G.R. No.

156262 July 14, 2005

"2. The sum of P50,000.00, as attorneys fees;

MARIA TUAZON, ALEJANDRO P. TUAZON,

MELECIO P. TUAZON, Spouses ANASTACIO and
MARY
T.
BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.

"3. The sum of P20,000.00, as moral damages

DECISION
PANGANIBAN, J.:
Stripped of nonessentials, the present case involves
the collection of a sum of money. Specifically, this
case arose from the failure of petitioners to pay
respondents predecessor-in-interest. This fact was
shown by the non-encashment of checks issued by a
third person, but indorsed by herein Petitioner Maria
Tuazon in favor of the said predecessor. Under these
circumstances, to enable respondents to collect on
the indebtedness, the check drawer need not be
impleaded in the Complaint. Thus, the suit is
directed, not against the drawer, but against the
debtor who indorsed the checks in payment of the
obligation.
The Case
Before us is a Petition for Review1 under Rule 45 of
the Rules of Court, challenging the July 31, 2002
Decision2 of the Court of Appeals (CA) in CA-GR CV
No. 46535. The decretal portion of the assailed
Decision reads:
"WHEREFORE, the appeal is DISMISSED and the
appealed decision is AFFIRMED."
On the other hand, the affirmed Decision 3 of Branch
34 of the Regional Trial Court (RTC) of Gapan, Nueva
Ecija, disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor
of the plaintiffs and against the defendants, ordering
the defendants spouses Leonilo Tuazon and Maria
Tuazon to pay the plaintiffs, as follows:
"1. The sum of P1,750,050.00, with interests from the
filing of the second amended complaint;

"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 noninclusion 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
consideration:

the

following

issues

for

our

"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.

VICTORIAS
MILLING
CO.,
INC., petitioner,
vs.
COURT OF APPEALS and CONSOLIDATED SUGAR
CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under
Rule 45 of the Rules of Court assailing the decision of
the Court of Appeals dated February 24, 1994, in CAG.R. CV No. 31717, as well as the respondent court's
resolution of September 30, 1994 modifying said
decision. Both decision and resolution amended the
judgment dated February 13, 1991, of the Regional
Trial Court of Makati City, Branch 147, in Civil Case
No. 90-118.
The facts of this case as found by both the trial and
appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly
bought sugar from petitioner Victorias Milling Co.,
Inc., (VMC). In the course of their dealings, petitioner
issued several Shipping List/Delivery Receipts
(SLDRs) to STM as proof of purchases. Among these
was SLDR No. 1214M, which gave rise to the instant
case. Dated October 16, 1989, SLDR No. 1214M
covers 25,000 bags of sugar. Each bag contained 50
kilograms and priced at P638.00 per bag as "per
sales order VMC Marketing No. 042 dated October
16, 1989."1 The transaction it covered was a "direct
sale."2 The SLDR also contains an additional note
which reads: "subject for (sic) availability of a (sic)
stock at NAWACO (warehouse)." 3

G.R. No. 117356

June 19, 2000

On October 25, 1989, STM sold to private respondent

Consolidated Sugar Corporation (CSC) its rights in
SLDR No. 1214M for P 14,750,000.00. CSC issued one
check dated October 25, 1989 and three checks
postdated November 13, 1989 in payment. That
same day, CSC wrote petitioner that it had been
authorized by STM to withdraw the sugar covered by
SLDR No. 1214M. Enclosed in the letter were a copy
of SLDR No. 1214M and a letter of authority from
STM authorizing CSC "to withdraw for and in our
behalf the refined sugar covered by Shipping
List/Delivery Receipt-Refined Sugar (SDR) No. 1214
dated October 16, 1989 in the total quantity of
25,000 bags."4

On October 27, 1989, STM issued 16 checks in the

total amount of P31,900,000.00 with petitioner as
payee. The latter, in turn, issued Official Receipt No.
33743 dated October 27, 1989 acknowledging
receipt of the said checks in payment of 50,000 bags.
Aside from SLDR No. 1214M, said checks also
covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M
to the petitioner's NAWACO warehouse and was
allowed to withdraw sugar. However, after 2,000
bags had been released, petitioner refused to allow
further withdrawals of sugar against SLDR No.
1214M. CSC then sent petitioner a letter dated
January 23, 1990 informing it that SLDR No. 1214M
had been "sold and endorsed" to it but that it had
been refused further withdrawals of sugar from
petitioner's warehouse despite the fact that only
2,000 bags had been withdrawn.5 CSC thus inquired
when it would be allowed to withdraw the remaining
23,000 bags.
On January 31, 1990, petitioner replied that
not allow any further withdrawals of sugar
SLDR No. 1214M because STM had
dwithdrawn all the sugar covered by the
checks.6

it could
against
already
cleared

On March 2, 1990, CSC sent petitioner a letter

demanding the release of the balance of 23,000
bags.
Seven days later, petitioner reiterated that all the
sugar corresponding to the amount of STM's cleared
checks had been fully withdrawn and hence, there
would be no more deliveries of the commodity to
STM's account. Petitioner also noted that CSC had
represented itself to be STM's agent as it had
withdrawn the 2,000 bags against SLDR No. 1214M
"for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific
performance, docketed as Civil Case No. 90-1118.
Defendants were Teresita Ng Sy (doing business
under the name of St. Therese Merchandising) and
herein petitioner. Since the former could not be
served with summons, the case proceeded only
against the latter. During the trial, it was discovered
that Teresita Ng Go who testified for CSC was the
same Teresita Ng Sy who could not be reached
through summons.7 CSC, however, did not bother

to pursue its case against her, but instead used her

as its witness.
CSC's complaint alleged that STM had fully paid
petitioner for the sugar covered by SLDR No. 1214M.
Therefore, the latter had no justification for refusing
delivery of the sugar. CSC prayed that petitioner be
ordered to deliver the 23,000 bags covered by SLDR
No. 1214M and sought the award of P1,104,000.00 in
unrealized profits, P3,000,000.00 as exemplary
damages, P2,200,000.00 as attorney's fees and
litigation expenses.
Petitioner's primary defense a quo was that it was an
unpaid seller for the 23,000 bags.8 Since STM had
already drawn in full all the sugar corresponding to
the amount of its cleared checks, it could no longer
authorize further delivery of sugar to CSC. Petitioner
also contended that it had no privity of contract with
CSC.
Petitioner explained that the SLDRs, which it had
issued, were not documents of title, but mere
delivery receipts issued pursuant to a series of
transactions entered into between it and STM. The
SLDRs prescribed delivery of the sugar to the party
specified therein and did not authorize the transfer of
said party's rights and interests.
Petitioner also alleged that CSC did not pay for the
SLDR and was actually STM's co-conspirator to
defraud it through a misrepresentation that CSC was
an innocent purchaser for value and in good faith.
Petitioner then prayed that CSC be ordered to pay it
the following sums: P10,000,000.00 as moral
damages; P10,000,000.00 as exemplary damages;
and P1,500,000.00 as attorney's fees. Petitioner also
prayed that cross-defendant STM be ordered to pay it
P10,000,000.00
in
exemplary
damages,
and
P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial
court heard the case on the merits.
As earlier stated, the trial court rendered
judgment favoring private respondent CSC,
follows:

its
as

"WHEREFORE, in view of the foregoing, the Court

hereby renders judgment in favor of the plaintiff and
against defendant Victorias Milling Company:

"1) Ordering defendant Victorias Milling

Company to deliver to the plaintiff 23,000
bags of refined sugar due under SLDR No.
1214;
"2) Ordering defendant Victorias Milling
Company to pay the amount of P920,000.00
as unrealized profits, the amount of
P800,000.00 as exemplary damages and the
amount of P1,357,000.00, which is 10% of
the acquisition value of the undelivered
bags of refined sugar in the amount of
P13,570,000.00, as attorney's fees, plus the
costs.
"SO ORDERED."9
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go,
that she had fully paid the purchase price of
P15,950,000.00 of the 25,000 bags of sugar bought
by her covered by SLDR No. 1214 as well as the
purchase price of P15,950,000.00 for the 25,000
bags of sugar bought by her covered by SLDR No.
1213 on the same date, October 16, 1989 (date of
the two SLDRs) is duly supported by Exhibits C to C15 inclusive which are post-dated checks dated
October
27,
1989
issued
by
St.
Therese
Merchandising in favor of Victorias Milling Company
at the time it purchased the 50,000 bags of sugar
covered by SLDR No. 1213 and 1214. Said checks
appear to have been honored and duly credited to
the account of Victorias Milling Company because on
October 27, 1989 Victorias Milling Company issued
official receipt no. 34734 in favor of St. Therese
Merchandising for the amount of P31,900,000.00
(Exhibits B and B-1). The testimony of Teresita Ng Go
is further supported by Exhibit F, which is a computer
printout of defendant Victorias Milling Company
showing the quantity and value of the purchases
made by St. Therese Merchandising, the SLDR no.
issued to cover the purchase, the official reciept no.
and the status of payment. It is clear in Exhibit 'F'
that with respect to the sugar covered by SLDR No.
1214 the same has been fully paid as indicated by
the word 'cleared' appearing under the column of
'status of payment.'
"On the other hand, the claim of defendant Victorias
Milling Company that the purchase price of the
25,000 bags of sugar purchased by St. Therese

Merchandising covered by SLDR No. 1214 has not

been fully paid is supported only by the testimony of
Arnulfo Caintic, witness for defendant Victorias
Milling Company. The Court notes that the testimony
of Arnulfo Caintic is merely a sweeping barren
assertion that the purchase price has not been fully
paid and is not corroborated by any positive
evidence. There is an insinuation by Arnulfo Caintic in
his testimony that the postdated checks issued by
the buyer in payment of the purchased price were
dishonored. However, said witness failed to present
in Court any dishonored check or any replacement
check. Said witness likewise failed to present any
bank record showing that the checks issued by the
buyer, Teresita Ng Go, in payment of the purchase
price of the sugar covered by SLDR No. 1214 were
dishonored."10
Petitioner appealed the trial courts decision to the
Court of Appeals.
On appeal, petitioner averred that the dealings
between it and STM were part of a series of
transactions involving only one account or one
general contract of sale. Pursuant to this contract,
STM or any of its authorized agents could withdraw
bags of sugar only against cleared checks of STM.
SLDR No. 21214M was only one of 22 SLDRs issued
to STM and since the latter had already withdrawn its
full quota of sugar under the said SLDR, CSC was
already precluded from seeking delivery of the
23,000 bags of sugar.
Private respondent CSC countered that the sugar
purchases involving SLDR No. 1214M were separate
and independent transactions and that the details of
the series of purchases were contained in a single
statement with a consolidated summary of cleared
check payments and sugar stock withdrawals
because this a more convenient system than issuing
separate statements for each purchase.
The appellate court considered the following issues:
(a) Whether or not the transaction between
petitioner and STM involving SLDR No. 1214M was a
separate, independent, and single transaction; (b)
Whether or not CSC had the capacity to sue on its
own on SLDR No. 1214M; and (c) Whether or not CSC
as buyer from STM of the rights to 25,000 bags of
sugar covered by SLDR No. 1214M could compel
petitioner
to
deliver
23,000
bagsallegedly
unwithdrawn.

On February 24, 1994, the Court of Appeals rendered

its decision modifying the trial court's judgment, to
wit:
"WHEREFORE,
the
Court
hereby MODIFIES the
assailed judgment and orders defendant-appellant
to:
"1) Deliver to plaintiff-appellee 12,586 bags
of sugar covered by SLDR No. 1214M;
"2) Pay to plaintiff-appellee P792,918.00
which is 10% of the value of the undelivered
bags of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."11
Both parties then seasonably filed separate motions
for reconsideration.
In its resolution dated September 30, 1994, the
appellate court modified its decision to read:
"WHEREFORE, the Court hereby modifies the assailed
judgment and orders defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags
of refined sugar under SLDR No. 1214M;

Plaintiff-appellee is, therefore, correct in its argument

that Exhibit F' which was offered to prove that
checks in the total amount of P15,950,000.00 had
been cleared. (Formal Offer of Evidence for Plaintiff,
Records p. 58) cannot be used to prove the
proposition that 12,586 bags of sugar remained
undelivered.
"Testimonial evidence (Testimonies of Teresita Ng
[TSN, 10 October 1990, p. 33] and Marianito L.
Santos [TSN, 17 October 1990, pp. 16, 18, and
36]) presented by plaintiff-appellee was to the effect
that it had withdrawn only 2,000 bags of sugar from
SLDR after which it was not allowed to withdraw
anymore. Documentary evidence (Exhibit I, Id., p. 78,
Exhibit K, Id., p. 80) show that plaintiff-appellee had
sent demand letters to defendant-appellant asking
the latter to allow it to withdraw the remaining
23,000 bags of sugar from SLDR 1214M. Defendantappellant, on the other hand, alleged that sugar
delivery to the STM corresponded only to the value of
cleared checks; and that all sugar corresponded to
cleared checks had been withdrawn. Defendantappellant did not rebut plaintiff-appellee's assertions.
It did not present evidence to show how many bags
of sugar had been withdrawn against SLDR No.
1214M, precisely because of its theory that all sales
in question were a series of one single transaction
and withdrawal of sugar depended on the clearing of
checks paid therefor.
"After a second look at the evidence, We see no
reason to overturn the findings of the trial court on
this point."13

"(2) Pay costs of suit.

"SO ORDERED."12
The appellate court explained the rationale for the
modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit F' We relied upon in fixing the number of
bags of sugar which remained undelivered as 12,586
cannot be made the basis for such a finding. The rule
is explicit that courts should consider the evidence
only for the purpose for which it was offered. (People
v. Abalos, et al, 1 CA Rep 783). The rationale for this
is to afford the party against whom the evidence is
presented to object thereto if he deems it necessary.

Hence, the instant petition, positing the following

errors as grounds for review:
"1. The Court of Appeals erred in not holding
that STM's and private respondent's
specially
informing
petitioner
that
respondent was authorized by buyer STM to
withdraw sugar against SLDR No. 1214M
"for and in our (STM) behalf," (emphasis in
the
original)
private
respondent's
withdrawing 2,000 bags of sugar for STM,
and STM's empowering other persons as its
agents to withdraw sugar against the same
SLDR No. 1214M, rendered respondent like
the other persons, an agent of STM as held
in Rallos v. Felix Go Chan & Realty Corp., 81
SCRA
252,
and
precluded
it
from

subsequently claiming and proving being an

assignee of SLDR No. 1214M and from suing
by itself for its enforcement because it was
conclusively presumed to be an agent (Sec.
2, Rule 131, Rules of Court) and estopped
from doing so. (Art. 1431, Civil Code).
"2. The Court of Appeals erred in manifestly
and arbitrarily ignoring and disregarding
certain relevant and undisputed facts which,
had they been considered, would have
shown that petitioner was not liable, except
for 69 bags of sugar, and which would justify
review of its conclusion of facts by this
Honorable Court.
"3. The Court of Appeals misapplied the law
on compensation under Arts. 1279, 1285
and 1626 of the Civil Code when it ruled
that compensation applied only to credits
from one SLDR or contract and not to those
from two or more distinct contracts between
the same parties; and erred in denying
petitioner's right to setoff all its credits
arising prior to notice of assignment from
other sales or SLDRs against private
respondent's claim as assignee under SLDR
No. 1214M, so as to extinguish or reduce its
liability to 69 bags, because the law on
compensation applies precisely to two or
more distinct contracts between the same
parties (emphasis in the original).
"4. The Court of Appeals erred in concluding
that the settlement or liquidation of
accounts in Exh. F between petitioner and
STM, respondent's admission of its balance,
and STM's acquiescence thereto by silence
for almost one year did not render Exh. `F'
an account stated and its balance binding.
"5. The Court of Appeals erred in not holding
that the conditions of the assigned SLDR No.
1214, namely, (a) its subject matter being
generic, and (b) the sale of sugar being
subject to its availability at the Nawaco
warehouse, made the sale conditional and
prevented STM or private respondent from
acquiring title to the sugar; and the nonavailability of sugar freed petitioner from
further obligation.

