly connotes otherwise, the following
shall have the meaning indicated.
a. Trust business shall refer to any activity
resulting from a trustor-trustee
relationship (trusteeship) involving the
appointment of a trustee by a trustor for
the administration, holding, management
of funds and/or properties of the trustor by
the trustee for the use, benefit or
advantage of the trustor or of others
called beneficiaries.
b. Other fiduciary business shall refer
to any activity of a trust-licensed
bank resulting from a contract or
agreement whereby the bank binds
itself to render services or to act in a
representative capacity such as in an
agency, guardianship,
administratorship of wills, properties
and estates, executorship,
receivership, and other similar
services which do not create or result
in a trusteeship. It shall exclude
collecting or paying agency
arrangements and similar fiduciary
services which are inherent in the use
of the facilities of the other operating
departments of said bank.
Investment management activities,
which are considered as among other
fiduciary business, shall be
separately defined in the succeeding
item to highlight its being a major
source of fiduciary business.
c. Investment management activity
shall refer to any activity resulting
from a contract or agreement
primarily for financial return whereby
the bank (the investment manager)
binds itself to handle or manage
investible funds or any investment
portfolio in a representative capacity
as financial or managing agent,
adviser, consultant or administrator
of financial or investment
management, advisory, consultancy
or any similar arrangement which
does not create or result in a
trusteeship.(Emphasis supplied.)
The Court finds no proof to sustain petitioners'
contention that the DIMA and Directional Letter
contradict other papers on record, or were signed
in blank, or had unauthorized
intercalations.59 Petitioners themselves admit that
Amalia signed the DIMA and the Directional Letter,
which bars them from disowning the contract on
the belated claim that she signed it in blank or did
not read it first because of the "fine print." 60 On the
contrary, the evidence does not support these
latter allegations, and it is highly improbable that
someone fairly educated and with investment
experience would sign a document in blank or
without reading it first.61 Petitioners owned various
businesses and were clients of other banks, which
omits the possibility of such carelessness. 62 Even
more damning for petitioners is that, on record,
Amalia admitted that it was not her habit to sign in
blank and that the contents of the documents were
explained to her before she signed.63
Testimonial evidence and the complaint itself
contained allegations that petitioners' reason for
transferring their money from local banks to
respondent is because it is safer to do so, 64 a clear
indicia of their intelligence and keen business
sense which they could not have easily surrendered
upon meeting with respondent.
Nothing irregular or illegal attends the execution or
construction of the DIMA and the Directional Letter,
as their provisions merely conform with BSP
regulations governing these types of transactions.
Specifically, the MORB mandates that investment
managers act as agents, not as trustees, of the
investor;65 that the investment manager is
prohibited from guaranteeing returns on the funds
or properties;66 that a written document should
state that the account is not covered by the PDIC;
and that losses are to be borne by clients. 67 That
these legal requirements were communicated to
petitioners is evident in Amalia's signatures on the
documents and in testimony to this effect. 68
As to the allegation that the documents were in
"fine print," the Court notes that although the print
may have looked smaller than average, they were
nevertheless of the same size throughout the
documents, so that no part or provision is hidden
from the reader. The Court also takes judicial notice
that the print is no smaller than those found in
similar contracts in common usage, such as
insurance, mortgage, sales contracts and even
ordinary bank deposit contracts. In the documents
in question, the provisions hurtful to petitioners'
cause were likewise in no smaller print than the
rest of the document, as indeed they were even
highlighted either in bold or in all caps. This
disposes of the argument that they were designed
to hide their damaging nature to the
signatory.69 The conclusion is that the print is
readable and should not have prevented
petitioners from studying the papers before their
signing. Considering petitioners' social stature, the
nature of the transaction and the amount of money
involved, the Court presumes that petitioners
exercised adequate care and diligence in studying
the contract prior to its execution.70
In Sweet Lines, Inc. v. Teves, 71 the Court
pronounced the general rule regarding contracts of
adhesion, thus:
x x x there are certain contracts almost all the
provisions of which have been drafted only by one
party, usually a corporation. Such contracts are
called contracts of adhesion, because the only
participation of the other party is the signing of his
signature or his adhesion thereto. Insurance
contracts, bills of lading, contracts of sale of lots on
the installment plan fall into this category.
x x x it is drafted only by one party, usually the
corporation, and is sought to be accepted or
adhered to by the other party x x x who cannot
change the same and who are thus made to adhere
hereto on the take it or leave it basis.
x x x it is hardly just and proper to expect the
passengers to examine their tickets received from
crowded/congested counters, more often than not
during rush hours, for conditions that may be
printed thereon, much less charge them with
having consented to the conditions, so printed,
especially if there are a number of such conditions
in fine print, as in this case.
However, Sweet Lines72 further expounded that the
validity and/or enforceability of contracts of
adhesion will have to be determined by the
peculiar circumstances obtaining in each case and
the nature of the conditions or terms sought to be
enforced.73 Thus, while any ambiguity, obscurity or
doubt in a contract of adhesion is construed or
resolved strictly against the party who prepared
it,74 it is also equally obvious that in a case where
no such ambiguity, obscurity or doubt exists, no
such construction is warranted. This was the case
in the DIMA and the Directional Letter signed by
Amalia in the instant controversy.
The parties to this case only disagree on whether
petitioners were properly informed of the contents
of the documents. But as earlier stated, petitioners
were free to read and study the contents of the
papers before signing them, without compulsion to
sign immediately or even days after, as indeed the
parties were even free not to sign the documents
at all. Unlike in Sweet Lines, where the plaintiffs
had no choice but to take the services of
monopolistic transport companies during rush
hours, in the instant case, petitioners were under
no such pressure; petitioners were free to invest
anytime and through any of the dozens of local and
foreign banks in the market.
In addition, it has been held that contracts of
adhesion are not necessarily voidable. The Court
has consistently held that contracts of adhesion,
wherein one party imposes a ready-made form of
contract on the other, are contracts not entirely
prohibited, since the one who adheres to the
contract is in reality free to reject it entirely; if he
adheres, he gives his consent.75 It is the rule that
these contracts are upheld unless they are in the
nature of a patently lopsided deal where blind
adherence is not justified by other factual
circumstances.76
Petitioners insist that other documents Amalia
signed -- that is, the ROF, 77 Questionnaire78 and
TIA79 -- contradict the DIMA and Directional Letter.
Specifically, they argue that under the ROF and the
Questionnaire, they manifested an intent to invest
only in a time deposit in the medium term of over a
year to three years, with no risk on the capital, or
with returns in line with a time deposit. 80 However,
this contention is belied by the evidence and
testimony on record. Respondent explains that
investors fill up the ROF and Questionnaire only
when they first visit the bank and only for the
account they first opened,81 as confirmed by the
evidence on record and the fact that there were no
subsequent ROFs and Questionnaires presented by
petitioners.
The ROF and Questionnaire were filled up when the
PhP1 million "Citihi" savings account was opened
by Amalia on October 10, 1997, during her first
visit to the bank. When Amalia returned more than
a month later on November 28, 1997, a change in
her investment attitude occurred in that she
wanted to invest an even bigger amount (PhP3
million) and her interest had shifted to high-yield
but riskier long-term instruments like PRPNs and
LTCPs. When Amalia proceeded to sign new
documents like the DIMA and the Directional Letter
for the LTCP investment, despite their obviously
different contents from those she was used to
signing for ordinary deposits, she essentially
confirmed that she knew what she was agreeing to
and that it was different from all her previous
transactions.
In addition, even the ROF and Questionnaire signed
by Amalia during the first visit contained provisions
that clearly contradict petitioners' claims. The ROF
contained the following:
I/We declare the above information to be correct.
I/We hereby acknowledge to have received, read,
understood and agree to be bound by the
general terms and conditions applicable and
governing my/our account/s and/or
investment/s which appear in a separate
brochure/manual as well as separate
documents relative to said account/s and/or
investment/s. Said terms and conditions shall
likewise apply to all our existing and future
account/s and/or investment/s with Citibank. I/We
hereby further authorize Citibank to open
additional account/s and/or investment/s in the
future with the same account title as contained in
this relationship opening form subject to the rules
governing the aforementioned account/s and/or
investment/s and the terms and conditions therein
or herein. I/We agree to notify you in writing of any
change in the information supplied in this
relationship opening form.82 (Emphasis supplied.)
while the Questionnaire had the following
provisions:
I am aware that investment products are not bank
deposits or other obligations of, or guaranteed or
insured by Citibank N.A., Citicorp or their
affiliates. I am aware that the principal and
interest of my investments are obligations of
the borrower/issuer. They are subject to risk
and possible loss of principal. Past performance
is not indicative of future performance. In addition,
investments are not covered by the Philippine
Deposit Insurance Corporation (PDIC) or the Federal
Deposit Insurance Corporation (FDIC).83
which do not need further elaboration on the INTEREST around Term 91 days Aside from their bare allegations, evidence that
matter. RATE 16.25% 84 supports petitioners' contentions that no such deal
Petitioners contend that the Term Investment took place, or that the agreement was different,
Application (TIA), viz: (Emphasis supplied.) simply does not exist in the records.
clearly contradicts the DIMA, Directional Letter and Petitioners were experienced and intelligent
TERM INVESTMENT APPLICATION COIs.
Date enough to be able to demand and sign a different
MAKATI Petitioners insist that the amount PhP3 million in
1/28/97 document to signify their real intention; but no
Branch and Service Area the TIA does not tally with the actual value of the such document exists. Thus, petitioners' acts and
investment which appeared on the first COI, which omissions negate their allegations that they were
CIF Keys was PhP2,134,635.87. Petitioners add that the TIA's essentially defrauded by the bank.
TITLE OF ACCOUNT
______________ interest rate of "around 16.25%" with the term "91 Petitioners had other chances to protest
__________________________________
___ days" contradicts the COI's interest rate of 16.95% respondent's alleged disregard of their instructions.
______
______________ with a tenor of 75 days repriceable after 91 The COIs sent by respondent to petitioners
PANLILIO, AMALIA ITF
___ days.85 Further, petitioners claim that the word encapsulate the spirit of the DIMA and Directional
______________ "TRUST" inscribed on the TIA obviously meant that Letter, with the proviso that should there be any
ALEJANDRO KING AGUILAR
___ they opened a trust account, and not any other deviations from petitioners' instructions, they may
& FE
______________ account.86 inform respondent in writing within seven days.
EMMANUELLE PANLILIO
___ The explanation of respondent is plausible. Only Assuming arguendo that respondent violated the
PhP2,134,635.87 out of the PhP3 million was instructions, petitioners did not file a single timely
Address placed in the LTCP since this was the only amount written protest, however, despite their admission
___________________________________________________ of LTCP then available, while the balance was that they received the first COI on December 8,
___ placed in two PRPN accounts, each one in trust for 1997.91 It took eight months for petitioners to
For corporations, c/o _______________________ Tel. Amalia's two children, upon her instructions. 87 The formally demand the return of their investment
No. ____________ disparity in the interest rate is also explained by through their counsel in a letter dated August 18,
the fact that the 16.95% rate placed in the COI is 1998.92 The letter, however, did not even contest
gross and not net interest,88 and that it is subject to the placement of the money in an LTCP, but merely
Dear Sir: repricing every 91 days. its maturity in the year 2003. Prior to the letter, it
The Court gives credence to respondent's has been shown that petitioners had received COIs
THIS IS TO AUTHORIZE ( ) rollover explanation that the word "TRUST" appearing on on February 12, 1998,93May 14, 1998,94 and August
CITIBANK, N. A. TO: ( ) open ( ) rollover w/ the TIA simply means that the account is to be 14, 1998,95 and in between, petitioners never
added funds handled by the bank's trust department, which demanded a return of the money they invested.
( ) rollover w/ handles not only the trust business but also the Petitioners' acts and omissions strongly indicate
payout other fiduciary business and investment that they in fact conformed to the agreement in the
Ref. No. ____ management activities of the bank, while the "ITF" months after the signing. In that period, they were
or "in trust for" appearing on the other documents receiving their bank statements and earning
[ ] Dollar TD [ ] Confirmation only signifies that the money was invested by
[ ] Peso Time interest from the investment, as in fact, C&P
[ ] of Sale Amalia in trust for her two children, a device that
Depositories Homes under the LTCP continuously paid interest
Multicurrency [ ] CITIHI-Yielder she uses even in her ordinary deposit accounts
[ ] NNPN even up to the time the instant case was already
TD TRUST with other banks.89 The ITF device allows the on trial.96 When petitioners finally contested the
NEW ADDED FUNDS WILL children to obtain the money without need of contract months after its signing, it was
COME FROM: paying estate taxes in case Amalia meets a suspiciously during the time when newspaper
( ) debit my/our account no. for P/$ premature death.90However, it creates a trustee- reports came out that C&P Homes' stock had
________________ _______________ beneficiary relationship only between Amalia and plunged in value and that Ayala Land was
( ) Check No. for P/$ her children, and not between Amalia, her children, withdrawing its offer to invest in the
____________________________ _______________ and Citibank. company.97 The connection is too obvious to ignore.
( ) Cash deposit for P/$ All the documents signed by Amalia, including the It is reasonable to conclude that petitioners'
__________________________ _______________ DIMA and Directional Letter, show that her repudiation of the agreement was nothing more
agreement with respondent is one of agency, and than an afterthought, a reaction to the negative
IN THE AMOUNT AND TERMS SPECIFIED AS not a trust. events in the market and an effort to flee from a
FOLLOWS: The DIMA, TIA, Directional Letter and COIs, viewed losing investment.
altogether, establish without doubt the transaction Anent the second issue, whether petitioners are
PRINCIPAL/Mo P/$ Value 11/28/97 between the parties, that on November 28, 1997, entitled to recover from respondent the amount of
ney In 3,000,000 with PhP3 million in tow, Amalia opened an PhP2,134,635.87 invested under the LTCP, the
investment management account with respondent, Court agrees with the CA in dismissing the
MATURITY AMOUNT/Par Value Maturity Date under which she instructed the latter as her agent complaint filed by petitioners.
P/$____________ _______ to invest the bulk of the money in LTCP. Petitioners may not seek a return of their
investment directly from respondent at or prior to
maturity. As earlier explained, the investment is not WHEREFORE, the Petition is DENIED. For lack of
a deposit and is not guaranteed by respondent. evidence, the Decision of the Court of Appeals
Absent any fraud or bad faith, the recourse of dated dated May 28, 2002 and its Resolution of
petitioners in the LTCP is solely against the issuer, December 11, 2002, are AFFIRMED.
C&P Homes, and only upon maturity. The DIMA Costs against the petitioners.
states, thus: SO ORDERED.
11. Withdrawal of Income/Principal Subject
to availability of funds and taking into
consideration the commitment of this
account to third parties, the PRINCIPAL may
withdraw the income/principal of the
Portfolio or portion thereof upon request or
application thereof from the Bank. The
INVESTMENT MANAGER shall not be required to
inquire as to the income/principal so withdrawn
from the Portfolio. Any income of the Portfolio not
withdrawn shall be accumulated and added to the
principal of the Portfolio for further investment and
reinvestment.98 (Emphasis supplied.)
It is clear that since the money is committed to
C&P Homes via LTCP for five years, or until 2003,
petitioners may not seek its recovery from
respondent prior to the lapse of this period.
Petitioners must wait and meanwhile just be
content with receiving their interest regularly. If
petitioners want the immediate return of their
investment before the maturity date, their only way
is to find a willing buyer to purchase the LTCP at an
agreed price, or to go directly against the issuer
C&P Homes, not against the respondent.
The nature of the DIMA and the other documents
signed by the parties calls for this condition. The
DIMA states that respondent is a mere agent of
petitioners and that losses from both the principal
and interest of the investment are strictly on
petitioners' account. Meanwhile, the Directional
Letter clearly states that the investment is to be
made in an LTCP which, by definition, has a term of
more than 365 days.99 Prior to the expiry of the
term, which in the case of the C&P Homes LTCP is
five years, petitioners may not claim back their
investment, especially not from respondent bank.
Having bound themselves under the contract as
earlier discussed, petitioners are governed by its
provisions. Petitioners as principals in an agency
relationship are solely obliged to observe the
solemnity of the transaction entered into by the
agent on their behalf, absent any proof that the
latter acted beyond its authority.100Concomitant to
this obligation is that the principal also assumes
the risks that may arise from the
transaction.101Indeed, as in the instant case, bank
regulations prohibit banks from guaranteeing
profits or the principal in an investment
management account.102 Hence, the CA correctly
dismissed petitioners complaint against
respondent.
G.R. No. 111924 January 27, 1997 aforementioned Deed of Definite Sale. Under said in TCT No. T-561 of the Register
document, petitioner conveyed the subject of Deeds of Iloilo, to plaintiff upon
property and all the improvements thereon unto payment of the sum of
ADORACION LUSTAN, petitioner,
Parangan absolutely for and in consideration of the P75,000.00 by plaintiff to
vs.
sum of Seventy Five Thousand (P75,000.00) Pesos. defendant Parangan which
COURT OF APPEALS, NICOLAS PARANGAN and
payment by plaintiff must be
SOLEDAD PARANGAN, PHILIPPINE NATIONAL
made within ninety (90) days
BANK,respondents. Aggrieved, petitioner filed an action for
from receipt of this decision;
cancellation of liens, quieting of title, recovery of
otherwise, sale of the land will be
possession and damages against Parangan and
FRANCISCO, J.: ordered by the court to satisfy
PNB in the Regional Trial Court of Iloilo City. After
payment of the amount;
trial, the lower court rendered judgment, disposing
Petitioner Adoracion Lustan is the registered owner as follows:
of a parcel of land otherwise known as Lot 8069 of 5. Ordering defendant Nicolas
the Cadastral Survey of Calinog, Iloilo containing an Parangan to pay plaintiff
WHEREFORE and in view of the
area of 10.0057 hectares and covered by TCT No. T- attorney's fees in the sum of
foregoing, a decision is rendered
561. On February 25, 1969, petitioner leased the P15,000.00 and to pay the costs
as follows:
above described property to private respondent of the suit.
Nicolas Parangan for a term of ten (10) years and
an annual rent of One Thousand (P1,000.00) Pesos. 1. Ordering cancellation by the
SO ORDERED. 4
During the period of lease, Parangan was regularly Register of Deeds of the Province
extending loans in small amounts to petitioner to of Iloilo, of the unauthorized
defray her daily expenses and to finance her loans, the liens and Upon appeal to the Court of Appeals (CA),
daughter's education. On July 29, 1970, petitioner encumbrances appearing in the respondent court reversed the trial court's decision.
executed a Special Power of Attorney in favor of Transfer Certificate of Title No. T- Hence this petition contending that the CA
Parangan to secure an agricultural loan from 561, especially entries nos. committed the following errors:
private respondent Philippine National Bank (PNB) 286231; 338638; and 352794;
with the aforesaid lot as collateral. On February 18, IN ARRIVING AT THE CONCLUSION
1972, a second Special Power of Attorney was 2. Declaring the Deed of Pacto de THAT NONE OF THE CONDITIONS
executed by petitioner, by virtue of which, Retro Sale dated April 25, 1978 STATED IN ART. 1602 OF THE
Parangan was able to secure four (4) additional and the Deed of Definite Sale NEW CIVIL CODE HAS BEEN
loans, to wit: the sums of P24,000.00, P38,000.00, dated May 6, 1979, both PROVEN TO EXIST BY
P38,600.00 and P25,000.00 on December 15, 1975, documents executed by PREPONDERANCE OF EVIDENCE;
September 6, 1976, July 2, 1979 and June 2, 1980, Adoracion Lustan in favor of
respectively. The last three loans were without the Nicolas Parangan over Lot 8069
knowledge of herein petitioner and all the proceeds IN CONCLUDING THAT
in TCT No. T-561 of the Register
therefrom were used by Parangan for his own PETITIONER SIGNED THE DEED
of Deeds of Iloilo, as null and
benefit. 1 These encumbrances were duly OF SALE WITH KNOWLEDGE AS
void, declaring the same to be
annotated on the certificate of title. On April 16, TO THE CONTENTS THEREOF;
Deeds of Equitable Mortgage;
1973, petitioner signed a Deed of Pacto de
Retro Sale 2 in favor of Parangan which was IN ARRIVING AT THE CONCLUSION
superseded by the Deed of Definite Sale 3 dated 3. Ordering defendant Nicolas THAT THE TESTIMONY OF
May 4, 1979 which petitioner signed upon Parangan to pay all the loans he WITNESS DELIA CABIAL
Parangan's representation that the same merely secured from defendant PNB DESERVES FULL FAITH AND
evidences the loans extended by him unto the using thereto as security TCT No. CREDIT;
former. T-561 of plaintiff and defendant
PNB to return TCT No. T-561 to
plaintiff; IN FINDING THAT THE SPECIAL
For fear that her property might be prejudiced by POWER OF ATTORNEY
the continued borrowing of Parangan, petitioner AUTHORIZING MORTGAGE FOR
demanded the return of her certificate of title. 4. Ordering defendant Nicolas "UNLIMITED" LOANS AS
Instead of complying with the request, Parangan Parangan to return possession of RELEVANT.
asserted his rights over the property which the land in question, Lot 8069 of
allegedly had become his by virtue of the the Calinog Cadastre, described
Two main issues confront us in this case, to wit:
whether or not the Deed of Definite Sale is in
reality an equitable mortgage and whether or not
petitioner's property is liable to PNB for the loans
contracted by Parangan by virtue of the special
power of attorney. The lower court and the CA
arrived at different factual findings thus
necessitating a review of the evidence on
record. 5 After a thorough examination, we note
some errors, both in fact and in law, committed by
public respondent CA.
The court a quo ruled that the Deed of Definite Sale
is in reality an equitable mortgage as it was shown
beyond doubt that the intention of the parties was
one of a loan secured by petitioner's land. 6 We
agree.
A contract is perfected by mere consent. 7 More
particularly, a contract of sale is perfected at the
moment there is a meeting of minds upon the thing
which is the object of the contract and upon the
price. 8 This meeting of the minds speaks of the
intent of the parties in entering into the contract
respecting the subject matter and the
consideration thereof. If the words of the contract
appear to be contrary to the evident intention of
the parties, the latter shall prevail over the
former. 9 In the case at bench, the evidence is
sufficient to warrant a finding that petitioner and
Parangan merely intended to consolidate the
former's indebtedness to the latter in a single
instrument and to secure the same with the subject
property. Even when a document appears on its
face to be a sale, the owner of the property may
prove that the contract is really a loan with
mortgage by raising as an issue the fact that the
document does not express the true intent of the
parties. In this case, parol evidence then becomes
competent and admissible to prove that the
instrument was in truth and in fact given merely as
a security for the repayment of a loan. And upon
proof of the truth of such allegations, the court will
enforce the agreement or understanding in
consonance with the true intent of the parties at
the time of the execution of the contract. 10
Articles 1602 and 1604 of the Civil Code
respectively provide:
The contract shall be presumed
to be an equitable mortgage in
any of the following cases:
1) When the price of a sale with
right to repurchase is unusually
inadequate;
2) When the vendor remains in
possession as lessor or
otherwise;
3) When upon or after the
expiration of the right to
repurchase, another instrument
extending the period of
redemption or granting a new
period is executed;
4) When the vendor binds himself
to pay the taxes on the thing
sold;
5) When the purchaser retains for
himself a part of the purchase
price;
6) In any other case where it may
be fairly inferred that the real
intention of the parties is that the
transaction shall secure the
payment of a debt or the
performance of any other
obligation.
Art. 1604. The provisions of
Article 1602 shall also apply to a
contract purporting to be an
absolute sale.
From a reading of the above-quoted provisions, for
a presumption of an equitable mortgage to arise,
we must first satisfy two requisites namely: that the
parties entered into a contract denominated as a
contract of sale and that their intention was to
secure an existing debt by way of mortgage. Under
Art. 1604 of the Civil Code, a contract purporting to
be an absolute sale shall be presumed to be an
equitable mortgage should any of the conditions in
Art. 1602 be present. The existence of any of the
circumstances therein, not a concurrence nor an
overwhelming number of such circumstances,
suffices to give rise to the presumption that the
contract is an equitable mortgage.11
Art. 1602, (6), in relation to Art 1604 provides that
a contract of sale is presumed to be an equitable
mortgage in any other case where it may be fairly
inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt
or the performance of any other obligation. That
the case clearly falls under this category can be
inferred from the circumstances surrounding the
transaction as herein set forth:
Petitioner had no knowledge that the
contract 12 she signed is a deed of sale. The
contents of the same were not read nor explained
to her so that she may intelligibly formulate in her
mind the consequences of her conduct and the
nature of the rights she was ceding in favor of
Parangan. Petitioner is illiterate and her condition
constrained her to merely rely on Parangan's
assurance that the contract only evidences her
indebtedness to the latter. When one of the
contracting parties is unable to read, or if the
contract is in a language not understood by him,
and mistake or fraud is alleged, the person
enforcing the contract must show that the terms
thereof have been fully explained to the
former. 13 Settled is the rule that where a party to a
contract is illiterate or cannot read or cannot
understand the language in which the contract is
written, the burden is on the party interested in
enforcing the contract to prove that the terms
thereof are fully explained to the former in a
language understood by him. 14 To our mind, this
burden has not been satisfactorily discharged.
We do not find the testimony of Parangan and Delia
Cabial that the contract was duly read and
explained to petitioner worthy of credit. The
assessment by the trial court of the credibility of
witnesses is entitled to great respect and weight
for having had the opportunity of observing the
conduct and demeanor of the witnesses while
testifying. 15 The lower court may not have
categorically declared Cabial's testimony as
doubtful but this fact is readily apparent when it
ruled on the basis of petitioner's evidence in total
disregard of the positive testimony on Parangan's
side. We have subjected the records to a thorough
examination, and a reading of the transcript of Q: What did Furthermore, we note the absence of any question
stenographic notes would bear out that the court a Nicolas tell you propounded to Judge Lebaquin to establish that the
quo is correct in its assessment. The CA committed why he invited deed of sale was read and explained by him to
a reversible error when it relied on the testimony of you to go petitioner. When asked if witness has any
Cabial in upholding the validity of the Deed of there? knowledge whether petitioner knows how to read
Definite Sale. For one, there are noted major or write, he answered in the negative. 19 This latter
contradictions between the testimonies of Cabial admission impresses upon us that the contract was
A: He told me
and Judge Lebaquin, who notarized the purported not at all read or explained to petitioner for had he
that I will
Deed of Definite Sale. While the former testified known that petitioner is illiterate, his assistance
witness on the
that receipts were presented before Judge would not have been necessary.
indebtedness of
Lebaquin, who in turn made an accounting to Adoracion to
determine the price of the land 16, the latter Parangan. The foregoing squares with the sixth instance when
categorically denied the allegation. 17 This a presumption of equitable mortgage prevails. The
contradiction casts doubt on the credibility of contract of definite sale, where petitioner
Cabial as it is ostensible that her version of the Q: Before
purportedly ceded all her rights to the subject lot in
story is concocted. Adoracion
favor of Parangan, did not embody the true
Lustan signed
intention of the parties. The evidence speaks
her name in
On the other hand, petitioner's witness Celso clearly of the nature of the agreement it was one
this Exh. "4",
Pamplona, testified that the contract was not read executed to secure some loans.
was this
nor explained to petitioner. We believe that this document read
witness gave a more accurate account of the to her? Anent the issue of whether the outstanding
circumstances surrounding the transaction. He has mortgages on the subject property can be enforced
no motive to prevaricate or concoct a story as he against petitioner, we rule in the affirmative.
witnessed the execution of the document at the A: No, sir.
behest of Parangan himself who, at the outset,
informed him that he will witness a document Third persons who are not parties to a loan may
Q: Did Nicolas
consolidating petitioner's debts. He thus testified: secure the latter by pledging or mortgaging their
Parangan right
own property.20 So long as valid consent was given,
in that very
the fact that the loans were solely for the benefit of
Q: In (sic) May room tell
Parangan would not invalidate the mortgage with
4, 1979, you Adoracion what
respect to petitioner's property. In consenting
remember she was
thereto, even granting that petitioner may not be
having went signing?
assuming personal liability for the debt, her
(sic) to the property shall nevertheless secure and respond for
Municipality of A: No, sir. the performance of the principal obligation. 21 It is
Calinog? admitted that petitioner is the owner of the parcel
xxx xxx xxx of land mortgaged to PNB on five (5) occasions by
A: Yes, sir. virtue of the Special Powers of Attorney executed
by petitioner in favor of Parangan. Petitioner argues
Q: What did that the last three mortgages were void for lack of
Q: Who invited you have in authority. She totally failed to consider that said
you to go mind when you Special Powers of Attorney are a continuing one
there? were signing and absent a valid revocation duly furnished to the
this document, mortgagee, the same continues to have force and
A: Parangan. Exh. "4"? effect as against third persons who had no
knowledge of such lack of authority. Article 1921 of
Q: You mean A: To show that the Civil Code provides:
Nicolas Adoracion
Parangan? Lustan has Art. 1921. If the agency has been
debts with entrusted for the purpose of
Nicolas
A: Yes, sir. contracting with specified
Parangan. 18 persons, its revocation shall not
 prejudice the latter if they were SUBJECT LAND UNTO PETITIONER UPON THE
not given notice thereof. LATTER'S PAYMENT OF THE SUM OF P75,000.00
WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS
DECISION;
The Special Power of Attorney executed by
petitioner in favor of Parangan duly authorized the
latter to represent and act on behalf of the former. 3. DECLARING THE MORTGAGES IN FAVOR OF PNB
Having done so, petitioner clothed Parangan with AS VALID AND SUBSISTING AND MAY THEREFORE
authority to deal with PNB on her behalf and in the BE SUBJECTED TO EXECUTION SALE.
absence of any proof that the bank had knowledge
that the last three loans were without the express 4. ORDERING PRIVATE RESPONDENT PARANGAN TO
authority of petitioner, it cannot be prejudiced PAY PETITIONER THE AMOUNT OF P15,000.00 BY
thereby. As far as third persons are concerned, an WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS
act is deemed to have been performed within the OF THE SUIT.
scope of the agent's authority if such is within the
terms of the power of attorney as written even if
the agent has in fact exceeded the limits of his SO ORDERED.
authority according to the understanding between
the principal and the agent. 22 The Special Power of
Attorney particularly provides that the same is
good not only for the principal loan but also for
subsequent commercial, industrial, agricultural
loan or credit accommodation that the attorney-in-
fact may obtain and until the power of attorney is
revoked in a public instrument and a copy of which
is furnished to PNB. 23 Even when the agent has
exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter
to act as though he had full powers (Article 1911,
Civil Code). 24 The mortgage directly and
immediately subjects the property upon which it is
imposed. 25 The property of third persons which has
been expressly mortgaged to guarantee an
obligation to which the said persons are foreign, is
directly and jointly liable for the fulfillment thereof;
it is therefore subject to execution and sale for the
purpose of paying the amount of the debt for which
it is liable. 26 However, petitioner has an
unquestionable right to demand proportional
indemnification from Parangan with respect to the
sum paid to PNB from the proceeds of the sale of
her property 27 in case the same is sold to satisfy
the unpaid debts.

