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G.R. No.

129459 September 29, 1998


SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner,
vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL
DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents.

PANGANIBAN, J.:
May corporate treasurer, by herself and without any authorization from he board of directors, validly sell a parcel of land owned by the
corporation?. May the veil of corporate fiction be pierced on the mere ground that almost all of the shares of stock of the corporation are
owned by said treasurer and her husband?

The Case
These questions are answered in the negative by this Court in resolving the Petition for Review
on Certioraribefore us, assailing the March 18, 1997 Decision 1 of the Court of Appeals 2 in CA GR CV
No. 46801 which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court of Makati, Metro
Manila, Branch 63 3 in Civil Case No. 89-3511. The RTC dismissed both the Complaint and the
Counterclaim filed by the parties. On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH
MODIFICATION ordering defendant-appellee Nenita Lee Gruenberg to REFUND or
return to plaintiff-appellant the downpayment of P100,000.00 which she received
from plaintiff-appellant. There is no pronouncement as to costs. 4
The petition also challenges the June 10, 1997 CA Resolution denying reconsideration.

The Facts
The facts as found by the Court of Appeals are as follows:
Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended
complaint alleged that on 14 February 1989, plaintiff-appellant entered into an
agreement with defendant-appellee Motorich Sales Corporation for the transfer to it
of a parcel of land identified as Lot 30, Block 1 of the Acropolis Greens Subdivision
located in the District of Murphy, Quezon City. Metro Manila, containing an area of
Four Hundred Fourteen (414) square meters, covered by TCT No. (362909) 2876:
that as stipulated in the Agreement of 14 February 1989, plaintiff-appellant paid the
downpayment in the sum of One Hundred Thousand (P100,000.00) Pesos, the
balance to be paid on or before March 2, 1989; that on March 1, 1989. Mr. Andres T.
Co, president of plaintiff-appellant corporation, wrote a letter to defendant-appellee
Motorich Sales Corporation requesting for a computation of the balance to be paid:
that said letter was coursed through defendant-appellee's broker. Linda Aduca, who
wrote the computation of the balance: that on March 2, 1989, plaintiff-appellant was
ready with the amount corresponding to the balance, covered by Metrobank
Cashier's Check No. 004223, payable to defendant-appellee Motorich Sales
Corporation; that plaintiff-appellant and defendant-appellee Motorich Sales

Corporation were supposed to meet in the office of plaintiff-appellant but defendantappellee's treasurer, Nenita Lee Gruenberg, did not appear; that defendant-appellee
Motorich Sales Corporation despite repeated demands and in utter disregard of its
commitments had refused to execute the Transfer of Rights/Deed of Assignment
which is necessary to transfer the certificate of title; that defendant ACL Development
Corp. is impleaded as a necessary party since Transfer Certificate of Title No.
(362909) 2876 is still in the name of said defendant; while defendant JNM Realty &
Development Corp. is likewise impleaded as a necessary party in view of the fact
that it is the transferor of right in favor of defendant-appellee Motorich Sales
Corporation: that on April 6, 1989, defendant ACL Development Corporation and
Motorich Sales Corporation entered into a Deed of Absolute Sale whereby the former
transferred to the latter the subject property; that by reason of said transfer, the
Registry of Deeds of Quezon City issued a new title in the name of Motorich Sales
Corporation, represented by defendant-appellee Nenita Lee Gruenberg and
Reynaldo L. Gruenberg, under Transfer Certificate of Title No. 3571; that as a result
of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's
bad faith in refusing to execute a formal Transfer of Rights/Deed of Assignment,
plaintiff-appellant suffered moral and nominal damages which may be assessed
against defendants-appellees in the sum of Five Hundred Thousand (500,000.00)
Pesos; that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich
Sales Corporation's unjustified and unwarranted failure to execute the required
Transfer of Rights/Deed of Assignment or formal deed of sale in favor of plaintiffappellant, defendants-appellees should be assessed exemplary damages in the sum
of One Hundred Thousand (P100,000.00) Pesos; that by reason of defendantsappellees' bad faith in refusing to execute a Transfer of Rights/Deed of Assignment in
favor of plaintiff-appellant, the latter lost the opportunity to construct a residential
building in the sum of One Hundred Thousand (P100,000.00) Pesos; and that as a
consequence of defendants-appellees Nenita Lee Gruenberg and Motorich Sales
Corporation's bad faith in refusing to execute a deed of sale in favor of plaintiffappellant, it has been constrained to obtain the services of counsel at an agreed fee
of One Hundred Thousand (P100,000.00) Pesos plus appearance fee for every
appearance in court hearings.
In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee
Gruenberg interposed as affirmative defense that the President and Chairman of
Motorich did not sign the agreement adverted to in par. 3 of the amended complaint;
that Mrs. Gruenberg's signature on the agreement (ref: par. 3 of Amended
Complaint) is inadequate to bind Motorich. The other signature, that of Mr. Reynaldo
Gruenberg, President and Chairman of Motorich, is required: that plaintiff knew this
from the very beginning as it was presented a copy of the Transfer of Rights (Annex
B of amended complaint) at the time the Agreement (Annex B of amended complaint)
was signed; that plaintiff-appellant itself drafted the Agreement and insisted that Mrs.
Gruenberg accept the P100,000.00 as earnest money; that granting, without
admitting, the enforceability of the agreement, plaintiff-appellant nonetheless failed to
pay in legal tender within the stipulated period (up to March 2, 1989); that it was the
understanding between Mrs. Gruenberg and plaintiff-appellant that the Transfer of
Rights/Deed of Assignment will be signed only upon receipt of cash payment; thus
they agreed that if the payment be in check, they will meet at a bank designated by
plaintiff-appellant where they will encash the check and sign the Transfer of

Rights/Deed. However, plaintiff-appellant informed Mrs. Gruenberg of the alleged


availability of the check, by phone, only after banking hours.
On the basis of the evidence, the court a quo rendered the judgment appealed
from[,] dismissing plaintiff-appellant's complaint, ruling that:
The issue to be resolved is: whether plaintiff had the right to compel
defendants to execute a deed of absolute sale in accordance with the
agreement of February 14, 1989: and if so, whether plaintiff is entitled
to damage.
As to the first question, there is no evidence to show that defendant
Nenita Lee Gruenberg was indeed authorized by defendant
corporation. Motorich Sales, to dispose of that property covered by
T.C.T. No. (362909) 2876. Since the property is clearly owned by the
corporation. Motorich Sales, then its disposition should be governed
by the requirement laid down in Sec. 40. of the Corporation Code of
the Philippines, to wit:
Sec. 40, Sale or other disposition of assets. Subject to
the provisions of existing laws on illegal combination
and monopolies, a corporation may by a majority vote
of its board of directors . . . sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or
substantially all of its property and assets including its
goodwill . . . when authorized by the vote of the
stockholders representing at least two third (2/3) of
the outstanding capital stock . . .
No such vote was obtained by defendant Nenita Lee Gruenberg for
that proposed sale[;] neither was there evidence to show that the
supposed transaction was ratified by the corporation. Plaintiff should
have been on the look out under these circumstances. More so,
plaintiff himself [owns] several corporations (tsn dated August 16,
1993, p. 3) which makes him knowledgeable on corporation matters.
Regarding the question of damages, the Court likewise, does not find
substantial evidence to hold defendant Nenita Lee Gruenberg liable
considering that she did not in anyway misrepresent herself to be
authorized by the corporation to sell the property to plaintiff (tsn dated
September 27, 1991, p. 8).
In the light of the foregoing, the Court hereby renders judgment
DISMISSING the complaint at instance for lack of merit.
"Defendants" counterclaim is also DISMISSED for lack of basis.
(Decision, pp. 7-8; Rollo, pp. 34-35)
For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:

AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and between:
MOTORICH SALES CORPORATION, a corporation duly organized
and existing under and by virtue of Philippine Laws, with principal
office address at 5510 South Super Hi-way cor. Balderama St., Pio
del Pilar. Makati, Metro Manila, represented herein by its Treasurer,
NENITA LEE GRUENBERG, hereinafter referred to as the
TRANSFEROR;
and
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation
duly organized and existing under and by virtue of the laws of the
Philippines, with principal office address at Sumulong Highway, Barrio
Mambungan, Antipolo, Rizal, represented herein by its President,
ANDRES T. CO, hereinafter referred to as the TRANSFEREE.
WITNESSETH, That:
WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30
Block 1 of the ACROPOLIS GREENS SUBDIVISION located at the District of
Murphy, Quezon City, Metro Manila, containing an area of FOUR HUNDRED
FOURTEEN (414) SQUARE METERS, covered by a TRANSFER OF RIGHTS
between JNM Realty & Dev. Corp. as the Transferor and Motorich Sales Corp. as the
Transferee;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties
have agreed as follows:
1. That the purchase price shall be at FIVE THOUSAND TWO
HUNDRED PESOS (P5,200.00) per square meter; subject to the
following terms:
a. Earnest money amounting to ONE HUNDRED
THOUSAND PESOS (P100,000.00), will be paid upon
the execution of this agreement and shall form part of
the total purchase price;
b. Balance shall be payable on or before March 2,
1989;
2. That the monthly amortization for the month of February 1989 shall
be for the account of the Transferor; and that the monthly
amortization starting March 21, 1989 shall be for the account of the
Transferee;

The transferor warrants that he [sic] is the lawful owner of the above-described
property and that there [are] no existing liens and/or encumbrances of whatsoever
nature;
In case of failure by the Transferee to pay the balance on the date specified on 1, (b),
the earnest money shall be forfeited in favor of the Transferor.
That upon full payment of the balance, the TRANSFEROR agrees to execute a
TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of
February, 1989 at Greenhills, San Juan, Metro Manila, Philippines.
MOTORICH SALES CORPORATION SAN JUAN STRUCTURAL & STEEL
FABRICATORS
TRANSFEROR TRANSFEREE
[SGD.] [SGD.]
By. NENITA LEE GRUENBERG By: ANDRES T. CO
Treasurer President
Signed In the presence of:
[SGD.] [SGD.]
6
In its recourse before the Court of Appeals, petitioner insisted:

1. Appellant is entitled to compel the appellees to execute a Deed of


Absolute Sale in accordance with the Agreement of February 14,
1989,
2. Plaintiff is entitled to damages. 7
As stated earlier, the Court of Appeals debunked petitioner's arguments and affirmed the Decision of the
RTC with the modification that Respondent Nenita Lee Gruenberg was ordered to refund P100,000 to
petitioner, the amount remitted as "downpayment" or "earnest money." Hence, this petition before us. 8

The Issues
Before this Court, petitioner raises the following issues:
I. Whether or not the doctrine of piercing the veil of corporate fiction is
applicable in the instant case

II. Whether or not the appellate court may consider matters which the
parties failed to raise in the lower court
III. Whether or not there is a valid and enforceable contract between
the petitioner and the respondent corporation
IV. Whether or not the Court of Appeals erred in holding that there is
a valid correction/substitution of answer in the transcript of
stenographic note[s].
V. Whether or not respondents are liable for damages and attorney's
fees 9
The Court synthesized the foregoing and will thus discuss them seriatim as follows:

1. Was there a valid contract of sale between petitioner and


Motorich?
2. May the doctrine of piercing the veil of corporate fiction be applied
to Motorich?
3. Is the alleged alteration of Gruenberg's testimony as recorded in
the transcript of stenographic notes material to the disposition of this
case?
4. Are respondents liable for damages and attorney's fees?
The Court's Ruling
The petition is devoid of merit.
First Issue: Validity of Agreement
Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it
entered through its president, Andres Co, into the disputed Agreement with Respondent Motorich
Sales Corporation, which was in turn allegedly represented by its treasurer, Nenita Lee Gruenberg.
Petitioner insists that "[w]hen Gruenberg and Co affixed their signatures on the contract they both
consented to be bound by the terms thereof." Ergo, petitioner contends that the contract is binding
on the two corporations. We do not agree.
True, Gruenberg and Co signed on February 14, 1989, the Agreement, according to which a lot
owned by Motorich Sales Corporation was purportedly sold. Such contract, however, cannot bind
Motorich, because it never authorized or ratified such sale.
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. 10 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
bylaws 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, bylaws, or relevant provisions of law. 11 Thus, this Court has
held that "a corporate officer or agent may represent and bind the corporation in transactions with third
persons to the extent that the authority to do so has been conferred upon him, and this includes powers
which have been intentionally conferred, and also such powers as, in the usual course of the particular
business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by
custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as
the corporation has caused persons dealing with the officer or agent to believe that it has conferred." 12
Furthermore, the Court has also recognized the rule that "persons dealing with an assumed agent,
whether the assumed agency be a general or special one 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 (Harry Keeler v. Rodriguez, 4
Phil. 19)." 13 Unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in
a sale of its assets. 14
In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its
treasurer, to sell the subject parcel of land. 15 Consequently, petitioner had the burden of proving that
Nenita Gruenberg was in fact authorized to represent and bind Motorich in the transaction. Petitioner
failed to discharge this burden. Its offer of evidence before the trial court contained no proof of such
authority. 16 It has not shown any provision of said respondent's articles of incorporation, bylaws or board
resolution to prove that Nenita Gruenberg possessed such power.

That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of
ascertaining the extent of her authority to represent the corporation. Petitioner cannot assume that
she, by virtue of her position, was authorized to sell the property of the corporation. Selling is
obviously foreign to a corporate treasurer's function, which generally has been described as "to
receive and keep the funds of the corporation, and to disburse them in accordance with the authority
given him by the board or the properly authorized officers."17
Neither was such real estate sale shown to be a normal business activity of Motorich. The primary
purpose of Motorich is marketing, distribution, export and import in relation to a general merchandising
business. 18 Unmistakably, its treasurer is not cloaked with actual or apparent authority to buy or sell real
property, an activity which falls way beyond the scope of her general authority.

Art. 1874 and 1878 of the Civil Code of the Philippines provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing: otherwise, the sale shall be void.

Art. 1878. Special powers of attorney are necessary in the following case:
xxx xxx xxx
(5) To enter any contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration;
xxx xxx xxx.
Petitioner further contends that Respondent Motorich has ratified said contract of sale because of its
"acceptance of benefits," as evidenced by the receipt issued by Respondent Gruenberg. 19 Petitioner
is clutching at straws.
As a general rule, the acts of corporate officers within the scope of their authority are binding on the
corporation. But when these officers exceed their authority, their actions "cannot bind the
corporation, unless it has ratified such acts or is estopped from disclaiming them." 20
In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or made it
appear to any third person that she had the authority, to sell its land or to receive the earnest money.
Neither was there any proof that Motorich ratified, expressly or impliedly, the contract. Petitioner rests its
argument on the receipt which, however, does not prove the fact of ratification. The document is a handwritten one, not a corporate receipt, and it bears only Nenita Gruenberg's signature. Certainly, this
document alone does not prove that her acts were authorized or ratified by Motorich.

Art. 1318 of the Civil Code lists the requisites of a valid and perfected contract: "(1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract; (3) cause of the
obligation which is established." As found by the trial court 21 and affirmed by the Court of
Appeals, 22 there is no evidence that Gruenberg was authorized to enter into the contract of sale, or that
the said contract was ratified by Motorich. This factual finding of the two courts is binding on this
Court. 23 As the consent of the seller was not obtained, no contract to bind the obligor was perfected.
Therefore, there can be no valid contract of sale between petitioner and Motorich.
Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel
of land, we hold that the February 14, 1989 Agreement entered into by the latter with petitioner is
void under Article 1874 of the Civil Code. Being inexistent and void from the beginning, said contract
cannot be ratified. 24
Second Issue:
Piercing the Corporate Veil Not Justified
Petitioner also argues that the veil of corporate fiction of Motorich should be pierced, because the
latter is a close corporation. Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg
owned all or almost all or 99.866% to be accurate, of the subscribed capital stock" 25 of Motorich,
petitioner argues that Gruenberg needed no authorization from the board to enter into the subject
contract. 26 It adds that, being solely owned by the Spouses Gruenberg, the company can treated as a
close corporation which can be bound by the acts of its principal stockholder who needs no specific
authority. The Court is not persuaded.
First, petitioner itself concedes having raised the issue belatedly, 27 not having done so during the trial,
but only when it filed its sur-rejoinder before the Court of Appeals. 28 Thus, this Court cannot entertain said

issue at this late stage of the proceedings. It is well-settled the points of law, theories and arguments not
brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing
court, as they cannot be raised for the first time on appeal. 29Allowing petitioner to change horses in
midstream, as it were, is to run roughshod over the basic principles of fair play, justice and due process.

Second, even if the above mentioned argument were to be addressed at this time, the Court still
finds no reason to uphold it. True, one of the advantages of a corporate form of business
organization is the limitation of an investor's liability to the amount of the investment. 30 This feature
flows from the legal theory that a corporate entity is separate and distinct from its stockholders. However,
the statutorily granted privilege of a corporate veil may be used only for legitimate purposes. 31 On
equitable considerations, the veil can be disregarded when it is utilized as a shield to commit fraud,
illegality or inequity; defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or
business conduit of a person or an instrumentality, agency or adjunct of another corporation. 32
Thus, the Court has consistently ruled that "[w]hen the fiction is used as a means of perpetrating a fraud
or an illegal act or as vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with
which the law covers and isolates the corporation from the members or stockholders who compose it will
be lifted to allow for its consideration merely as an aggregation of individuals." 33
We stress that the corporate fiction should be set aside when it becomes a shield against liability for
fraud, illegality or inequity committed on third persons. The question of piercing the veil of corporate fiction
is essentially, then, a matter of proof. In the present case, however, the Court finds no reason to pierce
the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation was
formed, or that it is operated, for the purpose of shielding any alleged fraudulent or illegal activities of its
officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the
expense of third persons like petitioner.

Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the
Corporation Code defines a close corporation as follows:
Sec. 96. Definition and Applicability of Title. A close corporation, within the
meaning of this Code, is one whose articles of incorporation provide that: (1) All of
the corporation's issued stock of all classes, exclusive of treasury shares, shall be
held of record by not more than a specified number of persons, not exceeding twenty
(20); (2) All of the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (3) The corporation shall not list in
any stock exchange or make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall be deemed not a close corporation
when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled
by another corporation which is not a close corporation within the meaning of this
Code. . . . .
The articles of incorporation 34 of Motorich Sales Corporation does not contain any provision stating that
(1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is restricted in favor of
any stockholder or of the corporation, or (3) listing its stocks in any stock exchange or making a public
offering of such stocks is prohibited. From its articles, it is clear that Respondent Motorich is not a close
corporation. 35 Motorich does not become one either, just because Spouses Reynaldo and Nenita
Gruenberg owned 99.866% of its subscribed capital stock. The "[m]ere ownership by a single stockholder
or by another corporation of all or capital stock of a corporation is not of itself sufficient ground for

disregarding the separate corporate personalities."


by itself, make a close corporation.

36

So, too, a narrow distribution of ownership does not,

Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals 37 wherein the Court ruled that
". . . petitioner corporation is classified as a close corporation and, consequently, a board resolution
authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the
action of its president." 38 But the factual milieu in Dulay is not on all fours with the present case. In Dulay,
the sale of real property was contracted by the president of a close corporation with the knowledge and
acquiescence of its board of directors. 39 In the present case, Motorich is not a close corporation, as
previously discussed, and the agreement was entered into by the corporate treasurer without the
knowledge of the board of directors.
The Court is not unaware that there are exceptional cases where "an action by a director, who singly
is the controlling stockholder, may be considered as a binding corporate act and a board action as
nothing more than a mere formality." 40 The present case, however, is not one of them.
As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own "almost 99.866%" of
Respondent Motorich.41 Since Nenita is not the sole controlling stockholder of Motorich, the
aforementioned exception does not apply. Grantingarguendo that the corporate veil of Motorich is to be
disregarded, the subject parcel of land would then be treated as conjugal property of Spouses Gruenberg,
because the same was acquired during their marriage. There being no indication that said spouses, who
appear to have been married before the effectivity of the Family Code, have agreed to a different property
regime, their property relations would be governed by conjugal partnership of gains. 42 As a consequence,
Nenita Gruenberg could not have effected a sale of the subject lot because "[t]here is no co-ownership
between the spouses in the properties of the conjugal partnership of gains. Hence, neither spouse can
alienate in favor of another his or interest in the partnership or in any property belonging to it; neither
spouse can ask for a partition of the properties before the partnership has been legally dissolved." 43
Assuming further, for the sake of argument, that the spouses' property regime is the absolute community
of property, the sale would still be invalid. Under this regime, "alienation of community property must have
the written consent of the other spouse or he authority of the court without which the disposition or
encumbrance is void." 44 Both requirements are manifestly absent in the instant case.

Third Issue: Challenged Portion of TSN Immaterial


Petitioner calls our attention to the following excerpt of the transcript of stenographic notes (TSN):
Q Did you ever represent to Mr. Co that you were authorized by the
corporation to sell the property?
A Yes, sir. 45
Petitioner claims that the answer "Yes" was crossed out, and, in its place was written a "No" with an initial
scribbled above it. 46 This, however, is insufficient to prove that Nenita Gruenberg was authorized to
represent Respondent Motorich in the sale of its immovable property. Said excerpt be understood in the
context of her whole testimony. During her cross-examination. Respondent Gruenberg testified:

Q So, you signed in your capacity as the treasurer?


[A] Yes, sir.

Q Even then you kn[e]w all along that you [were] not authorized?
A Yes, sir.
Q You stated on direct examination that you did not represent that
you were authorized to sell the property?
A Yes, sir.
Q But you also did not say that you were not authorized to sell the
property, you did not tell that to Mr. Co, is that correct?
A That was not asked of me.
Q Yes, just answer it.
A I just told them that I was the treasurer of the corporation and it
[was] also the president who [was] also authorized to sign on behalf
of the corporation.
Q You did not say that you were not authorized nor did you say that
you were authorized?
A Mr. Co was very interested to purchase the property and he offered
to put up a P100,000.00 earnest money at that time. That was our
first meeting. 47
Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its property.
On the other hand, her testimony demonstrates that the president of Petitioner Corporation, in his
great desire to buy the property, threw caution to the wind by offering and paying the earnest money
without first verifying Gruenberg's authority to sell the lot.
Fourth Issue:
Damages and Attorney's Fees
Finally, petitioner prays for damages and attorney's fees, alleging that "[i]n an utter display of malice
and bad faith, respondents attempted and succeeded in impressing on the trial court and [the] Court
of Appeals that Gruenberg did not represent herself as authorized by Respondent Motorich despite
the receipt issued by the former specifically indicating that she was signing on behalf of Motorich
Sales Corporation. Respondent Motorich likewise acted in bad faith when it claimed it did not
authorize Respondent Gruenberg and that the contract [was] not binding, [insofar] as it [was]
concerned, despite receipt and enjoyment of the proceeds of Gruenberg's act." 48Assuming that
Respondent Motorich was not a party to the alleged fraud, petitioner maintains that Respondent
Gruenberg should be held liable because she "acted fraudulently and in bad faith [in] representing herself
as duly authorized by [R]espondent [C]orporation." 49
As already stated, we sustain the findings of both the trial and the appellate courts that the foregoing
allegations lack factual bases. Hence, an award of damages or attorney's fees cannot be justified. The
amount paid as "earnest money" was not proven to have redounded to the benefit of Respondent

Motorich. Petitioner claims that said amount was deposited to the account of Respondent Motorich,
because "it was deposited with the account of Aren Commercial c/o Motorich Sales
Corporation." 50 Respondent Gruenberg, however, disputes the allegations of petitioner. She testified as
follows:

Q You voluntarily accepted the P100,000.00, as a matter of fact, that


was encashed, the check was encashed.
A Yes. sir, the check was paid in my name and I deposit[ed] it.
Q In your account?
A Yes, sir. 51
In any event, Gruenberg offered to return the amount to petitioner ". . . since the sale did not push
through." 52
Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has been the
president of Petitioner Corporation for more than ten years and has also served as chief executive of two
other corporate entities. 53 Co cannot feign ignorance of the scope of the authority of a corporate treasurer
such as Gruenberg. Neither can he be oblivious to his duty to ascertain the scope of Gruenberg's
authorization to enter into a contract to sell a parcel of land belonging to Motorich.

Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to persuade the Court.
Indubitably, petitioner appears to be the victim of its own officer's negligence in entering into a
contract with and paying an unauthorized officer of another corporation.
As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to return
to petitioner the amount she received as earnest money, as "no one shall enrich himself at the
expense of another." 54 a principle embodied in Article 2154 of Civil Code. 55 Although there was no
binding relation between them, petitioner paid Gruenberg on the mistaken belief that she had the authority
to sell the property of Motorich. 56 Article 2155 of Civil Code provides that "[p]ayment by reason of a
mistake in the contruction or application of a difficult question of law may come within the scope of the
preceding article."
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.
SO ORDERED.
G.R. No. 156262 July 14, 2005
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 attorneys fees;
"3. The sum of P20,000.00, as moral damages
"4. And to pay the costs of suit.
x x x x x x x x x"4
The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988, spouses Leonilo
and Maria Tuazon purchased a total of 8,326 cavans of rice from [the deceased Bartolome] Ramos
[predecessor-in-interest of respondents]. That of this [quantity,] x x x only 4,437 cavans [have been
paid for so far], leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment therefor, the
spouses Tuazon issued x x x [several] Traders Royal Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks bounced due to insufficiency of funds.
[Respondents] advanced that before issuing said checks[,] spouses Tuazon already knew that they
had no available fund to support the checks, and they failed to provide for the payment of these
despite repeated demands made on them.

