G.R. No. 156262 July 14, 2005 x x x x x x x x x"4 without knowing that these were not funded.
;4 without knowing that these were not funded. And it is for this reason
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 Decision3 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:
"1. The sum of P1,750,050.00, with interests from the filing of the
second amended complaint;
"2. The sum of P50,000.00, as attorney’s fees;
"3. The sum of P20,000.00, as moral damages
"4. And to pay the costs of suit.
that [petitioners] have been insisting on the inclusion of Evangeline
Santos as an indispensable party, and her non-inclusion was a fatal
The Facts
error. Refuting that the sale of several properties were fictitious or
simulated, spouses Tuazon contended that these were sold because
The facts are narrated by the CA as follows: they were then meeting financial difficulties but the disposals were
made for value and in good faith and done before the filing of the
"[Respondents] alleged that between the period of May 2, 1988 and 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
June 5, 1988, spouses Leonilo and Maria Tuazon purchased a total of
8,326 cavans of rice from [the deceased Bartolome] Ramos receipts or like evidence to prove this. They assert that they were
[predecessor-in-interest of respondents]. That of this [quantity,] x x x merely agents and should not be held answerable."5
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 The corresponding civil and criminal cases were filed by respondents
Tuazon issued x x x [several] Traders Royal Bank checks. against Spouses Tuazon. Those cases were later consolidated and
amended to include Spouses Anastacio and Mary Buenaventura, with
xxxxxxxxx Alejandro Tuazon and Melecio Tuazon as additional defendants. Having
passed away before the pretrial, Bartolome Ramos was substituted by
his heirs, herein respondents.
[B]ut when these [checks] were encashed, all of the checks bounced
due to insufficiency of funds. [Respondents] advanced that before
Contending that Evangeline Santos was an indispensable party in the
issuing said checks[,] spouses Tuazon already knew that they had no
case, petitioners moved to file a third-party complaint against her.
available fund to support the checks, and they failed to provide for the
Allegedly, she was primarily liable to respondents, because she was the
payment of these despite repeated demands made on them.
one who had purchased the merchandise from their predecessor, as
evidenced by the fact that the checks had been drawn in her name.
"[Respondents] averred that because spouses Tuazon anticipated that The RTC, however, denied petitioners’ Motion.
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 Since the trial court acquitted petitioners in all three of the
of the x x x spouses Buenaventura x x x[,] as well as their residential lot consolidated criminal cases, they appealed only its decision finding
and the house thereon[,] all located at Nueva Ecija, and another them civilly liable to respondents.
simulated deed of sale dated July 12, 1988 of a Stake Toyota registered
with the Land Transportation Office of Cabanatuan City on September Ruling of the Court of Appeals
7, 1988. [Co-petitioner] Melecio Tuazon, a son of spouses Tuazon,
registered a fictitious Deed of Sale on July 19, 1988 x x x over a
Sustaining the RTC, the CA held that petitioners had failed to prove the
residential lot located at Nueva Ecija. Another simulated sale of a
existence of an agency between respondents and Spouses Tuazon. The
Toyota Willys was executed on January 25, 1988 in favor of their other
appellate court disbelieved petitioners’ contention that Evangeline
son, [co-petitioner] Alejandro Tuazon x x x. As a result of the said sales,
Santos should have been impleaded as an indispensable party.
the titles of these properties issued in the names of spouses Tuazon
Inasmuch as all the checks had been indorsed by Maria Tuazon, who
were cancelled and new ones were issued in favor of the [co-
thereby became liable to subsequent holders for the amounts stated in
]defendants spouses Buenaventura, Alejandro Tuazon and Melecio
those checks, there was no need to implead Santos.
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 Hence, this Petition.6
damage and prejudice of [respondents].
Issues
"For their part, defendants denied having purchased x x x rice from
[Bartolome] Ramos. They alleged that it was Magdalena Ramos, wife of
Petitioners raise the following issues for our consideration:
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 "1. Whether or not the Honorable Court of Appeals erred in ruling that
Tuazon as payments therefor. In good faith[,] the checks were received petitioners are not agents of the respondents.
[by petitioner] from Evangeline Santos and turned over to Ramos
"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 Court’s Ruling
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.

The Petition is unmeritorious.

Second Issue:

First Issue:
Indispensable Party

Agency
Petitioners argue that the lower courts erred in not allowing
Evangeline Santos to be impleaded as an indispensable party. They
Well-entrenched is the rule that the Supreme Court’s role in a petition insist that respondents’ Complaint against them is based on the
under Rule 45 is limited to reviewing errors of law allegedly committed bouncing checks she issued; hence, they point to her as the person
by the Court of Appeals. Factual findings of the trial court, especially primarily liable for the obligation.
when affirmed by the CA, are conclusive on the parties and this
Court.8 Petitioners have not given us sufficient reasons to deviate from
We hold that respondents’ cause of action is clearly founded on
this rule.
petitioners’ failure to pay the purchase price of the rice. The trial court
held that Petitioner Maria Tuazon had indorsed the questioned checks
In a contract of agency, one binds oneself to render some service or to in favor of respondents, in accordance with Sections 31 and 63 of the
do something in representation or on behalf of another, with the Negotiable Instruments Law.16 That Santos was the drawer of the
latter’s consent or authority.9 The following are the elements of checks is thus immaterial to the respondents’ cause of action.
agency: (1) the parties’consent, express or implied, to establish the
relationship; (2) the object, which is the execution of a juridical act in
As indorser, Petitioner Maria Tuazon warranted that upon due
relation to a third person; (3) the representation, by which the one who
presentment, the checks were to be accepted or paid, or both,
acts as an agent does so, not for oneself, but as a representative; (4)
according to their tenor; and that in case they were dishonored, she
the limitation that the agent acts within the scope of his or her
would pay the corresponding amount.17 After an instrument is
authority.10 As the basis of agency is representation, there must be, on
dishonored by nonpayment, indorsers cease to be merely secondarily
the part of the principal, an actual intention to appoint, an intention
liable; they become principal debtors whose liability becomes identical
naturally inferable from the principal’s words or actions. In the same
to that of the original obligor. The holder of a negotiable instrument
manner, there must be an intention on the part of the agent to accept
need not even proceed against the maker before suing the
the appointment and act upon it. Absent such mutual intent, there is
indorser.18 Clearly, Evangeline Santos -- as the drawer of the checks -- is
generally no agency.11
not an indispensable party in an action against Maria Tuazon, the
indorser of the checks.
This Court finds no reversible error in the findings of the courts a
quo that petitioners were the rice buyers themselves; they were not
Indispensable parties are defined as "parties in interest without whom
mere agents of respondents in their rice dealership. The question of
no final determination can be had."19 The instant case was originally
whether a contract is one of sale or of agency depends on the intention
one for the collection of the purchase price of the rice bought by Maria
of the parties.12
Tuazon from respondents’ predecessor. In this case, it is clear that
there is no privity of contract between respondents and Santos. Hence,
The declarations of agents alone are generally insufficient to establish a final determination of the rights and interest of the parties may be
the fact or extent of their authority. 13 The law makes no presumption made without any need to implead her.
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
WHEREFORE, the Petition is DENIED and the assailed
agency as an affirmative defense, yet fail to prove its existence.
Decision AFFIRMED. Costs against petitioners.

The Court notes that petitioners, on their own behalf, sued Evangeline
SO ORDERED.
Santos for collection of the amounts represented by the bounced
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 court’s 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) CA Rep 783). The rationale for this is to afford the party against whom
Whether or not CSC as buyer from STM of the rights to 25,000 bags of the evidence is presented to object thereto if he deems it necessary.
sugar covered by SLDR No. 1214M could compel petitioner to deliver Plaintiff-appellee is, therefore, correct in its argument that Exhibit ‘F'
23,000 bagsallegedly unwithdrawn. 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
On February 24, 1994, the Court of Appeals rendered its decision
12,586 bags of sugar remained undelivered.
modifying the trial court's judgment, to wit:
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and
1990, p. 33] and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18,
orders defendant-appellant to:
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
"1) Deliver to plaintiff-appellee 12,586 bags of sugar allowed to withdraw anymore. Documentary evidence (Exhibit I, Id., p.
covered by SLDR No. 1214M; 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
"2) Pay to plaintiff-appellee P792,918.00 which is 10% of the the remaining 23,000 bags of sugar from SLDR 1214M. Defendant-
value of the undelivered bags of refined sugar, as attorneys appellant, on the other hand, alleged that sugar delivery to the STM
fees; 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
"3) Pay the costs of suit. evidence to show how many bags of sugar had been withdrawn against
SLDR No. 1214M, precisely because of its theory that all sales in
"SO ORDERED."11 question were a series of one single transaction and withdrawal of
sugar depended on the clearing of checks paid therefor.
Both parties then seasonably filed separate motions for
reconsideration. "After a second look at the evidence, We see no reason to overturn the
findings of the trial court on this point."13
In its resolution dated September 30, 1994, the appellate court
modified its decision to read: Hence, the instant petition, positing the following errors as grounds for
review:
"WHEREFORE, the Court hereby modifies the assailed judgment and
orders defendant-appellant to: "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
"(1) Deliver to plaintiff-appellee 23,000 bags of refined against SLDR No. 1214M "for and in our (STM) behalf,"
sugar under SLDR No. 1214M; (emphasis in the original) private respondent's withdrawing
2,000 bags of sugar for STM, and STM's empowering other
"(2) Pay costs of suit. 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
"SO ORDERED."12
& Realty Corp., 81 SCRA 252, and precluded it from
subsequently claiming and proving being an assignee of
The appellate court explained the rationale for the modification as SLDR No. 1214M and from suing by itself for its
follows: enforcement because it was conclusively presumed to be an
agent (Sec. 2, Rule 131, Rules of Court) and estopped from
"There is merit in plaintiff-appellee's position. doing so. (Art. 1431, Civil Code).
"Exhibit ‘F' We relied upon in fixing the number of bags of sugar which "2. The Court of Appeals erred in manifestly and arbitrarily
remained undelivered as 12,586 cannot be made the basis for such a ignoring and disregarding certain relevant and undisputed
finding. The rule is explicit that courts should consider the evidence facts which, had they been considered, would have shown
only for the purpose for which it was offered. (People v. Abalos, et al, 1 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 appoint18 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 "sellers' agents" for the several Their motion for reconsideration having been denied, petitioners seek
owners of the 8 lots subject matter of relief from this Court contending that:
the case. Obsviously, William Uy and
WILLIAM UY and RODEL ROXAS, petitioners,
Rodel Roxas in filing this case acted as
vs. I. THE RESPONDENT CA ERRED IN
attorneys-in-fact of the lot owners
COURT OF APPEALS, HON. ROBERT BALAO and NATIONAL HOUSING DECLARING THAT RESPONDENT NHA
who are the real parties in interest
AUTHORITY, respondents. HAD ANY LEGAL BASIS FOR
but who were omitted to be pleaded
RESCINDING THE SALE INVOLVING
as party-plaintiffs in the case. This
THE LAST THREE (3) PARCELS
KAPUNAN, J.: omission is fatal. Where the action is
COVERED BY NHA RESOLUTION NO.
brought by an attorney-in-fact of a
1632.
Petitioners William Uy and Rodel Roxas are agents authorized to sell land owner in his name, (as in our
eight parcels of land by the owners thereof. By virtue of such authority, present action) and not in the name
of his principal, the action was II. GRANTING ARGUENDO THAT THE
petitioners offered to sell the lands, located in Tuba, Tadiangan,
properly dismissed (Ferrer vs. RESPONDENT NHA HAD LEGAL BASIS
Benguet to respondent National Housing Authority (NHA) to be utilized
Villamor, 60 SCRA 406 [1974]; TO RESCIND THE SUBJECT SALE, THE
and developed as a housing project.
Marcelo vs. de Leon, 105 Phil. 1175) RESPONDENT CA NONETHELESS
because the rule is that every action ERRED IN DENYING HEREIN
On February 14, 1989, the NHA Board passed Resolution No. 1632 must be prosecuted in the name of PETITIONERS' CLAIM TO DAMAGES,
approving the acquisition of said lands, with an area of 31.8231 the real parties-in-interest (Section 2, CONTRARY TO THE PROVISIONS OF
hectares, at the cost of P23.867 million, pursuant to which the parties Rule 3, Rules of Court). ART. 1191 OF THE CIVIL CODE.
executed a series of Deeds of Absolute Sale covering the subject lands.
Of the eight parcels of land, however, only five were paid for by the
When plaintiffs UY and Roxas sought III. THE RESPONDENT CA ERRED IN
NHA because of the report 1 it received from the Land Geosciences
payment of damages in their favor in DISMISSING THE SUBJECT
Bureau of the Department of Environment and Natural Resources
view of the partial rescission of COMPLAINT FINDING THAT THE
(DENR) that the remaining area is located at an active landslide area
Resolution No. 1632 and the Deed of PETITIONERS FAILED TO JOIN AS
and therefore, not suitable for development into a housing project.
Absolute Sale covering TCT Nos. INDISPENSABLE PARTY PLAINTIFF THE
10998, 10999 and 11292 (Prayer SELLING LOT-OWNERS. 3
On 22 November 1991, the NHA issued Resolution No. 2352 cancelling complaint, page 5, RTC records), it
the sale over the three parcels of land. The NHA, through Resolution becomes obviously indispensable that We first resolve the issue raised in the the third assignment of error.
No. 2394, subsecguently offered the amount of P1.225 million to the the lot owners be included,
landowners as daños perjuicios. mentioned and named as party-
plaintiffs, being the real party-in- Petitioners claim that they lodged the complaint not in behalf of their
interest. UY and Roxas, as attorneys- principals but in their own name as agents directly damaged by the
On 9 March 1992, petitioners filed before the Regional Trial Court
in-fact or apoderados, cannot by termination of the contract. The damages prayed for were intended
(RTC) of Quezon City a Complaint for Damages against NHA and its
themselves lawfully commence this not for the benefit of their principals but to indemnify petitioners for
General Manager Robert Balao.
action, more so, when the supposed the losses they themselves allegedly incurred as a result of such
special power of attorney, in their termination. These damages consist mainly of "unearned income" and
After trial, the RTC rendered a decision declaring the cancellation of favor, was never presented as an advances. 4 Petitioners, thus, attempt to distinguish the case at bar
the contract to be justified. The trial court nevertheless awarded evidence in this case. Besides, even if from those involving agents or apoderedos instituting actions in their
damages to plaintiffs in the sum of P1.255 million, the same amount herein plaintiffs Uy and Roxas were own name but in behalf of their principals. 5 Petitioners in this case
initially offered by NHA to petitioners as damages. authorized by the lot owners to purportedly brought the action for damages in their own name and in
commence this action, the same must their own behalf.
Upon appeal by petitioners, the Court of Appeals reversed the decision still be filed in the name of the
of the trial court and entered a new one dismissing the complaint. It principal, (Filipino Industrial We find this contention unmeritorious.
held that since there was "sufficient justifiable basis" in cancelling the Corporation vs. San Diego, 23 SCRA
sale, "it saw no reason" for the award of damages. The Court of 706 [1968]). As such indispensable
party, their joinder in the action is Sec. 2, Rule 3 of the Rules of Court requires that every action must be
Appeals also noted that petitioners were mere attorneys-in-fact and,
mandatory and the complaint may be prosecuted and defended in the name of the real party-in-interest. The
therefore, not the real parties-in-interest in the action before the trial
dismissed if not so impleaded (NDC real party-in-interest is the party who stands to be benefited or injured
court.
vs. CA, 211 SCRA 422 [1992]). 2 by the judgment or the party entitled to the avails of the suit. "Interest,
within the meaning of the rule, means material interest, an interest in
. . . In paragraph 4 of the complaint, the issue and to be affected by the decree, as distinguished from mere
plaintiffs alleged themselves to be interest in the question involved, or a mere incidental interest. 6 Cases
construing the real party-in-interest provision can be more easily . . . recognizes the assignments of position of an assignee who is the
understood if it is borne in mind that the true meaning of real party-in- rights of action and also recognizes beneficial owner of the chose in
interest may be summarized as follows: An action shall be prosecuted that when one has a right of action action. He has an irrevocable power
in the name of the party who, by the substantive law, has the right assigned to him he is then the real to sue in his principal's name. . . . And,
sought to be enforced. 7 party in interest and may maintain an under the statutes which permit the
action upon such claim or right. The real party in interest to sue, he can
purpose of [this rule] is to require the maintain an action in his own name.
Do petitioners, under substantive law, possess the right they seek to
plaintiff to be the real party in This power to sue is not affected by a
enforce? We rule in the negative.
interest, or, in other words, he must settlement between the principal and
be the person to whom the proceeds the obligor if the latter has notice of
The applicable substantive law in this case is Article 1311 of the Civil of the action shall belong, and to the agent's interest. . . . Even though
Code, which states: prevent actions by persons who have the agent has not settled with his
no interest in the result of the same. . principal, he may, by agreement with
Contracts take effect only between .. the principal, have a right to receive
the parties, their assigns, and heirs, payment and out of the proceeds to
except in case where the rights and reimburse himself for advances and
Thus, an agent, in his own behalf, may bring an action founded on a
obligations arising from the contract commissions before turning the
contract made for his principal, as an assignee of such contract. We
are not transmissible by their nature, balance over to the principal. In such
find the following declaration in Section 372 (1) of the Restatement of
or by stipulation, or by provision of a case, although there is no formal
the Law on Agency (Second): 11
law. . . . assignment, the agent is in the
position of a transferee of the whole
Sec. 372. Agent as Owner of Contract Right claim for security; he has an
If a contract should contain some irrevocable power to sue in his
stipulation in favor of a third person, principal's name and, under statutes
(1) Unless otherwise agreed, an agent
he may demand its which permit the real party in interest
who has or who acquires an interest
fulfillment provided he to sue, he can maintain an action in
in a contract which he makes on
communicated his acceptance to the his own name.
behalf of his principal can, although
obligor before its revocation. A mere
not a promisee, maintain such action
incidental benefit or interest of a
thereon maintain such action thereon Petitioners, however, have not shown that they are assignees of their
person is not sufficient. The
as might a transferee having a similar principals to the subject contracts. While they alleged that they made
contracting parties must have clearly
interest. advances and that they suffered loss of commissions, they have not
and deliberately conferred a favor
upon a third person. (Emphasis established any agreement granting them "the right to receive
supplied.) The Comment on subsection (1) states: payment and out of the proceeds to reimburse [themselves] for
advances and commissions before turning the balance over to the
principal[s]."
Petitioners are not parties to the contract of sale between their a. Agent a transferee. One who has
principals and NHA. They are mere agents of the owners of the land made a contract on behalf of another
subject of the sale. As agents, they only render some service or do may become an assignee of the Finally, it does not appear that petitioners are beneficiaries of a
something in representation or on behalf of their principals. 8 The contract and bring suit against the stipulation pour autrui under the second paragraph of Article 1311 of
rendering of such service did not make them parties to the contracts of other party to it, as any other the Civil Code. Indeed, there is no stipulation in any of the Deeds of
sale executed in behalf of the latter. Since a contract may be violated transferee. The customs of business Absolute Sale "clearly and deliberately" conferring a favor to any third
only by the parties thereto as against each other, the real parties-in- or the course of conduct between the person.
interest, either as plaintiff or defendant, in an action upon that principal and the agent may indicate
contract must, generally, either be parties to said contract. 9 that an agent who ordinarily has That petitioners did not obtain their commissions or recoup their
merely a security interest is a advances because of the non-performance of the contract did not
transferee of the principals rights entitle them to file the action below against respondent NHA. Section
Neither has there been any allegation, much less proof, that
under the contract and as such is 372 (2) of the Restatement of the Law on Agency (Second) states:
petitioners are the heirs of their principals.
permitted to bring suit. If the agent
has settled with his principal with the
Are petitioners assignees to the rights under the contract of sale? (2) An agent does not have such an interest in a
understanding that he is to collect the
In McMicking vs. Banco Español-Filipino, 10 we held that the rule contract as to entitle him to maintain an action
claim against the obligor by way of
requiring every action to be prosecuted in the name of the real party- at law upon it in his own name merely because
reimbursing himself for his advances
in-interest. he is entitled to a portion of the proceeds as
and commissions, the agent is in the
 compensation for making it or because he is
liable for its breach.
The following Comment on the above subsection is
illuminating:
The fact that an agent who makes a contract for
his principal will gain or suffer loss by the
performance or nonperformance of the contract
by the principal or by the other party thereto
does not entitle him to maintain an action on his
own behalf against the other party for its breach.
An agent entitled to receive a commission from
his principal upon the performance of a contract
which he has made on his principal's account
does not, from this fact alone, have any claim
against the other party for breach of the
contract, either in an action on the contract or
otherwise. An agent who is not a promisee
cannot maintain an action at law against a
purchaser merely because he is entitled to have
his compensation or advances paid out of the
purchase price before payment to the principal. .
..
Thus, in Hopkins vs. Ives, 12 the Supreme Court of Arkansas, citing
Section 372 (2) above, denied the claim of a real estate broker to
recover his alleged commission against the purchaser in an agreement
to purchase property.
In Goduco vs. Court of appeals, 13 this Court held that:
. . . granting that appellant had the
authority to sell the property, the
same did not make the buyer liable
for the commission she claimed. At
most, the owner of the property and
the one who promised to give her a
commission should be the one liable
to pay the same and to whom the
claim should have been directed. . . .
As petitioners are not parties, heirs, assignees, or beneficiaries of a
stipulation pour autrui under the contracts of sale, they do not, under
substantive law, possess the right they seek to enforce. Therefore, they
are not the real parties-in-interest in this case.
Petitioners not being the real parties-in-interest, any decision rendered
herein would be pointless since the same would not bind the real
parties-in-
interest. 14
Nevertheless, to forestall further litigation on the substantive aspects
of this case, we shall proceed to rule on me merits. 15
Petitioners submit that respondent NHA had no legal basis to "rescind"
the sale of the subject three parcels of land. The existence of such legal
basis, notwithstanding, petitioners argue that they are still entitled to
an award of damages.
Petitioners confuse the cancellation of the contract by the NHA as a
rescission of the contract under Article 1191 of the Civil Code. The right
of rescission or, more accurately, resolution, of a party to an obligation
under Article 1191 is predicated on a breach of faith by the other party
that violates the reciprocity between them. 16 The power to rescind,
therefore, is given to the injured party. 17 Article 1191 states:
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon
him.
The injured party may choose between the
fulfillment and the rescission of the obligation,
with the payment of damages in either case. He
may also seek rescission, even after he has
chosen fulfillment, if the latter should become
impossible.
In this case, the NHA did not rescind the contract. Indeed, it did not
have the right to do so for the other parties to the contract, the
vendors, did not commit any breach, much less a substantial
breach, 18 of their obligation. Their obligation was merely to deliver the
parcels of land to the NHA, an obligation that they fulfilled. The NHA
did not suffer any injury by the performance thereof.
The cancellation, therefore, was not a rescission under Article 1191.
Rather, the cancellation was based on the negation of the cause arising
from the realization that the lands, which were the object of the sale,
were not suitable for housing.
Cause is the essential reason which moves the contracting parties to
enter into it. 19 In other words, the cause is the immediate, direct and
proximate reason which justifies the creation of an obligation through
the will of the contracting parties. 20 Cause, which is the essential
reason for the contract, should be distinguished from motive, which is
the particular reason of a contracting party which does not affect the
other party. 21
For example, in a contract of sale of a piece of land, such as in this case,
the cause of the vendor (petitioners' principals) in entering into the
contract is to obtain the price. For the vendee, NHA, it is the acquisition
of the land. 22 The motive of the NHA, on the other hand, is to use said
lands for housing. This is apparent from the portion of the Deeds of
Absolute Sale 23 stating:
WHEREAS, under the Executive Order No. 90
dated December 17, 1986, the VENDEE is
mandated to focus and concentrate its efforts
and resources in providing housing assistance to
the lowest thirty percent (30%) of urban income
earners, thru slum upgrading and development
of sites and services projects;
WHEREAS, Letters of Instructions Nos. 555 and
557 [as] amended by Letter of Instruction No.
630, prescribed slum improvement and
upgrading, as well as the development of sites
and services as the principal housing strategy for
dealing with slum, squatter and other blighted
communities;
xxx xxx xxx
WHEREAS, the VENDEE, in pursuit of and in
compliance with the above-stated purposes
offers to buy and the VENDORS, in a gesture of
their willing to cooperate with the above policy
and commitments, agree to sell the aforesaid
property together with all the existing
improvements there or belonging to the
VENDORS;
NOW, THEREFORE, for and in consideration of
the foregoing premises and the terms and
conditions hereinbelow stipulated, the VENDORS
hereby, sell, transfer, cede and convey unto the
VENDEE, its assigns, or successors-in-interest, a
parcel of land located at Bo. Tadiangan, Tuba,
Benguet containing a total area of FIFTY SIX
THOUSAND EIGHT HUNDRED NINETEEN (56,819)
SQUARE METERS, more or less . . . .
Ordinarily, a party's motives for entering into the contract do not affect
the contract. However, when the motive predetermines the cause, the
motive may be regarded as the cause. In Liguez vs. Court of
Appeals, 24 this Court, speaking through Justice J.B.L. REYES, HELD:
 . . . it is well to note, however, that
Manresa himself (Vol. 8, pp. 641-642),
while maintaining the distinction and
upholding the inoperativeness of the
motives of the parties to determine
the validity of the contract, expressly
excepts from the rule those contracts
that are conditioned upon the
attainment of the motives of either
party.
The same view is held by the Supreme
Court of Spain, in its decisions of
February 4, 1941, and December 4,
1946, holding that the motive may be
regarded as causa when it
predetermines the purpose of the
contract.
In this case, it is clear, and petitioners do not dispute, that NHA would
not have entered into the contract were the lands not suitable for
housing. In other words, the quality of the land was an implied
condition for the NHA to enter into the contract. On the part of the
NHA, therefore, the motive was the cause for its being a party to the
sale.
Were the lands indeed unsuitable for housing as NHA claimed?
We deem the findings contained in the report of the Land Geosciences
Bureau dated 15 July 1991 sufficient basis for the cancellation of the
sale, thus:
In Tadiangan, Tuba, the housing site is
situated in an area of moderate
topography. There [are] more areas
of less sloping ground apparently
habitable. The site is underlain by . . .
thick slide deposits (4-45m) consisting
of huge conglomerate boulders (see
Photo No. 2) mix[ed] with silty clay
materials. These clay particles when
saturated have some swelling
characteristics which is dangerous for
any civil structures especially mass
housing development. 25
Petitioners contend that the report was merely "preliminary," and not
conclusive, as indicated in its title:
MEMORANDUM
TO: EDWIN G. DOMINGO (1) Consent of the contracting parties;
Chief, Lands Geology Division (2) Object certain which is the subject
matter of the contract;
FROM: ARISTOTLE A. RILLON
(3) Cause of the obligation which is
established. (Emphasis supplied.)
Geologist II
Therefore, assuming that petitioners are parties, assignees or
SUBJECT: Preliminary Assessment of
beneficiaries to the contract of sale, they would not be entitled to any
award of damages.
Tadiangan Housing Project in Tuba,
Benguet 26
WHEREFORE, the instant petition is hereby DENIED.
Thus, page 2 of the report states in part:
SO ORDERED.
xxx xxx xxx
Actually there is a need to conduct
further geottechnical [sic] studies in
the NHA property. Standard
Penetration Test (SPT) must be
carried out to give an estimate of the
degree of compaction (the relative
density) of the slide deposit and also
the bearing capacity of the soil
materials. Another thing to consider is
the vulnerability of the area to
landslides and other mass movements
due to thick soil cover. Preventive
physical mitigation methods such as
surface and subsurface drainage and
regrading of the slope must be done
in the area. 27
We read the quoted portion, however, to mean only that further tests
are required to determine the "degree of compaction," "the bearing
capacity of the soil materials," and the "vulnerability of the area to
landslides," since the tests already conducted were inadequate to
ascertain such geological attributes. It is only in this sense that the
assessment was "preliminary."
Accordingly, we hold that the NHA was justified in canceling the
contract. The realization of the mistake as regards the quality of the
land resulted in the negation of the motive/cause thus rendering the
contract inexistent. 28 Article 1318 of the Civil Code states that:
Art. 1318. There is no contract unless
the following requisites concur:
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, petitioner’s 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 attorney’s 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 petitioner’s prayer for the
issuance of writ of preliminary attachment.13
On 25 June 1997, respondent EDWIN filed his Answer14 wherein he
admitted petitioner’s 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 petitioner’s 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 petitioner’s motion to declare respondent ERWIN in default
"for his failure to answer within the prescribed period despite the
opportunity granted"18 but it denied petitioner’s 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 EDWIN’s Memorandum21 in support of
his special and affirmative defenses and petitioner’s
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
Petitioner’s 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 ERWIN’s 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 ERWIN’s action repudiated EDWIN’s 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
latter’s 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 the amount of fifty thousand pesos (P50,000.00) as down
payment on 3 March 1995,37 it still persisted in negotiating with
petitioner which culminated in the execution of the Deed of
Assignment of its receivables from Toledo Power Company on 28 June
1995.38The significant amount of time spent on the negotiation for the
sale of the sludge pump underscores Impact Systems’ perseverance to
get hold of the said equipment. There is, therefore, no doubt in our
mind that respondent EDWIN’s participation in the Deed of Assignment
was "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 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.