WHEREFORE, premises considered, the judgment of

the lower court is hereby REINSTATED with the
following MODIFICATIONS:

1. DECLARING THE DEED OF DEFINITE SALE AS AN

EQUITABLE MORTGAGE;

2. ORDERING PRIVATE RESPONDENT NICOLAS

PARANGAN TO RETURN THE POSSESSION OF THE
G.R. No. 115838 July 18, 2002
CONSTANTE AMOR DE CASTRO and CORAZON
AMOR DE CASTRO, petitioners,
vs.
COURT OF APPEALS and FRANCISCO
ARTIGO, respondents.
CARPIO, J.:
The Case
Before us is a Petition for Review on
Certiorari1 seeking to annul the Decision of the
Court of Appeals2 dated May 4, 1994 in CA-G.R. CV
No. 37996, which affirmed in toto the decision3 of
the Regional Trial Court of Quezon City, Branch 80,
in Civil Case No. Q-89-2631. The trial court
disposed as follows:
"WHEREFORE, the Court finds defendants
Constante and Corazon Amor de Castro
jointly and solidarily liable to plaintiff the
sum of:
a) P303,606.24 representing unpaid
commission;
b) P25,000.00 for and by way of moral
damages;
c) P45,000.00 for and by way of attorney's
fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20,
1991."
The Antecedent Facts
On May 29, 1989, private respondent Francisco
Artigo ("Artigo" for brevity) sued petitioners
Constante A. De Castro ("Constante" for brevity)
and Corazon A. De Castro ("Corazon" for brevity) to
collect the unpaid balance of his broker's
commission from the De Castros.4 The Court of
Appeals summarized the facts in this wise:
"x x x. Appellants5 were co-owners of four
(4) lots located at EDSA corner New York
and Denver Streets in Cubao, Quezon City.
In a letter dated January 24, 1984 (Exhibit
"A-1, p. 144, Records), appellee6 was
authorized by appellants to act as real
estate broker in the sale of these
properties for the amount
ofP23,000,000.00, five percent (5%) of
which will be given to the agent as
commission. It was appellee who first
found Times Transit Corporation,
represented by its president Mr. Rondaris,
as prospective buyer which desired to buy
two (2) lots only, specifically lots 14 and
15. Eventually, sometime in May of 1985,
the sale of lots 14 and 15 was
consummated. Appellee received from
appellants P48,893.76 as commission.
It was then that the rift between the
contending parties soon emerged.
Appellee apparently felt short changed
because according to him, his total
commission should be P352,500.00 which
is five percent (5%) of the agreed price
of P7,050,000.00 paid by Times Transit
Corporation to appellants for the two (2)
lots, and that it was he who introduced the
buyer to appellants and unceasingly
facilitated the negotiation which ultimately
led to the consummation of the sale.
Hence, he sued below to collect the
balance of P303,606.24 after having
received P48,893.76 in
advance.1wphi1.nt
On the other hand, appellants completely
traverse appellee's claims and essentially
argue that appellee is selfishly asking for
more than what he truly deserved as
commission to the prejudice of other
agents who were more instrumental in the
consummation of the sale. Although
appellants readily concede that it was
appellee who first introduced Times Transit
Corp. to them, appellee was not
designated by them as their exclusive real
estate agent but that in fact there were
more or less eighteen (18) others whose
collective efforts in the long run dwarfed
those of appellee's, considering that the
first negotiation for the sale where
appellee took active participation failed
and it was these other agents who
successfully brokered in the second
negotiation. But despite this and out of
appellants' "pure liberality, beneficence
and magnanimity", appellee nevertheless
was given the largest cut in the
commission (P48,893.76), although on the
principle of quantum meruit he would
have certainly been entitled to less. So
appellee should not have been heard to
complain of getting only a pittance when
he actually got the lion's share of the
commission and worse, he should not
have been allowed to get the entire
commission. Furthermore, the purchase
price for the two lots was only P3.6 million
as appearing in the deed of sale and
not P7.05 million as alleged by appellee.
Thus, even assuming that appellee is
entitled to the entire commission, he
would only be getting 5% of the P3.6
million, or P180,000.00."
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the decision
of the trial court.
First. The Court of Appeals found that Constante
authorized Artigo to act as agent in the sale of two
lots in Cubao, Quezon City. The handwritten
authorization letter signed by Constante clearly
established a contract of agency between
Constante and Artigo. Thus, Artigo sought
prospective buyers and found Times Transit
Corporation ("Times Transit" for brevity). Artigo
facilitated the negotiations which eventually led to
the sale of the two lots. Therefore, the Court of
Appeals decided that Artigo is entitled to the 5%
commission on the purchase price as provided in
the contract of agency.
Second. The Court of Appeals ruled that Artigo's
complaint is not dismissible for failure to implead
as indispensable parties the other co-owners of the
two lots. The Court of Appeals explained that it is
not necessary to implead the other co-owners since
the action is exclusively based on a contract of
agency between Artigo and Constante.
Third. The Court of Appeals likewise declared that
the trial court did not err in admitting parol
evidence to prove the true amount paid by Times
Transit to the De Castros for the two lots. The Court
of Appeals ruled that evidence aliunde could be
presented to prove that the actual purchase price
was P7.05 million and not P3.6 million as appearing
in the deed of sale. Evidence aliunde is admissible
considering that Artigo is not a party, but a mere
witness in the deed of sale between the De Castros
and Times Transit. The Court of Appeals explained
that, "the rule that oral evidence is inadmissible to
vary the terms of written instruments is generally
applied only in suits between parties to the
instrument and strangers to the contract are not
bound by it." Besides, Artigo was not suing under
the deed of sale, but solely under the contract of
agency. Thus, the Court of Appeals upheld the trial
court's finding that the purchase price was P7.05
million and not P3.6 million.
Hence, the instant petition.
The Issues
According to petitioners, the Court of Appeals erred
in -
I. NOT ORDERING THE DISMISSAL OF THE
COMPLAINT FOR FAILURE TO IMPLEAD
INDISPENSABLE PARTIES-IN-INTEREST;
II. NOT ORDERING THE DISMISSAL OF THE
COMPLAINT ON THE GROUND THAT
ARTIGO'S CLAIM HAS BEEN EXTINGUISHED
BY FULL PAYMENT, WAIVER, OR
ABANDONMENT;
III. CONSIDERING INCOMPETENT
EVIDENCE;
IV. GIVING CREDENCE TO PATENTLY
PERJURED TESTIMONY;
 V. SANCTIONING AN AWARD OF MORAL
DAMAGES AND ATTORNEY'S FEES;
VI. NOT AWARDING THE DE CASTRO'S
MORAL AND EXEMPLARY DAMAGES, AND
ATTORNEY'S FEES.
The Court's Ruling
The petition is bereft of merit.
First Issue: whether the complaint merits
dismissal for failure to implead other co-
owners as indispensable parties
The De Castros argue that Artigo's complaint
should have been dismissed for failure to implead
all the co-owners of the two lots. The De Castros
claim that Artigo always knew that the two lots
were co-owned by Constante and Corazon with
their other siblings Jose and Carmela whom
Constante merely represented. The De Castros
contend that failure to implead such indispensable
parties is fatal to the complaint since Artigo, as
agent of all the four co-owners, would be paid with
funds co-owned by the four co-owners.
The De Castros' contentions are devoid of legal
basis.
An indispensable party is one whose interest will be
affected by the court's action in the litigation, and
without whom no final determination of the case
can be had.7 The joinder of indispensable parties is
mandatory and courts cannot proceed without their
presence.8 Whenever it appears to the court in the
course of a proceeding that an indispensable party
has not been joined, it is the duty of the court to
stop the trial and order the inclusion of such party.9
However, the rule on mandatory joinder of
indispensable parties is not applicable to the
instant case.
There is no dispute that Constante appointed Artigo
in a handwritten note dated January 24, 1984 to
sell the properties of the De Castros for P23 million
at a 5 percent commission. The authority was on a
first come, first serve basis. The authority reads in
full:
"24 Jan. 84
To Whom It May Concern:
This is to state that Mr. Francisco Artigo is
authorized as our real estate broker in
connection with the sale of our property
located at Edsa Corner New York &
Denver, Cubao, Quezon City.
Asking price P 23,000,000.00 with 5%
commission as agent's fee.
C.C. de Castro
owner & representing
co-owners
This authority is on a first-come
First serve basis CAC"
Constante signed the note as owner and as
representative of the other co-owners. Under this
note, a contract of agency was clearly constituted
between Constante and Artigo. Whether Constante
appointed Artigo as agent, in Constante's individual
or representative capacity, or both, the De Castros
cannot seek the dismissal of the case for failure to
implead the other co-owners as indispensable
parties. The De Castros admit that the other
co-owners are solidarily liable under the
contract of agency,10 citing Article 1915 of the
Civil Code, which reads:
Art. 1915. If two or more persons have
appointed an agent for a common
transaction or undertaking, they shall be
solidarily liable to the agent for all the
consequences of the agency.
The solidary liability of the four co-owners,
however, militates against the De Castros' theory
that the other co-owners should be impleaded as
indispensable parties. A noted commentator
explained Article 1915 thus
"The rule in this article applies even when
the appointments were made by the
principals in separate acts, provided that
they are for the same transaction. The
solidarity arises from the common
interest of the principals, and not
from the act of constituting the
agency. By virtue of this solidarity,
the agent can recover from any
principal the whole compensation and
indemnity owing to him by the
others.The parties, however, may, by
express agreement, negate this solidary
responsibility. The solidarity does not
disappear by the mere partition effected
by the principals after the accomplishment
of the agency.
If the undertaking is one in which several
are interested, but only some create the
agency, only the latter are solidarily liable,
without prejudice to the effects
of negotiorum gestio with respect to the
others. And if the power granted includes
various transactions some of which are
common and others are not, only those
interested in each transaction shall be
liable for it."11
When the law expressly provides for solidarity of
the obligation, as in the liability of co-principals in a
contract of agency, each obligor may be compelled
to pay the entire obligation.12 The agent may
recover the whole compensation from any one of
the co-principals, as in this case.
Indeed, Article 1216 of the Civil Code provides that
a creditor may sue any of the solidary debtors.
This article reads:
Art. 1216. The creditor may proceed
against any one of the solidary debtors or
some or all of them simultaneously. The
demand made against one of them shall
not be an obstacle to those which may
subsequently be directed against the
others, so long as the debt has not been
fully collected.
Thus, the Court has ruled in Operators
Incorporated vs. American Biscuit Co., Inc. 13 that
"x x x solidarity does not make a
solidary obligor an indispensable
party in a suit filed by the creditor.
Article 1216 of the Civil Code says that the
creditor `may proceed against anyone of
the solidary debtors or some or all of them
simultaneously'." (Emphasis supplied)
Second Issue: whether Artigo's claim has
been extinguished by full payment, waiver or
abandonment
The De Castros claim that Artigo was fully paid on
June 14, 1985, that is, Artigo was given "his
proportionate share and no longer entitled to any
balance." According to them, Artigo was just one of
the agents involved in the sale and entitled to a
"proportionate share" in the commission. They
assert that Artigo did absolutely nothing during the
second negotiation but to sign as a witness in the
deed of sale. He did not even prepare the
documents for the transaction as an active real
estate broker usually does.
The De Castros' arguments are flimsy.
A contract of agency which is not contrary to law,
public order, public policy, morals or good custom
is a valid contract, and constitutes the law between
the parties.14 The contract of agency entered into
by Constante with Artigo is the law between them
and both are bound to comply with its terms and
conditions in good faith.
The mere fact that "other agents" intervened in the
consummation of the sale and were paid their
respective commissions cannot vary the terms of
the contract of agency granting Artigo a 5 percent
commission based on the selling price. These
"other agents" turned out to be employees of
Times Transit, the buyer Artigo introduced to the
De Castros. This prompted the trial court to
observe:
"The alleged `second group' of agents
came into the picture only during the so-
called `second negotiation' and it is
amusing to note that these (sic) second
group, prominent among whom are Atty.
Del Castillo and Ms. Prudencio, happened
 to be employees of Times Transit, the
buyer of the properties. And their efforts
were limited to convincing Constante to
'part away' with the properties because
the redemption period of the foreclosed
properties is around the corner, so to
speak. (tsn. June 6, 1991).
xxx
To accept Constante's version of the story
is to open the floodgates of fraud and
deceit. A seller could always pretend
rejection of the offer and wait for
sometime for others to renew it who are
much willing to accept a commission far
less than the original broker. The
immorality in the instant case easily
presents itself if one has to consider
that the alleged `second group' are
the employees of the buyer, Times
Transit and they have not bettered
the offer secured by Mr. Artigo for P7
million.
It is to be noted also that while Constante
was too particular about the unrenewed
real estate broker's license of Mr. Artigo,
he did not bother at all to inquire as to the
licenses of Prudencio and Castillo. (tsn,
April 11, 1991, pp. 39-40)." 15 (Emphasis
supplied)
In any event, we find that the 5 percent real estate
broker's commission is reasonable and within the
standard practice in the real estate industry for
transactions of this nature.
The De Castros also contend that Artigo's inaction
as well as failure to protest estops him from
recovering more than what was actually paid him.
The De Castros cite Article 1235 of the Civil Code
which reads:
Art. 1235. When the obligee accepts the
performance, knowing its incompleteness
and irregularity, and without expressing
any protest or objection, the obligation is
deemed fully complied with.
The De Castros' reliance on Article 1235 of the Civil
Code is misplaced. Artigo's acceptance of partial
payment of his commission neither amounts to a
waiver of the balance nor puts him in estoppel. This
is the import of Article 1235 which was explained in
this wise:
"The word accept, as used in Article 1235
of the Civil Code, means to take as
satisfactory or sufficient, or agree to an
incomplete or irregular
performance. Hence, the mere receipt
of a partial payment is not equivalent
to the required acceptance of
performance as would extinguish the
whole obligation."16 (Emphasis supplied)
There is thus a clear distinction between
acceptance and mere receipt. In this case, it is
evident that Artigo merely received the partial
payment without waiving the balance. Thus, there
is no estoppel to speak of.
The De Castros further argue that laches should
apply because Artigo did not file his complaint in
court until May 29, 1989, or almost four years later.
Hence, Artigo's claim for the balance of his
commission is barred by laches.
Laches means the failure or neglect, for an
unreasonable and unexplained length of time, to do
that which by exercising due diligence could or
should have been done earlier. It is negligence or
omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to
assert it either has abandoned it or declined to
assert it.17
Artigo disputes the claim that he neglected to
assert his rights. He was appointed as agent on
January 24, 1984. The two lots were finally sold in
June 1985. As found by the trial court, Artigo
demanded in April and July of 1985 the payment of
his commission by Constante on the basis of the
selling price of P7.05 million but there was no
response from Constante.18 After it became clear
that his demands for payment have fallen on deaf
ears, Artigo decided to sue on May 29, 1989.
Actions upon a written contract, such as a contract
of agency, must be brought within ten years from
the time the right of action accrues.19 The right of
action accrues from the moment the breach of
right or duty occurs. From this moment, the
creditor can institute the action even as the ten-
year prescriptive period begins to run.20
The De Castros admit that Artigo's claim was filed
within the ten-year prescriptive period. The De
Castros, however, still maintain that Artigo's cause
of action is barred by laches. Laches does not apply
because only four years had lapsed from the time
of the sale in June 1985. Artigo made a demand in
July 1985 and filed the action in court on May 29,
1989, well within the ten-year prescriptive period.
This does not constitute an unreasonable delay in
asserting one's right. The Court has ruled, "a
delay within the prescriptive period is
sanctioned by law and is not considered to be
a delay that would bar relief."21 In explaining
that laches applies only in the absence of a
statutory prescriptive period, the Court has stated -
"Laches is recourse in equity. Equity,
however, is applied only in the
absence, never in contravention, of
statutory law. Thus, laches, cannot,
as a rule, be used to abate a
collection suit filed within the
prescriptive period mandated by the
Civil Code."22
Clearly, the De Castros' defense of laches finds no
support in law, equity or jurisprudence.
Third issue: whether the determination of the
purchase price was made in violation of the
Rules on Evidence
The De Castros want the Court to re-examine the
probative value of the evidence adduced in the trial
court to determine whether the actual selling price
of the two lots was P7.05 million and not P3.6
million. The De Castros contend that it is erroneous
to base the 5 percent commission on a purchase
price of P7.05 million as ordered by the trial court
and the appellate court. The De Castros insist that
the purchase price is P3.6 million as expressly
stated in the deed of sale, the due execution and
authenticity of which was admitted during the trial.
The De Castros believe that the trial and appellate
courts committed a mistake in considering
incompetent evidence and disregarding the best
evidence and parole evidence rules. They claim
that the Court of Appeals erroneously affirmed sub
silentio the trial court's reliance on the various
correspondences between Constante and Times
Transit which were mere photocopies that do not
satisfy the best evidence rule. Further, these letters
covered only the first negotiations between
Constante and Times Transit which failed; hence,
these are immaterial in determining the final
purchase price.
The De Castros further argue that if there was an
undervaluation, Artigo who signed as witness
benefited therefrom, and being equally guilty,
should be left where he presently stands. They
likewise claim that the Court of Appeals erred in
relying on evidence which were not offered for the
purpose considered by the trial court. Specifically,
Exhibits "B", "C", "D" and "E" were not offered to
prove that the purchase price was P7.05 Million.
Finally, they argue that the courts a quo erred in
giving credence to the perjured testimony of Artigo.
They want the entire testimony of Artigo rejected
as a falsehood because he was lying when he
claimed at the outset that he was a licensed real
estate broker when he was not.
Whether the actual purchase price was P7.05
Million as found by the trial court and affirmed by
the Court of Appeals, or P3.6 Million as claimed by
the De Castros, is a question of fact and not of law.
Inevitably, this calls for an inquiry into the facts
and evidence on record. This we can not do.
It is not the function of this Court to re-examine the
evidence submitted by the parties, or analyze or
weigh the evidence again.23 This Court is not the
proper venue to consider a factual issue as it is not
a trier of facts. In petitions for review on certiorari Law and jurisprudence support the award of moral
as a mode of appeal under Rule 45, a petitioner damages and attorney's fees in favor of Artigo. The
can only raise questions of law. Our award of damages and attorney's fees is left to the
pronouncement in the case of Cormero vs. Court of sound discretion of the court, and if such discretion
Appeals24 bears reiteration: is well exercised, as in this case, it will not be
"At the outset, it is evident from the errors disturbed on appeal.25 Moral damages may be
assigned that the petition is anchored on a awarded when in a breach of contract the
plea to review the factual conclusion defendant acted in bad faith, or in wanton
reached by the respondent court. Such disregard of his contractual obligation.26 On the
task however is foreclosed by the rule that other hand, attorney's fees are awarded in
in petitions for certiorari as a mode of instances where "the defendant acted in gross and
appeal, like this one, only questions of law evident bad faith in refusing to satisfy the plaintiff's
distinctly set forth may be raised. These plainly valid, just and demandable claim." 27 There is
questions have been defined as those that no reason to disturb the trial court's finding that
do not call for any examination of the "the defendants' lack of good faith and unkind
probative value of the evidence presented treatment of the plaintiff in refusing to give his due
by the parties. (Uniland Resources vs. commission deserve censure." This warrants the
Development Bank of the Philippines, 200 award of P25,000.00 in moral damages
SCRA 751 [1991] citing Goduco vs. Court and P 45,000.00 in attorney's fees. The amounts
of appeals, et al., 119 Phil. 531; are, in our view, fair and reasonable. Having found
Hernandez vs. Court of Appeals, 149 SCRA a buyer for the two lots, Artigo had already
67). And when this court is asked to go performed his part of the bargain under the
over the proof presented by the parties, contract of agency. The De Castros should have
and analyze, assess and weigh them to exercised fairness and good judgment in dealing
ascertain if the trial court and the with Artigo by fulfilling their own part of the bargain
appellate court were correct in according - paying Artigo his 5 percent broker's commission
superior credit to this or that piece of based on the actual purchase price of the two lots.
evidence and eventually, to the totality of WHEREFORE, the petition is denied for lack of
the evidence of one party or the other, the merit. The Decision of the Court of Appeals dated
court cannot and will not do the same. May 4, 1994 in CA-G.R. CV No. 37996
(Elayda vs. Court of Appeals, 199 SCRA is AFFIRMED in toto.
349 [1991]). Thus, in the absence of any SO ORDERED.
showing that the findings complained of
are totally devoid of support in the record,
or that they are so glaringly erroneous as
to constitute serious abuse of discretion,
such findings must stand, for this court is
not expected or required to examine or
contrast the oral and documentary
evidence submitted by the parties.
(Morales vs. Court of Appeals, 197 SCRA
391 [1991] citing Santa Ana vs.
Hernandez, 18 SCRA 973 [1966])."
We find no reason to depart from this principle. The
trial and appellate courts are in a much better
position to evaluate properly the evidence. Hence,
we find no other recourse but to affirm their finding
on the actual purchase price.1wphi1.nt
Fourth Issue: whether award of moral
damages and attorney's fees is proper
The De Castros claim that Artigo failed to prove
that he is entitled to moral damages and attorney's
fees. The De Castros, however, cite no concrete
reason except to say that they are the ones
entitled to damages since the case was filed to
harass and extort money from them.
G.R. No. 88539 October 26, 1993
KUE CUISON, doing business under the firm
name and style"KUE CUISON PAPER
SUPPLY," petitioner,
vs.
THE COURT OF APPEALS, VALIANT
INVESTMENT ASSOCIATES, respondents.
BIDIN, J.:
This petition for review assails the decision of the
respondent Court of Appeals ordering petitioner to
pay private respondent, among others, the sum of
P297,482.30 with interest. Said decision reversed
the appealed decision of the trial court rendered in
favor of petitioner.
The case involves an action for a sum of money
filed by respondent against petitioner anchored on
the following antecedent facts:
Petitioner Kue Cuison is a sole proprietorship
engaged in the purchase and sale of newsprint,
bond paper and scrap, with places of business at
Baesa, Quezon City, and Sto. Cristo, Binondo,
Manila. Private respondent Valiant Investment
Associates, on the other hand, is a partnership duly
organized and existing under the laws of the
Philippines with business address at Kalookan City.
From December 4, 1979 to February 15, 1980,
private respondent delivered various kinds of paper
products amounting to P297,487.30 to a certain
Lilian Tan of LT Trading. The deliveries were made
by respondent pursuant to orders allegedly placed
by Tiu Huy Tiac who was then employed in the
Binondo office of petitioner. It was likewise
pursuant to Tiac's instructions that the
merchandise was delivered to Lilian Tan. Upon
delivery, Lilian Tan paid for the merchandise by
issuing several checks payable to cash at the
specific request of Tiu Huy Tiac. In turn, Tiac issued
nine (9) postdated checks to private respondent as
payment for the paper products. Unfortunately, sad
checks were later dishonored by the drawee bank.
Thereafter, private respondent made several
demands upon petitioner to pay for the
merchandise in question, claiming that Tiu Huy Tiac
was duly authorized by petitioner as the manager
of his Binondo office, to enter into the questioned
transactions with private respondent and Lilian Tan.
Petitioner denied any involvement in the
transaction entered into by Tiu Huy Tiac and
refused to pay private respondent the amount
corresponding to the selling price of the subject
merchandise.
Left with no recourse, private respondent filed an
action against petitioner for the collection of
P297,487.30 representing the price of the
merchandise. After due hearing, the trial court
dismissed the complaint against petitioner for lack
of merit. On appeal, however, the decision of the
trial court was modified, but was in effect reversed
by the Court of Appeals, the dispositive portion of
which reads:
WHEREFORE, the decision
appealed from is MODIFIED in
that defendant-appellant Kue
Cuison is hereby ordered to pay
plaintiff-appellant Valiant
Investment Associates the sum of
P297,487.30 with 12% interest
from the filing of the complaint
until the amount is fully paid,
plus the sum of 7% of the total
amount due as attorney's fees,
and to pay the costs. In all other
respects, the decision appealed
from is affirmed. (Rollo, p. 55)
In this petition, petitioner contends that:
THE HONORABLE COURT ERRED
IN FINDING TIU HUY TIAC AGENT
OF DEFENDANT-APPELLANT
CONTRARY TO THE
UNDISPUTED/ESTABLISHED
FACTS AND CIRCUMSTANCES.
THE HONORABLE COURT ERRED
IN FINDING DEFENDANT-
APPELLANT LIABLE FOR AN
OBLIGATION UNDISPUTEDLY
BELONGING TO TIU HUY TIAC.
THE HONORABLE COURT ERRED IN REVERSING THE
WELL-FOUNDED DECISION OF THE TRIAL COURT,
(Rollo, p, 19)
The issue here is really quite simple whether or
not Tiu Huy Tiac possessed the required authority
from petitioner sufficient to hold the latter liable for
the disputed transaction.
This petition ought to have been denied outright,
forin the final analysis, it raises a factual issue. It is
elementary that in petitions for review under Rule
45, this Court only passes upon questions of law.
An exception thereto occurs where the findings of
fact of the Court of Appeals are at variance with
the trial court, in which case the Court reviews the
evidence in order to arrive at the correct findings
based on the records.
As to the merits of the case, it is a well-established
rule that one who clothes another with apparent
authority as his agent and holds him out to the
public as such cannot be permitted to deny the
authority of such person to act as his agent, to the
prejudice of innocent third parties dealing with
such person in good faith and in the honest belief
that he is what he appears to be (Macke, et al, v.
Camps, 7 Phil. 553 (1907]; Philippine National
Bank. v Court of Appeals, 94 SCRA 357 [1979]).
From the facts and the evidence on record, there is
no doubt that this rule obtains. The petition must
therefore fail.
It is evident from the records that by his own acts
and admission, petitioner held out Tiu Huy Tiac to
the public as the manager of his store in Sto.
Cristo, Binondo, Manila. More particularly,
petitioner explicitly introduced Tiu Huy Tiac to
Bernardino Villanueva, respondent's manager, as
his (petitioner's) branch manager as testified to by
Bernardino Villanueva. Secondly, Lilian Tan, who
has been doing business with petitioner for quite a
while, also testified that she knew Tiu Huy Tiac to
be the manager of petitioner's Sto. Cristo, Binondo
branch. This general perception of Tiu Huy Tiac as
the manager of petitioner's Sto. Cristo store is even
made manifest by the fact that Tiu Huy Tiac is
known in the community to be the "kinakapatid"
(godbrother) of petitioner. In fact, even petitioner
admitted his close relationship with Tiu Huy Tiac
when he said that they are "like brothers" (Rollo, p.
54). There was thus no reason for anybody . . . However, during the hearing Court:
especially those transacting business with on March 3, 1981, Villanueva
petitioner to even doubt the authority of Tiu Huy failed to present the document xxx xxx xxx
Tiac as his manager in the Sto. Cristo Binondo adverted to because defendant-
branch. appellant's counsel withdrew his
reservation to have the former Q And who was
(Villanueva) produce the managing the
In a futile attempt to discredit Villanueva, petitioner
document or invoice, thus store in Sto.
alleges that the former's testimony is clearly self-
prompting plaintiff-appellant to Cristo?
serving inasmuch as Villanueva worked for private
rest its case that same day
respondent as its manager.
(t.s.n., pp. 39-40, Sess. of March A At first it was
3, 1981). Now, defendant- Mr. Ang, then
We disagree, The argument that Villanueva's appellant assails the credibility of later Mr. Tiu
testimony is self-serving and therefore inadmissible Villanueva for having allegedly Huy Tiac but I
on the lame excuse of his employment with private failed to produce even one single cannot
respondent utterly misconstrues the nature of document to show that plaintiff- remember the
"'self-serving evidence" and the specific ground for appellant have had transactions exact year.
its exclusion. As pointed out by this Court in Co before, when in fact said failure
v. Court of Appeals et, al., (99 SCRA 321 [1980]): of Villanueva to produce said
Q So, Mr. Tiu
document is a direct off-shoot of
Huy Tiac took
Self-serving evidence is evidence the action of defendant-
over the
made by a party out of court at appellant's counsel who withdrew
management,.
one time; it does not include a his reservation for the production
party's testimony as a witness in of the document or invoice and
court. It is excluded on the same which led plaintiff-appellant to A Not that was
ground as any hearsay evidence, rest its case that very day. (Rollo, because every
that is the lack of opportunity for p.52) afternoon, I was
cross-examination by the adverse there, sir.
party, and on the consideration In the same manner, petitioner assails the
that its admission would open the credibility of Lilian Tan by alleging that Tan was part Q But in the
door to fraud and to fabrication of of an intricate plot to defraud him. However, morning, who
testimony. On theother hand, a petitioner failed to substantiate or prove that the takes charge?
party's testimony in court is subject transaction was designed to defraud him.
sworn and affords the other party Ironically, it was even the testimony of petitioner's A Tiu Huy Tiac
the opportunity for cross- daughter and assistant manager Imelda Kue Cuison takes charge of
examination (emphasis supplied) which confirmed the credibility of Tan as a witness. management a
On the witness stand, Imelda testified that she nd if there (sic)
Petitioner cites Villanueva's failure, despite his knew for a fact that prior to the transaction in orders for
commitment to do so on cross-examination, to question, Tan regularly transacted business with newsprint or
produce the very first invoice of the transaction her father (petitioner herein), thereby corroborating bond papers
between petitioner and private respondent as Tan's testimony to the same effect. As correctly they are always
another ground to discredit Villanueva's testimony. found by the respondent court, there was no logical referred to the
Such failure, proves that Villanueva was not only explanation for Tan to impute liability upon compound in
bluffing when he pretended that he can produce petitioner. Rather, the testimony of Imelda Kue Baesa, sir.
the invoice, but that Villanueva was likewise Cuison only served to add credence to Tan's (t.s.n., p. 16,
prevaricating when he insisted that such prior testimony as regards the transaction, the liability Session of
transactions actually took place. Petitioner is for which petitioner wishes to be absolved. January 20,
mistaken. In fact, it was petitioner's counsel himself 1981, CA
who withdrew the reservation to have Villanueva But of even greater weight than any of these decision, Rollo,
produce the document in court. As aptly observed testimonies, is petitioner's categorical admission on p. 50, emphasis
by the Court of Appeals in its decision: the witness stand that Tiu Huy Tiac was the supplied).
manager of his store in Sto. Cristo, Binondo, to wit:
Such admission, spontaneous no doubt, and
standing alone, is sufficient to negate all the
denials made by petitioner regarding the capacity
of Tiu Huy Tiac to enter into the transaction in
question. Furthermore, consistent with and as an
obvious indication of the fact that Tiu Huy Tiac was
the manager of the Sto. Cristo branch, three (3)
months after Tiu Huy Tiac left petitioner's employ,
petitioner even sent, communications to its
customers notifying them that Tiu Huy Tiac is no
longer connected with petitioner's business. Such
undertaking spoke unmistakenly of Tiu Huy Tiac's
valuable position as petitioner's manager than any
uttered disclaimer. More than anything else, this
act taken together with the declaration of
petitioner in open court amount to admissions
under Rule 130 Section 22 of the Rules of Court, to
wit : "The act, declaration or omission of a party as
to a relevant fact may be given in evidence against
him." For well-settled is the rule that "a man's acts,
conduct, and declaration, wherever made, if
voluntary, are admissible against him, for the
reason that it is fair to presume that they
correspond with the truth, and it is his fault if they
do not. If a man's extrajudicial admissions are
admissible against him, there seems to be no
reason why his admissions made in open court,
under oath, should not be accepted against him."
(U.S. vs. Ching Po, 23 Phil. 578, 583 [1912];).
Moreover, petitioner's unexplained delay in
disowning the transactions entered into by Tiu Huy
Tiac despite several attempts made by respondent
to collect the amount from him, proved all the more
that petitioner was aware of the questioned
commission was tantamount to an admission by
silence under Rule 130 Section 23 of the Rules of
Court, thus: "Any act or declaration made in the
presence of and within the observation of a party
who does or says nothing when the act or
declaration is such as naturally to call for action or
comment if not true, may be given in evidence
against him."
All of these point to the fact that at the time of the
transaction Tiu Huy Tiac was admittedly the
manager of petitioner's store in Sto. Cristo,
Binondo. Consequently, the transaction in question
as well as the concomitant obligation is valid and
binding upon petitioner.
By his representations, petitioner is now estopped
from disclaiming liability for the transaction
entered by Tiu Huy Tiac on his behalf. It matters
not whether the representations are intentional or
merely negligent so long as innocent, third persons
relied upon such representations in good faith and
for value As held in the case of Manila Remnant
Co. Inc. v. Court of Appeals, (191 SCRA 622
[1990]):
More in point, we find that by the
principle of estoppel, Manila
Remnant is deemed to have
allowed its agent to act as though
it had plenary powers. Article
1911 of the Civil Code provides:
"Even when the
agent has
exceeded his
authority, the
principal
issolidarily
liable with the
agent if the
former allowed
the latter to act
as though he
had full
powers."
(Emphasis
supplied).
The above-quoted article is new.
It is intended to protect the rights
of innocent persons. In such a
situation, both the principal and
the agent may be considered as
joint tortfeasors whose liability is
joint and solidary.
Authority by estoppel has arisen
in the instant case because by its
negligence, the principal, Manila
Remnant, has permitted its
agent, A.U. Valencia and Co., to
exercise powers not granted to it.
That the principal might not have
had actual knowledge of
theagent's misdeed is of no
moment.
Tiu Huy Tiac, therefore, by petitioner's own
representations and manifestations, became an
agent of petitioner by estoppel, an admission or
representation is rendered conclusive upon the
person making it, and cannot be denied or
disproved as against the person relying thereon
(Article 1431, Civil Code of the Philippines). A party
cannot be allowed to go back on his own acts and
representations to the prejudice of the other party
who, in good faith, relied upon them (Philippine
National Bank v. Intermediate Appellate Court, et
al., 189 SCRA 680 [1990]).
Taken in this light,. petitioner is liable for the
transaction entered into by Tiu Huy Tiac on his
behalf. Thus, even when the agent has exceeded
his authority, the principal is solidarily liable with
the agent if the former allowed the latter to fact as
though he had full powers (Article 1911 Civil Code),
as in the case at bar.
Finally, although it may appear that Tiu Huy Tiac
defrauded his principal (petitioner) in not turning
over the proceeds of the transaction to the latter,
such fact cannot in any way relieve nor exonerate
petitioner of his liability to private respondent. For
it is an equitable maxim that as between two
innocent parties, the one who made it possible for
the wrong to be done should be the one to bear the
resulting loss (Francisco vs. Government Service
Insurance System, 7 SCRA 577 [1963]).
Inasmuch as the fundamental issue of the capacity
or incapacity of the purported agent Tiu Huy Tiac,
has already been resolved, the Court deems it
unnecessary to resolve the other peripheral issues
raised by petitioner.
WHEREFORE, the instant petition in hereby DENIED
for lack of merit. Costs against petitioner.
SO ORDERED.
G.R. No. 76931 May 29, 1991 services to be performed by Orient Air American's ticket stock or on exchange
ORIENT AIR SERVICES & HOTEL Services shall include: orders, less applicable commissions to
REPRESENTATIVES, petitioner, (a) soliciting and promoting which Orient Air Services is entitled
vs. passenger traffic for the services hereunder, are the property of American
COURT OF APPEALS and AMERICAN AIR-LINES of American and, if necessary, and shall be held in trust by Orient Air
INCORPORATED, respondents. employing staff competent and Services until satisfactorily accounted for
G.R. No. 76933 May 29, 1991 sufficient to do so; to American.
AMERICAN AIRLINES, (b) providing and maintaining a 5. Commissions
INCORPORATED, petitioner, suitable area in its place of American will pay Orient Air Services
vs. business to be used exclusively commission on transportation sold
COURT OF APPEALS and ORIENT AIR for the transaction of the hereunder by Orient Air Services or its
SERVICES & HOTEL REPRESENTATIVES, business of American; sub-agents as follows:
INCORPORATED,respondents. (c) arranging for distribution of (a) Sales agency commission
Francisco A. Lava, Jr. and Andresito X. Fornier for American's timetables, tariffs and American will pay Orient Air Services a
Orient Air Service and Hotel Representatives, Inc. promotional material to sales sales agency commission for all sales of
Sycip, Salazar, Hernandez & Gatmaitan for agents and the general public in transportation by Orient Air Services or its
American Airlines, Inc. the assigned territory; sub-agents over American's services and
(d) servicing and supervising of any connecting through air transportation,
sales agents (including such sub- when made on American's ticket stock,
PADILLA, J.: agents as may be appointed by equal to the following percentages of the
This case is a consolidation of two (2) petitions for Orient Air Services with the prior tariff fares and charges:
review on certiorari of a decision 1 of the Court of written consent of American) in (i) For transportation solely
Appeals in CA-G.R. No. CV-04294, entitled the assigned territory including if between points within the United
"American Airlines, Inc. vs. Orient Air Services and required by American the control States and between such points
Hotel Representatives, Inc." which affirmed, with of remittances and commissions and Canada: 7% or such other
modification, the decision 2 of the Regional Trial retained; and rate(s) as may be prescribed by
Court of Manila, Branch IV, which dismissed the (e) holding out a passenger the Air Traffic Conference of
complaint and granted therein defendant's reservation facility to sales America.
counterclaim for agent's overriding commission agents and the general public in (ii) For transportation included in
and damages. the assigned territory. a through ticket covering
The antecedent facts are as follows: In connection with scheduled or non- transportation between points
On 15 January 1977, American Airlines, Inc. scheduled air passenger transportation other than those described
(hereinafter referred to as American Air), an air within the United States, neither Orient Air above: 8% or such other rate(s)
carrier offering passenger and air cargo Services nor its sub-agents will perform as may be prescribed by the
transportation in the Philippines, and Orient Air services for any other air carrier similar to International Air Transport
Services and Hotel Representatives (hereinafter those to be performed hereunder for Association.
referred to as Orient Air), entered into a General American without the prior written (b) Overriding commission
Sales Agency Agreement (hereinafter referred to as consent of American. Subject to periodic In addition to the above commission
the Agreement), whereby the former authorized instructions and continued consent from American will pay Orient Air Services an
the latter to act as its exclusive general sales agent American, Orient Air Services may sell air overriding commission of 3% of the tariff
within the Philippines for the sale of air passenger passenger transportation to be performed fares and charges for all sales of
transportation. Pertinent provisions of the within the United States by other transportation over American's service by
agreement are reproduced, to wit: scheduled air carriers provided American Orient Air Service or its sub-agents.
WITNESSETH does not provide substantially equivalent xxx xxx xxx
In consideration of the mutual convenants schedules between the points involved. 10. Default
herein contained, the parties hereto agree xxx xxx xxx If Orient Air Services shall at any time
as follows: 4. Remittances default in observing or performing any of
1. Representation of American by Orient Orient Air Services shall remit in United the provisions of this Agreement or shall
Air Services States dollars to American the ticket stock become bankrupt or make any assignment
Orient Air Services will act on American's or exchange orders, less commissions to for the benefit of or enter into any
behalf as its exclusive General Sales Agent which Orient Air Services is entitled agreement or promise with its creditors or
within the Philippines, including any hereunder, not less frequently than semi- go into liquidation, or suffer any of its
United States military installation therein monthly, on the 15th and last days of goods to be taken in execution, or if it
which are not serviced by an Air Carrier each month for sales made during the ceases to be in business, this Agreement
Representation Office (ACRO), for the sale preceding half month. may, at the option of American, be
of air passenger transportation. The All monies collected by Orient Air Services terminated forthwith and American may,
for transportation sold hereunder on without prejudice to any of its rights under
 this Agreement, take possession of any
ticket forms, exchange orders, traffic
material or other property or funds
belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are
subject to any applicable rules or
resolutions of the International Air
Transport Association and the Air Traffic
Conference of America, and such rules or
resolutions shall control in the event of
any conflict with the provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement
on two days' notice in the event Orient Air
Services is unable to transfer to the United
States the funds payable by Orient Air
Services to American under this
Agreement. Either party may terminate
the Agreement without cause by giving
the other 30 days' notice by letter,
telegram or cable.
xxx xxx x x x3
On 11 May 1981, alleging that Orient Air had
reneged on its obligations under the Agreement by
failing to promptly remit the net proceeds of sales
for the months of January to March 1981 in the
amount of US $254,400.40, American Air by itself
undertook the collection of the proceeds of tickets
sold originally by Orient Air and terminated
forthwith the Agreement in accordance with
Paragraph 13 thereof (Termination). Four (4) days
later, or on 15 May 1981, American Air instituted
suit against Orient Air with the Court of First
Instance of Manila, Branch 24, for Accounting with
Preliminary Attachment or Garnishment, Mandatory
Injunction and Restraining Order 4 averring the
aforesaid basis for the termination of the
Agreement as well as therein defendant's previous
record of failures "to promptly settle past
outstanding refunds of which there were available
funds in the possession of the defendant, . . . to the
damage and prejudice of plaintiff." 5
In its Answer 6 with counterclaim dated 9 July 1981,
defendant Orient Air denied the material
allegations of the complaint with respect to
plaintiff's entitlement to alleged unremitted
amounts, contending that after application thereof
to the commissions due it under the Agreement,
plaintiff in fact still owed Orient Air a balance in
unpaid overriding commissions. Further, the
defendant contended that the actions taken by
American Air in the course of terminating the
Agreement as well as the termination itself were
untenable, Orient Air claiming that American Air's
precipitous conduct had occasioned prejudice to its
business interests.
Finding that the record and the evidence
substantiated the allegations of the defendant, the
trial court ruled in its favor, rendering a decision
dated 16 July 1984, the dispositive portion of which
reads:
WHEREFORE, all the foregoing premises
considered, judgment is hereby rendered
in favor of defendant and against plaintiff
dismissing the complaint and holding the
termination made by the latter as
affecting the GSA agreement illegal and
improper and order the plaintiff to
reinstate defendant as its general sales
agent for passenger tranportation in the
Philippines in accordance with said GSA
agreement; plaintiff is ordered to pay
defendant the balance of the overriding
commission on total flown revenue
covering the period from March 16, 1977
to December 31, 1980 in the amount of
US$84,821.31 plus the additional amount
of US$8,000.00 by way of proper 3%
overriding commission per month
commencing from January 1, 1981 until