"[Respondents] averred that because spouses Tuazon anticipated that they would be sued, they
conspired with the other [defendants] to defraud them as creditors by executing x x x fictitious sales
of their properties. They executed x x x simulated sale[s] [of three lots] in favor of the x x x spouses
Buenaventura x x x[,] as well as their residential lot and the house thereon[,] all located at Nueva
Ecija, and another simulated deed of sale dated July 12, 1988 of a Stake Toyota registered with the
Land Transportation Office of Cabanatuan City on September 7, 1988. [Co-petitioner] Melecio
Tuazon, a son of spouses Tuazon, registered a fictitious Deed of Sale on July 19, 1988 x x x over a
residential lot located at Nueva Ecija. Another simulated sale of a Toyota Willys was executed on
January 25, 1988 in favor of their other son, [co-petitioner] Alejandro Tuazon x x x. As a result of the
said sales, the titles of these properties issued in the names of spouses Tuazon were cancelled and
new ones were issued in favor of the [co-]defendants spouses Buenaventura, Alejandro Tuazon and
Melecio Tuazon. Resultantly, by the said ante-dated and simulated sales and the corresponding
transfers there was no more property left registered in the names of spouses Tuazon answerable to
creditors, to the damage and prejudice of [respondents].
"For their part, defendants denied having purchased x x x rice from [Bartolome] Ramos. They
alleged that it was Magdalena Ramos, wife of said deceased, who owned and traded the
merchandise and Maria Tuazon was merely her agent. They argued that it was Evangeline Santos
who was the buyer of the rice and issued the checks to Maria Tuazon as payments therefor. In good
faith[,] the checks were received [by petitioner] from Evangeline Santos and turned over to Ramos
without knowing that these were not funded. And it is for this reason that [petitioners] have been
insisting on the inclusion of Evangeline Santos as an indispensable party, and her non-inclusion was
a fatal error. Refuting that the sale of several properties were fictitious or simulated, spouses Tuazon
contended that these were sold because they were then meeting financial difficulties but the
disposals were made for value and in good faith and done before the filing of the instant suit. To
dispute the contention of plaintiffs that they were the buyers of the rice, they argued that there was
no sales invoice, official receipts or like evidence to prove this. They assert that they were merely
agents and should not be held answerable."5
The corresponding civil and criminal cases were filed by respondents against Spouses Tuazon.
Those cases were later consolidated and amended to include Spouses Anastacio and Mary
Buenaventura, with Alejandro Tuazon and Melecio Tuazon as additional defendants. Having passed
away before the pretrial, Bartolome Ramos was substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the case, petitioners moved to file
a third-party complaint against her. Allegedly, she was primarily liable to respondents, because she
was the one who had purchased the merchandise from their predecessor, as evidenced by the fact
that the checks had been drawn in her name. The RTC, however, denied petitioners Motion.
Since the trial court acquitted petitioners in all three of the consolidated criminal cases, they
appealed only its decision finding them civilly liable to respondents.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioners had failed to prove the existence of an agency
between respondents and Spouses Tuazon. The appellate court disbelieved petitioners contention
that Evangeline Santos should have been impleaded as an indispensable party. Inasmuch as all the
checks had been indorsed by Maria Tuazon, who thereby became liable to subsequent holders for
the amounts stated in those checks, there was no need to implead Santos.

Hence, this Petition.6


Issues
Petitioners raise the following issues for our consideration:
"1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners are not agents of
the respondents.
"2. Whether or not the Honorable Court of Appeals erred in rendering judgment against the
petitioners despite x x x the failure of the respondents to include in their action Evangeline Santos,
an indispensable party to the suit."7
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Agency
Well-entrenched is the rule that the Supreme Courts role in a petition under Rule 45 is limited to
reviewing errors of law allegedly committed by the Court of Appeals. Factual findings of the trial
court, especially when affirmed by the CA, are conclusive on the parties and this Court. 8 Petitioners
have not given us sufficient reasons to deviate from this rule.
In a contract of agency, one binds oneself to render some service or to do something in
representation or on behalf of another, with the latters consent or authority.9 The following are the
elements of agency: (1) the partiesconsent, express or implied, to establish the relationship; (2)
the object, which is the execution of a juridical act in relation to a third person; (3)
the representation, by which the one who acts as an agent does so, not for oneself, but as a
representative; (4) the limitation that the agent acts within the scope of his or her authority.10 As the
basis of agency is representation, there must be, on the part of the principal, an actual intention to
appoint, an intention naturally inferable from the principals words or actions. In the same manner,
there must be an intention on the part of the agent to accept the appointment and act upon it. Absent
such mutual intent, there is generally no agency.11
This Court finds no reversible error in the findings of the courts a quo that petitioners were the rice
buyers themselves; they were not mere agents of respondents in their rice dealership. The question
of whether a contract is one of sale or of agency depends on the intention of the parties. 12
The declarations of agents alone are generally insufficient to establish the fact or extent of their
authority.13 The law makes no presumption of agency; proving its existence, nature and extent is
incumbent upon the person alleging it.14 In the present case, petitioners raise the fact of agency as
an affirmative defense, yet fail to prove its existence.
The Court notes that petitioners, on their own behalf, sued Evangeline Santos for collection of the
amounts represented by the bounced checks, in a separate civil case that they sought to be
consolidated with the current one. If, as they claim, they were mere agents of respondents,

petitioners should have brought the suit against Santos for and on behalf of their alleged principal, in
accordance with Section 2 of Rule 3 of the Rules on Civil Procedure. 15 Their filing a suit against
her in their own names negates their claim that they acted as mere agents in selling the rice
obtained from Bartolome Ramos.
Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be impleaded as
an indispensable party. They insist that respondents Complaint against them is based on the
bouncing checks she issued; hence, they point to her as the person primarily liable for the obligation.
We hold that respondents cause of action is clearly founded on petitioners failure to pay the
purchase price of the rice. The trial court held that Petitioner Maria Tuazon had indorsed the
questioned checks in favor of respondents, in accordance with Sections 31 and 63 of the Negotiable
Instruments Law.16 That Santos was the drawer of the checks is thus immaterial to the respondents
cause of action.
As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks were to be
accepted or paid, or both, according to their tenor; and that in case they were dishonored, she would
pay the corresponding amount.17 After an instrument is dishonored by nonpayment, indorsers cease
to be merely secondarily liable; they become principal debtors whose liability becomes identical to
that of the original obligor. The holder of a negotiable instrument need not even proceed against the
maker before suing the indorser.18 Clearly, Evangeline Santos -- as the drawer of the checks -- is not
an indispensable party in an action against Maria Tuazon, the indorser of the checks.
Indispensable parties are defined as "parties in interest without whom no final determination can be
had."19 The instant case was originally one for the collection of the purchase price of the rice bought
by Maria Tuazon from respondents predecessor. In this case, it is clear that there is no privity of
contract between respondents and Santos. Hence, a final determination of the rights and interest of
the parties may be made without any need to implead her.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioners.
SO ORDERED.
G.R. No. 151319

November 22, 2004

MANILA MEMORIAL PARK CEMETERY, INC., petitioner,


vs.
PEDRO L. LINSANGAN, respondent.

DECISION

TINGA, J.:
For resolution in this case is a classic and interesting texbook question in the law on agency.
This is a petition for review assailing the Decision1 of the Court of Appeals dated 22 June 2001, and
its Resolution2 dated 12 December 2001 in CA G.R. CV No. 49802 entitled "Pedro L. Linsangan v.
Manila Memorial Cemetery, Inc. et al.," finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly
and severally liable with Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan.
The facts of the case are as follows:
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at
the Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner
of a memorial lot under Contract No. 25012 was no longer interested in acquiring the lot and had
opted to sell his rights subject to reimbursement of the amounts he already paid. The contract was
for P95,000.00. Baluyot reassured Atty. Linsangan that once reimbursement is made to the former
buyer, the contract would be transferred to him. Atty. Linsangan agreed and gave Baluyot
P35,295.00 representing the amount to be reimbursed to the original buyer and to complete the
down payment to MMPCI.3 Baluyot issued handwritten and typewritten receipts for these payments. 4
Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued Contract No.
28660, a new contract covering the subject lot in the name of the latter instead of old Contract No.
25012. Atty. Linsangan protested, but Baluyot assured him that he would still be paying the old price
of P95,000.00 with P19,838.00 credited as full down payment leaving a balance of about
P75,000.00.5
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83,
Garden Estate I denominated as Contract No. 28660 and the Official Receipt No. 118912 dated 6
April 1985 for the amount of P19,838.00. Contract No. 28660 has a listed price of P132,250.00. Atty.
Linsangan objected to the new contract price, as the same was not the amount previously agreed
upon. To convince Atty. Linsangan, Baluyot executed a document6 confirming that while the contract
price is P132,250.00, Atty. Linsangan would pay only the original price of P95,000.00.
The document reads in part:
The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference
will be issued as discounted to conform to the previous price as previously agreed upon. --P95,000.00
Prepared by:
(Signed)
(MRS.) FLORENCIA C. BALUYOT
Agency Manager
Holy Cross Memorial Park
4/18/85

Dear Atty. Linsangan:


This will confirm our agreement that while the offer to purchase under Contract No. 28660
states that the total price of P132,250.00 your undertaking is to pay only the total sum of
P95,000.00 under the old price. Further the total sum of P19,838.00 already paid by you
under O.R. # 118912 dated April 6, 1985 has been credited in the total purchase price
thereby leaving a balance of P75,162.00 on a monthly installment of P1,800.00 including
interests (sic) charges for a period of five (5) years.

(Signed)
FLORENCIA C. BALUYOT

By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt No.
118912. As requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of P1,800.00
each in favor of MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12)
postdated checks in favor of MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled
for reasons the latter could not explain, and presented to him another proposal for the purchase of
an equivalent property. He refused the new proposal and insisted that Baluyot and MMPCI honor
their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a
Complaint7for Breach of Contract and Damages against the former.
Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was
cancelled conformably with the terms of the contract8 because of non-payment of
arrearages.9 MMPCI stated that Baluyot was not an agent but an independent contractor, and as
such was not authorized to represent MMPCI or to use its name except as to the extent expressly
stated in the Agency Manager Agreement.10 Moreover, MMPCI was not aware of the arrangements
entered into by Atty. Linsangan and Baluyot, as it in fact received a down payment and monthly
installments as indicated in the contract.11 Official receipts showing the application of payment were
turned over to Baluyot whom Atty. Linsangan had from the beginning allowed to receive the same in
his behalf. Furthermore, whatever misimpression that Atty. Linsangan may have had must have
been rectified by the Account Updating Arrangement signed by Atty. Linsangan which states that he
"expressly admits that Contract No. 28660 'on account of serious delinquencyis now due for
cancellation under its terms and conditions.'''12
The trial court held MMPCI and Baluyot jointly and severally liable. 13 It found that Baluyot was an
agent of MMPCI and that the latter was estopped from denying this agency, having received and
enchased the checks issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted
that Baluyot was authorized to receive only the down payment, it allowed her to continue to receive
postdated checks from Atty. Linsangan, which it in turn consistently encashed. 14
The dispositive portion of the decision reads:

WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of


plaintiff declaring Contract No. 28660 as valid and subsisting and ordering defendants to
perform their undertakings thereof which covers burial lot No. A11 (15), Block 83, Section
Garden I, Holy Cross Memorial Park located at Novaliches, Quezon City. All payments made
by plaintiff to defendants should be credited for his accounts. NO DAMAGES, NO
ATTORNEY'S FEES but with costs against the defendants.
The cross claim of defendant Manila Memorial Cemetery Incorporated as against defendant
Baluyot is GRANTED up to the extent of the costs.
SO ORDERED.15
MMPCI appealed the trial court's decision to the Court of Appeals. 16 It claimed that Atty. Linsangan is
bound by the written contract with MMPCI, the terms of which were clearly set forth therein and read,
understood, and signed by the former.17 It also alleged that Atty. Linsangan, a practicing lawyer for
over thirteen (13) years at the time he entered into the contract, is presumed to know his contractual
obligations and is fully aware that he cannot belatedly and unilaterally change the terms of the
contract without the consent, much less the knowledge of the other contracting party, which was
MMPCI. And in this case, MMPCI did not agree to a change in the contract and in fact implemented
the same pursuant to its clear terms. In view thereof, because of Atty. Linsangan's delinquency,
MMPCI validly cancelled the contract.
MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the latter
exceeded the terms of her agency, neither did MMPCI ratify Baluyot's acts. It added that it cannot be
charged with making any misrepresentation, nor of having allowed Baluyot to act as though she had
full powers as the written contract expressly stated the terms and conditions which Atty. Linsangan
accepted and understood. In canceling the contract, MMPCI merely enforced the terms and
conditions imposed therein.18
Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the former's
obligation, as a party knowingly dealing with an alleged agent, to determine the limitations of such
agent's authority, particularly when such alleged agent's actions were patently questionable.
According to MMPCI, Atty. Linsangan did not even bother to verify Baluyot's authority or ask copies
of official receipts for his payments.19
The Court of Appeals affirmed the decision of the trial court. It upheld the trial court's finding that
Baluyot was an agent of MMPCI at the time the disputed contract was entered into, having
represented MMPCI's interest and acting on its behalf in the dealings with clients and customers.
Hence, MMPCI is considered estopped when it allowed Baluyot to act and represent MMPCI even
beyond her authority.20 The appellate court likewise found that the acts of Baluyot bound MMPCI
when the latter allowed the former to act for and in its behalf and stead. While Baluyot's authority
"may not have been expressly conferred upon her, the same may have been derived impliedly by
habit or custom, which may have been an accepted practice in the company for a long period of
time."21 Thus, the Court of Appeals noted, innocent third persons such as Atty. Linsangan should not
be prejudiced where the principal failed to adopt the needed measures to prevent misrepresentation.
Furthermore, if an agent misrepresents to a purchaser and the principal accepts the benefits of such
misrepresentation, he cannot at the same time deny responsibility for such
misrepresentation.22 Finally, the Court of Appeals declared:
There being absolutely nothing on the record that would show that the court a quo overlooked,
disregarded, or misinterpreted facts of weight and significance, its factual findings and conclusions
must be given great weight and should not be disturbed by this Court on appeal.

WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed
decision in Civil Case No. 88-1253 of the Regional Trial Court, National Capital Judicial
Region, Branch 57 of Makati, is hereby AFFIRMED in toto.
SO ORDERED.23
MMPCI filed its Motion for Reconsideration,24 but the same was denied for lack of merit.25
In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in
disregarding the plain terms of the written contract and Atty. Linsangan's failure to abide by the terms
thereof, which justified its cancellation. In addition, even assuming that Baluyot was an agent of
MMPCI, she clearly exceeded her authority and Atty. Linsangan knew or should have known about
this considering his status as a long-practicing lawyer. MMPCI likewise claims that the Court of
Appeals erred in failing to consider that the facts and the applicable law do not support a judgment
against Baluyot only "up to the extent of costs."26
Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in fact
faithfully performed his contractual obligations and complied with them in good faith for at least two
years.27 He claims that contrary to MMPCI's position, his profession as a lawyer is immaterial to the
validity of the subject contract and the case at bar.28 According to him, MMPCI had practically
admitted in its Petition that Baluyot was its agent, and thus, the only issue left to be resolved is
whether MMPCI allowed Baluyot to act as though she had full powers to be held solidarily liable with
the latter.29
We find for the petitioner MMPCI.
The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court is
limited to reviewing only errors of law, not fact, unless the factual findings complained of are devoid
of support by the evidence on record or the assailed judgment is based on misapprehension of
facts.30 In BPI Investment Corporation v. D.G. Carreon Commercial Corporation, 31 this Court ruled:
There are instances when the findings of fact of the trial court and/or Court of Appeals may
be reviewed by the Supreme Court, such as (1) when the conclusion is a finding grounded
entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of
the case and the same is contrary to the admissions of both appellant and appellee; (7)
when the findings are contrary to those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which they are based; (9) when the facts
set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by
the respondents; and (10) the findings of fact of the Court of Appeals are premised on the
supposed absence of evidence and contradicted by the evidence on record. 32
In the case at bar, the Court of Appeals committed several errors in the apprehension of the facts of
the case, as well as made conclusions devoid of evidentiary support, hence we review its findings of
fact.
By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.33 Thus, the
elements of agency are (i) consent, express or implied, of the parties to establish the relationship; (ii)

the object is the execution of a juridical act in relation to a third person; (iii) the agent acts as a
representative and not for himself; and (iv) the agent acts within the scope of his authority.34
In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency
Manager Agreement; an agency manager such as Baluyot is considered an independent contractor
and not an agent.35However, in the same contract, Baluyot as agency manager was authorized to
solicit and remit to MMPCI offers to purchase interment spaces belonging to and sold by the
latter.36 Notwithstanding the claim of MMPCI that Baluyot was an independent contractor, the fact
remains that she was authorized to solicit solely for and in behalf of MMPCI. As properly found both
by the trial court and the Court of Appeals, Baluyot was an agent of MMPCI, having represented the
interest of the latter, and having been allowed by MMPCI to represent it in her dealings with its
clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the
contract procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained
on forms provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such
forms and, when signed by the buyer and an authorized officer of MMPCI, becomes binding on both
parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI
showed a total list price of P132,250.00. Likewise, it was clearly stated therein that "Purchaser
agrees that he has read or has had read to him this agreement, that he understands its terms and
conditions, and that there are no covenants, conditions, warranties or representations other than
those contained herein."37 By signing the Offer to Purchase, Atty. Linsangan signified that he
understood its contents. That he and Baluyot had an agreement different from that contained in the
Offer to Purchase is of no moment, and should not affect MMPCI, as it was obviously made outside
Baluyot's authority. To repeat, Baluyot's authority was limited only to soliciting purchasers. She had
no authority to alter the terms of the written contract provided by MMPCI. The document/letter
"confirming" the agreement that Atty. Linsangan would have to pay the old price was executed by
Baluyot alone. Nowhere is there any indication that the same came from MMPCI or any of its
officers.
It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of authority,
and in case either is controverted, the burden of proof is upon them to establish it. 38 The basis for
agency is representation and a person dealing with an agent is put upon inquiry and must discover
upon his peril the authority of the agent.39 If he does not make such an inquiry, he is chargeable with
knowledge of the agent's authority and his ignorance of that authority will not be any excuse. 40
As noted by one author, the ignorance of a person dealing with an agent as to the scope of the
latter's authority is no excuse to such person and the fault cannot be thrown upon the principal. 41 A
person dealing with an agent assumes the risk of lack of authority in the agent. He cannot charge
the principal by relying upon the agent's assumption of authority that proves to be unfounded. The
principal, on the other hand, may act on the presumption that third persons dealing with his agent
will not be negligent in failing to ascertain the extent of his authority as well as the existence of his
agency.42
In the instant case, it has not been established that Atty. Linsangan even bothered to inquire whether
Baluyot was authorized to agree to terms contrary to those indicated in the written contract, much
less bind MMPCI by her commitment with respect to such agreements. Even if Baluyot was Atty.

Linsangan's friend and known to be an agent of MMPCI, her declarations and actions alone are not
sufficient to establish the fact or extent of her authority.43 Atty. Linsangan as a practicing lawyer for a
relatively long period of time when he signed the contract should have been put on guard when their
agreement was not reflected in the contract. More importantly, Atty. Linsangan should have been
alerted by the fact that Baluyot failed to effect the transfer of rights earlier promised, and was unable
to make good her written commitment, nor convince MMPCI to assent thereto, as evidenced by
several attempts to induce him to enter into other contracts for a higher consideration. As properly
pointed out by MMPCI, as a lawyer, a greater degree of caution should be expected of Atty.
Linsangan especially in dealings involving legal documents. He did not even bother to ask for official
receipts of his payments, nor inquire from MMPCI directly to ascertain the real status of the contract,
blindly relying on the representations of Baluyot. A lawyer by profession, he knew what he was doing
when he signed the written contract, knew the meaning and value of every word or phrase used in
the contract, and more importantly, knew the legal effects which said document produced. He is
bound to accept responsibility for his negligence.
The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial
court, MMPCI's acts of accepting and encashing the checks issued by Atty. Linsangan as well as
allowing Baluyot to receive checks drawn in the name of MMPCI confirm and ratify the contract of
agency. On the other hand, the Court of Appeals faulted MMPCI in failing to adopt measures to
prevent misrepresentation, and declared that in view of MMPCI's acceptance of the benefits of
Baluyot's misrepresentation, it can no longer deny responsibility therefor.
The Court does not agree. Pertinent to this case are the following provisions of the Civil Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with whom
the agent contracted is aware of the limits of the powers granted by the principal. In this
case, however, the agent is liable if he undertook to secure the principal's ratification.
Art. 1910. The principal must comply with all the obligations that the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable
with the agent if the former allowed the latter to act as though he had full powers.
Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he
ratifies them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own
unauthorized acts. Moreover, the principal must have knowledge of the acts he is to ratify.44
Ratification in agency is the adoption or confirmation by one person of an act performed on his
behalf by another without authority. The substance of the doctrine is confirmation after conduct,
amounting to a substitute for a prior authority. Ordinarily, the principal must have full knowledge at
the time of ratification of all the material facts and circumstances relating to the unauthorized act of
the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there
can be no valid ratification and this regardless of the purpose or lack thereof in concealing such facts
and regardless of the parties between whom the question of ratification may arise. 45Nevertheless,
this principle does not apply if the principal's ignorance of the material facts and circumstances was
willful, or that the principal chooses to act in ignorance of the facts.46 However, in the absence of

circumstances putting a reasonably prudent man on inquiry, ratification cannot be implied as against
the principal who is ignorant of the facts.47
No ratification can be implied in the instant case.
A perusal of Baluyot's Answer48 reveals that the real arrangement between her and Atty. Linsangan
was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the
counterpart amount of P1,455.00 to meet the P3,255.00 monthly installments as indicated in the
contract. Thus, every time an installment falls due, payment was to be made through a check from
Atty. Linsangan for P1,800.00 and a cash component of P1,455.00 from Baluyot. 49 However, it
appears that while Atty. Linsangan issued the post-dated checks, Baluyot failed to come up with her
part of the bargain. This was supported by Baluyot's statements in her letter 50 to Mr. Clyde Williams,
Jr., Sales Manager of MMPCI, two days after she received the copy of the Complaint. In the letter,
she admitted that she was remiss in her duties when she consented to Atty. Linsangan's proposal
that he will pay the old price while the difference will be shouldered by her. She likewise admitted
that the contract suffered arrearages because while Atty. Linsangan issued the agreed checks, she
was unable to give her share of P1,455.00 due to her own financial difficulties. Baluyot even asked
for compassion from MMPCI for the error she committed.
Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is
concerned, the contract price was P132,250.00, as stated in the Offer to Purchase signed by Atty.
Linsangan and MMPCI's authorized officer. The down payment of P19,838.00 given by Atty.
Linsangan was in accordance with the contract as well. Payments of P3,235.00 for at least two
installments were likewise in accord with the contract, albeit made through a check and partly in
cash. In view of Baluyot's failure to give her share in the payment, MMPCI received only P1,800.00
checks, which were clearly insufficient payment. In fact, Atty. Linsangan would have incurred
arrearages that could have caused the earlier cancellation of the contract, if not for MMPCI's
application of some of the checks to his account. However, the checks alone were not sufficient to
cover his obligations.
If MMPCI was aware of the arrangement, it would have refused the latter's check payments for being
insufficient. It would not have applied to his account the P1,800.00 checks. Moreover, the fact that
Baluyot had to practically explain to MMPCI's Sales Manager the details of her "arrangement" with
Atty. Linsangan and admit to having made an error in entering such arrangement confirm that
MMCPI had no knowledge of the said agreement. It was only when Baluyot filed her Answer that she
claimed that MMCPI was fully aware of the agreement.
Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct of a
party amounting to false representation or concealment of material facts or at least calculated to
convey the impression that the facts are otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (ii) intent, or at least expectation, that this conduct shall be acted
upon by, or at least influence, the other party; and (iii) knowledge, actual or constructive, of the real
facts.51
While there is no more question as to the agency relationship between Baluyot and MMPCI, there is
no indication that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had
the authority to alter the standard contracts of the company. Neither is there any showing that prior
to signing Contract No. 28660, MMPCI had any knowledge of Baluyot's commitment to Atty.
Linsangan. One who claims the benefit of an estoppel on the ground that he has been misled by the
representations of another must not have been misled through his own want of reasonable care and
circumspection.52 Even assuming that Atty. Linsangan was misled by MMPCI's actuations, he still
cannot invoke the principle of estoppel, as he was clearly negligent in his dealings with Baluyot, and

could have easily determined, had he only been cautious and prudent, whether said agent was
clothed with the authority to change the terms of the principal's written contract. Estoppel must be
intentional and unequivocal, for when misapplied, it can easily become a most convenient and
effective means of injustice.53 In view of the lack of sufficient proof showing estoppel, we refuse to
hold MMPCI liable on this score.
Likewise, this Court does not find favor in the Court of Appeals' findings that "the authority of
defendant Baluyot may not have been expressly conferred upon her; however, the same may have
been derived impliedly by habit or custom which may have been an accepted practice in their
company in a long period of time." A perusal of the records of the case fails to show any indication
that there was such a habit or custom in MMPCI that allows its agents to enter into agreements for
lower prices of its interment spaces, nor to assume a portion of the purchase price of the interment
spaces sold at such lower price. No evidence was ever presented to this effect.
As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660
between MMPCI and by Atty. Linsangan for the purchase of an interment space in the former's
cemetery. The other is the agreement between Baluyot and Atty. Linsangan for the former to
shoulder the amount P1,455.00, or the difference between P95,000.00, the original price, and
P132,250.00, the actual contract price.
To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless the
latter ratifies the same. It also bears emphasis that when the third person knows that the agent was
acting beyond his power or authority, the principal cannot be held liable for the acts of the agent. If
the said third person was aware of such limits of authority, he is to blame and is not entitled to
recover damages from the agent, unless the latter undertook to secure the principal's ratification. 54
This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty.
Linsangan. By affixing his signature in the contract, Atty. Linsangan assented to the terms and
conditions thereof. When Atty. Linsangan incurred delinquencies in payment, MMCPI merely
enforced its rights under the said contract by canceling the same.
Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on what he claims to be
the terms of Contract No. 28660. The agreement, insofar as the P95,000.00 contract price is
concerned, is void and cannot be enforced as against MMPCI. Neither can he hold Baluyot liable for
damages under the same contract, since there is no evidence showing that Baluyot undertook to
secure MMPCI's ratification. At best, the "agreement" between Baluyot and Atty. Linsangan bound
only the two of them. As far as MMPCI is concerned, it bound itself to sell its interment space to Atty.
Linsangan for P132,250.00 under Contract No. 28660, and had in fact received several payments in
accordance with the same contract. If the contract was cancelled due to arrearages, Atty.
Linsangan's recourse should only be against Baluyot who personally undertook to pay the difference
between the true contract price of P132,250.00 and the original proposed price of P95,000.00. To
surmise that Baluyot was acting on behalf of MMPCI when she promised to shoulder the said
difference would be to conclude that MMPCI undertook to pay itself the difference, a conclusion that
is very illogical, if not antithetical to its business interests.
However, this does not preclude Atty. Linsangan from instituting a separate action to recover
damages from Baluyot, not as an agent of MMPCI, but in view of the latter's breach of their separate
agreement. To review, Baluyot obligated herself to pay P1,455.00 in addition to Atty. Linsangan's
P1,800.00 to complete the monthly installment payment under the contract, which, by her own
admission, she was unable to do due to personal financial difficulties. It is undisputed that Atty.
Linsangan issued the P1,800.00 as agreed upon, and were it not for Baluyot's failure to provide the

balance, Contract No. 28660 would not have been cancelled. Thus, Atty. Linsangan has a cause of
action against Baluyot, which he can pursue in another case.
WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated 22
June 2001 and its Resolution dated 12 December 2001 in CA- G.R. CV No. 49802, as well as the
Decision in Civil Case No. 88-1253 of the Regional Trial Court, Makati City Branch 57, are hereby
REVERSED and SET ASIDE. The Complaint in Civil Case No. 88-1253 is DISMISSED for lack of
cause of action. No pronouncement as to costs.
SO ORDERED.
G.R. No. 161757

January 25, 2006

SUNACE INTERNATIONAL MANAGEMENT SERVICES, INC.Petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION, Second Division; HON. ERNESTO S.
DINOPOL, in his capacity as Labor Arbiter, NLRC; NCR, Arbitration Branch, Quezon City and
DIVINA A. MONTEHERMOZO,Respondents.
DECISION
CARPIO MORALES, J.:
Petitioner, Sunace International Management Services (Sunace), a corporation duly organized and
existing under the laws of the Philippines, deployed to Taiwan Divina A. Montehermozo (Divina) as a
domestic helper under a 12-month contract effective February 1, 1997. 1 The deployment was with
the assistance of a Taiwanese broker, Edmund Wang, President of Jet Crown International Co., Ltd.
After her 12-month contract expired on February 1, 1998, Divina continued working for her
Taiwanese employer, Hang Rui Xiong, for two more years, after which she returned to the
Philippines on February 4, 2000.
Shortly after her return or on February 14, 2000, Divina filed a complaint2 before the National Labor
Relations Commission (NLRC) against Sunace, one Adelaide Perez, the Taiwanese broker, and the
employer-foreign principal alleging that she was jailed for three months and that she was underpaid.
The following day or on February 15, 2000, Labor Arbitration Associate Regina T. Gavin issued
Summons3 to the Manager of Sunace, furnishing it with a copy of Divinas complaint and directing it
to appear for mandatory conference on February 28, 2000.
The scheduled mandatory conference was reset. It appears to have been concluded, however.
On April 6, 2000, Divina filed her Position Paper 4 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:
Year
1997
1998
1999

Deduction for Income Tax


NT10,450.00
NT9,500.00
NT13,300.00

Deduction for Savings


NT23,100.00
NT36,000.00
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 SUNACEs employer, Jet
Crown International Co. Ltd., a xerographic copy of which is herewith attached as ANNEX
"2" hereof;
COMPLAINANT IS NOT ENTITLED TO REFUND OF HER 14 MONTHS TAX AND PAYMENT OF
ATTORNEYS FEES
4. There is no basis for the grant of tax refund to the complainant as the she finished her one year
contract and hence, was not illegally dismissed by her employer. She could only lay claim over the
tax refund or much more be awarded of damages such as attorneys fees as said reliefs are
available only when the dismissal of a migrant worker is without just valid or lawful cause as defined
by law or contract.
The rationales behind the award of tax refund and payment of attorneys fees is not to enrich the
complainant but to compensate him for actual injury suffered. Complainant did not suffer injury,
hence, does not deserve to be compensated for whatever kind of damages.
Hence, the complainant has NO cause of action against respondent SUNACE for monetary claims,
considering that she has been totally paid of all the monetary benefits due her under her
Employment Contract to her full satisfaction.
6. Furthermore, the tax deducted from her salary is in compliance with the Taiwanese law, which
respondent SUNACE has no control and complainant has to obey and this Honorable Office has no
authority/jurisdiction to intervene because the power to tax is a sovereign power which the
Taiwanese Government is supreme in its own territory. The sovereign power of taxation of a state is
recognized under international law and among sovereign states.
7. That respondent SUNACE respectfully reserves the right to file supplemental Verified Answer
and/or Position Paper to substantiate its prayer for the dismissal of the above case against the
herein respondent. AND BY WAY OF x x x x (Emphasis and underscoring supplied)
Reacting to Divinas Position Paper, Sunace filed on April 25, 2000 an ". . . answer to complainants
position paper"7 alleging that Divinas 2-year extension of her contract was without its knowledge and
consent, hence, it had no liability attaching to any claim arising therefrom, and Divina in fact
executed a Waiver/Quitclaim and Release of Responsibility and an Affidavit of Desistance, copy of
each document was annexed to said ". . . answer to complainants position paper."
To Sunaces ". . . answer to complainants position paper," Divina filed a 2-page reply,8 without,
however, refuting Sunaces disclaimer of knowledge of the extension of her contract and without
saying anything about the Release, Waiver and Quitclaim and Affidavit of Desistance.