"6. The Court of Appeals erred in not holding

that the "clean hands" doctrine precluded
respondent from seeking judicial reliefs (sic)
from petitioner, its only remedy being
against its assignor."14

Shipping List/Delivery Receipt = Refined Sugar (SDR)

No. 1214 dated October 16, 1989 in the total
quantity of 25, 000 bags."16
The Civil Code defines a contract of agency as
follows:

Simply stated, the issues now to be resolved are:

(1)....Whether or not the Court of Appeals
erred in not ruling that CSC was an agent of
STM and hence, estopped to sue upon SLDR
No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals
erred in applying the law on compensation
to the transaction under SLDR No. 1214M so
as to preclude petitioner from offsetting its
credits on the other SLDRs.
(3)....Whether or not the Court of Appeals
erred in not ruling that the sale of sugar
under SLDR No. 1214M was a conditional
sale or a contract to sell and hence freed
petitioner from further obligations.
(4)....Whether or not the Court of Appeals
committed an error of law in not applying
the "clean hands doctrine" to preclude CSC
from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that
petitioner raised this issue for the first time on
appeal.1avvphi1 It is settled that an issue which was
not raised during the trial in the court below could
not be raised for the first time on appeal as to do so
would be offensive to the basic rules of fair play,
justice, and due process.15 Nonetheless, the Court of
Appeals opted to address this issue, hence, now a
matter for our consideration.
Petitioner heavily relies upon STM's letter of authority
allowing CSC to withdraw sugar against SLDR No.
1214M to show that the latter was STM's agent. The
pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation
or its representative to withdraw for and in our
behalf (stress supplied) the refined sugar covered by

"Art. 1868. By the contract of agency a person binds

himself to render some service or to do something in
representation or on behalf of another, with the
consent or authority of the latter."
It is clear from Article 1868 that the basis of agency
is representation.17 On the part of the principal, there
must be an actual intention to appoint 18 or an
intention naturally inferable from his words or
actions;19 and on the part of the agent, there must be
an intention to accept the appointment and act on
it,20 and in the absence of such intent, there is
generally no agency.21 One factor which most clearly
distinguishes agency from other legal concepts is
control; one person - the agent - agrees to act under
the control or direction of another - the principal.
Indeed, the very word "agency" has come to connote
control by the principal.22 The control factor, more
than any other, has caused the courts to put
contracts between principal and agent in a separate
category.23 The Court of Appeals, in finding that CSC,
was not an agent of STM, opined:
"This Court has ruled that where the relation of
agency is dependent upon the acts of the parties, the
law makes no presumption of agency, and it is
always a fact to be proved, with the burden of proof
resting upon the persons alleging the agency, to
show not only the fact of its existence, but also its
nature and extent (Antonio vs. Enriquez[CA], 51 O.G.
3536]. Here, defendant-appellant failed to sufficiently
establish the existence of an agency relation
between plaintiff-appellee and STM. The fact alone
that it (STM) had authorized withdrawal of sugar by
plaintiff-appellee "for and in our (STM's) behalf"
should not be eyed as pointing to the existence of an
agency relation ...It should be viewed in the context
of all the circumstances obtaining. Although it would
seem STM represented plaintiff-appellee as being its
agent by the use of the phrase "for and in our
(STM's) behalf" the matter was cleared when on 23
January 1990, plaintiff-appellee informed defendantappellant that SLDFR No. 1214M had been "sold and
endorsed" to it by STM (Exhibit I, Records, p. 78).
Further, plaintiff-appellee has shown that the 25, 000

bags of sugar covered by the SLDR No. 1214M were

sold and transferred by STM to it ...A conclusion that
there was a valid sale and transfer to plaintiffappellee may, therefore, be made thus capacitating
plaintiff-appellee to sue in its own name, without
need of joining its imputed principal STM as coplaintiff."24
In the instant case, it appears plain to us that private
respondent CSC was a buyer of the SLDFR form, and
not an agent of STM. Private respondent CSC was not
subject to STM's control. The question of whether a
contract is one of sale or agency depends on the
intention of the parties as gathered from the whole
scope and effect of the language employed. 25 That
the authorization given to CSC contained the phrase
"for and in our (STM's) behalf" did not establish an
agency. Ultimately, what is decisive is the intention
of the parties.26 That no agency was meant to be
established by the CSC and STM is clearly shown by
CSC's communication to petitioner that SLDR No.
1214M had been "sold and endorsed" to it. 27 The use
of the words "sold and endorsed" means that STM
and CSC intended a contract of sale, and not an
agency. Hence, on this score, no error was committed
by the respondent appellate court when it held that
CSC was not STM's agent and could independently
sue petitioner.
On the second issue, proceeding from the theory that
the transactions entered into between petitioner and
STM are but serial parts of one account, petitioner
insists that its debt has been offset by its claim for
STM's unpaid purchases, pursuant to Article 1279 of
the Civil Code.28 However, the trial court found, and
the Court of Appeals concurred, that the purchase of
sugar covered by SLDR No. 1214M was a separate
and independent transaction; it was not a serial part
of a single transaction or of one account contrary to
petitioner's insistence. Evidence on record shows,
without being rebutted, that petitioner had been paid
for the sugar purchased under SLDR No. 1214M.
Petitioner clearly had the obligation to deliver said
commodity to STM or its assignee. Since said sugar
had been fully paid for, petitioner and CSC, as
assignee of STM, were not mutually creditors and
debtors of each other. No reversible error could
thereby be imputed to respondent appellate court
when, it refused to apply Article 1279 of the Civil
Code to the present case.

Regarding the third issue, petitioner contends that

the sale of sugar under SLDR No. 1214M is a
conditional sale or a contract to sell, with title to the
sugar still remaining with the vendor. Noteworthy,
SLDR No. 1214M contains the following terms and
conditions:
"It is understood and agreed that by payment by
buyer/trader of refined sugar and/or receipt of this
document by the buyer/trader personally or through
a representative, title to refined sugar is transferred
to buyer/trader and delivery to him/it is deemed
effected and completed (stress supplied) and
buyer/trader assumes full responsibility therefore"29
The aforequoted terms and conditions clearly show
that petitioner transferred title to the sugar to the
buyer or his assignee upon payment of the purchase
price. Said terms clearly establish a contract of sale,
not a contract to sell. Petitioner is now estopped from
alleging the contrary. The contract is the law
between the contracting parties.30 And where the
terms and conditions so stipulated are not contrary
to law, morals, good customs, public policy or public
order, the contract is valid and must be
upheld.31 Having transferred title to the sugar in
question, petitioner is now obliged to deliver it to the
purchaser or its assignee.
As to the fourth issue, petitioner submits that STM
and private respondent CSC have entered into a
conspiracy to defraud it of its sugar. This conspiracy
is allegedly evidenced by: (a) the fact that STM's
selling price to CSC was below its purchasing price;
(b) CSC's refusal to pursue its case against Teresita
Ng Go; and (c) the authority given by the latter to
other persons to withdraw sugar against SLDR No.
1214M after she had sold her rights under said SLDR
to CSC. Petitioner prays that the doctrine of "clean
hands" should be applied to preclude CSC from
seeking judicial relief. However, despite careful
scrutiny, we find here the records bare of convincing
evidence whatsoever to support the petitioner's
allegations of fraud. We are now constrained to deem
this matter purely speculative, bereft of concrete
proof.
WHEREFORE, the instant petition is DENIED for lack
of merit. Costs against petitioner.
SO ORDERED.