such reinstatement or said amounts in its
Philippine peso equivalent legally
prevailing at the time of payment plus
legal interest to commence from the filing
of the counterclaim up to the time of
payment. Further, plaintiff is directed to
pay defendant the amount of One Million
Five Hundred Thousand (Pl,500,000.00)
pesos as and for exemplary damages; and
the amount of Three Hundred Thousand
(P300,000.00) pesos as and by way of
attorney's fees.
Costs against plaintiff. 7
On appeal, the Intermediate Appellate Court (now
Court of Appeals) in a decision promulgated on 27
January 1986, affirmed the findings of the court a
quo on their material points but with some
modifications with respect to the monetary awards
granted. The dispositive portion of the appellate
court's decision is as follows:
WHEREFORE, with the following
modifications
1) American is ordered to pay Orient the
sum of US$53,491.11 representing the
balance of the latter's overriding
commission covering the period March 16,
1977 to December 31, 1980, or its
Philippine peso equivalent in accordance
with the official rate of exchange legally
prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the
sum of US$7,440.00 as the latter's
overriding commission per month starting
January 1, 1981 until date of termination,
May 9, 1981 or its Philippine peso
equivalent in accordance with the official
rate of exchange legally prevailing on July
10, 1981, the date the counterclaim was
filed
3) American is ordered to pay interest of
12% on said amounts from July 10, 1981
the date the answer with counterclaim
was filed, until full payment;
4) American is ordered to pay
Orient exemplary damages of
P200,000.00;
5) American is ordered to pay Orient the
sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is
affirmed.
Costs against American.8
American Air moved for reconsideration of the
aforementioned decision, assailing the substance
thereof and arguing for its reversal. The appellate
court's decision was also the subject of a Motion for
Partial Reconsideration by Orient Air which prayed
for the restoration of the trial court's ruling with
respect to the monetary awards. The Court of
Appeals, by resolution promulgated on 17
December 1986, denied American Air's motion and
with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration
is denied insofar as it prays for affirmance
of the trial court's award of exemplary
damages and attorney's fees, but granted
insofar as the rate of exchange is
concerned. The decision of January 27,
1986 is modified in paragraphs (1) and (2)
of the dispositive part so that the payment
of the sums mentioned therein shall be at
their Philippine peso equivalent in
accordance with the official rate of
exchange legally prevailing on the date of
actual payment. 9
Both parties appealed the aforesaid resolution and
decision of the respondent court, Orient Air as
petitioner in G.R. No. 76931 and American Air as
petitioner in G.R. No. 76933. By resolution 10 of this
Court dated 25 March 1987 both petitions were
consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the
extent of Orient Air's right to the 3% overriding
commission. It is the stand of American Air that
such commission is based only on sales of its
services actually negotiated or transacted by
Orient Air, otherwise referred to as "ticketed sales."
As basis thereof, primary reliance is placed upon
paragraph 5(b) of the Agreement which, in
reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission,
American will pay Orient Air Services an
overriding commission of 3% of the tariff
fees and charges for all sales of
transportation over American's services
by Orient Air Servicesor its sub-
agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket
stocks of American Air, and the former not having
opted to appoint any sub-agents, it is American
Air's contention that Orient Air can claim
entitlement to the disputed overriding commission
based only on ticketed sales. This is supposed to be
the clear meaning of the underscored portion of the
above provision. Thus, to be entitled to the 3%
overriding commission, the sale must be made by
Orient Air and the sale must be done with the use
of American Air's ticket stocks.
On the other hand, Orient Air contends that the
contractual stipulation of a 3% overriding
commission covers the total revenue of American
Air and not merely that derived from ticketed sales
undertaken by Orient Air. The latter, in justification
of its submission, invokes its designation as
the exclusive General Sales Agent of American Air,
with the corresponding obligations arising from
such agency, such as, the promotion and
solicitation for the services of its principal. In effect,
by virtue of such exclusivity, "all sales of
transportation over American Air's services are
necessarily by Orient Air." 11
It is a well settled legal principle that in the
interpretation of a contract, the entirety thereof
must be taken into consideration to ascertain the
meaning of its provisions. 12 The various
stipulations in the contract must be read together
13
to give effect to all. After a careful examination of
the records, the Court finds merit in the contention
of Orient Air that the Agreement, when interpreted
in accordance with the foregoing principles, entitles
it to the 3% overriding commission based on total
revenue, or as referred to by the parties, "total
flown revenue."
As the designated exclusive General Sales Agent of
American Air, Orient Air was responsible for the
promotion and marketing of American Air's services
for air passenger transportation, and the
solicitation of sales therefor. In return for such
efforts and services, Orient Air was to be paid
commissions of two (2) kinds: first, a sales agency
commission, ranging from 7-8% of tariff fares and
charges from sales by Orient Air when made on
American Air ticket stock; and second, an
overriding commission of 3% of tariff fares and
charges for all sales of passenger transportation
over American Air services. It is immediately
observed that the precondition attached to the first
type of commission does not obtain for the second
type of commissions. The latter type of
commissions would accrue for sales of American
Air services made not on its ticket stock but on the
ticket stock of other air carriers sold by such
carriers or other authorized ticketing facilities or
travel agents. To rule otherwise, i.e., to limit the
basis of such overriding commissions to sales from
American Air ticket stock would erase any
distinction between the two (2) types of
commissions and would lead to the absurd
conclusion that the parties had entered into a
contract with meaningless provisions. Such an
interpretation must at all times be avoided with
every effort exerted to harmonize the entire
Agreement.
An additional point before finally disposing of this
issue. It is clear from the records that American Air
was the party responsible for the preparation of the
Agreement. Consequently, any ambiguity in this
"contract of adhesion" is to be taken "contra
proferentem", i.e., construed against the party who
caused the ambiguity and could have avoided it by
the exercise of a little more care. Thus, Article 1377
of the Civil Code provides that the interpretation of
obscure words or stipulations in a contract shall not
favor the party who caused the obscurity. 14 To put
it differently, when several interpretations of a
provision are otherwise equally proper, that
interpretation or construction is to be adopted
which is most favorable to the party in whose favor
the provision was made and who did not cause the
ambiguity. 15 We therefore agree with the
respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms
are susceptible of different interpretations,
must be read against the party who
drafted it. 16
We now turn to the propriety of American Air's
termination of the Agreement. The respondent
appellate court, on this issue, ruled thus:
It is not denied that Orient withheld
remittances but such action finds
justification from paragraph 4 of the
Agreement, Exh. F, which provides for
remittances to American less
commissions to which Orient is entitled,
and from paragraph 5(d) which specifically
allows Orient to retain the full amount of
its commissions. Since, as stated ante,
Orient is entitled to the 3% override.
American's premise, therefore, for the
cancellation of the Agreement did not
exist. . . ."
We agree with the findings of the respondent
appellate court. As earlier established, Orient Air
was entitled to an overriding commission based on
total flown revenue. American Air's perception that
Orient Air was remiss or in default of its obligations
under the Agreement was, in fact, a situation
where the latter acted in accordance with the
Agreementthat of retaining from the sales
proceeds its accrued commissions before remitting
the balance to American Air. Since the latter was
still obligated to Orient Air by way of such
commissions. Orient Air was clearly justified in
retaining and refusing to remit the sums claimed by
American Air. The latter's termination of the
Agreement was, therefore, without cause and
basis, for which it should be held liable to Orient
Air.
On the matter of damages, the respondent
appellate court modified by reduction the trial
court's award of exemplary damages and
attorney's fees. This Court sees no error in such
modification and, thus, affirms the same.
It is believed, however, that respondent appellate
court erred in affirming the rest of the decision of
the trial court.1wphi1We refer particularly to the
lower court's decision ordering American Air to
"reinstate defendant as its general sales agent for
passenger transportation in the Philippines in
accordance with said GSA Agreement."
By affirming this ruling of the trial court,
respondent appellate court, in effect, compels
American Air to extend its personality to Orient Air.
Such would be violative of the principles and
essence of agency, defined by law as a contract
whereby "a person binds himself to render some
service or to do something in representation or on
behalf of another, WITH THE CONSENT OR
AUTHORITY OF THE LATTER . 17 (emphasis supplied)
In an agent-principal relationship, the personality of
the principal is extended through the facility of the
agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform all
acts which the latter would have him do. Such a
relationship can only be effected with the consent
of the principal, which must not, in any way, be
compelled by law or by any court. The Agreement
itself between the parties states that "either party
may terminate the Agreement without cause by
giving the other 30 days' notice by letter, telegram
or cable." (emphasis supplied) We, therefore, set
aside the portion of the ruling of the respondent
appellate court reinstating Orient Air as general
sales agent of American Air.
WHEREFORE, with the foregoing modification, the
Court AFFIRMS the decision and resolution of the
respondent Court of Appeals, dated 27 January
1986 and 17 December 1986, respectively. Costs
against petitioner American Air.
SO ORDERED.
G.R. No. 85494 May 7, 1991
CHOITHRAM JETHMAL RAMNANI AND/OR
NIRMLA V. RAMNANI and MOTI G.
RAMNANI, petitioners,
vs.
COURT OF APPEALS, SPOUSES ISHWAR
JETHMAL RAMNANI, SONYA JETHMAL
RAMNANI and OVERSEAS HOLDING CO.,
LTD., respondents.
G.R. No. 85496 May 7, 1991
SPOUSES ISHWAR JETHMAL RAMNANI AND
SONYA JET RAMNANI, petitioners,
vs.
THE HONORABLE COURT OF APPEALS,
ORTIGAS & CO., LTD. PARTNERSHIP, and
OVERSEAS HOLDING CO., LTD., respondents.
Quasha, Asperilla Ancheta, Pea and Nolasco for
petitioners Ishwar Jethmal Ramnani & Sonya
Ramnani.
Salonga, Andres, Hernandez & Allado for
Choithram Jethmal Ramnani, Nirmla Ramnani &
Moti Ramnani.
Rama Law Office for private respondents in
collaboration with Salonga, Andres, Hernandez &
Allado.
Eulogio R. Rodriguez for Ortigas & Co., Ltd.
GANCAYCO, J.:
This case involves the bitter quarrel of two brothers
over two (2) parcels of land and its improvements
now worth a fortune. The bone of contention is the
apparently conflicting factual findings of the trial
court and the appellate court, the resolution of
which will materially affect the result of the
contest.
The following facts are not disputed.
Ishwar, Choithram and Navalrai, all surnamed
Jethmal Ramnani, are brothers of the full blood.
Ishwar and his spouse Sonya had their main
business based in New York. Realizing the difficulty
of managing their investments in the Philippines
they executed a general power of attorney on
January 24, 1966 appointing Navalrai and
Choithram as attorneys-in-fact, empowering them
to manage and conduct their business concern in
the Philippines. 1
On February 1, 1966 and on May 16, 1966,
Choithram, in his capacity as aforesaid attorney-in-
fact of Ishwar, entered into two agreements for the
purchase of two parcels of land located in Barrio
Ugong, Pasig, Rizal, from Ortigas & Company, Ltd.
Partnership (Ortigas for short) with a total area of
approximately 10,048 square meters.2 Per
agreement, Choithram paid the down payment and
installments on the lot with his personal checks. A
building was constructed thereon by Choithram in
1966 and this was occupied and rented by Jethmal
Industries and a wardrobe shop called Eppie's
Creation. Three other buildings were built thereon
by Choithram through a loan of P100,000.00
obtained from the Merchants Bank as well as the
income derived from the first building. The
buildings were leased out by Choithram as
attorney-in-fact of Ishwar. Two of these buildings
were later burned.
Sometime in 1970 Ishwar asked Choithram to
account for the income and expenses relative to
these properties during the period 1967 to 1970.
Choithram failed and refused to render such
accounting. As a consequence, on February 4,
1971, Ishwar revoked the general power of
attorney. Choithram and Ortigas were duly notified
of such revocation on April 1, 1971 and May 24,
1971, respectively. 3 Said notice was also registered
with the Securities and Exchange Commission on
March 29, 1971 4 and was published in the April 2,
1971 issue of The Manila Times for the information
of the general public. 5
Nevertheless, Choithram as such attorney-in-fact of
Ishwar, transferred all rights and interests of Ishwar
and Sonya in favor of his daughter-in-law, Nirmla
Ramnani, on February 19, 1973. Her husband is
Moti, son of Choithram. Upon complete payment of
the lots, Ortigas executed the corresponding deeds
of sale in favor of Nirmla. 6 Transfer Certificates of
Title Nos. 403150 and 403152 of the Register of
Deeds of Rizal were issued in her favor.
Thus, on October 6, 1982, Ishwar and Sonya
(spouses Ishwar for short) filed a complaint in the
Court of First Instance of Rizal against Choithram
and/or spouses Nirmla and Moti (Choithram et al.
for brevity) and Ortigas for reconveyance of said
properties or payment of its value and damages.
An amended complaint for damages was thereafter
filed by said spouses.
After the issues were joined and the trial on the
merits, a decision was rendered by the trial court
on December 3, 1985 dismissing the complaint and
counterclaim. A motion for reconsideration thereof
filed by spouses Ishwar was denied on March 3,
1986.
An appeal therefrom was interposed by spouses
Ishwar to the Court of Appeals wherein in due
course a decision was promulgated on March 14,
1988, the dispositive part of which reads as follows:
WHEREFORE, judgment is hereby
rendered reversing and setting aside the
appealed decision of the lower court dated
December 3, 1985 and the Order dated
March 3, 1986 which denied plaintiffs-
appellants' Motion for Reconsideration
from aforesaid decision. A new decision is
hereby rendered sentencing defendants-
appellees Choithram Jethmal Ramnani,
Nirmla V. Ramnani, Moti C. Ramnani, and
Ortigas and Company Limited Partnership
to pay, jointly and severally, plaintiffs-
appellants the following:
1. Actual or compensatory damages to the
extent of the fair market value of the
properties in question and all
improvements thereon covered by
Transfer Certificate of Title No. 403150
and Transfer Certificate of Title No.
403152 of the Registry of Deeds of Rizal,
prevailing at the time of the satisfaction of
the judgment but in no case shall such
damages be less than the value of said
properties as appraised by Asian
Appraisal, Inc. in its Appraisal Report
dated August 1985 (Exhibits T to T-14,
inclusive).
2. All rental incomes paid or ought to be
paid for the use and occupancy of the
properties in question and all
improvements thereon consisting of
buildings, and to be computed as follows:
a) On Building C occupied by
Eppie's Creation and Jethmal
Industries from 1967 to 1973,
inclusive, based on the 1967 to
1973 monthly rentals paid by
Eppie's Creation;
b) Also on Building C above,
occupied by Jethmal Industries
and Lavine from 1974 to 1978,
the rental incomes based on then
rates prevailing as shown under
Exhibit "P"; and from 1979 to
1981, based on then prevailing
rates as indicated under Exhibit
"Q";
c) On Building A occupied by
Transworld Knitting Mills from
1972 to 1978, the rental incomes
based upon then prevailing rates
shown under Exhibit "P", and
from 1979 to 1981, based on
prevailing rates per Exhibit "Q";
d) On the two Bays Buildings
occupied by Sigma-Mariwasa
from 1972 to 1978, the rentals
based on the Lease Contract,
Exhibit "P", and from 1979 to
1980, the rentals based on the
Lease Contract, Exhibit "Q",
and thereafter commencing 1982, to
account for and turn over the rental
incomes paid or ought to be paid for the
use and occupancy of the properties and
 all improvements totalling 10,048 sq. m
based on the rate per square meter
prevailing in 1981 as indicated annually
cumulative up to 1984. Then, commencing
1985 and up to the satisfaction of the
judgment, rentals shall be computed at
ten percent (10%) annually of the fair
market values of the properties as
appraised by the Asian Appraisal, Inc. in
August 1985 (Exhibits T to T-14, inclusive.)
3. Moral damages in the sum of
P200,000.00;
4. Exemplary damages in the sum of
P100,000.00;
5. Attorney's fees equivalent to 10% of the
award herein made;
6. Legal interest on the total amount
awarded computed from first demand in
1967 and until the full amount is paid and
satisfied; and
7. The cost of suit. 7
Acting on a motion for reconsideration filed by
Choithram, et al. and Ortigas, the appellate court
promulgated an amended decision on October 17,
1988 granting the motion for reconsideration of
Ortigas by affirming the dismissal of the case by
the lower court as against Ortigas but denying the
motion for reconsideration of Choithram, et al. 8
Choithram, et al. thereafter filed a petition for
review of said judgment of the appellate court
alleging the following grounds:
1. The Court of Appeals gravely abused its
discretion in making a factual finding not
supported by and contrary, to the
evidence presented at the Trial Court.
2. The Court of Appeals acted in excess of
jurisdiction in awarding damages based on
the value of the real properties in question
where the cause of action of private
respondents is recovery of a sum of
money.
ARGUMENTS
I TO BE CONSTRUCTIVELY BOUND
THE COURT OF APPEALS ACTED IN GRAVE
ABUSE OF ITS DISCRETION IN MAKING A
FACTUAL FINDING THAT PRIVATE
RESPONDENT ISHWAR REMITTED THE
AMOUNT OF US $150,000.00 TO
PETITIONER CHOITHRAM IN THE ABSENCE
OF PROOF OF SUCH REMITTANCE.
II
THE COURT OF APPEALS ACTED WITH
GRAVE ABUSE OF DISCRETION AND
MANIFEST PARTIALITY IN DISREGARDING
THE TRIAL COURTS FINDINGS BASED ON
THE DIRECT DOCUMENTARY AND
TESTIMONIAL EVIDENCE PRESENTED BY
CHOITHRAM IN THE TRIAL COURT ON THE WORD OF CHOITHRAM
ESTABLISHING THAT THE PROPERTIES THAT ALL ALONG HE WAS ACTING
WERE PURCHASED WITH PERSONAL FOR AND IN BEHALF OF HIS
FUNDS OF PETITIONER CHOITHRAM AND BROTHER ISHWAR WHEN IT
NOT WITH MONEY ALLEGEDLY REMITTED TRANSFERRED THE RIGHTS OF
BY RESPONDENT ISHWAR. THE LATTER TO NIRMLA V.
III RAMNANI;
THE COURT OF APPEALS ACTED IN EXCESS D) IN IGNORING THE EVIDENCE
OF JURISDICTION IN AWARDING DAMAGES DULY PRESENTED AND ADMITTED
BASED ON THE VALUE OF THE PROPERTIES DURING THE TRIAL THAT
AND THE FRUITS OF THE IMPROVEMENTS ORTIGAS WAS PROPERLY
THEREON. 9 NOTIFIED OF THE NOTICE OF
Similarly, spouses Ishwar filed a petition for review REVOCATION OF THE GENERAL
of said amended decision of the appellate court POWER OF ATTORNEY GIVEN TO
exculpating Ortigas of liability based on the CHOITHRAM, EVIDENCED BY THE
following assigned errors PUBLICATION IN THE MANILA
I TIMES ISSUE OF APRIL 2, 1971
THE RESPONDENT HONORABLE COURT OF (EXH. F) WHICH CONSTITUTES
APPEALS COMMITTED GRAVE ERROR AND NOTICE TO THE WHOLE WORLD;
HAS DECIDED A QUESTION OF SUBSTANCE THE RECEIPT OF THE NOTICE OF
NOT IN ACCORD WITH LAW AND/OR WITH SUCH REVOCATION WHICH WAS
APPLICABLE DECISIONS OF THIS SENT TO ORTIGAS ON MAY 22,
HONORABLE COURT 1971 BY ATTY. MARIANO P.
A) IN PROMULGATING THE MARCOS AND RECEIVED BY
QUESTIONED AMENDED ORTIGAS ON MAY 24, 1971 (EXH.
DECISION (ANNEX "A") RELIEVING G) AND THE FILING OF THE
RESPONDENT ORTIGAS FROM NOTICE WITH THE SECURITIES
LIABILITY AND DISMISSING AND EXCHANGE COMMISSION ON
PETITIONERS' AMENDED MARCH 29,1971 (EXH. H);
COMPLAINT IN CIVIL CASE NO. E) IN DISCARDING ITS FINDINGS
534-P, AS AGAINST SAID CONTAINED IN ITS DECISION OF
RESPONDENT ORTIGAS; 14 MARCH 1988 (ANNEX B) THAT
B) IN HOLDING IN SAID AMENDED ORTIGAS WAS DULY NOTIFIED OF
DECISION THAT AT ANY RATE NO THE REVOCATION OF THE POWER
ONE EVER TESTIFIED THAT OF ATTORNEY OF CHOITHRAM,
ORTIGAS WAS A SUBSCRIBER TO HENCE ORTIGAS ACTED IN BAD
THE MANILA TIMES PUBLICATION FAITH IN EXECUTING THE DEED
OR THAT ANY OF ITS OFFICERS OF SALE TO THE PROPERTIES IN
READ THE NOTICE AS PUBLISHED QUESTION IN FAVOR OF NIRMLA
IN THE MANILA TIMES, THEREBY V. RAMNANI;
ERRONEOUSLY CONCLUDING F) IN SUSTAINING RESPONDENT
THAT FOR RESPONDENT ORTIGAS ORTIGAS VACUOUS REHASHED
ARGUMENTS IN ITS MOTION FOR
BY THE PUBLISHED NOTICE OF RECONSIDERATION THAT IT
REVOCATION, ORTIGAS AND/OR WOULD NOT GAIN ONE CENTAVO
ANY OF ITS OFFICERS MUST BE A MORE FROM CHOITHRAM FOR
SUBSCRIBER AND/OR THAT ANY THE SALE OF SAID LOTS AND THE
OF ITS OFFICERS SHOULD READ SUBSEQUENT TRANSFER OF THE
THE NOTICE AS ACTUALLY SAME TO THE MATTER'S
PUBLISHED; DAUGHTER-IN-LAW, AND THAT IT
C) IN HOLDING IN SAID AMENDED WAS IN GOOD FAITH WHEN IT
DECISION THAT ORTIGAS COULD TRANSFERRED ISHWAR'S RIGHTS
NOT BE HELD LIABLE JOINTLY TO THE LOTS IN QUESTION.
AND SEVERALLY WITH THE II
DEFENDANTS-APPELLEES THE RESPONDENT HONORABLE COURT OF
CHOITHRAM, MOTI AND NIRMLA APPEALS HAS SO FAR DEPARTED FROM
RAMNANI, AS ORTIGAS RELIED THE ACCEPTED AND USUAL COURSE OF
 JUDICIAL PROCEEDING WHEN IT HELD IN
THE QUESTIONED AMENDED DECISION OF
17 NOVEMBER 1988 (ANNEX A) THAT
RESPONDENT ORTIGAS & CO., LTD., IS NOT
JOINTLY AND SEVERALLY LIABLE WITH
DEFENDANTS-APPELLEES CHOITHRAM,
MOTI AND NIRMLA RAMNANI IN SPITE OF
ITS ORIGINAL DECISION OF 14 MARCH
1988 THAT ORTIGAS WAS DULY NOTIFIED
OF THE REVOCATION OF THE POWER OF
ATTORNEY OF CHOITHRAM RAMNANI. 10
The center of controversy is the testimony of
Ishwar that during the latter part of 1965, he sent
the amount of US $150,000.00 to Choithram in two
bank drafts of US$65,000.00 and US$85,000.00 for
the purpose of investing the same in real estate in
the Philippines. The trial court considered this lone
testimony unworthy of faith and credit. On the
other hand, the appellate court found that the trial
court misapprehended the facts in complete
disregard of the evidence, documentary and
testimonial.
Another crucial issue is the claim of Choithram that
because he was then a British citizen, as a
temporary arrangement, he arranged the purchase
of the properties in the name of Ishwar who was an
American citizen and who was then qualified to
purchase property in the Philippines under the then
Parity Amendment. The trial court believed this
account but it was debunked by the appellate
court.
As to the issue of whether of not spouses Ishwar
actually sent US$150,000.00 to Choithram
precisely to be used in the real estate business, the
trial court made the following disquisition
After a careful, considered and
conscientious examination of the evidence
adduced in the case at bar, plaintiff Ishwar
Jethmal Ramanani's main evidence, which
centers on the alleged payment by
sending through registered mail from New
York two (2) US$ drafts of $85,000.00 and
$65,000.00 in the latter part of 1965 (TSN
28 Feb. 1984, p. 10-11). The sending of
these moneys were before the execution
of that General Power of Attorney, which
was dated in New York, on January 24,
1966. Because of these alleged
remittances of US $150,000.00 and the
subsequent acquisition of the properties in
question, plaintiffs averred that they
constituted a trust in favor of defendant
Choithram Jethmal Ramnani. This Court
can be in full agreement if the plaintiffs
were only able to prove preponderantly
these remittances. The entire record of
this case is bereft of even a shred of proof
to that effect. It is completely barren. His
uncorroborated testimony that he
remitted these amounts in the "later part
of 1965" does not engender enough faith
and credence. Inadequacy of details of
such remittance on the two (2) US dollar
drafts in such big amounts is completely
not positive, credible, probable and
entirely not in accord with human
experience. This is a classic situation,
plaintiffs not exhibiting any commercial
document or any document and/or paper
as regard to these alleged remittances.
Plaintiff Ishwar Ramnani is not an ordinary
businessman in the strict sense of the
word. Remember his main business is
based in New York, and he should know
better how to send these alleged
remittances. Worst, plaintiffs did not
present even a scum of proof, that
defendant Choithram Ramnani received
the alleged two US dollar drafts.
Significantly, he does not know even the
bank where these two (2) US dollar drafts
were purchased. Indeed, plaintiff Ishwar
Ramnani's lone testimony is unworthy of
faith and credit and, therefore, deserves
scant consideration, and since the
plaintiffs' theory is built or based on such
testimony, their cause of action collapses
or falls with it.
Further, the rate of exchange that time in
1966 was P4.00 to $1.00. The alleged two
US dollar drafts amounted to $150,000.00
or about P600,000.00. Assuming the cash
price of the two (2) lots was only
P530,000.00 (ALTHOUGH he said: "Based
on my knowledge I have no evidence,"
when asked if he even knows the cash
price of the two lots). If he were really the
true and bonafide investor and purchaser
for profit as he asserted, he could have
paid the price in full in cash directly and
obtained the title in his name and not thru
"Contracts To Sell" in installments paying
interest and thru an attorney-in fact (TSN
of May 2, 1984, pp. 10-11) and, again,
plaintiff Ishwar Ramnani told this
Court that he does not know whether or
not his late father-in-law borrowed the two
US dollar drafts from the Swiss Bank or
whether or not his late father-in-law had
any debit memo from the Swiss Bank (TSN
of May 2, 1984, pp. 9-10). 11
On the other hand, the appellate court, in giving
credence to the version of Ishwar, had this to say
While it is true, that generally the findings
of fact of the trial court are binding upon
the appellate courts, said rule admits of
exceptions such as when (1) the
conclusion is a finding grounded entirely
on speculations, surmises and
conjectures; (2) when the inferences made
is manifestly mistaken, absurd and
impossible; (3) when there is grave abuse
of discretion; (4) when the judgment is
based on a misapprehension of facts and
when the court, in making its findings,
went beyond the issues of the case and
the same are contrary to the admissions
of both appellant and appellee (Ramos vs.
Court of Appeals, 63 SCRA 33; Philippine
American Life Assurance Co. vs.
Santamaria, 31 SCRA 798; Aldaba vs.
Court of Appeals, 24 SCRA 189).
The evidence on record shows that the t
court acted under a misapprehension of
facts and the inferences made on the
evidence palpably a mistake.
The trial court's observation that "the
entire records of the case is bereft of even
a shred of proof" that plaintiff-appellants
have remitted to defendant-appellee
Choithram Ramnani the amount of US $
150,000.00 for investment in real estate
in the Philippines, is not borne by the
evidence on record and shows the trial
court's misapprehension of the facts if not
a complete disregard of the evidence,
both documentary and testimonial.
Plaintiff-appellant Ishwar Jethmal Ramnani
testifying in his own behalf, declared that
during the latter part of 1965, he sent the
amount of US $150,000.00 to his brother
Choithram in two bank drafts of US
$65,000.00 and US $85,000.00 for the
purpose of investing the same in real
estate in the Philippines. His testimony is
as follows:
ATTY. MARAPAO:
Mr. Witness, you said that your
attorney-in-fact paid in your
behalf. Can you tell this
Honorable Court where your
attorney-in-fact got the money to
pay this property?
ATTY. CRUZ:
Wait. It is now clear it becomes
incompetent or hearsay.
COURT:
Witness can answer.
 A I paid through my attorney-in-
fact. I am the one who gave him
the money.
ATTY. MARAPAO:
Q You gave him the money?
A That's right.
Q How much money did you give
him?
A US $ 150,000.00.
Q How was it given then?
A Through Bank drafts. US
$65,000.00 and US $85,000.00
bank drafts. The total amount
which is $ 150,000.00 (TSN, 28
February 1984, p. 10; Emphasis
supplied.)
xxx xxx xxx
ATTY. CRUZ:
Q The two bank drafts which you
sent I assume you bought that
from some banks in New York?
A No, sir.
Q But there is no question those
two bank drafts were for the
purpose of paying down payment
and installment of the two
parcels of land?
A Down payment,
installment and to put up the
building.
Q I thought you said that the
buildings were constructed . . .
subject to our continuing
objection from rentals of first
building?
ATTY. MARAPAO:
Your Honor, that is misleading.
COURT;
Witness (may) answer.
A Yes, the first building was
immediately put up after the
purchase of the two parcels of
land that was in 1966 and the
finds were used for the
construction of the building from
the US $150,000.00 (TSN, 7
March 1984, page 14; Emphasis
supplied.)
xxx xxx xxx
Q These two bank drafts which
you mentioned and the use for it
you sent them by registered mail,
did you send them from New
Your?
A That is right.
Q And the two bank drafts which
were put in the registered mail,
the registered mail was
addressed to whom?
A Choithram Ramnani. (TSN, 7
March 1984, pp. 14-15).
On cross-examination, the witness
reiterated the remittance of the money to
his brother Choithram, which was sent to
him by his father-in-law, Rochiram L.
Mulchandoni from Switzerland, a man of
immense wealth, which even defendants-
appellees' witness Navalrai Ramnani
admits to be so (tsn., p. 16, S. Oct. 13,
1985). Thus, on cross-examination, Ishwar
testified as follows:
Q How did you receive these two
bank drafts from the bank the
name of which you cannot
remember?
A I got it from my father-in-law.
Q From where did your father- in-
law sent these two bank drafts?
A From Switzerland.
Q He was in Switzerland.
A Probably, they sent out these
two drafts from Switzerland.
(TSN, 7 March 1984, pp. 16-17; Emphasis
supplied.)
This positive and affirmative testimony of
plaintiff-appellant that he sent the two (2)
bank drafts totalling US $ 150,000.00 to
his brother, is proof of said remittance.
Such positive testimony has greater
probative force than defendant-appellee's
denial of receipt of said bank drafts, for a
witness who testifies affirmatively that
something did happen should be believed
for it is unlikely that a witness will
remember what never happened
(Underhill's Cr. Guidance, 5th Ed., Vol. 1,
pp. 10-11).
That is not all. Shortly thereafter, plaintiff-
appellant Ishwar Ramnani executed a
General Power of Attorney (Exhibit "A")
dated January 24, 1966 appointing his
brothers, defendants-appellees Navalrai
and Choithram as attorney-in-fact
empowering the latter to conduct and
manage plaintiffs-appellants' business
affairs in the Philippines and specifically
No. 14. To acquire, purchase for
us, real estates and
improvements for the purpose of
real estate business anywhere in
the Philippines and to develop,
subdivide, improve and to resell
to buying public (individual, firm
or corporation); to enter in any
contract of sale in oar behalf and
to enter mortgages between the
vendees and the herein grantors
that may be needed to finance
the real estate business being
undertaken.
Pursuant thereto, on February 1, 1966 and
May 16, 1966, Choithram Jethmal
Ramnani entered into Agreements
(Exhibits "B' and "C") with the other
defendant. Ortigas and Company, Ltd., for
the purchase of two (2) parcels of land
situated at Barrio Ugong, Pasig, Rizal, with
said defendant-appellee signing the
Agreements in his capacity as Attorney-in-
fact of Ishwar Jethmal Ramnani.
Again, on January 5, 1972, almost seven
(7) years after Ishwar sent the US $
150,000.00 in 1965, Choithram
Ramnani, as attorney-in fact of Ishwar
entered into a Contract of Lease with
Sigma-Mariwasa (Exhibit "P") thereby re-
affirming the ownership of Ishwar over the
disputed property and the trust
relationship between the latter as
principal and Choithram as attorney-in-
fact of Ishwar.
All of these facts indicate that if plaintiff-
appellant Ishwar had not earlier sent the
US $ 150,000.00 to his brother,
Choithram, there would be no purpose for
him to execute a power of attorney
appointing his brothers as s attorney-in-
fact in buying real estate in the
Philippines.
As against Choithram's denial that he did
not receive the US $150,000.00 remitted
by Ishwar and that the Power of Attorney,
as well as the Agreements entered into
with Ortigas & Co., were only temporary
arrangements, Ishwar's testimony that he
did send the bank drafts to Choithram and
was received by the latter, is the more
credible version since it is natural,
reasonable and probable. It is in accord
with the common experience, knowledge
and observation of ordinary men (Gardner
vs. Wentors 18 Iowa 533). And in
determining where the superior weight of
the evidence on the issues involved lies,
the court may consider the probability or
improbability of the testimony of the
witness (Sec. 1, Rule 133, Rules of Court).
Contrary, therefore, to the trial court's
sweeping observation that 'the entire
records of the case is bereft of even a
shred of proof that Choithram received the
 alleged bank drafts amounting to US $
150,000.00, we have not only testimonial
evidence but also documentary and
circumstantial evidence proving said
remittance of the money and the fiduciary
relationship between the former and
Ishwar.12
The Court agrees. The environmental
circumstances of this case buttress the claim of
Ishwar that he did entrust the amount of US $
150,000.00 to his brother, Choithram, which the
latter invested in the real property business subject
of this litigation in his capacity as attorney-in-fact
of Ishwar.
True it is that there is no receipt whatever in the
possession of Ishwar to evidence the same, but it is
not unusual among brothers and close family
members to entrust money and valuables to each
other without any formalities or receipt due to the
special relationship of trust between them.
And another proof thereof is the fact that Ishwar,
out of frustration when Choithram failed to account
for the realty business despite his demands,
revoked the general power of attorney he extended
to Choithram and Navalrai. Thereafter, Choithram
wrote a letter to Ishwar pleading that the power of
attorney be renewed or another authority to the
same effect be extended, which reads as follows:
June 25,1971
MR. ISHWAR JETHMAL
NEW YORK
(1) Send power of Atty.
immediately, because the case
has been postponed for two
weeks. The same way as it has
been send before in favor of both
names. Send it immediately
otherwise everything will be lost
unnecessarily, and then it will
take us in litigation. Now that we
have gone ahead with a case and
would like to end it immediately
otherwise squatters will take the
entire land. Therefore, send it
immediately.
(2) Ortigas also has sued us
because we are holding the
installments, because they have
refused to give a rebate of P5.00
per meter which they have to
give us as per contract. They
have filed the law suit that since
we have not paid the installment
they should get back the land.
The hearing of this case is in the
month of July. Therefore, please
send the power immediately. In
one case DADA (Elder Brother)
will represent and in another one,
I shall.
(3) In case if you do not want to
give power then make one letter
in favor of Dada and the other
one in my favor showing that in
any litigation we can represent
you and your wife, and whatever
the court decide it will be
acceptable by me. You can ask
any lawyer, he will be able to
prepare these letters. After that
you can have these letters ratify
before P.I. Consulate. It should be
dated April 15, 1971.
(4) Try to send the power
because it will be more useful.
Make it in any manner whatever
way you have confident in it. But
please send it immediately.
You have cancelled the power. Therefore, you have
lost your reputation everywhere. What can I further
write you about it. I have told everybody that due
to certain reasons I have written you to do this that
is why you have done this. This way your
reputation have been kept intact. Otherwise if I
want to do something about it, I can show you that
inspite of the power you have cancelled you can
not do anything. You can keep this letter because
my conscience is clear. I do not have anything in
my mind.
I should not be writing you this, but because my
conscience is clear do you know that if I had
predated papers what could you have done? Or do
you know that I have many paper signed by you
and if had done anything or do then what can you
do about it? It is not necessary to write further
about this. It does not matter if you have cancelled
the power. At that time if I had predated and done
something about it what could you have done? You
do not know me. I am not after money. I can earn
money anytime. It has been ten months since I
have not received a single penny for expenses from
Dada (elder brother). Why there are no expenses?
We can not draw a single penny from knitting
(factory). Well I am not going to write you further,
nor there is any need for it. This much I am writing
you because of the way you have conducted
yourself. But remember, whenever I hale the
money I will not keep it myself Right now I have
not got anything at all.
I am not going to write any further.
Keep your business clean with Naru. Otherwise he
will discontinue because he likes to keep his
business very clean. 13
The said letter was in Sindhi language. It was
translated to English by the First Secretary of the
Embassy of Pakistan, which translation was verified
correct by the Chairman, Department of Sindhi,
University of Karachi. 14
From the foregoing letter what could be gleaned is
that
1. Choithram asked for the issuance of
another power of attorney in their favor so
they can continue to represent Ishwar as
Ortigas has sued them for unpaid
installments. It also appears therefrom
that Ortigas learned of the revocation of
the power of attorney so the request to
issue another.
2. Choithram reassured Ishwar to have
confidence in him as he was not after
money, and that he was not interested in
Ishwar's money.
3. To demonstrate that he can be relied
upon, he said that he could have ante-
dated the sales agreement of the Ortigas
lots before the issuance of the powers of
attorney and acquired the same in his
name, if he wanted to, but he did not do
so.
4. He said he had not received a single
penny for expenses from Dada (their elder
brother Navalrai). Thus, confirming that if
he was not given money by Ishwar to buy
the Ortigas lots, he could not have
consummated the sale.
5. It is important to note that in said letter
Choithram never claimed ownership of the
property in question. He affirmed the fact
that he bought the same as mere agent
and in behalf of Ishwar. Neither did he
mention the alleged temporary
arrangement whereby Ishwar, being an
American citizen, shall appear to be the
buyer of the said property, but that after
Choithram acquires Philippine citizenship,
its ownership shall be transferred to
Choithram.
This brings us to this temporary arrangement
theory of Choithram.
The appellate court disposed of this matter in this
wise
Choithram's claim that he purchased the
two parcels of land for himself in 1966 but
placed it in the name of his younger
brother, Ishwar, who is an American
citizen, as a temporary arrangement,'
because as a British subject he is
disqualified under the 1935 Constitution to
acquire real property in the Philippines,
which is not so with respect to American
citizens in view of the Ordinance
Appended to the Constitution granting
them parity rights, there is nothing in the
records showing that Ishwar ever agreed
to such a temporary arrangement.
During the entire period from 1965, when
the US $ 150,000. 00 was transmitted to
Choithram, and until Ishwar filed a
complaint against him in 1982, or over 16
years, Choithram never mentioned of a
temporary arrangement nor can he
present any memorandum or writing
evidencing such temporary arrangement,
prompting plaintiff-appellant to observe:
The properties in question which
are located in a prime industrial
site in Ugong, Pasig, Metro Manila
have a present fair market value
of no less than P22,364,000.00
(Exhibits T to T-14, inclusive), and
yet for such valuable pieces of
property, Choithram who now
belatedly that he purchased the
same for himself did not
document in writing or in a
memorandum the alleged
temporary arrangement with
Ishwar' (pp. 4-41, Appellant's
Brief).
Such verbal allegation of a temporary
arrangement is simply improbable and
inconsistent. It has repeatedly been held
that important contracts made without
evidence are highly improbable.
The improbability of such temporary
arrangement is brought to fore when we
consider that Choithram has a son
(Haresh Jethmal Ramnani) who is an
American citizen under whose name the
properties in question could be registered,
both during the time the contracts to sell
were executed and at the time absolute
title over the same was to be delivered. At
the time the Agreements were entered
into with defendant Ortigas & Co. in 1966,
Haresh, was already 18 years old and
consequently, Choithram could have
executed the deeds in trust for his minor
son. But, he did not do this. Three (3)
years, thereafter, or in 1968 after Haresh
had attained the age of 21, Choithram
should have terminated the temporary
arrangement with Ishwar, which according
to him would be effective only pending the
acquisition of citizenship papers. Again, he
did not do anything.
Evidence to be believed, said
Vice Chancellor Van Fleet of New
Jersey, must not only proceed
from the mouth of a credible
witness, but it must be credible in
itselfsuch as the common
experience and observation of
mankind can approve as probable
under the circumstances. We
have no test of the truth of
human testimony, except its
conformity to our knowledge,
observation and experience.
Whatever is repugnant to these
belongs to the miraculous and is
outside of judicial cognizance.
(Daggers vs. Van Dyek 37 M.J. Eq.
130, 132).
Another factor that can be counted
against the temporary arrangement
excuse is that upon the revocation on
February 4, 1971 of the Power of attorney
dated January 24, 1966 in favor of
Navalrai and Choithram by Ishwar,
Choithram wrote (tsn, p. 21, S. July 19,
1985) a letter dated June 25, 1971
(Exhibits R, R-1, R-2 and R-3) imploring
Ishwar to execute a new power of
attorney in their favor. That if he did not
want to give power, then Ishwar could
make a letter in favor of Dada and
another in his favor so that in any
litigation involving the properties in
question, both of them could represent
Ishwar and his wife. Choithram tried to
convince Ishwar to issue the power of
attorney in whatever manner he may
want. In said letter no mention was made
at all of any temporary arrangement.
On the contrary, said letter recognize(s)
the existence of principal and attorney-in-
fact relationship between Ishwar and
himself. Choithram wrote: . . . do you know
that if I had predated papers what could
you have done? Or do you know that I
have many papers signed by you and if I
had done anything or do then what can
you do about it?' Choithram was saying
that he could have repudiated the trust
and ran away with the properties of Ishwar
by predating documents and Ishwar would
be entirely helpless. He was bitter as a
result of Ishwar's revocation of the power
of attorney but no mention was made of
any temporary arrangement or a claim of
ownership over the properties in question
nor was he able to present any
memorandum or document to prove the
existence of such temporary arrangement.
Choithram is also estopped in pais or by
deed from claiming an interest over the
properties in question adverse to that of
Ishwar. Section 3(a) of Rule 131 of the
Rules of Court states that whenever a
party has, by his own declaration, act, or
omission intentionally and deliberately led
another to believe a particular thing true
and act upon such belief, he cannot in any
litigation arising out of such declaration,
act or omission be permitted to falsify it.'
While estoppel by deed is a bar which
precludes a party to a deed and his privies
from asserting as against the other and
his privies any right of title in derogation
of the deed, orfrom denying the truth of
any material fact asserted in it (31 C.J.S.
195; 19 Am. Jur. 603).
Thus, defendants-appellees are not
permitted to repudiate their admissions
and representations or to assert any right
or title in derogation of the deeds or from
denying the truth of any material fact
asserted in the (1) power of attorney
dated January 24, 1966 (Exhibit A); (2) the
Agreements of February 1, 1966 and May
16, 1966 (Exhibits B and C); and (3) the
Contract of Lease dated January 5, 1972
(Exhibit P).
. . . The doctrine of estoppel is
based upon the grounds of public
policy, fair dealing, good faith
and justice, and its purpose is to
forbid one to speak against his
own act, representations, or
commitments to the injury of one
to whom they were directed and
who reasonably relied thereon.
The doctrine of estoppel springs
from equitable principles and the
equities in the case. It is
designed to aid the law in the
administration of justice where
without its aid injustice might
result. It has been applied by
court wherever and whenever
special circumstances of a case
so demands' (Philippine National
Bank vs. Court of Appeals, 94
SCRA 357, 368 [1979]).
It was only after the services of counsel
has been obtained that Choithram alleged
for the first time in his Answer that the
General Power of attorney (Annex A) with
the Contracts to Sell (Annexes B and C)
were made only for the sole purpose of
assuring defendants' acquisition and
ownership of the lots described thereon in
due time under the law; that said
instruments do not reflect the true
intention of the parties (par. 2, Answer
dated May 30, 1983), seventeen (17) long
years from the time he received the
money transmitted to him by his brother,
Ishwar.
Moreover, Choithram's 'temporary
arrangement,' by which he claimed
purchasing the two (2) parcels in question
in 1966 and placing them in the name of
Ishwar who is an American citizen, to
circumvent the disqualification provision
of aliens acquiring real properties in the
Philippines under the 1935 Philippine
Constitution, as Choithram was then a
British subject, show a palpable disregard
of the law of the land and to sustain the
supposed "temporary arrangement" with
Ishwar would be sanctioning the
perpetration of an illegal act and culpable
violation of the Constitution.
Defendants-appellees likewise violated
the Anti-Dummy Law (Commonwealth Act
108, as amended), which provides in
Section 1 thereof that:
In all cases in which any
constitutional or legal provision
requires Philippine or any other
specific citizenship as a requisite
for the exercise or enjoyment of a
right, franchise or privilege, . . .
any alien or foreigner profiting
thereby, shall be punished . . . by
imprisonment . . . and of a fine of
not less than the value of the
right, franchise or privileges,
which is enjoyed or acquired in
violation of the provisions
hereof . . .
Having come to court with unclean hands,
Choithram must not be permitted foist his
'temporary arrangement' scheme as a
defense before this court. Being in delicto,
he does not have any right whatsoever
being shielded from his own wrong-doing,
which is not so with respect to Ishwar, who
was not a party to such an arrangement.
The falsity of Choithram's defense is
further aggravated by the material
inconsistencies and contradictions in his