The Labor Arbiter, rejected Sunaces claim that the extension of Divinas contract for two more years
was without its knowledge and consent in this wise:
We reject Sunaces submission that it should not be held responsible for the amount withheld
because her contract was extended for 2 more years without its knowledge and consent because as
Annex "B"9 shows, Sunace and Edmund Wang have not stopped communicating with each
other and yet the matter of the contracts extension and Sunaces alleged non-consent thereto has
not been categorically established.
What Sunace should have done was to write to POEA about the extension and its objection thereto,
copy furnished the complainant herself, her foreign employer, Hang Rui Xiong and the Taiwanese
broker, Edmund Wang.
And because it did not, it is presumed to have consented to the extension and should be liable for
anything that resulted thereform (sic).10 (Underscoring supplied)
The Labor Arbiter rejected too Sunaces argument that it is not liable on account of Divinas
execution of a Waiver and Quitclaim and an Affidavit of Desistance. Observed the Labor Arbiter:
Should the parties arrive at any agreement as to the whole or any part of the dispute, the same shall
be reduced to writing and signed by the parties and their respective counsel (sic), if any, before the
Labor Arbiter.
The settlement shall be approved by the Labor Arbiter after being satisfied that it was voluntarily
entered into by the parties and after having explained to them the terms and consequences thereof.
A compromise agreement entered into by the parties not in the presence of the Labor Arbiter before
whom the case is pending shall be approved by him, if after confronting the parties, particularly the
complainants, he is satisfied that they understand the terms and conditions of the settlement and
that it was entered into freely voluntarily (sic) by them and the agreement is not contrary to law,
morals, and public policy.
And because no consideration is indicated in the documents, we strike them down as contrary to
law, morals, and public policy.11
He accordingly decided in favor of Divina, by decision of October 9, 2000, 12 the dispositive portion of
which reads:
Wherefore, judgment is hereby rendered ordering respondents SUNACE INTERNATIONAL
SERVICES and its owner ADELAIDA PERGE, both in their personal capacities and as agent of
Hang Rui Xiong/Edmund Wang to jointly and severally pay complainant DIVINA A.
MONTEHERMOZO the sum of NT91,950.00 in its peso equivalent at the date of payment, as refund
for the amounts which she is hereby adjudged entitled to as earlier discussed plus 10% thereof as
attorneys fees since compelled to litigate, complainant had to engage the services of counsel.
SO ORDERED.13 (Underescoring supplied)
On appeal of Sunace, the NLRC, by Resolution of April 30, 2002, 14 affirmed the Labor Arbiters
decision.

Via petition for certiorari,15 Sunace elevated the case to the Court of Appeals which dismissed it
outright by Resolution of November 12, 2002,16 the full text of which reads:
The petition for certiorari faces outright dismissal.
The petition failed to allege facts constitutive of grave abuse of discretion on the part of the public
respondent amounting to lack of jurisdiction when the NLRC affirmed the Labor Arbiters finding that
petitioner Sunace International Management Services impliedly consented to the extension of the
contract of private respondent Divina A. Montehermozo. It is undisputed that petitioner was
continually communicating with private respondents foreign employer (sic). As agent of the foreign
principal, "petitioner cannot profess ignorance of such extension as obviously, the act of the
principal extending complainant (sic) employment contract necessarily bound it." Grave abuse
of discretion is not present in the case at bar.
ACCORDINGLY, the petition is hereby DENIED DUE COURSE and DISMISSED.17
SO ORDERED.
(Emphasis on words in capital letters in the original; emphasis on words in small letters and
underscoring supplied)
Its Motion for Reconsideration having been denied by the appellate court by Resolution of January
14, 2004,18Sunace filed the present petition for review on certiorari.
The Court of Appeals affirmed the Labor Arbiter and NLRCs finding that Sunace knew of and
impliedly consented to the extension of Divinas 2-year contract. It went on to state that "It is
undisputed that [Sunace] was continually communicating with [Divinas] foreign employer." It thus
concluded that "[a]s agent of the foreign principal, petitioner cannot profess ignorance of such
extension as obviously, the act of the principal extending complainant (sic) employment contract
necessarily bound it."
Contrary to the Court of Appeals finding, the alleged continuous communication was with the
Taiwanese brokerWang, not with the foreign employer Xiong.
The February 21, 2000 telefax message from the Taiwanese broker to Sunace, the only basis of a
finding of continuous communication, reads verbatim:

xxxx
Regarding to Divina, she did not say anything about her saving in police station. As we
contact with her employer, she took back her saving already last years. And they did not
deduct any money from her salary. Or she will call back her employer to check it again. If
her employer said yes! we will get it back for her.
Thank you and best regards.
(Sgd.)
Edmund Wang
President19

The finding of the Court of Appeals solely on the basis of the above-quoted telefax message, that
Sunace continually communicated with the foreign "principal" (sic) and therefore was aware of and
had consented to the execution of the extension of the contract is misplaced. The message does not
provide evidence that Sunace was privy to the new contract executed after the expiration on
February 1, 1998 of the original contract. That Sunace and the Taiwanese broker communicated
regarding Divinas allegedly withheld savings does not necessarily mean that Sunace ratified the
extension of the contract. As Sunace points out in its Reply20 filed before the Court of Appeals,
As can be seen from that letter communication, it was just an information given to the petitioner that
the private respondent had t[aken] already her savings from her foreign employer and that no
deduction was made on her salary. It contains nothing about the extension or the petitioners
consent thereto.21
Parenthetically, since the telefax message is dated February 21, 2000, it is safe to assume that it
was sent to enlighten Sunace who had been directed, by Summons issued on February 15, 2000, to
appear on February 28, 2000 for a mandatory conference following Divinas filing of the complaint on
February 14, 2000.
Respecting the Court of Appeals following dictum:
As agent of its foreign principal, [Sunace] cannot profess ignorance of such an extension as
obviously, the act of its principal extending [Divinas] employment contract necessarily bound it, 22
it too is a misapplication, a misapplication of the theory of imputed knowledge.
The theory of imputed knowledge ascribes the knowledge of the agent, Sunace, to the principal,
employer Xiong,not the other way around.23 The knowledge of the principal-foreign employer
cannot, therefore, be imputed to its agent Sunace.
There being no substantial proof that Sunace knew of and consented to be bound under the 2-year
employment contract extension, it cannot be said to be privy thereto. As such, it and its "owner"
cannot be held solidarily liable for any of Divinas claims arising from the 2-year employment
extension. As the New Civil Code provides,
Contracts take effect only between the parties, their assigns, and heirs, except in case where the
rights and obligations arising from the contract are not transmissible by their nature, or by stipulation
or by provision of law.24
Furthermore, as Sunace correctly points out, there was an implied revocation of its agency
relationship with its foreign principal when, after the termination of the original employment contract,
the foreign principal directly negotiated with Divina and entered into a new and separate employment
contract in Taiwan. Article 1924 of the New Civil Code reading
The agency is revoked if the principal directly manages the business entrusted to the agent, dealing
directly with third persons.
thus applies.
In light of the foregoing discussions, consideration of the validity of the Waiver and Affidavit of
Desistance which Divina executed in favor of Sunace is rendered unnecessary.

WHEREFORE, the petition is GRANTED. The challenged resolutions of the Court of Appeals are
herebyREVERSED and SET ASIDE. The complaint of respondent Divina A. Montehermozo against
petitioner isDISMISSED.
SO ORDERED.
G.R. No. L-24833

September 23, 1968

FIELDMEN'S INSURANCE CO., INC., petitioner,


vs.
MERCEDES VARGAS VDA. DE SONGCO, ET AL. and COURT OF APPEALS, respondents.
Jose S. Suarez for petitioner.
Eligio G. Lagman for respondents.

FERNANDO, J.:
An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not allowed to escape liability
under a common carrier insurance policy on the pretext that what was insured, not once but twice,
was a private vehicle and not a common carrier, the policy being issued upon the insistence of its
agent who discounted fears of the insured that his privately owned vehicle might not fall within its
terms, the insured moreover being "a man of scant education," finishing only the first grade. So it
was held in a decision of the lower court thereafter affirmed by respondent Court of Appeals.
Petitioner in seeking the review of the above decision of respondent Court of Appeals cannot be so
sanguine as to entertain the belief that a different outcome could be expected. To be more explicit,
we sustain the Court of Appeals.
The facts as found by respondent Court of Appeals, binding upon us, follow: "This is a peculiar case.
Federico Songco of Floridablanca, Pampanga, a man of scant education being only a first grader ...,
owned a private jeepney with Plate No. 41-289 for the year 1960. On September 15, 1960, as such
private vehicle owner, he was induced by Fieldmen's Insurance Company Pampanga agent
Benjamin Sambat to apply for a Common Carrier's Liability Insurance Policy covering his motor
vehicle ... Upon paying an annual premium of P16.50, defendant Fieldmen's Insurance Company,
Inc. issued on September 19, 1960, Common Carriers Accident Insurance Policy No. 45-HO4254 ... the duration of which will be for one (1) year, effective September 15, 1960 to September 15,
1961. On September 22, 1961, the defendant company, upon payment of the corresponding
premium, renewed the policy by extending the coverage from October 15, 1961 to October 15, 1962.
This time Federico Songco's private jeepney carried Plate No. J-68136-Pampanga-1961. ... On
October 29, 1961, during the effectivity of the renewed policy, the insured vehicle while being driven
by Rodolfo Songco, a duly licensed driver and son of Federico (the vehicle owner) collided with a car
in the municipality of Calumpit, province of Bulacan, as a result of which mishap Federico Songco
(father) and Rodolfo Songco (son) died, Carlos Songco (another son), the latter's wife, Angelita
Songco, and a family friend by the name of Jose Manuel sustained physical injuries of varying
degree." 1
It was further shown according to the decision of respondent Court of Appeals: "Amor Songco, 42year-old son of deceased Federico Songco, testifying as witness, declared that when insurance

agent Benjamin Sambat was inducing his father to insure his vehicle, he butted in saying: 'That
cannot be, Mr. Sambat, because our vehicle is an "owner" private vehicle and not for passengers,' to
which agent Sambat replied: 'whether our vehicle was an "owner" type or for passengers it could be
insured because their company is not owned by the Government and the Government has nothing to
do with their company. So they could do what they please whenever they believe a vehicle is
insurable' ... In spite of the fact that the present case was filed and tried in the CFI of Pampanga, the
defendant company did not even care to rebut Amor Songco's testimony by calling on the witnessstand agent Benjamin Sambat, its Pampanga Field Representative." 2
The plaintiffs in the lower court, likewise respondents here, were the surviving widow and children of
the deceased Federico Songco as well as the injured passenger Jose Manuel. On the above facts
they prevailed, as had been mentioned, in the lower court and in the respondent Court of Appeals.
1awphl.nt

The basis for the favorable judgment is the doctrine announced in Qua Chee Gan v. Law Union and
Rock Insurance Co., Ltd., 3 with Justice J. B. L. Reyes speaking for the Court. It is now beyond
question that where inequitable conduct is shown by an insurance firm, it is "estopped from enforcing
forfeitures in its favor, in order to forestall fraud or imposition on the insured." 4
As much, if not much more so than the Qua Chee Gan decision, this is a case where the doctrine of
estoppel undeniably calls for application. After petitioner Fieldmen's Insurance Co., Inc. had led the
insured Federico Songco to believe that he could qualify under the common carrier liability insurance
policy, and to enter into contract of insurance paying the premiums due, it could not, thereafter, in
any litigation arising out of such representation, be permitted to change its stand to the detriment of
the heirs of the insured. As estoppel is primarily based on the doctrine of good faith and the
avoidance of harm that will befall the innocent party due to its injurious reliance, the failure to apply it
in this case would result in a gross travesty of justice.
That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is
concerned, petitioner being adamant in its far-from-reasonable plea that estoppel could not be
invoked by the heirs of the insured as a bar to the alleged breach of warranty and condition in the
policy. lt would now rely on the fact that the insured owned a private vehicle, not a common carrier,
something which it knew all along when not once but twice its agent, no doubt without any objection
in its part, exerted the utmost pressure on the insured, a man of scant education, to enter into such a
contract.
Nor is there any merit to the second alleged error of respondent Court that no legal liability was
incurred under the policy by petitioner. Why liability under the terms of the policy 5 was inescapable
was set forth in the decision of respondent Court of Appeals. Thus: "Since some of the conditions
contained in the policy issued by the defendant-appellant were impossible to comply with under the
existing conditions at the time and 'inconsistent with the known facts,' the insurer 'is estopped from
asserting breach of such conditions.' From this jurisprudence, we find no valid reason to deviate and
consequently hold that the decision appealed from should be affirmed. The injured parties, to wit,
Carlos Songco, Angelito Songco and Jose Manuel, for whose hospital and medical expenses the
defendant company was being made liable, were passengers of the jeepney at the time of the
occurrence, and Rodolfo Songco, for whose burial expenses the defendant company was also being
made liable was the driver of the vehicle in question. Except for the fact, that they were not fare
paying passengers, their status as beneficiaries under the policy is recognized therein." 6

Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee Gan decision
would reveal anew the weakness of petitioner's contention. Thus: "Moreover, taking into account the
well known rule that ambiguities or obscurities must be strictly interpreted against the party that
caused them, the 'memo of warranty' invoked by appellant bars the latter from questioning the
existence of the appliances called for in the insured premises, since its initial expression, 'the
undernoted appliances for the extinction of fire being kept on the premises insured hereby, ... it is
hereby warranted ...,' admits of interpretation as an admission of the existence of such appliances
which appellant cannot now contradict, should the parol evidence rule apply." 7
To the same effect is the following citation from the same leading case: "This rigid application of the
rule on ambiguities has become necessary in view of current business practices. The courts cannot
ignore that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming
economic power, manage to impose upon parties dealing with them cunningly prepared
'agreements' that the weaker party may not change one whit, his participation in the 'agreement'
being reduced to the alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by
adherence' (contrats d'adhesion), in contrast to those entered into by parties bargaining on an equal
footing, such contracts (of which policies of insurance and international bills of lading are prime
examples) obviously call for greater strictness and vigilance on the part of courts of justice with a
view to protecting the weaker party from abuses and imposition, and prevent their becoming traps
for the unwary (New Civil Code. Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27
February 1942)." 8
The last error assigned which would find fault with the decision of respondent Court of Appeals
insofar as it affirmed the lower court award for exemplary damages as well as attorney's fees is, on
its face, of no persuasive force at all.
The conclusion that inescapably emerges from the above is the correctness of the decision of
respondent Court of Appeals sought to be reviewed. For, to borrow once again from the language of
the Qua Chee Gan opinion: "The contract of insurance is one of perfect good faith (uberima fides)
not for the insured alone,but equally so for the insurer; in fact, it is more so for the latter, since its
dominant bargaining position carries with it stricter responsibility." 9
This is merely to stress that while the morality of the business world is not the morality of institutions
of rectitude like the pulpit and the academe, it cannot descend so low as to be another name for
guile or deception. Moreover, should it happen thus, no court of justice should allow itself to lend its
approval and support.
1awphl.nt

We have no choice but to recognize the monetary responsibility of petitioner Fieldmen's Insurance
Co., Inc. It did not succeed in its persistent effort to avoid complying with its obligation in the lower
court and the Court of Appeals. Much less should it find any receptivity from us for its unwarranted
and unjustified plea to escape from its liability.
WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in its
entirety. Costs against petitioner Fieldmen's Insurance Co., Inc.
G.R. No. 94071 March 31, 1992
NEW LIFE ENTERPRISES and JULIAN SY, petitioners,
vs.

HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION, RELIANCE SURETY


AND INSURANCE CO., INC. and WESTERN GUARANTY CORPORATION, respondents.

REGALADO, J.:
This appeal by certiorari seeks the nullification of the decision 1 of respondent Court of Appeals in CAG.R. CV No. 13866 which reversed the decision of the Regional Trial Court, Branch LVII at Lucena City,
jointly deciding Civil Cases Nos. 6-84, 7-84 and 8-84 thereof and consequently ordered the dismissal of
the aforesaid actions filed by herein petitioners.
The undisputed background of this case as found by the court a quo and adopted by respondent
court, being sustained by the evidence on record, we hereby reproduce the same with approval. 2
The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a
business partnership in the City of Lucena. Under the business name of New Life
Enterprises, the partnership engaged in the sale of construction
materials at its place of business, a two storey building situated at Iyam, Lucena City.
The facts show that Julian Sy insured the stocks in trade of New Life Enterpriseswith
Western Guaranty Corporation, Reliance Surety and Insurance. Co., Inc., and
Equitable Insurance Corporation.
On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No.
37201 in the amount of P350,000.00. This policy was renewed on May, 13, 1982.
On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire
Insurance Policy No. 69135 inthe amount of P300,000.00 (Renewed under Renewal
Certificate No. 41997) An additional insurancewas issued by the same company on
November 12, 1981 under Fire Insurance Policy No. 71547 in the amount of
P700,000.00.
On February 8, 1982, Equitable Insurance
Corporation issued Fire Insurance Policy No. 39328 in the amount of P200,000.00.
Thus when the building occupied by the New Life Enterprises
was gutted by fire at about 2:00 o'clockin the morning of October 19, 1982, the
stocks in the trade inside said building were insured against
fire in the total amount of P1,550,000.00. According to the certification issued by the
Headquarters,Philippine Constabulary /Integrated National Police,
Camp Crame, the cause of fire was electrical innature. According to the plaintiffs,
the building and the stocks inside were burned.
After the fire,Julian Sy went to the agent of
Reliance Insurance whom he asked to accompany him to the
office ofthe company so that he can file his claim. He averred that in support of his
claim, he submitted thefire clearance, the insurance policies and inventory
of stocks. He further testified that the three insurance companies are sister
companies, and as a matter of fact when he was following-up hisclaim with Equitable
Insurance, the Claims Manager told him to go first to Reliance
Insurance and ifsaid company agrees to pay, they would also pay. The same
treatment was given him by the otherinsurance

companies. Ultimately, the three insurance companies denied plaintiffs' claim for
payment.
In its letter of denial dated March 9, 1983, (Exhibit "C" No. 884) Western Guaranty Corporationthrough Claims Manager Bernard S. Razon told th
e plaintiff that his claim "is
denied for breach ofpolicy conditions." Reliance Insurance purveyed the same
message in its letter dated November 23, 1982 and signed by Executive VicePresident Mary Dee Co (Exhibit "C" No. 7-84) which said that "plaintiff's
claim is denied for breach of policy conditions." The letter of denial received by the
plaintifffrom Equitable Insurance Corporation (Exhibit "C" No. 6-84) was of the same
tenor, as said letter dated February 22, 1983, and signed by Vice-President
Elma R. Bondad, said "we find that certain policy conditions were violated, therefore,
we regret, we have to deny your claim, as it is hereby denied in its entirety."
In relation to the case against Reliance
Surety and Insurance Company, a certain Atty. Serafin D.Dator, acting in behalf of
the plaintiff, sent a letter dated February 13, 1983 (Exhibit "G-l" No 7-84) toExecutive
Vice-President Mary Dee Co asking that he be informed as to the specific policy
conditions allegedly violated by the plaintiff. In her reply-letter dated March
30, 1983, Executive Vice-PresidentMary Dee Co informed Atty.
Dator that Julian Sy violated Policy Condition No. "3" which requires theinsured
to give notice of any insurance or insurances already effected covering the stocks in
trade. 3
Because of the denial of their claims for payment by the three (3) insurance
companies, petitioner filed separate civil actions against the former before the Regional Trial
Court of Lucena City, which cases were consolidated for trial,
and thereafter the court below rendered its decision on December 19, l986 with the following
disposition:
WHEREFORE, judgment in the above-entitled cases is rendered in the following
manner, viz:
1. In Civil Case No. 6-84, judgment is rendered for the
plaintiff New Life Enterprises and against the defendant Equitable Insurance
Corporation ordering the latter to pay the former the sum of
TwoHundred Thousand (P200,000.00) Pesos and
considering that payment of the claim of the insuredhas been unreasonably denied, p
ursuant to Sec. 244 of the Insurance Code, defendant is furtherordered to pay the pla
intiff attorney's fees in the amount of Twenty Thousand (P20,000.00)
Pesos.All sums of money to be paid by virtue hereof shall bear interest at 12% per
annum (pursuant to Sec.244 of the Insurance Code) from
February 14, 1983, (91st day from November 16, 1982, whenSworn Statement of
Fire Claim was received from the insured) until they are fully paid;
2. In Civil Case No. 7-84, judgment is rendered for the plaintiff Julian Sy and against
the defendantReliance Surety and Insurance Co.,
Inc., ordering the latter to pay the former the sum
ofP1,000,000.00 (P300,000.00 under Policy
No. 69135 and P700,000.00 under Policy No. 71547)
andconsidering that payment of the claim of the

insured has been unreasonably denied, pursuant to


Sec.244 of the Insurance Code, defendant is further ordered
to pay the plaintiff the amount of P100,000.00 as attorney's fees.
All sums of money to be paid by virtue hereof shall bear interest at 12% per
annum (pursuant to Sec. 244 of the Insurance Code) from February 14, 1983,
(91st day from November 16,
1982 whenSworn Statement of Fire Claim was received from the insured) until they
are fully paid;
3. In Civil Case No. 8-84, judgment is rendered for
the plaintiff New Life Enterprises and against thedefendant Western Guaranty Corpor
ation ordering the latter to pay the sum of P350,000.00
to theConsolidated Bank and Trust Corporation,
Lucena Branch, Lucena City, as stipulated on the
face ofPolicy No. 37201, and considering that payment of the
aforementioned sum of money has been
unreasonably denied, pursuant to Sec. 244 of the Insurance Code,
defendant is further ordered topay the plaintiff attorney's fees in the amount of
P35,000.00.
All sums of money to be paid by virtue hereof shall bear interest at 12% per
annum (pursuant to Sec. 244 of the Insurance Code) from February 5, 1982, (91st
day from 1st week of November 1983when
insured filed formal claim for full indemnity according to adjuster
Vetremar Dela Merced) until they are fully paid. 4
As aforestated, respondent Court of Appeals reversed said judgment of the trial court, hence
this petition the cruxwherein is whether or not Conditions Nos. 3 and 27 of
the insurance contracts were violated by petitionersthereby resulting in
their forfeiture of all the benefits thereunder.
Condition No. 3 of said insurance policies, otherwise known as
the "Other Insurance Clause," is uniformlycontained in all the aforestated
insurance contracts of herein petitioners, as follows:
3. The insured shall give notice to the Company
of any insurance or insurances already effected, orwhich
may subsequently be effected, covering any of the property or properties
consisting of stocksin trade, goods in process
and/or inventories only hereby insured, and unless
such notice be givenand the particulars of such
insurance or insurances be stated therein or endorsed on this policy pursuant to
Section 50 of the Insurance Code, by or on behalf of the Company
before the occurrenceof any loss or damage, all benefits under this policy shall be
deemed forfeited, provided however, that this condition shall not apply when the total
insurance or insurances in force at the time of loss ordamage not more than
P200,000.00. 5
Petitioners admit that the respective insurance policies
issued by private respondents did not state or endorse thereon
the other insurance coverage obtained or subsequently effected on the same stocks in trade for the

loss of which compensation is claimed by petitioners. 6 The policy


issued by respondent Western Guaranty Corporation(Western) did not
declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and respondent Equitable
Insurance Corporation (Equitable) as co-insurers on the same stocks,
while Reliance's Policies covering the same stocksdid not
likewise declare Western and Equitable as such co-insurers. It is
further admitted by petitioners that Equitable'spolicy stated "nil" in the space thereon requiring indication
of any co-insurance although there were three (3) policies subsisting on the same stocks in trade
at the time of the loss, namely, that of Western in the amount of P350,000.00 andtwo (2) policies of
Reliance in the total amount of P1,000,000.00. 7
In other words, the coverage by other insurance or co-insurance effected
or subsequently arranged by petitioners were neither stated nor endorsed in the policies of the three
(3) private respondents, warranting forfeiture of all benefits thereunder if we are to follow the express
stipulation in the aforequoted Policy Condition No. 3.
Petitioners contend that they are not to be blamed for the omissions,
alleging that insurance agent Leon Alvarez (for Western) and Yap Kam Chuan (for
Reliance and Equitable) knew about the existence of the additional insurance coverage and that
they were not informed about the requirement that such other or additional insurance
should be stated in the policy, as they have not even read policies. 8 These contentions cannot pass
judicial muster.
The terms of the contract are clear and unambiguous.
The insured is specifically required to disclose to the insurer any other insurance and its
particulars which he may have effected on the same subject matter. Theknowledge of such
insurance by the insurer's agents, even assuming the acquisition thereof by the former,
is notthe "notice" that would estop the insurers from denying the claim. Besides, the so-called theory
of imputed knowledge, that is, knowledge of the agent is
knowledge of the principal, aside from being of dubious applicabilityhere has likewise been roundly
refuted by respondent court whose factual findings we find acceptable.
Thus, it points out that while petitioner Julian Sy
claimed that he had informed insurance agent Alvarez regarding the co-insurance on the property,
he contradicted himself by inexplicably claiming that he had not read the termsof the policies; that
Yap Dam Chuan could not likewise have obtained such knowledge for the same reason, asidefrom
the fact that the insurance with Western was obtained before those of
Reliance and Equitable; and that theconclusion of
the trial court that Reliance and Equitable are "sister
companies" is an unfounded conjecture drawnfrom the mere fact that Yap Kam Chuan was
an agent for both companies which also had the same insuranceclaims adjuster. Availment of the
services of the same agents and adjusters by different companies is a
commonpractice in the insurance business and such facts
do not warrant the speculative conclusion of the trial court.
Furthermore, when the words and language of documents are clear and plain
or readily understandable by an ordinary reader thereof, there is absolutely no room for
interpretation or construction anymore. 9 Courts are not allowed to make contracts
for the parties; rather, they will intervene only when the terms of the policy are ambiguous, equivocal,
or uncertain. 10 The parties must abide by the terms of the contract because such terms constitute the
measureof the insurer's liability and compliance therewith is a
condition precedent to the insured's right of recovery from the insurer.11

While it is a cardinal principle of insurance law that a policy or contract


of insurance is to be construed liberally infavor of the insured and strictly against the insurer
company, yet contracts of insurance, like other contracts, are to be construed according to
the sense and meaning of the terms which the parties themselves have used. Ifsuch terms are clear
and unambiguous, they must be taken and understood in their plain, ordinary and popular
sense. 12 Moreover, obligations arising from contracts have the force of law between
the contracting parties and should becomplied with in good faith. 13
Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the ordinary
care and prudence that would be exacted in relation to other contracts. The conformity of the insured
to the terms of the policy is implied from his failure to express any disagreement with
what is provided for. 14 It may be true that themajority rule, as cited by petitioners, is that injured
persons may accept policies without reading them, and that this is not negligence per se. 15 But, this is not
without any exception. It is and was incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably expected
of him considering that he has been a businessman since 1965 16 and the contract concerns indemnity in case

ofloss in his money-making trade of which important consideration he could not have been unaware as it
was pre-in case of loss in his money-making trade of which important consideration he could not have
been unaware as it was precisely the reason for his procuring the same.