WHEREFORE, premises considered, the present petition is DENIED and

the Decision dated 10 August 2004 and Resolution dated 17 March
2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming the
Order dated 29 January 2002 of the Regional Trial Court, Branch 8,
Cebu City, is AFFIRMED.

Let the records of this case be remanded to the Regional Trial Court,
Branch 8, Cebu City, for the continuation of the proceedings against
respondent Erwin Cuizon.

SO ORDERED.
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 Resolution2 dated August 6, 2001 which
denied petitioner’s 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 petitioner’s
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
former’s loan with the NHMFC, at the latter’s 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 respondent’s 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 one’s 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 petitioner’s 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 attorney’s 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 petitioner’s
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 a. Yes, sir.
when the CA manifestly overlooked certain relevant facts not disputed
by the parties, which, if properly considered, could justify a different
Atty. Diza:
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. q. And you mentioned the persons[,] namely, Elizabeth
Tomelden, Teresa Moraquin, Maria Luisa Inocencio, Zenaida
Romulo, they are your friends?
The Petition is meritorious.
witness:
The principal issue is whether the Deed of Absolute Sale is supported
by a valid consideration.
a. Inocencio and Moraquin are my friends while [as to]
Jacob and Tomelden[,] they were just referred.
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 Atty. Diza:
respondent in their own names, which was predicated on that pre-
existing debt, is void for lack of consideration. q. And you have transact[ed] with the plaintiff?
Indeed, the Deed of Absolute Sale purports to be supported by a
witness:
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 a. Yes, sir.
no effect whatsoever where the same is without cause or
consideration.17 The question that has to be resolved for the moment is Atty. Diza:
whether this debt can be considered as a valid cause or consideration
for the sale.
q. What is that transaction?
To restate, the CA cited four instances in the record to support its
holding that petitioner "re-lends" the amount borrowed from witness:
respondent to her friends: first, the friends of petitioner never
presented themselves to respondent and that all transactions were a. To refer those persons to Aura and to refer again to
made by and between petitioner and respondent;18 second; the money Arsenio Pua, sir.
passed through the bank accounts of petitioner and
respondent;19 third, petitioner herself admitted that she was "re-
Atty. Diza:
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 q. Did the plaintiff personally see the transactions with your
respondent.21 friends?
On the first, third, and fourth points, the CA cites the testimony of the witness:
petitioner, then defendant, during her cross-examination:22
a. No, sir.
Atty. Diza:
Atty. Diza:
q. You also mentioned that you were not the one indebted
to the plaintiff? q. Your friends and the plaintiff did not meet personally?
witness: witness:
a. Yes, sir. witness: a. Yes, Your Honor.

Atty. Diza: a. Two percent to Tomelden, one percent to Jacob and then
Inocencio and my friends none, sir.
q. You are intermediaries?
Based on the foregoing, the CA concluded that petitioner is
the real borrower, while the respondent, the real lender.
witness:
Atty. Villacorta:
q. Is it not a fact Ms. Witness that the defendant borrowed
from you to accommodate somebody, are you aware of
that?

But as correctly noted by the RTC, respondent, then witness:

a. We are both intermediaries. As evidenced by the checks
plaintiff, made the following admission during her cross
of the debtors they were deposited to the name of Arsenio
examination:23
Pua because the money came from Arsenio Pua. a. I am aware of that.

Atty. Villacorta:
xxxx Atty. Villacorta:

q. Who is this Arsenio Pua?

Atty. Diza: q. More or less she [accommodated] several friends of the
defendant?
witness:
q. Did the plaintiff knew [sic] that you will lend the money
to your friends specifically the one you mentioned [a] while witness:
ago? a. Principal financier, sir.
a. Yes, sir, I am aware of that.
witness: Atty. Villacorta:
xxxx
a. Yes, she knows the money will go to those persons. q. So the money came from Arsenio Pua?
Atty. Villacorta:
Atty. Diza: witness:
q. And these friends of the defendant borrowed money
q. You are re-lending the money? a. Yes, because I am only representing him, sir. from you with the assurance of the defendant?

witness: Other portions of the testimony of respondent must witness:

likewise be considered:24
a. Yes, sir. a. They go direct to Jocelyn because I don’t know them.
Atty. Villacorta:
Atty. Diza: xxxx
q. So it is not actually your money but the money of Arsenio
Pua?
q. What profit do you have, do you have commission? Atty. Villacorta:

witness:
witness: q. And is it not also a fact Madam witness that everytime
that the defendant borrowed money from you her friends
a. Yes, sir. who [are] in need of money issued check[s] to you? There
a. Yes, sir.
were checks issued to you?
Court:
Atty. Diza:
witness:
q. It is not your money?
q. How much?
a. Yes, there were checks issued.
witness:
Atty. Villacorta: Respondent is estopped to deny that she herself acted as agent of a of the latter notwithstanding he or she is not so called.30 The question
certain Arsenio Pua, her disclosed principal. She is also estopped to is to be determined by the fact that one represents and is acting for
deny that petitioner acted as agent for the alleged debtors, the friends another, and if relations exist which will constitute an agency, it will be
q. By the friends of the defendant, am I correct?
whom she (petitioner) referred. an agency whether the parties understood the exact nature of the
relation or not.31
witness:
This Court has affirmed that, under Article 1868 of the Civil Code, the
basis of agency is representation.25 The question of whether an agency That both parties acted as mere agents is shown by the undisputed fact
a. Yes, sir. has been created is ordinarily a question which may be established in that the friends of petitioner issued checks in payment of the loan in
the same way as any other fact, either by direct or circumstantial the name of Pua. If it is true that petitioner was "re-lending", then the
Atty. Villacorta: evidence. The question is ultimately one of intention.26Agency may checks should have been drawn in her name and not directly paid to
even be implied from the words and conduct of the parties and the Pua.
circumstances of the particular case.27 Though the fact or extent of
q. And because of your assistance, the friends of the authority of the agents may not, as a general rule, be established from
defendant who are in need of money were able to obtain With respect to the second point, particularly, the finding of the CA
the declarations of the agents alone, if one professes to act as agent
loan to [sic] Arsenio Pua through your assistance? that the disbursements and payments for the loan were made through
for another, she may be estopped to deny her agency both as against
the bank accounts of petitioner and respondent,
the asserted principal and the third persons interested in the
witness: transaction in which he or she is engaged.28
suffice it to say that in the normal course of commercial dealings and
for reasons of convenience and practical utility it can be reasonably
a. Yes, sir. In this case, petitioner knew that the financier of respondent is Pua;
expected that the facilities of the agent, such as a bank account, may
and respondent knew that the borrowers are friends of petitioner.
be employed, and that a sub-agent be appointed, such as the bank
Atty. Villacorta: itself, to carry out the task, especially where there is no stipulation to
The CA is incorrect when it considered the fact that the "supposed the contrary.32
friends of [petitioner], the actual borrowers, did not present
q. So that occasion lasted for more than a year? themselves to [respondent]" as evidence that negates the agency
In view of the two agency relationships, petitioner and respondent are
relationship—it is sufficient that petitioner disclosed to respondent
not privy to the contract of loan between their principals. Since the
witness: that the former was acting in behalf of her principals, her friends whom
sale is predicated on that loan, then the sale is void for lack of
she referred to respondent. For an agency to arise, it is not necessary
consideration.
that the principal personally encounter the third person with whom
a. Yes, sir.
the agent interacts. The law in fact contemplates, and to a great
degree, impersonal dealings where the principal need not personally 2. A further scrutiny of the record shows, however, that the sale might
Atty. Villacorta: know or meet the third person with whom her agent transacts: have been backed up by another consideration that is separate and
precisely, the purpose of agency is to extend the personality of the distinct from the debt: respondent averred in her complaint and
principal through the facility of the agent.29 testified that the parties had agreed that as a condition for the
q. And some of the checks that were issued by the friends of
conveyance of the property the respondent shall assume the balance
the defendant bounced, am I correct?
of the mortgage loan which petitioner allegedly owed to the
In the case at bar, both petitioner and respondent have undeniably
NHMFC.33 This Court in the recent past has declared that an
witness: disclosed to each other that they are representing someone else, and
assumption of a mortgage debt may constitute a valid consideration
so both of them are estopped to deny the same. It is evident from the
for a sale.34
record that petitioner merely refers actual borrowers and then collects
a. Yes, sir. and disburses the amounts of the loan upon which she received a
commission; and that respondent transacts on behalf of her "principal Although the record shows that petitioner admitted at the time of trial
Atty. Villacorta: financier", a certain Arsenio Pua. If their respective principals do not that she owned the property described in the TCT,35 the Court must
actually and personally know each other, such ignorance does not stress that the Transfer Certificate of Title No. 38253236 on its face
affect their juridical standing as agents, especially since the very shows that the owner of the property which admittedly forms the
q. And because of that Arsenio Pua got mad with you? purpose of agency is to extend the personality of the principal through subject matter of the Deed of Absolute Sale refers neither to the
the facility of the agent. petitioner nor to her father, Teodorico Doles, the alleged co-owner.
witness: Rather, it states that the property is registered in the name of
"Household Development Corporation." Although there is an entry to
With respect to the admission of petitioner that she is "re-lending" the
the effect that the petitioner had been granted a special power of
a. Yes, sir. money loaned from respondent to other individuals for profit, it must
attorney "covering the shares of Teodorico Doles on the parcel of land
be stressed that the manner in which the parties designate the
described in this certificate,"37 it cannot be inferred from this bare
relationship is not controlling. If an act done by one person in behalf of
notation, nor from any other evidence on the record, that the
another is in its essential nature one of agency, the former is the agent
petitioner or her father held any direct interest on the property in
question so as to validly constitute a mortgage thereon38 and, with
more reason, to effect the delivery of the object of the sale at the
consummation stage.39 What is worse, there is a notation that the TCT
itself has been "cancelled."40

In view of these anomalies, the Court cannot entertain the

possibility that respondent agreed to assume the balance of the

mortgage loan which petitioner allegedly owed to the NHMFC,
especially since the record is bereft of any factual finding that
petitioner was, in the first place, endowed with any ownership rights to
validly mortgage and convey the property. As the complainant who
initiated the case, respondent bears the burden of proving the basis of
her complaint. Having failed to discharge such burden, the Court has
no choice but to declare the sale void for lack of cause. And since the
sale is void, the Court finds it unnecessary to dwell on the issue of
whether duress or intimidation had been foisted upon petitioner upon
the execution of the sale.

Moreover, even assuming the mortgage validly exists, the Court notes
respondent’s allegation that the mortgage with the NHMFC was for 25
years which began September 3, 1994. Respondent filed her Complaint
for Specific Performance in 1997. Since the 25 years had not lapsed,
the prayer of respondent to compel petitioner to execute necessary
documents to effect the transfer of title is premature.

WHEREFORE, the petition is granted. The Decision and Resolution of

the Court of Appeals are REVERSED andSET ASIDE. The complaint of
respondent in Civil Case No. 97-82716 is DISMISSED.

SO ORDERED.
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 Federico’s 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 Federico’s 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 Comm’l. 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 Treasurer’s 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.
… attorney’s fee of P30,000.00 is deleted because the prosecution of
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.
… ERRED WHEN IT RULED THAT PETITIONERS ARE LIABLE FOR ESTAFA
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. Attorney’s fees ---------------------------- 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
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
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY
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 COMPLAINANT’S 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 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 Federico’s
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 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." 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 Current Account of LMICE with PCIBank. Since the money was already
its position that even in the absence of a fiduciary relationship, the with its owner, LMICE, it could not be said that the same had been
petitioners still had the civil obligation to return and deliver to private converted or misappropriated for one could not very well fraudulently
complainant Federico his commission. The RTC failed to discern the appropriate to himself money that is his own.33
substantial differences in the factual background of theManahan case
from the present Petition. The Manahan case involved the lease of a
Although petitioners’ refusal to pay private complainant Federico his
dump truck. Although a contract of lease may not be fiduciary in
commission caused prejudice or damage to the latter, said act does not
character, the lessee clearly had the civil obligation to return the truck
constitute a crime, particularly estafa by conversion or
to the lessor at the end of the lease period; and failure of the lessee to
misappropriation punishable under Article 315(1)(b) of the Revised
return the truck as provided for in the contract may constitute estafa.
Penal Code. Without the essential elements for the commission
The phrase "or any other obligation involving the duty to make delivery
thereof, petitioners cannot be deemed to have committed the crime.
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 While petitioners may have no criminal liability, petitioners themselves
transferred to the lessee, depositary or borrower, and wherein the admit their civil liability to the private complainant Federico for the
latter is obligated to return the same thing.31 latter’s 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
In contrast, the current Petition concerns an agency contract whereby
said civil liability of petitioners to pay private complainant Federico his
the principal already received payment from the client but refused to
commission arises from a violation of the agency contract and not from
give the sales agent, who negotiated the sale, his commission. As has
a criminal act.34 It would be improper and unwarranted for this Court
been established by this Court in the foregoing paragraphs, LMICE had
to impose in a criminal action the civil liability arising from a civil
a right to the full amount paid by the City Government of Puerto
contract, which should have been the subject of a separate and
Princesa. Since LMICE, through petitioners, directly collected the
independent civil action.35
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 WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R.
payment or any portion thereof, LMICE had nothing at all to deliver CR No. 21134, dated 31 May 1999, affirming with modification the
and return to him. The obligation of LMICE to pay private complainant Judgment of the RTC of Puerto Princesa City, Palawan, in Criminal Case
Federico his commission does not arise from any duty to deliver or No. 11943, dated 05 May 1997, finding petitioners guilty beyond
return the money to its supposed owner, but rather from the duty of a reasonable doubt of estafa by conversion or misappropriation under
principal to give just compensation to its agent for the services Article 315(1)(b) of the Revised Penal Code, and awarding the amount
rendered by the latter. of P154,500.00 as sales commission to private complainant Federico, is
hereby REVERSED and SET ASIDE. A new Judgment is hereby entered
ACQUITTING petitioners based on the foregoing findings of this Court
Furthermore, the Court of Appeals, in its Decision, dated 31 May 1999,
that their actions did not constitute the crime of estafa by conversion
defined the words "convert" and "misappropriate" in the following
or misappropriation under Article 315(1)(b) of the Revised Penal Code.
manner –
The cash bonds posted by the petitioners for their provisional liberty
are hereby ordered RELEASED and the amounts thereof RETURNED to
The High Court in Saddul v. Court of Appeals [192 SCRA 277] the petitioners, subject to the usual accounting and auditing
enunciated that the words "convert" and "misappropriate" in the crime procedures.
of estafa punished under Art. 315, par. 1(b) connote an act of using or
disposing of another’s property as if it were one’s own, or if devoting it
SO ORDERED.
to a purpose or use different from that agreed upon. To
misappropriate to one’s use includes, not only conversion to one’s
personal advantage, but also every attempt to dispose of the property
of another without right.32
Based on the very same definition, this Court finds that petitioners did
not convert nor misappropriate the proceeds from Check No. 611437
because the same belonged to LMICE, and was not "another’s
property." Petitioners collected the said check from the City
Government of Puerto Princesa and deposited the same under the
G.R. No. 148775 January 13, 2004
SHOPPER’S PARADISE REALTY & DEVELOPMENT
CORPORATION, petitioner,
vs.
EFREN P. ROQUE, respondent.
DECISION
VITUG, J.:
On 23 December 1993, petitioner Shopper’s 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 based its findings largely on the testimony of Veredigno Atienza during
the property. Respondent came to know of the assailed contracts with cross-examination, viz;
petitioner only after retiring to the Philippines upon the death of his
father.
"Q. Aside from these two lots, the first in the name of
Ruben Roque and the second, the subject of the
On 9 August 1996, the trial court dismissed the complaint of construction involved in this case, you said there is another
respondent; it explained: lot which was part of development project?
"Ordinarily, a deed of donation need not be registered in "A. Yes, this was the main concept of Dr. Roque so that the
order to be valid between the parties. Registration, adjoining properties of his two sons, Ruben and Cesar, will
however, is important in binding third persons. Thus, when comprise one whole. The other whole property belongs to
Felipe Roque entered into a leased contract with defendant Cesar.
corporation, plaintiff Efren Roque (could) no longer assert
the unregistered deed of donation and say that his father,
"Q. You were informed by Dr. Roque that this property was
Felipe, was no longer the owner of the subject property at
given to his three (3) sons; one to Ruben Roque, the other
the time the lease on the subject property was agreed
to Efren, and the other to Cesar Roque?
upon.
"A. Yes.
"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 "Q. You did the inquiry from him, how was this property
registration which plaintiff had not been able to establish. given to them?
Plaintiff knew very well of the existence of the lease. He, in
fact, met with the officers of the defendant corporation at "A. By inheritance.
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 "Q. Inheritance in the form of donation?
is involved. Plaintiff cannot be the third person because he
is the successor-in-interest of his father, Felipe Roque, the "A. I mean inheritance.
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, "Q. What I am only asking you is, were you told by Dr. Felipe
the lease contract together with the memorandum of C. Roque at the time of your transaction with him that all
agreement would be conclusive on plaintiff Efren Roque. He these three properties were given to his children by way of
is bound by the contract even if he did not participate donation?
therein. Moreover, the agreements have been perfected
and partially executed by the receipt of his father of the "A. What Architect Biglang-awa told us in his exact word:
downpayment and deposit totaling to P500,000.00."1 "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."
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. "x x x xxx xxx
On appeal, the Court of Appeals reversed the decision of the trial court "Q. When was the information supplied to you by Biglang-
and held to be invalid the Contract of Lease and Memorandum of awa? Before the execution of the Contract of Lease and
Agreement. While it shared the view expressed by the trial court that a Memorandum of Agreement?
deed of donation would have to be registered in order to bind third
persons, the appellate court, however, concluded that petitioner was
"A. Yes.
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
 "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 the validity of the agreements. Hardly, could respondent then be said
voluntary instrument, except a will purporting to convey or to have neglected to assert his case for unreasonable length of time.
affect registered land shall take effect as a conveyance or
bind the land, but shall operate only as a contract between
Neither is respondent estopped from repudiating the contracts. The
the parties and as evidence of authority to the Register of
essential elements of estoppel in pais, in relation to the party sought to
Deeds to make registration.
be estopped, are: 1) a clear conduct amounting to false representation
or concealment of material facts or, at least, calculated to convey the
"The act of registration shall be the operative act to convey impression that the facts are otherwise than, and inconsistent with,
or affect the land insofar as third persons are those which the party subsequently attempts to assert; 2) an intent or,
concerned, and in all cases under this Decree, the at least, an expectation, that this conduct shall influence, or be acted
registration shall be made in the office of the Register of upon by, the other party; and 3) the knowledge, actual or constructive,
Deeds for the province or city where the land lies." by him of the real facts.11 With respect to the party claiming the
(emphasis supplied) 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
A person dealing with registered land may thus safely rely on the
be estopped; and 3) action or inaction based thereon of such character
correctness of the certificate of title issued therefore, and he is not
as to change his position or status calculated to cause him injury or
required to go beyond the certificate to determine the condition of the
prejudice.12 It has not been shown that respondent intended to conceal
property7 but, where such party has knowledge of a prior existing
the actual facts concerning the property; more importantly, petitioner
interest which is unregistered at the time he acquired a right thereto,
has been shown not to be totally unaware of the real ownership of the
his knowledge of that prior unregistered interest would have the effect
subject property.
of registration as regards to him.8
Altogether, there is no cogent reason to reverse the Court of Appeals in
The appellate court was not without substantial basis when it found
its assailed decision.
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 WHEREFORE, the petition is DENIED, and the decision of the Court of
the fact that the subject property actually belonged to respondent. Appeals declaring the contract of lease and memorandum of
agreement entered into between Dr. Felipe C. Roque and Shopper’s
Paradise Realty & Development Corporation not to be binding on
It was not shown that Dr. Felipe C. Roque had been an authorized
respondent is AFFIRMED. No costs.
agent of respondent.
SO ORDERED.
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 an
agent.1awphil.ne+
The Court cannot accept petitioner’s argument that respondent is
guilty of laches. Laches, in its real sense, is 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 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
G.R. No. 151963 September 9, 2004
AIR PHILIPPINES CORPORATION, petitioner,
vs.
INTERNATIONAL BUSINESS AVIATION SERVICES PHILS.,
INC., respondent.
DECISION
PANGANIBAN, J.:
Simple negligence of counsel binds the client. This is especially true in
this case in which the client was as negligent as its lawyer. Hence,
petitioner must bear the consequences and accept its defeat. After all,
the winning party did not take advantage of petitioner’s fault, but
merely complied with the law in prosecuting its valid and proven
claims.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court,
assailing the September 28, 2001 Decision2 and the January 25, 2002
Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 64283. The
dispositive part of the assailed Decision reads:
"IN THE LIGHT OF ALL THE FOREGOING, the appeal of the
[petitioner] is partially GRANTED in that the Decision
appealed from is AFFIRMED with the modification that the
award for a broker’s fee in favor of the [respondent] is
deleted."4
The assailed Resolution denied reconsideration of the Decision.
The Facts
The facts are narrated by the CA as follows:
"The Air Philippines, Inc., API for brevity, was in need of the
services of a business establishment to ferry its B-737
airplane, with Registry Number RP C1938, from the United
States of America to the Philippines, via Subic Bay
International Airport, at Olongapo City. API, through Captain
Alex Villacampa, its Vice-President for Operations, engaged
the services of International Business Aviation Services
Phils., Inc.,IBASPI for brevity, as its agent to look for and
engage, for API, a business enterprise to ferry the airplane.
IBASPI did engage the services of Universal Weather [&]
Aviation, Inc., UWAI for brevity, to ferry the airplane x x x to
the Philippines, via the International Airport at Subic Bay,
Olongapo City, where API took delivery of the plane.
"UWAI sent its ‘Billings’ to API, through IBASPI, in the total
amount of US$65,131.55 for its services for the ferry of the
airplane. API failed to pay its account. On December 2,
1996, the [respondent] wrote a letter to the [petitioner]
urging the payment of the bills of UWAI. The [petitioner]
refused. Exasperated, UWAI blamed IBASPI for the
intransigence of API. IBASPI was impelled to write a letter to
UWAI ‘to clarify’ critical points of API’s account. Unable to
bear the pressure of UWAI and to avoid corporate
embarrassment for API’s intransigence, IBASPI was impelled
to advance and pay to UWAI the said amount of
US$65,131.55 for the account of API. The latter was
informed by UWAI of the payment of said account by
IBASPI via its letter dated May 12, 1997.
"IBASPI forthwith wrote a letter to API demanding refund to
IBASPI the amount it advanced to UWAI for the account of
API. IBASPI received, via an informant, a copy of a
‘Memorandum’ of Rodolfo Estrellado, the President and
Chief Executive Officer of API, dated July 29, 1997, to the
President of API, recommending that the latter pay only the
amount of US$27,730.60, with a recommendation that
IBASPI be required to submit documentations/billings in
support of the difference of US$37,400.00. However, no
payment was effected by API.
"On November 6, 1997, IBASPI, through counsel, sent
another letter to API demanding the payment of the said
amount of US$65,131.55 and 10% commission. API ignored
the letter. Another letter of demand was sent to API by
IBASPI, on December 1, 1997, to no avail. On January 6,
1998, IBASPI wrote another letter of demand to API
enclosing therein a ‘Summary Statement of Account of Air
Philippines, Inc.’ on the disputed amount of US $37,400.00,
appending thereto the documentations/billings in support
of said claim and 10% commission. On February 26, 1998,
API drew Check No. 0521300 against its account, with the
Bank of Philippine Islands, in the amount of P200,000.00,
payable to the order of IBASPI, and offered the same in
partial first payment of its account with IBASPI for the
amount of US$65,131.55 as stated in the letter of the
[petitioner]. The [respondent] accepted the said check with
a simultaneous ‘Receipt/Agreement’ executed by IBASPI
and API, the latter, through Atty. Manolito A. Manalo, the
Officer-in-Charge of the Legal Department of the API,
obliging itself to pay the balance of its account. API in the
said Agreement waived demand by IBASPI. Despite
demands of IBASPI, via its letter, dated April 22, 1998, API
refused to pay the balance of its account with IBASPI.
"On June 24, 1998, IBASPI filed a complaint against API, with
the Regional Trial Court of Pasay City, for the collection of
its account, including a 10% broker’s fee, praying that, after
due proceedings, judgment be rendered in its favor as
follows:
‘WHEREFORE, [respondent] respectfully prays of
this Honorable Court to render judgment:
1) Ordering the [petitioner] to pay 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 intermediary’s 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 attorney’s fees;
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
receipt of their demand letter[.] 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,
[petitioner] would be more than 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 this request;
thus, APC could not release any other amounts
to cover the claim of [respondent.]
‘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 allowing the [respondent] to adduce its
evidence, ex parte, before the Branch Clerk of Court, who
was designated, as Commissioner, to receive the evidence
of the [respondent], ex parte. On January 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 intermediary’s
commission;
3. [P]50,000.00 as and for attorney’s
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 attorney’s
fees, but not for the 10 percent commission or broker’s 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 APC’s 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 attorney’s
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 Court’s 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 client’s liberty or
property;14 or (3) where the interests of justice15 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, petitioner’s 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 petitioner’s Answer; (2) his
nonappearance during the scheduled pretrials; and (3) the failure to
file petitioner’s 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
care22 that an ordinarily prudent person would take under the
circumstances. There was neither a total abandonment or disregard of
petitioner’s 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 party’s 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
Counsel’s 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 lawyer’s 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, counsel’s 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 process39 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 one’s 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
other51 "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 petitioner’s 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 counsel’s 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 representation61 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 latter’s 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 petitioner’s counsel had any authority to
bind his principal. Moreover, respondent relied "in good faith"74 upon
petitioner’s 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 petitioner’s 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 obligation78 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 latter’s 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 Nazareno96 did not have any personal knowledge of the
contents thereof, nevertheless, these two documents were validated
by the Receipt/Agreement. Petitioner’s 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 proven,116 "secondary or substitutionary evidence"117 is not
of US$65,131.55, the unsettled account indicated in the Billings, but permitted.118
these are also unrefuted by petitioner. In fact, the Receipt/Agreement
executed two months later did not contest this balance, although
It is of no moment that Nazareno testified as to the intermediary’s
unvalued therein. When a party fails to object to hearsay
commission in open court. Whether the Certification has actually been
evidence,98 such party is deemed to have waived its right to do so;
executed cannot be proved by his mere testimony, because he was not
thus, "the evidence offered may be admitted,"99 though its weight
a signatory to the document. His assertion was bare and untested.
must still be measured by the court.
Without substantiation, "such testimony is considered
hearsay."119 Witnesses can testify only to those facts that they know of
Seventh, the accounting required by petitioner was not a legal their personal knowledge or are derived from their own
impediment to the obligation. There was in fact no indication that the perception.120 Unlike the unvalued balance in the Receipt/Agreement,
obligation was subject to such a condition. A pure obligation is the broker’s fee herein has not been supported by any admissible
demandable at once,100 and there is nothing to exempt petitioner from evidence other than the demand letters sent by respondent’s counsel.
compliance therewith.101 In addition, it would be preposterous for it to
issue a corporate check102 -- without any condition or reservation -- and
Attorney’s Fees
even waive a demand for payment of the balance, if it did not
recognize its obligation in the first place.
Attorney’s fees may be recovered, since petitioner has compelled
respondent to incur expenses to protect the latter’s interest121 in
Eighth, the obligation consisted in the payment of a sum of money, and
reimbursement. Besides, it is clear from the Receipt/Agreement that
petitioner incurred in delay; hence, there being no stipulation to the
petitioner is obliged to pay 10 percent of the principal, as attorney’s
contrary, the indemnity for damages shall be the payment of legal
fees.
interest, which is six percent (6%) per annum.103 Such interest may be
allowed upon damages awarded for a clear breach of contract.104
In sum, petitioner is liable for the unpaid balance of respondent’s claim
amounting to US$59,798.22 or its equivalent in legal tender under the
Commission or Broker’s Fee
Receipt/Agreement, including legal interest from May 12, 1997 until
fully paid; and for attorney’s fees of 10 percent of this unpaid balance,
Indeed, "only questions of law105 may be raised in a petition for review excluding interest. No broker’s fee can be charged, as it has not been
on certiorari under Rule 45 of the Rules of Court."106 Questions of fact proven by respondent. Since the counsel of petitioner is guilty of
cannot be the subject of this mode of appeal,107 for this Court -- we simple negligence only, and since it was equally negligent as he, no
have repeatedly emphasized -- is "not a trier of facts."108 One of the new trial can be allowed.
exceptions to this rule, however, is when the factual findings of the CA
and the trial court are contradictory.109
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision
and Resolution AFFIRMED. Costs against petitioner.
The lower court held petitioner liable for the 10 percent broker’s fee,
but the appellate court found otherwise. It is true that respondent --
SO ORDERED.
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
respondent’s entitlement to a broker’s 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
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 Decision2 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 provided and that of contract to sell dated 1 July 1991, the
includes the area on which the right of way traverses from Vendee shall have the right to cancel the sale and demand
the main lot (area) towards the exit to the Sumulong reimbursement for all payments made to the Vendor with
Highway as shown in the location plan furnished by the interest thereon at 36% per annum.8
Owner/Seller to the buyer. Furthermore, in the event that
the right of way is insufficient for the buyer's purposes
On September 10, 1991, the Wimbeco Builder's, Inc. (WBI) submitted
(example: entry of a 45-foot container), the seller agrees to
its quotation for P8,649,000 to WHI for the construction of the
sell additional square meter from his current adjacent
warehouse building on a portion of the property with an area of 5,088
property to allow the buyer to full access and full use of the
square meters.9 WBI proposed to start the project on October 1, 1991
property.5
and to turn over the building to WHI on February 29, 1992.10
Roxas indicated his acceptance of the offer on page 2 of the deed. Less
In a Letter dated September 16, 1991, Ponderosa Leather Goods
than a month later or on July 1, 1991, Roxas, as President of RECCI, as
Company, Inc. confirmed its lease agreement with WHI of a 5,000-
vendor, and Dy, as President of WHI, as vendee, executed a contract to
square-meter portion of the warehouse yet to be constructed at the
sell in which RECCI bound and obliged itself to sell to Dy Lot No. 491-A-
rental rate of P65 per square meter. Ponderosa emphasized the need
3-B-2 covered by TCT No. 78086 for P7,213,000.6 On September 5,
for the warehouse to be ready for occupancy before April 1,
1991, a Deed of Absolute Sale7 in favor of WHI was issued, under which
1992.11 WHI accepted the offer. However, WBI failed to commence the
Lot No. 491-A-3-B-2 covered by TCT No. 78086 was sold for P5,000,000,
construction of the warehouse in October 1, 1991 as planned because
receipt of which was acknowledged by Roxas under the following
of the presence of squatters in the property and suggested a
terms and conditions:
renegotiation of the contract after the squatters shall have been
evicted.12 Subsequently, the squatters were evicted from the property.
The Vendor agree (sic), as it hereby agrees and binds itself
to give Vendee the beneficial use of and a right of way from
On March 31, 1992, WHI and WBI executed a Letter-Contract for the
Sumulong Highway to the property herein conveyed
construction of the warehouse building for P11,804,160.13 The
consists of 25 square meters wide to be used as the latter's
contractor started construction in April 1992 even before the building
egress from and ingress to and an additional 25 square
officials of Antipolo City issued a building permit on May 28, 1992.
meters in the corner of Lot No. 491-A-3-B-1, as turning
After the warehouse was finished, WHI issued on March 21, 1993 a
and/or maneuvering area for Vendee's vehicles.
certificate of occupancy by the building official. Earlier, or on March 18,
1993, WHI, as lessor, and Ponderosa, as lessee, executed a contract of
The Vendor agrees that in the event that the right of way is lease over a portion of the property for a monthly rental of P300,000
insufficient for the Vendee's use (ex entry of a 45-foot for a period of three years from March 1, 1993 up to February 28,
container) the Vendor agrees to sell additional square 1996.14
meters from its current adjacent property to allow the
Vendee full access and full use of the property.
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
The Vendor hereby undertakes and agrees, at its account, to
provided for in the deed of absolute sale. However, Roxas died soon
defend the title of the Vendee to the parcel of land and
thereafter. On April 15, 1992, the WHI wrote the RECCI, reiterating its
improvements herein conveyed, against all claims of any
verbal requests to purchase a portion of the said lot as provided for in
and all persons or entities, and that the Vendor hereby
the deed of absolute sale, and complained about the latter's failure to
warrants the right of the Vendee to possess and own the
eject the squatters within the three-month period agreed upon in the
said parcel of land and improvements thereon and will
said deed.
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 The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1
existing squatters and occupants of the premises within two covered by TCT No. 78085 for its beneficial use within 72 hours from
(2) weeks from the signing hereof. In case of failure on the notice thereof, otherwise the appropriate action would be filed against
part of the Vendor to eject all occupants and squatters it. RECCI rejected the demand of WHI. WHI reiterated its demand in a
within the two-week period or breach of any of the Letter dated May 29, 1992. There was no response from RECCI.
stipulations, covenants and terms and conditions herein
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 In case of fraud, bad faith, malice or wanton attitude, the
warehouse was due to its late filing of an application for a building obligor shall be responsible for all damages which may be
permit, only on May 28, 1992. reasonably attributed to the non-performance of the
obligation.
The petitioner's contention is meritorious. The respondent does not
deny that it failed to cause the eviction of the squatters on or before In sum, we affirm the trial court's award of damages and attorney's
September 29, 1991. Indeed, the respondent does not deny the fact fees to the petitioner.
that when the petitioner wrote the respondent demanding that the
latter cause the eviction of the squatters on April 15, 1992, the latter
IN LIGHT OF ALL THE FOREGOING, judgment is hereby
were still in the premises. It was only after receiving the said letter in
rendered AFFIRMING the assailed Decision of the Court of
April 1992 that the respondent caused the eviction of the squatters,
Appeals WITH MODIFICATION. The respondent is ordered to pay to
which thus cleared the way for the petitioner's contractor to
the petitioner the amount of P5,612,980 by way of actual damages and
commence the construction of its warehouse and secure the
P100,000 by way of attorney's fees. No costs.
appropriate building permit therefor.