testimony. While on January 23, 1985 he
testified that he purchased the land in
question on his own behalf (tsn, p. 4, S.
Jan. 23, 1985), in the July 18, 1985
hearing, forgetting probably what he
stated before, Choithram testified that he
was only an attorney-in-fact of Ishwar (tsn,
p. 5, S. July 18, 1985). Also in the hearing
of January 23, 1985, Choithram declared
that nobody rented the building that was
constructed on the parcels of land in
question (tsn, pp. 5 and 6), only to admit
in the hearing of October 30, 1985, that
he was in fact renting the building for
P12,000. 00 per annum (tsn, p. 3). Again,
in the hearing of July 19, 1985, Choithram
testified that he had no knowledge of the
revocation of the Power of Attorney (tsn,
pp. 20- 21), only to backtrack when
confronted with the letter of June 25, 1971
(Exhibits R to R-3), which he admitted to
be in "his own writing," indicating
knowledge of the revocation of the Power
of Attorney.
These inconsistencies are not minor but
go into the entire credibility of the
testimony of Choithram and the rule is
that contradictions on a very crucial point
by a witness, renders s testimony
incredible People vs. Rafallo, 80 Phil. 22).
Not only this the doctrine of falsus in uno,
falsus in omnibus is fully applicable as far
as the testimony of Choithram is
concerned. The cardinal rule, which has
served in all ages, and has been applied to
all conditions of men, is that a witness
willfully falsifying the truth in one
particular, when upon oath, ought never
to be believed upon the strength of his
own testimony, whatever he may assert
(U.S. vs. Osgood 27 Feb. Case No. 15971-
a, p. 364); Gonzales vs. Mauricio, 52 Phil,
728), for what ground of judicial relief can
there be left when the party has shown
such gross insensibility to the difference
between right and wrong, between truth
and falsehood? (The Santisima Trinidad, 7
Wheat, 283, 5 U.S. [L. ed.] 454).
True, that Choithram's testimony finds
corroboration from the testimony of his
brother, Navalrai, but the same would not
be of much help to Choithram. Not only is
Navalrai an interested and biased witness,
having admitted his close relationship with
Choithram and that whenever he or
Choithram had problems, they ran to each
other (tsn, pp. 17-18, S. Sept. 20, 1985),
Navalrai has a pecuniary interest in the
success of Choithram in the case in
question. Both he and Choithram are
business partners in Jethmal and Sons
and/or Jethmal Industries, wherein he
owns 60% of the company and Choithram,
40% (p. 62, Appellant's Brief). Since the
acquisition of the properties in question in
1966, Navalrai was occupying 1,200
square meters thereof as a factory site
plus the fact that his son (Navalrais) was
occupying the apartment on top of the
factory with his family rent free except the
amount of P l,000.00 a month to pay for
taxes on said properties (tsn, p. 17, S. Oct.
3, 1985).
Inherent contradictions also marked
Navalrai testimony. "While the latter was
very meticulous in keeping a receipt for
the P 10,000.00 that he paid Ishwar as
settlement in Jethmal Industries, yet in the
alleged payment of P 100,000.00 to
Ishwar, no receipt or voucher was ever
issued by him (tsn, p. 17, S. Oct. 3,
1983). 15
We concur.
The foregoing findings of facts of the Court of
Appeals which are supported by the evidence is
conclusive on this Court. The Court finds that
Ishwar entrusted US$150,000.00 to Choithram in
1965 for investment in the realty business. Soon
thereafter, a general power of attorney was
executed by Ishwar in favor of both Navalrai and
Choithram. If it is true that the purpose only is to
enable Choithram to purchase realty temporarily in
the name of Ishwar, why the inclusion of their elder
brother Navalrai as an attorney-in-fact?
Then, acting as attorney-in-fact of Ishwar,
Choithram purchased two parcels of land located in
Barrio Ugong Pasig, Rizal, from Ortigas in 1966.
With the balance of the money of Ishwar,
Choithram erected a building on said lot.
Subsequently, with a loan obtained from a bank
and the income of the said property, Choithram
constructed three other buildings thereon. He
managed the business and collected the rentals.
Due to their relationship of confidence it was only
in 1970 when Ishwar demanded for an accounting
from Choithram. And even as Ishwar revoked the
general power of attorney on February 4, 1971, of
which Choithram was duly notified, Choithram
wrote to Ishwar on June 25, 1971 requesting that
he execute a new power of attorney in their
favor. 16 When Ishwar did not respond thereto,
Choithram nevertheless proceeded as such
attorney-in-fact to assign all the rights and interest
of Ishwar to his daughter-in-law Nirmla in 1973
without the knowledge and consent of Ishwar.
Ortigas in turn executed the corresponding deeds
of sale in favor of Nirmla after full payment of the
purchase accomplice of the lots.
In the prefatory statement of their petition,
Choithram pictured Ishwar to be so motivated by
greed and ungratefulness, who squandered the
family business in New York, who had to turn to his
wife for support, accustomed to living in
ostentation and who resorted to blackmail in filing
several criminal and civil suits against them. These
statements find no support and should be stricken
from the records. Indeed, they are irrelevant to the
proceeding.
Moreover, assuming Ishwar is of such a low
character as Choithram proposes to make this
Court to believe, why is it that of all persons, under
his temporary arrangement theory, Choithram
opted to entrust the purchase of valuable real
estate and built four buildings thereon all in the
name of Ishwar? Is it not an unconscious
emergence of the truth that this otherwise
wayward brother of theirs was on the contrary able
to raise enough capital through the generosity of
his father-in-law for the purchase of the very
properties in question? As the appellate court aptly
observed if truly this temporary arrangement story
is the only motivation, why Ishwar of all people?
Why not the own son of Choithram, Haresh who is
also an American citizen and who was already 18
years old at the time of purchase in 1966? The
Court agrees with the observation that this theory
is an afterthought which surfaced only when
Choithram, Nirmla and Moti filed their answer.
When Ishwar asked for an accounting in 1970 and
revoked the general power of attorney in 1971,
Choithram had a total change of heart. He decided
to claim the property as his. He caused the transfer
of the rights and interest of Ishwar to Nirmla. On
his representation, Ortigas executed the deeds of
sale of the properties in favor of Nirmla. Choithram
obviously surmised Ishwar cannot stake a valid
claim over the property by so doing.
Clearly, this transfer to Nirmla is fictitious and, as
admitted by Choithram, was intended only to place
the property in her name until Choithram acquires
Philippine citizenship. 17 What appears certain is
that it appears to be a scheme of Choithram to
place the property beyond the reach of Ishwar
should he successfully claim the same. Thus, it
must be struck down.
Worse still, on September 27, 1990 spouses Ishwar
filed an urgent motion for the issuance of a writ of
preliminary attachment and to require Choithram,
et al. to submit certain documents, inviting the
attention of this Court to the following:
a) Donation by Choithram of his 2,500
shares of stock in General Garments
Corporation in favor of his children on
December 29, 1989; 18
b) Sale on August 2, 1990 by Choithram of
his 100 shares in Biflex (Phils.), Inc., in
favor of his children; 19and
c) Mortgage on June 20, 1989 by Nirmla
through her attorney-in-fact, Choithram, of
the properties subject of this litigation, for
the amount of $3 Million in favor of
Overseas Holding, Co. Ltd., (Overseas for
brevity), a corporation which appears to
be organized and existing under and by
virtue of the laws of Cayman Islands, with
a capital of only $100.00 divided into 100
shares of $1.00 each, and with address at
P.O. Box 1790, Grand Cayman, Cayman
Islands. 20
An opposition thereto was filed by Choithram, et al.
but no documents were produced. A manifestation
and reply to the opposition was filed by spouses
Ishwar.
All these acts of Choithram, et al. appear to be
fraudulent attempts to remove these properties to
the detriment of spouses Ishwar should the latter
prevail in this litigation.
On December 10, 1990 the court issued a
resolution that substantially reads as follows:
Considering the allegations of petitioners
Ishwar Jethmal Ramnani and Sonya
Ramnani that respondents Choithram
Jethmal Ramnani, Nirmla Ramnani and
Moti G. Ramnani have fraudulently
executed a simulated mortgage of the
properties subject of this litigation dated
June 20, 1989, in favor of Overseas
Holding Co., Ltd. which appears to be a
corporation organized in Cayman Islands,
for the amount of $ 3,000,000.00, which is
much more than the value of the
properties in litigation; that said alleged
mortgagee appears to be a "shell"
corporation with a capital of only $100.00;
and that this alleged transaction appears
to be intended to defraud petitioners
Ishwar and Sonya Jethmal Ramnani of any
favorable judgment that this Court may
render in this case;
Wherefore the Court Resolved to issue a
writ of preliminary injunction enjoining and
prohibiting said respondents Choithram
Jethmal Ramnani, Nirmla V. Ramnani, Moti
G. Ramnani and the Overseas Holding Co.,
Ltd. from encumbering, selling or
otherwise disposing of the properties and
improvements subject of this litigation
until further orders of the Court.
Petitioners Ishwar and Sonya Jethmal
Ramnani are hereby required to post a
bond of P 100,000.00 to answer for any
damages d respondents may suffer by
way of this injunction if the Court finally
decides the said petitioners are not
entitled thereto.
The Overseas Holding Co., Ltd. with
address at P.O. Box 1790 Grand Cayman,
Cayman Islands, is hereby IMPLEADED as
a respondent in these cases, and is hereby
required to SUBMIT its comment on the
Urgent Motion for the Issuance of a Writ of
Preliminary Attachment and Motion for
Production of Documents, the
Manifestation and the Reply to the
Opposition filed by said petitioners, within
Sixty (60) days after service by publication
on it in accordance with the provisions of
Section 17, Rule 14 of the Rules of Court,
at the expense of petitioners Ishwar and
Sonya Jethmal Ramnani.
Let copies of this resolution be served on
the Register of Deeds of Pasig, Rizal, and
the Provincial Assessor of Pasig, Rizal,
both in Metro Manila, for its annotation on
the transfer Certificates of Titles Nos.
403150 and 403152 registered in the
name of respondent Nirmla V. Ramnani,
and on the tax declarations of the said
properties and its improvements subject
of this litigation. 21
The required injunction bond in the amount of P
100,000.00 was filed by the spouses Ishwar which
was approved by the Court. The above resolution of
the Court was published in the Manila Bulletin issue
of December 17, 1990 at the expense of said
spouses. 22 On December 19, 1990 the said
resolution and petition for review with annexes in
G.R. Nos. 85494 and 85496 were transmitted to
respondent Overseas, Grand Cayman Islands at its
address c/o Cayman Overseas Trust Co. Ltd.,
through the United Parcel Services Bill of
Lading 23 and it was actually delivered to said
company on January 23, 1991. 24
On January 22, 1991, Choithram, et al., filed a
motion to dissolve the writ of preliminary injunction
alleging that there is no basis therefor as in the
amended complaint what is sought is actual
damages and not a reconveyance of the property,
that there is no reason for its issuance, and that
acts already executed cannot be enjoined. They
also offered to file a counterbond to dissolve the
writ.
A comment/opposition thereto was filed by spouses
Ishwar that there is basis for the injunction as the
alleged mortgage of the property is simulated and
the other donations of the shares of Choithram to
his children are fraudulent schemes to negate any
judgment the Court may render for petitioners.
No comment or answer was filed by Overseas
despite due notice, thus it is and must be
considered to be in default and to have lost the
right to contest the representations of spouses
Ishwar to declare the aforesaid alleged mortgage
nun and void.
This purported mortgage of the subject properties
in litigation appears to be fraudulent and
simulated. The stated amount of $3 Million for
which it was mortgaged is much more than the
value of the mortgaged properties and its
improvements. The alleged mortgagee-company
(Overseas) was organized only on June 26,1989 but
the mortgage was executed much earlier, on June
20, 1989, that is six (6) days before Overseas was
organized. Overseas is a "shelf" company worth
only $100.00. 25 In the manifestation of spouses
Ishwar dated April 1, 1991, the Court was informed
that this matter was brought to the attention of the
Central Bank (CB) for investigation, and that in a
letter of March 20, 1991, the CB informed counsel
for spouses Ishwar that said alleged foreign loan of
Choithram, et al. from Overseas has not been
previously approved/registered with the CB. 26
Obviously, this is another ploy of Choithram, et al.
to place these properties beyond the reach of
spouses Ishwar should they obtain a favorable
judgment in this case. The Court finds and so
declares that this alleged mortgage should be as it
is hereby declared null and void.
All these contemporaneous and subsequent acts of
Choithram, et al., betray the weakness of their
cause so they had to take an steps, even as the
case was already pending in Court, to render
ineffective any judgment that may be rendered
against them.
The problem is compounded in that respondent
Ortigas is caught in the web of this bitter fight. It
had all the time been dealing with Choithram as
attorney-in-fact of Ishwar. However, evidence had
been adduced that notice in writing had been
served not only on Choithram, but also on Ortigas,
of the revocation of Choithram's power of attorney
by Ishwar's lawyer, on May 24, 1971. 27 A
publication of said notice was made in the April 2,
1971 issue of The Manila Times for the information
of the general public. 28 Such notice of revocation in
a newspaper of general circulation is sufficient
warning to third persons including Ortigas. 29 A
notice of revocation was also registered with the
Securities and Exchange Commission on March 29,
1 971. 30
Indeed in the letter of Choithram to Ishwar of June
25, 1971, Choithram was pleading that Ishwar
execute another power of attorney to be shown to
Ortigas who apparently learned of the revocation of
Choithram's power of attorney. 31 Despite said
notices, Ortigas nevertheless acceded to the
representation of Choithram, as alleged attorney-
in-fact of Ishwar, to assign the rights of petitioner
Ishwar to Nirmla. While the primary blame should
be laid at the doorstep of Choithram, Ortigas is not
entirely without fault. It should have required
Choithram to secure another power of attorney
from Ishwar. For recklessly believing the pretension
of Choithram that his power of attorney was still
good, it must, therefore, share in the latter's
liability to Ishwar.
In the original complaint, the spouses Ishwar asked
for a reconveyance of the properties and/or
payment of its present value and damages. 32 In
the amended complaint they asked, among others,
for actual damages of not less than the present
value of the real properties in litigation, moral and
exemplary damages, attorneys fees, costs of the
suit and further prayed for "such other reliefs as
may be deemed just and equitable in the
premises .33 The amended complaint contain the
following positive allegations:
7. Defendant Choithram Ramnani, in
evident bad faith and despite due notice
of the revocation of the General Power of
Attorney, Annex 'D" hereof, caused the
transfer of the rights over the said parcels
of land to his daughter-in-law, defendant
Nirmla Ramnani in connivance with
defendant Ortigas & Co., the latter having
agreed to the said transfer despite
receiving a letter from plaintiffs' lawyer
informing them of the said revocation;
copy of the letter is hereto attached and
made an integral part hereof as Annex
"H";
8. Defendant Nirmla Ramnani having
acquired the aforesaid property by fraud
is, by force of law, considered a trustee of
an implied trust for the benefit of plaintiff
and is obliged to return the same to the
latter:
9. Several efforts were made to settle the
matter within the family but defendants
(Choithram Ramnani, Nirmla Ramnani and
Moti Ramnani) refused and up to now fail
and still refuse to cooperate and respond
to the same; thus, the present case;
10. In addition to having been deprived of
their rights over the properties (described
in par. 3 hereof), plaintiffs, by reason of
defendants' fraudulent act, suffered actual
damages by way of lost rental on the
property which defendants (Choithram
Ramnani, Nirmla Ramnani and Moti
Ramnani have collected for themselves; 34
In said amended complaint, spouses Ishwar, among
others, pray for payment of actual damages in an
amount no less than the value of the properties in
litigation instead of a reconveyance as sought in
the original complaint. Apparently they opted not
to insist on a reconveyance as they are American
citizens as alleged in the amended complaint.
The allegations of the amended complaint above
reproduced clearly spelled out that the transfer of
the property to Nirmla was fraudulent and that it
should be considered to be held in trust by Nirmla
for spouses Ishwar. As above-discussed, this
allegation is well-taken and the transfer of the
property to Nirmla should be considered to have
created an implied trust by Nirmla as trustee of the
property for the benefit of spouses Ishwar. 35
The motion to dissolve the writ of preliminary
injunction filed by Choithram, et al. should be
denied. Its issuance by this Court is proper and
warranted under the circumstances of the case.
Under Section 3(c) Rule 58 of the Rules of Court, a
writ of preliminary injunction may be granted at
any time after commencement of the action and
before judgment when it is established:
(c) that the defendant is doing, threatens,
or is about to do, or is procuring or
suffering to be done, some act probably in
violation of plaintiffs's rights respecting
the subject of the action, and tending to
render the judgment ineffectual.
As above extensively discussed, Choithram, et al.
have committed and threaten to commit further
acts of disposition of the properties in litigation as
well as the other assets of Choithram, apparently
designed to render ineffective any judgment the
Court may render favorable to spouses Ishwar.
The purpose of the provisional remedy of
preliminary injunction is to preserve the status
quo of the things subject of the litigation and to
protect the rights of the spouses Ishwar respecting
the subject of the action during the pendency of
the Suit 36 and not to obstruct the administration of
justice or prejudice the adverse party. 37 In this case
for damages, should Choithram, et al. continue to
commit acts of disposition of the properties subject
of the litigation, an award of damages to spouses
Ishwar would thereby be rendered ineffectual and
meaningless. 38
Consequently, if only to protect the interest of
spouses Ishwar, the Court hereby finds and holds
that the motion for the issuance of a writ of
preliminary attachment filed by spouses Ishwar
should be granted covering the properties subject
of this litigation.
Section 1, Rule 57 of the Rules of Court provides
that at the commencement of an action or at any
time thereafter, the plaintiff or any proper party
may have the property of the adverse party
attached as security for the satisfaction of any
judgment that may be recovered, in, among others,
the following cases:
(d) In an action against a party who has
been guilty of a fraud in contracting the
debt or incurring the obligation upon
which the action is brought, or in
concealing or disposing of the property for
the taking, detention or conversion of
which the action is brought;
(e) In an action against a party who has
removed or disposed of his property, or is
about to do so, with intent to defraud his
creditors; . . .
Verily, the acts of Choithram, et al. of disposing the
properties subject of the litigation disclose a
scheme to defraud spouses Ishwar so they may not
be able to recover at all given a judgment in their
favor, the requiring the issuance of the writ of
attachment in this instance.
Nevertheless, under the peculiar circumstances of
this case and despite the fact that Choithram, et
al., have committed acts which demonstrate their
bad faith and scheme to defraud spouses Ishwar
and Sonya of their rightful share in the properties
in litigation, the Court cannot ignore the fact that
Choithram must have been motivated by a strong
conviction that as the industrial partner in the
acquisition of said assets he has as much claim to
said properties as Ishwar, the capitalist partner in
the joint venture.
The scenario is clear. Spouses Ishwar supplied the
capital of $150,000.00 for the
business.1wphi1 They entrusted the money to
Choithram to invest in a profitable business venture
in the Philippines. For this purpose they appointed
Choithram as their attorney-in-fact.
Choithram in turn decided to invest in the real
estate business. He bought the two (2) parcels of
land in question from Ortigas as attorney-in-fact of
Ishwar- Instead of paying for the lots in cash, he
paid in installments and used the balance of the
capital entrusted to him, plus a loan, to build two
buildings. Although the buildings were burned later,
Choithram was able to build two other buildings on
the property. He rented them out and collected the
rentals. Through the industry and genius of
Choithram, Ishwar's property was developed and
improved into what it is nowa valuable asset
worth millions of pesos. As of the last estimate in
1985, while the case was pending before the trial
court, the market value of the properties is no less
than P22,304,000.00. 39 It should be worth much
more today.
We have a situation where two brothers engaged in
a business venture. One furnished the capital, the
other contributed his industry and talent. Justice
and equity dictate that the two share equally the
fruit of their joint investment and efforts. Perhaps
this Solomonic solution may pave the way towards
their reconciliation. Both would stand to gain. No
one would end up the loser. After all, blood is
thicker than water.
However, the Court cannot just close its eyes to the
devious machinations and schemes that Choithram
employed in attempting to dispose of, if not
dissipate, the properties to deprive spouses Ishwar
of any possible means to recover any award the
Court may grant in their favor. Since Choithram, et
al. acted with evident bad faith and malice, they
should pay moral and exemplary damages as well
as attorney's fees to spouses Ishwar.
WHEREFORE, the petition in G.R. No. 85494 is
DENIED, while the petition in G.R. No. 85496 is
hereby given due course and GRANTED. The
judgment of the Court of Appeals dated October
18, 1988 is hereby modified as follows:
1. Dividing equally between respondents spouses
Ishwar, on the one hand, and petitioner Choithram
Ramnani, on the other, (in G.R. No. 85494) the two
parcels of land subject of this litigation, including
all the improvements thereon, presently covered by
transfer Certificates of Title Nos. 403150 and
403152 of the Registry of Deeds, as well as the
rental income of the property from 1967 to the
present.
2. Petitioner Choithram Jethmal Ramnani, Nirmla V.
Ramnani, Moti C. Ramnani and respondent Ortigas
and Company, Limited Partnership (in G.R. No.
85496) are ordered solidarily to pay in cash the
value of said one-half (1/2) share in the said land
and improvements pertaining to respondents
spouses Ishwar and Sonya at their fair market
value at the time of the satisfaction of this
judgment but in no case less than their value as
appraised by the Asian Appraisal, Inc. in its
Appraisal Report dated August 1985 (Exhibits T to
T-14, inclusive).
3. Petitioners Choithram, Nirmla and Moti Ramnani
and respondent Ortigas & Co., Ltd. Partnership shall
also be jointly and severally liable to pay to said
respondents spouses Ishwar and Sonya Ramnani
one-half (1/2) of the total rental income of said
properties and improvements from 1967 up to the
date of satisfaction of the judgment to be
computed as follows:
a. On Building C occupied by Eppie's
Creation and Jethmal Industries from
1967 to 1973, inclusive, based on the
1967 to 1973 monthly rentals paid by
Eppie's Creation;
b. Also on Building C above, occupied by
Jethmal Industries and Lavine from 1974
to 1978, the rental incomes based on
then rates prevailing as shown under
Exhibit "P"; and from 1979 to 1981,
based on then prevailing rates as
indicated under Exhibit "Q";
c. On Building A occupied by Transworld
Knitting Mills from 1972 to 1978, the
rental incomes based upon then
prevailing rates shown under Exhibit "P",
and from 1979 to 1981, based on
prevailing rates per Exhibit "Q";
d. On the two Bays Buildings occupied by
Sigma-Mariwasa from 1972 to 1978, the
rentals based on the Lease Contract,
Exhibit "P", and from 1979 to 1980, the
rentals based on the Lease Contract,
Exhibit "Q".
and thereafter commencing 1982, to account for
and turn over the rental incomes paid or ought to
be paid for the use and occupancy of the properties
and all improvements totalling 10,048 sq. m.,
based on the rate per square meter prevailing in
1981 as indicated annually cumulative up to 1984.
Then, commencing 1985 and up to the satisfaction
of the judgment, rentals shall be computed at ten
percent (10%) annually of the fair market values of
the properties as appraised by the Asian
Appraisals, Inc. in August 1985. (Exhibits T to T-14,
inclusive.)
4. To determine the market value of the properties
at the time of the satisfaction of this judgment and
the total rental incomes thereof, the trial court is
hereby directed to hold a hearing with deliberate
dispatch for this purpose only and to have the
judgment immediately executed after such
determination.
5. Petitioners Choithram, Nirmla and Moti, all
surnamed Ramnani, are also jointly and severally
liable to pay respondents Ishwar and Sonya
Ramnani the amount of P500,000.00 as moral
damages, P200,000.00 as exemplary damages and
attorney's fees equal to 10% of the total award. to
said respondents spouses.
6. The motion to dissolve the writ of preliminary
injunction dated December 10, 1990 filed by
petitioners Choithram, Nirmla and Moti, all
surnamed Ramnani, is hereby DENIED and the said
injunction is hereby made permanent. Let a writ of
attachment be issued and levied against the
properties and improvements subject of this
litigation to secure the payment of the above
awards to spouses Ishwar and Sonya.
7. The mortgage constituted on the subject
property dated June 20, 1989 by petitioners
Choithram and Nirmla, both surnamed Ramnani in
favor of respondent Overseas Holding, Co. Ltd. (in
G.R. No. 85496) for the amount of $3-M is hereby
declared null and void. The Register of Deeds of
Pasig, Rizal, is directed to cancel the annotation of
d mortgage on the titles of the properties in
question.
8. Should respondent Ortigas Co., Ltd. Partnership
pay the awards to Ishwar and Sonya Ramnani
under this judgment, it shall be entitled to
reimbursement from petitioners Choithram, Nirmla
and Moti, all surnamed Ramnani.
9. The above awards shag bear legal rate of
interest of six percent (6%) per annum from the
time this judgment becomes final until they are
fully paid by petitioners Choithram Ramnani,
Nirmla V. Ramnani, Moti C. Ramnani and Ortigas,
Co., Ltd. Partnership. Said petitioners Choithram, et
al. and respondent Ortigas shall also pay the costs.
SO ORDERED.
G.R. No. L-41420 July 10, 1992 xxx xxx xxx CMS claimed that this commission paid to Shinko
was in violation of the agreement and that it (CMS)
is entitled to this amount as part of the proceeds of
CMS LOGGING, INC., petitioner, 3. It is expressly agreed that
the sale of the logs. CMS contended that since
vs. DRACOR shall handle exclusively
DRACOR had been paid the 5% commission under
THE COURT OF APPEALS and D.R. AGUINALDO all negotiations of all export sales
the agreement, it is no longer entitled to the
CORPORATION, respondents. of SISON with the buyers and
additional commission paid to Shinko as this
arrange the procurement and
tantamount to DRACOR receiving double
schedules of the vessel or vessels
compensation for the services it rendered.
for the shipment of SISON's logs
in accordance with SISON's
NOCON, J.: written requests, but DRACOR After this discovery, CMS sold and shipped logs
shall not in anyway [sic] be liable valued at U.S. $739,321.13 or
This is a petition for review on certiorari from the or responsible for any delay, P2,883,351.90, 4 directly to several firms in Japan
decision dated July 31, 1975 of the Court of default or failure of the vessel or without the aid or intervention of DRACOR.
Appeals in CA-G.R. No. 47763-R which affirmed in vessels to comply with the
toto the decision of the Court of First Instance of schedules agreed upon; CMS sued DRACOR for the commission received by
Manila, Branch VII, in Civil Case No. 56355 Shinko and for moral and exemplary damages,
dismissing the complaint filed by petitioner CMS xxx xxx xxx while DRACOR counterclaimed for its commission,
Logging, Inc. (CMS, for brevity) against private amounting to P144,167.59, from the sales made by
respondent D.R. Aguinaldo Corporation (DRACOR, CMS of logs to Japanese firms. In its reply, CMS
9. It is expressly agreed by the
for brevity) and ordering the former to pay the averred as a defense to the counterclaim that
parties hereto that DRACOR shall
latter attorney's fees in the amount of P1,000.00 DRACOR had retained the sum of P101,167.59 as
receive five (5%) per cent
and the costs. part of its commission for the sales made by
commission of the gross sales of
CMS. 5 Thus, as its counterclaim to DRACOR's
logs of SISON based on F.O.B.
The facts of the case are as follows: Petitioner CMS counterclaim, CMS demanded DRACOR return the
invoice value which commission
is a forest concessionaire engaged in the logging amount it unlawfully retained. DRACOR later filed
shall be deducted from the
business, while private respondent DRACOR is an amended counterclaim, alleging that the
proceeds of any and/or all
engaged in the business of exporting and selling balance of its commission on the sales made by
moneys received by DRACOR for
logs and lumber. On August 28, 1957, CMS and CMS was P42,630.82, 6 thus impliedly admitting
and in behalf and for the account
DRACOR entered into a contract of that it retained the amount alleged by CMS.
of SISON;
agency 1 whereby the former appointed the latter
as its exclusive export and sales agent for all logs In dismissing the complaint, the trial court ruled
By virtue of the aforesaid agreement, CMS was able
that the former may produce, for a period of five that no evidence was presented to show that
to sell through DRACOR a total of 77,264,672 board
(5) years. The pertinent portions of the agreement, Shinko received the commission of U.S. $77,264.67
feet of logs in Japan, from September 20, 1957 to
which was drawn up by DRACOR, 2 are as follows: arising from the sale of CMS's logs in Japan, though
April 4, 1962.
the trial court stated that "Shinko was able to
1. SISON [CMS] hereby appoints collect the total amount of $77,264.67 US Dollars
About six months prior to the expiration of the (Exhs. M and M-1)." 7 The counterclaim was
DRACOR as his sole and exclusive
agreement, while on a trip to Tokyo, Japan, CMS's likewise dismissed, as it was shown that DRACOR
export sales agent with full
president, Atty. Carlos Moran Sison, and general had waived its rights to the balance of its
authority, subject to the
manager and legal counsel, Atty. Teodoro R. commission in a letter dated February 2, 1963 to
conditions and limitations
Dominguez, discovered that DRACOR had used Atty. Carlos Moran Sison, president of CMS. 8 From
hereinafter set forth, to sell and
Shinko Trading Co., Ltd. (Shinko for brevity) as said decision, only CMS appealed to the Court of
export under a firm sales
agent, representative or liaison officer in selling Appeals.
contract acceptable to SISON, all
CMS's logs in Japan for which Shinko earned a
logs produced by SISON for a
commission of U.S. $1.00 per 1,000 board feet from
period of five (5) years The Court of Appeals, in a 3 to 2
the buyer of the logs. Under this arrangement,
commencing upon the execution decision, 9 affirmed the dismissal of the complaint
Shinko was able to collect a total of U.S.
of the agreement and upon the since "[t]he trial court could not have made a
$77,264.67. 3
terms and conditions hereinafter categorical finding that Shinko collected
provided and DRACOR hereby commissions from the buyers of Sison's logs in
accepts such appointment; Japan, and could not have held that Sison is
entitled to recover from Dracor the amount
collected by Shinko as commissions, plaintiff-
appellant having failed to prove by competent
evidence its claims." 10
Moreover, the appellate court held:
There is reason to believe that
Shinko Trading Co. Ltd., was paid
by defendant-appellee out of its
own commission of 5%, as
indicated in the letter of its
president to the president of
Sison, dated February 2, 1963
(Exhibit "N"), and in the
Agreement between Aguinaldo
Development Corporation
(ADECOR) and Shinko Trading
Co., Ltd. (Exhibit "9"). Daniel R.
Aguinaldo stated in his said
letter:
. . . , I informed you that if you
wanted to pay me for the service,
then it would be no more than at
the standard rate of 5%
commission because in our own
case, we pay our Japanese
agents 2-1/2%. Accordingly, we
would only add a similar amount
of 2-1/2% for the service which
we would render you in the
Philippines. 11
Aggrieved, CMS appealed to this Court by way of a
petition for review on certiorari, alleging (1) that
the Court of Appeals erred in not making a
complete findings of fact; (2) that the testimony of
Atty. Teodoro R. Dominguez, regarding the
admission by Shinko's president and director that it
collected a commission of U.S. $1.00 per 1,000
board feet of logs from the Japanese buyers, is
admissible against DRACOR; (3) that the statement
of DRACOR's chief legal counsel in his
memorandum dated May 31, 1965, Exhibit "K", is
an admission that Shinko was able to collect the
commission in question; (4) that the fact that
Shinko received the questioned commissions is
deemed admitted by DRACOR by its silence under
Section 23, Rule 130 of the Rules of Court when it
failed to reply to Atty. Carlos Moran Sison's letter
dated February 6, 1962; (5) that DRACOR is not
entitled to its 5% commission arising from the
direct sales made by CMS to buyers in Japan; and
(6) that DRACOR is guilty of fraud and bad faith in
its dealings with CMS.
With regard to CMS's arguments concerning
whether or not Shinko received the commission in
question, We find the same unmeritorious.
To begin with, these arguments question the
findings of fact made by the Court of Appeals,
which are final and conclusive and can not be
reviewed on appeal to the Supreme Court. 12
Moreover, while it is true that the evidence
adduced establishes the fact that Shinko is
DRACOR's agent or liaison in Japan, 13 there is no
evidence which established the fact that Shinko did
receive the amount of U.S. $77,264.67 as
commission arising from the sale of CMS's logs to
various Japanese firms.
The fact that Shinko received the commissions in
question was not established by the testimony of
Atty. Teodoro R. Dominguez to the effect that
Shinko's president and director told him that Shinko
received a commission of U.S. $1.00 for every
1,000 board feet of logs sold, since the same is
hearsay. Similarly, the letter of Mr. K. Shibata of
Toyo Menka Kaisha, Ltd. 14 is also hearsay since Mr.
Shibata was not presented to testify on his letter.
CMS's other evidence have little or no probative
value at all. The statements made in the
memorandum of Atty. Simplicio R. Ciocon to
DRACOR dated May 31, 1965, 15 the letter dated
February 2, 1963 of Daniel
R. Aguinaldo, 16 president of DRACOR, and the
reply-letter dated January 9, 1964 17 by DRACOR's
counsel Atty. V. E. Del Rosario to CMS's demand
letter dated September 25, 1963 can not be
categorized as admissions that Shinko did receive
the commissions in question.
The alleged admission made by Atty. Ciocon, to wit
Furthermore, as per our records,
our shipment of logs to Toyo
Menka Kaisha, Ltd., is only for a
net volume of 67,747,732 board
feet which should enable Shinko
to collect a commission of US
$67,747.73 only
can not be considered as such since the
statement was made in the context of
questioning CMS's tally of logs delivered
to various Japanese firms.
Similarly, the statement of Daniel R. Aguinaldo, to
wit
. . . Knowing as we do that Toyo
Menka is a large and reputable
company, it is obvious that they
paid Shinko for certain services
which Shinko must have
satisfactorily performed for them
in Japan otherwise they would not
have paid Shinko
and that of Atty. V. E. Del Rosario,
. . . It does not seem proper,
therefore, for CMS Logging, Inc.,
as principal, to concern itself
with, much less question, the
right of Shinko Trading Co., Ltd.
with which our client debt
directly, to whatever benefits it
might have derived form the
ultimate consumer/buyer of these
logs, Toyo Menka Kaisha, Ltd.
There appears to be no
justification for your client's
contention that these benefits,
whether they can be considered
as commissions paid by Toyo
Menka Kaisha to Shinko Trading,
are to be regarded part of the
gross sales.
can not be considered admissions that
Shinko received the questioned
commissions since neither statements
declared categorically that Shinko did in
fact receive the commissions and that
these arose from the sale of CMS's logs.
As correctly stated by the appellate court:
 It is a rule that "a statement is
not competent as an admission
where it does not, under a
reasonable construction, appear
to admit or acknowledge the fact
which is sought to be proved by
it". An admission or declaration
to be competent must have been
expressed in definite, certain and
unequivocal language (Bank of
the Philippine Islands vs. Fidelity
& Surety Co., 51 Phil. 57, 64). 18
CMS's contention that DRACOR had admitted by its
silence the allegation that Shinko received the
commissions in question when it failed to respond
to Atty. Carlos Moran Sison's letter dated February
6, 1963, is not supported by the evidence. DRACOR
did in fact reply to the letter of Atty. Sison, through
the letter dated March 5, 1963 of F.A.
Novenario, 19 which stated:
This is to acknowledge receipt of
your letter dated February 6,
1963, and addressed to Mr. D. R.
Aguinaldo, who is at present out
of the country.
xxx xxx xxx
We have no record or knowledge
of any such payment of
commission made by Toyo Menka
to Shinko. If the payment was
made by Toyo Menka to Shinko,
as stated in your letter, we knew
nothing about it and had nothing
to do with it.
The finding of fact made by the trial court, i.e., that
"Shinko was able to collect the total amount of
$77,264.67 US Dollars," can not be given weight
since this was based on the summary prepared by
CMS itself, Exhibits "M" and "M-1".
Moreover, even if it was shown that Shinko did in
fact receive the commissions in question, CMS is
not entitled thereto since these were apparently
paid by the buyers to Shinko for arranging the sale.
This is therefore not part of the gross sales of
CMS's logs.
However, We find merit in CMS's contention that mentioned, which is to evade the payment of the
the appellate court erred in holding that DRACOR agent's commission.
was entitled to its commission from the sales made
by CMS to Japanese firms. Regarding CMS's contention that the Court of
Appeals erred in not finding that DRACOR had
The principal may revoke a contract of agency at committed acts of fraud and bad faith, We find the
will, and such revocation may be express, or same unmeritorious. Like the contention involving
implied, 20 and may be availed of even if the period Shinko and the questioned commissions, the
fixed in the contract of agency as not yet findings of the Court of Appeals on the matter were
expired. 21 As the principal has this absolute right based on its appreciation of the evidence, and
to revoke the agency, the agent can not object these findings are binding on this Court.
thereto; neither may he claim damages arising
from such revocation, 22unless it is shown that such In fine, We affirm the ruling of the Court of Appeals
was done in order to evade the payment of agent's that there is no evidence to support CMS's
commission. 23 contention that Shinko earned a separate
commission of U.S. $1.00 for every 1,000 board
In the case at bar, CMS appointed DRACOR as its feet of logs from the buyer of CMS's logs. However,
agent for the sale of its logs to Japanese firms. Yet, We reverse the ruling of the Court of Appeals with
during the existence of the contract of agency, regard to DRACOR's right to retain the amount of
DRACOR admitted that CMS sold its logs directly to P101,536.77 as part of its commission from the
several Japanese firms. This act constituted an sale of logs by CMS, and hold that DRACOR has no
implied revocation of the contract of agency under right to its commission. Consequently, DRACOR is
Article 1924 of the Civil Code, which provides: hereby ordered to remit to CMS the amount of
P101,536.77.
Art. 1924 The agency is revoked
if the principal directly manages WHEREFORE, the decision appealed from is hereby
the business entrusted to the MODIFIED as stated in the preceding paragraph.
agent, dealing directly with third Costs de officio.
persons.
SO ORDERED.
In New Manila Lumber Company, Inc. vs. Republic
of the Philippines, 24 this Court ruled that the act of
a contractor, who, after executing powers of
attorney in favor of another empowering the latter
to collect whatever amounts may be due to him
from the Government, and thereafter demanded
and collected from the government the money the
collection of which he entrusted to his attorney-in-
fact, constituted revocation of the agency in favor
of the attorney-in-fact.
Since the contract of agency was revoked by CMS
when it sold its logs to Japanese firms without the
intervention of DRACOR, the latter is no longer
entitled to its commission from the proceeds of
such sale and is not entitled to retain whatever
moneys it may have received as its commission for
said transactions. Neither would DRACOR be
entitled to collect damages from CMS, since
damages are generally not awarded to the agent
for the revocation of the agency, and the case at
bar is not one falling under the exception
G.R. No. 141525 September 2, 2005
CARLOS SANCHEZ, Petitioners,
vs.
MEDICARD PHILIPPINES, INC., DR. NICANOR
MONTOYA and CARLOS EJERCITO, Respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
This petition for review on certiorari seeks to
reverse the Decision1 of the Court of Appeals dated
February 24, 1999 and its Resolution dated January
12, 2000 in CA-G.R. CV No. 47681.
The facts, as established by the trial court and
affirmed by the Court of Appeals, follow:
Sometime in 1987, Medicard Philippines, Inc.
(Medicard), respondent, appointed petitioner as its
special corporate agent. As such agent, Medicard
gave him a commission based on the "cash brought
in."
In September, 1988, through petitioners efforts,
Medicard and United Laboratories Group of
Companies (Unilab) executed a Health Care
Program Contract. Under this contract, Unilab shall
pay Medicard a fixed monthly premium for the
health insurance of its personnel. Unilab paid
Medicard P4,148,005.00 representing the premium
for one (1) year. Medicard then handed petitioner
18% of said amount or P746,640.90 representing
his commission.
Again, through petitioners initiative, the agency
contract between Medicard and Unilab was
renewed for another year, or from October 1, 1989
to September 30, 1990, incorporating therein the
increase of premium fromP4,148,005.00
to P7,456,896.00. Medicard paid
petitioner P1,342,241.00 as his commission.
Prior to the expiration of the renewed contract,
Medicard proposed to Unilab, through petitioner, an
increase of the premium for the next year. Unilab
rejected the proposal "for the reason that it was too
high," prompting Dr. Nicanor Montoya (Medicards
president and general manager), also a
respondent, to request petitioner to reduce his
commission, but the latter refused.
In a letter dated October 3, 1990, Unilab, through
Carlos Ejercito, another respondent, confirmed its
decision not to renew the health program contract
with Medicard.
Meanwhile, in order not to prejudice its personnel
by the termination of their health insurance, Unilab,
through respondent Ejercito, negotiated with Dr.
Montoya and other officers of Medicard, to discuss
ways in order to continue the insurance coverage
of those personnel.
Under the new scheme, Unilab shall pay Medicard
only the amount corresponding to the actual
hospitalization expenses incurred by each
personnel plus 15% service fee for using Medicard
facilities, which amount shall not be less
than P780,000.00.
Medicard did not give petitioner any commission
under the new scheme.
In a letter dated March 15, 1991, petitioner
demanded from Medicard payment of P338,000.00
as his commission plus damages, but the latter
refused to heed his demand.
Thus, petitioner filed with the Regional Trial Court
(RTC), Branch 66, Makati City, a complaint for sum
of money against Medicard, Dr. Nicanor Montoya
and Carlos Ejercito, herein respondents.
After hearing, the RTC rendered its Decision
dismissing petitioners complaint and respondents
counterclaim.
On appeal, the Court of Appeals affirmed the trial
courts assailed Decision. The Appellate Court held
that there is no proof that the execution of the new
contract between the parties under the "cost plus"
system is a strategy to deprive petitioner of his
commission; that Medicard did not commit any
fraudulent act in revoking its agency contract with
Sanchez; that when Unilab rejected Medicards
proposal for an increase of premium, their Health
Care Program Contract on its third year was
effectively revoked; and that where the contract is
ineffectual, then the agent is not entitled to a
commission.
Petitioner filed a motion for reconsideration, but
this was denied by the Court of Appeals on January
12, 2000.
Hence, the instant petition for review on certiorari.
The basic issue for our resolution is whether the
Court of Appeals erred in holding that the contract
of agency has been revoked by Medicard, hence,
petitioner is not entitled to a commission.
It is dictum that in order for an agent to be entitled
to a commission, he must be the procuring cause
of the sale, which simply means that the measures
employed by him and the efforts he exerted must
result in a sale.2 In other words, an agent receives
his commission only upon the successful conclusion
of a sale.3 Conversely, it follows that where his
efforts are unsuccessful, or there was no effort on
his part, he is not entitled to a commission.
In Prats vs. Court of Appeals,4 this Court held that
for the purpose of equity, an agent who is not the
efficient procuring cause is nonetheless entitled to
his commission, where said agent, notwithstanding
the expiration of his authority, nonetheless, took
diligent steps to bring back together the
parties, such that a sale was finalized and
consummated between them. In Manotok
Borthers vs. Court of Appeals,5 where the Deed of
Sale was only executed after the agents extended
authority had expired, this Court, applying its ruling
in Prats, held that the agent (in Manotok) is entitled
to a commission since he was the efficient
procuring cause of the sale, notwithstanding that
the sale took place after his authority had lapsed.
The proximate, close, and causal connection
between the agents efforts and the principals sale
of his property can not be ignored.
It may be recalled that through petitioners efforts,
Medicard was able to enter into a one-year Health
Care Program Contract with Unilab. As a result,
Medicard paid petitioner his commission. Again,
through his efforts, the contract was renewed and
once more, he received his commission. Before the SO ORDERED.
expiration of the renewed contract, Medicard,
through petitioner, proposed an increase in
premium, but Unilab rejected this proposal.
Medicard then requested petitioner to reduce his
commission should the contract be renewed on its
third year, but he was obstinate. Meantime, on
October 3, 1990, Unilab informed Medicard it was
no longer renewing the Health Care Program
contract.