We reiterate our pronouncement in Pioneer Insurance and Surety Corporation vs. Yap: 17
...
And considering the terms of the policy which required the insured to declare other in
surances,the statement in question must be deemed to be a statement (warranty)
binding on both insurer and insured, that there were no other insurance on the
property. . . .
The annotation then, must be deemed to be a warranty that the property was not
insured by any other policy. Violation thereof entitled the insurer to rescind (Sec. 69,
Insurance Act). Suchmisrepresentation is fatal in the light of our views in Santa Ana
vs. Commercial Union Assurance Company, Ltd., 55 Phil. 329.
The materiality of non-disclosure of other insurance policies is not open to doubt.
xxx xxx xxx
The obvious purpose of the aforesaid requirement in the policy is to prevent overinsurance and thus avert the perpetration of fraud. The public, as well as the insurer,
is interested in preventing the situation in which a fire would be profitable to
the insured. According to Justice Story: "The insured has no right to complain, for he
assents to comply with all the stipulations on his side, in order toentitle himself to the
benefit of the contract, which, upon reason or principle, he
has no right to askthe court to dispense with the performance of his own part of the
agreement, and yet to bind theother party to
obligations, which, but for those stipulations, would not have been entered into."
Subsequently, in the case of Pacific Banking Corporation vs. Court of Appeals, et al., 18 we held:
It is not disputed that the insured failed to reveal before the
loss three other insurances. As found by the Court
of Appeals, by reason of said unrevealed insurances, the insured had been guilty of
a falsedeclaration; a clear misrepresentation and a vital one because where
the insured had been asked to reveal but did not, that was deception. Otherwise

stated, had the insurer known that there were many co-insurances, it could
have hesitated or plainly desisted from entering into such contract.
Hence, theinsured was guilty of clear fraud (Rollo, p. 25).
Petitioner's contention that the allegation of fraud is but
a mere inference or suspicion is untenable. In fact, concrete evidence of fraud or
false declaration by the insured was furnished by the petitioner itself when the facts
alleged in the policy under clauses "Co-Insurances Declared" and
"OtherInsurance Clause" are materially different from the actual number of coinsurances taken over thesubject property. Consequently, "the whole foundation of
the contract fails, the risk does not attachand the policy never becomes a contract
between the parties." Representations of facts are the foundation of the contract and
if the foundation does not exist, the superstructure does
not arise.Falsehood in such representations is not shown to vary
or add to the contract, or to terminate a contract which has once been made, but to
show that no contract has ever
existed (Tolentino,Commercial Laws of the Philippines, p.
991, Vol. II, 8th Ed.,) A void or inexistent contract is one which has no
force and effect from the very beginning, as if it had never been entered into, and
which cannot be validated either by time or by ratification
(Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA, 1986).
As the insurance policy against fire expressly required that notice should be given by
the insured ofother insurance upon the same property, the total absence of such
notice nullifies the policy.
To further warrant and justify the forfeiture of the
benefits under the insurance contracts involved, we need
merelyto turn to Policy Condition No. 15 thereof, which reads in part:
15. . . . if any false declaration be made or used
in support thereof, . . . all benefits under this Policy shall be forfeited . . . . 19
Additionally, insofar as the liability of respondent
Reliance is concerned, it is not denied that the complaint for recovery was filed in court by petitioners
only on January 31, 1984, or after more than one (1) year had
elapsedfrom petitioners' receipt of the insurers' letter of
denial on November 29, 1982. Policy Condition No. 27 of their insurance contract with Reliance
provides:
27. Action or suit
clause. If a claim be made and rejected and an action or suit be not commenced
either in the Insurance Commission or any court of competent jurisdiction of notice of
such rejection,or in case of arbitration taking place
as provided herein, within twelve (12) months after due
notice ofthe award made by the arbitrator or arbitrators
or umpire, then the claim shall for all purposes be
deemed to have been abandoned and shall not thereafter be recoverable
hereunder. 20
On this point, the trial court ruled:

. . . However, because of the peculiar circumstances of this case, we hesitate


in concluding thatplaintiff's right to ventilate his claim in court has been barred by rea
son of the time constraintprovided in the insurance contract. It is
evident that after the plaintiff had received
the letter of denial,he still found it necessary to be informed of the specific causes or
reasons for the denial of his claim,reason for which his lawyer, Atty. Dator
deemed it wise to send a letter of inquiry to the defendantwhich was answered by
defendant's Executive Vice-President in a letter dated March 30, 1983, . . .
.Assuming, gratuitously, that the letter of Executive Vice-President Mary Dee Co
dated March 30, 1983, was received by plaintiff on the same date, the period
of limitation should start to run only fromsaid date in the spirit of fair play and equity. .
. . 21
We have perforce to reject this theory of the court below for being contrary to what we have
heretofore declared:
It is important to note the principle laid down by this Court in the case of Ang vs.
Fulton Fire Insurance Co. (2 SCRA 945 [1961]) to wit:
The condition contained in an insurance policy that claims must be pr
esented within one year
after rejection is not merely a procedural requirement but an importan
t matter essential to a prompt settlement of claims against insurance
companies as it demandsthat insurance suits be brought by
the insured while the evidence as to the
origin andcause of destruction have not yet disappeared.
In enunciating the above-cited principle, this Court had definitely
settled the rationale for the necessity of bringing suits against the Insurer
within one year from the rejection of the claim. The contention
of the respondents that the one-year prescriptive period does
not start to run until thepetition for reconsideration had been resolved by the insurer, r
uns counter to the declared purpose for requiring that an action or suit be filed in the
Insurance Commission or in a court of competent
jurisdiction from the denial of the claim. To uphold respondents' contention would
contradict anddefeat the very principle which this Court had laid down. Moreover,
it can easily be used by insured persons as a scheme or device to waste time
until any evidence which may be considered againstthem is destroyed.
xxx xxx xxx
While in the Eagle Star case (96 Phil. 701),
this Court uses the phrase "final rejection", the
samecannot be taken to mean the rejection of a petition for reconsideration as
insisted by respondents.
Such was clearly not the meaning contemplated by this Court. The insurance policy i
n said caseprovides that the insured should file his claim first, with
the carrier and then with the insurer. The"final rejection" being referred to in said case
is the rejection by the insurance company. 22
Furthermore, assuming arguendo that petitioners felt the
legitimate need to be clarified as to the policy condition violated, there was a considerable lapse of

time from their receipt of the insurer's clarificatory letter dated March 30, 1983, up to the time the
complaint was filed in court on January 31, 1984. The one-year prescriptive periodwas yet
to expire on November 29, 1983, or about eight (8) months from the
receipt of the clarificatory letter, butpetitioners let the
period lapse without bringing their action in court.
We accordingly find no "peculiarcircumstances" sufficient to relax the enforcement of the oneyear prescriptive period and we, therefore, hold thatpetitioners' claim was definitely filed out of time.
WHEREFORE, finding no cogent reason to disturb the judgment
of respondent Court of Appeals, the same ishereby AFFIRMED.
SO ORDERED.
[G.R. No. 82978. November 22, 1990.]
THE MANILA REMNANT CO., INC., Petitioner, v. THE HONORABLE COURT OF APPEALS and OSCAR
VENTANILLA, JR. and CARMEN GLORIA DIAZ, Respondents.
DECISION

FERNAN, J.:

Like any other couple, Oscar Ventanilla and his wife Carmen, both faculty members of the University of the
Philippines and renting a faculty unit, dreamed of someday owning a house and lot. Instead of attaining this
dream, they became innocent victims of deceit and found themselves in the midst of an ensuing squabble
between a subdivision owner and its real estate agent.
The facts as found by the trial court and adopted by the Appellate Court are as follows:

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Petitioner Manila Remnant Co., Inc. is the owner of the parcels of land situated in Quezon City covered by
Transfer Certificates of Title Nos. 26400, 26401, 30783 and 31986 and constituting the subdivision 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 agreement entitled "Confirmation of Land Development and Sales Contract" to
formalize an earlier verbal agreement whereby for a consideration of 17 and 1/2% fee, including sales
commission and management fee, A.U. Valencia and Co., Inc. was to develop the aforesaid subdivision with
authority to manage the sales thereof, execute contracts to sell to lot buyers and issue official receipts. 1
At that time the President of both A.U. Valencia and Co. Inc. and Manila Remnant Co., Inc. was Artemio U.
Valencia.
cralawnad

On March 3, 1970, Manila Remnant thru A.U. Valencia and Co. executed two "contracts to sell" covering Lots
1 and 2 of Block 17 in favor of Oscar C. Ventanilla and Carmen Gloria Diaz for the combined contract price of
P66,571.00 payable monthly for ten years. 2 As thus agreed in the contracts to sell, the Ventanillas paid the
down payments on the two lots even before the formal contract was signed on March 3, 1970.
Ten (10) days after the signing of the contracts with the Ventanillas or on March 13, 1970, Artemio U.
Valencia, as President of Manila Remnant, and without the knowledge of the Ventanilla couple, sold Lots 1
and 2 of Block 17 again, this time in favor of Carlos Crisostomo, one of his sales agents without any
consideration. 3 Artemio Valencia then transmitted the fictitious Crisostomo contracts to Manila Remnant
while he kept in his files the contracts to sell in favor of the Ventanillas. All the amounts paid by the
Ventanillas were deposited in Valencias bank account.
Beginning March 13, 1970, upon orders of Artemio Valencia, the 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 files and never transmitted the same to Crisostomo, the
latter and the Ventanillas remained ignorant of Valencias scheme. Thus, the Ventanillas continued paying

their monthly installments.

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Subsequently, the harmonious business relationship between Artemio Valencia and Manila Remnant ended.
On May 30, 1973, Manila Remnant, through its General Manager Karl Landahl, wrote Artemio Valencia
informing him that Manila Remnant was terminating its existing collection agreement with his firm on
account of the considerable amount of discrepancies and irregularities discovered in its collections and
remittances by virtue of confirmations received from lot buyers. 4 As a consequence, on June 6, 1973,
Artemio Valencia was removed as President by the Board of Directors of Manila Remnant. Therefore, from
May of 1973, Valencia stopped transmitting Ventanillas monthly installments which at that time had already
amounted to P17,925.40 for Lot 1 and P18,141.95 for Lot 2, (which appeared in Manila Remnants record as
credited in the name of Crisostomo). 5
On June 8, 1973, A.U. Valencia and Co. sued Manila Remnant before Branch 19 of the then Court of First
Instance of Manila 6 to impugn the abrogation of their agency agreement. On June 10 and July 10, 1973,
said court ordered all lot buyers to deposit their monthly amortizations with the court. 7 But on July 17,
1973, A.U. Valencia and Co. wrote the Ventanillas that it was still authorized by the court to collect the
monthly amortizations and requested them to continue remitting their amortizations with the assurance that
said payments would be deposited later in court. 8 On May 22, 1974, the trial court issued an order
prohibiting A.U. Valencia and Co. from collecting the monthly installments. 9 On July 22, 1974 and February
6, 1976 the same court ordered the Valencia firm to furnish the court with a complete list of all lot buyers
who had already made down payments to Manila Remnant before December 1972. 10 Valencia complied
with the courts order on August 6, 1974 by submitting a list which excluded the name of the Ventanillas.
11
Since A.U. Valencia and Co. failed to forward its collections after May 1973, Manila Remnant caused on
August 20, 1976 the publication in the Times Journal of a notice cancelling the contracts to sell of some lot
buyers including that of Carlos Crisostomo in whose name the payments of the Ventanillas had been
credited. 12
To prevent the effective cancellation of their contracts, Artemio Valencia instigated on September 22, 1976
the filing by Carlos Crisostomo and seventeen (17) other lot vendees of a complaint for specific performance
with damages against Manila Remnant before the Court of First Instance of Quezon City. The complaint
alleged that Crisostomo had already paid a total of P17,922.40 and P18,136.85 on Lots 1 and 2,
respectively. 13
It was not until March 1978 when the Ventanillas, after learning of the termination of the agency agreement
between Manila Remnant and A.U. Valencia & Co., decided to stop paying their amortizations to the latter.
The Ventanillas, believing that they had already remitted P37,007.00 for Lot 1 and P36,911.00 for Lot 2 or a
grand total, inclusive of interest, of P73,122.35 for the two lots, thereby leaving a balance of P13,531.58 for
Lot 1 and P13,540.22 for Lot 2, went directly to Manila Remnant and offered to pay the entire outstanding
balance of the purchase price. 14 To their shock and utter consternation, they discovered from Gloria
Caballes, an accountant of Manila Remnant, that their names did not appear in the records of A.U. Valencia
and Co. as lot buyers. Caballes showed the Ventanillas copies of the contracts to sell in favor of Carlos
Crisostomo, duly signed by Artemio U. Valencia as President of Manila Remnant. 15 Whereupon, Manila
Remnant refused the offer of the Ventanillas to pay for the remainder of the contract price because they did
not have the personality to do so. Furthermore, they were shown the published Notice of Cancellation in the
January 29, 1978 issue of the Times Journal rescinding the contracts of delinquent buyers including
Crisostomo.
Thus, on November 21, 1978, the Ventanillas commenced an action for specific performance, annulment of
deeds and damages against Manila Remnant, A.U. Valencia and Co. and Carlos Crisostomo before the Court
of First Instance of Quezon City, Branch 17-B. 16 Crisostomo was declared in default for failure to file an
answer.
chanroble s.com:cralaw:red

On November 17, 1980, the trial court rendered a decision 1) declaring the contracts to sell issued in favor
of the Ventanillas valid and subsisting and annulling the contracts to sell in Crisostomos favor; 2) ordering
Manila Remnant to execute in favor of the Ventanillas an Absolute Deed of Sale free from all liens and
encumbrances; and 3) condemning defendants A.U. Valencia and Co. Inc., Manila Remnant and Carlos
Crisostomo jointly and severally to pay the Ventanillas the amount of P100,000.00 as moral damages,
P100,000.00 as exemplary damages, and P100,000.00 as attorneys fees. The lower court also added that if,
for any legal reason, the transfer of the lots could no longer be effected, the defendants should reimburse
jointly and severally to the Ventanillas the total amount of P73,122.35 representing the total amount paid

for the two lots plus legal interest thereon from March 1970 plus damages as aforestated. With regard to the
cross claim of Manila Remnant against Valencia, the court found that Manila Remnant could have not been
dragged into this suit without the fraudulent manipulations of Valencia. Hence, it adjudged A.U. Valencia and
Co. to pay the Manila Remnant P5,000.00 as moral damages and exemplary damages and P5,000.00 as
attorneys fees. 17
Subsequently, Manila Remnant and A.U. Valencia and Co. elevated the lower courts decision to the Court of
Appeals through separate appeals. On October 13, 1987, the Appellate Court affirmed in toto the decision of
the lower court. Reconsideration sought by petitioner Manila Remnant was denied, hence the instant
petition.
There is no question that the contracts to sell in favor of the Ventanilla spouses are valid and subsisting. The
only issue remaining is whether or not petitioner Manila Remnant should be held solidarily liable together
with A.U. Valencia and Co. and Carlos Crisostomo for the payment of moral, exemplary damages and
attorneys fees in favor of the Ventanillas. 18
While petitioner Manila Remnant has not refuted the legality of the award of damages per se, it believes that
it cannot be made jointly and severally liable with its agent A.U. Valencia and Co. since it was not aware of
the illegal acts perpetrated nor did it consent or ratify said acts of its agent.
The argument is devoid of merit.
In the case at bar, the Valencia realty firm had clearly overstepped the bounds of its authority as agent
and for that matter, even the law when it undertook the double sale of the disputed lots. Such being the
case, the principal, Manila Remnant, would have been in the clear pursuant to Article 1897 of the Civil Code
which states that" (t)he agent who acts as such is not personally liable to that party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party
sufficient notice of his powers."
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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:chanroble s.com.ph

"Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the
former allowed the latter to act as though he had full powers." (Emphasis supplied)
The above-quoted article is new. It is intended to protect the rights of innocent persons. In such a situation,
both the principal and the agent may be considered as joint feasors whose liability is joint and solidary. 20
Authority by estoppel has arisen in the instant case because by its negligence, the principal, Manila
Remnant, has permitted its agent, A.U. Valencia and Co., to exercise powers not granted to it. That the
principal might not have had actual knowledge of the agents misdeed is of no moment. Consider the
following circumstances:
chanrob1es virtual 1aw library

Firstly, Manila Remnant literally gave carte blanche to its agent A.U. Valencia and Co. in the sale and
disposition of the subdivision lots. As a disclosed principal in the contracts to sell in favor of the Ventanilla
couple, there was no doubt that they were in fact contracting with the principal. Section 7 of the Ventanillas
contracts to sell states:
jgc:chanroble s.com.ph

"7. That all payments whether deposits, down payment and monthly installment agreed to be made by the
vendee shall be payable to A.U. Valencia and Co., Inc. It is hereby expressly understood that unauthorized
payments made to real estate brokers or agents shall be the sole and exclusive responsibility and at the risk
of the vendee and any and all such payments shall not be recognized by the vendors unless the official
receipts therefor shall have been duly signed by the vendors duly authorized agent, A.U. Valencia and Co.,
Inc." (Emphasis supplied)

Indeed, once Manila Remnant had been furnished with the usual copies of the contracts to sell, its only
participation then was to accept the collections and pay the commissions to the agent. The latter had
complete control of the business arrangement. 21
Secondly, it is evident from the records that Manila Remnant was less than prudent in the conduct of its
business as a subdivision owner. For instance, Manila Remnant failed to take immediate steps to avert any
damage that might be incurred by the lot buyers as a result of its unilateral abrogation of the agency
contract. The publication of the cancelled contracts to sell in the Times Journal came three years after Manila
Remnant had revoked its agreement with A.U. Valencia and Co.
chanrobles virtual lawlibrary

Moreover, Manila Remnant also failed to check the records of its agent immediately after the revocation of
the agency contract despite the fact that such revocation was due to reported anomalies in Valencias
collections. Altogether, as pointed out by the counsel for the Ventanillas, Manila Remnant could and should
have devised a system whereby it could monitor and require a regular accounting from A.U. Valencia and
Co., its agent. Not having done so, Manila Remnant has made itself liable to those who have relied on its
agent and the representation that such agent was clothed with sufficient powers to act on behalf of the
principal.
Even assuming that Manila Remnant was as much a victim as the other innocent lot buyers, it cannot be
gainsaid that it was precisely its negligence and laxity in the day to day operations of the real estate
business which made it possible for the agent to deceive unsuspecting vendees like the Ventanillas.
In essence, therefore, the basis for Manila Remnants solidary liability is estoppel which, in turn, is rooted in
the principals neglectfulness in failing to properly supervise and control the affairs of its agent and to adopt
the needed measures to prevent further misrepresentation. As a consequence, Manila Remnant is
considered estopped from pleading the truth that it had no direct hand in the deception employed by its
agent. 22
A final word. The Court cannot help but be alarmed over the reported practice of supposedly reputable real
estate brokers of manipulating prices by allowing their own agents to "buy" lots in their names in the hope
of reselling the same at a higher price to the prejudice of bona fide lot buyers, as precisely what the agent
had intended to happen in the present case. This is a serious matter that must be looked into by the
appropriate government housing authority.
chanrobles.com .ph : virtual law library

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

G.R. No. L-55963 December 1, 1989


SPOUSES JOSE FONTANILLA AND VIRGINIA FONTANILLA, petitioners,
vs.
HONORABLE INOCENCIO D. MALIAMAN and NATIONAL IRRIGATION
ADMINISTRATION, respondents.
G.R. No. L-61045 December 1, 1989
NATIONAL IRRIGATION ADMINISTRATION, appellant,
vs.
SPOUSES JOSE FONTANILLA and VIRGINIA FONTANILLA, appellees.
Cecilio V. Suarez, Jr. for Spouses Fontanilla.
Felicisimo C. Villaflor for NIA.

PARAS, J.:
In G.R. No. L-55963, the petition for review on certiorari seeks the affirmance of the decision dated
March 20, 1980 of the then Court of First Instance of Nueva Ecija, Branch VIII, at San Jose City and
its modification with respect to the denial of petitioner's claim for moral and exemplary damages and
attorneys fees.
In G.R. No. 61045, respondent National Irrigation Administration seeks the reversal of the aforesaid
decision of the lower court. The original appeal of this case before the Court of Appeals was certified
to this Court and in the resolution of July 7, 1982, it was docketed with the aforecited number. And in
the resolution of April 3, this case was consolidated with G.R. No. 55963.
It appears that on August 21, 1976 at about 6:30 P.M., a pickup owned and operated by respondent
National Irrigation Administration, a government agency bearing Plate No. IN-651, then driven
officially by Hugo Garcia, an employee of said agency as its regular driver, bumped a bicycle ridden
by Francisco Fontanilla, son of herein petitioners, and Restituto Deligo, at Maasin, San Jose City
along the Maharlika Highway. As a result of the impact, Francisco Fontanilla and Restituto Deligo
were injured and brought to the San Jose City Emergency Hospital for treatment. Fontanilla was
later transferred to the Cabanatuan Provincial Hospital where he died.
Garcia was then a regular driver of respondent National Irrigation Administration who, at the time of
the accident, was a licensed professional driver and who qualified for employment as such regular
driver of respondent after having passed the written and oral examinations on traffic rules and
maintenance of vehicles given by National Irrigation Administration authorities.
The within petition is thus an off-shot of the action (Civil Case No. SJC-56) instituted by petitionersspouses on April 17, 1978 against respondent NIA before the then Court of First Instance of Nueva
Ecija, Branch VIII at San Jose City, for damages in connection with the death of their son resulting
from the aforestated accident.
After trial, the trial court rendered judgment on March 20, 1980 which directed respondent National
Irrigation Administration to pay damages (death benefits) and actual expenses to petitioners. The
dispositive portion of the decision reads thus:
. . . . . Judgment is here rendered ordering the defendant National Irrigation
Administration to pay to the heirs of the deceased P12,000.00 for the death of
Francisco Fontanilla; P3,389.00 which the parents of the deceased had spent for the
hospitalization and burial of the deceased Francisco Fontanilla; and to pay the costs.
(Brief for the petitioners spouses Fontanilla, p. 4; Rollo, p. 132)
Respondent National Irrigation Administration filed on April 21, 1980, its motion for reconsideration of
the aforesaid decision which respondent trial court denied in its Order of June 13, 1980. Respondent
National Irrigation Administration thus appealed said decision to the Court of Appeals (C.A.-G.R. No.
67237- R) where it filed its brief for appellant in support of its position.
Instead of filing the required brief in the aforecited Court of Appeals case, petitioners filed the instant
petition with this Court.