SO ORDERED.
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.
G.R. No. 129919 February 6, 2002
DOMINION INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO
AUSTRIA, respondents.
DECISION
PARDO, J.:
The Case
This is an appeal via certiorari1 from the decision of the Court of
Appeals2 affirming the decision3 of the Regional Trial Court, Branch 44,
San Fernando, Pampanga, which ordered petitioner Dominion
Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra
(Guevarra) the sum of P156,473.90 representing the total amount
advanced by Guevarra in the payment of the claims of Dominion’s
clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case
No. 8855 for sum of money against defendant Dominion Insurance
Corporation. Plaintiff sought to recover thereunder the sum of
P156,473.90 which he claimed to have advanced in his capacity as
manager of defendant to satisfy certain claims filed by defendant’s
clients.
"In its traverse, defendant denied any liability to plaintiff and asserted
a counterclaim for P249,672.53, representing premiums that plaintiff
allegedly failed to remit.
"On August 8, 1991, defendant filed a third-party complaint against
Fernando Austria, who, at the time relevant to the case, was its
Regional Manager for Central Luzon area.
"In due time, third-party defendant Austria filed his answer.
"Thereafter the pre-trial conference was set on the following dates:
October 18, 1991, November 12, 1991, March 29, 1991, December 12,
1991, January 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 shows that except for the settings on October 18,
1991, January 17, 1992 and March 17, 1992 which were cancelled at
the instance of defendant, third-party defendant and plaintiff,
respectively, the rest were postponed upon joint request of the
parties.
"On May 22, 1992 the case was again called for pre-trial conference.
Only plaintiff and counsel were present. Despite due notice, defendant
and counsel did not appear, although a messenger, Roy Gamboa,
submitted to the trial court a handwritten note sent to him by
defendant’s counsel which instructed him to request for
postponement. Plaintiff’s counsel objected to the desired
postponement and moved to have defendant declared as in default.
This was granted by the trial court in the following order:
"ORDER
"When this case was called for pre-trial this afternoon only plaintiff and
his counsel Atty. Romeo Maglalang appeared. When shown a note
dated May 21, 1992 addressed to a certain Roy who was requested to
ask for postponement, Atty. Maglalang vigorously objected to any
postponement on the ground that the note is but a mere scrap of
paper and moved that the defendant corporation be declared as in
default for its failure to appear in court despite due notice.
"Finding the verbal motion of plaintiff’s counsel to be meritorious and
considering that the pre-trial conference has been repeatedly
postponed on motion of the defendant Corporation, the defendant
Dominion Insurance Corporation is hereby declared (as) in default and
plaintiff is allowed to present his evidence on June 16, 1992 at 9:00
o’clock 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 defendant’s 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 defendant’s clients;
"2. The defendant to pay plaintiff P10,000.00 as and by way
of attorney’s 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 Attorney16 would show that
petitioner (represented by third-party defendant Austria) and
respondent Guevarra intended to enter into a principal-agent
relationship. Despite the word "special" in the title of the document,
the contents reveal that what was constituted was actually a general
agency. The terms of the agreement read:
"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,17 a
corporation duly organized and existing under and by virtue of the laws
of the Republic of the Philippines, xxx represented by the undersigned
as Regional Manager, xxx do hereby appoint RSG Guevarra Insurance
Services represented by Mr. Rodolfo Guevarra xxx to be our Agency
Manager in San Fdo., for our place and stead, to do and perform the
following acts and things:
"1. To conduct, sign, manager (sic), carry on and transact
Bonding and Insurance business as usually pertain to a
Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL
ACCIDENT, and BONDING with the right, upon our prior
written consent, to appoint agents and sub-agents.
"2. To accept, underwrite and subscribed (sic) cover notes or
Policies of Insurance and Bonds for and on our behalf.
"3. To demand, sue, for (sic) collect, deposit, enforce
payment, deliver and transfer for and receive and give
effectual receipts and discharge for all money to which the
FIRST CONTINENTAL ASSURANCE COMPANY, INC.,18 may
hereafter become due, owing payable or transferable to
said Corporation by reason of or in connection with the
above-mentioned appointment.
"4. To receive notices, summons, and legal processes for and
in behalf of the FIRST CONTINENTAL ASSURANCE
COMPANY, INC., in connection with actions and all legal
proceedings against the said Corporation."19 [Emphasis
supplied]
The agency comprises all the business of the principal,20 but, couched
in general terms, it is limited only to acts of administration.21
A general power permits the agent to do all acts for which the law does
not require a special power.22 Thus, the acts enumerated in or similar
to those enumerated in the Special Power of Attorney do not require a
special power of attorney.
Article 1878, Civil Code, enumerates the instances when a special
power of attorney is required. The pertinent portion that applies to this
case provides that:
"Article 1878. Special powers of attorney are necessary in the following
cases:
"(1) To make such payments as are not usually considered as acts of
administration;
"x x x xxx xxx
"(15) Any other act of strict dominion."
The payment of claims is not an act of administration. The settlement
of claims is not included among the acts enumerated in the Special
Power of Attorney, neither is it of a character similar to the acts
enumerated therein. A special power of attorney is required before
respondent Guevarra could settle the insurance claims of the insured.
Respondent Guevarra’s authority to settle claims is embodied in the
Memorandum of Management Agreement23dated February 18, 1987
which enumerates the scope of respondent Guevarra’s duties and
responsibilities as agency manager for San Fernando, Pampanga, as
follows:
"x x x xxx xxx
"1. You are hereby given authority to settle and dispose
of all motor car claims in the amount of P5,000.00 with prior
approval of the Regional Office.
"2. Full authority is given you on TPPI claims settlement.
"xxx xxx xxx "24
In settling the claims mentioned above, respondent Guevarra’s
authority is further limited by the written standard authority to
pay,25 which states that the payment shall come from respondent
Guevarra’s 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.1âwphi1 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 principal’s
instructions, unless the latter should wish to avail himself of
the benefits derived from the contract;
"xxx xxx xxx"
However, while the law on agency prohibits respondent Guevarra from
obtaining reimbursement, his right to recover may still be justified
under the general law on obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
"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 debtor, he can recover only insofar as the payment has been
beneficial to the debtor."
In this case, when the risk insured against occurred, petitioner’s liability
as insurer arose.1âwphi1 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.

The Fallo

IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the

decision of the Court of Appeals28 and that of the Regional Trial Court,
Branch 44, San Fernando, Pampanga,29 in that 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 the claims of
petitioner’s clients.

No costs in this instance.

SO ORDERED.
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 Sheriff’s 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 petitioner’s 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 Sheriff’s 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 Owner’s 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 attorney’s 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
Julian’s 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 Perla’s 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 Julian’s 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 Julian’s
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
authority.
Respondent, on the other hand, mainly hinges its argument on the
declarations made by the Court of Appeals that there was no property
covered by TCT No. 106338 registered with the Registry of Deeds of
Pasig (now Makati); but there exists a property, the subject property
herein, covered by TCT No. RT-18206 (106338) registered with the
Registry of Deeds of Quezon City. Further verification would reveal that
TCT No. RT-18206 is merely a reconstitution of TCT No. 106338, and
the property covered by both certificates of title is actually situated in
Quezon City and not Pasig. From the foregoing circumstances,
respondent argues that Perla intended to include the subject property
in the SPA, and the failure of the instrument to reflect the recent TCT
Number or the exact designation of the Registry of Deeds, should not
defeat Perla’s clear intention.
After an examination of the literal terms of the SPA, we find that the
subject property was not among those enumerated therein. There is
no obvious reference to the subject property covered by TCT No. RT-
18206 (106338) registered with the Registry of Deeds of Quezon City.
There was also nothing in the language of the SPA from which we could
deduce the intention of Perla to include the subject property therein.
We cannot attribute such alleged intention to Perla who executed the
SPA when the language of the instrument is bare of any indication
suggestive of such intention. Contrariwise, to adopt the intent theory
advanced by the respondent, in the absence of clear and convincing
evidence to that effect, would run afoul of the express tenor of the SPA
and thus defeat Perla’s true intention.
In cases where the terms of the contract are clear as to leave no room
for interpretation, resort to circumstantial evidence to ascertain the
true intent of the parties, is not countenanced. As aptly stated in the
case of JMA House, Incorporated v. Sta. Monica Industrial and
Development Corporation,13 thus:
[T]he law is that if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its
stipulation shall control. When the language of the 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 its main
import. The clear terms of the contract should never be the subject
matter of interpretation. Neither abstract justice nor the rule on liberal
interpretation justifies the creation of a contract for the parties which
they did not make themselves or the imposition upon one party to a
contract or obligation not assumed simply or merely to avoid seeming
hardships. The true meaning must be enforced, as it is to be presumed
that the contracting parties know their scope and effects.14
Equally relevant is the rule that a power of attorney must be strictly
construed and pursued. The instrument will be held to grant only those
powers which are specified therein, and the agent may neither go
beyond nor deviate from the power of attorney.15 Where powers and
duties are specified and defined in an instrument, all such powers and
duties are limited and are confined to those which are specified and
defined, and all other powers and duties are excluded.16 This is but in
accord with the disinclination of courts to enlarge the authority
granted beyond the powers expressly given and those which
incidentally flow or derive therefrom as being usual and reasonably
necessary and proper for the performance of such express powers.17
Even the commentaries of renowned Civilist Manresa18 supports a
strict and limited construction of the terms of a power of attorney:
The law, which must look after the interests of all, cannot permit a man
to express himself in a vague and general way with reference to the
right he 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 excessive authority must be set down in the
most formal and explicit terms, and when this is not done, the law
reasonably presumes that the principal did not mean to confer it.
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 as the subject property covered by TCT No. RT-18206
(106338) registered with the Registry of Deeds of Quezon City. The
records of the case are stripped of supporting proofs to verify the
respondent’s 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 respondent’s 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 revocation’s
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 Perla’s 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 Julian’s
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 Julian’s 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.
Respondent’s 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. Quiño,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
vendor’s or mortgagor’s 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 Julian’s 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 mortgages constituted by Julian over the subject property cannot be
bank or a banking institution. Thus, in the case of Cruz v. Bancom enforced by any action in court against Perla and/or her successors in
Finance Corporation,23 we ruled: interest.
Respondent, however, is not an ordinary mortgagee; it is a mortgagee- In sum, we rule that the contracts of real estate mortgage constituted
bank. As such, unlike private individuals, it is expected to exercise over the subject property covered by TCT No. RT – 18206 (106338)
greater care and prudence in its dealings, including those involving registered with the Registry of Deeds of Quezon City are
registered lands. A banking institution is expected to exercise due unenforceable. Consequently, the foreclosure proceedings and the
diligence before entering into a mortgage contract. The ascertainment auction sale of the subject property conducted in pursuance of these
of the status or condition of a property offered to it as security for a unenforceable contracts are null and void. This, however, is without
loan must be a standard and indispensable part of its operations.24 prejudice to the right of the respondent to proceed against Julian, in
his personal capacity, for the amount of the loans.
Hence, considering that the property being mortgaged by Julian was
not his, and there are additional doubts or suspicions as to the real WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is
identity of the same, the respondent bank should have proceeded with GRANTED. The Decision dated 12 October 2005 and its Resolution
its transactions with Julian only with utmost caution. As a bank, dated 15 February 2006 rendered by the Court of Appeals in CA-G.R.
respondent must subject all its transactions to the most rigid scrutiny, CV No. 82636, are hereby REVERSED. The Decision dated 23 September
since its business is impressed with public interest and its fiduciary 2003 of the Regional Trial Court of Quezon City, Branch 220, in Civil
character requires high standards of integrity and Case No. Q-99-37145, is hereby REINSTATED and AFFIRMED with
performance.25 Where respondent acted in undue haste in granting the modification that the real estate mortgages constituted over TCT No.
mortgage loans in favor of Julian and disregarding the apparent defects RT – 18206 (106338) are not null and void but UNENFORCEABLE. No
in the latter’s authority as agent, it failed to discharge the degree of costs.
diligence required of it as a banking corporation.1awphil
SO ORDERED.
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 respondent’s 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 latter’s 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 Perla’s ratification of the same, the real estate
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 appeal as it would be offensive to the basic rules of fair play, justice
circumstances, it is unjust, unfair and inequitable and due process (Galicia v. Polo, 179 SCRA 375 [1989]; Ramos v.
to require the chattel mortgagors, appellees Intermediate Appellate Court, 175 SCRA 70 [1989]; Dulos Realty &
herein, to still pay the unpaid balance of their Development Corporation v. Court of Appeals, 157 SCRA 425 [1988];
mortgage debt on the said car, the non-payment Dihiansan, et al. v. Court of Appeals, et al., 153 SCRA 712 [1987]; De la
of which account was due to the stubborn Santa v. Court of Appeals, et al., 140 SCRA 44 [1985]).
refusal and failure of appellant mortgagee to
avail of the insurance money which became due
PREMISES CONSIDERED, the instant petition is DENIED, and the
and demandable after the insured motor vehicle
decision appealed from is AFFIRMED.
was badly damaged in a vehicular accident
covered by the insurance risk. ... (Ibid.)
SO ORDERED.
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
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 delinquency…is 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 letter50 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 for Baluyot's failure to provide the balance, Contract No. 28660 would
is the Contract No. 28660 between MMPCI and by Atty. Linsangan for not have been cancelled. Thus, Atty. Linsangan has a cause of action
the purchase of an interment space in the former's cemetery. The against Baluyot, which he can pursue in another case.
other is the agreement between Baluyot and Atty. Linsangan for the
former to shoulder the amount P1,455.00, or the difference between
WHEREFORE, the instant petition is GRANTED. The Decision of the
P95,000.00, the original price, and P132,250.00, the actual contract
Court of Appeals dated 22 June 2001 and its Resolution dated 12
price.
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
To repeat, the acts of the agent beyond the scope of his authority do 57, are hereby REVERSED and SET ASIDE. The Complaint in Civil Case
not bind the principal unless the latter ratifies the same. It also bears No. 88-1253 is DISMISSED for lack of cause of action. No
emphasis that when the third person knows that the agent was acting pronouncement as to costs.
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
SO ORDERED.
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
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 - 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 authority; the subject
contracts were speculative 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.1âwphi1.nêt
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-à-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-Laws5 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 A. Trading future[s] contracts wherein the trader
does, it usually trade its oil? commits a price and to deliver coconut oil in the
future in which he is yet to acquire the stocks in
the future.
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 Atty. Abad
in trading oil.
Q. Who established the so-called physical trading in IVO?
Q. As far as you know, what kind of trading was IVO
engaged with?
A. The Board of Directors, sir.
A. It was purely on physical trading.
Atty. Abad.
Q. How did you know this?
Q. How did you know that?
A. As a stockholder, rather as member of [the] Board of
A. There was a meeting held in the office at the factory and
Directors, I frequently visited the plant and from my
it was brought out and suggested by our former president,
observation, as I have to supervise and monitor purchases
Dominador Monteverde, that the company should engaged
of copras and also the sale of the same, I observed that the
(sic) in future[s] contract[s] but it was rejected by the Board
policy of the corporation is for the company to engaged (sic)
of Directors. It was only Ador Monteverde who then wanted
or to purely engaged (sic) in physical trading.
to engaged (sic) in this future[s] contract[s].
Q. What do you mean by physical trading?
Q. Do you know where this meeting took place?
A. Physical Trading means - we buy and sell copras that are
A. As far as I know it was sometime in 1985.
only available to us. We only have to sell the available
stocks in our inventory.
Q. Do you know why the Board of Directors rejected the
proposal of Dominador Monteverde that the company
Q. And what is the other form of trading?
should engaged (sic) in future[s] contracts?
Atty. Fernando
Atty. Fernando
No basis, your Honor.
Objection, your Honor, no basis.
Atty. Abad
Court
Well, the witness said they are engaged in
Why don't you lay the basis?
physical trading and what I am saying [is] if there
are any other kind or form of trading.
Atty. Abad
Court
Q. Were you a member of the board at the time?
Witness may answer if he knows.
A. In 1975, I am already a stockholder and a member.
Witness
Q. Then would [you] now answer my question?
Atty. Fernando
No basis, your Honor. What we are talking is
about 1985.
Atty. Abad
Q. When you mentioned about the meeting in 1985
wherein the Board of Directors rejected the future[s]
contract[s], were you already a member of the Board of
Directors at that time?
A. Yes, sir.
Q. Do you know the reason why the said proposal of Mr.
Dominador Monteverde to 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.1âwphi1.nêt
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 Notwithstanding the foregoing ruling of the trial court, Safic did not
oil has been pooled and sold as general oil; c.] the contracts of the produce the required documents, prompting the court a quo to
purchase of oil that, according to Safic, it had to resort to in order to fill assume that if produced, the documents would have been adverse to
up alleged undelivered commitments of IVO; d.] all other contracts, Safic's cause. In its efforts to bolster its claim for damages it
confirmations, invoices, wash out agreements and other documents of purportedly sustained, Safic suggests a substitute mode of computing
sale related to (a), (b) and (c). This amended motion was opposed by its damages by getting the average price it paid for certain quantities of
Safic.23 The trial court, however, in its September 16, 1988 Order ,24 coconut oil that it allegedly bought in 1987 and deducting this from the
ruled that: 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
From the analysis of the parties' respective positions,
contract; and 2.] it is based on the unproven assumption that the 1987
conclusion can easily be drawn therefrom that there is
contracts of purchase provided the coconut oil needed to make up for
materiality in the defendant's move: firstly, plaintiff seeks to
the failed 1986 contracts. There is also no evidence that Safic had
recover damages from the defendant and these are
contracted to supply third parties with coconut oil from the 1986
intimately related to plaintiffs alleged losses which it
contracts and that Safic had to buy such oil from others to meet the
attributes to the default of the defendant in its contractual
requirement.
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 Along the same vein, it is worthy to note that the quantities of oil
produce considering plaintiff to be (without doubt) a covered by its 1987 contracts with third parties do not match the
reputable going concern in the management of the affairs quantities of oil provided under the 1986 contracts. Had Safic produced
which is serviced by competent, industrious, hardworking the documents that the trial court required, a substantially correct
and diligent personnel; thirdly, the desired production and determination of its actual damages would have been possible. This,
inspection of the documents was precipitated by the unfortunately, was not the case. Suffice it to state in this regard that
testimony of plaintiffs witness (Donald O'Meara) who "[T]he power of the courts to grant damages and attorney's fees
admitted, in open court, that they are available. If the said demands factual, legal and equitable justification; its basis cannot be
witness represented that the documents, as generally left to speculation and conjecture."25
described, are available, reason there would be none for the
same witness to say later that they could not be produced,
WHEREFORE, in view of all the foregoing, the petition is DENIED for
even after they have been clearly described.
lack of merit.
Besides, if the Court may additionally dwell on the issue of
SO ORDERED.
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.
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
Decision1 and Resolution,2 dated November 29, 2002 and August 5,
2003, respectively, of the Court of Appeals in CA-G.R. CV No. 33568.
The appellate court had affirmed the Decision3 dated October 10, 1989
of the Regional Trial Court (RTC) of Manila, Branch 3, finding petitioner
as defendant and the co-defendants below jointly and severally liable
to the plaintiffs, now herein respondents.
The antecedent facts are as follows:
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 "Agent’s 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 petitioner’s 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 Pedroso’s subsequent investments, Valle
would take back from Pedroso the corresponding yellow-colored
agent’s 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 court’s 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 Life’s 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
petitioner’s 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 Life’s official receipts,
whose authenticity were not disputed. Valle’s 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 agent’s authority,
in this case, respondents did exercise due diligence in removing all
doubts and in confirming the validity of the representations made by
Valle.
Filipinas Life, as the principal, is liable for obligations contracted by its
agent Valle. By the contract of agency, a person binds himself to render
some service or to do something in representation or on behalf of
another, with the consent or authority of the latter.12 The general rule
is that the principal is responsible for the acts of its agent done within
the scope of its authority, and should bear the damage caused to third
persons.13 When the agent exceeds his authority, the agent becomes
personally liable for the damage.14 But even when the agent exceeds
his authority, the principal is still solidarily liable together with the
agent if the principal allowed the agent to act as though the agent had
full powers.15 In other words, the acts of an agent beyond the scope of
his authority do not bind the principal, unless the principal ratifies
them, expressly or impliedly.16 Ratification in agency is the adoption or
confirmation by one person of an act performed on his behalf by
another without authority.17
Filipinas Life cannot profess ignorance of Valle’s acts. Even if Valle’s
representations were beyond his authority as a debit/insurance agent,
Filipinas Life thru Alcantara and Apetrior expressly and knowingly
ratified Valle’s acts. It cannot even be denied that Filipinas Life
benefited from the investments deposited by Valle in the account of
Filipinas Life. In our considered view, Filipinas Life had clothed Valle
with apparent authority; hence, it is now estopped to deny said
authority. Innocent third persons should not be prejudiced if the
principal failed to adopt the needed measures to prevent
misrepresentation, much more so if the principal ratified his agent’s
acts beyond the latter’s 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.
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 respondent’s 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 attorney’s 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 court’s 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 [respondent’s] 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 Rubio’s 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
attorney’s 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 ATTORNEY’S
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
Rubio’s properties.
Dealing with an assumed agent, respondent should ascertain not only
the fact of agency, but also the nature and extent of the former’s
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 respondent’s 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 Baloloy’s 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 petitioner’s 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 seller’s 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 buyer’s 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 letter12 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 Complaint14 before the Provincial Agrarian Reform Adjudication
Board (PARAB), Region III, San Fernando, Pampanga docketed as
DARAB Case No. 552-P’93 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 Salenga’s 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 OMB-1-94-3425 entitled Antonio B. Baltazar v. 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-P’93 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.
Ombudsman’s 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 OSP’s
recommendation on August 21, 1998.
Petitioner’s 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
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:
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