G.R. No. 120465 September 9, 1999

WILLIAM UY and RODEL ROXAS, petitioners,
vs.
COURT OF APPEALS, HON. ROBERT BALAO and
NATIONAL HOUSING AUTHORITY, respondents.
KAPUNAN, J.:
Petitioners William Uy and Rodel Roxas are agents
authorized to sell eight parcels of land by the owners
thereof. By virtue of such authority, petitioners
offered to sell the lands, located in Tuba, Tadiangan,
Benguet to respondent National Housing Authority
(NHA) to be utilized and developed as a housing
project.
On February 14, 1989, the NHA Board passed
Resolution No. 1632 approving the acquisition of said
lands, with an area of 31.8231 hectares, at the cost
of P23.867 million, pursuant to which the parties
executed a series of Deeds of Absolute Sale covering
the subject lands. Of the eight parcels of land,
however, only five were paid for by the NHA because
of the report 1 it received from the Land Geosciences
Bureau of the Department of Environment and
Natural Resources (DENR) that the remaining area is
located at an active landslide area and therefore, not
suitable for development into a housing project.
On 22 November 1991, the NHA issued Resolution
No. 2352 cancelling the sale over the three parcels of
land. The NHA, through Resolution No. 2394,
subsecguently offered the amount of P1.225 million
to the landowners as daos perjuicios.
On 9 March 1992, petitioners filed before the
Regional Trial Court (RTC) of Quezon City a Complaint
for Damages against NHA and its General Manager
Robert Balao.
After trial, the RTC rendered a decision declaring the
cancellation of the contract to be justified. The trial
court nevertheless awarded damages to plaintiffs in
the sum of P1.255 million, the same amount initially
offered by NHA to petitioners as damages.
Upon appeal by petitioners, the Court of Appeals
reversed the decision of the trial court and entered a

new one dismissing the complaint. It held that since

there was "sufficient justifiable basis" in cancelling
the sale, "it saw no reason" for the award of
damages. The Court of Appeals also noted that
petitioners
were
mere
attorneys-in-fact
and,
therefore, not the real parties-in-interest in the action
before the trial court.
. . . In paragraph 4 of the
complaint,
plaintiffs
alleged themselves to be
"sellers' agents" for the
several owners of the 8
lots subject matter of the
case. Obsviously, William
Uy and Rodel Roxas in
filing this case acted as
attorneys-in-fact of the lot
owners who are the real
parties in interest but who
were
omitted
to
be
pleaded as party-plaintiffs
in the case. This omission
is fatal. Where the action
is brought by an attorneyin-fact of a land owner in
his name, (as in our
present action) and not in
the name of his principal,
the action was properly
dismissed
(Ferrer
vs.
Villamor, 60 SCRA 406
[1974]; Marcelo vs. de
Leon, 105 Phil. 1175)
because the rule is that
every action must be
prosecuted in the name of
the real parties-in-interest
(Section 2, Rule 3, Rules of
Court).
When plaintiffs UY and
Roxas sought payment of
damages in their favor in
view
of
the
partial
rescission of Resolution
No. 1632 and the Deed of
Absolute Sale covering
TCT Nos. 10998, 10999
and
11292
(Prayer
complaint, page 5, RTC
records),
it
becomes
obviously
indispensable

that the lot owners be

included, mentioned and
named as party-plaintiffs,
being the real party-ininterest. UY and Roxas, as
attorneys-in-fact
or
apoderados, cannot by
themselves
lawfully
commence this action,
more
so,
when
the
supposed special power of
attorney, in their favor,
was never presented as
an evidence in this case.
Besides, even if herein
plaintiffs Uy and Roxas
were authorized by the lot
owners to commence this
action, the same must still
be filed in the name of the
principal,
(Filipino
Industrial Corporation vs.
San Diego, 23 SCRA 706
[1968]).
As
such
indispensable party, their
joinder in the action is
mandatory
and
the
complaint
may
be
dismissed
if
not
so
impleaded (NDC vs. CA,
211 SCRA 422 [1992]). 2
Their motion for reconsideration having been denied,
petitioners seek relief from this Court contending
that:
I. THE RESPONDENT CA
ERRED
IN
DECLARING
THAT RESPONDENT NHA
HAD ANY LEGAL BASIS
FOR
RESCINDING
THE
SALE INVOLVING THE LAST
THREE
(3)
PARCELS
COVERED
BY
NHA
RESOLUTION NO. 1632.
II. GRANTING ARGUENDO
THAT THE RESPONDENT
NHA HAD LEGAL BASIS TO
RESCIND THE SUBJECT
SALE, THE RESPONDENT
CA NONETHELESS ERRED

IN
DENYING
HEREIN
PETITIONERS' CLAIM TO
DAMAGES, CONTRARY TO
THE PROVISIONS OF ART.
1191 OF THE CIVIL CODE.

Do petitioners, under substantive law, possess the

right they seek to enforce? We rule in the negative.

III. THE RESPONDENT CA

ERRED IN DISMISSING THE
SUBJECT
COMPLAINT
FINDING
THAT
THE
PETITIONERS FAILED TO
JOIN AS INDISPENSABLE
PARTY
PLAINTIFF
THE
SELLING LOT-OWNERS. 3

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. . . .

We first resolve the issue raised in the the third

assignment of error.
Petitioners claim that they lodged the complaint not
in behalf of their principals but in their own name as
agents directly damaged by the termination of the
contract. The damages prayed for were intended not
for the benefit of their principals but to indemnify
petitioners for the losses they themselves allegedly
incurred as a result of such termination. These
damages consist mainly of "unearned income" and
advances. 4 Petitioners, thus, attempt to distinguish
the case at bar from those involving agents
or apoderedos instituting actions in their own name
but in behalf of their principals. 5 Petitioners in this
case purportedly brought the action for damages in
their own name and in their own behalf.
We find this contention unmeritorious.
Sec. 2, Rule 3 of the Rules of Court requires that
every action must be prosecuted and defended in the
name of the real party-in-interest. The real party-ininterest is the party who stands to be benefited or
injured by the judgment or the party entitled to the
avails of the suit. "Interest, within the meaning of the
rule, means material interest, an interest in the issue
and to be affected by the decree, as distinguished
from mere interest in the question involved, or a
mere incidental interest. 6 Cases construing the real
party-in-interest provision can be more easily
understood if it is borne in mind that the true
meaning of real party-in-interest may be summarized
as follows: An action shall be prosecuted in the name
of the party who, by the substantive law, has the
right sought to be enforced. 7

The applicable substantive law in this case is Article

1311 of the Civil Code, which states:

If
a
contract
should
contain some stipulation
in favor of a third person,
he
may
demand
its
fulfillment provided
he
communicated
his
acceptance to the obligor
before its revocation. A
mere incidental benefit or
interest of a person is not
sufficient. The contracting
parties must have clearly
and deliberately conferred
a favor upon a third
person.
(Emphasis
supplied.)
Petitioners are not parties to the contract of sale
between their principals and NHA. They are mere
agents of the owners of the land subject of the sale.
As agents, they only render some service or do
something in representation or on behalf of their
principals. 8 The rendering of such service did not
make them parties to the contracts of sale executed
in behalf of the latter. Since a contract may be
violated only by the parties thereto as against each
other, the real parties-in-interest, either as plaintiff or
defendant, in an action upon that contract must,
generally, either be parties to said contract. 9
Neither has there been any allegation, much less
proof, that petitioners are the heirs of their
principals.