The sole issue for the resolution of the Court is: Whether or not the award of moral damages,
exemplary damages and attorney's fees is legally proper in a complaint for damages based on
quasi-delict which resulted in the death of the son of herein petitioners.
Petitioners allege:
1. The award of moral damages is specifically allowable. under paragraph 3 of Article
2206 of the New Civil Code which provides that the spouse, legitimate and
illegitimate descendants and ascendants of the deceased may demand moral
damages for mental anguish by reason of the death of the deceased. Should moral
damages be granted, the award should be made to each of petitionersspouses individually and in varying amounts depending upon proof of mental and
depth of intensity of the same, which should not be less than P50,000.00 for each of
them.
2. The decision of the trial court had made an impression that respondent National
Irrigation Administration acted with gross negligence because of the accident and the
subsequent failure of the National Irrigation Administration personnel including the
driver to stop in order to give assistance to the, victims. Thus, by reason of the gross
negligence of respondent, petitioners become entitled to exemplary damages under
Arts. 2231 and 2229 of the New Civil Code.
3. Petitioners are entitled to an award of attorney's fees, the amount of which (20%)
had been sufficiently established in the hearing of May 23, 1979.
4. This petition has been filed only for the purpose of reviewing the findings of the
lower court upon which the disallowance of moral damages, exemplary damages and
attorney's fees was based and not for the purpose of disturbing the other findings of
fact and conclusions of law.
The Solicitor General, taking up the cudgels for public respondent National Irrigation Administration,
contends thus:
1. The filing of the instant petition is rot proper in view of the appeal taken by
respondent National Irrigation Administration to the Court of Appeals against the
judgment sought to be reviewed. The focal issue raised in respondent's appeal to the
Court of Appeals involves the question as to whether or not the driver of the vehicle
that bumped the victims was negligent in his operation of said vehicle. It thus
becomes necessary that before petitioners' claim for moral and exemplary damages
could be resolved, there should first be a finding of negligence on the part of
respondent's employee-driver. In this regard, the Solicitor General alleges that the
trial court decision does not categorically contain such finding.
2. The filing of the "Appearance and Urgent Motion For Leave to File PlaintiffAppellee's Brief" dated December 28, 1981 by petitioners in the appeal (CA-G.R. No.
67237-R; and G. R. No.61045) of the respondent National Irrigation Administration
before the Court of Appeals, is an explicit admission of said petitioners that the
herein petition, is not proper. Inconsistent procedures are manifest because while
petitioners question the findings of fact in the Court of Appeals, they present only the

questions of law before this Court which posture confirms their admission of the
facts.
3. The fact that the parties failed to agree on whether or not negligence caused the
vehicular accident involves a question of fact which petitioners should have brought
to the Court of Appeals within the reglementary period. Hence, the decision of the
trial court has become final as to the petitioners and for this reason alone, the petition
should be dismissed.
4. Respondent Judge acted within his jurisdiction, sound discretion and in conformity
with the law.
5. Respondents do not assail petitioners' claim to moral and exemplary damages by
reason of the shock and subsequent illness they suffered because of the death of
their son. Respondent National Irrigation Administration, however, avers that it
cannot be held liable for the damages because it is an agency of the State
performing governmental functions and driver Hugo Garcia was a regular driver of
the vehicle, not a special agent who was performing a job or act foreign to his usual
duties. Hence, the liability for the tortious act should. not be borne by respondent
government agency but by driver Garcia who should answer for the consequences of
his act.
6. Even as the trial court touched on the failure or laxity of respondent National
Irrigation Administration in exercising due diligence in the selection and supervision
of its employee, the matter of due diligence is not an issue in this case since driver
Garcia was not its special agent but a regular driver of the vehicle.
The sole legal question on whether or not petitioners may be entitled to an award of moral and
exemplary damages and attorney's fees can very well be answered with the application of Arts. 2176
and 2180 of theNew Civil Code.
Art. 2176 thus provides:
Whoever by act omission causes damage to another, there being fault or negligence,
is obliged to pay for damage done. Such fault or negligence, if there is no preexisting cotractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter
Paragraphs 5 and 6 of Art. 21 80 read as follows:
Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even the though the former
are not engaged in any business or industry.
The State is responsible in like manner when it acts through a special agent.; but not
when the damage has been caused by the official to whom the task done properly
pertains, in which case what is provided in Art. 2176 shall be applicable.
The liability of the State has two aspects. namely:

1. Its public or governmental aspects where it is liable for the tortious acts of special
agents only.
2. Its private or business aspects (as when it engages in private enterprises) where it
becomes liable as an ordinary employer. (p. 961, Civil Code of the Philippines;
Annotated, Paras; 1986 Ed. ).
In this jurisdiction, the State assumes a limited liability for the damage caused by the tortious acts or
conduct of its special agent.
Under the aforequoted paragrah 6 of Art. 2180, the State has voluntarily assumed liability for acts
done through special agents. The State's agent, if a public official, must not only be specially
commissioned to do a particular task but that such task must be foreign to said official's usual
governmental functions. If the State's agent is not a public official, and is commissioned to perform
non-governmental functions, then the State assumes the role of an ordinary employer and will be
held liable as such for its agent's tort. Where the government commissions a private individual for a
special governmental task, it is acting through a special agent within the meaning of the provision.
(Torts and Damages, Sangco, p. 347, 1984 Ed.)
Certain functions and activities, which can be performed only by the government, are more or less
generally agreed to be "governmental" in character, and so the State is immune from tort liability. On
the other hand, a service which might as well be provided by a private corporation, and particularly
when it collects revenues from it, the function is considered a "proprietary" one, as to which there
may be liability for the torts of agents within the scope of their employment.
The National Irrigation Administration is an agency of the government exercising proprietary
functions, by express provision of Rep. Act No. 3601. Section 1 of said Act provides:
Section 1. Name and domicile.-A body corporate is hereby created which shall be
known as the National Irrigation Administration, hereinafter called the NIA for short,
which shall be organized immediately after the approval of this Act. It shall have its
principal seat of business in the City of Manila and shall have representatives in all
provinces for the proper conduct of its business.
Section 2 of said law spells out some of the NIA's proprietary functions. ThusSec. 2. Powers and objectives.-The NIA shall have the following powers and
objectives:
(a) x x x x x x x x x x x x x x x x x x
(b) x x x x x x x x x x x x x x x x x x
(c) To collect from the users of each irrigation system constructed by it such fees as
may be necessary to finance the continuous operation of the system and reimburse
within a certain period not less than twenty-five years cost of construction thereof;
and

(d) To do all such other tthings and to transact all such business as are directly or
indirectly necessary, incidental or conducive to the attainment of the above
objectives.
Indubitably, the NIA is a government corporation with juridical personality and not a mere agency of
the government. Since it is a corporate body performing non-governmental functions, it now
becomes liable for the damage caused by the accident resulting from the tortious act of its driveremployee. In this particular case, the NIA assumes the responsibility of an ordinary employer and as
such, it becomes answerable for damages.
This assumption of liability, however, is predicated upon the existence of negligence on the part of
respondent NIA. The negligence referred to here is the negligence of supervision.
At this juncture, the matter of due diligence on the part of respondent NIA becomes a crucial issue in
determining its liability since it has been established that respondent is a government agency
performing proprietary functions and as such, it assumes the posture of an ordinary employer which,
under Par. 5 of Art. 2180, is responsible for the damages caused by its employees provided that it
has failed to observe or exercise due diligence in the selection and supervision of the driver.
It will be noted from the assailed decision of the trial court that "as a result of the impact, Francisco
Fontanilla wasthrown to a distance 50 meters away from the point of impact while Restituto Deligo
was thrown a little bit further away. The impact took place almost at the edge of the cemented
portion of the road." (Emphasis supplied,) [page 26, Rollo]
The lower court further declared that "a speeding vehicle coming in contact with a person causes
force and impact upon the vehicle that anyone in the vehicle cannot fail to notice. As a matter of fact,
the impact was so strong as shown by the fact that the vehicle suffered dents on the right side of the
radiator guard, the hood, the fender and a crack on the radiator as shown by the investigation
report (Exhibit "E"). (Emphasis supplied) [page 29, Rollo]
It should be emphasized that the accident happened along the Maharlika National Road within the
city limits of San Jose City, an urban area. Considering the fact that the victim was thrown 50 meters
away from the point of impact, there is a strong indication that driver Garcia was driving at a high
speed. This is confirmed by the fact that the pick-up suffered substantial and heavy damage as
above-described and the fact that the NIA group was then "in a hurry to reach the campsite as early
as possible", as shown by their not stopping to find out what they bumped as would have been their
normal and initial reaction.
Evidently, there was negligence in the supervision of the driver for the reason that they were
travelling at a high speed within the city limits and yet the supervisor of the group, Ely Salonga, failed
to caution and make the driver observe the proper and allowed speed limit within the city. Under the
situation, such negligence is further aggravated by their desire to reach their destination without
even checking whether or not the vehicle suffered damage from the object it bumped, thus showing
imprudence and reckelessness on the part of both the driver and the supervisor in the group.
Significantly, this Court has ruled that even if the employer can prove the diligence in the selection
and supervision (the latter aspect has not been established herein) of the employee, still if he ratifies
the wrongful acts, or take no step to avert further damage, the employer would still be liable. (Maxion
vs. Manila Railroad Co., 44 Phil. 597).

Thus, too, in the case of Vda. de Bonifacio vs. B.L.T. Bus Co. (L-26810, August 31, 1970, 34 SCRA
618), this Court held that a driver should be especially watchful in anticipation of others who may be
using the highway, and his failure to keep a proper look out for reasons and objects in the line to be
traversed constitutes negligence.
Considering the foregoing, respondent NIA is hereby directed to pay herein petitioners-spouses the
amounts of P12,000.00 for the death of Francisco Fontanilla; P3,389.00 for hospitalization and burial
expenses of the aforenamed deceased; P30,000.00 as moral damages; P8,000.00 as exemplary
damages and attorney's fees of 20% of the total award.
SO ORDERED.
G.R. No. 129577-80

February 15, 2000

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,


vs.
BULU CHOWDURY, accused-appellant.
PUNO, J.:
In November 1995, Bulu Chowduly and Josephine Ong were charged before the Regional Trial
Court of Manila with the crime of illegal recruitment in large scale committed as follows:
That sometime between the period from August 1994 to October 1994 in the City of Manila,
Philippines and within the jurisdiction of this Honorable Court, the above-named accused,
representing themselves to have the capacity to contract, enlist and transport workers for
employment abroad, conspiring, confederating and mutually helping one another, did then
and there willfully, unlawfully and feloniously recruit the herein complainants: Estrella B.
Calleja, Melvin C. Miranda and Aser S. Sasis, individually or as a group for employment in
Korea without first obtaining the required license and/or authority from the Philippine
Overseas Employment Administration.1
They were likewise charged with three counts of estafa committed against private
complainants.2 The State Prosecutor, however, later dismissed the estafa charges against
Chowdury3 and filed an amended information indicting only Ong for the offense.4
Chowdury was arraigned on April 16, 1996 while Ong remained at large. He pleaded "not guilty" to
the charge of illegal recruitment in large scale.5
Trial ensued.
The prosecution presented four witnesses: private complainants Aser Sasis, Estrella Calleja and
Melvin Miranda, and Labor Employment Officer Abbelyn Caguitla.
Sasis testified that he first met Chowdury in August 1994 when he applied with Craftrade Overseas
Developers (Craftrade) for employment as factory worker in South Korea. Chowdury, a consultant of
Craftrade, conducted the interview. During the interview, Chowdury informed him about the
requirements for employment. He told him to submit his passport, NBI clearance, passport size
picture and medical certificate. He also required him to undergo a seminar. He advised him that

placement would be on a first-come-first-serve basis and urged him to complete the requirements
immediately. Sasis was also charged a processing fee of P25,000.00. Sasis completed all the
requirements in September 1994. He also paid a total amount of P16,000.00 to Craftrade as
processing fee. All payments were received by Ong for which she issued three receipts. 6 Chowdury
then processed his papers and convinced him to complete his payment. 7
Sasis further said that he went to the office of Craftrade three times to follow up his application but
he was always told to return some other day. In one of his visits to Craftrade's office, he was
informed that he would no longer be deployed for employment abroad. This prompted him to
withdraw his payment but he could no longer find Chowdury. After two unsuccessful attempts to
contact him, he decided to file with the Philippine Overseas Employment Administration (POEA) a
case for illegal recruitment against Chowdury. Upon verification with the POEA, he learned that
Craftrade's license had already expired and has not been renewed and that Chowdury, in his
personal capacity, was not a licensed recruiter.8
Calleja testified that in June 1994, she applied with Craftrade for employment as factory worker in
South Korea. She was interviewed by Chowdury. During the interview, he asked questions regarding
her marital status, her age and her province. Toward the end of the interview, Chowdury told her that
she would be working in a factory in Korea. He required her to submit her passport, NBI clearance,
ID pictures, medical certificate and birth certificate. He also obliged her to attend a seminar on
overseas employment. After she submitted all the documentary requirements, Chowdury required
her to pay P20,000.00 as placement fee. Calleja made the payment on August 11, 1994 to Ong for
which she was issued a receipt.9 Chowdury assured her that she would be able to leave on the first
week of September but it proved to be an empty promise. Calleja was not able to leave despite
several follow-ups. Thus, she went to the POEA where she discovered that Craftrade's license had
already expired. She tried to withdraw her money from Craftrade to no avail. Calleja filed a complaint
for illegal recruitment against Chowdury upon advice of POEA's legal counsel. 10
Miranda testified that in September 1994, his cousin accompanied him to the office of Craftrade in
Ermita, Manila and introduced him to Chowdury who presented himself as consultant and
interviewer. Chowdury required him to fill out a bio-data sheet before conducting the interview.
Chowdury told Miranda during the interview that he would send him to Korea for employment as
factory worker. Then he asked him to submit the following documents: passport, passport size
picture, NBI clearance and medical certificate. After he complied with the requirements, he was
advised to wait for his visa and to pay P25,000.00 as processing fee. He paid the amount of
P25,000.00 to Ong who issued receipts therefor.11 Craftrade, however, failed to deploy him. Hence,
Miranda filed or complaint with the POEA against Chowdury for illegal recruitment. 12
Labor Employment Officer Abbelyn Caguitla of the Licensing Branch of the POEA testified that she
prepared a certification on June 9, 1996 that Chowdury and his co-accused, Ong, were not, in their
personal capacities, licensed recruiters nor were they connected with any licensed agency. She
nonetheless stated that Craftrade was previously licensed to recruit workers for abroad which
expired on December 15, 1993. It applied for renewal of its license but was only granted a temporary
license effective December 16, 1993 until September 11, 1994. From September 11, 1994, the
POEA granted Craftrade another temporary authority to process the expiring visas of overseas
workers who have already been deployed. The POEA suspended Craftrade's temporary license on
December 6, 1994.13

For his defense, Chowdury testified that he worked as interviewer at Craftrade from 1990 until 1994.
His primary duty was to interview job applicants for abroad. As a mere employee, he only followed
the instructions given by his superiors, Mr. Emmanuel Geslani, the agency's President and General
Manager, and Mr. Utkal Chowdury, the agency's Managing Director. Chowdury admitted that he
interviewed private complainants on different dates. Their office secretary handed him their bio-data
and thereafter he led them to his room where he conducted the interviews. During the interviews, he
had with him a form containing the qualifications for the job and he filled out this form based on the
applicant's responses to his questions. He then submitted them to Mr. Utkal Chowdury who in turn
evaluated his findings. He never received money from the applicants. He resigned from Craftrade on
November 12, 1994.14
Another defense witness, Emelita Masangkay who worked at the Accreditation Branch of the POEA
presented a list of the accredited principals of Craftrade Overseas Developers 15 and a list of
processed workers of Craftrade Overseas Developers from 1988 to 1994. 16
The trial court found Chowdury guilty beyond reasonable doubt of the crime of illegal recruitment in
large scale. It sentenced him to life imprisonment and to pay a fine of P100,000.00. It further ordered
him to pay Aser Sasis the amount of P16,000.00, Estrella Calleja, P20,000.00 and Melvin Miranda,
P25,000.00. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing considerations, the prosecution having proved the
guilt of the accused Bulu Chowdury beyond reasonable doubt of the crime of Illegal
Recruitment in large scale, he is hereby sentenced to suffer the penalty of life imprisonment
and a fine of P100,000.00 under Art. 39 (b) of the New Labor Code of the Philippines. The
accused is ordered to pay the complainants Aser Sasis the amount of P16,000.00; Estrella
Calleja the amount of P20,000.00; Melvin Miranda the amount of P25,000.00. 17
Chowdury appealed.
The elements of illegal recruitment in large scale are:
(1) The accused undertook any recruitment activity defined under Article 13 (b) or any
prohibited practice enumerated under Article 34 of the Labor Code;
(2) He did not have the license or authority to lawfully engage in the recruitment and
placement of workers; and
(3) He committed the same against three or more persons, individually or as a group. 18
The last paragraph of Section 6 of Republic Act (RA) 804219 states who shall be held liable for the
offense, thus:
The persons criminally liable for the above offenses are the principals, accomplices and
accessories. In case of juridical persons, the officers having control, management or
direction of their business shall be liable.
The Revised Penal Code which supplements the law on illegal recruitment 20 defines who are the
principals, accomplices and accessories. The principals are: (1) those who take a direct part in the
execution of the act; (2) those who directly force or induce others to commit it; and (3) those who

cooperate in the commission of the offense by another act without which it would not have been
accomplished.21 The accomplices are those persons who may not be considered as principal as
defined in Section 17 of the Revised Penal Code but cooperate in the execution of the offense by
previous or simultaneous act.22 The accessories are those who, having knowledge of the
commission of the crime, and without having participated therein, either as principals or
accomplices, take part subsequent to its commission in any of the following manner: (1) by profiting
themselves or assisting the offenders to profit by the effects of the crime; (2) by concealing or
destroying the body of the crime, or the effects or instruments thereof, in order to prevent its
discovery; and (3) by harboring, concealing, or assisting in the escape of the principal of the crime,
provided the accessory acts with abuse of his public functions or whenever the author of the crime is
guilty of treason, parricide, murder, or an attempt at the life of the chief executive, or is known to be
habitually guilty of some other crime.23
Citing the second sentence of the last paragraph of Section 6 of RA 8042, accused-appellant
contends that he may not be held liable for the offense as he was merely an employee of Craftrade
and he only performed the tasks assigned to him by his superiors. He argues that the ones who
should be held liable for the offense are the officers having control, management and direction of the
agency.
As stated in the first sentence of Section 6 of RA 8042, the persons who may be held liable for illegal
recruitment are the principals, accomplices and accessories. An employee of a company or
corporation engaged in illegal recruitment may be held liable as principal, together with his
employer,24 if it is shown that he actively and consciously participated in illegal recruitment.25 It has
been held that the existence of the corporate entity does not shield from prosecution the corporate
agent who knowingly and intentionally causes the corporation to commit a crime. The corporation
obviously acts, and can act, only by and through its human agents, and it is their conduct which the
law must deter, The employee or agent of a corporation engaged in unlawful business naturally aids
and abets in the carrying on of such business and will be prosecuted as principal if with knowledge
of the business, its purpose and effect, he consciously contributes his efforts to its conduct and
promotion, however slight his contribution may be. 26 The law of agency, as applied in civil cases, has
no application in criminal cases, and no man can escape punishment when he participates in the
commission of a crime upon the ground that he simply acted as an agent of any party.27 The
culpability of the employee therefore hinges on his knowledge of the offense and his active
participation in its commission. Where it is shown that the employee was merely acting under the
direction of his superiors and was unaware that his acts constituted a crime, he may not be held
criminally liable for an act done for and in behalf of his employer.28
The fundamental issue in this case, therefore, is whether accused-appellant knowingly and
intentionally participated in the commission of the crime charged.
We find that he did not.
Evidence shows that accused-appellant interviewed private complainants in the months of June,
August and September in 1994 at Craftrade's office. At that time, he was employed as interviewer of
Craftrade which was then operating under a temporary authority given by the POEA pending
renewal of its license.29 The temporary license included the authority to recruit workers.30 He was
convicted based on the fact that he was not registered with the POEA as employee of Craftrade.
Neither was he, in his personal capacity, licensed to recruit overseas workers. Section 10 Rule II
Book II of the Rules and Regulation Governing Overseas Employment (1991) requires that every

change, termination or appointment of officers, representatives and personnel of licensed agencies


be registered with the POEA. Agents or representatives appointed by a licensed recruitment agency
whose appointments are not previously approved by the POEA are considered "non-licensee" or
"non-holder of authority" and therefore not authorized to engage in recruitment activity.31
Upon examination of the records, however, we find that the prosecution failed to prove that accusedappellant was aware of Craftrade's failure to register his name with the POEA and that he actively
engaged in recruitment despite this knowledge. The obligation to register its personnel with the
POEA belongs to the officers of the agency.32 A mere employee of the agency cannot be expected to
know the legal requirements for its operation. The evidence at hand shows that accused-appellant
carried out his duties as interviewer of Craftrade believing that the agency was duly licensed by the
POEA and he, in turn, was duly authorized by his agency to deal with the applicants in its behalf.
Accused-appellant in fact confined his actions to his job description. He merely interviewed the
applicants and informed them of the requirements for deployment but he never received money from
them. Their payments were received by the agency's cashier, Josephine Ong. Furthermore, he
performed his tasks under the supervision of its president and managing director. Hence, we hold
that the prosecution failed to prove beyond reasonable doubt accused-appellant's conscious and
active participation in the commission of the crime of illegal recruitment. His conviction, therefore, is
without basis.
This is not to say that private complainants are left with no remedy for the wrong committed against
them. The Department of Justice may still file a complaint against the officers having control,
management or direction of the business of Craftrade Overseas Developers (Craftrade), so long as
the offense has not yet prescribed. Illegal recruitment is a crime of economic sabotage which need
to be curbed by the strong arm of the law. It is important, however, to stress that the government's
action must be directed to the real offenders, those who perpetrate the crime and benefit from it.
IN VIEW WHEREOF, the assailed decision of the Regional Trial Court is REVERSED and SET
ASIDE. Accused-appellant is hereby ACQUITTED. The Director of the Bureau of Corrections is
ordered to RELEASE accused-appellant unless he is being held for some other cause, and to
REPORT to this Court compliance with this order within ten (10) days from receipt of this decision.
Let a copy of this Decision be furnished the Secretary of the Department of Justice for his
information and appropriate action.
1wphi1.nt

SO ORDERED.
G.R. No. 115849

January 24, 1996

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and
MERCURIO RIVERA, petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and
JOSE JANOLO,respondents.
DECISION
PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of
letters and/or in a meeting with the buyers constitute a perfected and enforceable contract of sale

over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of "apparent authority" apply in
this case? If so, may the Central Bank-appointed conservator of Producers Bank (now First
Philippine International Bank) repudiate such "apparent authority" after said contract has been
deemed perfected? During the pendency of a suit for specific performance, does the filing of a
"derivative suit" by the majority shareholders and directors of the distressed bank to prevent the
enforcement or implementation of the sale violate the ban against forum-shopping?
Simply stated, these are the major questions brought before this Court in the instant Petition for
review oncertiorari under Rule 45 of the Rules of Court, to set aside the Decision promulgated
January 14, 1994 of the respondent Court of Appeals1 in CA-G.R CV No. 35756 and the Resolution
promulgated June 14, 1994 denying the motion for reconsideration. The dispositive portion of the
said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the
damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of
the award in paragraph 5 thereof to P75,000.00, to be assessed against defendant bank. In
all other aspects, said decision is hereby AFFIRMED.
All references to the original plaintiffs in the decision and its dispositive portion are deemed,
herein and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.
Costs against appellant bank.
The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other hand, is as
follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs
and against the defendants as follows:
1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of
land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less,
covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T-106937,
inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant
Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and
receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a
deed of absolute sale over the aforementioned six (6) parcels of land, and to immediately
deliver to the plaintiffs the owner's copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for
purposes of registration of the same deed and transfer of the six (6) titles in the names of the
plaintiffs;
3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and
Demetrio Demetria the sums of P200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as
exemplary damages ;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
P400,000.00 for and by way of attorney's fees;

6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate
damages in the amount of P20,000.00;
With costs against the defendants.
After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the
petition was given due course in a Resolution dated January 18, 1995. Thence, the parties filed their
respective memoranda and reply memoranda. The First Division transferred this case to the Third
Division per resolution dated October 23, 1995. After carefully deliberating on the aforesaid
submissions, the Court assigned the case to the undersigned ponente for the writing of this
Decision.
The Parties
Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner
Bank, for brevity) is a banking institution organized and existing under the laws of the Republic of the
Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all
times material to this case, Head-Manager of the Property Management Department of the petitioner
Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of
original plaintiffs-appellees Demetrio Demetria and Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set
aside through this petition.
The Facts
The facts of this case are summarized in the respondent Court's Decision3 as follows:
(1) In the course of its banking operations, the defendant Producer Bank of the Philippines
acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rose,
Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The
property used to be owned by BYME Investment and Development Corporation which had
them mortgaged with the bank as collateral for a loan. The original plaintiffs, Demetrio
Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated
negotiations for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment's
legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property
Management Department of the defendant bank. The meeting was held pursuant to plaintiffs'
plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo,
following the advice of defendant Rivera, made a formal purchase offer to the bank through a
letter dated August 30, 1987 (Exh. "B"), as follows:

August 30, 1987

The Producers Bank of the Philippines


Makati, Metro Manila
Attn. Mr. Mercurio Q. Rivera
Manager, Property Management Dept.
Gentleman:
I have the honor to submit my formal offer to purchase your properties covered by titles listed
hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less.

TCT NO.

AREA

T-106932

113,580 sq. m.

T-106933

70,899 sq. m.

T-106934

52,246 sq. m.

T-106935

96,768 sq. m.

T-106936

187,114 sq. m.

T-106937

481,481 sq. m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00)


PESOS, in cash.
Kindly contact me at Telephone Number 921-1344.
(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by
letter which is hereunder quoted (Exh. "C"):

September 1, 1987

JP M-P GUTIERREZ ENTERPRISES


142 Charisma St., Doa Andres II
Rosario, Pasig, Metro Manila
Attention: JOSE O. JANOLO
Dear Sir:
Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna
(formerly owned by Byme Industrial Corp.). Please be informed however that the bank's
counter-offer is at P5.5 million for more than 101 hectares on lot basis.
We shall be very glad to hear your position on the on the matter.
Best regards.
(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote
(Exh. "D"):

September 17, 1987

Producers Bank
Paseo de Roxas
Makati, Metro Manila
Attention: Mr. Mercurio Rivera
Gentlemen:
In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta.
Rosa, Laguna, I would like to amend my previous offer and I now propose to buy the said lot
at P4.250 million in CASH..
Hoping that this proposal meets your satisfaction.
(5) There was no reply to Janolo's foregoing letter of September 17, 1987. What took place
was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior VicePresident of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the
meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to the bank, through
Rivera, the following letter (Exh. "E"):
The Producers Bank of the Philippines
Paseo de Roxas, Makati
Metro Manila
Attention: Mr. Mercurio Rivera

Re: 101 Hectares of Land


in Sta. Rosa, Laguna
Gentlemen:
Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we
are accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly
owned by Byme Investment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED
THOUSAND (P5,500,000.00).
Thank you.
(6) On October 12, 1987, the conservator of the bank (which has been placed under
conservatorship by the Central Bank since 1984) was replaced by an Acting Conservator in
the person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant Rivera
wrote plaintiff Demetria the following letter (Exh. "F"):
Attention: Atty. Demetrio Demetria
Dear Sir:
Your proposal to buy the properties the bank foreclosed from Byme investment Corp. located
at Sta. Rosa, Laguna is under study yet as of this time by the newly created committee for
submission to the newly designated Acting Conservator of the bank.
For your information.
(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by
the bank with what plaintiff considered as a perfected contract of sale, which demands were
in one form or another refused by the bank. As detailed by the trial court in its decision, on
November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit "G") tendered
payment of the amount of P5.5 million "pursuant to (our) perfected sale agreement."
Defendants refused to receive both the payment and the letter. Instead, the parcels of land
involved in the transaction were advertised by the bank for sale to any interested buyer (Exh,
"H" and "H-1"). Plaintiffs demanded the execution by the bank of the documents on what was
considered as a "perfected agreement." Thus:
Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to
106937.
From the documents at hand, it appears that your counter-offer dated September 1, 1987 of
this same lot in the amount of P5.5 million was accepted by our client thru a letter dated
September 30, 1987 and was received by you on October 5, 1987.