SEC. 2. Parties in interest. – A real party in interest is the

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 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
Petitioner only surfaced in November 1994 as complainant before the
party who stands to be benefited or injured by the
Ombudsman. Aside from that, not being an agent of the parties in the
judgment in the suit, or the party entitled to the avails of
agrarian case, he has no locus standi to pursue this petition. He cannot
the suit. Unless otherwise authorized by law or these Rules,
be likened to an injured private complainant in a criminal complaint
every action must be prosecuted or defended in the name
who has direct interest in the outcome of the criminal case.
of the real party in interest.
More so, we note that the petition is not pursued as a public suit with
The same concept is applied in criminal and administrative cases.
petitioner asserting a "public right" in assailing an allegedly illegal
official action, and doing so as a representative of the general public.
In the case at bar which involves a criminal proceeding stemming from He is pursuing the instant case as an agent of an ineffective agency.
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 has not shown entitlement to judicial protection
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-P’93 through her Attorney-in-Fact Faustino Even if we consider the instant petition as a public suit, where we may
Mercado in order to protect her interest. The motion for intervention consider petitioner suing as a "stranger," or in the category of a
filed by Faustino Mercado, as agent of Paciencia Regala, was granted "citizen," or "taxpayer," still petitioner has not adequately shown that
by respondent Provincial Adjudicator Ilao, Jr. through the November he is entitled to seek judicial protection. In other words, petitioner has
15, 1993 Order in DARAB Case No. 552-P’93. 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
Agency cannot be further delegated
complaint before the Sandiganbayan.
Petitioner asserts that he is duly authorized by Faustino Mercado to
Based on the foregoing discussion, petitioner indubitably does not
institute the suit and presented a Special Power of Attorney35 (SPA)
have locus standi to pursue this action and the instant petition must be
from Faustino Mercado. However, such SPA is unavailing for petitioner.
forthwith dismissed on that score. Even granting arguendo that he
For one, petitioner’s principal, Faustino Mercado, is an agent himself
has locus standi, nonetheless, petitioner fails to show grave abuse of
and as such cannot further delegate his agency to another. Otherwise
discretion of respondent Ombudsman to warrant a reversal of the
put, an agent cannot delegate to another the same agency. The legal
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 court’s 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 trial—
was 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-P’93 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 Salenga’s 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 Salenga’s 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, Salenga’s
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 TRO—as
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-P’93 for lack of merit.
Court will not review prosecutor’s determination of probable cause
Finally, we will not delve into the merits of the Ombudsman’s 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 petitioner’s 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.
1 to default in paying Quilatan.10 She presented handwritten receipts
Las Pinas, September 24, 1992.
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,
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
(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 provided under the first
paragraph of Article 315 of 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
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 element of
misappropriation or conversion to be 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
petitioner’s 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 petitioner’s 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 another’s property as if it were one’s own, or of
devoting it to a purpose or use different from that agreed upon. To
misappropriate for one’s own use includes not only conversion to one’s
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 had already been made. In the foregoing cases, it was held that there
agent to comply with her duty to return either the pieces of jewelry or was conversion or misappropriation.
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.
Furthermore, in Lim v. Court of Appeals,26 the Court, citing
Notably, Labrador testified that she obligated herself to sell the jewelry
Nepomuceno and the case of People v. Trinidad,27held that:
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 In cases of estafa the profit or gain must be obtained by the accused
delivered to her in the first place. Consequently, there is no conversion personally, through his own acts, and his mere negligence in permitting
since the pieces of jewelry were not devoted to a purpose or use another to take advantage or benefit from the entrusted chattel
different from that agreed upon. 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
Similarly, it cannot be said that petitioner misappropriated the jewelry
out the actual misappropriation, then the accused would be
or delivered them to Labrador "without right." Aside from the fact that
answerable for the acts of his co-conspirators. If there is no such
no condition or limitation was imposed on the mode or manner by
evidence, direct or circumstantial, and if the proof is clear that the
which petitioner was to effect the sale, it is also consistent with usual
accused herself was the innocent victim of her sub-agent’s
practice for the seller to necessarily part with the valuables in order to
faithlessness, her acquittal is in order.28 (Italics copied)
find a buyer and allow inspection of the items for sale.
Labrador admitted that she received the jewelry from petitioner and
In People v. Nepomuceno,22 the accused-appellant was acquitted of
sold the same to a third person. She further acknowledged that she
estafa on facts similar to the instant case. Accused-appellant therein
owed petitioner P441,035.00, thereby negating any criminal intent on
undertook to sell two diamond rings in behalf of the complainant on
the part of petitioner. There is no showing that petitioner derived
commission basis, with the obligation to return the same in a few days
personal benefit from or conspired with Labrador to deprive Quilatan
if not sold. However, by reason of the fact that the rings were delivered
of the jewelry or its value. Consequently, there is no estafa within
also for sale on commission to sub-agents who failed to account for the
contemplation of the law.
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 Notwithstanding the above, however, petitioner is not entirely free
charged, we held: 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
Where, as in the present case, the agents to whom personal property
not prohibited from appointing a sub-agent but does so without
was entrusted for sale, conclusively proves the inability to return the
express authority is responsible for the acts of the sub-
same is solely due to malfeasance of a subagent to whom the first
agent.29 Considering that the civil action for the recovery of civil liability
agent had actually entrusted the property in good faith, and for the
arising from the offense is deemed instituted with the criminal
same purpose for which it was received; there being no prohibition to
action,30 petitioner is liable to pay complainant Quilatan the value of
do so and the chattel being delivered to the subagent before the
the unpaid pieces of jewelry.
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 WHEREFORE, the petition is GRANTED. The decision of the Court of
characteristic of this offense is missing under the circumstances.23 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
Accordingly, petitioner herein must be acquitted. The lower courts’
the amount of P424,750.00 as actual damages, plus legal interest,
reliance on People v. Flores24 and U.S. v. Panes25 to justify petitioner’s
without subsidiary imprisonment in case of insolvency.
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 SO ORDERED.
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
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 on March 13, 1970, Artemio U. Valencia, as President of Manila
Remnant, and without the knowledge of the Ventanilla couple, sold
[G.R. No. 82978. November 22, 1990.] Lots 1 and 2 of Block 17 again, this time in favor of Carlos Crisostomo,
one of his sales agents without any consideration. 3 Artemio Valencia
THE MANILA REMNANT CO., INC., Petitioner, v. THE HONORABLE then transmitted the fictitious Crisostomo contracts to Manila
COURT OF APPEALS and OSCAR VENTANILLA, JR. and CARMEN Remnant while he kept in his files the contracts to sell in favor of the
GLORIA DIAZ, Respondents. Ventanillas. All the amounts paid by the Ventanillas were deposited in
Valencia’s bank account.
Bede S. Talingcos, for Petitioners.
Beginning March 13, 1970, upon orders of Artemio Valencia, the
Augusto Gatmaytan for Private Respondent. monthly payments of the Ventanillas were remitted to Manila
Remnant as payments of Crisostomo for which the former issued
receipts in favor of Crisostomo. Since Valencia kept the receipts in his
DECISION files and never transmitted the same to Crisostomo, the latter and the
Ventanillas remained ignorant of Valencia’s scheme. Thus, the
Ventanillas continued paying their monthly installments.chanrobles
FERNAN, J.: virtual lawlibrary
Subsequently, the harmonious business relationship between Artemio
Like any other couple, Oscar Ventanilla and his wife Carmen, both Valencia and Manila Remnant ended. On May 30, 1973, Manila
faculty members of the University of the Philippines and renting a Remnant, through its General Manager Karl Landahl, wrote Artemio
faculty unit, dreamed of someday owning a house and lot. Instead of Valencia informing him that Manila Remnant was terminating its
attaining this dream, they became innocent victims of deceit and found existing collection agreement with his firm on account of the
themselves in the midst of an ensuing squabble between a subdivision considerable amount of discrepancies and irregularities discovered in
owner and its real estate agent. its collections and remittances by virtue of confirmations received from
lot buyers. 4 As a consequence, on June 6, 1973, Artemio Valencia was
The facts as found by the trial court and adopted by the Appellate removed as President by the Board of Directors of Manila Remnant.
Court are as follows:chanrob1es virtual 1aw library Therefore, from May of 1973, Valencia stopped transmitting
Ventanilla’s monthly installments which at that time had already
Petitioner Manila Remnant Co., Inc. is the owner of the parcels of land amounted to P17,925.40 for Lot 1 and P18,141.95 for Lot 2, (which
situated in Quezon City covered by Transfer Certificates of Title Nos. appeared in Manila Remnant’s record as credited in the name of
26400, 26401, 30783 and 31986 and constituting the subdivision Crisostomo). 5 Thus, on November 21, 1978, the Ventanillas commenced an action for
known as Capital Homes Subdivision Nos. I and II. On July 25, 1972,
Manila Remnant and A.U. Valencia & Co. Inc. entered into a written On June 8, 1973, A.U. Valencia and Co. sued Manila Remnant before
agreement entitled "Confirmation of Land Development and Sales Branch 19 of the then Court of First Instance of Manila 6 to impugn the
Contract" to formalize an earlier verbal agreement whereby for a abrogation of their agency agreement. On June 10 and July 10, 1973,
consideration of 17 and 1/2% fee, including sales commission and said court ordered all lot buyers to deposit their monthly amortizations
management fee, A.U. Valencia and Co., Inc. was to develop the with the court. 7 But on July 17, 1973, A.U. Valencia and Co. wrote the
aforesaid subdivision with authority to manage the sales thereof, Ventanillas that it was still authorized by the court to collect the
execute contracts to sell to lot buyers and issue official receipts. 1 monthly amortizations and requested them to continue remitting their
amortizations with the assurance that said payments would be
At that time the President of both A.U. Valencia and Co. Inc. and deposited later in court. 8 On May 22, 1974, the trial court issued an
Manila Remnant Co., Inc. was Artemio U. Valencia.cralawnad order prohibiting A.U. Valencia and Co. from collecting the monthly
installments. 9 On July 22, 1974 and February 6, 1976 the same court
On March 3, 1970, Manila Remnant thru A.U. Valencia and Co. ordered the Valencia firm to furnish the court with a complete list of all
executed two "contracts to sell" covering Lots 1 and 2 of Block 17 in lot buyers who had already made down payments to Manila Remnant
favor of Oscar C. Ventanilla and Carmen Gloria Diaz for the combined before December 1972. 10 Valencia complied with the court’s order on
contract price of P66,571.00 payable monthly for ten years. 2 As thus August 6, 1974 by submitting a list which excluded the name of the
agreed in the contracts to sell, the Ventanillas paid the down payments Ventanillas. 11
on the two lots even before the formal contract was signed on March
3, 1970. Since A.U. Valencia and Co. failed to forward its collections after May
1973, Manila Remnant caused on August 20, 1976 the publication in
Ten (10) days after the signing of the contracts with the Ventanillas or 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.
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 Crisostomo’s 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 attorney’s 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 attorney’s fees. 17
Subsequently, Manila Remnant and A.U. Valencia and Co. elevated the
lower court’s 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 attorney’s 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)
act on behalf of the principal.
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 Even assuming that Manila Remnant was as much a victim as the other
may be considered as joint feasors whose liability is joint and solidary. innocent lot buyers, it cannot be gainsaid that it was precisely its
20 negligence and laxity in the day to day operations of the real estate
business which made it possible for the agent to deceive unsuspecting
Authority by estoppel has arisen in the instant case because by its vendees like the Ventanillas.
negligence, the principal, Manila Remnant, has permitted its agent,
A.U. Valencia and Co., to exercise powers not granted to it. That the In essence, therefore, the basis for Manila Remnant’s solidary liability
principal might not have had actual knowledge of the agent’s misdeed is estoppel which, in turn, is rooted in the principal’s neglectfulness in
is of no moment. Consider the following circumstances:chanrob1es failing to properly supervise and control the affairs of its agent and to
virtual 1aw library adopt the needed measures to prevent further misrepresentation. As a
consequence, Manila Remnant is considered estopped from pleading
Firstly, Manila Remnant literally gave carte blanche to its agent A.U. the truth that it had no direct hand in the deception employed by its
Valencia and Co. in the sale and disposition of the subdivision lots. As a agent. 22
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 A final word. The Court cannot help but be alarmed over the reported
principal. Section 7 of the Ventanillas’ contracts to sell practice of supposedly reputable real estate brokers of manipulating
states:jgc:chanrobles.com.ph 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
"7. That all payments whether deposits, down payment and monthly fide lot buyers, as precisely what the agent had intended to happen in
installment agreed to be made by the vendee shall be payable to A.U. the present case. This is a serious matter that must be looked into by
Valencia and Co., Inc. It is hereby expressly understood that the appropriate government housing authority.chanrobles.com.ph :
unauthorized payments made to real estate brokers or agents shall be virtual law library
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 WHEREFORE, in view of the foregoing, the appealed decision of the
unless the official receipts therefor shall have been duly signed by the Court of Appeals dated October 13, 1987 sustaining the decision of the
vendors’ duly authorized agent, A.U. Valencia and Co., Inc." (Emphasis Quezon City trial court dated November 17, 1980 is AFFIRMED. This
supplied) judgment is immediately executory. Costs against petitioner.
Indeed, once Manila Remnant had been furnished with the usual SO ORDERED.
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 Valencia’s
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
G.R. No. 125138 March 2, 1999 The issues raised for resolution are: (1) Whether or not the act of the In his effort to evade this inevitable conclusion, petitioner theorized
PAL agents in confirming subject ticket extended the period of validity that the confirmation by the PAL's agents in Los Angeles and San
of petitioner's ticket; (2) Whether or not the defense of lack of Francisco changed the compromise agreement between the parties.
NICHOLAS Y. CERVANTES, petitioner,
authority was correctly ruled upon; and (3) Whether or not the denial
vs.
of the award for damages was proper.
COURT OF APPEALS AND THE PHILIPPINE AIR LINES, INC., respondent. As aptly by the appellate court:

To rule on the first issue, there is a need to quote the findings below.
PURISMA, J.: . . . on March 23, 1990, he
As a rule, conclusions and findings of fact arrived at by the trial court
was aware of the risk that
are entitled to great weight on appeal and should not be disturbed
his ticket could expire, as it
This Petition for Review on certiorari assails the 25 July 1995 decision unless for strong and cogent reasons. 4
did, before he returned to
of the Court of Appeals 1 in CA GR CV No. 41407, entitled "Nicholas Y.
the Philippines.' (pp. 320-
Cervantes vs. Philippine Air Lines Inc.", affirming in toto the judgment
The facts of the case as found by the lower court 5 are, as follows: 321, Original Records) 8
of the trial court dismissing petitioner's complaint for damages.

The plane ticket itself (Exhibit A for plaintiff; The question is: "Did these
On March 27, 1989, the private respondent, Philippines Air Lines, Inc.
Exhibit 1 for defendant) provides that it is not two (2) employees, in
(PAL), issued to the herein petitioner, Nicholas Cervantes (Cervantes), a
valid after March 27, 1990. (Exhibit 1-F). It is also effect, extend the validity
round trip plane ticket for Manila-Honolulu-Los Angeles-Honolulu-
stipulated in paragraph 8 of the Conditions of or lifetime of the ticket in
Manila, which ticket expressly provided an expiry of date of one year
Contract (Exhibit 1, page 2) as follows: question? The answer is in
from issuance, i.e., until March 27, 1990. The issuance of the said plane
the negative. Both had no
ticket was in compliance with a Compromise Agreement entered into
authority to do so.
between the contending parties in two previous suits, docketed as Civil 8. This ticket is good for
Appellant knew this from
Case Nos. 3392 and 3451 before the Regional Trial Court in Surigao carriage for one year from
the very start when he
City. 2 date of issue, except as
called up the Legal
otherwise provided in this
Department of appellee in
ticket, in carrier's tariffs,
On March 23, 1990, four days before the expiry date of subject ticket, the Philippines before he
conditions of carriage, or
the petitioner used it. Upon his arrival in Los Angeles on the same day, left for the United States
related regulations. The
he immediately booked his Los Angeles-Manila return ticket with the of America. He had first
fare for carriage hereunder
PAL office, and it was confirmed for the April 2, 1990 flight. hand knowledge that the
is subject to change prior
ticket in question would
to commencement of
Upon learning that the same PAL plane would make a stop-over in San expire on March 27, 1990
carriage. Carrier may
Francisco, and considering that he would be there on April 2, 1990, and that to secure an
refuse transportation if the
petitioner made arrangements with PAL for him to board the flight In extension, he would have
applicable fare has not
San Francisco instead of boarding in Las Angeles. to file a written request for
been paid. 6
extension at the PAL's
office in the Philippines
On April 2, 1990, when the petitioner checked in at the PAL counter in The question on the validity of subject ticket can be resolved in light of (TSN, Testimony of
San Francisco, he was not allowed to board. The PAL personnel the ruling in the case of Lufthansa vs. Court of Appeals. 7 In the said Nicholas Cervantes, August
concerned marked the following notation on his ticket: "TICKET NOT case, the Tolentinos were issued first class tickets on April 3, 1982, 2, 1991, pp. 20-23).
ACCEPTED DUE EXPIRATION OF VALIDITY." which will be valid until April 10, 1983. On June 10, 1982, they changed Despite this knowledge,
their accommodations to economy class but the replacement tickets appellant persisted to use
Aggrieved, petitioner Cervantes filed a Complaint for Damages, for still contained the same restriction. On May 7, 1983, Tolentino the ticket in question." 9
breach of contract of carriage docketed as Civil Case No. 3807 before requested that subject tickets be extended, which request was refused
Branch 32 of the Regional Trial Court of Surigao del Norte in Surigao by the petitioner on the ground that the said tickets had already
From the aforestated facts, it can be gleaned that the petitioner was
City. But the said complaint was dismissed for lack of merit. 3 expired. The non-extension of their tickets prompted the Tolentinos to
fully aware that there was a need to send a letter to the legal counsel
bring a complaint for breach of contract of carriage against the
of PAL for the extension of the period of validity of his ticket.
petitioner. In ruling against the award of damages, the Court held that
On September 20, 1993, petitioner interposed an appeal to the Court the "ticket constitute the contract between the parties. It is axiomatic
of Appeals, which came out with a Decision, on July 25, 1995, that when the terms are clear and leave no doubt as to the intention of Since the PAL agents are not privy to the said Agreement and
upholding the dismissal of the case. the contracting parties, contracts are to be interpreted according to petitioner knew that a written request to the legal counsel of PAL was
their literal meaning." necessary, he cannot use what the PAL agents did to his advantage.
On May 22, 1996, petitioner came to this Court via the Petition for The said agents, according to the Court of Appeals, 10 acted without
Review under consideration. authority when they confirmed the flights of the petitioner.
Under Article 1989 11 of the New Civil Code, the acts an agent beyond which shall be treated as if they have been raised in the pleadings.
the scope of his authority do not bind the principal, unless the latter There is implied consent to the evidence thus presented when the
ratifies the same expressly or impliedly. Furthermore, when the third adverse party fails to object thereto." 13
person (herein petitioner) knows that the agent was acting beyond his
power or authority, the principal cannot be held liable for the acts of
Re: the third issue, an award of damages is improper because
the agent. If the said third person is aware of such limits of authority,
petitioner failed to show that PAL acted in bad faith in refusing to allow
he is to blame, and is not entitled to recover damages from the agent,
him to board its plane in San Francisco.
unless the latter undertook to secure the principal's ratification. 12

In awarding moral damages for breach of contract of carriage, the

Anent the second issue, petitioner's stance that the defense of lack of
breach must be wanton and deliberately injurious or the one
authority on the part of the PAL employees was deemed waived under
responsible acted fraudulently or with malice or bad faith. 14 Petitioner
Rule 9, Section 2 of the Revised Rules of Court, is unsustainable.
knew there was a strong possibility that he could not use the subject
Thereunder, failure of a party to put up defenses in their answer or in a
ticket, so much so that he bought a back-up ticket to ensure his
motion to dismiss is a waiver thereof.
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
Petitioner stresses that the alleged lack of authority of the PAL one of simple negligence. No injury resulted on the part of petitioner
employees was neither raised in the answer nor in the motion to because he had a back-up ticket should PAL refuse to accommodate
dismiss. But records show that the question of whether there was him with the use of subject ticket.
authority on the part of the PAL employees was acted upon by the trial
court when Nicholas Cervantes was presented as a witness and the
Neither can the claim for exemplary damages be upheld. Such kind of
depositions of the PAL employees, Georgina M. Reyes and Ruth
damages is imposed by way of example or correction for the public
Villanueva, were presented.
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
The admission by Cervantes that he was told by PAL's legal counsel that allowed only if the guilty party acted in a wanton, fraudulent, reckless
he had to submit a letter requesting for an extension of the validity of or malevolent manner. 15 Here, there is no showing that PAL acted in
subject tickets was tantamount to knowledge on his part that the PAL such a manner. An award for attorney's fees is also improper.
employees had no authority to extend the validity of subject tickets
and only PAL's legal counsel was authorized to do so.
WHEREFORE, the Petition is DENIED and the decision of the Court of
Appeals dated July 25, 1995 AFFIRMED in toto. No pronouncement as
However, notwithstanding PAL's failure to raise the defense of lack of to costs.
authority of the said PAL agents in its answer or in a motion to dismiss,
the omission was cured since the said issue was litigated upon, as
SO ORDERED.
shown by the testimony of the petitioner in the course of trial. Rule 10,
Section 5 of the 1997 Rules of Civil Procedure provides:

Sec. 5. Amendment to conform, or authorize

presentation of evidence. — When issues not
raised by the pleadings are tried with express or
implied consent of the parties, as if they had
been raised in the pleadings. Such amendment
of the pleadings as may be necessary to cause
them to conform to the evidence and to raise
these issues may be made upon motion of any
party at any time, even after judgment; but
failure to amend does not affect the result of the
trial of these issues. . . .

Thus, "when evidence is presented by one party, with the express or

implied consent of the adverse party, as to issues not alleged in the
pleadings, judgment may be rendered validly as regards the said issue,
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
do and execute all or any of the following acts:
1. To negotiate and enter into contract or contracts to build Housing
Units on our subdivision lots in Ysmael Village, Sta. Rosa, Marilao,
Bulacan. However, all proceeds from said contract or contracts shall be
deposited in my name, payments of all obligation in connection with
the said contract or contracts should be made and the remainder will
be paid to MR. HERMOGENES B. SANTOS.
2. To sell lots on our subdivisions and;
3. To represent us, intercede and agree for or make agreements for all
payments in our favor, provided that actual receipts thereof shall be
made by the undersigned.
( with SSS releases. Should the SSS fail to pay the
SGD) DR. ISMAEL E. YANGA, SR.
or myself and in my capacity as President
f SIREDY ENTERPRISE, INCORPORATED
RINCIPAL
On October 15, 1978, Santos entered into a Deed of
Agreement[10] with De Guzman. The deed expressly stated that Santos
was representing Siredy Enterprises, Inc. Private respondent was
referred to as contractor while petitioner Siredy was cited as principal.
In said Deed of Agreement we find the following stipulations:
1.) That, the PRINCIPAL has contracts with different SSS
members employed with different domestic entities
to build for them 2-bedroom single housing units and
4-bedroom duplex housing units;
2.) That, the site of the said housing project is at YSMAEL
VILLAGE, Bo. Sta. Rosa, Marilao, Bulacan owned and
developed by SIREDY ENTERPRISES and Mr. Ismael E.
Yanga, Sr.;
3.) That, the PRINCIPAL has contracted to build the said
units at the amount of FORTY FIVE THOUSAND
(P45,000.00) PESOS for the 2-bedroom single and
SIXTY NINE THOUSAND (P69,000.00) PESOS,
Philippine Currency for the duplex residences;
4.) That, the CONTRACTOR intends to build for the
PRINCIPAL eighty (80) units singles and eighteen (18)
units duplex residences at the cost above mentioned
or a lump sum total of FOUR MILLION, EIGHT
HUNDRED FORTY TWO THOUSAND (P4,842,000.00)
PESOS, Philippine Currency;
5.) That, the CONTRACTOR agrees to supply all
Construction Materials, labor, tools and equipments
necessary for the completion of the said housing
units;
6.) That, the PRINCIPAL agrees to pay all necessary
permits and papers in accordance with Government
rules and regulations;
7.) That, the PRINCIPAL agrees to supply water and
electrical facilities needed during the time of
construction;
8.) That, the manner of payment shall be in accordance
PRINCIPAL, the PRINCIPAL is still in obligation to pay
F the CONTRACTOR for whatever accomplishments the
CONTRACTOR have finished provided, that the failure
o of the SSS to pay is not due to defective work of the
CONTRACTOR;
P
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.
[14]
SO ORDERED.
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.
x x x [25]
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 who failed to heed the same. The
plaintiff, to protect its interest, was constrained
to hire the services of counsel.
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff and against the defendant,
ordering the latter to pay the former the
following:
1. The sum of P 55,246.21, representing his
outstanding unpaid account plus interest of 12%
percent per annum to be counted from the date
of the filing of this case on April 15, 1983 until information for your consideration as a basis for
fully paid; and the extension of credit to us:
2. The sum equivalent to 15% of the total TRADE NAME: MANG URO STORE
amount due as and for attorney's fees and
litigation expenses.
Owner/Manager: Lauro Cruz
Costs against the defendant.
xxx xxx xxx
SO ORDERED.
Petitioner did not sign any of the invoices attached to the complaint.
His motion for reconsideration having been denied in the resolution of
For failure to file an answer within the reglementary period, and upon
respondent Court on 27 October 1988, 3petitioner filed the instant
motion of private respondent, the trial court issued an Order on 29
appeal by certiorari under Rule 45 of the Rules of Court urging Us to
September 1983 declaring the petitioner in default and authorizing the
annul and set aside the aforesaid decision and resolution because
private respondent to present its evidence ex parte on 4 October
respondent Court committed the following errors — which are the very
1983. 5
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
private respondent's complaint as clearly evidenced by the fact that On 19 October 1983, petitioner filed a motion to set aside the order of
only the signatures of Me Cruz and Marilou Cruz, who are not default 6 alleging therein that he did not file an answer anymore
impleaded as party defendants, appear therein; (b) in not holding that because upon examination of the records of the case, he discovered
his signature does not appear in the invoices submitted by private that it was his son Rodolfo who received the summons and copy of the
respondent; (c) in not holding that he did not receive the letters of complaint; he never entered into any transaction with private
demand; (d) in not finding and concluding that private respondent respondent and that although the store referred to is still licensed in
failed to comply with the Order of the trial court to amend the his name, it has, since 1977, been owned and operated by his son
complaint; and (e) in denying his motion for reconsideration. 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
The antecedent facts are not disputed.
respondent under an agreement whereby Rodolfo would make partial
payments and the private respondent would dismiss the case.
On 15 April 1983, private respondent Pure Foods Corporation filed with
the trial court a complaint 4 for sum of money against petitioner
In its Order of 9 November 1983, 7 the trial court granted the aforesaid
alleging therein that sometime in November 1977, petitioner applied
motion, required petitioner to file his responsive pleading within five
for a credit line with the plaintiff which was consequently approved by
(5) days, and to present his evidence on 6 January 1984.
the latter subject to the conditions therein stated; pursuant to said
approved credit arrangement, defendant (petitioner herein) made
Petitioner filed an Answer With Counterclaim on 28 March 1983. 8 He
various purchases from plaintiff until the early part of 1982, when he
reiterates therein his allegations in the motion to lift the default order
accumulated a total unpaid account of P57,897.63 as evidenced by
and further avers that his signature does not even appear on the credit
short payment notices and invoices; against this obligation, defendant
application card. On the counter-claim, he prays for judgment
was credited with the amount of P2,651.42 representing the value of
awarding him moral damages in an amount to be proved at the trial,
returned goods, thereby leaving a balance of P55,246.21, which
and attorney's fees in the amount of P15,000.00.
remained unpaid despite numerous demands made upon him.
Pre-trial was set on 2 January 1984. It was reset by the trial court for 19
The parties who signed the Credit Application card as applicants
January 1984, and further reset for 21 February 1984 at 1:00 P.M. upon
are Me Cruz, who signed over the printed wordsname of signatory,
motion of private respondent. On the last mentioned date, however,
and Marilou L. Cruz, who signed over the printed words Authorized
petitioner arrived late and by then, the court had already issued an
Signature. The opening paragraph thereof reads:
order declaring him in default for failure to appear at the pre-trial.
Forthwith, he filed a motion for reconsideration which the trial court
I/We hereby apply for a charge account in the
granted in its order of 22 February 1984. Pre-trial was reset to 27
amount stated above, and herewith are the
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. Insofar as the latter is
concerned, the store is business property of
appellant. The maxim res inter alios acta alteri
nocere non debet is square. Matters
accomplished between two parties ought not to
operate to the prejudice of a third person
(Blanza vs. Arcangel, 21 SCRA 4; Perez vs.
Mendoza, 65 SCRA 493; Tinitigan vs. Tinitigan
100 SCRA 636). 25
Unfortunately, however, this conclusion is bereft of substantial factual
basis and disregards fundamental principles concerning the primary
duty of persons dealing with parties who act for others, and of
estoppel. Indisputably, the credit application card is a form prepared
and supplied by private respondent. There is no evidence, much less an
allegation by private respondent, that it was petitioner who filled up
the entries in said form. It is logical to presume then that the parties
who signed it (Me Cruz and Marilou L. Cruz), or anyone of them, made
or accomplished the entries. Needless to state, since on the face of the
document, the "owner/manager" of the "Mang Uro Store", which is
written on the column Trade Name, is Lauro Cruz, and not the parties
signing the same, it was incumbent upon the private respondent to
inquire into the relationship of the signatories to the petitioner or to
satisfy itself as to their authority to act for or represent the petitioner.
Under the circumstances, it is apparent that petitioner had no direct
participation and that the two applicants could have acted without
authority from him or as his duly authorized representatives. In either
case, for the protection of its interest, private respondent should have
made the necessary inquiry verification as to the authority of the
applicants and to find out from them whether Lauro Cruz is both
the owner and manager or merely the owner or the manager, for that
is what "owner/manager" in its form could signify.
A person dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent. 26It is for this reason that
under Article No. 1902 of the Civil Code, a third person with whom the
agent wishes to contract on behalf of the principal may require the
presentation of the power of attorney, or the instructions as regards
the agency, and that private or secret orders and instructions of the
principal do not prejudice third persons who have relied upon the
power of attorney or instructions shown them.
In short, petitioner is not under estoppel, as against the claim of
private respondent, which seems to be at the bottom of the
respondent Court's rationalization.
In Kalalo vs. Luz, 27 We held that the essential 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 question; (b) reliance,
in good faith, upon the conduct or statements of the party to be
estopped; and (c) action or inaction based thereon of such character as
to change the position or status of the party claiming the estoppel, to
his injury, detriment, or prejudice.
The above disquisitions ineluctably show the absence of said elements
in this case.
In the instant case, there is no showing at all that private respondent
tried to ascertain the ownership of Mang Uro Store and the extent of
the authority of the applicants to represent Lauro Cruz at any time
before it approved the credit application card.
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.