Are petitioners assignees to the rights under the

contract of sale? In McMicking vs. Banco EspaolFilipino, 10 we held that the rule requiring every
action to be prosecuted in the name of the real partyin-interest.
. . . recognizes the
assignments of rights of
action and also recognizes
that when one has a right
of action assigned to him
he is then the real party in
interest and may maintain
an action upon such claim
or right. The purpose of
[this rule] is to require the
plaintiff to be the real
party in interest, or, in
other words, he must be
the person to whom the
proceeds of the action
shall
belong,
and
to
prevent
actions
by
persons who have no
interest in the result of the
same. . . .
Thus, an agent, in his own behalf, may bring an
action founded on a contract made for his principal,
as an assignee of such contract. We find the
following declaration in Section 372 (1) of the
Restatement of the Law on Agency (Second): 11
Sec. 372. Agent as Owner of Contract Right
(1)
Unless
otherwise
agreed, an agent who has
or
who
acquires
an
interest in a contract
which he makes on behalf
of
his
principal
can,
although not a promisee,
maintain
such
action
thereon maintain such
action thereon as might a
transferee having a similar
interest.
The Comment on subsection (1) states:

a. Agent a transferee. One

who has made a contract
on behalf of another may
become an assignee of
the contract and bring suit
against the other party to
it, as any other transferee.
The customs of business
or the course of conduct
between the principal and
the agent may indicate
that
an
agent
who
ordinarily has merely a
security interest is a
transferee
of
the
principals rights under the
contract and as such is
permitted to bring suit. If
the agent has settled with
his principal with the
understanding that he is
to
collect
the
claim
against the obligor by way
of reimbursing himself for
his
advances
and
commissions, the agent is
in the position of an
assignee
who
is
the
beneficial owner of the
chose in action. He has an
irrevocable power to sue
in his principal's name. . . .
And, under the statutes
which permit the real
party in interest to sue, he
can maintain an action in
his own name. This power
to sue is not affected by a
settlement between the
principal and the obligor if
the latter has notice of the
agent's interest. . . . Even
though the agent has not
settled with his principal,
he may, by agreement
with the principal, have a
right to receive payment
and out of the proceeds to
reimburse
himself
for
advances
and
commissions
before
turning the balance over
to the principal. In such a
case, although there is no

formal assignment, the

agent is in the position of
a transferee of the whole
claim for security; he has
an irrevocable power to
sue in his principal's name
and, under statutes which
permit the real party in
interest to sue, he can
maintain an action in his
own name.
Petitioners, however, have not shown that they are
assignees of their principals to the subject contracts.
While they alleged that they made advances and
that they suffered loss of commissions, they have not
established any agreement granting them "the right
to receive payment and out of the proceeds to
reimburse
[themselves]
for
advances
and
commissions before turning the balance over to the
principal[s]."
Finally, it does not appear that petitioners are
beneficiaries of a stipulation pour autrui under the
second paragraph of Article 1311 of the Civil Code.
Indeed, there is no stipulation in any of the Deeds of
Absolute Sale "clearly and deliberately" conferring a
favor to any third person.
That petitioners did not obtain their commissions or
recoup their advances because of the nonperformance of the contract did not entitle them to
file the action below against respondent NHA. Section
372 (2) of the Restatement of the Law on Agency
(Second) states:
(2) An agent does not have such an
interest in a contract as to entitle
him to maintain an action at law
upon it in his own name merely
because he is entitled to a portion
of the proceeds as compensation
for making it or because he is liable
for its breach.
The following Comment
subsection is illuminating:

on

the

above

The fact that an agent who makes

a contract for his principal will gain
or suffer loss by the performance

or nonperformance of the contract

by the principal or by the other
party thereto does not entitle him
to maintain an action on his own
behalf against the other party for
its breach. An agent entitled to
receive a commission from his
principal upon the performance of
a contract which he has made on
his principal's account does not,
from this fact alone, have any
claim against the other party for
breach of the contract, either in an
action on the contract or otherwise.
An agent who is not a promisee
cannot maintain an action at law
against
a
purchaser
merely
because he is entitled to have his
compensation or advances paid out
of the purchase price before
payment to the principal. . . .
Thus, in Hopkins vs. Ives, 12 the Supreme Court of
Arkansas, citing Section 372 (2) above, denied the
claim of a real estate broker to recover his alleged
commission against the purchaser in an agreement
to purchase property.
In Goduco vs. Court of appeals,
that:

13

this Court held

. . . granting that appellant

had the authority to sell
the property, the same did
not make the buyer liable
for the commission she
claimed. At most, the
owner of the property and
the one who promised to
give her a commission
should be the one liable to
pay the same and to
whom the claim should
have been directed. . . .
As petitioners are not parties, heirs, assignees, or
beneficiaries of a stipulation pour autrui under the
contracts of sale, they do not, under substantive law,
possess the right they seek to enforce. Therefore,
they are not the real parties-in-interest in this case.

Petitioners not being the real parties-in-interest, any

decision rendered herein would be pointless since the
same would not bind the real parties-ininterest. 14
Nevertheless, to forestall further litigation on the
substantive aspects of this case, we shall proceed to
rule on me merits. 15
Petitioners submit that respondent NHA had no legal
basis to "rescind" the sale of the subject three
parcels of land. The existence of such legal basis,
notwithstanding, petitioners argue that they are still
entitled to an award of damages.
Petitioners confuse the cancellation of the contract
by the NHA as a rescission of the contract under
Article 1191 of the Civil Code. The right of rescission
or, more accurately, resolution, of a party to an
obligation under Article 1191 is predicated on a
breach of faith by the other party that violates the
reciprocity between them. 16 The power to rescind,
therefore, is given to the injured party. 17 Article 1191
states:
The power to rescind obligations is
implied in reciprocal ones, in case
one of the obligors should not
comply with what is incumbent
upon him.
The injured party may choose
between the fulfillment and the
rescission of the obligation, with
the payment of damages in either
case. He may also seek rescission,
even
after
he
has
chosen
fulfillment, if the latter should
become impossible.
In this case, the NHA did not rescind the contract.
Indeed, it did not have the right to do so for the other
parties to the contract, the vendors, did not commit
any breach, much less a substantial breach, 18 of
their obligation. Their obligation was merely to
deliver the parcels of land to the NHA, an obligation
that they fulfilled. The NHA did not suffer any injury
by the performance thereof.
The cancellation, therefore, was not a rescission
under Article 1191. Rather, the cancellation was