In order not to prejudice its personnel, Unilab,

through respondent Ejercito, negotiated with
respondent Dr. Montoya of Medicard, in order to
find mutually beneficial ways of continuing the
Health Care Program. The negotiations resulted in a
new contract wherein Unilab shall pay Medicard the
hospitalization expenses actually incurred by each
employees, plus a service fee. Under the "cost
plus" system which replaced the premium scheme,
petitioner was not given a commission.

It is clear that since petitioner refused to reduce his

commission, Medicard directly negotiated with
Unilab, thus revoking its agency contract with
petitioner. We hold that such revocation is
authorized by Article 1924 of the Civil Code which
provides:

"Art. 1924. The agency is revoked if the principal

directly manages the business entrusted to the
agent, dealing directly with third persons."

Moreover, as found by the lower courts, petitioner

did not render services to Medicard, his principal,
to entitle him to a commission. There is no
indication from the records that he exerted any
effort in order that Unilab and Medicard, after the
expiration of the Health Care Program Contract,
can renew it for the third time. In fact, his refusal to
reduce his commission constrained Medicard to
negotiate directly with Unilab. We find no reason in
law or in equity to rule that he is entitled to a
commission. Obviously, he was not the agent or
the "procuring cause" of the third Health Care
Program Contract between Medicard and Unilab.

WHEREFORE, the petition is DENIED. The

challenged Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 47681
are AFFIRMED IN TOTO. Costs against petitioner.
G.R. No. 161757 January 25, 2006
SUNACE INTERNATIONAL MANAGEMENT
SERVICES, INC.Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION,
Second Division; HON. ERNESTO S. DINOPOL,
in his capacity as Labor Arbiter, NLRC; NCR,
Arbitration Branch, Quezon City and DIVINA
A. MONTEHERMOZO,Respondents.
DECISION
CARPIO MORALES, J.:
Petitioner, Sunace International Management
Services (Sunace), a corporation duly organized
and existing under the laws of the Philippines,
deployed to Taiwan Divina A. Montehermozo
(Divina) as a domestic helper under a 12-month
contract effective February 1, 1997.1 The
deployment was with the assistance of a Taiwanese
broker, Edmund Wang, President of Jet Crown
International Co., Ltd.
After her 12-month contract expired on February 1,
1998, Divina continued working for her Taiwanese
employer, Hang Rui Xiong, for two more years,
after which she returned to the Philippines on
February 4, 2000.
Shortly after her return or on February 14, 2000,
Divina filed a complaint2 before the National Labor
Relations Commission (NLRC) against Sunace, one
Adelaide Perez, the Taiwanese broker, and the
employer-foreign principal alleging that she was
jailed for three months and that she was underpaid.
The following day or on February 15, 2000, Labor
Arbitration Associate Regina T. Gavin issued
Summons3 to the Manager of Sunace, furnishing it
with a copy of Divinas complaint and directing it to
appear for mandatory conference on February 28,
2000.
The scheduled mandatory conference was reset. It
appears to have been concluded, however.
On April 6, 2000, Divina filed her Position
Paper4 claiming that under her original one-year
contract and the 2-year extended contract which
was with the knowledge and consent of Sunace,
the following amounts representing income tax and
savings were deducted:
Yea Deduction for Deduction for
r Income Tax Savings
199
NT10,450.00 NT23,100.00
7
199
NT9,500.00 NT36,000.00
8
199
NT13,300.00 NT36,000.00;5
9
and while the amounts deducted in 1997 were
refunded to her, those deducted in 1998 and 1999
were not. On even date, Sunace, by its
Proprietor/General Manager Maria Luisa Olarte,
filed its Verified Answer and Position
Paper,6 claiming as follows, quoted verbatim:
COMPLAINANT IS NOT ENTITLED FOR THE
REFUND OF HER 24 MONTHS SAVINGS
3. Complainant could not anymore claim nor
entitled for the refund of her 24 months savings as
she already took back her saving already last year
and the employer did not deduct any money from
her salary, in accordance with a Fascimile
Message from the respondent SUNACEs
employer, Jet Crown International Co. Ltd., a
xerographic copy of which is herewith attached
as ANNEX "2" hereof;
COMPLAINANT IS NOT ENTITLED TO REFUND
OF HER 14 MONTHS TAX AND PAYMENT OF
ATTORNEYS FEES
4. There is no basis for the grant of tax refund to
the complainant as the she finished her one year
contract and hence, was not illegally dismissed by
her employer. She could only lay claim over the tax
refund or much more be awarded of damages such
as attorneys fees as said reliefs are available only
when the dismissal of a migrant worker is without
just valid or lawful cause as defined by law or
contract.
The rationales behind the award of tax refund and
payment of attorneys fees is not to enrich the
complainant but to compensate him for actual
injury suffered. Complainant did not suffer injury,
hence, does not deserve to be compensated for
whatever kind of damages.
Hence, the complainant has NO cause of action
against respondent SUNACE for monetary claims,
considering that she has been totally paid of all the
monetary benefits due her under her Employment
Contract to her full satisfaction.
6. Furthermore, the tax deducted from her salary is
in compliance with the Taiwanese law, which
respondent SUNACE has no control and
complainant has to obey and this Honorable Office
has no authority/jurisdiction to intervene because
the power to tax is a sovereign power which the
Taiwanese Government is supreme in its own
territory. The sovereign power of taxation of a state
is recognized under international law and among
sovereign states.
7. That respondent SUNACE respectfully reserves
the right to file supplemental Verified Answer
and/or Position Paper to substantiate its prayer for
the dismissal of the above case against the herein
respondent. AND BY WAY OF -
x x x x (Emphasis and underscoring supplied)
Reacting to Divinas Position Paper, Sunace filed on
April 25, 2000 an ". . . answer to complainants
position paper"7 alleging that Divinas 2-year
extension of her contract was without its
knowledge and consent, hence, it had no liability
attaching to any claim arising therefrom, and
Divina in fact executed a Waiver/Quitclaim and
Release of Responsibility and an Affidavit of
Desistance, copy of each document was annexed
to said ". . . answer to complainants position
paper."
To Sunaces ". . . answer to complainants position
paper," Divina filed a 2-page reply, 8 without,
however, refuting Sunaces disclaimer of
knowledge of the extension of her contract and
without saying anything about the Release, Waiver
and Quitclaim and Affidavit of Desistance.
The Labor Arbiter, rejected Sunaces claim that the
extension of Divinas contract for two more years
was without its knowledge and consent in this wise:
We reject Sunaces submission that it should not be
held responsible for the amount withheld because
her contract was extended for 2 more years
without its knowledge and consent because as
Annex "B"9 shows, Sunace and Edmund Wang have
not stopped communicating with each other and
yet the matter of the contracts extension
and Sunaces alleged non-consent thereto has not
been categorically established.
What Sunace should have done was to write to
POEA about the extension and its objection thereto,
copy furnished the complainant herself, her foreign
employer, Hang Rui Xiong and the Taiwanese
broker, Edmund Wang.
And because it did not, it is presumed to have
consented to the extension and should be liable for
anything that resulted thereform
(sic).10 (Underscoring supplied)
The Labor Arbiter rejected too Sunaces argument
that it is not liable on account of Divinas execution
of a Waiver and Quitclaim and an Affidavit of
Desistance. Observed the Labor Arbiter:
Should the parties arrive at any agreement as to
the whole or any part of the dispute, the same shall
be reduced to writing and signed by the parties and
their respective counsel (sic), if any, before the
Labor Arbiter.
The settlement shall be approved by the Labor
Arbiter after being satisfied that it was voluntarily
entered into by the parties and after having
explained to them the terms and consequences
thereof.
A compromise agreement entered into by the
parties not in the presence of the Labor Arbiter
before whom the case is pending shall be approved
by him, if after confronting the parties, particularly
the complainants, he is satisfied that they
understand the terms and conditions of the
settlement and that it was entered into freely
voluntarily (sic) by them and the agreement is not
contrary to law, morals, and public policy.
And because no consideration is indicated in the
documents, we strike them down as contrary to
law, morals, and public policy.11
He accordingly decided in favor of Divina, by
decision of October 9, 2000,12 the dispositive
portion of which reads:
Wherefore, judgment is hereby rendered ordering
respondents SUNACE INTERNATIONAL SERVICES
and its owner ADELAIDA PERGE, both in their
personal capacities and as agent of Hang Rui
Xiong/Edmund Wang to jointly and severally pay
complainant DIVINA A. MONTEHERMOZO the sum
of NT91,950.00 in its peso equivalent at the date of
payment, as refund for the amounts which she is
hereby adjudged entitled to as earlier discussed
plus 10% thereof as attorneys fees since
compelled to litigate, complainant had to engage
the services of counsel.
SO ORDERED.13 (Underescoring supplied)
On appeal of Sunace, the NLRC, by Resolution of
April 30, 2002,14 affirmed the Labor Arbiters
decision.
Via petition for certiorari,15 Sunace elevated the
case to the Court of Appeals which dismissed it
outright by Resolution of November 12, 2002,16 the
full text of which reads:
The petition for certiorari faces outright dismissal.
The petition failed to allege facts constitutive of
grave abuse of discretion on the part of the public
respondent amounting to lack of jurisdiction when
the NLRC affirmed the Labor Arbiters finding that
petitioner Sunace International Management
Services impliedly consented to the extension of
the contract of private respondent Divina A.
Montehermozo. It is undisputed that petitioner was
continually communicating with private
respondents foreign employer (sic). As agent of
the foreign principal, "petitioner cannot profess
ignorance of such extension as obviously, the act
of the principal extending
complainant (sic) employment contract
necessarily bound it." Grave abuse of discretion
is not present in the case at bar.
ACCORDINGLY, the petition is hereby DENIED
DUE COURSE and DISMISSED.17
SO ORDERED.
(Emphasis on words in capital letters in the
original; emphasis on words in small letters and
underscoring supplied)
Its Motion for Reconsideration having been denied
by the appellate court by Resolution of January 14,
2004,18Sunace filed the present petition for review
on certiorari.
The Court of Appeals affirmed the Labor Arbiter and
NLRCs finding that Sunace knew of and impliedly
consented to the extension of Divinas 2-year
contract. It went on to state that "It is undisputed
that [Sunace] was continually communicating with
[Divinas] foreign employer." It thus concluded that
"[a]s agent of the foreign principal, petitioner
cannot profess ignorance of such extension as
obviously, the act of the principal extending
complainant (sic) employment contract necessarily
bound it."
Contrary to the Court of Appeals finding, the
alleged continuous communication was with the
Taiwanese brokerWang, not with the foreign
employer Xiong.
The February 21, 2000 telefax message from the
Taiwanese broker to Sunace, the only basis of a
finding of continuous communication,
reads verbatim:
xxxx
Regarding to Divina, she did not say anything
about her saving in police station. As we contact
with her employer, she took back her saving
already last years. And they did not deduct any
money from her salary. Or she will call back her
employer to check it again. If her employer said
yes! we will get it back for her.
Thank you and best regards.
(Sgd.)
Edmund Wang
President19
The finding of the Court of Appeals solely on the
basis of the above-quoted telefax message, that
Sunace continually communicated with the foreign
"principal" (sic) and therefore was aware of and
had consented to the execution of the extension of
the contract is misplaced. The message does not
provide evidence that Sunace was privy to the new
contract executed after the expiration on February
1, 1998 of the original contract. That Sunace and
the Taiwanese broker communicated regarding
Divinas allegedly withheld savings does not
necessarily mean that Sunace ratified the
extension of the contract. As Sunace points out in
its Reply20 filed before the Court of Appeals,
As can be seen from that letter communication, it
was just an information given to the petitioner that
the private respondent had t[aken] already her
savings from her foreign employer and that no
deduction was made on her salary. It contains
nothing about the extension or the petitioners
consent thereto.21
Parenthetically, since the telefax message is dated
February 21, 2000, it is safe to assume that it was
sent to enlighten Sunace who had been directed,
by Summons issued on February 15, 2000, to
appear on February 28, 2000 for a mandatory
conference following Divinas filing of the complaint
on February 14, 2000.
Respecting the Court of Appeals following dictum:
As agent of its foreign principal, [Sunace] cannot
profess ignorance of such an extension as
obviously, the act of its principal extending
[Divinas] employment contract necessarily bound
it,22
it too is a misapplication, a misapplication of the
theory of imputed knowledge.
The theory of imputed knowledge ascribes the
knowledge of the agent, Sunace, to the principal,
employer Xiong,not the other way around.23 The
knowledge of the principal-foreign employer
cannot, therefore, be imputed to its agent Sunace.
There being no substantial proof that Sunace knew
of and consented to be bound under the 2-year
employment contract extension, it cannot be said
to be privy thereto. As such, it and its "owner"
cannot be held solidarily liable for any of Divinas
claims arising from the 2-year employment
extension. As the New Civil Code provides,
Contracts take effect only between the parties,
their assigns, and heirs, except in case where the
rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation
or by provision of law.24
Furthermore, as Sunace correctly points out, there
was an implied revocation of its agency
relationship with its foreign principal when, after
the termination of the original employment
contract, the foreign principal directly negotiated
with Divina and entered into a new and separate
employment contract in Taiwan. Article 1924 of the
New Civil Code reading
The agency is revoked if the principal directly
manages the business entrusted to the agent,
dealing directly with third persons.
thus applies.
In light of the foregoing discussions, consideration
of the validity of the Waiver and Affidavit of
Desistance which Divina executed in favor of
Sunace is rendered unnecessary.
WHEREFORE, the petition is GRANTED. The
challenged resolutions of the Court of Appeals are
herebyREVERSED and SET ASIDE. The complaint
of respondent Divina A. Montehermozo against
petitioner isDISMISSED.
SO ORDERED.
G.R. No. 175885 February 13, 2009 requisite in the bidding of Casicnan Multi- In a letter dated April 5, 2000, CRUZ demanded
Purpose Irrigation and Power Plant from MENDOZA and/or EMPCT payment of the
(CMIPPL 04-99), National Irrigation outstanding rentals which amounted to
ZENAIDA G. MENDOZA, Petitioner,
Authority, Muoz, Nueva Ecija. P726,000.00 as of March 31, 2000.
vs.
ENGR. EDUARDO PAULE, ENGR. ALEXANDER
COLOMA and NATIONAL IRRIGATION 3. To receive and collect payment in check On June 30, 2000, CRUZ filed Civil Case No. 18-SD
ADMINISTRATION (NIA MUOZ, NUEVA in behalf of E.M. PAULE CONSTRUCTION & (2000) with Branch 37 of the Regional Trial Court of
ECIJA), Respondents. TRADING. Nueva Ecija, for collection of sum of money with
damages and a prayer for the issuance of a writ of
preliminary injunction against PAULE, COLOMA and
x - - - - - - - - - - - - - - - - - - - - - - -x 4. To do and perform such acts and things
the NIA. PAULE in turn filed a third-party complaint
that may be necessary and/or required to
against MENDOZA, who filed her answer thereto,
make the herein authority effective.4
G.R. No. 176271 February 13, 2009 with a cross-claim against PAULE.