There is as well no evidence, much less any claim by private

respondent, that before Me Cruz and Marilou Cruz signed the credit
application card, it had been dealing with petitioner or the Mang Uro
Store, or that for sometime prior thereto, petitioner ever represented
to it as the owner of the store that he has authorized the above
signatories to represent him in any transaction. Clearly, it was error for
the respondent Court to conclude that petitioner should be held liable
to private respondent on account of the credit application card on the
theory that he permitted the carrying of the business of the store. This
theory further erroneously assumes that the business of the store
before the filing of the credit application card included the sale of
products of private respondent. There is evidence on this appoint.

Moreover, it is apparent that the purpose of the request of private

respondent to file an amended complaint within ten (10) days from 27
March 1984, the date when the pre-trial was held, which the trial court
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 Metrobank's argument that it may recover the disputed amount if the
previously credited, whether or not such item is returned. warrants are not paid for any reason is not acceptable. Any reason
This also applies to checks drawn on local banks and bankers does not mean no reason at all. Otherwise, there would have been no
and their branches as well as on this bank, which are unpaid need at all for Golden Savings to deposit the treasury warrants with it
due to insufficiency of funds, forgery, unauthorized for clearance. There would have been no need for it to wait until the
overdraft or any other reason. (Emphasis supplied.) 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
According to Metrobank, the said conditions clearly show that it was
becomes more so in the case at bar when it is considered that the
acting only as a collecting agent for Golden Savings and give it the right
supposed dishonor of the warrants was not communicated to Golden
to "charge back to the depositor's account any amount previously
Savings before it made its own payment to Gomez.
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 The belated notification aggravated the petitioner's earlier negligence
conditions are in the nature of contractual stipulations and became in giving express or at least implied clearance to the treasury warrants
binding on Golden Savings when Gloria Castillo, as its Cashier, signed and allowing payments therefrom to Golden Savings. But that is not all.
the deposit slips. 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
Doubt may be expressed about the binding force of the conditions,
the lower courts which we see no reason to disturb. And as we said in
considering that they have apparently been imposed by the bank
MWSS v. Court of Appeals: 10
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 Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139
given permit at the back of the deposit slip. We do not have to rule on SCRA 238). It must be established by clear, positive and
this matter at this time. At any rate, the Court feels that even if the convincing evidence. This was not done in the present case.
deposit slip were considered a contract, the petitioner could still not
validly disclaim responsibility thereunder in the light of the
A no less important consideration is the circumstance that the treasury
circumstances of this case.
warrants in question are not negotiable instruments. Clearly stamped
on their face is the word "non-negotiable." Moreover, and this is of
In stressing that it was acting only as a collecting agent for Golden equal significance, it is indicated that they are payable from a particular
Savings, Metrobank seems to be suggesting that as a mere agent it fund, to wit, Fund 501.
cannot be liable to the principal. This is not exactly true. On the
contrary, Article 1909 of the Civil Code clearly provides that —
The following sections of the Negotiable Instruments Law, especially
the underscored parts, are pertinent:
Art. 1909. — The agent is responsible not only for fraud, but
also for negligence, which shall be judged 'with more or less
Sec. 1. — Form of negotiable instruments. — An instrument
rigor by the courts, according to whether the agency was or
to be negotiable must conform to the following
was not for a compensation.
requirements:
The negligence of Metrobank has been sufficiently established. To
(a) It must be in writing and signed by the maker or drawer;
repeat for emphasis, it was the clearance given by it that assured
Golden Savings it was already safe to allow Gomez to withdraw the
(b) Must contain an unconditional promise or order to pay a
proceeds of the treasury warrants he had deposited
sum certain in money;
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 (c) Must be payable on demand, or at a fixed or
allowing Golden Savings to withdraw from its account not only once or determinable future time;
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 (d) Must be payable to order or to bearer; and
cleared.
 (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.1âwphi1 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:
I am a local exporter who was recruited by
Hontiveros & Associated Producers Phil. Yields,
Inc. to participate in the State Fair of Dallas,
Texas which was held last Oct. 3 to 19,
1980. Hontiveros & Associated charged me
US$150.00 per square meter for display booth of
said fair. I have paid an advance of US$500.00 as
partial payment for the total space of 15 square
meter of which is $2,250.00 (Two Thousand Two
Hundred Fifty Dollars). 6
As the Participation Contract was signed by Bedia, the above statement
was an acknowledgment by White that Bedia was only acting for
Hontiveros when it recruited her as a participant in the Texas State Fair
and charged her a partial payment of $500.00. This amount was to be
fortified to Hontiveros in case of cancellation by her of the agreement.
The fact that the contract was typewritten on the letterhead stationery
of Hontiveros bolsters this conclusion in the absence of any showing
that said stationery had been illegally used by Bedia.
Significantly, Hontiveros itself has not repudiated Bedia's agency as it
would have if she had really 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
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.

The plaintiffs' position became all the more untenable when they
moved on June 5, 1984, for the dismissal of the complaint against
Hontiveros, 7 leaving Bedia as the sole defendant. Hontiveros had
admitted as early as when it filed its answer that Bedia was acting as its
agent. The effect of the motion was to leave the plaintiffs without a
cause of action against Bedia for the obligation, if any, of Hontiveros.

Our conclusion is that since it has not been found that Bedia was acting
beyond the scope of her authority when she entered into the
Participation 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 the complaint against Hontiveros, the
plaintiffs virtually disarmed themselves and forfeited whatever claims
they might have proved against the latter under the contract signed for
it by Bedia. It should be obvious that having waived these claims
against the principal, they cannot now assert them against the agent.

WHEREFORE, the appealed decision dated March 30, 1990, of the

respondent court is REVERSED and a new judgment is rendered
dismissing Civil Case No. 9246-P in the Regional Trial Court of Pasay
City.

SO ORDERED.
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.
In its decision, the court below declared that respondent insurance
company acted in bad faith in unilaterally cancelling subject insurance
policy, having done so only after seven months from the time that it
had taken force and effect and despite the fact of full payment of
premiums and other charges on the issued insurance policy.
Cancellation from the date of the policy's inception, explained the
lower court, meant that the protection sought by petitioner-insured
from the risks insured against was never extended by respondent
insurance company. Had the insured met an accident at the time, the
insurance company would certainly have disclaimed any liability
because technically, the petitioner could not have been considered
insured. Consequently, the trial court held that there was breach of
contract on the part of respondent insurance company, entitling
petitioner-insured to an award of the damages prayed for.
This ruling was challenged on appeal by respondent insurance
company, denying bad faith on its part in unilaterally cancelling subject
insurance policy.
After consideration of the appeal, the appellate court issued a reversal
of the decision of the trial court, convinced that the latter had erred in
finding respondent insurance company in bad faith for the cancellation
of petitioner-insured's policy. According to the Court of Appeals,
respondent insurance company was not motivated by negligence,
malice or bad faith in cancelling subject policy. Rather, the cancellation
of the insurance policy was based on what the existing records
showed, i.e., absence of an official receipt issued to petitioner-insured
confirming payment of premiums. Bad faith, said the Court of Appeals,
is some motive of self-interest or ill-will; a furtive design of ulterior
purpose, proof of which must be established convincingly. On the
contrary, it further observed, the following acts indicate that
respondent insurance company did not act precipitately or willfully to
inflict a wrong on petitioner-insured:
(a) the investigation conducted by Alfredo Bustamante to verify if
petitioner-insured had indeed paid the premium; (b) the letter of
August 3, 1985 confirming that the premium had been paid on
December 17, 1984; (c) the reinstatement of the policy with a proposal
to extend its effective period to December 17, 1985; and (d)
respondent insurance company's apologies for the "inconvenience"
caused upon petitioner-insured. The appellate court added that
respondent insurance company even relieved Malapit, its Baguio City
manager, of his job by forcing him to resign.
Petitioner-insured moved for the reconsideration of the said decision
which the Court of Appeals denied. Hence, this petition for review
on certiorari anchored on these arguments:
I
Respondent Court of Appeals is guilty of grave
abuse of discretion and committed a serious and
reversible error in not holding Respondent
Prudential liable for the cancellation of the
insurance contract which was admittedly caused
by the fraudulent acts and bad faith of its own
officers.
II
Respondent Court of Appeals committed serious
and reversible error and abused its discretion in
ruling that the defenses of good faith and honest
mistake can co-exist with the admitted
fraudulent acts and evident bad faith.
III
Respondent Court of Appeals committed a
reversible error in not finding that even without
considering the fraudulent acts of its own officer
in misappropriating the premium payment, the
act itself in cancelling the insurance policy was
done with bad faith and/or gross negligence and
wanton 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
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 computed from date of filing of
complaint until final payment thereof.
SO ORDERED.

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 insurance under
whose terms, respondent insurance company promised to extend
protection to petitioner-insured against the risk insured for a
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,
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 Decision1 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 Complaint2 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
NATURE OF TRANSACTION INVESTMENT IN LTCP
NAME OF BORROWER/ISSUER C&P HOMES
xxxx
TENOR 91 DAYS
xxxx
MATURITY DATE 11/05/03
xxxx
REPRICEABLE EVERY 91
OTHERS
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 LTCP investment, despite their obviously different contents from those
enforceability of contracts of adhesion will have to be determined by she was used to signing for ordinary deposits, she essentially confirmed
the peculiar circumstances obtaining in each case and the nature of the that she knew what she was agreeing to and that it was different from
conditions or terms sought to be enforced.73 Thus, while any ambiguity, all her previous transactions.
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
In addition, even the ROF and Questionnaire signed by Amalia during
that in a case where no such ambiguity, obscurity or doubt exists, no
the first visit contained provisions that clearly contradict petitioners'
such construction is warranted. This was the case in the DIMA and the
claims. The ROF contained the following:
Directional Letter signed by Amalia in the instant controversy.
I/We declare the above information to be correct. I/We hereby
The parties to this case only disagree on whether petitioners were
acknowledge to have received, read, understood and agree to be
properly informed of the contents of the documents. But as earlier
bound by the general terms and conditions applicable and governing
stated, petitioners were free to read and study the contents of the
my/our account/s and/or investment/s which appear in a separate
papers before signing them, without compulsion to sign immediately
brochure/manual as well as separate documents relative to said
or even days after, as indeed the parties were even free not to sign the
account/s and/or investment/s. Said terms and conditions shall
documents at all. Unlike in Sweet Lines, where the plaintiffs had no
likewise apply to all our existing and future account/s and/or
choice but to take the services of monopolistic transport companies
investment/s with Citibank. I/We hereby further authorize Citibank to
during rush hours, in the instant case, petitioners were under no such
open additional account/s and/or investment/s in the future with the
pressure; petitioners were free to invest anytime and through any of
same account title as contained in this relationship opening form
the dozens of local and foreign banks in the market.
subject to the rules governing the aforementioned account/s and/or
investment/s and the terms and conditions therein or herein. I/We
In addition, it has been held that contracts of adhesion are not agree to notify you in writing of any change in the information supplied
necessarily voidable. The Court has consistently held that contracts of in this relationship opening form.82 (Emphasis supplied.)
adhesion, wherein one party imposes a ready-made form of contract
on the other, are contracts not entirely prohibited, since the one who
while the Questionnaire had the following provisions:
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
I am aware that investment products are not bank deposits or other
upheld unless they are in the nature of a patently lopsided deal where
blind adherence is not justified by other factual circumstances.76 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
Petitioners insist that other documents Amalia signed -- that is, the
to risk and possible loss of principal. Past performance is not indicative
ROF,77 Questionnaire78 and TIA79 -- contradict the DIMA and Directional
of future performance. In addition, investments are not covered by the
Letter. Specifically, they argue that under the ROF and the
Philippine Deposit Insurance Corporation (PDIC) or the Federal Deposit
Questionnaire, they manifested an intent to invest only in a time
Insurance Corporation (FDIC).83
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. which do not need further elaboration on the matter.
Respondent explains that investors fill up the ROF and Questionnaire
only when they first visit the bank and only for the account they first Petitioners contend that the Term Investment Application (TIA), viz:
opened,81 as confirmed by the evidence on record and the fact that
there were no subsequent ROFs and Questionnaires presented by
petitioners. TERM INVESTMENT APPLICATION
MAKATI Date 1/28/97
The ROF and Questionnaire were filled up when the PhP1 million Branch and Service Area
"Citihi" savings account was opened by Amalia on October 10, 1997,
CIF Keys
during her first visit to the bank. When Amalia returned more than a
TITLE OF ACCOUNT ________________
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
PANLILIO, AMALIA ITF _
long-term instruments like PRPNs and LTCPs. When Amalia proceeded
ALEJANDRO KING AGUILAR & FE ________________
to sign new documents like the DIMA and the Directional Letter for the
 the TIA obviously meant that they opened a trust account, and not any Assuming arguendo that respondent violated the instructions,
EMMANUELLE PANLILIO _
other account.86 petitioners did not file a single timely written protest, however, despite
________________
their admission that they received the first COI on December 8,
_
1997.91 It took eight months for petitioners to formally demand the
The explanation of respondent is plausible. Only PhP2,134,635.87 out
Address return of their investment through their counsel in a letter dated
of the PhP3 million was placed in the LTCP since this was the only
______________________________________________________ August 18, 1998.92 The letter, however, did not even contest the
amount of LTCP then available, while the balance was placed in two
For corporations, c/o _______________________ Tel. No. placement of the money in an LTCP, but merely its maturity in the year
PRPN accounts, each one in trust for Amalia's two children, upon her
____________ 2003. Prior to the letter, it has been shown that petitioners had
instructions.87 The disparity in the interest rate is also explained by the
received COIs on February 12, 1998,93May 14, 1998,94 and August 14,
fact that the 16.95% rate placed in the COI is gross and not net
1998,95 and in between, petitioners never demanded a return of the
interest,88 and that it is subject to repricing every 91 days.
money they invested.
Dear Sir:
The Court gives credence to respondent's explanation that the word
THIS IS TO AUTHORIZE CITIBANK, N. A. TO: ( ) rollover Petitioners' acts and omissions strongly indicate that they in fact
"TRUST" appearing on the TIA simply means that the account is to be
( ) open ( ) rollover w/ conformed to the agreement in the months after the signing. In that
handled by the bank's trust department, which handles not only the
added funds period, they were receiving their bank statements and earning interest
trust business but also the other fiduciary business and investment
( ) rollover w/ from the investment, as in fact, C&P Homes under the LTCP
management activities of the bank, while the "ITF" or "in trust for"
payout continuously paid interest even up to the time the instant case was
appearing on the other documents only signifies that the money was
Ref. No. ____ already on trial.96 When petitioners finally contested the contract
invested by Amalia in trust for her two children, a device that she uses
months after its signing, it was suspiciously during the time when
even in her ordinary deposit accounts with other banks.89 The ITF
[ ] Peso Time [ ] Dollar TD [ ] Confirmation of Sale newspaper reports came out that C&P Homes' stock had plunged in
device allows the children to obtain the money without need of paying
Depositories [ ] Multicurrency [ ] CITIHI-Yielder value and that Ayala Land was withdrawing its offer to invest in the
estate taxes in case Amalia meets a premature death.90However, it
[ ] NNPN TD TRUST company.97 The connection is too obvious to ignore. It is reasonable to
creates a trustee-beneficiary relationship only between Amalia and her
conclude that petitioners' repudiation of the agreement was nothing
NEW ADDED FUNDS WILL COME FROM: children, and not between Amalia, her children, and Citibank.
more than an afterthought, a reaction to the negative events in the
( ) debit my/our account no. for P/$ market and an effort to flee from a losing investment.
________________ _______________ All the documents signed by Amalia, including the DIMA and
( ) Check No. for P/$ Directional Letter, show that her agreement with respondent is one of
____________________________ _______________ Anent the second issue, whether petitioners are entitled to recover
agency, and not a trust.
( ) Cash deposit for P/$ from respondent the amount of PhP2,134,635.87 invested under the
__________________________ _______________ LTCP, the Court agrees with the CA in dismissing the complaint filed by
The DIMA, TIA, Directional Letter and COIs, viewed altogether, petitioners.
establish without doubt the transaction between the parties, that on
IN THE AMOUNT AND TERMS SPECIFIED AS FOLLOWS:
November 28, 1997, with PhP3 million in tow, Amalia opened an
Petitioners may not seek a return of their investment directly from
PRINCIPAL/Money In P/$ 3,000,000 Value 11/28/97 investment management account with respondent, under which she
respondent at or prior to maturity. As earlier explained, the investment
instructed the latter as her agent to invest the bulk of the money in
is not a deposit and is not guaranteed by respondent. Absent any fraud
MATURITY AMOUNT/Par Value LTCP.
Maturity Date _______ or bad faith, the recourse of petitioners in the LTCP is solely against the
P/$____________ issuer, C&P Homes, and only upon maturity. The DIMA states, thus:
Aside from their bare allegations, evidence that supports petitioners'
INTEREST RATE around 16.25% Term 91 days 84
contentions that no such deal took place, or that the agreement was
11. Withdrawal of Income/Principal – Subject to availability of funds
different, simply does not exist in the records.
and taking into consideration the commitment of this account to
(Emphasis supplied.) third parties, the PRINCIPAL may withdraw the income/principal of
Petitioners were experienced and intelligent enough to be able to the Portfolio or portion thereof upon request or application thereof
demand and sign a different document to signify their real intention; from the Bank. The INVESTMENT MANAGER shall not be required to
clearly contradicts the DIMA, Directional Letter and COIs. but no such document exists. Thus, petitioners' acts and omissions inquire as to the income/principal so withdrawn from the Portfolio.
negate their allegations that they were essentially defrauded by the Any income of the Portfolio not withdrawn shall be accumulated and
Petitioners insist that the amount PhP3 million in the TIA does not tally bank. added to the principal of the Portfolio for further investment and
with the actual value of the investment which appeared on the first reinvestment.98 (Emphasis supplied.)
COI, which was PhP2,134,635.87. Petitioners add that the TIA's interest Petitioners had other chances to protest respondent's alleged
rate of "around 16.25%" with the term "91 days" contradicts the COI's disregard of their instructions. The COIs sent by respondent to It is clear that since the money is committed to C&P Homes via LTCP for
interest rate of 16.95% with a tenor of 75 days repriceable after 91 petitioners encapsulate the spirit of the DIMA and Directional Letter, five years, or until 2003, petitioners may not seek its recovery from
days.85 Further, petitioners claim that the word "TRUST" inscribed on with the proviso that should there be any deviations from petitioners' respondent prior to the lapse of this period. Petitioners must wait and
instructions, they may inform respondent in writing within seven days. 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.

WHEREFORE, the Petition is DENIED. For lack of evidence, the Decision

of the Court of Appeals dated dated May 28, 2002 and its Resolution of
December 11, 2002, are AFFIRMED.

Costs against the petitioners.

SO ORDERED.
G.R. No. 111924 January 27, 1997
ADORACION LUSTAN, petitioner,
vs.
COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN,
PHILIPPINE NATIONAL BANK,respondents.
FRANCISCO, J.:
Petitioner Adoracion Lustan is the registered owner of a parcel of land
otherwise known as Lot 8069 of the Cadastral Survey of Calinog, Iloilo
containing an area of 10.0057 hectares and covered by TCT No. T-561.
On February 25, 1969, petitioner leased the above described property
to private respondent Nicolas Parangan for a term of ten (10) years and
an annual rent of One Thousand (P1,000.00) Pesos. During the period
of lease, Parangan was regularly extending loans in small amounts to
petitioner to defray her daily expenses and to finance her daughter's
education. On July 29, 1970, petitioner executed a Special Power of
Attorney in favor of Parangan to secure an agricultural loan from
private respondent Philippine National Bank (PNB) with the aforesaid
lot as collateral. On February 18, 1972, a second Special Power of
Attorney was executed by petitioner, by virtue of which, Parangan was
able to secure four (4) additional loans, to wit: the sums of P24,000.00,
P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975,
September 6, 1976, July 2, 1979 and June 2, 1980, respectively. The last
three loans were without the knowledge of herein petitioner and all
the proceeds therefrom were used by Parangan for his own
benefit. 1 These encumbrances were duly annotated on the certificate
of title. On April 16, 1973, petitioner signed a Deed of Pacto de
Retro Sale 2 in favor of Parangan which was superseded by the Deed of
Definite Sale 3 dated May 4, 1979 which petitioner signed upon
Parangan's representation that the same merely evidences the loans
extended by him unto the former.
For fear that her property might be prejudiced by the continued
borrowing of Parangan, petitioner demanded the return of her
certificate of title. Instead of complying with the request, Parangan
asserted his rights over the property which allegedly had become his
by virtue of the aforementioned Deed of Definite Sale. Under said
document, petitioner conveyed the subject property and all the
improvements thereon unto Parangan absolutely for and in
consideration of the sum of Seventy Five Thousand (P75,000.00) Pesos.
Aggrieved, petitioner filed an action for cancellation of liens, quieting
of title, recovery of possession and damages against Parangan and PNB
in the Regional Trial Court of Iloilo City. After trial, the lower court
rendered judgment, disposing as follows:
WHEREFORE and in view of the foregoing, a
decision is rendered as follows:
1. Ordering cancellation by the Register of Deeds
of the Province of Iloilo, of the unauthorized
loans, the liens and encumbrances appearing in
the Transfer Certificate of Title No. T-561,
especially entries nos. 286231; 338638; and
352794;
2. Declaring the Deed of Pacto de Retro Sale
dated April 25, 1978 and the Deed of Definite
Sale dated May 6, 1979, both documents
executed by Adoracion Lustan in favor of Nicolas
Parangan over Lot 8069 in TCT No. T-561 of the
Register of Deeds of Iloilo, as null and void,
declaring the same to be Deeds of Equitable
Mortgage;
3. Ordering defendant Nicolas Parangan to pay
all the loans he secured from defendant PNB
using thereto as security TCT No. T-561 of
plaintiff and defendant PNB to return TCT No. T-
561 to plaintiff;
4. Ordering defendant Nicolas Parangan to
return possession of the land in question, Lot
8069 of the Calinog Cadastre, described in TCT
No. T-561 of the Register of Deeds of Iloilo, to
plaintiff upon payment of the sum of P75,000.00
by plaintiff to defendant Parangan which
payment by plaintiff must be made within ninety
(90) days from receipt of this decision;
otherwise, sale of the land will be ordered by the
court to satisfy payment of the amount;
5. Ordering defendant Nicolas Parangan to pay
plaintiff attorney's fees in the sum of P15,000.00
and to pay the costs of the suit.
SO ORDERED. 4
Upon appeal to the Court of Appeals (CA), respondent court reversed
the trial court's decision. Hence this petition contending that the CA
committed the following errors:
IN ARRIVING AT THE CONCLUSION THAT NONE
OF THE CONDITIONS STATED IN ART. 1602 OF
THE NEW CIVIL CODE HAS BEEN PROVEN TO
EXIST BY PREPONDERANCE OF EVIDENCE;
IN CONCLUDING THAT PETITIONER SIGNED THE
DEED OF SALE WITH KNOWLEDGE AS TO THE
CONTENTS THEREOF;
IN ARRIVING AT THE CONCLUSION THAT THE
TESTIMONY OF WITNESS DELIA CABIAL
DESERVES FULL FAITH AND CREDIT;
IN FINDING THAT THE SPECIAL POWER OF
ATTORNEY AUTHORIZING MORTGAGE FOR
"UNLIMITED" LOANS AS RELEVANT.
Two main issues confront us in this case, to wit: whether or not the
Deed of Definite Sale is in reality an equitable mortgage and whether
or not petitioner's property is liable to PNB for the loans contracted by
Parangan by virtue of the special power of attorney. The lower court
and the CA arrived at different factual findings thus necessitating a
review of the evidence on record. 5 After a thorough examination, we
note some errors, both in fact and in law, committed by public
respondent CA.
The court a quo ruled that the Deed of Definite Sale is in reality an
equitable mortgage as it was shown beyond doubt that the intention of
the parties was one of a loan secured by petitioner's land. 6 We agree.
A contract is perfected by mere consent. 7 More particularly, a contract
of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price. 8 This
meeting of the minds speaks of the intent of the parties in entering
into the contract respecting the subject matter and the consideration
thereof. If the words of the contract appear to be contrary to the
evident intention of the parties, the latter shall prevail over the
former. 9 In the case at bench, the evidence is sufficient to warrant a
finding that petitioner and Parangan merely intended to consolidate
the former's indebtedness to the latter in a single instrument and to
secure the same with the subject property. Even when a document
appears on its face to be a sale, the owner of the property may prove
that the contract is really a loan with mortgage by raising as an issue
the fact that the document does not express the true intent of the
parties. In this case, parol evidence then becomes competent and
admissible to prove that the instrument was in truth and in fact given
merely as a security for the repayment of a loan. And upon proof of the
truth of such allegations, the court will enforce the agreement or
understanding in consonance with the true intent of the parties at the
time of the execution of the contract. 10
Articles 1602 and 1604 of the Civil Code respectively provide:
The contract shall be presumed to be an
equitable mortgage in any of the following cases:
 1) When the price of a sale with right to conduct and the nature of the rights she was ceding in favor of Q: Who invited you to go
repurchase is unusually inadequate; Parangan. Petitioner is illiterate and her condition constrained her to there?
merely rely on Parangan's assurance that the contract only evidences
her indebtedness to the latter. When one of the contracting parties is
2) When the vendor remains in possession as A: Parangan.
unable to read, or if the contract is in a language not understood by
lessor or otherwise;
him, and mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained to the Q: You mean Nicolas
3) When upon or after the expiration of the right former. 13 Settled is the rule that where a party to a contract is illiterate Parangan?
to repurchase, another instrument extending the or cannot read or cannot understand the language in which the
period of redemption or granting a new period is contract is written, the burden is on the party interested in enforcing A: Yes, sir.
executed; 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. Q: What did Nicolas tell
4) When the vendor binds himself to pay the
you why he invited you to
taxes on the thing sold;
go there?
We do not find the testimony of Parangan and Delia Cabial that the
5) When the purchaser retains for himself a part contract was duly read and explained to petitioner worthy of credit.
The assessment by the trial court of the credibility of witnesses is A: He told me that I will
of the purchase price;
entitled to great respect and weight for having had the opportunity of witness on the
observing the conduct and demeanor of the witnesses while indebtedness of Adoracion
6) In any other case where it may be fairly testifying. 15 The lower court may not have categorically declared to Parangan.
inferred that the real intention of the parties is Cabial's testimony as doubtful but this fact is readily apparent when it
that the transaction shall secure the payment of ruled on the basis of petitioner's evidence in total disregard of the Q: Before Adoracion
a debt or the performance of any other positive testimony on Parangan's side. We have subjected the records Lustan signed her name in
obligation. to a thorough examination, and a reading of the transcript of this Exh. "4", was this
stenographic notes would bear out that the court a quo is correct in its document read to her?
Art. 1604. The provisions of Article 1602 shall assessment. The CA committed a reversible error when it relied on the
also apply to a contract purporting to be an testimony of Cabial in upholding the validity of the Deed of Definite
Sale. For one, there are noted major contradictions between the A: No, sir.
absolute sale.
testimonies of Cabial and Judge Lebaquin, who notarized the
purported Deed of Definite Sale. While the former testified that Q: Did Nicolas Parangan
From a reading of the above-quoted provisions, for a presumption of receipts were presented before Judge Lebaquin, who in turn made an right in that very room tell
an equitable mortgage to arise, we must first satisfy two requisites accounting to determine the price of the land 16, the latter categorically Adoracion what she was
namely: that the parties entered into a contract denominated as a denied the allegation. 17 This contradiction casts doubt on the signing?
contract of sale and that their intention was to secure an existing debt credibility of Cabial as it is ostensible that her version of the story is
by way of mortgage. Under Art. 1604 of the Civil Code, a contract concocted.
purporting to be an absolute sale shall be presumed to be an equitable A: No, sir.
mortgage should any of the conditions in Art. 1602 be present. The
existence of any of the circumstances therein, not a concurrence nor On the other hand, petitioner's witness Celso Pamplona, testified that
xxx xxx xxx
an overwhelming number of such circumstances, suffices to give rise to the contract was not read nor explained to petitioner. We believe that
the presumption that the contract is an equitable mortgage.11 this witness gave a more accurate account of the circumstances
surrounding the transaction. He has no motive to prevaricate or Q: What did you have in
concoct a story as he witnessed the execution of the document at the mind when you were
Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is behest of Parangan himself who, at the outset, informed him that he signing this document,
presumed to be an equitable mortgage in any other case where it may will witness a document consolidating petitioner's debts. He thus Exh. "4"?
be fairly inferred that the real intention of the parties is that the testified:
transaction shall secure the payment of a debt or the performance of
any other obligation. That the case clearly falls under this category can A: To show that Adoracion
be inferred from the circumstances surrounding the transaction as Q: In (sic) May 4, 1979, you Lustan has debts with
herein set forth: remember having went Nicolas
(sic) to the Municipality of Parangan. 18
Calinog?
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 Furthermore, we note the absence of any question propounded to
that she may intelligibly formulate in her mind the consequences of her A: Yes, sir. Judge Lebaquin to establish that the deed of sale was read and
explained by him to petitioner. When asked if witness has any
knowledge whether petitioner knows how to read or write, he
answered in the negative. 19 This latter admission impresses upon us
that the contract was not at all read or explained to petitioner for had
he known that petitioner is illiterate, his assistance would not have
been necessary.
The foregoing squares with the sixth instance when a presumption of
equitable mortgage prevails. The contract of definite sale, where
petitioner purportedly ceded all her rights to the subject lot in favor of
Parangan, did not embody the true intention of the parties. The
evidence speaks clearly of the nature of the agreement — it was one
executed to secure some loans.
Anent the issue of whether the outstanding mortgages on the subject
property can be enforced against petitioner, we rule in the affirmative.
Third persons who are not parties to a loan may secure the latter by
pledging or mortgaging their own property.20 So long as valid consent
was given, the fact that the loans were solely for the benefit of
Parangan would not invalidate the mortgage with respect to
petitioner's property. In consenting thereto, even granting that
petitioner may not be assuming personal liability for the debt, her
property shall nevertheless secure and respond for the performance of
the principal obligation. 21 It is admitted that petitioner is the owner of
the parcel of land mortgaged to PNB on five (5) occasions by virtue of
the Special Powers of Attorney executed by petitioner in favor of
Parangan. Petitioner argues that the last three mortgages were void for
lack of authority. She totally failed to consider that said Special Powers
of Attorney are a continuing one and absent a valid revocation duly
furnished to the mortgagee, the same continues to have force and
effect as against third persons who had no knowledge of such lack of
authority. Article 1921 of the Civil Code provides:
Art. 1921. If the agency has been entrusted for
the purpose of contracting with specified
persons, its revocation shall not prejudice the
latter if they were not given notice thereof.
for subsequent commercial, industrial, agricultural loan or credit
accommodation that the attorney-in-fact may obtain and until the
power of attorney is revoked in a public instrument and a copy of
which is furnished to PNB. 23 Even when the agent has exceeded his
authority, the principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers (Article 1911,
Civil Code). 24 The mortgage directly and immediately subjects the
property upon which it is imposed. 25 The property of third persons
which has been expressly mortgaged to guarantee an obligation to
which the said persons are foreign, is directly and jointly liable for the
fulfillment thereof; it is therefore subject to execution and sale for the
purpose of paying the amount of the debt for which it is
liable. 26 However, petitioner has an unquestionable right to demand
proportional indemnification from Parangan with respect to the sum
paid to PNB from the proceeds of the sale of her property 27 in case the
same is sold to satisfy the unpaid debts.
WHEREFORE, premises considered, the judgment of the lower court is
hereby REINSTATED with the following MODIFICATIONS:
1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE
MORTGAGE;
2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN
THE POSSESSION OF THE SUBJECT LAND UNTO PETITIONER UPON THE
LATTER'S PAYMENT OF THE SUM OF P75,000.00 WITHIN NINETY (90)
DAYS FROM RECEIPT OF THIS DECISION;
3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND
SUBSISTING AND MAY THEREFORE BE SUBJECTED TO EXECUTION SALE.
4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER
THE AMOUNT OF P15,000.00 BY WAY OF ATTORNEY'S FEES AND TO
PAY THE COSTS OF THE SUIT.
SO ORDERED.