based on the negation of the cause arising from the

realization that the lands, which were the object of
the sale, were not suitable for housing.
Cause is the essential reason which moves the
contracting parties to enter into it. 19 In other words,
the cause is the immediate, direct and proximate
reason which justifies the creation of an obligation
through the will of the contracting parties. 20 Cause,
which is the essential reason for the contract, should
be distinguished from motive, which is the particular
reason of a contracting party which does not affect
the other party. 21
For example, in a contract of sale of a piece of land,
such as in this case, the cause of the vendor
(petitioners' principals) in entering into the contract
is to obtain the price. For the vendee, NHA, it is the
acquisition of the land. 22 The motive of the NHA, on
the other hand, is to use said lands for housing. This
is apparent from the portion of the Deeds of Absolute
Sale 23 stating:
WHEREAS, under the Executive
Order No. 90 dated December 17,
1986, the VENDEE is mandated to
focus and concentrate its efforts
and resources in providing housing
assistance to the lowest thirty
percent (30%) of urban income
earners, thru slum upgrading and
development of sites and services
projects;
WHEREAS, Letters of Instructions
Nos. 555 and 557 [as] amended by
Letter of Instruction No. 630,
prescribed slum improvement and
upgrading,
as
well
as
the
development of sites and services
as the principal housing strategy
for dealing with slum, squatter and
other blighted communities;
xxx xxx xxx
WHEREAS, the VENDEE, in pursuit
of and in compliance with the
above-stated purposes offers to
buy and the VENDORS, in a gesture
of their willing to cooperate with

the
above
policy
and
commitments, agree to sell the
aforesaid property together with all
the existing improvements there or
belonging to the VENDORS;
NOW, THEREFORE, for and in
consideration of the foregoing
premises and the terms and
conditions hereinbelow stipulated,
the VENDORS hereby, sell, transfer,
cede and convey unto the VENDEE,
its
assigns,
or
successors-ininterest, a parcel of land located at
Bo. Tadiangan, Tuba, Benguet
containing a total area of FIFTY SIX
THOUSAND
EIGHT
HUNDRED
NINETEEN
(56,819)
SQUARE
METERS, more or less . . . .
Ordinarily, a party's motives for entering into the
contract do not affect the contract. However, when
the motive predetermines the cause, the motive may
be regarded as the cause. In Liguez vs. Court of
Appeals, 24 this Court, speaking through Justice J.B.L.
REYES, HELD:
. . . it is well to note,
however, that Manresa
himself (Vol. 8, pp. 641642), while maintaining
the
distinction
and
upholding
the
inoperativeness of the
motives of the parties to
determine the validity of
the contract, expressly
excepts from the rule
those contracts that are
conditioned
upon
the
attainment of the motives
of either party.
The same view is held by
the Supreme Court of
Spain, in its decisions of
February 4, 1941, and
December
4,
1946,
holding that the motive
may
be
regarded
as causa when
it

predetermines
the
purpose of the contract.
In this case, it is clear, and petitioners do not dispute,
that NHA would not have entered into the contract
were the lands not suitable for housing. In other
words, the quality of the land was an implied
condition for the NHA to enter into the contract. On
the part of the NHA, therefore, the motive was the
cause for its being a party to the sale.
Were the lands indeed unsuitable for housing as NHA
claimed?
We deem the findings contained in the report of the
Land Geosciences Bureau dated 15 July 1991
sufficient basis for the cancellation of the sale, thus:
In Tadiangan, Tuba, the
housing site is situated in
an area of moderate
topography. There [are]
more areas of less sloping
ground
apparently
habitable. The site is
underlain by . . . thick
slide deposits (4-45m)
consisting
of
huge
conglomerate
boulders
(see Photo No. 2) mix[ed]
with
silty
clay
materials. These
clay
particles when saturated
have
some
swelling
characteristics which is
dangerous for any civil
structures especially mass
housing development. 25
Petitioners contend that the report was merely
"preliminary," and not conclusive, as indicated in its
title:
MEMORANDUM
TO: EDWIN G. DOMINGO
Chief,
Lands
Division

FROM:
RILLON

ARISTOTLE

A.

as regards the quality of the land resulted in the

negation of the motive/cause thus rendering the
contract inexistent. 28 Article 1318 of the Civil Code
states that:

SUBJECT:
Preliminary
Assessment of

Art. 1318. There is no

contract
unless
the
following
requisites
concur:

Geologist II

Tadiangan Housing Project

in Tuba, Benguet 26

(1)
Consent
of
contracting parties;

Thus, page 2 of the report states in part:

(2) Object certain which is

the subject matter of the
contract;

xxx xxx xxx

Actually there is a need to
conduct
further
geottechnical [sic] studies
in the NHA property.
Standard Penetration Test
(SPT) must be carried out
to give an estimate of the
degree of compaction (the
relative density) of the
slide deposit and also the
bearing capacity of the
soil materials. Another
thing to consider is the
vulnerability of the area to
landslides and other mass
movements due to thick
soil
cover.
Preventive
physical
mitigation
methods such as surface
and subsurface drainage
and regrading of the slope
must be done in the
area. 27
We read the quoted portion, however, to mean only
that further tests are required to determine the
"degree of compaction," "the bearing capacity of the
soil materials," and the "vulnerability of the area to
landslides," since the tests already conducted were
inadequate to ascertain such geological attributes. It
is only in this sense that the assessment was
"preliminary."

Geology
Accordingly, we hold that the NHA was justified in
canceling the contract. The realization of the mistake

the

(3) Cause of the obligation

which
is
established.
(Emphasis supplied.)
Therefore, assuming that petitioners are parties,
assignees or beneficiaries to the contract of sale,
they would not be entitled to any award of damages.
WHEREFORE, the instant petition is hereby DENIED.
SO ORDERED.

G.R. No. 167552

April 23, 2007

EUROTECH
INDUSTRIAL
INC., Petitioner,
vs.
EDWIN
CUIZON
CUIZON, Respondents.

TECHNOLOGIES,

and

ERWIN

DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review by certiorari
assailing the Decision1 of the Court of Appeals dated
10 August 2004 and its Resolution2 dated 17 March
2005 in CA-G.R. SP No. 71397 entitled, "Eurotech
Industrial Technologies, Inc. v. Hon. Antonio T.
Echavez." The assailed Decision and Resolution
affirmed the Order3 dated 29 January 2002 rendered
by Judge Antonio T. Echavez ordering the dropping of
respondent EDWIN Cuizon (EDWIN) as a party
defendant in Civil Case No. CEB-19672.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation
and distribution of various European industrial
equipment for customers here in the Philippines. It
has as one of its customers Impact Systems Sales
("Impact Systems") which is a sole proprietorship
owned by respondent ERWIN Cuizon (ERWIN).
Respondent EDWIN is the sales manager of Impact
Systems and was impleaded in the court a quo in
said capacity.
From January to April 1995, petitioner sold to Impact
Systems various products allegedly amounting to
ninety-one thousand three hundred thirty-eight
(P91,338.00) pesos. Subsequently, respondents
sought to buy from petitioner one unit of sludge
pump valued at P250,000.00 with respondents
making a down payment of fifty thousand pesos
(P50,000.00).4 When the sludge pump arrived from
the United Kingdom, petitioner refused to deliver the
same to respondents without their having fully
settled their indebtedness to petitioner. Thus, on 28
June 1995, respondent EDWIN and Alberto de Jesus,
general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner, the
pertinent part of which states:
1.) That ASSIGNOR5 has an outstanding
receivables from Toledo Power Corporation
in the amount of THREE HUNDRED SIXTY
FIVE THOUSAND (P365,000.00) PESOS as
payment for the purchase of one unit of
Selwood Spate 100D Sludge Pump;