On September 29, 1999, EMPCT, through

MANUEL DELA CRUZ Petitioner, MENDOZA alleged in her cross-claim that because
MENDOZA, participated in the bidding of the NIA-
vs. of PAULEs "whimsical revocation" of the SPA, she
Casecnan Multi-Purpose Irrigation and Power
ENGR. EDUARDO M. PAULE, ENGR. was barred from collecting payments from NIA,
Project (NIA-CMIPP) and was awarded Packages A-
ALEXANDER COLOMA and NATIONAL thus resulting in her inability to fund her checks
10 and B-11 of the NIA-CMIPP Schedule A. On
IRRIGATION ADMINISTRATION (NIA MUOZ, which she had issued to suppliers of materials,
November 16, 1999, MENDOZA received the Notice
NUEVA ECIJA), Respondents. equipment and labor for the project. She claimed
of Award which was signed by Engineer Alexander
that estafa and B.P. Blg. 22 cases were filed against
M. Coloma (COLOMA), then Acting Project Manager
DECISION her; that she could no longer finance her childrens
for the NIA-CMIPP. Packages A-10 and B-11 involved
education; that she was evicted from her home;
the construction of a road system, canal structures
that her vehicle was foreclosed upon; and that her
YNARES-SANTIAGO, J.: and drainage box culverts with a project cost of
reputation was destroyed, thus entitling her to
P5,613,591.69.
actual and moral damages in the respective
These consolidated petitions assail the August 28, amounts of P3 million and P1 million.
2006 Decision1 of the Court of Appeals in CA-G.R. When Manuel de la Cruz (CRUZ) learned that
CV No. 80819 dismissing the complaint in Civil MENDOZA is in need of heavy equipment for use in
Meanwhile, on August 23, 2000, PAULE again
Case No. 18-SD (2000),2 and its December 11, the NIA project, he met up with MENDOZA in
constituted MENDOZA as his attorney-in-fact
2006 Resolution3 denying the herein petitioners Bayuga, Muoz, Nueva Ecija, in an apartment
motion for reconsideration. where the latter was holding office under an EMPCT
signboard. A series of meetings followed in said 1. To represent me (PAULE), in my
EMPCT office among CRUZ, MENDOZA and PAULE. capacity as General Manager of the E.M.
Engineer Eduardo M. Paule (PAULE) is the proprietor PAULE CONSTRUCTION AND TRADING, in
of E.M. Paule Construction and Trading (EMPCT). On all meetings, conferences and transactions
May 24, 1999, PAULE executed a special power of On December 2 and 20, 1999, MENDOZA and CRUZ
exclusively for the construction of the
attorney (SPA) authorizing Zenaida G. Mendoza signed two Job Orders/Agreements5 for the lease of
projects known as Package A-10 of
(MENDOZA) to participate in the pre-qualification the latters heavy equipment (dump trucks for
Schedule A and Package No. B-11
and bidding of a National Irrigation Administration hauling purposes) to EMPCT.
Schedule B, which are 38.61% and 63.18%
(NIA) project and to represent him in all finished as of June 21, 2000, per attached
transactions related thereto, to wit: On April 27, 2000, PAULE revoked6 the SPA he Accomplishment Reports x x x;
previously issued in favor of MENDOZA;
1. To represent E.M. PAULE consequently, NIA refused to make payment to
2. To implement, execute, administer and
CONSTRUCTION & TRADING of which I MENDOZA on her billings. CRUZ, therefore, could
supervise the said projects in whatever
(PAULE) am the General Manager in all my not be paid for the rent of the equipment. Upon
stage they are in as of to date, to collect
business transactions with National advice of MENDOZA, CRUZ addressed his demands
checks and other payments due on said
Irrigation Authority, Muoz, Nueva Ecija. for payment of lease rentals directly to NIA but the
projects and act as the Project Manager
latter refused to acknowledge the same and
for E.M. PAULE CONSTRUCTION AND
informed CRUZ that it would be remitting payment
2. To participate in the bidding, to secure TRADING;
only to EMPCT as the winning contractor for the
bid bonds and other documents pre- project.
 3. To do and perform such acts and things
that may be necessary and required to
make the herein power and authority
effective.7
At the pre-trial conference, the other parties were
declared as in default and CRUZ was allowed to
present his evidence ex parte. Among the
witnesses he presented was MENDOZA, who was
impleaded as defendant in PAULEs third-party
complaint.
On March 6, 2003, MENDOZA filed a motion to
declare third-party plaintiff PAULE non-suited with
prayer that she be allowed to present her
evidence ex parte.
However, without resolving MENDOZAs motion to
declare PAULE non-suited, and without granting her
the opportunity to present her evidence ex parte,
the trial court rendered its decision dated August 7,
2003, the dispositive portion of which states, as
follows:
WHEREFORE, judgment is hereby rendered in favor
of the plaintiff as follows:
1. Ordering defendant Paule to pay the
plaintiff the sum of P726,000.00 by way of
actual damages or compensation for the
services rendered by him;
2. Ordering defendant Paule to pay
plaintiff the sum of P500,000.00 by way of
moral damages;
3. Ordering defendant Paule to pay
plaintiff the sum of P50,000.00 by way of
reasonable attorneys fees;
4. Ordering defendant Paule to pay the
costs of suit; and
5. Ordering defendant National Irrigation
Administration (NIA) to withhold the
balance still due from it to defendant
Paule/E.M. Paule Construction and Trading
under NIA-CMIPP Contract Package A-10
and to pay plaintiff therefrom to the
extent of defendant Paules liability herein
adjudged.
SO ORDERED.8
In holding PAULE liable, the trial court found that
MENDOZA was duly constituted as EMPCTs agent
for purposes of the NIA project and that MENDOZA
validly contracted with CRUZ for the rental of
heavy equipment that was to be used therefor. It
found unavailing PAULEs assertion that MENDOZA
merely borrowed and used his contractors license
in exchange for a consideration of 3% of the
aggregate amount of the project. The trial court
held that through the SPAs he executed, PAULE
clothed MENDOZA with apparent authority and held
her out to the public as his agent; as principal,
PAULE must comply with the obligations which
MENDOZA contracted within the scope of her
authority and for his benefit. Furthermore, PAULE
knew of the transactions which MENDOZA entered
into since at various times when she and CRUZ met
at the EMPCT office, PAULE was present and offered
no objections. The trial court declared that it would
be unfair to allow PAULE to enrich himself and
disown his acts at the expense of CRUZ.
PAULE and MENDOZA both appealed the trial
courts decision to the Court of Appeals.
PAULE claimed that he did not receive a copy of the
order of default; that it was improper for
MENDOZA, as third-party defendant, to have taken
the stand as plaintiff CRUZs witness; and that the
trial court erred in finding that an agency was
created between him and MENDOZA, and that he
was liable as principal thereunder.
On the other hand, MENDOZA argued that the trial
court erred in deciding the case without affording
her the opportunity to present evidence on her
cross-claim against PAULE; that, as a result, her
cross-claim against PAULE was not resolved,
leaving her unable to collect the amounts of
P3,018,864.04, P500,000.00, and P839,450.88
which allegedly represent the unpaid costs of the
project and the amount PAULE received in excess
of payments made by NIA.
On August 28, 2006, the Court of Appeals rendered
the assailed Decision which dismissed CRUZs
complaint, as well as MENDOZAs appeal. The
appellate court held that the SPAs issued in
MENDOZAs favor did not grant the latter the
authority to enter into contract with CRUZ for
hauling services; the SPAs limit MENDOZAs
authority to only represent EMPCT in its business
transactions with NIA, to participate in the bidding
of the project, to receive and collect payment in
behalf of EMPCT, and to perform such acts as may
be necessary and/or required to make the said
authority effective. Thus, the engagement of
CRUZs hauling services was done beyond the
scope of MENDOZAs authority.
As for CRUZ, the Court of Appeals held that he
knew the limits of MENDOZAs authority under the
SPAs yet he still transacted with her. Citing Manila
Memorial Park Cemetery, Inc. v. Linsangan,9 the
appellate court declared that the principal (PAULE)
may not be bound by the acts of the agent
(MENDOZA) where the third person (CRUZ)
transacting with the agent knew that the latter was
acting beyond the scope of her power or authority
under the agency.
With respect to MENDOZAs appeal, the Court of
Appeals held that when the trial court rendered
judgment, not only did it rule on the plaintiffs
complaint; in effect, it resolved the third-party
complaint as well;10 that the trial court correctly
dismissed the cross-claim and did not unduly
ignore or disregard it; that MENDOZA may not
claim, on appeal, the amounts of P3,018,864.04,
P500,000.00, and P839,450.88 which allegedly
represent the unpaid costs of the project and the
amount PAULE received in excess of payments
made by NIA, as these are not covered by her
cross-claim in the court a quo, which seeks
reimbursement only of the amounts of P3 million
and P1 million, respectively, for actual damages
(debts to suppliers, laborers, lessors of heavy
equipment, lost personal property) and moral
damages she claims she suffered as a result of
PAULEs revocation of the SPAs; and that the
revocation of the SPAs is a prerogative that is
allowed to PAULE under Article 1920 11 of the Civil
Code.
CRUZ and MENDOZAs motions for reconsideration
were denied; hence, these consolidated petitions:
G.R. No. 175885 (MENDOZA PETITION)
 a) The Court of Appeals erred in sustaining
the trial courts failure to resolve her
motion praying that PAULE be declared
non-suited on his third-party complaint, as
well as her motion seeking that she be
allowed to present evidence ex parte on
her cross-claim;
b) The Court of Appeals erred when it
sanctioned the trial courts failure to
resolve her cross-claim against PAULE;
and,
c) The Court of Appeals erred in its
application of Article 1920 of the Civil
Code, and in adjudging that MENDOZA
had no right to claim actual damages from
PAULE for debts incurred on account of the
SPAs issued to her.
G.R. No. 176271 (CRUZ PETITION)
CRUZ argues that the decision of the Court of
Appeals is contrary to the provisions of law on
agency, and conflicts with the Resolution of the
Court in G.R. No. 173275, which affirmed the Court
of Appeals decision in CA-G.R. CV No. 81175,
finding the existence of an agency relation and
where PAULE was declared as MENDOZAs principal
under the subject SPAs and, thus, liable for
obligations (unpaid construction materials, fuel and
heavy equipment rentals) incurred by the latter for
the purpose of implementing and carrying out the
NIA project awarded to EMPCT.
CRUZ argues that MENDOZA was acting within the
scope of her authority when she hired his services
as hauler of debris because the NIA project (both
Packages A-10 and B-11 of the NIA-CMIPP)
consisted of construction of canal structures, which
involved the clearing and disposal of waste, acts
that are necessary and incidental to PAULEs
obligation under the NIA project; and that the
decision in a civil case involving the same SPAs,
where PAULE was found liable as MENDOZAs
principal already became final and executory; that
in Civil Case No. 90-SD filed by MENDOZA against
PAULE,12 the latter was adjudged liable to the
former for unpaid rentals of heavy equipment and
for construction materials which MENDOZA
obtained for use in the subject NIA project. On
September 15, 2003, judgment was rendered in
said civil case against PAULE, to wit:
WHEREFORE, judgment is hereby rendered in favor
of the plaintiff (MENDOZA) and against the
defendant (PAULE) as follows:
1. Ordering defendant Paule to pay
plaintiff the sum of P138,304.00
representing the obligation incurred by the
plaintiff with LGH Construction;
2. Ordering defendant Paule to pay
plaintiff the sum of P200,000.00
representing the balance of the obligation
incurred by the plaintiff with Artemio
Alejandrino;
3. Ordering defendant Paule to pay
plaintiff the sum of P520,000.00 by way of
moral damages, and further sum of
P100,000.00 by way of exemplary
damages;
4. Ordering defendant Paule to pay
plaintiff the sum of P25,000.00 as for
attorneys fees; and
5. To pay the cost of suit.13
PAULE appealed14 the above decision, but it was
dismissed by the Court of Appeals in a
Decision15 which reads, in part:
As to the finding of the trial court that the principle
of agency is applicable in this case, this Court
agrees therewith. It must be emphasized that
appellant (PAULE) authorized appellee (MENDOZA)
to perform any and all acts necessary to make the
business transaction of EMPCT with NIA effective.
Needless to state, said business transaction
pertained to the construction of canal structures
which necessitated the utilization of construction
materials and equipments.1avvphi1 Having given
said authority, appellant cannot be allowed to turn
its back on the transactions entered into by
appellee in behalf of EMPCT.
The amount of moral damages and attorneys fees
awarded by the trial court being justifiable and
commensurate to the damage suffered by
appellee, this Court shall not disturb the same. It is
well-settled that the award of damages as well as
attorneys fees lies upon the discretion of the court
in the context of the facts and circumstances of
each case.
WHEREFORE, the appeal is DISMISSED and the
appealed Decision is AFFIRMED.
SO ORDERED.16
PAULE filed a petition to this Court docketed as G.R.
No. 173275 but it was denied with finality on
September 13, 2006.
MENDOZA, for her part, claims that she has a right
to be heard on her cause of action as stated in her
cross-claim against PAULE; that the trial courts
failure to resolve the cross-claim was a violation of
her constitutional right to be apprised of the facts
or the law on which the trial courts decision is
based; that PAULE may not revoke her appointment
as attorney-in-fact for and in behalf of EMPCT
because, as manager of their partnership in the NIA
project, she was obligated to collect from NIA the
funds to be used for the payment of suppliers and
contractors with whom she had earlier contracted
for labor, materials and equipment.
PAULE, on the other hand, argues in his Comment
that MENDOZAs authority under the SPAs was for
the limited purpose of securing the NIA project;
that MENDOZA was not authorized to contract with
other parties with regard to the works and services
required for the project, such as CRUZs hauling
services; that MENDOZA acted beyond her
authority in contracting with CRUZ, and PAULE, as
principal, should not be made civilly liable to CRUZ
under the SPAs; and that MENDOZA has no cause
of action against him for actual and moral damages
since the latter exceeded her authority under the
agency.
We grant the consolidated petitions.
Records show that PAULE (or, more appropriately,
EMPCT) and MENDOZA had entered into a
partnership in regard to the NIA project. PAULEs
contribution thereto is his contractors license and
expertise, while MENDOZA would provide and
secure the needed funds for labor, materials and
services; deal with the suppliers and sub-
contractors; and in general and together with
PAULE, oversee the effective implementation of the
project. For this, PAULE would receive as his share
three per cent (3%) of the project cost while the
rest of the profits shall go to MENDOZA. PAULE
admits to this arrangement in all his pleadings.17
Although the SPAs limit MENDOZAs authority to
such acts as representing EMPCT in its business
transactions with NIA, participating in the bidding
of the project, receiving and collecting payment in
behalf of EMPCT, and performing other acts in
furtherance thereof, the evidence shows that when
MENDOZA and CRUZ met and discussed (at the
EMPCT office in Bayuga, Muoz, Nueva Ecija) the
lease of the latters heavy equipment for use in the
project, PAULE was present and interposed no
objection to MENDOZAs actuations. In his
pleadings, PAULE does not even deny this. Quite
the contrary, MENDOZAs actions were in accord
with what she and PAULE originally agreed upon, as
to division of labor and delineation of functions
within their partnership. Under the Civil Code,
every partner is an agent of the partnership for the
purpose of its business;18 each one may separately
execute all acts of administration, unless a
specification of their respective duties has been
agreed upon, or else it is stipulated that any one of
them shall not act without the consent of all the
others.19 At any rate, PAULE does not have any
valid cause for opposition because his only role in
the partnership is to provide his contractors
license and expertise, while the sourcing of funds,
materials, labor and equipment has been relegated
to MENDOZA.
Moreover, it does not speak well for PAULE that he
reinstated MENDOZA as his attorney-in-fact, this
time with broader powers to implement, execute,
administer and supervise the NIA project, to collect
checks and other payments due on said project,
and act as the Project Manager for EMPCT, even
after CRUZ has already filed his complaint. Despite
knowledge that he was already being sued on the
SPAs, he proceeded to execute another in
MENDOZAs favor, and even granted her broader
powers of administration than in those being sued
upon. If he truly believed that MENDOZA exceeded
her authority with respect to the initial SPA, then he
would not have issued another SPA. If he thought
that his trust had been violated, then he should not
have executed another SPA in favor of MENDOZA,
much less grant her broader authority.
Given the present factual milieu, CRUZ has a cause
of action against PAULE and MENDOZA. Thus, the
Court of Appeals erred in dismissing CRUZs
complaint on a finding of exceeded agency.
Besides, that PAULE could be held liable under the
SPAs for transactions entered into by MENDOZA
with laborers, suppliers of materials and services
for use in the NIA project, has been settled with
finality in G.R. No. 173275. What has been
adjudged in said case as regards the SPAs should
be made to apply to the instant case. Although the
said case involves different parties and
transactions, it finally disposed of the matter
regarding the SPAs specifically their effect as
among PAULE, MENDOZA and third parties with
whom MENDOZA had contracted with by virtue of
the SPAs a disposition that should apply to CRUZ
as well. If a particular point or question is in issue
in the second action, and the judgment will depend
on the determination of that particular point or
question, a former judgment between the same
parties or their privies will be final and conclusive
in the second if that same point or question was in
issue and adjudicated in the first suit. Identity of
cause of action is not required but merely identity
of issues.20
There was no valid reason for PAULE to revoke
MENDOZAs SPAs. Since MENDOZA took care of the
funding and sourcing of labor, materials and
equipment for the project, it is only logical that she
controls the finances, which means that the SPAs
issued to her were necessary for the proper
performance of her role in the partnership, and to
discharge the obligations she had already
contracted prior to revocation. Without the SPAs,
she could not collect from NIA, because as far as it
is concerned, EMPCT and not the PAULE-
MENDOZA partnership is the entity it had
contracted with. Without these payments from NIA,
there would be no source of funds to complete the
project and to pay off obligations incurred. As
MENDOZA correctly argues, an agency cannot be
revoked if a bilateral contract depends upon it, or if
it is the means of fulfilling an obligation already
contracted, or if a partner is appointed manager of
a partnership in the contract of partnership and his
removal from the management is unjustifiable. 21
PAULEs revocation of the SPAs was done in evident
bad faith. Admitting all throughout that his only
entitlement in the partnership with MENDOZA is his
3% royalty for the use of his contractors license,
he knew that the rest of the amounts collected
from NIA was owing to MENDOZA and suppliers of
materials and services, as well as the laborers. Yet,
he deliberately revoked MENDOZAs authority such
that the latter could no longer collect from NIA the
amounts necessary to proceed with the project and
settle outstanding obligations.lawphil.net
From the way he conducted himself, PAULE
committed a willful and deliberate breach of his
contractual duty to his partner and those with
whom the partnership had contracted. Thus, PAULE
should be made liable for moral damages.
Bad faith does not simply connote bad judgment or
negligence; it imputes a dishonest purpose or some
moral obliquity and conscious doing of a wrong; a
breach of a sworn duty through some motive or
intent or ill-will; it partakes of the nature of fraud
(Spiegel v. Beacon Participation, 8 NE 2nd Series,
895, 1007). It contemplates a state of mind
affirmatively operating with furtive design or some
motive of self-interest or ill will for ulterior purposes
(Air France v. Carrascoso, 18 SCRA 155, 166-167).
Evident bad faith connotes a manifest deliberate
intent on the part of the accused to do wrong or
cause damage.22
Moreover, PAULE should be made civilly liable for
abandoning the partnership, leaving MENDOZA to
fend for her own, and for unduly revoking her
authority to collect payments from NIA, payments
which were necessary for the settlement of
obligations contracted for and already owing to
laborers and suppliers of materials and equipment
like CRUZ, not to mention the agreed profits to be
derived from the venture that are owing to
MENDOZA by reason of their partnership
agreement. Thus, the trial court erred in
disregarding and dismissing MENDOZAs cross-
claim which is properly a counterclaim, since it is
a claim made by her as defendant in a third-party
complaint against PAULE, just as the appellate
court erred in sustaining it on the justification that
PAULEs revocation of the SPAs was within the
bounds of his discretion under Article 1920 of the
Civil Code.
Where the defendant has interposed a
counterclaim (whether compulsory or permissive)
or is seeking affirmative relief by a cross-complaint,
the plaintiff cannot dismiss the action so as to
affect the right of the defendant in his counterclaim
or prayer for affirmative relief. The reason for that
exception is clear. When the answer sets up an
independent action against the plaintiff, it then
becomes an action by the defendant against the
plaintiff, and, of course, the plaintiff has no right to
ask for a dismissal of the defendants action. The
present rule embodied in Sections 2 and 3 of Rule
17 of the 1997 Rules of Civil Procedure ordains a
more equitable disposition of the counterclaims by
ensuring that any judgment thereon is based on
the merit of the counterclaim itself and not on the
survival of the main complaint. Certainly, if the
counterclaim is palpably without merit or suffers
jurisdictional flaws which stand independent of the
complaint, the trial court is not precluded from
dismissing it under the amended rules, provided
that the judgment or order dismissing the
counterclaim is premised on those defects. At the
same time, if the counterclaim is justified, the
amended rules now unequivocally protect such
counterclaim from peremptory dismissal by reason
of the dismissal of the complaint.23

Notwithstanding the immutable character of

PAULEs liability to MENDOZA, however, the exact
amount thereof is yet to be determined by the trial
court, after receiving evidence for and in behalf of
MENDOZA on her counterclaim, which must be
considered pending and unresolved.

WHEREFORE, the petitions are GRANTED. The

August 28, 2006 Decision of the Court of Appeals in
CA-G.R. CV No. 80819 dismissing the complaint in
Civil Case No. 18-SD (2000) and its December 11,
2006 Resolution denying the motion for
reconsideration are REVERSED and SET ASIDE. The
August 7, 2003 Decision of the Regional Trial Court
of Nueva Ecija, Branch 37 in Civil Case No. 18-SD
(2000) finding PAULE liable is REINSTATED, with the
MODIFICATION that the trial court is ORDERED to
receive evidence on the counterclaim of petitioner
Zenaida G. Mendoza.