The Special Power of Attorney executed by petitioner in favor of

Parangan duly authorized the latter to represent and act on behalf of
the former. Having done so, petitioner clothed Parangan with authority
to deal with PNB on her behalf and in the absence of any proof that the
bank had knowledge that the last three loans were without the express
authority of petitioner, it cannot be prejudiced thereby. As far as third
persons are concerned, an act is deemed to have been performed
within the scope of the agent's authority if such is within the terms of
the power of attorney as written even if the agent has in fact exceeded
the limits of his authority according to the understanding between the
principal and the agent. 22 The Special Power of Attorney particularly
provides that the same is good not only for the principal loan but also
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.1âwphi1.nêt
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.
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.

It is not the function of this Court to re-examine the evidence Law and jurisprudence support the award of moral damages and
submitted by the parties, or analyze or weigh the evidence again.23 This attorney's fees in favor of Artigo. The award of damages and attorney's
Court is not the proper venue to consider a factual issue as it is not a fees is left to the sound discretion of the court, and if such discretion is
trier of facts. In petitions for review on certiorari as a mode of appeal well exercised, as in this case, it will not be disturbed on
under Rule 45, a petitioner can only raise questions of law. Our appeal.25 Moral damages may be awarded when in a breach of contract
pronouncement in the case of Cormero vs. Court of Appeals24 bears the defendant acted in bad faith, or in wanton disregard of his
reiteration: contractual obligation.26 On the other hand, attorney's fees are
awarded in instances where "the defendant acted in gross and evident
bad faith in refusing to satisfy the plaintiff's plainly valid, just and
"At the outset, it is evident from the errors assigned that
demandable claim."27 There is no reason to disturb the trial court's
the petition is anchored on a plea to review the factual
finding that "the defendants' lack of good faith and unkind treatment
conclusion reached by the respondent court. Such task
of the plaintiff in refusing to give his due commission deserve censure."
however is foreclosed by the rule that in petitions for
This warrants the award of P25,000.00 in moral damages
certiorari as a mode of appeal, like this one, only questions
and P 45,000.00 in attorney's fees. The amounts are, in our view, fair
of law distinctly set forth may be raised. These questions
and reasonable. Having found a buyer for the two lots, Artigo had
have been defined as those that do not call for any
already performed his part of the bargain under the contract of agency.
examination of the probative value of the evidence
The De Castros should have exercised fairness and good judgment in
presented by the parties. (Uniland Resources vs.
dealing with Artigo by fulfilling their own part of the bargain - paying
Development Bank of the Philippines, 200 SCRA 751 [1991]
Artigo his 5 percent broker's commission based on the actual purchase
citing Goduco vs. Court of appeals, et al., 119 Phil. 531;
price of the two lots.
Hernandez vs. Court of Appeals, 149 SCRA 67). And when
this court is asked to go over the proof presented by the
parties, and analyze, assess and weigh them to ascertain if WHEREFORE, the petition is denied for lack of merit. The Decision of
the trial court and the appellate court were correct in the Court of Appeals dated May 4, 1994 in CA-G.R. CV No. 37996
according superior credit to this or that piece of evidence is AFFIRMED in toto.
and eventually, to the totality of the evidence of one party
or the other, the court cannot and will not do the same.
SO ORDERED.
(Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in
the absence of any showing that the findings complained of
are totally devoid of support in the record, or that they are
so glaringly erroneous as to constitute serious abuse of
discretion, such findings must stand, for this court is not
expected or required to examine or contrast the oral and
documentary evidence submitted by the parties. (Morales
vs. Court of Appeals, 197 SCRA 391 [1991] citing Santa Ana
vs. Hernandez, 18 SCRA 973 [1966])."

We find no reason to depart from this principle. The trial and appellate
courts are in a much better position to evaluate properly the evidence.
Hence, we find no other recourse but to affirm their finding on the
actual purchase price.1âwphi1.nêt

Fourth Issue: whether award of moral damages and attorney's fees is

proper
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
especially those transacting business with petitioner to even doubt the
authority of Tiu Huy Tiac as his manager in the Sto. Cristo Binondo
branch.
In a futile attempt to discredit Villanueva, petitioner alleges that the
former's testimony is clearly self-serving inasmuch as Villanueva
worked for private respondent as its manager.
We disagree, The argument that Villanueva's testimony is self-serving
and therefore inadmissible on the lame excuse of his employment with
private respondent utterly misconstrues the nature of "'self-serving
evidence" and the specific ground for its exclusion. As pointed out by
this Court in Co v. Court of Appeals et, al., (99 SCRA 321 [1980]):
Self-serving evidence is evidence made by a
party out of court at one time; it does not include
a party's testimony as a witness in court. It is
excluded on the same ground as any hearsay
evidence, that is the lack of opportunity for
cross-examination by the adverse party, and on
the consideration that its admission would open
the door to fraud and to fabrication of
testimony. On theother hand, a party's
testimony in court is sworn and affords the other
party the opportunity for cross-examination
(emphasis supplied)
Petitioner cites Villanueva's failure, despite his commitment to do so
on cross-examination, to produce the very first invoice of the
transaction between petitioner and private respondent as another
ground to discredit Villanueva's testimony. Such failure, proves that
Villanueva was not only bluffing when he pretended that he can
produce the invoice, but that Villanueva was likewise prevaricating
when he insisted that such prior transactions actually took place.
Petitioner is mistaken. In fact, it was petitioner's counsel himself who
withdrew the reservation to have Villanueva produce the document in
court. As aptly observed by the Court of Appeals in its decision:
 . . . However, during the hearing on March 3,
1981, Villanueva failed to present the document
adverted to because defendant-appellant's
counsel withdrew his reservation to have the
former (Villanueva) produce the document or
invoice, thus prompting plaintiff-appellant to rest
its case that same day (t.s.n., pp. 39-40, Sess. of
March 3, 1981). Now, defendant-appellant
assails the credibility of Villanueva for having
allegedly failed to produce even one single
document to show that plaintiff-appellant have
had transactions before, when in fact said failure
of Villanueva to produce said document is a
direct off-shoot of the action of defendant-
appellant's counsel who withdrew his
reservation for the production of the document
or invoice and which led plaintiff-appellant to
rest its case that very day. (Rollo, p.52)
In the same manner, petitioner assails the credibility of Lilian Tan by
alleging that Tan was part of an intricate plot to defraud him. However,
petitioner failed to substantiate or prove that the subject transaction
was designed to defraud him. Ironically, it was even the testimony of
petitioner's daughter and assistant manager Imelda Kue Cuison which
confirmed the credibility of Tan as a witness. On the witness stand,
Imelda testified that she knew for a fact that prior to the transaction in
question, Tan regularly transacted business with her father (petitioner
herein), thereby corroborating Tan's testimony to the same effect. As
correctly found by the respondent court, there was no logical
explanation for Tan to impute liability upon petitioner. Rather, the
testimony of Imelda Kue Cuison only served to add credence to Tan's
testimony as regards the transaction, the liability for which petitioner
wishes to be absolved.
But of even greater weight than any of these testimonies, is
petitioner's categorical admission on the witness stand that Tiu Huy
Tiac was the manager of his store in Sto. Cristo, Binondo, to wit:
Court:
xxx xxx xxx
Q And who was managing
the store in Sto. Cristo?
A At first it was Mr. Ang,
then later Mr. Tiu Huy Tiac
but I cannot remember the
exact year.
Q So, Mr. Tiu Huy Tiac took
over the management,.
A Not that was because
every afternoon, I was
there, sir.
Q But in the morning, who
takes charge?
A Tiu Huy Tiac takes
charge of
management and if there
(sic) orders for newsprint
or bond papers they are
always referred to the
compound in Baesa, sir.
(t.s.n., p. 16, Session of
January 20, 1981, CA
decision, Rollo, p. 50,
emphasis supplied).
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
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES
INCORPORATED, respondents.
G.R. No. 76933 May 29, 1991
AMERICAN AIRLINES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL
REPRESENTATIVES, INCORPORATED,respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and
Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.
PADILLA, J.:
This case is a consolidation of two (2) petitions for review
on certiorari of a decision 1 of the Court of Appeals in CA-G.R. No. CV-
04294, entitled "American Airlines, Inc. vs. Orient Air Services and
Hotel Representatives, Inc." which affirmed, with modification, the
decision 2 of the Regional Trial Court of Manila, Branch IV, which
dismissed the complaint and granted therein defendant's counterclaim
for agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as
American Air), an air carrier offering passenger and air cargo
transportation in the Philippines, and Orient Air Services and Hotel
Representatives (hereinafter referred to as Orient Air), entered into a
General Sales Agency Agreement (hereinafter referred to as the
Agreement), whereby the former authorized the latter to act as its
exclusive general sales agent within the Philippines for the sale of air
passenger transportation. Pertinent provisions of the agreement are
reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein
contained, the parties hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its
exclusive General Sales Agent within the Philippines,
including any United States military installation therein
which are not serviced by an Air Carrier Representation
Office (ACRO), for the sale of air passenger transportation.
The services to be performed by Orient Air Services shall
include:
(a) soliciting and promoting passenger traffic for
the services of American and, if necessary,
employing staff competent and sufficient to do
so;
(b) providing and maintaining a suitable area in
its place of business to be used exclusively for
the transaction of the business of American;
(c) arranging for distribution of American's
timetables, tariffs and promotional material to
sales agents and the general public in the
assigned territory;
(d) servicing and supervising of sales agents
(including such sub-agents as may be appointed
by Orient Air Services with the prior written
consent of American) in the assigned territory
including if required by American the control of
remittances and commissions retained; and
(e) holding out a passenger reservation facility to
sales agents and the general public in the
assigned territory.
In connection with scheduled or non-scheduled air
passenger transportation within the United States, neither
Orient Air Services nor its sub-agents will perform services
for any other air carrier similar to those to be performed
hereunder for American without the prior written consent
of American. Subject to periodic instructions and continued
consent from American, Orient Air Services may sell air
passenger transportation to be performed within the United
States by other scheduled air carriers provided American
does not provide substantially equivalent schedules
between the points involved.
xxx xxx xxx
4. Remittances
Orient Air Services shall remit in United States dollars to
American the ticket stock or exchange orders, less
commissions to which Orient Air Services is entitled
hereunder, not less frequently than semi-monthly, on the
15th and last days of each month for sales made during the
preceding half month.
All monies collected by Orient Air Services for
transportation sold hereunder on American's ticket stock or
on exchange orders, less applicable commissions to which
Orient Air Services is entitled hereunder, are the property of
American and shall be held in trust by Orient Air Services
until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on
transportation sold hereunder by Orient Air Services or its
sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency
commission for all sales of transportation by Orient Air
Services or its sub-agents over American's services and any
connecting through air transportation, when made on
American's ticket stock, equal to the following percentages
of the tariff fares and charges:
(i) For transportation solely between points
within the United States and between such
points and Canada: 7% or such other rate(s) as
may be prescribed by the Air Traffic Conference
of America.
(ii) For transportation included in a through
ticket covering transportation between points
other than those described above: 8% or such
other rate(s) as may be prescribed by the
International Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay
Orient Air Services an overriding commission of 3% of the
tariff fares and charges for all sales of transportation over
American's service by Orient Air Service or its sub-agents.
 xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing
or performing any of the provisions of this Agreement or
shall become bankrupt or make any assignment for the
benefit of or enter into any agreement or promise with its
creditors or go into liquidation, or suffer any of its goods to
be taken in execution, or if it ceases to be in business, this
Agreement may, at the option of American, be terminated
forthwith and American may, 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 to give effect to all. 13 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
Agreement—that 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.1âwphi1We 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, Peña 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, hereby rendered sentencing defendants- appellees
Choithram paid the down payment and installments on the lot with his Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C.
personal checks. A building was constructed thereon by Choithram in Ramnani, and Ortigas and Company Limited Partnership to
1966 and this was occupied and rented by Jethmal Industries and a pay, jointly and severally, plaintiffs-appellants the following:
wardrobe shop called Eppie's Creation. Three other buildings were
built thereon by Choithram through a loan of P100,000.00 obtained
1. Actual or compensatory damages to the extent of the fair
from the Merchants Bank as well as the income derived from the first
market value of the properties in question and all
building. The buildings were leased out by Choithram as attorney-in-
improvements thereon covered by Transfer Certificate of
fact of Ishwar. Two of these buildings were later burned.
Title No. 403150 and Transfer Certificate of Title No. 403152
of the Registry of Deeds of Rizal, prevailing at the time of
Sometime in 1970 Ishwar asked Choithram to account for the income the satisfaction of the judgment but in no case shall such
and expenses relative to these properties during the period 1967 to damages be less than the value of said properties as
1970. Choithram failed and refused to render such accounting. As a appraised by Asian Appraisal, Inc. in its Appraisal Report
consequence, on February 4, 1971, Ishwar revoked the general power dated August 1985 (Exhibits T to T-14, inclusive).
of attorney. Choithram and Ortigas were duly notified of such
revocation on April 1, 1971 and May 24, 1971, respectively. 3 Said
2. All rental incomes paid or ought to be paid for the use
notice was also registered with the Securities and Exchange
and occupancy of the properties in question and all
Commission on March 29, 1971 4 and was published in the April 2,
improvements thereon consisting of buildings, and to be
1971 issue of The Manila Times for the information of the general
computed as follows:
public. 5
a) On Building C occupied by Eppie's Creation
Nevertheless, Choithram as such attorney-in-fact of Ishwar, transferred
and Jethmal Industries from 1967 to 1973,
all rights and interests of Ishwar and Sonya in favor of his daughter-in-
inclusive, based on the 1967 to 1973 monthly
law, Nirmla Ramnani, on February 19, 1973. Her husband is Moti, son
rentals paid by Eppie's Creation;
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 b) Also on Building C above, occupied by Jethmal
Rizal were issued in her favor. 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,
Thus, on October 6, 1982, Ishwar and Sonya (spouses Ishwar for short)
based on then prevailing rates as indicated under
filed a complaint in the Court of First Instance of Rizal against
Exhibit "Q";
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 c) On Building A occupied by Transworld Knitting
thereafter filed by said spouses. Mills from 1972 to 1978, the rental incomes
based upon then prevailing rates shown under
Exhibit "P", and from 1979 to 1981, based on
After the issues were joined and the trial on the merits, a decision was
prevailing rates per Exhibit "Q";
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. 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
An appeal therefrom was interposed by spouses Ishwar to the Court of
1979 to 1980, the rentals based on the Lease
Appeals wherein in due course a decision was promulgated on March
Contract, Exhibit "Q",
14, 1988, the dispositive part of which reads as follows:
and thereafter commencing 1982, to account for and turn
WHEREFORE, judgment is hereby rendered reversing and
over the rental incomes paid or ought to be paid for the use
setting aside the appealed decision of the lower court dated
and occupancy of the properties and all improvements
December 3, 1985 and the Order dated March 3, 1986
totalling 10,048 sq. m based on the rate per square meter
which denied plaintiffs-appellants' Motion for
prevailing in 1981 as indicated annually cumulative up to
Reconsideration from aforesaid decision. A new decision is
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 CONCLUDING THAT FOR RESPONDENT ORTIGAS
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 ESTABLISHING THAT
THE PROPERTIES WERE PURCHASED WITH PERSONAL
FUNDS OF PETITIONER CHOITHRAM AND NOT WITH MONEY
ALLEGEDLY REMITTED BY RESPONDENT ISHWAR.
III
THE COURT OF APPEALS ACTED IN EXCESS OF JURISDICTION
IN AWARDING DAMAGES BASED ON THE VALUE OF THE
PROPERTIES AND THE FRUITS OF THE IMPROVEMENTS
THEREON. 9
Similarly, spouses Ishwar filed a petition for review of said amended
decision of the appellate court exculpating Ortigas of liability based on
the following assigned errors
I THE SECURITIES AND EXCHANGE COMMISSION
THE RESPONDENT HONORABLE COURT OF APPEALS
COMMITTED GRAVE ERROR AND HAS DECIDED A QUESTION
OF SUBSTANCE NOT IN ACCORD WITH LAW AND/OR WITH
APPLICABLE DECISIONS OF THIS HONORABLE COURT—
A) IN PROMULGATING THE QUESTIONED
AMENDED DECISION (ANNEX "A") RELIEVING
RESPONDENT ORTIGAS FROM LIABILITY AND
DISMISSING PETITIONERS' AMENDED
COMPLAINT IN CIVIL CASE NO. 534-P, AS
AGAINST SAID RESPONDENT ORTIGAS;
B) IN HOLDING IN SAID AMENDED DECISION
THAT AT ANY RATE NO ONE EVER TESTIFIED
THAT ORTIGAS WAS A SUBSCRIBER TO THE
MANILA TIMES PUBLICATION OR THAT ANY OF
ITS OFFICERS READ THE NOTICE AS PUBLISHED IN
THE MANILA TIMES, THEREBY ERRONEOUSLY
TO BE CONSTRUCTIVELY BOUND BY THE
PUBLISHED NOTICE OF REVOCATION, ORTIGAS
AND/OR ANY OF ITS OFFICERS MUST BE A
SUBSCRIBER AND/OR THAT ANY OF ITS OFFICERS
SHOULD READ THE NOTICE AS ACTUALLY
PUBLISHED;
C) IN HOLDING IN SAID AMENDED DECISION
THAT ORTIGAS COULD NOT BE HELD LIABLE
JOINTLY AND SEVERALLY WITH THE
DEFENDANTS-APPELLEES CHOITHRAM, MOTI
AND NIRMLA RAMNANI, AS ORTIGAS RELIED ON
THE WORD OF CHOITHRAM THAT ALL ALONG HE
WAS ACTING FOR AND IN BEHALF OF HIS
BROTHER ISHWAR WHEN IT TRANSFERRED THE
RIGHTS OF THE LATTER TO NIRMLA V. RAMNANI;
D) IN IGNORING THE EVIDENCE DULY PRESENTED
AND ADMITTED DURING THE TRIAL THAT
ORTIGAS WAS PROPERLY NOTIFIED OF THE
NOTICE OF REVOCATION OF THE GENERAL
POWER OF ATTORNEY GIVEN TO CHOITHRAM,
EVIDENCED BY THE PUBLICATION IN THE MANILA
TIMES ISSUE OF APRIL 2, 1971 (EXH. F) WHICH
CONSTITUTES NOTICE TO THE WHOLE WORLD;
THE RECEIPT OF THE NOTICE OF SUCH
REVOCATION WHICH WAS SENT TO ORTIGAS ON
MAY 22, 1971 BY ATTY. MARIANO P. MARCOS
AND RECEIVED BY ORTIGAS ON MAY 24, 1971
(EXH. G) AND THE FILING OF THE NOTICE WITH
ON MARCH 29,1971 (EXH. H);
E) IN DISCARDING ITS FINDINGS CONTAINED IN
ITS DECISION OF 14 MARCH 1988 (ANNEX B)
THAT ORTIGAS WAS DULY NOTIFIED OF THE
REVOCATION OF THE POWER OF ATTORNEY OF
CHOITHRAM, HENCE ORTIGAS ACTED IN BAD
FAITH IN EXECUTING THE DEED OF SALE TO THE
PROPERTIES IN QUESTION IN FAVOR OF NIRMLA
V. RAMNANI;
F) IN SUSTAINING RESPONDENT ORTIGAS
VACUOUS REHASHED ARGUMENTS IN ITS
MOTION FOR RECONSIDERATION THAT IT
WOULD NOT GAIN ONE CENTAVO MORE FROM
CHOITHRAM FOR THE SALE OF SAID LOTS AND
THE SUBSEQUENT TRANSFER OF THE SAME TO
THE MATTER'S DAUGHTER-IN-LAW, AND THAT IT
WAS IN GOOD FAITH WHEN IT TRANSFERRED
ISHWAR'S RIGHTS TO THE LOTS IN QUESTION.
II
THE RESPONDENT HONORABLE COURT OF APPEALS HAS SO
FAR DEPARTED FROM 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 The trial court's observation that "the entire records of the
better how to send these alleged remittances. Worst, case is bereft of even a shred of proof" that plaintiff-
plaintiffs did not present even a scum of proof, that appellants have remitted to defendant-appellee Choithram
defendant Choithram Ramnani received the alleged two US Ramnani the amount of US $ 150,000.00 for investment in
dollar drafts. Significantly, he does not know even the bank real estate in the Philippines, is not borne by the evidence on
where these two (2) US dollar drafts were purchased. record and shows the trial court's misapprehension of the
Indeed, plaintiff Ishwar Ramnani's lone testimony is facts if not a complete disregard of the evidence, both
unworthy of faith and credit and, therefore, deserves scant documentary and testimonial.
consideration, and since the plaintiffs' theory is built or
based on such testimony, their cause of action collapses or
Plaintiff-appellant Ishwar Jethmal Ramnani testifying in his
falls with it.
own behalf, declared that during the latter part of 1965, he
sent the amount of US $150,000.00 to his brother
Further, the rate of exchange that time in 1966 was P4.00 to Choithram in two bank drafts of US $65,000.00 and US
$1.00. The alleged two US dollar drafts amounted to $85,000.00 for the purpose of investing the same in real
$150,000.00 or about P600,000.00. Assuming the cash price estate in the Philippines. His testimony is as follows:
of the two (2) lots was only P530,000.00 (ALTHOUGH he
said: "Based on my knowledge I have no evidence," when
ATTY. MARAPAO:
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 Mr. Witness, you said that your attorney-in-fact
in cash directly and obtained the title in his name and not paid in your behalf. Can you tell this Honorable
thru "Contracts To Sell" in installments paying interest and Court where your attorney-in-fact got the money
thru an attorney-in fact (TSN of May 2, 1984, pp. 10-11) to pay this property?
and, again, plaintiff Ishwar Ramnani told this Court that he
does not know whether or not his late father-in-law ATTY. CRUZ:
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 Wait. It is now clear it becomes incompetent or
hearsay.
On the other hand, the appellate court, in giving credence to the
version of Ishwar, had this to say — COURT:
Witness can answer.
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 A I paid through my attorney-in-fact. I am the
finding grounded entirely on speculations, surmises and one who gave him the money.
conjectures; (2) when the inferences made is manifestly
mistaken, absurd and impossible; (3) when there is grave
ATTY. MARAPAO:
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 Q You gave him the money?
are contrary to the admissions of both appellant and
appellee (Ramos vs. Court of Appeals, 63 SCRA 33;
A That's right.
Philippine American Life Assurance Co. vs. Santamaria, 31
SCRA 798; Aldaba vs. Court of Appeals, 24 SCRA 189).
Q How much money did you give him?
The evidence on record shows that the t court acted under
a misapprehension of facts and the inferences made on the A US $ 150,000.00.
evidence palpably a mistake.
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 itself—such 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 falsehood? (The Santisima Trinidad, 7 Wheat, 283, 5 U.S. [L. and interest of Ishwar to his daughter-in-law Nirmla in 1973 without
provision requires Philippine or any other ed.] 454). the knowledge and consent of Ishwar. Ortigas in turn executed the
specific citizenship as a requisite for the exercise corresponding deeds of sale in favor of Nirmla after full payment of the
or enjoyment of a right, franchise or privilege, . . purchase accomplice of the lots.
True, that Choithram's testimony finds corroboration from
. any alien or foreigner profiting thereby, shall be
the testimony of his brother, Navalrai, but the same would
punished . . . by imprisonment . . . and of a fine
not be of much help to Choithram. Not only is Navalrai an In the prefatory statement of their petition, Choithram pictured Ishwar
of not less than the value of the right, franchise
interested and biased witness, having admitted his close to be so motivated by greed and ungratefulness, who squandered the
or privileges, which is enjoyed or acquired in
relationship with Choithram and that whenever he or family business in New York, who had to turn to his wife for support,
violation of the provisions hereof . . .
Choithram had problems, they ran to each other (tsn, pp. accustomed to living in ostentation and who resorted to blackmail in
17-18, S. Sept. 20, 1985), Navalrai has a pecuniary interest filing several criminal and civil suits against them. These statements
Having come to court with unclean hands, Choithram must in the success of Choithram in the case in question. Both he find no support and should be stricken from the records. Indeed, they
not be permitted foist his 'temporary arrangement' scheme and Choithram are business partners in Jethmal and Sons are irrelevant to the proceeding.
as a defense before this court. Being in delicto, he does not and/or Jethmal Industries, wherein he owns 60% of the
have any right whatsoever being shielded from his own company and Choithram, 40% (p. 62, Appellant's Brief).
Moreover, assuming Ishwar is of such a low character as Choithram
wrong-doing, which is not so with respect to Ishwar, who Since the acquisition of the properties in question in 1966,
proposes to make this Court to believe, why is it that of all persons,
was not a party to such an arrangement. Navalrai was occupying 1,200 square meters thereof as a
under his temporary arrangement theory, Choithram opted to entrust
factory site plus the fact that his son (Navalrais) was
the purchase of valuable real estate and built four buildings thereon all
occupying the apartment on top of the factory with his
The falsity of Choithram's defense is further aggravated by in the name of Ishwar? Is it not an unconscious emergence of the truth
family rent free except the amount of P l,000.00 a month to
the material inconsistencies and contradictions in his that this otherwise wayward brother of theirs was on the contrary able
pay for taxes on said properties (tsn, p. 17, S. Oct. 3, 1985).
testimony. While on January 23, 1985 he testified that he to raise enough capital through the generosity of his father-in-law for
purchased the land in question on his own behalf (tsn, p. 4, the purchase of the very properties in question? As the appellate court
S. Jan. 23, 1985), in the July 18, 1985 hearing, forgetting Inherent contradictions also marked Navalrai testimony. aptly observed if truly this temporary arrangement story is the only
probably what he stated before, Choithram testified that he "While the latter was very meticulous in keeping a receipt motivation, why Ishwar of all people? Why not the own son of
was only an attorney-in-fact of Ishwar (tsn, p. 5, S. July 18, for the P 10,000.00 that he paid Ishwar as settlement in Choithram, Haresh who is also an American citizen and who was
1985). Also in the hearing of January 23, 1985, Choithram Jethmal Industries, yet in the alleged payment of P already 18 years old at the time of purchase in 1966? The Court agrees
declared that nobody rented the building that was 100,000.00 to Ishwar, no receipt or voucher was ever issued with the observation that this theory is an afterthought which surfaced
constructed on the parcels of land in question (tsn, pp. 5 by him (tsn, p. 17, S. Oct. 3, 1983). 15 only when Choithram, Nirmla and Moti filed their answer.
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
We concur. When Ishwar asked for an accounting in 1970 and revoked the general
annum (tsn, p. 3). Again, in the hearing of July 19, 1985,
The foregoing findings of facts of the Court of Appeals which are power of attorney in 1971, Choithram had a total change of heart. He
Choithram testified that he had no knowledge of the
supported by the evidence is conclusive on this Court. The Court finds decided to claim the property as his. He caused the transfer of the
revocation of the Power of Attorney (tsn, pp. 20- 21), only
that Ishwar entrusted US$150,000.00 to Choithram in 1965 for rights and interest of Ishwar to Nirmla. On his representation, Ortigas
to backtrack when confronted with the letter of June 25,
investment in the realty business. Soon thereafter, a general power of executed the deeds of sale of the properties in favor of Nirmla.
1971 (Exhibits R to R-3), which he admitted to be in "his
attorney was executed by Ishwar in favor of both Navalrai and Choithram obviously surmised Ishwar cannot stake a valid claim over
own writing," indicating knowledge of the revocation of the
Choithram. If it is true that the purpose only is to enable Choithram to the property by so doing.
Power of Attorney.
purchase realty temporarily in the name of Ishwar, why the inclusion of
their elder brother Navalrai as an attorney-in-fact?
Clearly, this transfer to Nirmla is fictitious and, as admitted by
These inconsistencies are not minor but go into the entire
Choithram, was intended only to place the property in her name until
credibility of the testimony of Choithram and the rule is that
Then, acting as attorney-in-fact of Ishwar, Choithram purchased two Choithram acquires Philippine citizenship. 17 What appears certain is
contradictions on a very crucial point by a witness, renders s
parcels of land located in Barrio Ugong Pasig, Rizal, from Ortigas in that it appears to be a scheme of Choithram to place the property
testimony incredible People vs. Rafallo, 80 Phil. 22). Not
1966. With the balance of the money of Ishwar, Choithram erected a beyond the reach of Ishwar should he successfully claim the same.
only this the doctrine of falsus in uno, falsus in omnibus is
building on said lot. Subsequently, with a loan obtained from a bank Thus, it must be struck down.
fully applicable as far as the testimony of Choithram is
and the income of the said property, Choithram constructed three
concerned. The cardinal rule, which has served in all ages,
other buildings thereon. He managed the business and collected the
and has been applied to all conditions of men, is that a Worse still, on September 27, 1990 spouses Ishwar filed an urgent
rentals. Due to their relationship of confidence it was only in 1970
witness willfully falsifying the truth in one particular, when motion for the issuance of a writ of preliminary attachment and to
when Ishwar demanded for an accounting from Choithram. And even
upon oath, ought never to be believed upon the strength of require Choithram, et al. to submit certain documents, inviting the
as Ishwar revoked the general power of attorney on February 4, 1971,
his own testimony, whatever he may assert (U.S. vs. Osgood attention of this Court to the following:
of which Choithram was duly notified, Choithram wrote to Ishwar on
27 Feb. Case No. 15971-a, p. 364); Gonzales vs. Mauricio, 52
June 25, 1971 requesting that he execute a new power of attorney in
Phil, 728), for what ground of judicial relief can there be left
their favor. 16 When Ishwar did not respond thereto, Choithram
when the party has shown such gross insensibility to the
nevertheless proceeded as such attorney-in-fact to assign all the rights
difference between right and wrong, between truth and
 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.1âwphi1 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 now—a 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.
d. On the two Bays Buildings occupied by Sigma- Moti C. Ramnani and Ortigas, Co., Ltd. Partnership. Said petitioners
Mariwasa from 1972 to 1978, the rentals based Choithram, et al. and respondent Ortigas shall also pay the costs.
on the Lease Contract, Exhibit "P", and from
1979 to 1980, the rentals based on the Lease
SO ORDERED.
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.)