In view of the above circumstances, we believe that an agreement has been perfected. We
were also informed that despite repeated follow-up to consummate the purchase, you now
refuse to honor your commitment. Instead, you have advertised for sale the same lot to
others.
In behalf of our client, therefore, we are making this formal demand upon you to
consummate and execute the necessary actions/documentation within three (3) days from
your receipt hereof. We are ready to remit the agreed amount of P5.5 million at your advice.
Otherwise, we shall be constrained to file the necessary court action to protect the interest of
our client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter
and stated, in its communication of December 2, 1987 (Exh. "I"), that said letter has been
"referred . . . to the office of our Conservator for proper disposition" However, no response
came from the Acting Conservator. On December 14, 1987, the plaintiffs made a second
tender of payment (Exh. "L" and "L-1"), this time through the Acting Conservator, defendant
Encarnacion. Plaintiffs' letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
Attn.: Atty. NIDA ENCARNACION
Central Bank Conservator
We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check
No. 258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare lot
covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and 106937 and registered
under Producers Bank.
This is in connection with the perfected agreement consequent from your offer of P5.5 Million
as the purchase price of the said lots. Please inform us of the date of documentation of the
sale immediately.
Kindly acknowledge receipt of our payment.
(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988,
plaintiff, through counsel, made a final demand for compliance by the bank with its
obligations under the considered perfected contract of sale (Exhibit "N"). As recounted by the
trial court (Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex "4" of
defendant's answer to amended complaint), the defendants through Acting Conservator
Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings with
the plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that
basis, the defendants justified the refusal of the tenders of payment and the non-compliance
with the obligations under what the plaintiffs considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against
the bank, its Manager Rivers and Acting Conservator Encarnacion. The basis of the suit was

that the transaction had with the bank resulted in a perfected contract of sale, The
defendants took the position that there was no such perfected sale because the defendant
Rivera is not authorized to sell the property, and that there was no meeting of the minds as to
the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar
Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as
owner of 80% of the Bank's outstanding shares of stock, he had a substantial interest in
resisting the complaint. On July 8, 1991, the trial court issued an order denying the motion to
intervene on the ground that it was filed after trial had already been concluded. It also denied
a motion for reconsideration filed thereafter. From the trial court's decision, the Bank,
petitioner Rivera and conservator Encarnacion appealed to the Court of Appeals which
subsequently affirmed with modification the said judgment. Henry Co did not appeal the
denial of his motion for intervention.
In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of
Demetria and Janolo, in view of the assignment of the latters' rights in the matter in litigation to said
private respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and
several other stockholders of the Bank, through counsel Angara Abello Concepcion Regala and
Cruz, filed an action (hereafter, the "Second Case") purportedly a "derivative suit" with the
Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606, against
Encarnacion, Demetria and Janolo "to declare any perfected sale of the property as unenforceable
and to stop Ejercito from enforcing or implementing the sale" 4 In his answer, Janolo argued that the
Second Case was barred by litis pendentia by virtue of the case then pending in the Court of
Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a Motion for Leave of
Court to Dismiss the Case Without Prejudice. "Private respondent opposed this motion on the
ground, among others, that plaintiff's act of forum shopping justifies the dismissal of both cases, with
prejudice."5 Private respondent, in his memorandum, averred that this motion is still pending in the
Makati RTC.
In their Petition6 and Memorandum7, petitioners summarized their position as follows:
I.
The Court of Appeals erred in declaring that a contract of sale was perfected between
Ejercito (in substitution of Demetria and Janolo) and the bank.
II.
The Court of Appeals erred in declaring the existence of an enforceable contract of sale
between the parties.
III.
The Court of Appeals erred in declaring that the conservator does not have the power to
overrule or revoke acts of previous management.
IV.

The findings and conclusions of the Court of Appeals do not conform to the evidence on
record.
On the other hand, petitioners prayed for dismissal of the instant suit on the ground 8 that:
I.
Petitioners have engaged in forum shopping.
II.
The factual findings and conclusions of the Court of Appeals are supported by the evidence
on record and may no longer be questioned in this case.
III.
The Court of Appeals correctly held that there was a perfected contract between Demetria
and Janolo (substituted by; respondent Ejercito) and the bank.
IV.
The Court of Appeals has correctly held that the conservator, apart from being estopped from
repudiating the agency and the contract, has no authority to revoke the contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case may be summed up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the authority of the bank
officers and/or to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?
The First Issue: Was There Forum-Shopping?
In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated
Revised Circular No. 28-91 requiring that a party "must certify under oath . . . [that] (a) he has not
(t)heretofore commenced any other action or proceeding involving the same issues in the Supreme
Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no
such action or proceeding is pending" in said courts or agencies. A violation of the said circular
entails sanctions that include the summary dismissal of the multiple petitions or complaints. To be
sure, petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating "for the
record(,) the pendency of Civil Case No. 92-1606 before the Regional Trial Court of Makati, Branch

134, involving a derivative suit filed by stockholders of petitioner Bank against the conservator and
other defendants but which is the subject of a pending Motion to Dismiss Without Prejudice. 9
Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of
actual forum shopping because the instant petition pending before this Court involves "identical
parties or interests represented, rights asserted and reliefs sought (as that) currently pending before
the Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the issues in the two cases
are so interwined that a judgement or resolution in either case will constitute res judicata in the
other." 10
On the other hand, petitioners explain 11 that there is no forum-shopping because:
1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded
as a defendant, whereas in the "Second Case" (assuming the Bank is the real party in
interest in a derivative suit), it wasplaintiff;
2) "The derivative suit is not properly a suit for and in behalf of the corporation under the
circumstances";
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and
attached to the Petition identifies the action as a "derivative suit," it "does not mean that it is
one" and "(t)hat is a legal question for the courts to decide";
4) Petitioners did not hide the Second Case at they mentioned it in the said
VERIFICATION/CERTIFICATION.
We rule for private respondent.
To begin with, forum-shopping originated as a concept in private international law.12, where nonresident litigants are given the option to choose the forum or place wherein to bring their suit for
various reasons or excuses, including to secure procedural advantages, to annoy and harass the
defendant, to avoid overcrowded dockets, or to select a more friendly venue. To combat these less
than honorable excuses, the principle of forum non conveniens was developed whereby a court, in
conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most "convenient"
or available forum and the parties are not precluded from seeking remedies elsewhere.
In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party attempts to
have his action tried in a particular court or jurisdiction where he feels he will receive the most
favorable judgment or verdict." Hence, according to Words and Phrases14, "a litigant is open to the
charge of "forum shopping" whenever he chooses a forum with slight connection to factual
circumstances surrounding his suit, and litigants should be encouraged to attempt to settle their
differences without imposing undue expenses and vexatious situations on the courts".
In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of
venues, as it was originally understood in conflicts of laws, but also to a choice of remedies. As to
the first (choice of venues), the Rules of Court, for example, allow a plaintiff to commence personal
actions "where the defendant or any of the defendants resides or may be found, or where the plaintiff
or any of the plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec, 2 [b]). As to remedies,
aggrieved parties, for example, are given a choice of pursuing civil liabilities independently of the
criminal, arising from the same set of facts. A passenger of a public utility vehicle involved in a

vehicular accident may sue on culpa contractual, culpa aquiliana or culpa criminal each remedy
being available independently of the others although he cannot recover more than once.
In either of these situations (choice of venue or choice of remedy), the litigant actually shops
for a forum of his action, This was the original concept of the term forum shopping.
Eventually, however, instead of actually making a choice of the forum of their actions,
litigants, through the encouragement of their lawyers, file their actions in all available courts,
or invoke all relevant remedies simultaneously. This practice had not only resulted to (sic)
conflicting adjudications among different courts and consequent confusion enimical (sic) to
an orderly administration of justice. It had created extreme inconvenience to some of the
parties to the action.
Thus, "forum shopping" had acquired a different concept which is unethical professional
legal practice. And this necessitated or had given rise to the formulation of rules and canons
discouraging or altogether prohibiting the practice. 15
What therefore originally started both in conflicts of laws and in our domestic law as a legitimate
device for solving problems has been abused and mis-used to assure scheming litigants of dubious
reliefs.
To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already
mentioned, promulgated Circular 28-91. And even before that, the Court had prescribed it in the
Interim Rules and Guidelines issued on January 11, 1983 and had struck down in several
cases 16 the inveterate use of this insidious malpractice. Forum shopping as "the filing of repetitious
suits in different courts" has been condemned by Justice Andres R. Narvasa (now Chief Justice)
in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et al.,"as a reprehensible
manipulation of court processes and proceedings . . ." 17 when does forum shopping take place?
There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party
seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies
not only with respect to suits filed in the courts but also in connection with litigations
commenced in the courts while an administrative proceeding is pending, as in this case, in
order to defeat administrative processes and in anticipation of an unfavorable administrative
ruling and a favorable court ruling. This is specially so, as in this case, where the court in
which the second suit was brought, has no jurisdiction. 18
The test for determining whether a party violated the rule against forum shopping has been laid
dawn in the 1986 case of Buan vs. Lopez 19, also by Chief Justice Narvasa, and that is, forum
shopping exists where the elements of litis pendentia are present or where a final judgment in one
case will amount to res judicata in the other, as follows:
There thus exists between the action before this Court and RTC Case No. 86-36563 identity
of parties, or at least such parties as represent the same interests in both actions, as well as
identity of rights asserted and relief prayed for, the relief being founded on the same facts,
and the identity on the two preceding particulars is such that any judgment rendered in the
other action, will, regardless of which party is successful, amount to res adjudicata in the
action under consideration: all the requisites, in fine, of auter action pendant.
xxx

xxx

xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563, an
identity as regards parties, or interests represented, rights asserted and relief sought, as well
as basis thereof, to a degree sufficient to give rise to the ground for dismissal known
as auter action pendant or lis pendens. That same identity puts into operation the sanction of
twin dismissals just mentioned. The application of this sanction will prevent any further delay
in the settlement of the controversy which might ensue from attempts to seek
reconsideration of or to appeal from the Order of the Regional Trial Court in Civil Case No.
86-36563 promulgated on July 15, 1986, which dismissed the petition upon grounds which
appear persuasive.
Consequently, where a litigant (or one representing the same interest or person) sues the same
party against whom another action or actions for the alleged violation of the same right and the
enforcement of the same relief is/are still pending, the defense of litis pendencia in one case is bar to
the others; and, a final judgment in one would constitute res judicata and thus would cause the
dismissal of the rest. In either case, forum shopping could be cited by the other party as a ground to
ask for summary dismissal of the two 20 (or more) complaints or petitions, and for imposition of the
other sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action
against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it with the Second Case, it is
obvious that there exist identity of parties or interests represented, identity of rights or causes and
identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise to the instant petition
was filed by the buyer (herein private respondent and his predecessors-in-interest) against the seller
(herein petitioners) to enforce the alleged perfected sale of real estate. On the other hand, the
complaint 21 in the Second Case seeks to declare such purported sale involving the same real
property "as unenforceable as against the Bank", which is the petitioner herein. In other words, in the
Second Case, the majority stockholders, in representation of the Bank, are seeking to accomplish
what the Bank itself failed to do in the original case in the trial court. In brief, the objective or the
relief being sought, though worded differently, is the same, namely, to enable the petitioner Bank to
escape from the obligation to sell the property to respondent. In Danville Maritime, Inc. vs.
Commission on Audit. 22, this Court ruled that the filing by a party of two apparently different actions,
but with the same objective,constituted forum shopping:
In the attempt to make the two actions appear to be different, petitioner impleaded different
respondents therein PNOC in the case before the lower court and the COA in the case
before this Court and sought what seems to be different reliefs. Petitioner asks this Court to
set aside the questioned letter-directive of the COA dated October 10, 1988 and to direct
said body to approve the Memorandum of Agreement entered into by and between the
PNOC and petitioner, while in the complaint before the lower court petitioner seeks to enjoin
the PNOC from conducting a rebidding and from selling to other parties the vessel "T/T
Andres Bonifacio", and for an extension of time for it to comply with the paragraph 1 of the
memorandum of agreement and damages. One can see that although the relief prayed for in
the two (2) actions are ostensibly different, the ultimate objective in both actions is the same,
that is, approval of the sale of vessel in favor of petitioner and to overturn the letter-directive
of the COA of October 10, 1988 disapproving the sale. (emphasis supplied).
In an earlier case 23 but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant special civil action for certiorari and
prohibition in this Court despite the pendency of their action in the Makati Regional Trial

Court, is a species of forum-shopping. Both actions unquestionably involve the same


transactions, the same essential facts and circumstances. The petitioners' claim of absence
of identity simply because the PCGG had not been impleaded in the RTC suit, and the suit
did not involve certain acts which transpired after its commencement, is specious. In the
RTC action, as in the action before this Court, the validity of the contract to purchase and sell
of September 1, 1986, i.e., whether or not it had been efficaciously rescinded, and the
propriety of implementing the same (by paying the pledgee banks the amount of their loans,
obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the relief
was the same: the prevention of such implementation and/or the restoration of the status
quo ante. When the acts sought to be restrained took place anyway despite the issuance by
the Trial Court of a temporary restraining order, the RTC suit did not become functus oficio. It
remained an effective vehicle for obtention of relief; and petitioners' remedy in the premises
was plain and patent: the filing of an amended and supplemental pleading in the RTC suit, so
as to include the PCGG as defendant and seek nullification of the acts sought to be enjoined
but nonetheless done. The remedy was certainly not the institution of another action in
another forum based on essentially the same facts, The adoption of this latter recourse
renders the petitioners amenable to disciplinary action and both their actions, in this Court as
well as in the Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least, of interests represented.
Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not name parties in the First
Case, they represent the same interest and entity, namely, petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the
matter in controversy. They are not principally or even subsidiarily liable; much less are they direct
parties in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the stockholders are
bringing a "derivative suit". In the caption itself, petitioners claim to have brought suit "for and in
behalf of the Producers Bank of the Philippines" 24. Indeed, this is the very essence of a derivative
suit:
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation
wherein he holdsstock in order to protect or vindicate corporate rights, whenever the officials
of the corporation refuse to sue, or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979];
emphasis supplied).
In the face of the damaging admissions taken from the complaint in the Second Case, petitioners,
quite strangely, sought to deny that the Second Case was a derivative suit, reasoning that it was
brought, not by the minority shareholders, but by Henry Co et al., who not only own, hold or control
over 80% of the outstanding capital stock, but also constitute the majority in the Board of Directors of
petitioner Bank. That being so, then they really represent the Bank. So, whether they sued
"derivatively" or directly, there is undeniably an identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is
separate and distinct from its shareholders. But the rulings of this Court are consistent: "When the
fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of
an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or
generally the perpetration of knavery or crime, the veil with which the law covers and isolates the

corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals." 25
In addition to the many cases 26 where the corporate fiction has been disregarded, we now add the
instant case, and declare herewith that the corporate veil cannot be used to shield an otherwise
blatant violation of the prohibition against forum-shopping. Shareholders, whether suing as the
majority in direct actions or as the minority in a derivative suit, cannot be allowed to trifle with court
processes, particularly where, as in this case, the corporation itself has not been remiss in vigorously
prosecuting or defending corporate causes and in using and applying remedies available to it. To
rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to
circumvent the stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping, even
assuming arguendo that there is identity of parties, causes of action and reliefs sought, "because it
(the Bank) was the defendant in the (first) case while it was the plaintiff in the other (Second
Case)",citing as authority Victronics Computers, Inc., vs. Regional Trial Court, Branch 63, Makati,
etc. et al., 27 where Court held:
The rule has not been extended to a defendant who, for reasons known only to him,
commences a new action against the plaintiff instead of filing a responsive pleading in the
other case setting forth therein, as causes of action, specific denials, special and
affirmative defenses or even counterclaims, Thus, Velhagen's and King's motion to dismiss
Civil Case No. 91-2069 by no means negates the charge of forum-shopping as such did not
exist in the first place. (emphasis supplied)
Petitioner pointed out that since it was merely the defendant in the original case, it could not have
chosen the forum in said case.
Respondent, on the other hand, replied that there is a difference in factual setting
between Victronics and the present suit. In the former, as underscored in the above-quoted Court
ruling, the defendants did not file anyresponsive pleading in the first case. In other words, they did
not make any denial or raise any defense or counter-claim therein In the case before us however,
petitioners filed a responsive pleading to the complaint as a result of which, the issues were
joined.
Indeed, by praying for affirmative reliefs and interposing counterclaims in their responsive
pleadings, the petitioners became plaintiffs themselves in the original case, giving unto themselves
the very remedies they repeated in the Second Case.
Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is
the vexation caused the courts and parties-litigant by a party who asks different courts and/or
administrative agencies to rule on the same or related causes and/or to grant the same or
substantially the same reliefs, in the process creating the possibility of conflicting decisions being
rendered by the different fora upon the same issue. In this case, this is exactly the problem: a
decision recognizing the perfection and directing the enforcement of the contract of sale will directly
conflict with a possible decision in the Second Case barring the parties front enforcing or
implementing the said sale. Indeed, a final decision in one would constitute res judicata in the
other 28.
The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction
possible now is the dismissal of both cases with prejudice, as the other sanctions cannot be imposed
because petitioners' present counsel entered their appearance only during the proceedings in this

Court, and the Petition's VERIFICATION/CERTIFICATION contained sufficient allegations as to the


pendency of the Second Case to show good faith in observing Circular 28-91. The Lawyers who filed
the Second Case are not before us; thus the rudiments of due process prevent us from motu
propio imposing disciplinary measures against them in this Decision. However, petitioners
themselves (and particularly Henry Co, et al.) as litigants are admonished to strictly follow the rules
against forum-shopping and not to trifle with court proceedings and processes They are warned that
a repetition of the same will be dealt with more severely.
Having said that, let it be emphasized that this petition should be dismissed not merely because of
forum-shopping but also because of the substantive issues raised, as will be discussed shortly.
The Second Issue: Was The Contract Perfected?
The respondent Court correctly treated the question of whether or not there was, on the basis of the
facts established, a perfected contract of sale as the ultimate issue. Holding that a valid contract has
been established, respondent Court stated:
There is no dispute that the object of the transaction is that property owned by the defendant
bank as acquired assets consisting of six (6) parcels of land specifically identified under
Transfer Certificates of Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the
bank intended to sell the property. As testified to by the Bank's Deputy Conservator, Jose
Entereso, the bank was looking for buyers of the property. It is definite that the plaintiffs
wanted to purchase the property and it was precisely for this purpose that they met with
defendant Rivera, Manager of the Property Management Department of the defendant bank,
in early August 1987. The procedure in the sale of acquired assets as well as the nature and
scope of the authority of Rivera on the matter is clearly delineated in the testimony of Rivera
himself, which testimony was relied upon by both the bank and by Rivera in their appeal
briefs. Thus (TSN of July 30, 1990. pp. 19-20):
A: The procedure runs this way: Acquired assets was turned over to me and then I
published it in the form of an inter-office memorandum distributed to all branches that
these are acquired assets for sale. I was instructed to advertise acquired assets for
sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon
having been offered, I present it to the Committee. I provide the Committee with
necessary information about the property such as original loan of the borrower, bid
price during the foreclosure, total claim of the bank, the appraised value at the time
the property is being offered for sale and then the information which are relative to
the evaluation of the bank to buy which the Committee considers and it is the
Committee that evaluate as against the exposure of the bank and it is also the
Committee that submit to the Conservator for final approval and once approved, we
have to execute the deed of sale and it is the Conservator that sign the deed of sale,
sir.
The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the
property, dealt with and talked to the right person. Necessarily, the agenda was the price of
the property, and plaintiffs were dealing with the bank official authorized to entertain offers, to
accept offers and to present the offer to the Committee before which the said official is
authorized to discuss information relative to price determination. Necessarily, too, it being
inherent in his authority, Rivera is the officer from whom official information regarding the
price, as determined by the Committee and approved by the Conservator, can be had. And
Rivera confirmed his authority when he talked with the plaintiff in August 1987. The testimony
of plaintiff Demetria is clear on this point (TSN of May 31,1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did
you ask him point-blank his authority to sell any property?
A: No, sir. Not point blank although it came from him, (W)hen I asked him how long it
would take because he was saying that the matter of pricing will be passed upon by
the committee. And when I asked him how long it will take for the committee to
decide and he said the committee meets every week. If I am not mistaken
Wednesday and in about two week's (sic) time, in effect what he was saying he was
not the one who was to decide. But he would refer it to the committee and he would
relay the decision of the committee to me.
Q Please answer the question.
A He did not say that he had the authority (.) But he said he would refer the matter
to the committee and he would relay the decision to me and he did just like that.
"Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co
was the Head, with Jose Entereso as one of the members.
What transpired after the meeting of early August 1987 are consistent with the authority and
the duties of Rivera and the bank's internal procedure in the matter of the sale of bank's
assets. As advised by Rivera, the plaintiffs made a formal offer by a letter dated August 20,
1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the
attention of Mercurio Rivera who was tasked to convey and accept such offers. Considering
an aspect of the official duty of Rivera as some sort of intermediary between the plaintiffsbuyers with their proposed buying price on one hand, and the bank Committee, the
Conservator and ultimately the bank itself with the set price on the other, and considering
further the discussion of price at the meeting of August resulting in a formal offer of P3.5
Million in cash, there can be no other logical conclusion than that when, on September 1,
1987, Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for
more than 101 hectares on lot basis," such counter-offer price had been determined by the
Past Due Committee and approved by the Conservator after Rivera had duly presented
plaintiffs' offer for discussion by the Committee of such matters as original loan of borrower,
bid price during foreclosure, total claim of the bank, and market value. Tersely put, under the
established facts, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"),
the official and definitive price at which the bank was selling the property.
There were averments by defendants below, as well as before this Court, that the P5.5
Million price was not discussed by the Committee and that price. As correctly characterized
by the trial court, this is not credible. The testimonies of Luis Co and Jose Entereso on this
point are at best equivocal and considering the gratuitous and self-serving character of these
declarations, the bank's submission on this point does not inspire belief. Both Co ad
Entereso, as members of the Past Due Committee of the bank, claim that the offer of the
plaintiff was never discussed by the Committee. In the same vein, both Co and Entereso
openly admit that they seldom attend the meetings of the Committee. It is important to note
that negotiations on the price had started in early August and the plaintiffs had already
offered an amount as purchase price, having been made to understand by Rivera, the official
in charge of the negotiation, that the price will be submitted for approval by the bank and that
the bank's decision will be relayed to plaintiffs. From the facts, the official bank price. At any
rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy and
negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn
around and later say, as it now does, that what Rivera states as the bank's action on the

matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a
corporation knowingly permits one of its officers, or any other agent, to do acts within the
scope of an apparent authority, and thus holds him out to the public as possessing power to
do those acts, the corporation will, as against any one who has in good faith dealt with the
corporation through such agent, he estopped from denying his authority (Francisco v. GSIS,
7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v.
Court of Appeals, G.R. No. 103957, June 14, 1993). 29
Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows:
"(1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established."
There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6)
parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less,
and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. There is, however, a
dispute on the first and third requisites.
Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer
which Rivera (or Co) may have made is unauthorized. Since there was no counter-offer by the Bank,
there was nothing for Ejercito (in substitution of Demetria and Janolo) to accept." 30 They disputed
the factual basis of the respondent Court's findings that there was an offer made by Janolo for P3.5
million, to which the Bank counter-offered P5.5 million. We have perused the evidence but cannot
find fault with the said Court's findings of fact. Verily, in a petition under Rule 45 such as this, errors
of fact if there be any - are, as a rule, not reviewable. The mere fact that respondent Court (and
the trial court as well) chose to believe the evidence presented by respondent more than that
presented by petitioners is not by itself a reversible error. In fact, such findings merit serious
consideration by this Court, particularly where, as in this case, said courts carefully and meticulously
discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review
the question of Rivera's authority to act and petitioner's allegations that the P5.5 million counter-offer
was extinguished by the P4.25 million revised offer of Janolo. Here, there are questions of law which
could be drawn from the factual findings of the respondent Court. They also delve into the
contractual elements of consent and cause.
The authority of a corporate officer in dealing with third persons may be actual or apparent. The
doctrine of "apparent authority", with special reference to banks, was laid out in Prudential Bank vs.
Court of Appeals31, where it was held that:
Conformably, we have declared in countless decisions that the principal is liable for
obligations contracted by the agent. The agent's apparent representation yields to the
principal's true representation and the contract is considered as entered into between the
principal and the third person (citing National Food Authority vs. Intermediate Appellate
Court, 184 SCRA 166).
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 scape of their authority (9 C.J.S., p. 417). A bank holding out its officers
and agents 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 (10 Am Jur 2d, p. 114). 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 (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR
1021).
Application of these principles is especially necessary because banks have a fiduciary
relationship with the public and their stability depends on the confidence of the people in
their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care
in the selection and supervision of its employees, resulting in prejudice to their depositors.
From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or
implied authority to act for the Bank in the matter of selling its acquired assets. This evidence
includes the following:
(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this case,
Manager of the Property Management Department of the Bank". By his own admission,
Rivera was already the person in charge of the Bank's acquired assets (TSN, August 6,
1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely being sold by the Bank. And
during the initial meeting between the buyers and Rivera, the latter suggested that the
buyers' offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);
(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30
July 1990, p.11);
(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5
million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987 containing the buyers' proposal to
buy the property for P4.25 million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of
the Bank (TSN, January 16, 1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994,
during which the Bank's offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990,
pp. 34-35). At said meeting, Co, a major shareholder and officer of the Bank, confirmed
Rivera's statement as to the finality of the Bank's counter-offer of P5.5 million (TSN, January
16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the
officer acting for the Bank in relation to parties interested in buying assets owned/acquired by
the Bank. In fact, Rivera was the officer mentioned in the Bank's advertisements offering for
sale the property in question (cf. Exhs. "S" and "S-1").
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32, the Court,
through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the