SO ORDERED.
G.R. No. 83122 October 19, 1990
ARTURO P. VALENZUELA and HOSPITALITA N.
VALENZUELA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS,
BIENVENIDO M. ARAGON, ROBERT E.
PARNELL, CARLOS K. CATOLICO and THE
PHILIPPINE AMERICAN GENERAL INSURANCE
COMPANY, INC., respondents.
Albino B. Achas for petitioners.
Angara, Abello, Concepcion, Regala & Cruz for
private respondents.
GUTIERREZ, JR., J.:
This is a petition for review of the January 29, 1988
decision of the Court of Appeals and the April 27,
1988 resolution denying the petitioners' motion for
reconsideration, which decision and resolution
reversed the decision dated June 23,1986 of the
Court of First Instance of Manila, Branch 34 in Civil
Case No. 121126 upholding the petitioners' causes
of action and granting all the reliefs prayed for in
their complaint against private respondents.
The antecedent facts of the case are as follows:
Petitioner Arturo P. Valenzuela (Valenzuela for
short) is a General Agent of private respondent
Philippine American General Insurance Company,
Inc. (Philamgen for short) since 1965. As such, he
was authorized to solicit and sell in behalf of
Philamgen all kinds of non-life insurance, and in
consideration of services rendered was entitled to
receive the full agent's commission of 32.5% from
Philamgen under the scheduled commission rates
(Exhibits "A" and "1"). From 1973 to 1975,
Valenzuela solicited marine insurance from one of
his clients, the Delta Motors, Inc. (Division of
Electronics Airconditioning and Refrigeration) in the
amount of P4.4 Million from which he was entitled
to a commission of 32% (Exhibit "B"). However,
Valenzuela did not receive his full commission
which amounted to P1.6 Million from the P4.4
Million insurance coverage of the Delta Motors. xxx xxx xxx
During the period 1976 to 1978, premium
payments amounting to P1,946,886.00 were paid
Defendants tried to justify the
directly to Philamgen and Valenzuela's commission
termination of plaintiff Arturo P.
to which he is entitled amounted to P632,737.00.
Valenzuela as one of defendant
PHILAMGEN's General Agent by
In 1977, Philamgen started to become interested in making it appear that plaintiff
and expressed its intent to share in the commission Arturo P. Valenzuela has a
due Valenzuela (Exhibits "III" and "III-1") on a fifty- substantial account with
fifty basis (Exhibit "C"). Valenzuela refused (Exhibit defendant PHILAMGEN
"D"). particularly Delta Motors, Inc.'s
Account, thereby prejudicing
defendant PHILAMGEN's interest
On February 8, 1978 Philamgen and its President,
(Exhibits 6,"11","11- "12-
Bienvenido M. Aragon insisted on the sharing of the
A"and"13-A").
commission with Valenzuela (Exhibit E). This was
followed by another sharing proposal dated June 1,
1978. On June 16,1978, Valenzuela firmly reiterated Defendants also invoked the
his objection to the proposals of respondents provisions of the Civil Code of the
stating that: "It is with great reluctance that I have Philippines (Article 1868) and the
to decline upon request to signify my conformity to provisions of the General Agency
your alternative proposal regarding the payment of Agreement as their basis for
the commission due me. However, I have no choice terminating plaintiff Arturo P.
for to do otherwise would be violative of the Valenzuela as one of their
Agency Agreement executed between our General Agents.
goodselves." (Exhibit B-1)
That defendants' position could
Because of the refusal of Valenzuela, Philamgen have been justified had the
and its officers, namely: Bienvenido Aragon, Carlos termination of plaintiff Arturo P.
Catolico and Robert E. Parnell took drastic action Valenzuela was (sic) based solely
against Valenzuela. They: (a) reversed the on the provisions of the Civil
commission due him by not crediting in his account Code and the conditions of the
the commission earned from the Delta Motors, Inc. General Agency Agreement. But
insurance (Exhibit "J" and "2"); (b) placed agency the records will show that the
transactions on a cash and carry basis; (c) principal cause of the termination
threatened the cancellation of policies issued by his of the plaintiff as General Agent
agency (Exhibits "H" to "H-2"); and (d) started to of defendant PHILAMGEN was his
leak out news that Valenzuela has a substantial refusal to share his Delta
account with Philamgen. All of these acts resulted commission.
in the decline of his business as insurance agent
(Exhibits "N", "O", "K" and "K-8"). Then on That it should be noted that there
December 27, 1978, Philamgen terminated the were several attempts made by
General Agency Agreement of Valenzuela (Exhibit defendant Bienvenido M. Aragon
"J", pp. 1-3, Decision Trial Court dated June 23, to share with the Delta
1986, Civil Case No. 121126, Annex I, Petition). commission of plaintiff Arturo P.
Valenzuela. He had persistently
The petitioners sought relief by filing the complaint pursued the sharing scheme to
against the private respondents in the court a the point of terminating plaintiff
quo (Complaint of January 24, 1979, Annex "F" Arturo P. Valenzuela, and to make
Petition). After due proceedings, the trial court matters worse, defendants made
found: it appear that plaintiff Arturo P.
Valenzuela had substantial
accounts with defendant
PHILAMGEN.
Not only that, defendants have
also started (a) to treat
separately the Delta Commission
of plaintiff Arturo P. Valenzuela,
(b) to reverse the Delta
commission due plaintiff Arturo P.
Valenzuela by not crediting or
applying said commission earned
to the account of plaintiff Arturo
P. Valenzuela, (c) placed plaintiff
Arturo P. Valenzuela's agency
transactions on a "cash and carry
basis", (d) sending threats to
cancel existing policies issued by
plaintiff Arturo P. Valenzuela's
agency, (e) to divert plaintiff
Arturo P. Valenzuela's insurance
business to other agencies, and
(f) to spread wild and malicious
rumors that plaintiff Arturo P.
Valenzuela has substantial
account with defendant
PHILAMGEN to force plaintiff
Arturo P. Valenzuela into agreeing
with the sharing of his Delta
commission." (pp. 9-10, Decision,
Annex 1, Petition).
xxx xxx xxx
These acts of harrassment done
by defendants on plaintiff Arturo
P. Valenzuela to force him to
agree to the sharing of his Delta
commission, which culminated in
the termination of plaintiff Arturo
P. Valenzuela as one of defendant
PHILAMGEN's General Agent, do
not justify said termination of the
General Agency Agreement
entered into by defendant
PHILAMGEN and plaintiff Arturo P.
Valenzuela.
That since defendants are not
justified in the termination of
plaintiff Arturo P. Valenzuela as
one of their General Agents,
defendants shall be liable for the
resulting damage and loss of From the aforesaid decision of the
business of plaintiff Arturo P. trial court, Bienvenido Aragon,
Valenzuela. (Arts. 2199/2200, Robert E. Parnell, Carlos K.
Civil Code of the Philippines). Catolico and PHILAMGEN
(Ibid, p. 11) respondents herein, and
defendants-appellants below,
interposed an appeal on the
The court accordingly rendered judgment, the
following:
dispositive portion of which reads:
ASSIGNMENT OF ERRORS
WHEREFORE, judgment is hereby
rendered in favor of the plaintiffs
and against defendants ordering I
the latter to reinstate plaintiff
Arturo P. Valenzuela as its
THE LOWER COURT ERRED IN
General Agent, and to pay
HOLDING THAT PLAINTIFF
plaintiffs, jointly and severally,
ARTURO P. VALENZUELA HAD NO
the following:
OUTSTANDING ACCOUNT WITH
DEFENDANT PHILAMGEN AT THE
1. The amount of five hundred TIME OF THE TERMINATION OF
twenty-one thousand nine THE AGENCY.
hundred sixty four and 16/100
pesos (P521,964.16) representing II
plaintiff Arturo P. Valenzuela's
Delta Commission with interest at
the legal rate from the time of THE LOWER COURT ERRED IN
the filing of the complaint, which HOLDING THAT PLAINTIFF
amount shall be adjusted in ARTURO P. VALENZUELA IS
accordance with Article 1250 of ENTITLED TO THE FULL
the Civil Code of the Philippines; COMMISSION OF 32.5% ON THE
DELTA ACCOUNT.
2. The amount of seventy-five
thousand pesos (P75,000.00) per III
month as compensatory
damages from 1980 until such THE LOWER COURT ERRED IN
time that defendant Philamgen HOLDING THAT THE
shall reinstate plaintiff Arturo P. TERMINATION OF PLAINTIFF
Valenzuela as one of its general ARTURO P. VALENZUELA WAS
agents; NOT JUSTIFIED AND THAT
CONSEQUENTLY DEFENDANTS
3. The amount of three hundred ARE LIABLE FOR ACTUAL AND
fifty thousand pesos MORAL DAMAGES, ATTORNEYS
(P350,000.00) for each plaintiff FEES AND COSTS.
as moral damages;
IV
4. The amount of seventy-five
thousand pesos (P75,000.00) as ASSUMING ARGUENDO THAT THE
and for attorney's fees; AWARD OF DAMAGES AGAINST
DEFENDANT PHILAMGEN WAS
5. Costs of the suit. (Ibid., P. 12) PROPER, THE LOWER COURT
ERRED IN AWARDING DAMAGES
EVEN AGAINST THE INDIVIDUAL
 DEFENDANTS WHO ARE MERE
CORPORATE AGENTS ACTING
WITHIN THE SCOPE OF THEIR
AUTHORITY.
V
ASSUMING ARGUENDO THAT THE
AWARD OF DAMAGES IN FAVOR
OF PLAINTIFF ARTURO P.
VALENZUELA WAS PROPER, THE
LOWER COURT ERRED IN
AWARDING DAMAGES IN FAVOR
OF HOSPITALITA VALENZUELA,
WHO, NOT BEING THE REAL
PARTY IN INTEREST IS NOT TO
OBTAIN RELIEF.
On January 29, 1988, respondent Court of Appeals
promulgated its decision in the appealed case. The
dispositive portion of the decision reads:
WHEREFORE, the decision
appealed from is hereby modified
accordingly and judgment is
hereby rendered ordering:
1. Plaintiff-appellee Valenzuela to
pay defendant-appellant
Philamgen the sum of one million
nine hundred thirty two thousand
five hundred thirty-two pesos and
seventeen centavos
(P1,902,532.17), with legal
interest thereon from the date of
finality of this judgment until fully
paid.
2. Both plaintiff-appellees to pay
jointly and severally defendants-
appellants the sum of fifty
thousand pesos (P50,000.00) as
and by way of attorney's fees.
No pronouncement is made as to
costs. (p. 44, Rollo)
There is in this instance irreconcilable divergence in
the findings and conclusions of the Court of
Appeals, vis-a-visthose of the trial court particularly
on the pivotal issue whether or not Philamgen
and/or its officers can be held liable for damages
due to the termination of the General Agency
Agreement it entered into with the petitioners. In
its questioned decision the Court of Appeals
observed that:
In any event the principal's power
to revoke an agency at will is so
pervasive, that the Supreme
Court has consistently held that
termination may be effected
even if the principal acts in bad
faith, subject only to the
principal's liability for damages
(Danon v. Antonio A. Brimo & Co.,
42 Phil. 133; Reyes v. Mosqueda,
53 O.G. 2158 and Infante V.
Cunanan, 93 Phil. 691, cited in
Paras, Vol. V, Civil Code of the
Philippines Annotated [1986]
696).
The lower court, however,
thought the termination of
Valenzuela as General Agent
improper because the record will
show the principal cause of the
termination of the plaintiff as
General Agent of defendant
Philamgen was his refusal to
share his Delta commission.
(Decision, p. 9; p. 13, Rollo, 41)
Because of the conflicting conclusions, this Court
deemed it necessary in the interest of substantial
justice to scrutinize the evidence and records of the
cases. While it is an established principle that the
factual findings of the Court of Appeals are final
and may not be reviewed on appeal to this Court,
there are however certain exceptions to the rule
which this Court has recognized and accepted,
among which, are when the judgment is based on a
misapprehension of facts and when the findings of
the appellate court, are contrary to those of the
trial court (Manlapaz v. Court of Appeals, 147 SCRA
236 [1987]); Guita v. Court of Appeals, 139 SCRA
576 [1986]). Where the findings of the Court of
Appeals and the trial court are contrary to each
other, this Court may scrutinize the evidence on
record (Cruz v. Court of Appeals, 129 SCRA 222
[1984]; Mendoza v. Court of Appeals, 156 SCRA 597
[1987]; Maclan v. Santos, 156 SCRA 542 [1987]).
When the conclusion of the Court of Appeals is
grounded entirely on speculation, surmises or
conjectures, or when the inference made is
manifestly mistaken, absurd or impossible, or when
there is grave abuse of discretion, or when the
judgment is based on a misapprehension of facts,
and when the findings of facts are conflict the
exception also applies (Malaysian Airline System
Bernad v. Court of Appeals, 156 SCRA 321 [1987]).
After a painstaking review of the entire records of
the case and the findings of facts of both the
court a quo and respondent appellate court, we are
constrained to affirm the trial court's findings and
rule for the petitioners.
We agree with the court a quo that the principal
cause of the termination of Valenzuela as General
Agent of Philamgen arose from his refusal to share
his Delta commission. The records sustain the
conclusions of the trial court on the apparent bad
faith of the private respondents in terminating the
General Agency Agreement of petitioners. It is
axiomatic that the findings of fact of a trial judge
are entitled to great weight (People v. Atanacio,
128 SCRA 22 [1984]) and should not be disturbed
on appeal unless for strong and cogent reasons,
because the trial court is in a better position to
examine the evidence as well as to observe the
demeanor of the witnesses while testifying (Chase
v. Buencamino, Sr., 136 SCRA 365 [1985]; People v.
Pimentel, 147 SCRA 25 [1987]; and Baliwag Trans.,
Inc. v. Court of Appeals, 147 SCRA 82 [1987]). In
the case at bar, the records show that the findings
and conclusions of the trial court are supported by
substantial evidence and there appears to be no
cogent reason to disturb them (Mendoza v. Court of
Appeals. 156 SCRA 597 [1987]).
As early as September 30,1977, Philamgen told the
petitioners of its desire to share the Delta
Commission with them. It stated that should Delta
back out from the agreement, the petitioners would
be charged interests through a reduced
commission after full payment by Delta.
On January 23, 1978 Philamgen proposed reducing
the petitioners' commissions by 50% thus giving
them an agent's commission of 16.25%. On
February 8, 1978, Philamgen insisted on the
reduction scheme followed on June 1, 1978 by still
another insistence on reducing commissions and
proposing two alternative schemes for reduction.
There were other pressures. Demands to settle
accounts, to confer and thresh out differences
regarding the petitioners' income and the threat to
terminate the agency followed. The petitioners
were told that the Delta commissions would not be
credited to their account (Exhibit "J"). They were
informed that the Valenzuela agency would be
placed on a cash and carry basis thus removing the
60-day credit for premiums due. (TSN., March 26,
1979, pp. 54-57). Existing policies were threatened
to be cancelled (Exhibits "H" and "14"; TSN., March
26, 1979, pp. 29-30). The Valenzuela business was
threatened with diversion to other agencies.
(Exhibit "NNN"). Rumors were also spread about
alleged accounts of the Valenzuela agency (TSN.,
January 25, 1980, p. 41). The petitioners
consistently opposed the pressures to hand over
the agency or half of their commissions and for a
treatment of the Delta account distinct from other
accounts. The pressures and demands, however,
continued until the agency agreement itself was
finally terminated.
It is also evident from the records that the agency
involving petitioner and private respondent is one
"coupled with an interest," and, therefore, should
not be freely revocable at the unilateral will of the
latter.
In the insurance business in the Philippines, the
most difficult and frustrating period is the
solicitation and persuasion of the prospective
clients to buy insurance policies. Normally, agents
would encounter much embarrassment, difficulties,
and oftentimes frustrations in the solicitation and
procurement of the insurance policies. To sell
policies, an agent exerts great effort, patience,
perseverance, ingenuity, tact, imagination, time
and money. In the case of Valenzuela, he was able
to build up an Agency from scratch in 1965 to a
highly productive enterprise with gross billings of
about Two Million Five Hundred Thousand Pesos
(P2,500,000.00) premiums per annum. The records
sustain the finding that the private respondent
started to covet a share of the insurance business
that Valenzuela had built up, developed and
nurtured to profitability through over thirteen (13)
years of patient work and perseverance. When
Valenzuela refused to share his commission in the
Delta account, the boom suddenly fell on him.
The private respondents by the simple expedient of
terminating the General Agency Agreement
appropriated the entire insurance business of
Valenzuela. With the termination of the General
Agency Agreement, Valenzuela would no longer be
entitled to commission on the renewal of insurance
policies of clients sourced from his agency. Worse,
despite the termination of the agency, Philamgen
continued to hold Valenzuela jointly and severally
liable with the insured for unpaid premiums. Under
these circumstances, it is clear that Valenzuela had
an interest in the continuation of the agency when
it was unceremoniously terminated not only
because of the commissions he should continue to
receive from the insurance business he has
solicited and procured but also for the fact that by
the very acts of the respondents, he was made
liable to Philamgen in the event the insured fail to
pay the premiums due. They are estopped by their
own positive averments and claims for damages.
Therefore, the respondents cannot state that the
agency relationship between Valenzuela and
Philamgen is not coupled with interest. "There may
be cases in which an agent has been induced to
assume a responsibility or incur a liability, in
reliance upon the continuance of the authority
under such circumstances that, if the authority be
withdrawn, the agent will be exposed to personal
loss or liability" (See MEC 569 p. 406).
Furthermore, there is an exception to the principle
that an agency is revocable at will and that is when
the agency has been given not only for the interest
of the principal but for the interest of third persons
or for the mutual interest of the principal and the
agent. In these cases, it is evident that the agency
ceases to be freely revocable by the sole will of the
principal (See Padilla, Civil Code Annotated, 56 ed.,
Vol. IV p. 350). The following citations are apropos:
The principal may not defeat the
agent's right to indemnification
by a termination of the contract
of agency (Erskine v. Chevrolet
Motors Co. 185 NC 479, 117 SE
706, 32 ALR 196).
Where the principal terminates or
repudiates the agent's
employment in violation of the
contract of employment and
without cause ... the agent is
entitled to receive either the
amount of net losses caused and
gains prevented by the breach, or
the reasonable value of the
services rendered. Thus, the
agent is entitled to prospective
profits which he would have
made except for such wrongful
termination provided that such
profits are not conjectural, or
speculative but are capable of
determination upon some fairly
reliable basis. And a principal's
revocation of the agency
agreement made to avoid
payment of compensation for a
result which he has actually
accomplished (Hildendorf v.
Hague, 293 NW 2d 272; Newhall
v. Journal Printing Co., 105 Minn
44,117 NW 228; Gaylen
Machinery Corp. v. Pitman-Moore
Co. [C.A. 2 NY] 273 F 2d 340)
If a principal violates a
contractual or quasi-contractual
duty which he owes his agent,
the agent may as a rule bring an
appropriate action for the breach
of that duty. The agent may in a
proper case maintain an action at
law for compensation or damages
... A wrongfully discharged agent
has a right of action for damages
and in such action the measure
and element of damages are
controlled generally by the rules
governing any other action for
the employer's breach of an
employment contract. (Riggs v.
Lindsay, 11 US 500, 3L Ed 419;
Tiffin Glass Co. v. Stoehr, 54 Ohio
157, 43 NE 2798)
At any rate, the question of whether or not the
agency agreement is coupled with interest is
helpful to the petitioners' cause but is not the
primary and compelling reason. For the pivotal
factor rendering Philamgen and the other private
respondents liable in damages is that the
termination by them of the General Agency
Agreement was tainted with bad faith. Hence, if a
principal acts in bad faith and with abuse of right in
terminating the agency, then he is liable in
damages. This is in accordance with the precepts in
Human Relations enshrined in our Civil Code that
"every person must in the exercise of his rights and
in the performance of his duties act with justice,
give every one his due, and observe honesty and
good faith: (Art. 19, Civil Code), and every person
who, contrary to law, wilfully or negligently causes
damages to another, shall indemnify the latter for
the same (Art. 20, id). "Any person who wilfully
causes loss or injury to another in a manner
contrary to morals, good customs and public policy
shall compensate the latter for the damages" (Art.
21, id.).
As to the issue of whether or not the petitioners are
liable to Philamgen for the unpaid and uncollected
premiums which the respondent court ordered
Valenzuela to pay Philamgen the amount of One
Million Nine Hundred Thirty-Two Thousand Five
Hundred Thirty-Two and 17/100 Pesos
(P1,932,532,17) with legal interest thereon until
fully paid (Decision-January 20, 1988, p. 16;
Petition, Annex "A"), we rule that the respondent
court erred in holding Valenzuela liable. We find no
factual and legal basis for the award. Under Section
77 of the Insurance Code, the remedy for the non-
payment of premiums is to put an end to and
render the insurance policy not binding
Sec. 77 ... [N]otwithstanding any
agreement to the contrary, no
policy or contract of insurance is
valid and binding unless and until
the premiums thereof have been
paid except in the case of a life or
industrial life policy whenever the
grace period provision applies
(P.D. 612, as amended otherwise
known as the Insurance Code of
1974)
In Philippine Phoenix Surety and Insurance, Inc. v.
Woodworks, Inc. (92 SCRA 419 [1979]) we held that
the non-payment of premium does not merely
suspend but puts an end to an insurance contract
since the time of the payment is peculiarly of the
essence of the contract. And in Arce v. The Capital
Insurance and Surety Co. Inc.(117 SCRA 63,
[1982]), we reiterated the rule that unless premium
is paid, an insurance contract does not take effect.
Thus:
It is to be noted that Delgado
(Capital Insurance & Surety Co.,
Inc. v. Delgado, 9 SCRA 177
[1963] was decided in the light of
the Insurance Act before Sec. 72
was amended by the underscored
portion. Supra. Prior to the
Amendment, an insurance
contract was effective even if the
premium had not been paid so
that an insurer was obligated to
pay indemnity in case of loss and
correlatively he had also the right
to sue for payment of the
premium. But the amendment to
Sec. 72 has radically changed the
legal regime in that unless the
premium is paid there is no
insurance. " (Arce v. Capitol
Insurance and Surety Co., Inc.,
117 SCRA 66; Emphasis supplied)
In Philippine Phoenix Surety case, we held:
Moreover, an insurer cannot treat
a contract as valid for the
purpose of collecting premiums
and invalid for the purpose of
31, 1976, and December 31, 1977, Valenzuela had
indemnity. (Citing Insurance Law
and Practice by John Alan
Appleman, Vol. 15, p. 331;
Emphasis supplied)
The foregoing findings are
buttressed by Section 776 of the
insurance Code (Presidential
Decree No. 612, promulgated on
December 18, 1974), which now
provides that no contract of
Insurance by an insurance
company is valid and binding
unless and until the premium
thereof has been paid,
notwithstanding any agreement
to the contrary (Ibid., 92 SCRA
425)
Perforce, since admittedly the premiums have not
been paid, the policies issued have lapsed. The
insurance coverage did not go into effect or did not
continue and the obligation of Philamgen as insurer
ceased. Hence, for Philamgen which had no more
liability under the lapsed and inexistent policies to
demand, much less sue Valenzuela for the unpaid
premiums would be the height of injustice and
unfair dealing. In this instance, with the lapsing of
the policies through the nonpayment of premiums
by the insured there were no more insurance
contracts to speak of. As this Court held in
the Philippine Phoenix Surety case, supra "the non-
payment of premiums does not merely suspend but
puts an end to an insurance contract since the time
of the payment is peculiarly of the essence of the
contract."
The respondent appellate court also seriously erred
in according undue reliance to the report of Banaria
and Banaria and Company, auditors, that as of
December 31, 1978, Valenzuela owed Philamgen
P1,528,698.40. This audit report of Banaria was
commissioned by Philamgen after Valenzuela was
almost through with the presentation of his
evidence. In essence, the Banaria report started
with an unconfirmed and unaudited beginning
balance of account of P1,758,185.43 as of August
20, 1976. But even with that unaudited and
unconfirmed beginning balance of P1,758,185.43,
Banaria still came up with the amount of P3,865.49
as Valenzuela's balance as of December 1978 with
Philamgen (Exh. "38-A-3"). In fact, as of December
no unpaid account with Philamgen (Ref: Annexes
"D", "D-1", "E", Petitioner's Memorandum). But
even disregarding these annexes which are records
of Philamgen and addressed to Valenzuela in due
course of business, the facts show that as of July
1977, the beginning balance of Valenzuela's
account with Philamgen amounted to P744,159.80.
This was confirmed by Philamgen itself not only
once but four (4) times on different occasions, as
shown by the records.
On April 3,1978, Philamgen sent Valenzuela a
statement of account with a beginning balance of
P744,159-80 as of July 1977.
On May 23, 1978, another statement of account
with exactly the same beginning balance was sent
to Valenzuela.
On November 17, 1978, Philamgen sent still
another statement of account with P744,159.80 as
the beginning balance.
And on December 20, 1978, a statement of
account with exactly the same figure was sent to
Valenzuela.
It was only after the filing of the complaint that a
radically different statement of accounts surfaced
in court. Certainly, Philamgen's own statements
made by its own accountants over a long period of
time and covering examinations made on four
different occasions must prevail over unconfirmed
and unaudited statements made to support a
position made in the course of defending against a
lawsuit.
It is not correct to say that Valenzuela should have
presented its own records to refute the
unconfirmed and unaudited finding of the Banaria
auditor. The records of Philamgen itself are the best
refutation against figures made as an afterthought
in the course of litigation. Moreover, Valenzuela
asked for a meeting where the figures would be
reconciled. Philamgen refused to meet with him
and, instead, terminated the agency agreement.
After off-setting the amount of P744,159.80,
beginning balance as of July 1977, by way of
credits representing the commission due from
Delta and other accounts, Valenzuela had overpaid
Philamgen the amount of P530,040.37 as of
November 30, 1978. Philamgen cannot later be
heard to complain that it committed a mistake in
its computation. The alleged error may be given
credence if committed only once. But as earlier
stated, the reconciliation of accounts was arrived at
four (4) times on different occasions where
Philamgen was duly represented by its account
executives. On the basis of these admissions and
representations, Philamgen cannot later on assume
a different posture and claim that it was mistaken
in its representation with respect to the correct
beginning balance as of July 1977 amounting to
P744,159.80. The Banaria audit report
commissioned by Philamgen is unreliable since its
results are admittedly based on an unconfirmed
and unaudited beginning balance of P1,758,185.43
as of August 20,1976.
As so aptly stated by the trial court in its decision:
Defendants also conducted an
audit of accounts of plaintiff
Arturo P. Valenzuela after the
controversy has started. In fact,
after hearing plaintiffs have
already rested their case.
The results of said audit were
presented in Court to show
plaintiff Arturo P. Valenzuela's
accountability to defendant
PHILAMGEN. However, the
auditor, when presented as
witness in this case testified that
the beginning balance of their
audit report was based on an
unaudited amount of
P1,758,185.43 (Exhibit 46-A) as
of August 20, 1976, which was
unverified and merely supplied
by the officers of defendant
PHILAMGEN.
Even defendants very own
Exhibit 38- A-3, showed that
plaintiff Arturo P. Valenzuela's
balance as of 1978 amounted to
only P3,865.59, not P826,128.46
as stated in defendant
Bienvenido M. Aragon's letter
dated December 20,1978 (Exhibit
14) or P1,528,698.40 as reflected
in defendant's Exhibit 46 (Audit
Report of Banaria dated
December 24, 1980).
These glaring discrepancy (sic) in
the accountability of plaintiff
Arturo P. Valenzuela to defendant
PHILAMGEN only lends credence
to the claim of plaintiff Arturo P.
Valenzuela that he has no
outstanding account with
defendant PHILAMGEN when the
latter, thru defendant Bienvenido
M. Aragon, terminated the
General Agency Agreement
entered into by plaintiff (Exhibit
A) effective January 31, 1979
(see Exhibits "2" and "2-A").
Plaintiff Arturo P. Valenzuela has
shown that as of October 31,
1978, he has overpaid defendant
PHILAMGEN in the amount of
P53,040.37 (Exhibit "EEE", which
computation was based on
defendant PHILAMGEN's balance
of P744,159.80 furnished on
several occasions to plaintiff
Arturo P. Valenzuela by defendant
PHILAMGEN (Exhibits H-1, VV, VV-
1, WW, WW-1 , YY , YY-2 , ZZ
and , ZZ-2).
Prescinding from the foregoing, and considering
that the private respondents terminated Valenzuela
with evidentmala fide it necessarily follows that the
former are liable in damages. Respondent
Philamgen has been appropriating for itself all
these years the gross billings and income that it
unceremoniously took away from the petitioners.
The preponderance of the authorities sustain the
preposition that a principal can be held liable for
damages in cases of unjust termination of agency.
In Danon v. Brimo, 42 Phil. 133 [1921]), this Court
ruled that where no time for the continuance of the
contract is fixed by its terms, either party is at
liberty to terminate it at will, subject only to the
ordinary requirements of good faith. The right of
the principal to terminate his authority is absolute
and unrestricted, except only that he may not do
so in bad faith.
The trial court in its decision awarded to Valenzuela
the amount of Seventy Five Thousand Pesos
(P75,000,00) per month as compensatory damages
from June 1980 until its decision becomes final and
executory. This award is justified in the light of the
evidence extant on record (Exhibits "N", "N-10",
"0", "0-1", "P" and "P-1") showing that the average
gross premium collection monthly of Valenzuela
over a period of four (4) months from December
1978 to February 1979, amounted to over
P300,000.00 from which he is entitled to a
commission of P100,000.00 more or less per
month. Moreover, his annual sales production
amounted to P2,500,000.00 from where he was
given 32.5% commissions. Under Article 2200 of
the new Civil Code, "indemnification for damages
shall comprehend not only the value of the loss
suffered, but also that of the profits which the
obligee failed to obtain."
The circumstances of the case, however, require
that the contractual relationship between the
parties shall be terminated upon the satisfaction of
the judgment. No more claims arising from or as a
result of the agency shall be entertained by the
courts after that date.

ACCORDINGLY, the petition is GRANTED. The

impugned decision of January 29, 1988 and
resolution of April 27, 1988 of respondent court are
hereby SET ASIDE. The decision of the trial court
dated January 23, 1986 in Civil Case No. 121126 is
REINSTATED with the MODIFICATIONS that the
amount of FIVE HUNDRED TWENTY ONE
THOUSAND NINE HUNDRED SIXTY-FOUR AND
16/100 PESOS (P521,964.16) representing the
petitioners Delta commission shall earn only legal
interests without any adjustments under Article
1250 of the Civil Code and that the contractual
relationship between Arturo P. Valenzuela and
Philippine American General Insurance Company
shall be deemed terminated upon the satisfaction
of the judgment as modified.