2. Petitioner Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C.

4. To determine the market value of the properties at the time of the
Ramnani and respondent Ortigas and Company, Limited Partnership (in
satisfaction of this judgment and the total rental incomes thereof, the
G.R. No. 85496) are ordered solidarily to pay in cash the value of said
trial court is hereby directed to hold a hearing with deliberate dispatch
one-half (1/2) share in the said land and improvements pertaining to
for this purpose only and to have the judgment immediately executed
respondents spouses Ishwar and Sonya at their fair market value at the
after such determination.
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). 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
3. Petitioners Choithram, Nirmla and Moti Ramnani and respondent
as exemplary damages and attorney's fees equal to 10% of the total
Ortigas & Co., Ltd. Partnership shall also be jointly and severally liable
award. to said respondents spouses.
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 6. The motion to dissolve the writ of preliminary injunction dated
computed as follows: 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
a. On Building C occupied by Eppie's Creation
the properties and improvements subject of this litigation to secure the
and Jethmal Industries from 1967 to 1973,
payment of the above awards to spouses Ishwar and Sonya.
inclusive, based on the 1967 to 1973 monthly
rentals paid by Eppie's Creation;
7. The mortgage constituted on the subject property dated June 20,
1989 by petitioners Choithram and Nirmla, both surnamed Ramnani in
b. Also on Building C above, occupied by Jethmal
favor of respondent Overseas Holding, Co. Ltd. (in G.R. No. 85496) for
Industries and Lavine from 1974 to 1978, the
the amount of $3-M is hereby declared null and void. The Register of
rental incomes based on then rates prevailing as
Deeds of Pasig, Rizal, is directed to cancel the annotation of d
shown under Exhibit "P"; and from 1979 to 1981,
mortgage on the titles of the properties in question.
based on then prevailing rates as indicated under
Exhibit "Q";
8. Should respondent Ortigas Co., Ltd. Partnership pay the awards to
Ishwar and Sonya Ramnani under this judgment, it shall be entitled to
c. On Building A occupied by Transworld Knitting
reimbursement from petitioners Choithram, Nirmla and Moti, all
Mills from 1972 to 1978, the rental incomes
surnamed Ramnani.
based upon then prevailing rates shown under
Exhibit "P", and from 1979 to 1981, based on
prevailing rates per Exhibit "Q"; 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,
G.R. No. L-41420 July 10, 1992
CMS LOGGING, INC., petitioner,
vs.
THE COURT OF APPEALS and D.R. AGUINALDO
CORPORATION, respondents.
NOCON, J.:
This is a petition for review on certiorari from the decision dated July
31, 1975 of the Court of Appeals in CA-G.R. No. 47763-R which
affirmed in toto the decision of the Court of First Instance of Manila,
Branch VII, in Civil Case No. 56355 dismissing the complaint filed by
petitioner CMS Logging, Inc. (CMS, for brevity) against private
respondent D.R. Aguinaldo Corporation (DRACOR, for brevity) and
ordering the former to pay the latter attorney's fees in the amount of
P1,000.00 and the costs.
The facts of the case are as follows: Petitioner CMS is a forest
concessionaire engaged in the logging business, while private
respondent DRACOR is engaged in the business of exporting and selling
logs and lumber. On August 28, 1957, CMS and DRACOR entered into a
contract of agency 1 whereby the former appointed the latter as its
exclusive export and sales agent for all logs that the former may
produce, for a period of five (5) years. The pertinent portions of the
agreement, which was drawn up by DRACOR, 2 are as follows:
1. SISON [CMS] hereby appoints DRACOR as his
sole and exclusive export sales agent with full
authority, subject to the conditions and
limitations hereinafter set forth, to sell and
export under a firm sales contract acceptable to
SISON, all logs produced by SISON for a period of
five (5) years commencing upon the execution of
the agreement and upon the terms and
conditions hereinafter provided and DRACOR
hereby accepts such appointment;
xxx xxx xxx
3. It is expressly agreed that DRACOR shall
handle exclusively all negotiations of all export
sales of SISON with the buyers and arrange the
procurement and schedules of the vessel or
vessels for the shipment of SISON's logs in
accordance with SISON's written requests, but
DRACOR shall not in anyway [sic] be liable or
responsible for any delay, default or failure of
the vessel or vessels to comply with the
schedules agreed upon;
xxx xxx xxx
9. It is expressly agreed by the parties hereto
that DRACOR shall receive five (5%) per cent
commission of the gross sales of logs of SISON
based on F.O.B. invoice value which commission
shall be deducted from the proceeds of any
and/or all moneys received by DRACOR for and
in behalf and for the account of SISON;
By virtue of the aforesaid agreement, CMS was able to sell through
DRACOR a total of 77,264,672 board feet of logs in Japan, from
September 20, 1957 to April 4, 1962.
About six months prior to the expiration of the agreement, while on a
trip to Tokyo, Japan, CMS's president, Atty. Carlos Moran Sison, and
general manager and legal counsel, Atty. Teodoro R. Dominguez,
discovered that DRACOR had used Shinko Trading Co., Ltd. (Shinko for
brevity) as agent, representative or liaison officer in selling CMS's logs
in Japan for which Shinko earned a commission of U.S. $1.00 per 1,000
board feet from the buyer of the logs. Under this arrangement, Shinko
was able to collect a total of U.S. $77,264.67. 3
CMS claimed that this commission paid to Shinko was in violation of
the agreement and that it (CMS) is entitled to this amount as part of
the proceeds of the sale of the logs. CMS contended that since
DRACOR had been paid the 5% commission under the agreement, it is
no longer entitled to the additional commission paid to Shinko as this
tantamount to DRACOR receiving double compensation for the services
it rendered.
After this discovery, CMS sold and shipped logs valued at U.S.
$739,321.13 or P2,883,351.90, 4 directly to several firms in Japan
without the aid or intervention of DRACOR.
CMS sued DRACOR for the commission received by Shinko and for
moral and exemplary damages, while DRACOR counterclaimed for its
commission, amounting to P144,167.59, from the sales made by CMS
of logs to Japanese firms. In its reply, CMS averred as a defense to the
counterclaim that DRACOR had retained the sum of P101,167.59 as
part of its commission for the sales made by CMS. 5 Thus, as its
counterclaim to DRACOR's counterclaim, CMS demanded DRACOR
return the amount it unlawfully retained. DRACOR later filed an
amended counterclaim, alleging that the balance of its commission on
the sales made by CMS was P42,630.82, 6 thus impliedly admitting that
it retained the amount alleged by CMS.
In dismissing the complaint, the trial court ruled that no evidence was
presented to show that Shinko received the commission of U.S.
$77,264.67 arising from the sale of CMS's logs in Japan, though the trial
court stated that "Shinko was able to collect the total amount of
$77,264.67 US Dollars (Exhs. M and M-1)." 7 The counterclaim was
likewise dismissed, as it was shown that DRACOR had waived its rights
to the balance of its commission in a letter dated February 2, 1963 to
Atty. Carlos Moran Sison, president of CMS. 8 From said decision, only
CMS appealed to the Court of Appeals.
The Court of Appeals, in a 3 to 2 decision, 9 affirmed the dismissal of
the complaint since "[t]he trial court could not have made a categorical
finding that Shinko collected commissions from the buyers of Sison's
logs in Japan, and could not have held that Sison is entitled to recover
from Dracor the amount collected by Shinko as commissions, plaintiff-
appellant having failed to prove by competent evidence its claims." 10
Moreover, the appellate court held:
There is reason to believe that Shinko Trading
Co. Ltd., was paid by defendant-appellee out of
its own commission of 5%, as indicated in the
letter of its president to the president of Sison,
dated February 2, 1963 (Exhibit "N"), and in the
Agreement between Aguinaldo Development
Corporation (ADECOR) and Shinko Trading Co.,
Ltd. (Exhibit "9"). Daniel R. Aguinaldo stated in
his said letter:
. . . , I informed you that if you wanted to pay me
for the service, then it would be no more than at
the standard rate of 5% commission because in
our own case, we pay our Japanese agents 2-
1/2%. Accordingly, we would only add a similar
amount of 2-1/2% for the service which we
would render you in the Philippines. 11
Aggrieved, CMS appealed to this Court by way of a petition for review
on certiorari, alleging (1) that the Court of Appeals erred in not making
a complete findings of fact; (2) that the testimony of Atty. Teodoro R.
Dominguez, regarding the admission by Shinko's president and director
that it collected a commission of U.S. $1.00 per 1,000 board feet of logs
from the Japanese buyers, is admissible against DRACOR; (3) that the
statement of DRACOR's chief legal counsel in his memorandum dated
May 31, 1965, Exhibit "K", is an admission that Shinko was able to
collect the commission in question; (4) that the fact that Shinko
received the questioned commissions is deemed admitted by DRACOR
by its silence under Section 23, Rule 130 of the Rules of Court when it
failed to reply to Atty. Carlos Moran Sison's letter dated February 6,
1962; (5) that DRACOR is not entitled to its 5% commission arising from
the direct sales made by CMS to buyers in Japan; and (6) that DRACOR
is guilty of fraud and bad faith in its dealings with CMS.
With regard to CMS's arguments concerning whether or not Shinko
received the commission in question, We find the same unmeritorious.
To begin with, these arguments question the findings of fact made by
the Court of Appeals, which are final and conclusive and can not be
reviewed on appeal to the Supreme Court. 12
Moreover, while it is true that the evidence adduced establishes the
fact that Shinko is DRACOR's agent or liaison in Japan, 13 there is no
evidence which established the fact that Shinko did receive the amount
of U.S. $77,264.67 as commission arising from the sale of CMS's logs to
various Japanese firms.
The fact that Shinko received the commissions in question was not
established by the testimony of Atty. Teodoro R. Dominguez to the
effect that Shinko's president and director told him that Shinko
received a commission of U.S. $1.00 for every 1,000 board feet of logs
sold, since the same is hearsay. Similarly, the letter of Mr. K. Shibata of
Toyo Menka Kaisha, Ltd. 14 is also hearsay since Mr. Shibata was not
presented to testify on his letter.
CMS's other evidence have little or no probative value at all. The
statements made in the memorandum of Atty. Simplicio R. Ciocon to
DRACOR dated May 31, 1965, 15 the letter dated February 2, 1963 of
Daniel
R. Aguinaldo, 16 president of DRACOR, and the reply-letter dated
January 9, 1964 17 by DRACOR's counsel Atty. V. E. Del Rosario to CMS's
demand letter dated September 25, 1963 can not be categorized as
admissions that Shinko did receive the commissions in question.
The alleged admission made by Atty. Ciocon, to wit —
Furthermore, as per our records, our shipment of
logs to Toyo Menka Kaisha, Ltd., is only for a net
volume of 67,747,732 board feet which should
enable Shinko to collect a commission of US
$67,747.73 only
can not be considered as such since the statement was
made in the context of questioning CMS's tally of logs
delivered to various Japanese firms.
Similarly, the statement of Daniel R. Aguinaldo, to wit —
. . . Knowing as we do that Toyo Menka is a large
and reputable company, it is obvious that they
paid Shinko for certain services which Shinko
must have satisfactorily performed for them in
Japan otherwise they would not have paid
Shinko
and that of Atty. V. E. Del Rosario,
. . . It does not seem proper, therefore, for CMS
Logging, Inc., as principal, to concern itself with,
much less question, the right of Shinko Trading
Co., Ltd. with which our client debt directly, to
whatever benefits it might have derived form the
ultimate consumer/buyer of these logs, Toyo
Menka Kaisha, Ltd. There appears to be no
justification for your client's contention that
these benefits, whether they can be considered
as commissions paid by Toyo Menka Kaisha to
Shinko Trading, are to be regarded part of the
gross sales.
can not be considered admissions that Shinko received the
questioned commissions since neither statements declared
categorically that Shinko did in fact receive the commissions
and that these arose from the sale of CMS's logs.
As correctly stated by the appellate court:
It is a rule that "a statement is not competent as
an admission where it does not, under a
reasonable construction, appear to admit or
acknowledge the fact which is sought to be
proved by it". An admission or declaration to be
competent must have been expressed in
definite, certain and unequivocal language (Bank
of the Philippine Islands vs. Fidelity & Surety Co.,
51 Phil. 57, 64). 18
CMS's contention that DRACOR had admitted by its silence the
allegation that Shinko received the commissions in question when it
failed to respond to Atty. Carlos Moran Sison's letter dated February 6,
1963, is not supported by the evidence. DRACOR did in fact reply to the
letter of Atty. Sison, through the letter dated March 5, 1963 of F.A.
Novenario, 19 which stated:
This is to acknowledge receipt of your letter
dated February 6, 1963, and addressed to Mr. D.
R. Aguinaldo, who is at present out of the
country.
xxx xxx xxx
We have no record or knowledge of any such
payment of commission made by Toyo Menka to
Shinko. If the payment was made by Toyo Menka
to Shinko, as stated in your letter, we knew
nothing about it and had nothing to do with it.
The finding of fact made by the trial court, i.e., that "Shinko was able to
collect the total amount of $77,264.67 US Dollars," can not be given
weight since this was based on the summary prepared by CMS itself,
Exhibits "M" and "M-1".
Moreover, even if it was shown that Shinko did in fact receive the
commissions in question, CMS is not entitled thereto since these were
apparently paid by the buyers to Shinko for arranging the sale. This is
therefore not part of the gross sales of CMS's logs.
However, We find merit in CMS's contention that the appellate court
erred in holding that DRACOR was entitled to its commission from the
sales made by CMS to Japanese firms.
The principal may revoke a contract of agency at will, and such
revocation may be express, or implied, 20 and may be availed of even if
the period fixed in the contract of agency as not yet expired. 21 As the
principal has this absolute right to revoke the agency, the agent can
not object thereto; neither may he claim damages arising from such
revocation, 22unless it is shown that such was done in order to evade
the payment of agent's commission. 23
In the case at bar, CMS appointed DRACOR as its agent for the sale of
its logs to Japanese firms. Yet, during the existence of the contract of
agency, DRACOR admitted that CMS sold its logs directly to several
Japanese firms. This act constituted an implied revocation of the
contract of agency under Article 1924 of the Civil Code, which provides:
Art. 1924 The agency is revoked if the principal
directly manages the business entrusted to the
agent, dealing directly with third persons.
In New Manila Lumber Company, Inc. vs. Republic of the
Philippines, 24 this Court ruled that the act of a contractor, who, after
executing powers of attorney in favor of another empowering the
latter to collect whatever amounts may be due to him from the
Government, and thereafter demanded and collected from the
government the money the collection of which he entrusted to his
attorney-in-fact, constituted revocation of the agency in favor of the
attorney-in-fact.
Since the contract of agency was revoked by CMS when it sold its logs
to Japanese firms without the intervention of DRACOR, the latter is no
longer entitled to its commission from the proceeds of such sale and is
not entitled to retain whatever moneys it may have received as its
commission for said transactions. Neither would DRACOR be entitled to
collect damages from CMS, since damages are generally not awarded
to the agent for the revocation of the agency, and the case at bar is not
one falling under the exception mentioned, which is to evade the
payment of the agent's commission.

Regarding CMS's contention that the Court of Appeals erred in not

finding that DRACOR had committed acts of fraud and bad faith, We
find the same unmeritorious. Like the contention involving Shinko and
the questioned commissions, the findings of the Court of Appeals on
the matter were based on its appreciation of the evidence, and these
findings are binding on this Court.

In fine, We affirm the ruling of the Court of Appeals that there is no

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

WHEREFORE, the decision appealed from is hereby MODIFIED as stated

in the preceding paragraph. Costs de officio.

SO ORDERED.
G.R. No. 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 petitioner’s 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 petitioner’s 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 (Medicard’s 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 petitioner’s
complaint and respondents’ counterclaim.
On appeal, the Court of Appeals affirmed the trial court’s 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 Medicard’s 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 agent’s
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 agent’s efforts and the principal’s
sale of his property can not be ignored.
It may be recalled that through petitioner’s 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 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.

SO ORDERED.
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 Divina’s 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:
Deduction for Income Deduction for
Year
Tax Savings
1997 NT10,450.00 NT23,100.00
1998 NT9,500.00 NT36,000.00
1999 NT13,300.00 NT36,000.00;5
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 SUNACE’s
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 ATTORNEY’S 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 attorney’s 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
attorney’s 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 Divina’s Position Paper, Sunace filed on April 25, 2000 an ".
. . answer to complainant’s position paper"7 alleging that Divina’s 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 complainant’s position paper."
To Sunace’s ". . . answer to complainant’s position paper," Divina filed
a 2-page reply,8 without, however, refuting Sunace’s 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 Sunace’s claim that the extension of
Divina’s contract for two more years was without its knowledge and
consent in this wise:
We reject Sunace’s 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 contract’s
extension and Sunace’s 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 Sunace’s argument that it is not liable
on account of Divina’s 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 attorney’s
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 Arbiter’s 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 Arbiter’s 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 respondent’s 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 NLRC’s finding
that Sunace knew of and impliedly consented to the extension of
Divina’s 2-year contract. It went on to state that "It is undisputed that
[Sunace] was continually communicating with [Divina’s] 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 Divina’s 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 petitioner’s 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 Divina’s 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
[Divina’s] 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 Divina’s 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 4. To do and perform such acts and things that may be education; that she was evicted from her home; that her vehicle was
necessary and/or required to make the herein authority foreclosed upon; and that her reputation was destroyed, thus entitling
effective.4 her to actual and moral damages in the respective amounts of P3
ZENAIDA G. MENDOZA, Petitioner,
million and P1 million.
vs.
ENGR. EDUARDO PAULE, ENGR. ALEXANDER COLOMA and NATIONAL On September 29, 1999, EMPCT, through MENDOZA, participated in
IRRIGATION ADMINISTRATION (NIA MUÑOZ, NUEVA the bidding of the NIA-Casecnan Multi-Purpose Irrigation and Power Meanwhile, on August 23, 2000, PAULE again constituted MENDOZA as
ECIJA), Respondents. Project (NIA-CMIPP) and was awarded Packages A-10 and B-11 of the his attorney-in-fact –
NIA-CMIPP Schedule A. On November 16, 1999, MENDOZA received
the Notice of Award which was signed by Engineer Alexander M.
x - - - - - - - - - - - - - - - - - - - - - - -x 1. To represent me (PAULE), in my capacity as General
Coloma (COLOMA), then Acting Project Manager for the NIA-CMIPP.
Manager of the E.M. PAULE CONSTRUCTION AND TRADING,
Packages A-10 and B-11 involved the construction of a road system,
in all meetings, conferences and transactions exclusively for
G.R. No. 176271 February 13, 2009 canal structures and drainage box culverts with a project cost of
the construction of the projects known as Package A-10 of
P5,613,591.69.
Schedule A and Package No. B-11 Schedule B, which are
MANUEL DELA CRUZ Petitioner, 38.61% and 63.18% finished as of June 21, 2000, per
vs. When Manuel de la Cruz (CRUZ) learned that MENDOZA is in need of attached Accomplishment Reports x x x;
ENGR. EDUARDO M. PAULE, ENGR. ALEXANDER COLOMA and heavy equipment for use in the NIA project, he met up with MENDOZA
NATIONAL IRRIGATION ADMINISTRATION (NIA MUÑOZ, NUEVA in Bayuga, Muñoz, Nueva Ecija, in an apartment where the latter was
2. To implement, execute, administer and supervise the said
ECIJA), Respondents. holding office under an EMPCT signboard. A series of meetings
projects in whatever stage they are in as of to date, to
followed in said EMPCT office among CRUZ, MENDOZA and PAULE.
collect checks and other payments due on said projects and
DECISION act as the Project Manager for E.M. PAULE CONSTRUCTION
On December 2 and 20, 1999, MENDOZA and CRUZ signed two Job AND TRADING;
YNARES-SANTIAGO, J.: Orders/Agreements5 for the lease of the latter’s heavy equipment
(dump trucks for hauling purposes) to EMPCT.
3. To do and perform such acts and things that may be
These consolidated petitions assail the August 28, 2006 Decision1
of necessary and required to make the herein power and
the Court of Appeals in CA-G.R. CV No. 80819 dismissing the complaint On April 27, 2000, PAULE revoked6 the SPA he previously issued in authority effective.7
in Civil Case No. 18-SD (2000),2 and its December 11, 2006 favor of MENDOZA; consequently, NIA refused to make payment to
Resolution3 denying the herein petitioners’ motion for reconsideration. MENDOZA on her billings. CRUZ, therefore, could not be paid for the
At the pre-trial conference, the other parties were declared as in
rent of the equipment. Upon advice of MENDOZA, CRUZ addressed his
default and CRUZ was allowed to present his evidence ex parte. Among
demands for payment of lease rentals directly to NIA but the latter
Engineer Eduardo M. Paule (PAULE) is the proprietor of E.M. Paule the witnesses he presented was MENDOZA, who was impleaded as
refused to acknowledge the same and informed CRUZ that it would be
Construction and Trading (EMPCT). On May 24, 1999, PAULE executed defendant in PAULE’s third-party complaint.
remitting payment only to EMPCT as the winning contractor for the
a special power of attorney (SPA) authorizing Zenaida G. Mendoza project.
(MENDOZA) to participate in the pre-qualification and bidding of a On March 6, 2003, MENDOZA filed a motion to declare third-party
National Irrigation Administration (NIA) project and to represent him in plaintiff PAULE non-suited with prayer that she be allowed to present
all transactions related thereto, to wit: In a letter dated April 5, 2000, CRUZ demanded from MENDOZA and/or
her evidence ex parte.
EMPCT payment of the outstanding rentals which amounted to
P726,000.00 as of March 31, 2000.
1. To represent E.M. PAULE CONSTRUCTION & TRADING of However, without resolving MENDOZA’s motion to declare PAULE non-
which I (PAULE) am the General Manager in all my business suited, and without granting her the opportunity to present her
transactions with National Irrigation Authority, Muñoz, On June 30, 2000, CRUZ filed Civil Case No. 18-SD (2000) with Branch
evidence ex parte, the trial court rendered its decision dated August 7,
Nueva Ecija. 37 of the Regional Trial Court of Nueva Ecija, for collection of sum of
2003, the dispositive portion of which states, as follows:
money with damages and a prayer for the issuance of a writ of
preliminary injunction against PAULE, COLOMA and the NIA. PAULE in
2. To participate in the bidding, to secure bid bonds and turn filed a third-party complaint against MENDOZA, who filed her WHEREFORE, judgment is hereby rendered in favor of the plaintiff as
other documents pre-requisite in the bidding of Casicnan answer thereto, with a cross-claim against PAULE. follows:
Multi-Purpose Irrigation and Power Plant (CMIPPL 04-99),
National Irrigation Authority, Muñoz, Nueva Ecija.
MENDOZA alleged in her cross-claim that because of PAULE’s 1. Ordering defendant Paule to pay the plaintiff the sum of
"whimsical revocation" of the SPA, she was barred from collecting P726,000.00 by way of actual damages or compensation for
3. To receive and collect payment in check in behalf of E.M. payments from NIA, thus resulting in her inability to fund her checks the services rendered by him;
PAULE CONSTRUCTION & TRADING. which she had issued to suppliers of materials, equipment and labor
for the project. She claimed that estafa and B.P. Blg. 22 cases were 2. Ordering defendant Paule to pay plaintiff the sum of
filed against her; that she could no longer finance her children’s 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 attorney’s 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 Paule’s liability herein adjudged.
SO ORDERED.8
In holding PAULE liable, the trial court found that MENDOZA was duly
constituted as EMPCT’s 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 PAULE’s
assertion that MENDOZA merely borrowed and used his contractor’s
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 court’s 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 CRUZ’s 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 CRUZ’s complaint, as well as MENDOZA’s
appeal. The appellate court held that the SPAs issued in MENDOZA’s
favor did not grant the latter the authority to enter into contract with
CRUZ for hauling services; the SPAs limit MENDOZA’s 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 CRUZ’s
hauling services was done beyond the scope of MENDOZA’s authority.
As for CRUZ, the Court of Appeals held that he knew the limits of
MENDOZA’s 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 MENDOZA’s appeal, the Court of Appeals held that
when the trial court rendered judgment, not only did it rule on the
plaintiff’s 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 PAULE’s revocation of the SPAs; and
that the revocation of the SPAs is a prerogative that is allowed to
PAULE under Article 192011 of the Civil Code.
CRUZ and MENDOZA’s 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 court’s
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
court’s 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 MENDOZA’s 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 PAULE’s
obligation under the NIA project; and that the decision in a civil case
involving the same SPAs, where PAULE was found liable as MENDOZA’s
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 attorney’s 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 attorney’s 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 attorney’s 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
court’s 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 court’s 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 MENDOZA’s
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 CRUZ’s 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.
PAULE‘s contribution thereto is his contractor’s 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 MENDOZA’s 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, Muñoz, Nueva Ecija) the lease of the
latter’s heavy equipment for use in the project, PAULE was present and
interposed no objection to MENDOZA’s actuations. In his pleadings,
PAULE does not even deny this. Quite the contrary, MENDOZA’s
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 contractor’s 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 MENDOZA’s 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
CRUZ’s 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 MENDOZA’s 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
PAULE’s 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 contractor’s 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 MENDOZA’s 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 ORDERED to receive evidence on the counterclaim of petitioner
intent on the part of the accused to do wrong or cause damage.22 Zenaida G. Mendoza.