2.) That said ASSIGNOR does hereby

ASSIGN, TRANSFER, and CONVEY unto the
ASSIGNEE6 the said receivables from Toledo
Power Corporation in the amount of THREE
HUNDRED
SIXTY
FIVE
THOUSAND
(P365,000.00) PESOS which receivables the
ASSIGNOR is the lawful recipient;
3.) That the ASSIGNEE does hereby accept
this assignment.7
Following the execution of the Deed of Assignment,
petitioner delivered to respondents the sludge pump
as shown by Invoice No. 12034 dated 30 June 1995. 8
Allegedly unbeknownst to petitioner, respondents,
despite the existence of the Deed of Assignment,
proceeded to collect from Toledo Power Company the
amount of P365,135.29 as evidenced by Check
Voucher No. 09339prepared by said power company
and an official receipt dated 15 August 1995 issued
by Impact Systems.10Alarmed by this development,
petitioner made several demands upon respondents
to pay their obligations. As a result, respondents
were able to make partial payments to petitioner. On
7
October
1996,
petitioners
counsel
sent
respondents a final demand letter wherein it was
stated that as of 11 June 1996, respondents total
obligations stood at P295,000.00 excluding interests
and attorneys fees.11 Because of respondents failure
to abide by said final demand letter, petitioner
instituted a complaint for sum of money, damages,
with application for preliminary attachment against
herein respondents before the Regional Trial Court of
Cebu City.12
On 8 January 1997, the trial court granted
petitioners prayer for the issuance of writ of
preliminary attachment.13
On 25 June 1997, respondent EDWIN filed his
Answer14 wherein he admitted petitioners allegations
with respect to the sale transactions entered into by
Impact Systems and petitioner between January and
April 1995.15 He, however, disputed the total amount
of Impact Systems indebtedness to petitioner which,
according to him, amounted to only P220,000.00.16
By way of special and affirmative defenses,
respondent EDWIN alleged that he is not a real party
in interest in this case. According to him, he was

acting as mere agent of his principal, which was the

Impact Systems, in his transaction with petitioner
and the latter was very much aware of this fact. In
support of this argument, petitioner points to
paragraphs 1.2 and 1.3 of petitioners Complaint
stating
1.2. Defendant Erwin H. Cuizon, is of legal
age, married, a resident of Cebu City. He is
the proprietor of a single proprietorship
business known as Impact Systems Sales
("Impact Systems" for brevity), with office
located at 46-A del Rosario Street, Cebu
City, where he may be served summons and
other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal
age, Filipino, married, a resident of Cebu
City. He is the Sales Manager of Impact
Systems and is sued in this action in such
capacity.17
On 26 June 1998, petitioner filed a Motion to Declare
Defendant ERWIN in Default with Motion for
Summary Judgment. The trial court granted
petitioners motion to declare respondent ERWIN in
default "for his failure to answer within the
prescribed
period
despite
the
opportunity
granted"18 but it denied petitioners motion for
summary judgment in its Order of 31 August 2001
and scheduled the pre-trial of the case on 16 October
2001.19However, the conduct of the pre-trial
conference was deferred pending the resolution by
the trial court of the special and affirmative defenses
raised by respondent EDWIN.20
After
the
filing
of
respondent
EDWINs
Memorandum21 in support of his special and
affirmative
defenses
and
petitioners
opposition22 thereto, the trial court rendered its
assailed Order dated 29 January 2002 dropping
respondent EDWIN as a party defendant in this case.
According to the trial court
A study of Annex "G" to the complaint shows that in
the Deed of Assignment, defendant Edwin B. Cuizon
acted in behalf of or represented [Impact] Systems
Sales; that [Impact] Systems Sale is a single
proprietorship entity and the complaint shows that
defendant Erwin H. Cuizon is the proprietor; that
plaintiff corporation is represented by its general
manager Alberto de Jesus in the contract which is

dated June 28, 1995. A study of Annex "H" to the

complaint reveals that [Impact] Systems Sales which
is owned solely by defendant Erwin H. Cuizon, made
a down payment of P50,000.00 that Annex "H" is
dated June 30, 1995 or two days after the execution
of Annex "G", thereby showing that [Impact] Systems
Sales ratified the act of Edwin B. Cuizon; the records
further show that plaintiff knew that [Impact]
Systems Sales, the principal, ratified the act of Edwin
B. Cuizon, the agent, when it accepted the down
payment of P50,000.00. Plaintiff, therefore, cannot
say that it was deceived by defendant Edwin B.
Cuizon, since in the instant case the principal has
ratified the act of its agent and plaintiff knew about
said ratification. Plaintiff could not say that the
subject contract was entered into by Edwin B. Cuizon
in excess of his powers since [Impact] Systems Sales
made a down payment of P50,000.00 two days later.

Art. 1897. The agent who acts as such is not

personally liable to the party with whom he
contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving
such party sufficient notice of his powers.

In view of the Foregoing, the Court directs that

defendant Edwin B. Cuizon be dropped as party
defendant.23

Petitioner also contends that it fell victim to the

fraudulent scheme of respondents who induced it
into selling the one unit of sludge pump to Impact
Systems and signing the Deed of Assignment.
Petitioner directs the attention of this Court to the
fact that respondents are bound not only by their
principal and agent relationship but are in fact fullblooded brothers whose successive contravening
acts bore the obvious signs of conspiracy to defraud
petitioner.27

Aggrieved by the adverse ruling of the trial court,

petitioner brought the matter to the Court of Appeals
which, however, affirmed the 29 January 2002 Order
of the court a quo. The dispositive portion of the now
assailed Decision of the Court of Appeals states:
WHEREFORE, finding no viable legal ground to
reverse or modify the conclusions reached by the
public respondent in his Order dated January 29,
2002, it is hereby AFFIRMED.24
Petitioners motion for reconsideration was denied by
the appellate court in its Resolution promulgated on
17 March 2005. Hence, the present petition raising,
as sole ground for its allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR WHEN IT RULED THAT RESPONDENT EDWIN
CUIZON,
AS
AGENT
OF
IMPACT
SYSTEMS
SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE,
BECAUSE HE HAS NEITHER ACTED BEYOND THE
SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN
THE PERPETUATION OF A FRAUD.25
To support its argument, petitioner points to Article
1897 of the New Civil Code which states:

Petitioner contends that the Court of Appeals failed

to appreciate the effect of ERWINs act of collecting
the receivables from the Toledo Power Corporation
notwithstanding the existence of the Deed of
Assignment signed by EDWIN on behalf of Impact
Systems. While said collection did not revoke the
agency relations of respondents, petitioner insists
that ERWINs action repudiated EDWINs power to
sign the Deed of Assignment. As EDWIN did not
sufficiently notify it of the extent of his powers as an
agent, petitioner claims that he should be made
personally liable for the obligations of his principal. 26

In his Comment,28 respondent EDWIN again posits

the argument that he is not a real party in interest in
this case and it was proper for the trial court to have
him dropped as a defendant. He insists that he was a
mere agent of Impact Systems which is owned by
ERWIN and that his status as such is known even to
petitioner as it is alleged in the Complaint that he is
being sued in his capacity as the sales manager of
the said business venture. Likewise, respondent
EDWIN points to the Deed of Assignment which
clearly states that he was acting as a representative
of Impact Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to
render some service or to do something in
representation or on behalf of another with the
latters consent.29 The underlying principle of the
contract of agency is to accomplish results by using
the services of others to do a great variety of things
like
selling,
buying,
manufacturing,
and