SO ORDERED.
G.R. No. 163720 December 16, 2004
GENEVIEVE LIM, petitioner,
vs.
FLORENCIO SABAN, respondents.
DECISION
TINGA, J.:
Before the Court is a Petition for Review on
Certiorari assailing the Decision1 dated October 27,
2003 of the Court of Appeals, Seventh Division, in
CA-G.R. V No. 60392.2
The late Eduardo Ybaez (Ybaez), the owner of a
1,000-square meter lot in Cebu City (the "lot"),
entered into anAgreement and Authority to
Negotiate and Sell (Agency Agreement) with
respondent Florencio Saban (Saban) on February 8,
1994. Under the Agency Agreement, Ybaez
authorized Saban to look for a buyer of the lot for
Two Hundred Thousand Pesos (P200,000.00) and to
mark up the selling price to include the amounts
needed for payment of taxes, transfer of title and
other expenses incident to the sale, as well as
Sabans commission for the sale.3
Through Sabans efforts, Ybaez and his wife were
able to sell the lot to the petitioner Genevieve Lim
(Lim) and the spouses Benjamin and Lourdes Lim
(the Spouses Lim) on March 10, 1994. The price of
the lot as indicated in the Deed of Absolute Sale is
Two Hundred Thousand Pesos (P200,000.00).4 It
appears, however, that the vendees agreed to
purchase the lot at the price of Six Hundred
Thousand Pesos (P600,000.00), inclusive of taxes
and other incidental expenses of the sale. After the
sale, Lim remitted to Saban the amounts of One
Hundred Thirteen Thousand Two Hundred Fifty
Seven Pesos (P113,257.00) for payment of taxes
due on the transaction as well as Fifty Thousand
Pesos (P50,000.00) as brokers commission.5 Lim
also issued in the name of Saban four postdated
checks in the aggregate amount of Two Hundred
Thirty Six Thousand Seven Hundred Forty Three
Pesos (P236,743.00). These checks were Bank of
the Philippine Islands (BPI) Check No. 1112645
dated June 12, 1994 for P25,000.00; BPI Check No.
1112647 dated June 19, 1994 for P18,743.00; BPI
Check No. 1112646 dated June 26, 1994
for P25,000.00; and Equitable PCI Bank Check No.
021491B dated June 20, 1994 forP168,000.00.
Subsequently, Ybaez sent a letter dated June 10,
1994 addressed to Lim. In the letter Ybaez asked
Lim to cancel all the checks issued by her in
Sabans favor and to "extend another partial
payment" for the lot in his (Ybaezs) favor. 6
After the four checks in his favor were dishonored
upon presentment, Saban filed a Complaint for
collection of sum of money and damages against
Ybaez and Lim with the Regional Trial Court (RTC)
of Cebu City on August 3, 1994.7 The case was
assigned to Branch 20 of the RTC.
In his Complaint, Saban alleged that Lim and the
Spouses Lim agreed to purchase the lot
for P600,000.00, i.e.,with a mark-up of Four
Hundred Thousand Pesos (P400,000.00) from the
price set by Ybaez. Of the total purchase price
of P600,000.00, P200,000.00 went to
Ybaez, P50,000.00 allegedly went to Lims agent,
andP113,257.00 was given to Saban to cover taxes
and other expenses incidental to the sale. Lim also
issued four (4) postdated checks8 in favor of Saban
for the remaining P236,743.00.9
Saban alleged that Ybaez told Lim that he (Saban)
was not entitled to any commission for the sale
since he concealed the actual selling price of the
lot from Ybaez and because he was not a licensed
real estate broker. Ybaez was able to convince Lim
to cancel all four checks.
Saban further averred that Ybaez and Lim
connived to deprive him of his sales commission by
withholding payment of the first three checks. He
also claimed that Lim failed to make good the
fourth check which was dishonored because the
account against which it was drawn was closed.
In his Answer, Ybaez claimed that Saban was not
entitled to any commission because he concealed
the actual selling price from him and because he
was not a licensed real estate broker.
Lim, for her part, argued that she was not privy to
the agreement between Ybaez and Saban, and
that she issued stop payment orders for the three
checks because Ybaez requested her to pay the
purchase price directly to him, instead of coursing
it through Saban. She also alleged that she agreed
with Ybaez that the purchase price of the lot was
only P200,000.00.
Ybaez died during the pendency of the case
before the RTC. Upon motion of his counsel, the
trial court dismissed the case only against him
without any objection from the other parties.10
On May 14, 1997, the RTC rendered
its Decision11 dismissing Sabans complaint,
declaring the four (4) checks issued by Lim as stale
and non-negotiable, and absolving Lim from any
liability towards Saban.
Saban appealed the trial courts Decision to the
Court of Appeals.
On October 27, 2003, the appellate court
promulgated its Decision12 reversing the trial
courts ruling. It held that Saban was entitled to his
commission amounting to P236,743.00.13
The Court of Appeals ruled that Ybaezs
revocation of his contract of agency with Saban
was invalid because the agency was coupled with
an interest and Ybaez effected the revocation in
bad faith in order to deprive Saban of his
commission and to keep the profits for himself. 14
The appellate court found that Ybaez and Lim
connived to deprive Saban of his commission. It
declared that Lim is liable to pay Saban the amount
of the purchase price of the lot corresponding to his
commission because she issued the four checks
knowing that the total amount thereof
corresponded to Sabans commission for the sale,
as the agent of Ybaez. The appellate court further
ruled that, in issuing the checks in payment of
Sabans commission, Lim acted as an
accommodation party. She signed the checks as
drawer, without receiving value therefor, for the
purpose of lending her name to a third person. As
such, she is liable to pay Saban as the holder for
value of the checks.15
Lim filed a Motion for Reconsideration of the
appellate courts Decision, but her Motion was
denied by the Court of Appeals in
a Resolution dated May 6, 2004.16
Not satisfied with the decision of the Court of
Appeals, Lim filed the present petition.
Lim argues that the appellate court ignored the fact
that after paying her agent and remitting to Saban
the amounts due for taxes and transfer of title, she
paid the balance of the purchase price directly to
Ybaez.17
She further contends that she is not liable for
Ybaezs debt to Saban under the Agency
Agreement as she is not privy thereto, and that
Saban has no one but himself to blame for
consenting to the dismissal of the case against
Ybaez and not moving for his substitution by his
heirs.18
Lim also assails the findings of the appellate court
that she issued the checks as an accommodation
party for Ybaez and that she connived with the
latter to deprive Saban of his commission.19
Lim prays that should she be found liable to pay
Saban the amount of his commission, she should
only be held liable to the extent of one-third (1/3)
of the amount, since she had two co-vendees (the
Spouses Lim) who should share such liability.20
In his Comment, Saban maintains that Lim agreed
to purchase the lot for P600,000.00, which
consisted of theP200,000.00 which would be paid
to Ybaez, the P50,000.00 due to her broker,
the P113,257.00 earmarked for taxes and other
expenses incidental to the sale and Sabans
commission as broker for Ybaez. According to
Saban, Lim assumed the obligation to pay him his
commission. He insists that Lim and Ybaez
connived to unjustly deprive him of his commission
from the negotiation of the sale.21
The issues for the Courts resolution are whether
Saban is entitled to receive his commission from
the sale; and, assuming that Saban is entitled
thereto, whether it is Lim who is liable to pay
Saban his sales commission.
The Court gives due course to the petition, but
agrees with the result reached by the Court of
Appeals.
The Court affirms the appellate courts finding that
the agency was not revoked since Ybaez
requested that Lim make stop payment orders for
the checks payable to Saban only after the
consummation of the sale on March 10, 1994. At
that time, Saban had already performed his
obligation as Ybaezs agent when, through his
(Sabans) efforts, Ybaez executed the Deed of
Absolute Sale of the lot with Lim and the Spouses
Lim.
To deprive Saban of his commission subsequent to
the sale which was consummated through his
efforts would be a breach of his contract of agency
with Ybaez which expressly states that Saban
would be entitled to any excess in the purchase
price after deducting the P200,000.00 due to
Ybaez and the transfer taxes and other incidental
expenses of the sale.22
In Macondray & Co. v. Sellner,23 the Court
recognized the right of a broker to his commission
for finding a suitable buyer for the sellers property
even though the seller himself consummated the
sale with the buyer.24The Court held that it would
be in the height of injustice to permit the principal
to terminate the contract of agency to the
prejudice of the broker when he had already reaped
the benefits of the brokers efforts.
In Infante v. Cunanan, et al.,25 the Court upheld the
right of the brokers to their commissions although
the seller revoked their authority to act in his
behalf after they had found a buyer for his
properties and negotiated the sale directly with the
buyer whom he met through the brokers efforts.
The Court ruled that the sellers withdrawal in bad
faith of the brokers authority cannot unjustly
deprive the brokers of their commissions as the
sellers duly constituted agents.
The pronouncements of the Court in the aforecited
cases are applicable to the present case, especially
considering that Saban had completely performed
his obligations under his contract of agency with
Ybaez by finding a suitable buyer to preparing
the Deed of Absolute Sale between Ybaez and Lim
and her co-vendees. Moreover, the contract of
agency very clearly states that Saban is entitled to
the excess of the mark-up of the price of the lot
after deducting Ybaezs share of P200,000.00 and
the taxes and other incidental expenses of the sale.
However, the Court does not agree with the
appellate courts pronouncement that Sabans
agency was one coupled with an interest. Under
Article 1927 of the Civil Code, an agency cannot be
revoked if a bilateral contract depends upon it, or if
it is the means of fulfilling an obligation already
contracted, or if a partner is appointed manager of
a partnership in the contract of partnership and his
removal from the management is unjustifiable.
Stated differently, an agency is deemed as one
coupled with an interest where it is established for
the mutual benefit of the principal and of the
agent, or for the interest of the principal and of
third persons, and it cannot be revoked by the
principal so long as the interest of the agent or of a
third person subsists. In an agency coupled with an
interest, the agents interest must be in the subject
matter of the power conferred and not merely an
interest in the exercise of the power because it
entitles him to compensation. When an agents
interest is confined to earning his agreed
compensation, the agency is not one coupled with
an interest, since an agents interest in obtaining
his compensation as such agent is an ordinary
incident of the agency relationship.26
Sabans entitlement to his commission having been
settled, the Court must now determine whether Lim
is the proper party against whom Saban should
address his claim.
Sabans right to receive compensation for
negotiating as broker for Ybaez arises from the
Agency Agreement between them. Lim is not a
party to the contract. However, the record reveals
that she had knowledge of the fact that Ybaez set
the price of the lot at P200,000.00 and that
the P600,000.00the price agreed upon by her
and Sabanwas more than the amount set by
Ybaez because it included the amount for
payment of taxes and for Sabans commission as
broker for Ybaez.
According to the trial court, Lim made the following
payments for the lot: P113,257.00 for
taxes, P50,000.00 for her broker, and P400.000.00
directly to Ybaez, or a total of Five Hundred Sixty
Three Thousand Two Hundred Fifty Seven Pesos
(P563,257.00).27 Lim, on the other hand, claims
that on March 10, 1994, the date of execution of
the Deed of Absolute Sale, she paid directly to
Ybaez the amount of One Hundred Thousand
Pesos (P100,000.00) only, and gave to
Saban P113,257.00 for payment of taxes
28
and P50,000.00 as his commission, and One
Hundred Thirty Thousand Pesos (P130,000.00) on
June 28, 1994,29 or a total of Three Hundred Ninety
Three Thousand Two Hundred Fifty Seven Pesos
(P393,257.00). Ybaez, for his part, acknowledged
that Lim and her co-vendees paid him P400,000.00
which he said was the full amount for the sale of
the lot.30 It thus appears that he
received P100,000.00 on March 10, 1994,
acknowledged receipt (through Saban) of
theP113,257.00 earmarked for taxes
and P50,000.00 for commission, and received the
balance of P130,000.00 on June 28, 1994. Thus, a
total of P230,000.00 went directly to Ybaez.
Apparently, although the amount actually paid by
Lim was P393,257.00, Ybaez rounded off the
amount to P400,000.00 and waived the difference.
Lims act of issuing the four checks amounting
to P236,743.00 in Sabans favor belies her claim
that she and her co-vendees did not agree to
purchase the lot at P600,000.00. If she did not
agree thereto, there would be no reason for her to
issue those checks which is the balance
of P600,000.00 less the amounts of P200,000.00
(due to Ybaez), P50,000.00 (commission), and
the P113,257.00 (taxes). The only logical
conclusion is that Lim changed her mind about
agreeing to purchase the lot at P600,000.00 after
talking to Ybaez and ultimately realizing that
Sabans commission is even more than what
Ybaez received as his share of the purchase price
as vendor. Obviously, this change of mind resulted
to the prejudice of Saban whose efforts led to the
completion of the sale between the latter, and Lim
and her co-vendees. This the Court cannot
countenance.
The ruling of the Court in Infante v. Cunanan, et
al., cited earlier, is enlightening for the facts
therein are similar to the circumstances of the
present case. In that case, Consejo Infante asked
Jose Cunanan and Juan Mijares to find a buyer for
her two lots and the house built thereon for Thirty
Thousand Pesos (P30,000.00) . She promised to
pay them five percent (5%) of the purchase price
plus whatever overprice they may obtain for the
property. Cunanan and Mijares offered the
properties to Pio Noche who in turn expressed
willingness to purchase the properties. Cunanan
and Mijares thereafter introduced Noche to Infante.
However, the latter told Cunanan and Mijares that
she was no longer interested in selling the property
and asked them to sign a document stating that
their written authority to act as her agents for the
sale of the properties was already cancelled.
Subsequently, Infante sold the properties directly
to Noche for Thirty One Thousand Pesos
(P31,000.00). The Court upheld the right of
Cunanan and Mijares to their commission,
explaining that
[Infante] had changed her mind even if
respondent had found a buyer who was
 willing to close the deal, is a matter that
would not give rise to a legal consequence
if [Cunanan and Mijares] agreed to call off
the transaction in deference to the
request of [Infante]. But the situation
varies if one of the parties takes
advantage of the benevolence of the other
and acts in a manner that would promote
his own selfish interest. This act is unfair
as would amount to bad faith. This act
cannot be sanctioned without according
the party prejudiced the reward which is
due him. This is the situation in which
[Cunanan and Mijares] were placed by
[Infante]. [Infante] took advantage of the
services rendered by [Cunanan and
Mijares], but believing that she could
evade payment of their commission, she
made use of a ruse by inducing them to
sign the deed of cancellation.This act of
subversion cannot be sanctioned and
cannot serve as basis for [Infante] to
escape payment of the commission
agreed upon.31
The appellate court therefore had sufficient basis
for concluding that Ybaez and Lim connived to
deprive Saban of his commission by dealing with
each other directly and reducing the purchase price
of the lot and leaving nothing to compensate Saban
for his efforts.
Considering the circumstances surrounding the
case, and the undisputed fact that Lim had not yet
paid the balance of P200,000.00 of the purchase
price of P600,000.00, it is just and proper for her to
pay Saban the balance of P200,000.00.
Furthermore, since Ybaez received a total
of P230,000.00 from Lim, or an excess
of P30,000.00 from his asking price of P200,000.00,
Saban may claim such excess from Ybaezs
estate, if that remedy is still available, 32 in view of
the trial courts dismissal of Sabans complaint as
against Ybaez, with Sabans express consent, due
to the latters demise on November 11, 1994.33
The appellate court however erred in ruling that
Lim is liable on the checks because she issued
them as an accommodation party. Section 29 of the
Negotiable Instruments Law defines an
accommodation party as a person "who has signed
the negotiable instrument as maker, drawer,
acceptor or indorser, without receiving value
therefor, for the purpose of lending his name to
some other person." The accommodation party is
liable on the instrument to a holder for value even
though the holder at the time of taking the
instrument knew him or her to be merely an
accommodation party. The accommodation party
may of course seek reimbursement from the party
accommodated.34
As gleaned from the text of Section 29 of the
Negotiable Instruments Law, the accommodation
party is one who meets all these three
requisites, viz: (1) he signed the instrument as
maker, drawer, acceptor, or indorser; (2) he did not
receive value for the signature; and (3) he signed
for the purpose of lending his name to some other
person. In the case at bar, while Lim signed as
drawer of the checks she did not satisfy the two
other remaining requisites.
The absence of the second requisite becomes
pellucid when it is noted at the outset that Lim
issued the checks in question on account of her
transaction, along with the other purchasers, with
Ybaez which was a sale and, therefore, a
reciprocal contract. Specifically, she drew the
checks in payment of the balance of the purchase
price of the lot subject of the transaction. And she
had to pay the agreed purchase price in
consideration for the sale of the lot to her and her
co-vendees. In other words, the amounts covered
by the checks form part of the cause or
consideration from Ybaezs end, as vendor, while
the lot represented the cause or consideration on
the side of Lim, as vendee.35 Ergo, Lim received
value for her signature on the checks.
Neither is there any indication that Lim issued the
checks for the purpose of enabling Ybaez, or any
other person for that matter, to obtain credit or to
raise money, thereby totally debunking the
presence of the third requisite of an
accommodation party.
WHEREFORE, in view of the foregoing, the petition
is DISMISSED.
SO ORDERED.
G.R. No. 151218 January 28, 2003
NATIONAL SUGAR TRADING and/or the SUGAR
REGULATORY ADMINISTRATION, petitioners,
vs.
PHILIPPINE NATIONAL BANK, respondent.
YNARES-SANTIAGO, J.:
This is a petition for review which seeks to set
aside the decision of the Court of Appeals dated
August 10, 2001 in CA-G.R. SP. No.
58102, 1 upholding the decision of the Office of the
President dated September 17, 1999, 2 as well as
the resolution dated December 12, 2001 denying
petitioners' motion for reconsideration.
The antecedent facts, as culled from the records,
are as follows:
Sometime in February 1974, then President
Ferdinand E. Marcos issued Presidential Decree No.
388 3constituting the Philippine Sugar Commission
(PHILSUCOM), as the sole buying and selling agent
of sugar on the quedan permit level. In November
of the same year, PD 579 4 was issued, authorizing
the Philippine Exchange Company, Inc.
(PHILEXCHANGE), a wholly owned subsidiary of
Philippine National Bank (PNB) to serve as the
marketing agent of PHILSUCOM. Pursuant to PD
579, PHILEXCHANGE's purchases of sugar shall be
financed by PNB and the proceeds of sugar trading
operations of PHILEXCHANGE shall be used to pay
its liabilities with PNB.5
Similarly, in February 1975, PD 659 was issued,
constituting PHILEXCHANGE and/or PNB as the
exclusive sugar trading agencies of the
government for buying sugar from planters or
millers and selling or exporting them. 6 PNB then
extended loans to PHILEXCHANGE for the latter's
sugar trading operations. At first, PHILEXCHANGE
religiously paid its obligations to PNB by depositing
the proceeds of the sale of sugar with the bank.
Subsequently, however, with the fall of sugar prices
in the world market, PHILEXCHANGE defaulted in
the payments of its loans amounting to
P206,070,172.57. 7
In July 1977, the National Sugar Trading
Corporation (NASUTRA) replaced PHILEXCHANGE as
the marketing agent of PHILSUCOM. Accordingly,
PHILEXCHANGE sold and turned over all sugar
quedans to NASUTRA. However, no physical
inventory of the sugar covered by the quedans was
made. 8 Neither NASUTRA nor PHILSUCOM was
required to immediately pay PHILEXCHANGE.
Notwithstanding this concession, NASUTRA and
PHILSUCOM still failed to pay the sugar stocks
covered by quedans to PHILEXCHANGE which, as of
June 30, 1984, amounted to P498,828,845.03. As a
consequence, PHILEXCHANGE was not able to pay
its obligations to PNB.
To finance its sugar trading operations, NASUTRA defaulted in the payment of its loans amounting to
applied for and was granted 9 a P408 Million P389,246,324.60 (principal and accrued interest) to
Revolving Credit Line by PNB in 1981. Every time PNB.
NASUTRA availed of the credit line, 10 its Executive In the meantime, PNB received remittances from
Vice-President, Jose Unson, executed a promissory foreign banks totaling US$36,564,558.90 or the
note in favor of PNB. equivalent of P696,281,405.09 representing the
In order to stabilize sugar liquidation prices at a proceeds of NASUTRA's sugar exports. 19 Said
minimum of P300.00 per picul, PHILSUCOM issued remittances were then applied by PNB to the
on March 15, 1985 Circular Letter No. EC-4-85, unpaid accounts of NASUTRA/PHILSUCOM with PNB
considering all sugar produced during crop year and PHILEXCHANGE. The schedule of remittances
19841985 as domestic sugar. Furthermore, and applications are as follows:
PHILSUCOM's Chairman of Executive Committee, SCHEDULE OF REMITTANCES & APPLICATIONS
Armando C. Gustillo proposed on May 14, 1985 the Account of NASUTRA
following liquidation scheme of the sugar July 31, 1988
quedans 11 assigned to PNB by the sugar planters:
Upon notice from NASUTRA, PNB shall credit the REMITTANCES
individual producer and millers loan accounts for Date Remitting Bank Amount
their sugar proceeds and shall treat the same as
loans of NASUTRA. 11-
Such loans shall be charged interest at the 19- P259,253,573.4
prevailing rates and it shall commence five (5) days 85 Bankers Trust-New York 6
after receipt by PNB of quedans from NASUTRA. 12 11-
PNB, for its part, issued Resolution No. 353 dated 26-
May 20, 1985 approving 13 the 85 Bankers Trust-New York 144,459,242.84
PHILSUCOM/NASUTRA proposal for the payment of
the sugar quedans assigned to it. Pursuant to said 03-
resolution, NASUTRA would assume the interest on 06-
the planter/mill loan accounts. The pertinent 86 Credit Lyonnais-Manila 209,880,477.07
portion of the Resolution states: 04-
Five (5) days after receipt of the quedans, 22-
NASUTRA shall absorb the accruing interest on that 86 Societ General-Manila 82,151,953.10
portion of the planter/mill loan with PNB
commensurate to the net liquidation value of the 06-
sugar delivered, or in other words, NASUTRA 09-
proposes to assume interest that will run on the 86 Credit Lyonnais-Manila 536,158.62
planter/mill loan equivalent to the net proceeds of P696,281,405.0
the sugar quedans, reckoned five (5) days after Total 9
quedan delivery to PNB. 14
Despite such liquidation scheme, APPLICATIONS
NASUTRA/PHILSUCOM still failed to remit the Date Applied to Amount
interest payments to PNB and its branches, which
interests amounted to P65,412,245.84 in P389,246,324.6
1986. 15 As a result thereof, then President Marcos 1986 NASUTRA account with PNB 0
issued PD 2005 dissolving NASUTRA effective 1986 Claims of various CAB planters 15,863,898.79
January 31, 1986. NASUTRA's records of its sugar
trading operations, however, were destroyed Claims of various PNB branches
during the Edsa Revolution in February 1986. for interest or the unpaid CY
On May 28, 1986, then President Corazon C. Aquino 1987 198485 sugar proceeds 65,412,245.84
issued Executive Order (EO) No. 18 creating the 1987
Sugar Regulatory Administration (SRA) and & Philsucom account carried in 206,070,172.57
abolishing PHILSUCOM. All the assets and records the books of Philexchange
of PHILSUCOM 16including its beneficial interests P676,592,641.8
over the assets of NASUTRA were transferred to 1988 0
SRA. 17 On January 24, 1989, before the completion Unapplied Remittance P19,688,763.29
of the three-year winding up period, NASUTRA " 20
established a trusteeship to liquidate and settle its Subsequently, PNB applied the P19,688,763.29 to
accounts. 18 This notwithstanding, NASUTRA still PHILSUCOM's account with PHILEXCHANGE which in
turn was applied to PHILEXCHANGE's account with
PNB. 21
Accordingly, NASUTRA requested 22 PNB to furnish it
with the necessary documents and/or
explanation 23concerning the
disposition/application, accounting and restitution
of the remittances in question. Dissatisfied, and
believing that PNB failed to provide them with said
documents, NASUTRA and SRA filed a petition for
arbitration24 with the Department of Justice on
August 13, 1991.
After due proceedings, the Secretary of Justice
rendered a decision, to wit:
WHEREFORE, judgment is hereby
rendered
1. Declaring that of the amount of Six
Hundred Ninety Six Million Two Hundred
Eighty One Thousand Four Hundred Five
and 09/100 Pesos (P696,281,405.09)
equivalent of US$36,564,558.90, foreign
remittances received by respondent PNB,
for and in behalf of petitioner NASUTRA
a) the amount of Three Hundred
Eighty Nine Million Two Hundred
Forty Six Thousand Three
Hundred Twenty Four and 60/100
Pesos (P389,246,324.60) was
validly applied to outstanding
account of NASUTRA to PNB;
b) the amount of Sixty Five Billion
Four Hundred Twelve Thousand
Two Hundred Forty Five and
84/100 Pesos (P65,412,245.84)
was validly applied to claims of
various PNB branches for interest
on the unpaid CY 198485 sugar
proceeds;
Or a total of Four Hundred Fifty Four
Million Six Hundred Fifty Eight Thousand
Five Hundred Seventy and 44/100 Pesos
(P454,658,570.44).
2. Ordering respondent PNB to pay
petitioners
a) the amount of Two Hundred Six
Million Seventy Thousand One
Hundred Seventy Two and 57/100
Pesos (P206,070,172.57)
representing the amount of
remittance applied to PHILSUCOM
account carried in the books of
Philexchange;
b) the amount of Fifteen Million
Eight Hundred Sixty Three
Thousand Eight Hundred Ninety
Eight and 79/100 Pesos
(P15,863,898.79) representing
the amount applied to settle
Claims of Various CAB Planters;
and to pay interest on both
items, at legal rate from date of
filing of this case.
Costs of suit will be shared equally by the
parties.
SO ORDERED. 25
Both parties appealed before the Office of the
President. On September 17, 1999, the Office of
the President modified the decision of the
Secretary of Justice, to wit:
IN VIEW OF ALL THE FOREGOING, the
decision of the Secretary of Justice is
hereby AFFIRMED with the MODIFICATION
that the application by the Philippine
National Bank of the amounts of
P225,758,935.86 and P15,863,898.79 as
payment of the Philippine Sugar
Commission's account carried in the books
of Philippine Exchange Co., Inc. and the
claims of various CAB planters,
respectively, is hereby declared legal and
valid.
SO ORDERED. 26
Petitioners' subsequent Motion for Reconsideration
was denied by the Office of the
President. 27 Thereafter, petitioners filed a petition
for review with the Court of Appeals, alleging, inter
alia, that the Office of the President erred when it
relied solely on the documents submitted by PNB to
determine the amount of the subject remittances
and in not ordering PNB to render an accounting of
the said remittances; in declaring as valid and legal
PNB's application of the subject remittances to
alleged NASUTRA's accounts with PNB and
PHILEXCHANGE without NASUTRA's knowledge,
consent and authority.
On August 10, 2001, Court of Appeals rendered
judgment dismissing the petition. 28 Petitioners filed
a Motion for Reconsideration, which was denied on
December 12, 2001.
Hence this petition, raising the lone issue:
THE CA DECIDED NOT IN ACCORD WITH
LAW AND WITH THE APPLICABLE DECISION
OF THIS HONORABLE COURT, AND
GRAVELY ABUSED ITS DISCRETION, WHEN
IT UPHELD THE LEGALITY AND VALIDITY
OF THE OFFSETTING OR COMPENSATION
OF THE SUBJECT REMITTANCES TO
ALLEGED ACCOUNTS OF NASUTRA WITH
PNB AND PHILEX DESPITE THE FACT THAT
NO CREDITOR-DEBTOR RELATIONSHIP
EXISTED BETWEEN PNB AND NASUTRA
WITH RESPECT TO THE SAID
REMITTANCES.
In essence, NASUTRA and SRA aver that no
compensation involving the subject remittances
can take effect by operation of law since the
relationship created between PNB and NASUTRA
was one of trustee-beneficiary and not one of
creditor and debtor. They also claim that no legal
compensation can take place in favor of
PHILEXCHANGE since the subject remittances were
received by PNB and not PHILEXCHANGE, a
corporation clothed with a separate and distinct
corporate personality from PNB. They added that
PHILEXCHANGE's account had already prescribed.
Moreover, NASUTRA and SRA contend that,
assuming arguendo that creditor-debtor
relationship existed between PNB and NASUTRA,
compensation was still illegal, since PNB has not
proven the existence of the P408 million revolving
credit line and the CAB Planters Account.
Petitioners also assert that the CAB Planters
Account is an unliquidated account considering that
it still has to be recomputed pursuant to the Sugar
Reconstitution Law.29
Respondent PNB counters that it can apply the
foreign remittances on the long-overdue
obligations of NASUTRA. They were entered into by
NASUTRA with the blessing, if not with express
mandate, of the National Government in the
pursuit of national interest and policy. PNB invokes
also the Letter of Intent submitted by the National
Government to the International Monetary Fund
(IMF), wherein the government made specific
reference to the immediate payment by NASUTRA
and PHILSUCOM of their outstanding obligations
with PNB to buoy up the country's sagging
economy. 30
Petitioners' arguments are specious.
Article 1306 of the New Civil Code provides:
Contracting parties may establish such stipulations,
clauses terms and conditions as they may deem
convenient provided they are not contrary to law,
morals, good customs, public order or public policy.
In the instant case, NASUTRA applied for a P408
million credit line with PNB in order to finance its
trading operations. PNB, on the other hand,
approved said credit line in its Resolution No. 68.
Thereafter, NASUTRA availed of the credit and in
fact drew P389,246,324.60, in principal and
accrued interest, from the approved credit line.
Evidence shows that every time NASUTRA availed
of the credit, its Executive Vice President, Jose
Unson, executed a promissory note 31 in favor of
PNB with the following proviso:
In the event that this note is not paid at maturity or
when the same becomes due under any of the
provisions hereof, I/We hereby authorize the Bank,
at its option and without notice, to apply to the
payment of this note, any and all moneys,
securities and things of values which may be in the
hands on deposit or otherwise belonging to me/us
and for this purpose, I/We hereby, jointly and
severally, irrevocably constitute and appoint the
Bank to be my/our true Attorney-in-Fact with full
power and authority for me/us and in my/our name
and behalf and without prior notice to negotiate,
sell and transfer any moneys, securities and things
of value which it may hold, by public or private sale
and apply the proceeds thereof to the payment of
this note. (Italics ours)
While we agree with petitioners that the application
of subject remittances cannot be justified under
Article 1278 in relation to Article 1279 of the Civil
Code, considering that some elements of legal
compensation were lacking, application of the
subject remittances to NASUTRA's account with
PNB and the claims of various PNB branches for
interest on the unpaid CY 19841985 sugar
proceeds is authorized under the above-quoted
stipulation. PNB correctly treated the subject
remittances for the account of NASUTRA as moneys
in its hands which may be applied for the payment
of the note.
Also, the relationship between NASUTRA/SRA and
PNB when the former constituted the latter as its
attorney-in-fact is not a simple agency.
NASUTRA/SRA has assigned and practically
surrendered its rights in favor of PNB for a
substantial consideration. 32 To reiterate,
NASUTRA/SRA executed promissory notes in favor
of PNB every time it availed of the credit line. The
agency established between the parties is one
coupled with interest which cannot be revoked or
cancelled at will by any of the parties. 33
Notwithstanding its availment of the approved
credit, NASUTRA, for reasons only known to itself,
insisted in claiming for refund of the remittances.
NASUTRA's posture is untenable. NASUTRA's
actuation runs counter to the good faith covenant
in contractual relations, required under Article 1159
of the Civil Code, to wit:
Obligations arising from contract have the force of
law between the contracting parties and should be
complied with in good faith.
Verily, parties may freely stipulate their duties and
obligations which perforce would be binding on
them. Not being repugnant to any legal
proscription, the agreement entered into by
NASUTRA/SRA and PNB must be respected and
have the force of law between them.
With respect to the application of the sum of
P65,412,245.84, 34 the record shows that NASUTRA
failed to remit the interest payments to PNB
despite its obligation under the liquidation scheme
proposed by the Chairman of its Executive
Committee, Armando C. Gustillo, to stabilize sugar
liquidation prices. Certainly, the authority granted
by NASUTRA to Armando Gustillo to propose such
liquidation scheme was an authority to represent
NASUTRA. Undisputedly, any obligation or liability
arising from such agreement shall be binding on
the parties. NASUTRA, for its part, cannot now
renege on its duties, considering that it took
advantage of the loan.
Having established that PNB validly applied the
subject remittances to the interest of NASUTRA's
loan in the amount of P65,412,245.84, the
application of the remainder of the remittance
amounting to P15,863,898.79 to the principal is
proper.
With respect to the Central Azucarera de Bais (CAB)
Planters account, petitioners maintained that the
subject remittances cannot be applied to payment
thereof, considering that it is unliquidated and
needs recomputation, pursuant to Section 3 of
Republic Act No. 7202 or the Sugar Reconstitution
Law, which provides:
The Philippine National Bank of the Philippines and
other government-owned and controlled financial
institutions which have granted loans to the sugar
producers shall extend to accounts of said sugar
producers incurred from Crop Year 19741975 up to
and including Crop Year 19841985 the following:
(a) Condonation of interest charged by the
banks in excess of twelve percent (12%)
per annum and all penalties and
surcharges:
(b) The recomputed loans shall be
amortized for a period of thirteen (13)
years inclusive of a three-year grace
period on principal portion of the loan will
carry an interest rate of twelve (12%) and
on the outstanding balance effective when
the original promissory notes were signed
and funds released to the producer.
Section 6 of Rules and Regulations implementing
RA No. 7202 also provides:
SECTION 2. In cases, however, where
sugar producers have no outstanding loan
balance with said financial institutions as
of the date of effectivity of RA No. 7202
(i.e. sugar producers who have fully paid
their loans either through actual payment
or foreclosure of collateral, or who have
partially paid their loans and after the
computation of the interest charges, they
end up with excess payment to said
financial institutions), said producers shall
be entitled to the benefits of
recomputation in accordance with
Sections 3 and 4 of RA No. 7202, but the
said financial institutions, instead of
refunding the interest in excess of twelve
(12%) percent per annum, interests,
penalties and surcharges apply the excess
payment as an offset and/or as payment
for the producers' outstanding loan
obligations. Applications of restructuring
banks under Section 6 of RA No. 7202
shall be filed with the Central Monetary
Authority of the Philippines within one (1)
year from application of excess payment.
Although it appears from said provision that PNB
was directed to condone interest, penalties and
surcharges charged in excess of 12% per annum,
the passage of said law did not forestall legal
compensation that had taken place before its
effectivity. The loan had been definitely
ascertained, assessed and determined by PNB.
Pursuant to Section 4 35 of RA 7202, there would be
condonation of interest whether the accounts were
fully or partially paid.
With regard to the application of the amount of
P206,070,172.57 to the PHILSUCOM account
carried in the books of PHILEXCHANGE, petitioners
maintain that there could be no application of the
subject remittance, considering that the
remittances were received by PNB and not
PHILEXCHANGE which has a personality separate
and distinct from PNB.
Petitioners' contention is not well-taken.
There exist clear indications that insofar as sugar
trading was concerned, PHILEXCHANGE and PNB
were treated as one entity. Purchases of sugar of
PHILEXCHANGE as the exclusive sugar trading arm
of PHILSUCOM were financed by PNB pursuant to
PD 579. More importantly, PNB, a wholly owned
bank of the government at that time, in turn wholly
owned and controlled PHILEXCHANGE. Also, Section
2 (a), PD 659 declared as illegal the sale, transfer
and assignment of sugar by any planter, producer,
miller, central, or refinery to any person or entity
other than Philippine Exchange, Inc. and/or the
PNB. To reiterate, PHILEXCHANGE failed to pay its
loans with PNB because of the fall of the sugar
prices in the world market. When NASUTRA
substituted PHILEXCHANGE as marketing agent of
PHILSUCOM, 1,485,532.47 metric tons 36 of export
sugar were turned over by PHILEXCHANGE to
NASUTRA. To reiterate, the foreign remittances
constituted proceeds of the sale of the sugar
covered by quedans transferred by PHILEXCHANGE
to NASUTRA.
WHEREFORE, in view of the foregoing, the instant
petition for review is DENIED. The decision of the
Court of Appeals dated August 10, 2001
is AFFIRMED.
SO ORDERED.
A.C. No. 5182 August 12, 2004
SUSANA DE GUZMAN BUADO and NENA
LISING, complainants,
vs.
ATTY. EUFRACIO T. LAYAG, respondent.
RESOLUTION
PER CURIAM:
The instant case arose from a verified Letter-
Complaint1 for malpractice filed with this Court on
December 9, 1999, against respondent Atty.
Eufracio T. Layag by Susana de Guzman Buado and
Nena Lising. The complaint stated that de Guzman
Buado and Lising had instituted a criminal action
for estafa2 against Atty. Layag with the Office of the
City Prosecutor of Caloocan City and that the City
Prosecutor had resolved that there was prima
facie evidence to justify the filing in court of
informations for two (2) counts of estafa against
Atty. Layag.3Accordingly, two cases for estafa,
docketed as Criminal Cases Nos. C-58087 and C-
58088 were filed with the Regional Trial Court (RTC)
of Caloocan City, Branch 124.4
In our Resolution of January 31, 2000, we directed
that Atty. Layag be furnished a copy of the
complaint for his comment.
In his Comment dated April 11, 2000, Atty. Layag
denied committing any malpractice, saying that he
merely complied with the wishes of his client, the
late Rosita de Guzman, to deliver any money
judgment in Civil Case No. C-14265 before the RTC
of Caloocan City, Branch 121, to her attorney-in-
fact, one Marie Paz P. Gonzales. Respondent prayed
that the complaint be dismissed for want of merit.
Thereafter, this Court resolved on July 10, 2000 to
refer the matter to the Integrated Bar of the
Philippines (IBP) for investigation, report, and
recommendation.5
As culled from the report and
recommendation6 dated September 25, 2003 of the
IBP Investigating Commissioner, Atty. Milagros V.
San Juan, the facts in this case are as follows:
Herein complainant Lising and her sister, Rosita de
Guzman (mother of herein complainant Susana de
Guzman Buado), were the plaintiffs in Civil Case
No. C-14265, entitled Rosita de Guzman, et al., v.
Inland Trailways, Inc.,which was decided by the RTC
of Caloocan City, Branch 121, in favor of the
plaintiffs on May 16, 1991. Both Lising and de
Guzman were represented in said case by herein
respondent, Atty. Layag. The losing party, Inland
Trailways, Inc., appealed the trial court's judgment
to the Court of Appeals, said appeal being docketed
as CA-G.R. CV No. 34012.
In its decision dated January 5, 1995, the appellate
court affirmed the judgment of the trial court.
However, on July 3, 1993, or while CA-G.R. CV No.
34012 was pending before the appellate court, de
Guzman died.
Pursuant to the judgment against it, Inland
Trailways, Inc., issued the following checks: (1)
Traders Royal Bank Check No. 0000790549 dated
February 15, 1996 for P15,000 payable to Atty.
Layag; (2) Traders Royal Bank Check No.
0000790548 dated March 8, 1996 in the amount
of P30,180 payable to Lising; and (3) Traders Royal
Bank Check No. 0000790547 dated March 8, 1996
for the sum of P49,000 payable to de Guzman who
had by then already passed away. The
aforementioned checks were received by
respondent lawyer from Pablo Gernale, Jr., the
deputy sheriff of the RTC in February 1996. Atty.
Layag did not inform Lising and the heirs of de
Guzman about the checks. Instead he gave the
checks to one Marie Paz Gonzales for encashment
on the strength of a Special Power of Attorney,
purportedly executed by de Guzman constituting
Gonzales as her attorney-in-fact. The Special Power
of Attorney supposedly authorized Gonzales,
among others, to encash, indorse, and/or deposit
any check or bill of exchange received in
settlement of Civil Case No. C-14265.
It was only in February 1998 that Lising and de
Guzman Buado, while checking the status of Civil
Case No. C-14265, found that judgment had been
rendered in the said case and that the losing party
had paid the damages awarded by issuing checks
which were received by their counsel, Atty. Layag,
two years earlier. De Guzman Buado and Lising
then made demands upon Atty. Layag to give them
the proceeds of the checks, but to no avail. Marie
Paz Gonzales eventually gave Lising P10,000. No
further amounts were remitted to either Lising or
de Guzman Buado despite demands by them.
After the parties presented their oral and
documentary evidence before the IBP
Commissioner, the matter was deemed submitted
for resolution. On September 25, 2003, the IBP
Investigating Commissioner made the following
recommendations:
It is submitted that respondent has
betrayed the trust of her (sic) clients. It is
recommended that respondent be
suspended from the practice of law for the
maximum period allowed under the law
and that he be ordered to turn over to the
Complainants the amounts he received in
behalf of the complainants Susana de
Guzman Buado and Nena Lising.
Respectfully submitted.7
The IBP Investigating Commissioner, in her
recommendation, found that in giving the checks to
a party not entitled to them, Atty. Layag
disregarded the rights and interests of his clients in
violation of Canons 15,8 16,9 and 1710 of the Code
of Professional Responsibility.
On the Special Power of Attorney11 purportedly
executed by Rosita de Guzman in favor of Marie
Paz Gonzales, the Investigating Commissioner held
that even assuming arguendo that there was
indeed a Special Power of Attorney, it nonetheless
had no force and effect after the death of Rosita de
Guzman. Hence, any authority she had conferred
upon Gonzales was already extinguished.
According to the IBP Investigating Commissioner,
since respondent represented de Guzman in Civil
Case No. C-14265, upon her death, respondent had
the obligation to preserve whatever benefits
accrued to the decedent on behalf of and for the
benefit of her lawful heirs.
On October 25, 2003, the IBP Board of Governors
passed its resolution on the case, affirming with
modification the recommendation by the
Investigating Commissioner, thus:
RESOLVED to ADOPT and APPROVE, as it is
hereby ADOPTED and APPROVED, the
Report and Recommendation of the
Investigating Commissioner of the above-
entitled case, herein made part of this
Resolution/Decision as Annex "A"; and,
finding the recommendation fully
supported by the evidence on record and
the applicable laws and rules, with
modification, and considering that
Respondent has betrayed the trust of her
(sic) clients in violation of Canon 15, 16
and 17 of the Code of Professional
Responsibility, Atty. Eufracio T. Layag is
hereby DISBARRED and Ordered to turn
over immediately to the Complainants the
amounts received in their behalf.12
Respondent then moved for reconsideration of the
foregoing resolution before this Court. In view of
the recommended penalty of disbarment, the
Court En Banc accepted the respondent's motion
for our consideration.
Placed in issue are: (1) the sufficiency of the
evidence to prove the respondent's liability for
violation of the Code of Professional Responsibility;
and (2) the propriety of the recommended penalty.
After careful scrutiny of the proceedings conducted
by the IBP Investigating Commissioner, we find that
the factual findings made in her report and
recommendation are well supported by the
evidence on record. Respondent Atty. Layag does
not deny receiving the checks in question, but he
claimed he turned over said checks to Marie Paz
Gonzales, pursuant to the alleged Special Power of
Attorney executed by Rosita de Guzman in favor of
Gonzales, authorizing the latter to encash, indorse,
or deposit any check received as a result of the
judgment in Civil Case No. C-14265. Respondent
contended that in so doing, he was being true to
the wishes and desires of his client, the late Rosita
de Guzman.
The respondent's arguments fail to persuade us. As
a lawyer, with more than thirty (30) years in
practice, respondent is charged with knowledge of
the law. He should know that it was error for him to
rely on a Special Power of Attorney after the death
of the principal, Rosita de Guzman. As pointed out
by the IBP Investigating Commissioner, even
assuming there was a Special Power of Attorney,
although respondent could not produce a copy nor
prove its existence, when de Guzman died that
document ceased to be operative. This is clear
from Article 191913 of the Civil Code. While there
are instances, as provided in Article 1930, 14 where
the agency is not extinguished by the death of the
principal, the instant case does not fall under the
exceptions. Clearly, at the time Atty. Layag
received and turned over the checks corresponding
to the award of damages in Civil Case No. C-14265
in February 1996, there was no longer any valid
Special Power of Attorney. Again, as pointed out by
the IBP Investigating Commissioner, respondent's
duty when the award of damages was made, was
to preserve and deliver the amount received to the
heirs of his client, de Guzman, and not to any other
person.
With respect to the check from Inland Trailways,
Inc., and made payable to Lising, respondent
should have delivered it directly to Lising. The
Special Power of Attorney, which he keeps on
harping on, did not cover Lising's case. Its
coverage -- assuming again that the document
existed -- pertained only to de Guzman.
Respondent certainly could not take refuge in any
provision of said Special Power of Attorney insofar
as Lising's check is concerned.
Respondent now denies any attorney-client
relationship with Lising because, as he insists, he
was only engaged by de Guzman. But in
his Comment to the Complaint, respondent
admits that he included Lising when they filed suit
against Inland Trailways, Inc., before the RTC of
Caloocan City, upon the request of de Guzman.
Absent any showing on record that Lising was
represented by another counsel in Civil Case No. C-
14265 and the subsequent appeal, CA-G.R. CV No.
34012, the only conclusion we could reach is that
she was also represented by Atty. Layag. But even
if granted the opposite conclusion that he was not
Lising's lawyer, it cannot exonerate the respondent
with respect to Lising's check. It would only make
things worse for him, for it would show that he
misappropriated the monetary award of a party
whom he did not represent. In our view,
respondent's insistence that Lising was not his
client is more damaging to his cause.
In the course of his professional relationship with
his client, a lawyer may receive money or property
for or from the client. He shall hold such property in
trust, and he is under obligation to make an
accounting thereof as required by Rule 16.01 15 of
the Code of Professional Responsibility. This
obligation to hold property in trust includes money
received by a lawyer as a result of a judgment
favorable to his client.16 In the present case, Atty.
Layag did not make an accounting of the judgment
awards he received and the checks he allegedly
turned over to Marie Paz Gonzales. Further, when
complainants demanded that he deliver to them
the checks pertaining to de Guzman Buado and
Lising for the judgment in Civil Case No. C-14265,
Atty. Layag did not do so, in violation of Rule
16.03.17
The inescapable conclusion we can make, given the
circumstances in this case, is that by his actions,
respondent failed to observe the utmost good faith,
loyalty, candor and fidelity required of an attorney
in his dealings with his clients. His acts of
misappropriating the money of his clients are
grossly immoral and unprofessional. There is no
doubt in our mind that he deserves severe
punishment.
But is disbarment the proper penalty for Atty.
Layag?
Disbarment is the most severe form of disciplinary
sanction. The power to disbar must always be
exercised with great caution, for only the most
imperative reasons,18 and in clear cases of
misconduct affecting the standing and moral
character of the lawyer as an officer of the court
and a member of the bar.19 Accordingly, disbarment
should not be decreed where any punishment less
severe such as a reprimand, suspension, or fine -
would accomplish the end desired. 20 In the instant
case, what we seek to exact from the respondent is
strict compliance and fidelity with his duties to his
clients. Accordingly, we agree with the
recommendation of the IBP Investigating
Commissioner that suspension, rather than
disbarment, of respondent would suffice. In our
view, however, such suspension should be
indefinite, subject to further orders by this Court.
WHEREFORE, the IBP Board of Governors
Resolution No. XVI-2003-230 in Administrative Case
No. 5182 finding respondent LIABLE for violation of
the Canons 15, 16, and 17 of the Code of
Professional Responsibility is hereby AFFIRMED with
the MODIFICATION that instead of the
recommended penalty of disbarment, respondent
Atty. Eufracio T. Layag is hereby INDEFINITELY
SUSPENDED from the practice of law. Respondent is
further DIRECTED to immediately turn over to
complainants Susana de Guzman Buado and Nena
Lising the amounts ofP49,000.00 and P30,180.00,
respectively, as well as all other amounts if any, he
might have received for and on their behalf.
Respondent is also ORDERED to REPORT to the
Office of the Bar Confidant his compliance within
fifteen (15) days from receipt hereof. Let a copy of
this Resolution be attached to the personal record
of Atty. Eufracio T. Layag and copies be furnished
the Integrated Bar of the Philippines and the Office
of the Court Administrator for dissemination to all
lower courts. This Resolution is immediately
executory.
SO ORDERED.