Moreover, PAULE should be made civilly liable for abandoning the SO ORDERED.
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
MENDOZA’s 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 PAULE’s 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 defendant’s 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 PAULE’s 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
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. During the period 1976
to 1978, premium payments amounting to P1,946,886.00 were paid
directly to Philamgen and Valenzuela's commission to which he is
entitled amounted to P632,737.00.
In 1977, Philamgen started to become interested in and expressed its
intent to share in the commission due Valenzuela (Exhibits "III" and "III-
1") on a fifty-fifty basis (Exhibit "C"). Valenzuela refused (Exhibit "D").
On February 8, 1978 Philamgen and its President, Bienvenido M.
Aragon insisted on the sharing of the commission with Valenzuela
(Exhibit E). This was followed by another sharing proposal dated June
1, 1978. On June 16,1978, Valenzuela firmly reiterated his objection to
the proposals of respondents stating that: "It is with great reluctance
that I have to decline upon request to signify my conformity to your
alternative proposal regarding the payment of the commission due me.
However, I have no choice for to do otherwise would be violative of the
Agency Agreement executed between our goodselves." (Exhibit B-1)
Because of the refusal of Valenzuela, Philamgen and its officers,
namely: Bienvenido Aragon, Carlos Catolico and Robert E. Parnell took
drastic action against Valenzuela. They: (a) reversed the commission
due him by not crediting in his account the commission earned from
the Delta Motors, Inc. insurance (Exhibit "J" and "2"); (b) placed agency
transactions on a cash and carry basis; (c) threatened the cancellation
of policies issued by his agency (Exhibits "H" to "H-2"); and (d) started
to leak out news that Valenzuela has a substantial account with
Philamgen. All of these acts resulted in the decline of his business as
insurance agent (Exhibits "N", "O", "K" and "K-8"). Then on December
27, 1978, Philamgen terminated the General Agency Agreement of
Valenzuela (Exhibit "J", pp. 1-3, Decision Trial Court dated June 23,
1986, Civil Case No. 121126, Annex I, Petition).
The petitioners sought relief by filing the complaint against the private
respondents in the court a quo (Complaint of January 24, 1979, Annex
"F" Petition). After due proceedings, the trial court found:
xxx xxx xxx
Defendants tried to justify the termination of
plaintiff Arturo P. Valenzuela as one of defendant
PHILAMGEN's General Agent by making it appear
that plaintiff Arturo P. Valenzuela has a
substantial account with defendant PHILAMGEN
particularly Delta Motors, Inc.'s Account, thereby
prejudicing defendant PHILAMGEN's interest
(Exhibits 6,"11","11- "12- A"and"13-A").
Defendants also invoked the provisions of the
Civil Code of the Philippines (Article 1868) and
the provisions of the General Agency Agreement
as their basis for terminating plaintiff Arturo P.
Valenzuela as one of their General Agents.
That defendants' position could have been
justified had the termination of plaintiff Arturo P.
Valenzuela was (sic) based solely on the
provisions of the Civil Code and the conditions of
the General Agency Agreement. But the records
will show that the principal cause of the
termination of the plaintiff as General Agent of
defendant PHILAMGEN was his refusal to share
his Delta commission.
That it should be noted that there were several
attempts made by defendant Bienvenido M.
Aragon to share with the Delta commission of
plaintiff Arturo P. Valenzuela. He had persistently
pursued the sharing scheme to the point of
terminating plaintiff Arturo P. Valenzuela, and to
make matters worse, defendants made 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
business of plaintiff Arturo P. Valenzuela. (Arts.
 2199/2200, Civil Code of the Philippines). (Ibid, p.
11)
The court accordingly rendered judgment, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiffs and against defendants
ordering the latter to reinstate plaintiff Arturo P.
Valenzuela as its General Agent, and to pay
plaintiffs, jointly and severally, the following:
1. The amount of five hundred twenty-one
thousand nine hundred sixty four and 16/100
pesos (P521,964.16) representing plaintiff Arturo
P. Valenzuela's Delta Commission with interest at
the legal rate from the time of the filing of the
complaint, which amount shall be adjusted in
accordance with Article 1250 of the Civil Code of
the Philippines;
2. The amount of seventy-five thousand pesos
(P75,000.00) per month as compensatory
damages from 1980 until such time that
defendant Philamgen shall reinstate plaintiff
Arturo P. Valenzuela as one of its general agents;
3. The amount of three hundred fifty thousand
pesos (P350,000.00) for each plaintiff as moral
damages;
4. The amount of seventy-five thousand pesos
(P75,000.00) as and for attorney's fees;
5. Costs of the suit. (Ibid., P. 12)
From the aforesaid decision of the trial court,
Bienvenido Aragon, Robert E. Parnell, Carlos K.
Catolico and PHILAMGEN respondents herein,
and defendants-appellants below, interposed an
appeal on the following:
ASSIGNMENT OF ERRORS
I WHEREFORE, the decision appealed from is
THE LOWER COURT ERRED IN HOLDING THAT
PLAINTIFF ARTURO P. VALENZUELA HAD NO
OUTSTANDING ACCOUNT WITH DEFENDANT
PHILAMGEN AT THE TIME OF THE TERMINATION
OF THE AGENCY.
II
THE LOWER COURT ERRED IN HOLDING THAT
PLAINTIFF ARTURO P. VALENZUELA IS ENTITLED
TO THE FULL COMMISSION OF 32.5% ON THE
DELTA ACCOUNT.
III
THE LOWER COURT ERRED IN HOLDING THAT
THE TERMINATION OF PLAINTIFF ARTURO P.
VALENZUELA WAS NOT JUSTIFIED AND THAT
CONSEQUENTLY DEFENDANTS ARE LIABLE FOR
ACTUAL AND MORAL DAMAGES, ATTORNEYS
FEES AND COSTS.
IV
ASSUMING ARGUENDO THAT THE AWARD OF
DAMAGES AGAINST DEFENDANT PHILAMGEN
WAS 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 Vol. V, Civil Code of the Philippines Annotated
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:
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,
[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 authority be withdrawn, the agent will be exposed to personal loss or
were threatened to be cancelled (Exhibits "H" and "14"; TSN., March liability" (See MEC 569 p. 406).
26, 1979, pp. 29-30). The Valenzuela business was threatened with
diversion to other agencies. (Exhibit "NNN"). Rumors were also spread
Furthermore, there is an exception to the principle that an agency is
about alleged accounts of the Valenzuela agency (TSN., January 25,
revocable at will and that is when the agency has been given not only
1980, p. 41). The petitioners consistently opposed the pressures to
for the interest of the principal but for the interest of third persons or
hand over the agency or half of their commissions and for a treatment
for the mutual interest of the principal and the agent. In these cases, it
of the Delta account distinct from other accounts. The pressures and
is evident that the agency ceases to be freely revocable by the sole will
demands, however, continued until the agency agreement itself was
of the principal (See Padilla, Civil Code Annotated, 56 ed., Vol. IV p.
finally terminated.
350). The following citations are apropos:
It is also evident from the records that the agency involving petitioner
The principal may not defeat the agent's right to
and private respondent is one "coupled with an interest," and,
indemnification by a termination of the contract
therefore, should not be freely revocable at the unilateral will of the
of agency (Erskine v. Chevrolet Motors Co. 185
latter.
NC 479, 117 SE 706, 32 ALR 196).
In the insurance business in the Philippines, the most difficult and
Where the principal terminates or repudiates the
frustrating period is the solicitation and persuasion of the prospective
agent's employment in violation of the contract
clients to buy insurance policies. Normally, agents would encounter
of employment and without cause ... the agent is
much embarrassment, difficulties, and oftentimes frustrations in the
entitled to receive either the amount of net
solicitation and procurement of the insurance policies. To sell policies,
losses caused and gains prevented by the breach,
an agent exerts great effort, patience, perseverance, ingenuity, tact,
or the reasonable value of the services rendered.
imagination, time and money. In the case of Valenzuela, he was able to
Thus, the agent is entitled to prospective profits
build up an Agency from scratch in 1965 to a highly productive
which he would have made except for such
enterprise with gross billings of about Two Million Five Hundred
wrongful termination provided that such profits
Thousand Pesos (P2,500,000.00) premiums per annum. The records
are not conjectural, or speculative but are
sustain the finding that the private respondent started to covet a share
capable of determination upon some fairly
of the insurance business that Valenzuela had built up, developed and
reliable basis. And a principal's revocation of the
nurtured to profitability through over thirteen (13) years of patient
agency agreement made to avoid payment of
work and perseverance. When Valenzuela refused to share his
compensation for a result which he has actually
commission in the Delta account, the boom suddenly fell on him.
accomplished (Hildendorf v. Hague, 293 NW 2d
272; Newhall v. Journal Printing Co., 105 Minn
The private respondents by the simple expedient of terminating the 44,117 NW 228; Gaylen Machinery Corp. v.
General Agency Agreement appropriated the entire insurance business Pitman-Moore Co. [C.A. 2 NY] 273 F 2d 340)
of Valenzuela. With the termination of the General Agency Agreement,
Valenzuela would no longer be entitled to commission on the renewal
If a principal violates a contractual or quasi-
of insurance policies of clients sourced from his agency. Worse, despite
contractual duty which he owes his agent, the
the termination of the agency, Philamgen continued to hold Valenzuela
agent may as a rule bring an appropriate action
jointly and severally liable with the insured for unpaid premiums.
for the breach of that duty. The agent may in a
Under these circumstances, it is clear that Valenzuela had an interest in
proper case maintain an action at law for
the continuation of the agency when it was unceremoniously
compensation or damages ... A wrongfully
terminated not only because of the commissions he should continue to
discharged agent has a right of action for
receive from the insurance business he has solicited and procured but
damages and in such action the measure and
also for the fact that by the very acts of the respondents, he was made
element of damages are controlled generally by
liable to Philamgen in the event the insured fail to pay the premiums
the rules governing any other action for the
due. They are estopped by their own positive averments and claims for
employer's breach of an employment contract.
damages. Therefore, the respondents cannot state that the agency
(Riggs v. Lindsay, 11 US 500, 3L Ed 419; Tiffin
relationship between Valenzuela and Philamgen is not coupled with
Glass Co. v. Stoehr, 54 Ohio 157, 43 NE 2798)
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 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 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 31, 1976,
and December 31, 1977, Valenzuela had 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 Ybañez (Ybañez), 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,
Ybañez 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 Saban’s
commission for the sale.3
Through Saban’s efforts, Ybañez 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 broker’s 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, Ybañez sent a letter dated June 10, 1994 addressed to Saban appealed the trial court’s Decision to the Court of Appeals.
Lim. In the letter Ybañez asked Lim to cancel all the checks issued by
her in Saban’s favor and to "extend another partial payment" for the
On October 27, 2003, the appellate court promulgated
lot in his (Ybañez’s) favor.6
its Decision12 reversing the trial court’s ruling. It held that Saban was
entitled to his commission amounting to P236,743.00.13
After the four checks in his favor were dishonored upon presentment,
Saban filed a Complaint for collection of sum of money and damages
The Court of Appeals ruled that Ybañez’s revocation of his contract of
against Ybañez and Lim with the Regional Trial Court (RTC) of Cebu City
agency with Saban was invalid because the agency was coupled with an
on August 3, 1994.7 The case was assigned to Branch 20 of the RTC.
interest and Ybañez effected the revocation in bad faith in order to
deprive Saban of his commission and to keep the profits for himself.14
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
The appellate court found that Ybañez and Lim connived to deprive
Thousand Pesos (P400,000.00) from the price set by Ybañez. Of the
Saban of his commission. It declared that Lim is liable to pay Saban the
total purchase price of P600,000.00, P200,000.00 went to
amount of the purchase price of the lot corresponding to his
Ybañez, P50,000.00 allegedly went to Lim’s agent, andP113,257.00 was
commission because she issued the four checks knowing that the total
given to Saban to cover taxes and other expenses incidental to the sale.
amount thereof corresponded to Saban’s commission for the sale, as
Lim also issued four (4) postdated checks8 in favor of Saban for the
the agent of Ybañez. The appellate court further ruled that, in issuing
remaining P236,743.00.9
the checks in payment of Saban’s commission, Lim acted as an
accommodation party. She signed the checks as drawer, without
Saban alleged that Ybañez told Lim that he (Saban) was not entitled to receiving value therefor, for the purpose of lending her name to a third
any commission for the sale since he concealed the actual selling price person. As such, she is liable to pay Saban as the holder for value of the
of the lot from Ybañez and because he was not a licensed real estate checks.15
broker. Ybañez was able to convince Lim to cancel all four checks.
Lim filed a Motion for Reconsideration of the appellate court’s Decision,
Saban further averred that Ybañez and Lim connived to deprive him of but her Motion was denied by the Court of Appeals in
his sales commission by withholding payment of the first three checks. a Resolution dated May 6, 2004.16
He also claimed that Lim failed to make good the fourth check which
was dishonored because the account against which it was drawn was
Not satisfied with the decision of the Court of Appeals, Lim filed the
closed.
present petition.
In his Answer, Ybañez claimed that Saban was not entitled to any
Lim argues that the appellate court ignored the fact that after paying
commission because he concealed the actual selling price from him
her agent and remitting to Saban the amounts due for taxes and
and because he was not a licensed real estate broker.
transfer of title, she paid the balance of the purchase price directly to
Ybañez.17
Lim, for her part, argued that she was not privy to the agreement
between Ybañez and Saban, and that she issued stop payment orders
She further contends that she is not liable for Ybañez’s debt to Saban
for the three checks because Ybañez requested her to pay the
under the Agency Agreement as she is not privy thereto, and that
purchase price directly to him, instead of coursing it through Saban.
Saban has no one but himself to blame for consenting to the dismissal
She also alleged that she agreed with Ybañez that the purchase price of
of the case against Ybañez and not moving for his substitution by his
the lot was only P200,000.00.
heirs.18
Ybañez died during the pendency of the case before the RTC. Upon
Lim also assails the findings of the appellate court that she issued the
motion of his counsel, the trial court dismissed the case only against
checks as an accommodation party for Ybañez and that she connived
him without any objection from the other parties.10
with the latter to deprive Saban of his commission.19
On May 14, 1997, the RTC rendered its Decision11 dismissing Saban’s
Lim prays that should she be found liable to pay Saban the amount of
complaint, declaring the four (4) checks issued by Lim as stale and non-
his commission, she should only be held liable to the extent of one-
negotiable, and absolving Lim from any liability towards Saban.
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 Ybañez, the P50,000.00 due to her broker, the P113,257.00
earmarked for taxes and other expenses incidental to the sale and
Saban’s commission as broker for Ybañez. According to Saban, Lim
assumed the obligation to pay him his commission. He insists that Lim
and Ybañez connived to unjustly deprive him of his commission from
the negotiation of the sale.21
The issues for the Court’s 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 court’s finding that the agency was not
revoked since Ybañez 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 Ybañez’s agent when, through his (Saban’s) efforts,
Ybañez 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 Ybañez which expressly states that Saban would be
entitled to any excess in the purchase price after deducting
the P200,000.00 due to Ybañez 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 seller’s
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
broker’s 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 seller’s withdrawal in bad
faith of the brokers’ authority cannot unjustly deprive the brokers of
their commissions as the seller’s 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
Ybañez by finding a suitable buyer to preparing the Deed of Absolute
Sale between Ybañez 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 Ybañez’s
share of P200,000.00 and the taxes and other incidental expenses of
the sale.
However, the Court does not agree with the appellate court’s
pronouncement that Saban’s 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 agent’s 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 agent’s interest is confined to earning his
agreed compensation, the agency is not one coupled with an interest,
since an agent’s interest in obtaining his compensation as such agent is
an ordinary incident of the agency relationship.26
Saban’s 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.
Saban’s right to receive compensation for negotiating as broker for
Ybañez 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 Ybañez set the price of the lot
at P200,000.00 and that the P600,000.00—the price agreed upon by
her and Saban—was more than the amount set by Ybañez because it
included the amount for payment of taxes and for Saban’s commission
as broker for Ybañez.
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 Ybañez, 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 Ybañez the amount of One Hundred
Thousand Pesos (P100,000.00) only, and gave to Saban P113,257.00 for
payment of taxes and P50,000.00 as his commission,28and 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). Ybañez, 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 Ybañez. Apparently, although the amount actually paid by
Lim was P393,257.00, Ybañez rounded off the amount to P400,000.00
and waived the difference.
Lim’s act of issuing the four checks amounting to P236,743.00 in
Saban’s 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
Ybañez), 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 Ybañez and ultimately
realizing that Saban’s commission is even more than what Ybañez
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
Ybañez 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.
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 Ybañez’s 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 Ybañez, 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.

Furthermore, since Ybañez 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 Ybañez’s estate, if that remedy is still
available,32 in view of the trial court’s dismissal of Saban’s complaint as
against Ybañez, with Saban’s express consent, due to the latter’s
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 Ybañez 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
G.R. No. 151218 January 28, 2003 To finance its sugar trading operations, NASUTRA applied for and was In the meantime, PNB received remittances from foreign banks totaling
granted 9 a P408 Million Revolving Credit Line by PNB in 1981. Every US$36,564,558.90 or the equivalent of P696,281,405.09 representing
time NASUTRA availed of the credit line, 10 its Executive Vice-President, the proceeds of NASUTRA's sugar exports. 19 Said remittances were
NATIONAL SUGAR TRADING and/or the SUGAR REGULATORY
Jose Unson, executed a promissory note in favor of PNB. then applied by PNB to the unpaid accounts of NASUTRA/PHILSUCOM
ADMINISTRATION, petitioners,
with PNB and PHILEXCHANGE. The schedule of remittances and
vs.
applications are as follows:
PHILIPPINE NATIONAL BANK, respondent. In order to stabilize sugar liquidation prices at a minimum of P300.00
per picul, PHILSUCOM issued on March 15, 1985 Circular Letter No. EC-
4-85, considering all sugar produced during crop year 1984–1985 as SCHEDULE OF REMITTANCES & APPLICATIONS
YNARES-SANTIAGO, J.:
domestic sugar. Furthermore, PHILSUCOM's Chairman of Executive
Committee, Armando C. Gustillo proposed on May 14, 1985 the
Account of NASUTRA
This is a petition for review which seeks to set aside the decision of the following liquidation scheme of the sugar quedans 11 assigned to PNB
Court of Appeals dated August 10, 2001 in CA-G.R. SP. No. by the sugar planters:
58102, 1 upholding the decision of the Office of the President dated July 31, 1988
September 17, 1999, 2 as well as the resolution dated December 12,
Upon notice from NASUTRA, PNB shall credit the individual producer
2001 denying petitioners' motion for reconsideration. REMITTANCES
and millers loan accounts for their sugar proceeds and shall treat the
same as loans of NASUTRA. Date Remitting Bank Amount
The antecedent facts, as culled from the records, are as follows:
11-19-
Such loans shall be charged interest at the prevailing rates and it shall 85 Bankers Trust-New York P259,253,573.46
Sometime in February 1974, then President Ferdinand E. Marcos issued commence five (5) days after receipt by PNB of quedans from
Presidential Decree No. 388 3constituting the Philippine Sugar NASUTRA. 12 11-26-
Commission (PHILSUCOM), as the sole buying and selling agent of 85 Bankers Trust-New York 144,459,242.84
sugar on the quedan permit level. In November of the same year, PD 03-06-
PNB, for its part, issued Resolution No. 353 dated May 20, 1985
579 4 was issued, authorizing the Philippine Exchange Company, Inc. 86 Credit Lyonnais-Manila 209,880,477.07
approving 13 the PHILSUCOM/NASUTRA proposal for the payment of
(PHILEXCHANGE), a wholly owned subsidiary of Philippine National
the sugar quedans assigned to it. Pursuant to said resolution, NASUTRA 04-22-
Bank (PNB) to serve as the marketing agent of PHILSUCOM. Pursuant
would assume the interest on the planter/mill loan accounts. The 86 Societé Generalé-Manila 82,151,953.10
to PD 579, PHILEXCHANGE's purchases of sugar shall be financed by
pertinent portion of the Resolution states:
PNB and the proceeds of sugar trading operations of PHILEXCHANGE 06-09-
shall be used to pay its liabilities with PNB.5 86 Credit Lyonnais-Manila 536,158.62
Five (5) days after receipt of the quedans, NASUTRA shall absorb the
accruing interest on that portion of the planter/mill loan with PNB Total P696,281,405.09
Similarly, in February 1975, PD 659 was issued, constituting
commensurate to the net liquidation value of the sugar delivered, or in APPLICATIONS
PHILEXCHANGE and/or PNB as the exclusive sugar trading agencies of
other words, NASUTRA proposes to assume interest that will run on
the government for buying sugar from planters or millers and selling or Date Applied to Amount
the planter/mill loan equivalent to the net proceeds of the sugar
exporting them. 6 PNB then extended loans to PHILEXCHANGE for the
quedans, reckoned five (5) days after quedan delivery to PNB. 14 1986 NASUTRA account with PNB P389,246,324.60
latter's sugar trading operations. At first, PHILEXCHANGE religiously
paid its obligations to PNB by depositing the proceeds of the sale of 1986 Claims of various CAB planters 15,863,898.79
sugar with the bank. Subsequently, however, with the fall of sugar Despite such liquidation scheme, NASUTRA/PHILSUCOM still failed to
Claims of various PNB branches for
prices in the world market, PHILEXCHANGE defaulted in the payments remit the interest payments to PNB and its branches, which interests
interest or the unpaid CY 1984–85
of its loans amounting to P206,070,172.57. 7 amounted to P65,412,245.84 in 1986. 15 As a result thereof, then
1987 sugar proceeds 65,412,245.84
President Marcos issued PD 2005 dissolving NASUTRA effective January
31, 1986. NASUTRA's records of its sugar trading operations, however, 1987& Philsucom account carried in the books 206,070,172.57
In July 1977, the National Sugar Trading Corporation (NASUTRA)
were destroyed during the Edsa Revolution in February 1986.
replaced PHILEXCHANGE as the marketing agent of PHILSUCOM. 1988 of Philexchange P676,592,641.80
Accordingly, PHILEXCHANGE sold and turned over all sugar quedans to
Unapplied Remittance P19,688,763.29" 20
NASUTRA. However, no physical inventory of the sugar covered by the On May 28, 1986, then President Corazon C. Aquino issued Executive
quedans was made. 8 Neither NASUTRA nor PHILSUCOM was required Order (EO) No. 18 creating the Sugar Regulatory Administration (SRA)
to immediately pay PHILEXCHANGE. Notwithstanding this concession, and abolishing PHILSUCOM. All the assets and records of Subsequently, PNB applied the P19,688,763.29 to PHILSUCOM's
NASUTRA and PHILSUCOM still failed to pay the sugar stocks covered PHILSUCOM 16including its beneficial interests over the assets of account with PHILEXCHANGE which in turn was applied to
by quedans to PHILEXCHANGE which, as of June 30, 1984, amounted to NASUTRA were transferred to SRA. 17 On January 24, 1989, before the PHILEXCHANGE's account with PNB. 21
P498,828,845.03. As a consequence, PHILEXCHANGE was not able to completion of the three-year winding up period, NASUTRA established
pay its obligations to PNB. a trusteeship to liquidate and settle its accounts. 18 This
Accordingly, NASUTRA requested 22 PNB to furnish it with the
notwithstanding, NASUTRA still defaulted in the payment of its loans
necessary documents and/or explanation 23concerning the
amounting to P389,246,324.60 (principal and accrued interest) to PNB.
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 1984–85 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 1984–1985 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 per annum, the passage of said law did not forestall legal
P15,863,898.79 to the principal is proper. 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
With respect to the Central Azucarera de Bais (CAB) Planters account,
interest whether the accounts were fully or partially paid.
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 With regard to the application of the amount of P206,070,172.57 to
Sugar Reconstitution Law, which provides: 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
The Philippine National Bank of the Philippines and other government-
and not PHILEXCHANGE which has a personality separate and distinct
owned and controlled financial institutions which have granted loans
from PNB.
to the sugar producers shall extend to accounts of said sugar producers
incurred from Crop Year 1974–1975 up to and including Crop Year
1984–1985 the following: Petitioners' contention is not well-taken.
(a) Condonation of interest charged by the banks in excess There exist clear indications that insofar as sugar trading was
of twelve percent (12%) per annum and all penalties and concerned, PHILEXCHANGE and PNB were treated as one entity.
surcharges: 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
(b) The recomputed loans shall be amortized for a period of
time, in turn wholly owned and controlled PHILEXCHANGE. Also,
thirteen (13) years inclusive of a three-year grace period on
Section 2 (a), PD 659 declared as illegal the sale, transfer and
principal portion of the loan will carry an interest rate of
assignment of sugar by any planter, producer, miller, central, or
twelve (12%) and on the outstanding balance effective
refinery to any person or entity other than Philippine Exchange, Inc.
when the original promissory notes were signed and funds
and/or the PNB. To reiterate, PHILEXCHANGE failed to pay its loans
released to the producer.
with PNB because of the fall of the sugar prices in the world market.
When NASUTRA substituted PHILEXCHANGE as marketing agent of
Section 6 of Rules and Regulations implementing RA No. 7202 also PHILSUCOM, 1,485,532.47 metric tons 36 of export sugar were turned
provides: over by PHILEXCHANGE to NASUTRA. To reiterate, the foreign
remittances constituted proceeds of the sale of the sugar covered by
SECTION 2. In cases, however, where sugar producers have quedans transferred by PHILEXCHANGE to NASUTRA.
no outstanding loan balance with said financial institutions
as of the date of effectivity of RA No. 7202 (i.e. sugar WHEREFORE, in view of the foregoing, the instant petition for review
producers who have fully paid their loans either through is DENIED. The decision of the Court of Appeals dated August 10, 2001
actual payment or foreclosure of collateral, or who have is AFFIRMED.
partially paid their loans and after the computation of the
interest charges, they end up with excess payment to said
SO ORDERED.
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%
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 16.0115 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.