apparent authority of the officer of the Bank of P.I. in charge of acquired assets is borne out by
similar circumstances surrounding his dealings with buyers.
To be sure, petitioners attempted to repudiate Rivera's apparent authority through documents and
testimony which seek to establish Rivera's actual authority. These pieces of evidence, however, are
inherently weak as they consist of Rivera's self-serving testimony and various inter-office
memoranda that purport to show his limited actual authority, of which private respondent cannot be
charged with knowledge. In any event, since the issue is apparent authority, the existence of which is
borne out by the respondent Court's findings, the evidence of actual authority is immaterial insofar as
the liability of a corporation is concerned 33.
Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law
firm" had once acted for the Bank in three criminal cases, they should be charged with actual
knowledge of Rivera's limited authority. But the Court of Appeals in its Decision (p. 12) had already
made a factual finding that the buyers had no notice of Rivera's actual authority prior to the sale. In
fact, the Bank has not shown that they acted as its counsel in respect to any acquired assets; on the
other hand, respondent has proven that Demetria and Janolo merely associated with a loose
aggrupation of lawyers (not a professional partnership), one of whose members (Atty. Susana
Parker) acted in said criminal cases.
Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter dated
September 17, 1987 extinguished the Bank's offer of P5.5 million 34 .They disputed the respondent
Court's finding that "there was a meeting of minds when on 30 September 1987 Demetria and
Janolo through Annex "L" (letter dated September 30, 1987) "accepted" Rivera's counter offer of
P5.5 million under Annex "J" (letter dated September 17, 1987)", citing the late Justice Paras35, Art.
1319 of the Civil Code 36 and related Supreme Court rulings starting with Beaumont vs. Prieto 37.
However, the above-cited authorities and precedents cannot apply in the instant case because, as
found by the respondent Court which reviewed the testimonies on this point, what was "accepted" by
Janolo in his letter dated September 30, 1987 was the Bank's offer of P5.5 million as confirmed and
reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their meeting on September
28, 1987. Note that the said letter of September 30, 1987 begins with"(p)ursuant to our discussion
last 28 September 1987 . . .
Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co
that the September 28, 1987 meeting "was meant to have the offerors improve on their position of
P5.5. million."38However, both the trial court and the Court of Appeals found petitioners' testimonial
evidence "not credible", and we find no basis for changing this finding of fact.
Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common finding
that private respondents' evidence is more in keeping with truth and logic that during the meeting
on September 28, 1987, Luis Co and Rivera "confirmed that the P5.5 million price has been passed
upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35)" 39. Hence,
assuming arguendo that the counter-offer of P4.25 million extinguished the offer of P5.5 million, Luis
Co's reiteration of the said P5.5 million price during the September 28, 1987 meeting revived the
said offer. And by virtue of the September 30, 1987 letter accepting thisrevived offer, there was a
meeting of the minds, as the acceptance in said letter was absolute and unqualified.
We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and
action, particularly the latter's counter-offer of P5.5 million, as being "unauthorized and illegal" came
only on May 12, 1988 or more than seven (7) months after Janolo' acceptance. Such delay, and the
absence of any circumstance which might have justifiably prevented the Bank from acting earlier,

clearly characterizes the repudiation as nothing more than a last-minute attempt on the Bank's part
to get out of a binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an implied admission on the part
of the petitioners that the written offer made on September 1, 1987 was carried through during the
meeting of September 28, 1987. This is the conclusion consistent with human experience, truth and
good faith.
It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was raised for
the first time on appeal and should thus be disregarded.
This Court in several decisions has repeatedly adhered to the principle that points of law,
theories, issues of fact and arguments not adequately brought to the attention of the trial
court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot
be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145
SCRA 592).40
. . . It is settled jurisprudence that an issue which was neither averred in the complaint nor
raised during the trial in the court below cannot be raised for the first time on appeal as it
would be offensive to the basic rules of fair play, justice and due process (Dihiansan vs. CA,
153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty &
Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989];
Gevero vs. IAC, G.R. 77029, August 30, 1990).41
Since the issue was not raised in the pleadings as an affirmative defense, private respondent was
not given an opportunity in the trial court to controvert the same through opposing evidence. Indeed,
this is a matter of due process. But we passed upon the issue anyway, if only to avoid deciding the
case on purely procedural grounds, and we repeat that, on the basis of the evidence already in the
record and as appreciated by the lower courts, the inevitable conclusion is simply that there was a
perfected contract of sale.
The Third Issue: Is the Contract Enforceable?
The petition alleged42:
Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the
meeting of 28 September 1987, and it was this verbal offer that Demetria and Janolo
accepted with their letter of 30 September 1987, the contract produced thereby would be
unenforceable by action there being no note, memorandum or writing subscribed by the
Bank to evidence such contract. (Please see article 1403[2], Civil Code.)
Upon the other hand, the respondent Court in its Decision (p, 14) stated:
. . . Of course, the bank's letter of September 1, 1987 on the official price and the plaintiffs'
acceptance of the price on September 30, 1987, are not, in themselves, formal contracts of
sale. They are however clear embodiments of the fact that a contract of sale was perfected
between the parties, such contract being binding in whatever form it may have been entered
into (case citations omitted). Stated simply, the banks' letter of September 1, 1987, taken
together with plaintiffs' letter dated September 30, 1987, constitute in law a sufficient
memorandum of a perfected contract of sale.

The respondent Court could have added that the written communications commenced not only from
September 1, 1987 but from Janolo's August 20, 1987 letter. We agree that, taken together, these
letters constitute sufficient memoranda since they include the names of the parties, the terms and
conditions of the contract, the price and a description of the property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did
constitute a "new" offer which was accepted by Janolo on September 30, 1987. Still, the statute of
frauds will not apply by reason of the failure of petitioners to object to oral testimony proving
petitioner Bank's counter-offer of P5.5 million. Hence, petitioners by such utter failure to object
are deemed to have waived any defects of the contract under the statute of frauds, pursuant to
Article 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are
ratified by the failure to object to the presentation of oral evidence to prove the same, or by
the acceptance of benefits under them.
As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the
counter-offer of P5.5 million is a plenty and the silence of petitioners all throughout the
presentation makes the evidence binding on them thus;
A Yes, sir, I think it was September 28, 1987 and I was again present because Atty. Demetria
told me to accompany him we were able to meet Luis Co at the Bank.
xxx

xxx

xxx

Q Now, what transpired during this meeting with Luis Co of the Producers Bank?
A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q What price?
A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is
the final price and that is the price they intends (sic) to have, sir.
Q What do you mean?.
A That is the amount they want, sir.
Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that the defendant
Rivera's counter-offer of 5.5 million was the defendant's bank (sic) final offer?
A He said in a day or two, he will make final acceptance, sir.
Q What is the response of Mr. Luis Co?.
A He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]
Q What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?

A We went straight to the point because he being a busy person, I told him if the amount of
P5.5 million could still be reduced and he said that was already passed upon by the
committee. What the bank expects which was contrary to what Mr. Rivera stated. And he told
me that is the final offer of the bank P5.5 million and we should indicate our position as soon
as possible.
Q What was your response to the answer of Mr. Luis Co?
A I said that we are going to give him our answer in a few days and he said that was it. Atty.
Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his office.
Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office
in Producers Bank Building during this meeting?
A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q By Mr. Co you are referring to?
A Mr. Luis Co.
Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter
offer by the bank?
A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank which offer we
accepted, the offer of the bank which is P5.5 million.
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]
Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the
Committee and it is not within his power to reduce this amount. What can you say to that
statement that the amount of P5.5 million was reached by the Committee?
A It was not discussed by the Committee but it was discussed initially by Luis Co and the
group of Atty. Demetrio Demetria and Atty. Pajardo (sic) in that September 28, 1987 meeting,
sir.
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]
The Fourth Issue: May the Conservator Revoke
the Perfected and Enforceable Contract.
It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the
Philippines during the time that the negotiation and perfection of the contract of sale took place.
Petitioners energetically contended that the conservator has the power to revoke or overrule actions
of the management or the board of directors of a bank, under Section 28-A of Republic Act No. 265
(otherwise known as the Central Bank Act) as follows:
Whenever, on the basis of a report submitted by the appropriate supervising or examining
department, the Monetary Board finds that a bank or a non-bank financial intermediary
performing quasi-banking functions is in a state of continuing inability or unwillingness to
maintain a state of liquidity deemed adequate to protect the interest of depositors and

creditors, the Monetary Board may appoint a conservator to take charge of the assets,
liabilities, and the management of that institution, collect all monies and debts due said
institution and exercise all powers necessary to preserve the assets of the institution,
reorganize the management thereof, and restore its viability. He shall have the power to
overrule or revoke the actions of the previous management and board of directors of the
bank or non-bank financial intermediary performing quasi-banking functions, any provision of
law to the contrary notwithstanding, and such other powers as the Monetary Board shall
deem necessary.
In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the
perfected contract of sale was raised for the first time in this Petition as this was not litigated in
the trial court or Court of Appeals. As already stated earlier, issues not raised and/or ventilated in the
trial court, let alone in the Court of Appeals, "cannot be raised for the first time on appeal as it would
be offensive to the basic rules of fair play, justice and due process." 43
In the second place, there is absolutely no evidence that the Conservator, at the time the contract
was perfected, actually repudiated or overruled said contract of sale. The Bank's acting conservator
at the time, Rodolfo Romey, never objected to the sale of the property to Demetria and Janolo. What
petitioners are really referring to is the letter of Conservator Encarnacion, who took over from Romey
after the sale was perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated
not the contract but the authority of Rivera to make a binding offer and which unarguably
came months after the perfection of the contract. Said letter dated May 12, 1988 is reproduced
hereunder:

May 12, 1988

Atty. Noe C. Zarate


Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria
regarding the six (6) parcels of land located at Sta. Rosa, Laguna.
We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor
perfected a "contract to sell and buy" with any of them for the following reasons.
In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by former
Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M.
Pascua detailed the functions of Property Management Department (PMD) staff and officers
(Annex A.), you will immediately read that Manager Mr. Mercurio Rivera or any of his
subordinates has no authority, power or right to make any alleged counter-offer. In short,
your lawyer-clients did not deal with the authorized officers of the bank.
Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates
Pambansa Blg. 68.) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended),

only the Board of Directors/Conservator may authorize the sale of any property of the
corportion/bank..
Our records do not show that Mr. Rivera was authorized by the old board or by any of the
bank conservators (starting January, 1984) to sell the aforesaid property to any of your
clients. Apparently, what took place were just preliminary discussions/consultations between
him and your clients, which everyone knows cannot bind the Bank's Board or Conservator.
We are, therefore, constrained to refuse any tender of payment by your clients, as the same
is patently violative of corporate and banking laws. We believe that this is more than
sufficient legal justification for refusing said alleged tender.
Rest assured that we have nothing personal against your clients. All our acts are official,
legal and in accordance with law. We also have no personal interest in any of the properties
of the Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T. Encarnacion
LEONIDA T. EDCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the
conservator of a bank, it must be pointed out that such powers must be related to the "(preservation
of) the assets of the bank, (the reorganization of) the management thereof and (the restoration of) its
viability." Such powers, enormous and extensive as they are, cannot extend to the postfacto repudiation of perfected transactions, otherwise they would infringe against the non-impairment
clause of the Constitution 44. If the legislature itself cannot revoke an existing valid contract, how can
it delegate such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are,
under existing law, deemed to be defective i.e., void, voidable, unenforceable or rescissible.
Hence, the conservator merely takes the place of a bank's board of directors. What the said board
cannot do such as repudiating a contract validly entered into under the doctrine of implied
authority the conservator cannot do either. Ineluctably, his power is not unilateral and he cannot
simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to
assail such contracts as he has already done so in the instant case. A contrary understanding of
the law would simply not be permitted by the Constitution. Neither by common sense. To rule
otherwise would be to enable a failing bank to become solvent, at the expense of third parties, by
simply getting the conservator to unilaterally revoke all previous dealings which had one way or
another or come to be considered unfavorable to the Bank, yielding nothing to perfected contractual
rights nor vested interests of the third parties who had dealt with the Bank.
The Fifth Issue: Were There Reversible Errors of Facts?
Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact
by the Court of Appeals are not reviewable by the Supreme Court. In Andres vs. Manufacturers
Hanover & Trust Corporation, 45, we held:

. . . The rule regarding questions of fact being raised with this Court in a petition
for certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante vs.
Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition
for certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme
Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the
errors of law imputed to it, its findings of the fact being conclusive " [Chan vs. Court of
Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of
decisions]. This Court has emphatically declared that "it is not the function of the Supreme
Court to analyze or weigh such evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been committed by the lower court" (Tiongco v. De la
Merced, G. R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R.
No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G. R. No. L47531, February 20, 1984, 127 SCRA 596). "Barring, therefore, a 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" [Santa Ana, Jr. vs. Hernandez, G. R. No. L-16394, December 17,
1966, 18 SCRA 973] [at pp. 144-145.]
Likewise, in Bernardo vs. Court of Appeals 46, we held:
The resolution of this petition invites us to closely scrutinize the facts of the case, relating to
the sufficiency of evidence and the credibility of witnesses presented. This Court so held that
it is not the function of the Supreme Court to analyze or weigh such evidence all over again.
The Supreme Court's jurisdiction is limited to reviewing errors of law that may have been
committed by the lower court. The Supreme Court is not a trier of facts. . . .
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and
Development Corp. 47:
The Court has consistently held that the factual findings of the trial court, as well as the Court
of Appeals, are final and conclusive and may not be reviewed on appeal. Among the
exceptional circumstances where a reassessment of facts found by the lower courts is
allowed are when the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or impossible; when
there is grave abuse of discretion in the appreciation of facts; when the judgment is premised
on a misapprehension of facts; when the findings went beyond the issues of the case and
the same are contrary to the admissions of both appellant and appellee. After a careful study
of the case at bench, we find none of the above grounds present to justify the re-evaluation
of the findings of fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance
Company Inc. vs.Hon. Court of Appeals, et al. 48 is equally applicable to the present case:
We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is
not the function of this Court to assess and evaluate all over again the evidence, testimonial
and documentary, adduced by the parties, particularly where, such as here, the findings of
both the trial court and the appellate court on the matter coincide. (emphasis supplied)

Petitioners, however, assailed the respondent Court's Decision as "fraught with findings and
conclusions which were not only contrary to the evidence on record but have no bases at all,"
specifically the findings that (1) the "Bank's counter-offer price of P5.5 million had been determined
by the past due committee and approved by conservator Romey, after Rivera presented the same
for discussion" and (2) "the meeting with Co was not to scale down the price and start negotiations
anew, but a meeting on the already determined price of P5.5 million" Hence, citing Philippine
National Bank vs. Court of Appeals 49, petitioners are asking us to review and reverse such factual
findings.
The first point was clearly passed upon by the Court of Appeals 50, thus:
There can be no other logical conclusion than that when, on September 1, 1987, Rivera
informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for more than 101
hectares on lot basis, "such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator after Rivera had duly presented plaintiffs' offer
for discussion by the Committee . . . Tersely put, under the established fact, the price of P5.5
Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at
which the bank was selling the property. (p. 11, CA Decision)
xxx

xxx

xxx

. . . The argument deserves scant consideration. As pointed out by plaintiff, during the
meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the senior vicepresident of the bank, where the topic was the possible lowering of the price, the bank official
refused it and confirmed that the P5.5 Million price had been passed upon by the Committee
and could no longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).
The respondent Court did not believe the evidence of the petitioners on this point, characterizing it
as "not credible" and "at best equivocal and considering the gratuitous and self-serving character of
these declarations, the bank's submissions on this point do not inspire belief."
To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo
Romey to testify on their behalf, as he would have been in the best position to establish their thesis.
Under the rules on evidence 51, such suppression gives rise to the presumption that his testimony
would have been adverse, if produced.
The second point was squarely raised in the Court of Appeals, but petitioners' evidence was deemed
insufficient by both the trial court and the respondent Court, and instead, it was respondent's
submissions that were believed and became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower
courts are valid and correct. But the petitioners are now asking this Court to disturb these findings to
fit the conclusion they are espousing, This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by
the Court of Appeals 52. We have studied both the records and the CA Decision and we find no such
exceptions in this case. On the contrary, the findings of the said Court are supported by a
preponderance of competent and credible evidence. The inferences and conclusions are seasonably
based on evidence duly identified in the Decision. Indeed, the appellate court patiently traversed and
dissected the issues presented before it, lending credibility and dependability to its findings. The best
that can be said in favor of petitioners on this point is that the factual findings of respondent Court
did not correspond to petitioners' claims, but were closer to the evidence as presented in the trial

court by private respondent. But this alone is no reason to reverse or ignore such factual findings,
particularly where, as in this case, the trial court and the appellate court were in common agreement
thereon. Indeed, conclusions of fact of a trial judge as affirmed by the Court of Appeals are
conclusive upon this Court, absent any serious abuse or evident lack of basis or capriciousness of
any kind, because the trial court is in a better position to observe the demeanor of the witnesses and
their courtroom manner as well as to examine the real evidence presented.
Epilogue.
In summary, there are two procedural issues involved forum-shopping and the raising of issues for
the first time on appeal [viz., the extinguishment of the Bank's offer of P5.5 million and the
conservator's powers to repudiate contracts entered into by the Bank's officers] which per
se could justify the dismissal of the present case. We did not limit ourselves thereto, but delved as
well into the substantive issues the perfection of the contract of sale and its enforceability, which
required the determination of questions of fact. While the Supreme Court is not a trier of facts and as
a rule we are not required to look into the factual bases of respondent Court's decisions and
resolutions, we did so just the same, if only to find out whether there is reason to disturb any of its
factual findings, for we are only too aware of the depth, magnitude and vigor by which the parties
through their respective eloquent counsel, argued their positions before this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a
government-appointed conservator and "there is need to rehabilitate the Bank in order to get it back
on its feet . . . as many people depend on (it) for investments, deposits and well as employment. As
of June 1987, the Bank's overdraft with the Central Bank had already reached P1.023 billion . . . and
there were (other) offers to buy the subject properties for a substantial amount of money." 53
While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot
emotionally close its eyes to overriding considerations of substantive and procedural law, like
respect for perfected contracts, non-impairment of obligations and sanctions against forumshopping, which must be upheld under the rule of law and blind justice.
This Court cannot just gloss over private respondent's submission that, while the subject properties
may currently command a much higher price, it is equally true that at the time of the transaction in
1987, the price agreed upon of P5.5 million was reasonable, considering that the Bank acquired
these properties at a foreclosure sale for no more than P3.5 million 54. That the Bank procrastinated
and refused to honor its commitment to sell cannot now be used by it to promote its own advantage,
to enable it to escape its binding obligation and to reap the benefits of the increase in land values. To
rule in favor of the Bank simply because the property in question has algebraically accelerated in
price during the long period of litigation is to reward lawlessness and delays in the fulfillment of
binding contracts. Certainly, the Court cannot stamp its imprimatur on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court
hereby DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is
REPRIMANDED for engaging in forum-shopping and WARNED that a repetition of the same or
similar acts will be dealt with more severely. Costs against petitioners.
SO ORDERED.
G.R. No. 167812

December 19, 2006

JESUS M. GOZUN, petitioner,


vs.
JOSE TEOFILO T. MERCADO a.k.a. DON PEPITO MERCADO, respondent.

DECISION

CARPIO MORALES, J.:


On challenge via petition for review on certiorari is the Court of Appeals Decision of December 8,
2004 and Resolution of April 14, 2005 in CA-G.R. CV No. 76309 1 reversing the trial courts
decision2 against Jose Teofilo T. Mercado a.k.a. Don Pepito Mercado (respondent) and accordingly
dismissing the complaint of Jesus M. Gozun (petitioner).
In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga. Upon
respondents request, petitioner, owner of JMG Publishing House, a printing shop located in San
Fernando, Pampanga, submitted to respondent draft samples and price quotation of campaign
materials.
By petitioners claim, respondents wife had told him that respondent already approved his price
quotation and that he could start printing the campaign materials, hence, he did print campaign
materials like posters bearing respondents photograph, 3 leaflets containing the slate of party
candidates,4 sample ballots,5 poll watcher identification cards,6 and stickers.
Given the urgency and limited time to do the job order, petitioner availed of the services and facilities
of Metro Angeles Printing and of St. Joseph Printing Press, owned by his daughter Jennifer Gozun
and mother Epifania Macalino Gozun, respectively.7
Petitioner delivered the campaign materials to respondents headquarters along Gapan-Olongapo
Road in San Fernando, Pampanga.8
Meanwhile, on March 31, 1995, respondents sister-in-law, Lilian Soriano (Lilian) obtained from
petitioner "cash advance" of P253,000 allegedly for the allowances of poll watchers who were
attending a seminar and for other related expenses. Lilian acknowledged on petitioners 1995
diary9 receipt of the amount.10
Petitioner later sent respondent a Statement of Account 11 in the total amount of P2,177,906 itemized
as follows:P640,310 for JMG Publishing House; P837,696 for Metro Angeles Printing; P446,900 for
St. Joseph Printing Press; and P253,000, the "cash advance" obtained by Lilian.
On August 11, 1995, respondents wife partially paid P1,000,000 to petitioner who issued a
receipt12 therefor.
Despite repeated demands and respondents promise to pay, respondent failed to settle the balance
of his account to petitioner.

Petitioner and respondent being compadres, they having been principal sponsors at the weddings of
their respective daughters, waited for more than three (3) years for respondent to honor his promise
but to no avail, compelling petitioner to endorse the matter to his counsel who sent respondent a
demand letter.13 Respondent, however, failed to heed the demand.14
Petitioner thus filed with the Regional Trial Court of Angeles City on November 25, 1998 a
complaint15 against respondent to collect the remaining amount of P1,177,906 plus "inflationary
adjustment" and attorneys fees.
In his Answer with Compulsory Counterclaim,16 respondent denied having transacted with petitioner
or entering into any contract for the printing of campaign materials. He alleged that the various
campaign materials delivered to him were represented as donations from his family, friends and
political supporters. He added that all contracts involving his personal expenses were coursed
through and signed by him to ensure compliance with pertinent election laws.
On petitioners claim that Lilian, on his (respondents) behalf, had obtained from him a cash advance
of P253,000, respondent denied having given her authority to do so and having received the same.
At the witness stand, respondent, reiterating his allegations in his Answer, claimed that petitioner
was his over-all coordinator in charge of the conduct of seminars for volunteers and the monitoring
of other matters bearing on his candidacy; and that while his campaign manager, Juanito "Johnny"
Cabalu (Cabalu), who was authorized to approve details with regard to printing materials, presented
him some campaign materials, those were partly donated. 17
When confronted with the official receipt issued to his wife acknowledging her payment to JMG
Publishing House of the amount of P1,000,000, respondent claimed that it was his first time to see
the receipt, albeit he belatedly came to know from his wife and Cabalu that the P1,000,000
represented "compensation [to petitioner] who helped a lot in the campaign as a gesture of
goodwill."18
Acknowledging that petitioner is engaged in the printing business, respondent explained that he
sometimes discussed with petitioner strategies relating to his candidacy, he (petitioner) having
actively volunteered to help in his campaign; that his wife was not authorized to enter into a contract
with petitioner regarding campaign materials as she knew her limitations; that he no longer
questioned the P1,000,000 his wife gave petitioner as he thought that it was just proper to
compensate him for a job well done; and that he came to know about petitioners claim against him
only after receiving a copy of the complaint, which surprised him because he knew fully well that the
campaign materials were donations.19
Upon questioning by the trial court, respondent could not, however, confirm if it was his
understanding that the campaign materials delivered by petitioner were donations from third
parties.20
Finally, respondent, disclaiming knowledge of the Comelec rule that if a campaign material is
donated, it must be so stated on its face, acknowledged that nothing of that sort was written on all
the materials made by petitioner.21
As adverted to earlier, the trial court rendered judgment in favor of petitioner, the dispositive portion
of which reads:

WHEREFORE, the plaintiff having proven its (sic) cause of action by preponderance of
evidence, the Court hereby renders a decision in favor of the plaintiff ordering the defendant
as follows:
1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest per annum from the filing
of this complaint until fully paid;
2. To pay the sum of P50,000.00 as attorneys fees and the costs of suit.
SO ORDERED.22
Also as earlier adverted to, the Court of Appeals reversed the trial courts decision and dismissed the
complaint for lack of cause of action.
In reversing the trial courts decision, the Court of Appeals held that other than petitioners testimony,
there was no evidence to support his claim that Lilian was authorized by respondent to borrow
money on his behalf. It noted that the acknowledgment receipt23 signed by Lilian did not specify in
what capacity she received the money. Thus, applying Article 1317 24 of the Civil Code, it held that
petitioners claim for P253,000 is unenforceable.
On the accounts claimed to be due JMG Publishing House P640,310, Metro Angeles Printing
P837,696, and St. Joseph Printing Press P446,900, the appellate court, noting that since the
owners of the last two printing presses were not impleaded as parties to the case and it was not
shown that petitioner was authorized to prosecute the same in their behalf, held that petitioner could
not collect the amounts due them.
Finally, the appellate court, noting that respondents wife had paid P1,000,000 to petitioner, the
latters claim ofP640,310 (after excluding the P253,000) had already been settled.
Hence, the present petition, faulting the appellate court to have erred:
1. . . . when it dismissed the complaint on the ground that there is no evidence, other than
petitioners own testimony, to prove that Lilian R. Soriano was authorized by the respondent
to receive the cash advance from the petitioner in the amount of P253,000.00.
xxxx
2. . . . when it dismissed the complaint, with respect to the amounts due to the Metro Angeles
Press and St. Joseph Printing Press on the ground that the complaint was not brought by the
real party in interest.
x x x x25
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.26 Contracts entered
into in the name of another person by one who has been given no authority or legal representation
or who has acted beyond his powers are classified as unauthorized contracts and are declared
unenforceable, unless they are ratified.27
Generally, the agency may be oral, unless the law requires a specific form. 28 However, a special
power of attorney is necessary for an agent to, as in this case, borrow money, unless it be urgent

and indispensable for the preservation of the things which are under administration. 29 Since nothing
in this case involves the preservation of things under administration, a determination of whether
Soriano had the special authority to borrow money on behalf of respondent is in order.
Lim Pin v. Liao Tian, et al.30 held that the requirement of a special power of attorney refers to the
nature of the authorization and not to its form.
. . . The requirements are met if there is a clear mandate from the principal specifically
authorizing the performance of the act. As early as 1906, this Court in Strong v. GutierrezRepide (6 Phil. 680) stated that such a mandate may be either oral or written. The one thing
vital being that it shall be express. And more recently, We stated that, if the special authority
is not written, then it must be duly established by evidence:
"the Rules require, for attorneys to compromise the litigation of their clients, a special
authority. And while the same does not state that the special authority be in writing the Court
has every reason to expect that, if not in writing, the same be duly established by evidence
other than the self-serving assertion of counsel himself that such authority was verbally given
him."31 (Emphasis and underscoring supplied)
Petitioner submits that his following testimony suffices to establish that respondent had authorized
Lilian to obtain a loan from him, viz:
Q : Another caption appearing on Exhibit "A" is cash advance, it states given on 3-31-95
received by Mrs. Lilian Soriano in behalf of Mrs. Annie Mercado, amount P253,000.00, will
you kindly tell the Court and explain what does that caption means?
A : It is the amount representing the money borrowed from me by the defendant when
one morning they came very early and talked to me and told me that they were not able
to go to the bank to get money for the allowances of Poll Watchers who were having a
seminar at the headquarters plus other election related expenses during that day, sir.
Q : Considering that this is a substantial amount which according to you was taken by Lilian
Soriano, did you happen to make her acknowledge the amount at that time?
A : Yes, sir.32 (Emphasis supplied)
Petitioners testimony failed to categorically state, however, whether the loan was made on behalf of
respondent or of his wife. While petitioner claims that Lilian was authorized by respondent,
the statement of account marked as Exhibit "A" states that the amount was received by Lilian "in
behalf of Mrs. Annie Mercado."
Invoking Article 187333 of the Civil Code, petitioner submits that respondent informed him that he had
authorized Lilian to obtain the loan, hence, following Macke v. Camps34 which holds that one who
clothes another with apparent authority as his agent, and holds him out to the public as such,
respondent cannot be permitted to deny the authority.
Petitioners submission does not persuade. As the appellate court observed:
. . . Exhibit "B" [the receipt issued by petitioner] presented by plaintiff-appellee to support his
claim unfortunately only indicates the Two Hundred Fifty Three Thousand Pesos
(P253,0000.00) was received by one Lilian R. Soriano on 31 March 1995, but without

specifying for what reason the said amount was delivered and in what capacity did Lilian R.
Soriano received [sic] the money. The note reads:
"3-31-95
261,120 ADVANCE MONEY FOR TRAINEE
RECEIVED BY
RECEIVED FROM JMG THE AMOUNT OF 253,000 TWO HUNDRED FIFTY THREE
THOUSAND PESOS
(SIGNED)
LILIAN R. SORIANO
3-31-95"
Nowhere in the note can it be inferred that defendant-appellant was connected with the said
transaction. Under Article 1317 of the New Civil Code, a person cannot be bound by
contracts he did not authorize to be entered into his behalf. 35 (Underscoring supplied)
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she
was acting for and in behalf of respondent. She thus bound herself in her personal capacity and not
as an agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real
property executed by an agent, it must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent
was in fact authorized to make the mortgage, if he has not acted in the name of the principal. x x
x36 (Emphasis and underscoring supplied)
On the amount due him and the other two printing presses, petitioner explains that he was the one
who personally and directly contracted with respondent and he merely sub-contracted the two
printing establishments in order to deliver on time the campaign materials ordered by respondent.
Respondent counters that the claim of sub-contracting is a change in petitioners theory of the case
which is not allowed on appeal.
In Oco v. Limbaring,37 this Court ruled:
The parties to a contract are the real parties in interest in an action upon it, as consistently
held by the Court. Only the contracting parties are bound by the stipulations in the contract;
they are the ones who would benefit from and could violate it. Thus, one who is not a party to
a contract, and for whose benefit it was not expressly made, cannot maintain an action on it.
One cannot do so, even if the contract performed by the contracting parties would
incidentally inure to one's benefit.38 (Underscoring supplied)
In light thereof, petitioner is the real party in interest in this case. The trial courts findings on the
matter were affirmed by the appellate court.39 It erred, however, in not declaring petitioner as a real
party in interest insofar as recovery of the cost of campaign materials made by petitioners mother

and sister are concerned, upon the wrong notion that they should have been, but were not,
impleaded as plaintiffs.
In sum, respondent has the obligation to pay the total cost of printing his campaign materials
delivered by petitioner in the total of P1,924,906, less the partial payment of P1,000,000,
or P924,906.
WHEREFORE, the petition is GRANTED. The Decision dated December 8, 2004 and the Resolution
dated April 14, 2005 of the Court of Appeals are hereby REVERSED and SET ASIDE.
The April 10, 2002 Decision of the Regional Trial Court of Angeles City, Branch 57, is
REINSTATED mutatis mutandis, in light of the foregoing discussions. The trial courts decision is
modified in that the amount payable by respondent to petitioner is reduced to P924,906.
SO ORDERED.
G.R. No. 156015. August 11, 2005
REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M. CALIMLIM, in his capacity
as former Chief of the Intelligence Service, Armed Forces of the Philippines (ISAFP), and
former Commanding General, Presidential Security Group (PSG), and MAJ. DAVID B.
DICIANO, in his capacity as an Officer of ISAFP and former member of the PSG, Petitioners,
vs.
HON. VICTORINO EVANGELISTA, in his capacity as Presiding Judge, Regional Trial Court,
Branch 223, Quezon City, and DANTE LEGASPI, represented by his attorney-in-fact, Paul
Gutierrez, Respondent.
DECISION
PUNO, J.:
The case at bar stems from a complaint for damages, with prayer for the issuance of a writ of
preliminary injunction, filed by private respondent Dante Legaspi, through his attorney-in-fact Paul
Gutierrez, against petitioners Gen. Jose M. Calimlim, Ciriaco Reyes and Maj. David Diciano before
the Regional Trial Court (RTC) of Quezon City.1
The Complaint alleged that private respondent Legaspi is the owner of a land located in Bigte,
Norzagaray, Bulacan. In November 1999, petitioner Calimlim, representing the Republic of the
Philippines, and as then head of the Intelligence Service of the Armed Forces of the Philippines and
the Presidential Security Group, entered into a Memorandum of Agreement (MOA) with one Ciriaco
Reyes. The MOA granted Reyes a permit to hunt for treasure in a land in Bigte, Norzagaray,
Bulacan. Petitioner Diciano signed the MOA as a witness. 2 It was further alleged that thereafter,
Reyes, together with petitioners, started, digging, tunneling and blasting works on the said land of
Legaspi. The complaint also alleged that petitioner Calimlim assigned about 80 military personnel to
guard the area and encamp thereon to intimidate Legaspi and other occupants of the area from
going near the subject land.
On February 15, 2000, Legaspi executed a special power of attorney (SPA) appointing his nephew,
private respondent Gutierrez, as his attorney-in-fact. Gutierrez was given the power to deal with the
treasure hunting activities on Legaspis land and to file charges against those who may enter it

without the latters authority.3Legaspi agreed to give Gutierrez 40% of the treasure that may be found
in the land.
On February 29, 2000, Gutierrez filed a case for damages and injunction against petitioners for
illegally entering Legaspis land. He hired the legal services of Atty. Homobono Adaza. Their contract
provided that as legal fees, Atty. Adaza shall be entitled to 30% of Legaspis share in whatever
treasure may be found in the land. In addition, Gutierrez agreed to pay Atty. Adaza P5,000.00 as
appearance fee per court hearing and defray all expenses for the cost of the litigation. 4 Upon the
filing of the complaint, then Executive Judge Perlita J. Tria Tirona issued a 72-hour temporary
restraining order (TRO) against petitioners.
The case5 was subsequently raffled to the RTC of Quezon City, Branch 223, then presided by public
respondent Judge Victorino P. Evangelista. On March 2, 2000, respondent judge issued another 72hour TRO and a summary hearing for its extension was set on March 7, 2000.
On March 14, 2000, petitioners filed a Motion to Dismiss6 contending: first, there is no real party-ininterest as the SPA of Gutierrez to bring the suit was already revoked by Legaspi on March 7, 2000,
as evidenced by a Deed of Revocation,7 and, second, Gutierrez failed to establish that the alleged
armed men guarding the area were acting on orders of petitioners. On March 17, 2000, petitioners
also filed a Motion for Inhibition8 of the respondent judge on the ground of alleged partiality in favor
of private respondent.
On March 23, 2000, the trial court granted private respondents application for a writ of preliminary
injunction on the following grounds: (1) the diggings and blastings appear to have been made on the
land of Legaspi, hence, there is an urgent need to maintain the status quo to prevent serious
damage to Legaspis land; and, (2) the SPA granted to Gutierrez continues to be valid. 9 The trial
court ordered thus:
WHEREFORE, in view of all the foregoing, the Court hereby resolves to GRANT plaintiffs
application for a writ of preliminary injunction. Upon plaintiffs filing of an injunction bond in the
amount of ONE HUNDRED THOUSAND PESOS (P100,000.00), let a Writ of Preliminary Injunction
issue enjoining the defendants as well as their associates, agents or representatives from continuing
to occupy and encamp on the land of the plaintiff LEGASPI as well as the vicinity thereof; from
digging, tunneling and blasting the said land of plaintiff LEGASPI; from removing whatever treasure
may be found on the said land; from preventing and threatening the plaintiffs and their
representatives from entering the said land and performing acts of ownership; from threatening the
plaintiffs and their representatives as well as plaintiffs lawyer.
On even date, the trial court issued another Order10 denying petitioners motion to dismiss and
requiring petitioners to answer the complaint. On April 4, 2000, it likewise denied petitioners motion
for inhibition.11
On appeal, the Court of Appeals affirmed the decision of the trial court.12
Hence this petition, with the following assigned errors:
I

WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND PRIVATE RESPONDENT


GUTIERREZ HAS BEEN EFFECTIVELY REVOKED BY LEGASPI.
II
WHETHER THE COMPLAINT AGAINST PETITIONERS SHOULD BE DISMISSED.
III
WHETHER RESPONDENT JUDGE OUGHT TO HAVE INHIBITED HIMSELF FROM FURTHER
PROCEEDING WITH THE CASE.
We find no merit in the petition.
On the first issue, petitioners claim that the special power of attorney of Gutierrez to represent
Legaspi has already been revoked by the latter. Private respondent Gutierrez, however, contends
that the unilateral revocation is invalid as his agency is coupled with interest.
We agree with private respondent.
Art. 1868 of the Civil Code provides that by the contract of agency, an agent binds himself to render
some service or do something in representation or on behalf of another, known as the principal, with
the consent or authority of the latter.13
A contract of agency is generally revocable as it is a personal contract of representation based on
trust and confidence reposed by the principal on his agent. As the power of the agent to act depends
on the will and license of the principal he represents, the power of the agent ceases when the will or
permission is withdrawn by the principal. Thus, generally, the agency may be revoked by the
principal at will.14
However, an exception to the revocability of a contract of agency is when it is coupled with
interest, i.e., if a bilateral contract depends upon the agency.15 The reason for its irrevocability is
because the agency becomes part of another obligation or agreement. It is not solely the rights of
the principal but also that of the agent and third persons which are affected. Hence, the law provides
that in such cases, the agency cannot be revoked at the sole will of the principal.
In the case at bar, we agree with the finding of the trial and appellate courts that the agency granted
by Legaspi to Gutierrez is coupled with interest as a bilateral contract depends on it. It is clear from
the records thatGutierrez was given by Legaspi, inter alia, the power to manage the treasure
hunting activities in the subject land; to file any case against anyone who enters the land
without authority from Legaspi; to engage the services of lawyers to carry out the agency;
and, to dig for any treasure within the land and enter into agreements relative thereto. It was
likewise agreed upon that Gutierrez shall be entitled to 40% of whatever treasure may be found
in the land. Pursuant to this authority and to protect Legaspis land from the alleged illegal entry of
petitioners, agent Gutierrez hired the services of Atty. Adaza to prosecute the case for damages and
injunction against petitioners. As payment for legal services, Gutierrez agreed to assign to Atty.
Adaza 30% of Legaspis share in whatever treasure may be recovered in the subject land. It is
clear that the treasure that may be found in the land is the subject matter of the agency; that under
the SPA, Gutierrez can enter into contract for the legal services of Atty. Adaza; and, thus Gutierrez

and Atty. Adaza have an interest in the subject matter of the agency, i.e., in the treasures that may
be found in the land. This bilateral contract depends on the agency and thus renders it as one
coupled with interest, irrevocable at the sole will of the principal Legaspi. 16 When an agency is
constituted as a clause in a bilateral contract, that is, when the agency is inserted in another
agreement, the agency ceases to be revocable at the pleasure of the principal as the agency shall
now follow the condition of the bilateral agreement. 17 Consequently, the Deed of Revocation
executed by Legaspi has no effect. The authority of Gutierrez to file and continue with the
prosecution of the case at bar is unaffected.
On the second issue, we hold that the issuance of the writ of preliminary injunction is justified. A writ
of preliminary injunction is an ancilliary or preventive remedy that is resorted to by a litigant to protect
or preserve his rights or interests and for no other purpose during the pendency of the principal
action.18 It is issued by the court to prevent threatened or continuous irremediable injury to the
applicant before his claim can be thoroughly studied and adjudicated. 19 Its aim is to preserve
the status quo ante until the merits of the case can be heard fully, upon the applicants showing of
two important conditions, viz.: (1) the right to be protected prima facie exists; and, (2) the acts sought
to be enjoined are violative of that right.20
Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides that a writ of preliminary injunction
may be issued when it is established:
(a) that the applicant is entitled to the relief demanded, the whole or part of such relief consists in
restraining the commission or continuance of the act or acts complained of, or in requiring the
performance of an act or acts, either for a limited period or perpetually;
(b) that the commission, continuance or non-performance of the act or acts complained of during the
litigation would probably work injustice to the applicant; or
(c) that a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring
or suffering to be done, some act or acts probably in violation of the rights of the applicant
respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.
It is crystal clear that at the hearing for the issuance of a writ of preliminary injunction, mere prima
facie evidence is needed to establish the applicants rights or interests in the subject matter of the
main action.21 It is not required that the applicant should conclusively show that there was a
violation of his rights as this issue will still be fully litigated in the main case. 22 Thus, an applicant for
a writ is required only to show that he has an ostensible right to the final relief prayed for in
his complaint. 23
In the case at bar, we find that respondent judge had sufficient basis to issue the writ of preliminary
injunction. It was established, prima facie, that Legaspi has a right to peaceful possession of
his land, pendente lite.Legaspi had title to the subject land. It was likewise established that the
diggings were conducted by petitioners in the enclosed area of Legaspis land. Whether the land
fenced by Gutierrez and claimed to be included in the land of Legaspi covered an area
beyond that which is included in the title of Legaspi is a factual issue still subject to litigation
and proof by the parties in the main case for damages. It was necessary for the trial court to
issue the writ of preliminary injunction during the pendency of the main case in order to preserve the
rights and interests of private respondents Legaspi and Gutierrez.

On the third issue, petitioners charge that the respondent judge lacked the neutrality of an impartial
judge. They fault the respondent judge for not giving credence to the testimony of their surveyor that
the diggings were conducted outside the land of Legaspi. They also claim that respondent judges
rulings on objections raised by the parties were biased against them.
We have carefully examined the records and we find no sufficient basis to hold that respondent
judge should have recused himself from hearing the case. There is no discernible pattern of bias on
the rulings of the respondent judge. Bias and partiality can never be presumed. Bare allegations of
partiality will not suffice in an absence of a clear showing that will overcome the presumption that the
judge dispensed justice without fear or favor.24 It bears to stress again that a judges appreciation or
misappreciation of the sufficiency of evidence adduced by the parties, or the correctness of a judges
orders or rulings on the objections of counsels during the hearing, without proof of malice on the part
of respondent judge, is not sufficient to show bias or partiality. As we held in the case of Webb vs.
People,25 the adverse and erroneous rulings of a judge on the various motions of a party do not
sufficiently prove bias and prejudice to disqualify him. To be disqualifying, it must be shown that the
bias and prejudice stemmed from an extrajudicial source and result in an opinion on the merits on
some basis other than what the judge learned from his participation in the case. Opinions formed in
the course of judicial proceedings, although erroneous, as long as based on the evidence adduced,
do not prove bias or prejudice. We also emphasized that repeated rulings against a litigant, no
matter how erroneously, vigorously and consistently expressed, do not amount to bias and prejudice
which can be a bases for the disqualification of a judge.
Finally, the inhibition of respondent judge in hearing the case for damages has become moot and
academic in view of the latters death during the pendency of the case. The main case for damages
shall now be heard and tried before another judge.
IN VIEW WHEREOF, the impugned Orders of the trial court in Civil Case No. Q-00-40115, dated
March 23 and April 4, 2000, are AFFIRMED. The presiding judge of the Regional Trial Court of
Quezon City to whom Civil Case No. Q-00-40115 was assigned is directed to proceed with dispatch
in hearing the main case for damages. No pronouncement as to costs.
SO ORDERED.
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and
SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by
certiorari. The facts are beyond dispute:
xxx xxx xxx

On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees)
entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the
first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party
of the second part, and hereinafter referred to as appellants, the Tourist World
Service, Inc. leased the premises belonging to the party of the first part at Mabini St.,
Manila for the former-s use as a branch office. In the said contract the party of the
third part held herself solidarily liable with the party of the part for the prompt
payment of the monthly rental agreed on. When the branch office was opened, the
same was run by the herein appellant Una 0. Sevilla payable to Tourist World Service
Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was
to go to Lina Sevilla and 3% was to be withheld by the Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears
to have been informed that Lina Sevilla was connected with a rival firm, the
Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist
World Service considered closing down its office. This was firmed up by two
resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961
(Exhibits 12 and 13), the first abolishing the office of the manager and vice-president
of the Tourist World Service, Inc., Ermita Branch, and the second,authorizing the
corporate secretary to receive the properties of the Tourist World Service then
located at the said branch office. It further appears that on Jan. 3, 1962, the contract
with the appellees for the use of the Branch Office premises was terminated and
while the effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a
matter of fact appellants used it since Nov. 1961. Because of this, and to comply with
the mandate of the Tourist World Service, the corporate secretary Gabino Canilao
went over to the branch office, and, finding the premises locked, and, being unable to
contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the
interests of the Tourist World Service. When neither the appellant Lina Sevilla nor
any of her employees could enter the locked premises, a complaint wall filed by the
herein appellants against the appellees with a prayer for the issuance of mandatory
preliminary injunction. Both appellees answered with counterclaims. For apparent
lack of interest of the parties therein, the trial court ordered the dismissal of the case
without prejudice.
The appellee Segundina Noguera sought reconsideration of the order dismissing her
counterclaim which the court a quo, in an order dated June 8, 1963, granted
permitting her to present evidence in support of her counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees
and after the issues were joined, the reinstated counterclaim of Segundina Noguera
and the new complaint of appellant Lina Sevilla were jointly heard following which the
court a quo ordered both cases dismiss for lack of merit, on the basis of which was
elevated the instant appeal on the following assignment of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0.
SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.)

WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO


HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS
VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS.
LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE
EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC.
EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO
RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI
OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE
NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE
DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT
MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the telephone line at
the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World Service was
actionable or not; and
3. Whether or not the lessee to the office premises belonging to the appellee
Noguera was appellees TWS or TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was
entered into by and between her and appellee TWS with offices at the Ermita branch
office and that she was not an employee of the TWS to the end that her relationship
with TWS was one of a joint business venture appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an
eminent eye, ear and nose specialist as well as a imediately
columnist had been in the travel business prior to the establishment
of the joint business venture with appellee Tourist World Service, Inc.
and appellee Eliseo Canilao, her compadre, she being the godmother
of one of his children, with her own clientele, coming mostly from her
own social circle (pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease agreement dated
19 October 1960 (Exh. 'A') covering the premises at A. Mabini St.,
she expressly warranting and holding [sic] herself 'solidarily' liable
with appellee Tourist World Service, Inc. for the prompt payment of

the monthly rentals thereof to other appellee Mrs. Noguera (pp. 1415, tsn. Jan. 18,1964).
3. Appellant Mrs. Sevilla did not receive any salary from appellee
Tourist World Service, Inc., which had its own, separate office located
at the Trade & Commerce Building; nor was she an employee
thereof, having no participation in nor connection with said business
at the Trade & Commerce Building (pp. 16-18 tsn Id.).
4. Appellant Mrs. Sevilla earned commissions for her own
passengers, her own bookings her own business (and not for any of
the business of appellee Tourist World Service, Inc.) obtained from
the airline companies. She shared the 7% commissions given by the
airline companies giving appellee Tourist World Service, Lic. 3%
thereof aid retaining 4% for herself (pp. 18 tsn. Id.)
5. Appellant Mrs. Sevilla likewise shared in the expenses of
maintaining the A. Mabini St. office, paying for the salary of an office
secretary, Miss Obieta, and other sundry expenses, aside from
desicion the office furniture and supplying some of fice furnishings
(pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc.
shouldering the rental and other expenses in consideration for the 3%
split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb.
16,1965).
6. It was the understanding between them that appellant Mrs. Sevilla
would be given the title of branch manager for appearance's sake
only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a
title for dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo
Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary
Gabino Canilao (pp- 2-5, Appellants' Reply Brief)
Upon the other hand, appellee TWS contend that the appellant was an employee of
the appellee Tourist World Service, Inc. and as such was designated manager. 1
xxx xxx xxx

The trial court 2 held for the private respondent on the premise that the private respondent, Tourist World
Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock the
premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere employee of said Tourist World
Service, Inc. and as such, she was bound by the acts of her employer. 4 The respondent Court of
Appeal 5 rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically,
they state:
I

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD
SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA
SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND
WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY
BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE
SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED
THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN
THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE
LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION
AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO
WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY
BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS
CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON
RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER
CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT
LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR
REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina
Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the
crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist World
Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the
relief of damages prayed for and whether or not the evidence for the said appellant supports the
contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the
appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World
Service, Inc. 7 Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere
employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on
the lease executed with the private respondent, Segundina Noguera. The petitioners contend, however,
that relation between the between parties was one of joint venture, but concede that "whatever might
have been the true relationship between Sevilla and Tourist World Service," the Rule of Law enjoined
Tourist World Service and Canilao from taking the law into their own hands, 8 in reference to the
padlocking now questioned.

The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World
Service, Inc., maintains, that the relation between the parties was in the character of employer and
employee, the courts would have been without jurisdiction to try the case, labor disputes being the
exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant
to statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the evidence of an employeremployee relation. In general, we have relied on the so-called right of control test, "where the person
for whom the services are performed reserves a right to control not only the end to be achieved but
also the means to be used in reaching such end." 10 Subsequently, however, we have considered, in
addition to the standard of right-of control, the existing economic conditions prevailing between the
parties, like the inclusion of the employee in the payrolls, in determining the existence of an employeremployee relationship. 11
The records will show that the petitioner, Lina Sevilla, was not subject to control by the private
respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means
used in connection therewith. In the first place, under the contract of lease covering the Tourist
Worlds Ermita office, she had bound herself insolidum as and for rental payments, an arrangement
that would be like claims of a master-servant relationship. True the respondent Court would later
minimize her participation in the lease as one of mere guaranty, 12 that does not make her an
employee of Tourist World, since in any case, a true employee cannot be made to part with his own
money in pursuance of his employer's business, or otherwise, assume any liability thereof. In that event,
the parties must be bound by some other relation, but certainly not employment.
In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the
same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any
airline for any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these circumstances, it cannot
be said that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in
pursuing the business, obviously relied on her own gifts and capabilities.
It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in
commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee
then, who earns a fixed salary usually, she earned compensation in fluctuating amounts depending
on her booking successes.
The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist
World's employee. As we said, employment is determined by the right-of-control test and certain
economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence,
accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a
partnership. And apparently, Sevilla herself did not recognize the existence of such a relation. In her
letter of November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to
stop the operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over
the manner in which the business was run. A joint venture, including a partnership, presupposes generally
a of standing between the joint co-venturers or partners, in which each party has an equal proprietary
interest in the capital or property contributed 15 and where each party exercises equal rights in the conduct
of the business. 16 furthermore, the parties did not hold themselves out as partners, and the building itself
was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct partnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the
private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a
contract of agency. It is the essence of this contract that the agent renders services "in
representation or on behalf of another. 18 In the case at bar, Sevilla solicited airline fares, but she did so
for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the
proceeds in the concept of commissions. And as we said, Sevilla herself based on her letter of November
28, 1961, pre-assumed her principal's authority as owner of the business undertaking. We are convinced,
considering the circumstances and from the respondent Court's recital of facts, that the ties had
contemplated a principal agent relationship, rather than a joint managament or a partnership..
But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible
with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an
interest, the agency having been created for mutual interest, of the agent and the principal. 19 It
appears that Lina Sevilla is a bona fidetravel agent herself, and as such, she had acquired an interest in
the business entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof,
holding herself solidarily liable for the payment of rentals. She continued the business, using her own
name, after Tourist World had stopped further operations. Her interest, obviously, is not to the
commissions she earned as a result of her business transactions, but one that extends to the very subject
matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked
at the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner,
Lina Sevilla, to damages.
As we have stated, the respondent Court avoided this issue, confining itself to the telephone
disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the Court
of Appeals that there is 'no evidence showing that the Tourist World Service, Inc. disconnected the
telephone lines at the branch office. 20Yet, what cannot be denied is the fact that Tourist World Service,
Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand in the
disconnection now complained of, it had clearly condoned it, and as owner of the telephone lines, it must
shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For
the fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not accord it
any authority to terminate that contract without notice to its actual occupant, and to padlock the
premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a
personal stake in the business itself, and necessarily, in the equipment pertaining thereto.
Furthermore, Sevilla was not a stranger to that contract having been explicitly named therein as a
third party in charge of rental payments (solidarily with Tourist World, Inc.). She could not be ousted
from possession as summarily as one would eject an interloper.
The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to
put the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival
firm. To be sure, the respondent court speaks of alleged business losses to justify the closure '21 but
there is no clear showing that Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit for
another company. What the evidence discloses, on the other hand, is that following such an information (that Sevilla was working for another
company), Tourist World's board of directors adopted two resolutions abolishing the office of 'manager" and authorizing the corporate
secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private respondents
ended the lease over the branch office premises, incidentally, without notice to her.

It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked,
personally by the respondent Canilao, on the pretext that it was necessary to Protect the interests of
the Tourist World Service. " 22 It is strange indeed that Tourist World Service, Inc. did not find such a
need when it cancelled the lease five months earlier. While Tourist World Service, Inc. would not pretend

that it sought to locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, she could not
have been anywhere near the premises. Capping these series of "offensives," it cut the office's telephone lines, paralyzing completely its
business operations, and in the process, depriving Sevilla articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it
had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice
and fair play.
We rule therefore, that for its unwarranted revocation of the contract of agency, the private
respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil Code,
moral damages may be awarded for "breaches of contract where the defendant acted ... in bad
faith. 23
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to
Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of attorney granted
to her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage. 24
ART. 2219. Moral damages 25 may be recovered in the following and analogous cases:

xxx xxx xxx


(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the
same damages in a solidary capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has
been shown that she had connived with Tourist World Service, Inc. in the disconnection and
padlocking incidents. She cannot therefore be held liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as
exemplary damages,25 and P5,000.00 as nominal 26 and/or temperate 27 damages, to be just, fair, and
reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on
July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The
private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and
severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the
sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal
and/or temperate damages.
Costs against said private respondents.
SO ORDERED.