transporting.30 Its purpose is to extend the

personality of the principal or the party for whom
another acts and from whom he or she derives the
authority to act.31 It is said that the basis of agency is
representation, that is, the agent acts for and on
behalf of the principal on matters within the scope of
his authority and said acts have the same legal effect
as if they were personally executed by the
principal.32 By this legal fiction, the actual or real
absence of the principal is converted into his legal or
juridical presence qui facit per alium facit per se. 33
The elements of the contract of agency are: (1)
consent, express or implied, of the parties to
establish the relationship; (2) the object is the
execution of a juridical act in relation to a third
person; (3) the agent acts as a representative and
not for himself; (4) the agent acts within the scope of
his authority.34
In this case, the parties do not dispute the existence
of the agency relationship between respondents
ERWIN as principal and EDWIN as agent. The only
cause of the present dispute is whether respondent
EDWIN exceeded his authority when he signed the
Deed of Assignment thereby binding himself
personally to pay the obligations to petitioner.
Petitioner firmly believes that respondent EDWIN
acted beyond the authority granted by his principal
and he should therefore bear the effect of his deed
pursuant to Article 1897 of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an
agent, who acts as such, is not personally liable to
the party with whom he contracts. The same
provision, however, presents two instances when an
agent becomes personally liable to a third person.
The first is when he expressly binds himself to the
obligation and the second is when he exceeds his
authority. In the last instance, the agent can be held
liable if he does not give the third party sufficient
notice of his powers. We hold that respondent EDWIN
does not fall within any of the exceptions contained
in this provision.
The Deed of Assignment clearly states that
respondent EDWIN signed thereon as the sales
manager of Impact Systems. As discussed elsewhere,
the position of manager is unique in that it

presupposes the grant of broad powers with which to

conduct the business of the principal, thus:
The powers of an agent are particularly broad in the
case of one acting as a general agent or manager;
such a position presupposes a degree of confidence
reposed and investiture with liberal powers for the
exercise of judgment and discretion in transactions
and concerns which are incidental or appurtenant to
the business entrusted to his care and management.
In the absence of an agreement to the contrary, a
managing agent may enter into any contracts that he
deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted
to his management. x x x.35
Applying the foregoing to the present case, we hold
that Edwin Cuizon acted well-within his authority
when he signed the Deed of Assignment. To recall,
petitioner refused to deliver the one unit of sludge
pump unless it received, in full, the payment for
Impact Systems indebtedness.36 We may very well
assume that Impact Systems desperately needed the
sludge pump for its business since after it paid the
amount of fifty thousand pesos (P50,000.00) as down
payment on 3 March 1995, 37 it still persisted in
negotiating with petitioner which culminated in the
execution of the Deed of Assignment of its
receivables from Toledo Power Company on 28 June
1995.38The significant amount of time spent on the
negotiation for the sale of the sludge pump
underscores Impact Systems perseverance to get
hold of the said equipment. There is, therefore, no
doubt in our mind that respondent EDWINs
participation in the Deed of Assignment was
"reasonably necessary" or was required in order for
him to protect the business of his principal. Had he
not acted in the way he did, the business of his
principal would have been adversely affected and he
would have violated his fiduciary relation with his
principal.
We likewise take note of the fact that in this case,
petitioner is seeking to recover both from
respondents ERWIN, the principal, and EDWIN, the
agent. It is well to state here that Article 1897 of the
New Civil Code upon which petitioner anchors its
claim against respondent EDWIN "does not hold that
in case of excess of authority, both the agent and the
principal are liable to the other contracting
party."39 To reiterate, the first part of Article 1897
declares that the principal is liable in cases when the

agent acted within the bounds of his authority. Under

this, the agent is completely absolved of any liability.
The second part of the said provision presents the
situations when the agent himself becomes liable to
a third party when he expressly binds himself or he
exceeds the limits of his authority without giving
notice of his powers to the third person. However, it
must be pointed out that in case of excess of
authority by the agent, like what petitioner claims
exists here, the law does not say that a third person
can recover from both the principal and the agent. 40
As we declare that respondent EDWIN acted within
his authority as an agent, who did not acquire any
right nor incur any liability arising from the Deed of
Assignment, it follows that he is not a real party in
interest who should be impleaded in this case. A real
party in interest is one who "stands to be benefited
or injured by the judgment in the suit, or the party
entitled to the avails of the suit." 41 In this respect, we
sustain his exclusion as a defendant in the suit
before the court a quo.
WHEREFORE, premises considered, the present
petition is DENIED and the Decision dated 10 August
2004 and Resolution dated 17 March 2005 of the
Court of Appeals in CA-G.R. SP No. 71397, affirming
the Order dated 29 January 2002 of the Regional Trial
Court, Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the
Regional Trial Court, Branch 8, Cebu City, for the
continuation of the proceedings against respondent
Erwin Cuizon.
SO ORDERED.

G.R. No. 149353

June 26, 2006

JOCELYN
B.
DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari
under Rule 45 of the Rules of Court questioning the
Decision1dated April 30, 2001 of the Court of Appeals
(CA) in C.A.-G.R. CV No. 66985, which reversed the
Decision dated July 29, 1998 of the Regional Trial
Court (RTC), Branch 21, City of Manila; and the CA
Resolution2 dated August 6, 2001 which denied
petitioners Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent)
filed with the RTC a complaint for Specific
Performance with Damages against Jocelyn B. Doles
(petitioner), docketed as Civil Case No. 97-82716.
Respondent alleged that petitioner was indebted to
the former in the concept of a personal loan
amounting to P405,430.00 representing the principal
amount and interest; that on October 5, 1996, by
virtue of a "Deed of Absolute Sale", 3petitioner, as
seller, ceded to respondent, as buyer, a parcel of
land, as well as the improvements thereon, with an
area of 42 square meters, covered by Transfer
Certificate of Title No. 382532,4 and located at a

subdivision project known as Camella Townhomes

Sorrente in Bacoor, Cavite, in order to satisfy her
personal loan with respondent; that this property was
mortgaged to National Home Mortgage Finance
Corporation (NHMFC) to secure petitioners loan in
the sum of P337,050.00 with that entity; that as a
condition for the foregoing sale, respondent shall
assume the undue balance of the mortgage and pay
the monthly amortization of P4,748.11 for the
remainder of the 25 years which began on
September 3, 1994; that the property was at that
time being occupied by a tenant paying a monthly
rent of P3,000.00; that upon verification with the
NHMFC, respondent learned that petitioner had
incurred
arrearages
amounting
to P26,744.09,
inclusive of penalties and interest; that upon
informing the petitioner of her arrears, petitioner
denied that she incurred them and refused to pay the
same; that despite repeated demand, petitioner
refused to cooperate with respondent to execute the
necessary documents and other formalities required
by the NHMFC to effect the transfer of the title over
the property; that petitioner collected rent over the
property for the month of January 1997 and refused
to remit the proceeds to respondent; and that
respondent suffered damages as a result and was
forced to litigate.
Petitioner, then defendant, while admitting some
allegations in the Complaint, denied that she
borrowed money from respondent, and averred that
from June to September 1995, she referred her
friends to respondent whom she knew to be engaged
in the business of lending money in exchange for
personal checks through her capitalist Arsenio Pua.
She alleged that her friends, namely, Zenaida
Romulo, Theresa Moratin, Julia Inocencio, Virginia
Jacob, and Elizabeth Tomelden, borrowed money from
respondent and issued personal checks in payment
of the loan; that the checks bounced for insufficiency
of funds; that despite her efforts to assist respondent
to collect from the borrowers, she could no longer
locate them; that, because of this, respondent
became furious and threatened petitioner that if the
accounts were not settled, a criminal case will be
filed against her; that she was forced to issue eight
checks amounting to P350,000 to answer for the
bounced checks of the borrowers she referred; that
prior to the issuance of the checks she informed
respondent that they were not sufficiently funded but
the latter nonetheless deposited the checks and for
which reason they were subsequently dishonored;
that respondent then threatened to initiate a criminal

case against her for violation of Batas Pambansa

Blg. 22; that she was forced by respondent to
execute an "Absolute Deed of Sale" over her property
in Bacoor, Cavite, to avoid criminal prosecution; that
the said deed had no valid consideration; that she
did not appear before a notary public; that the
Community Tax Certificate number on the deed was
not hers and for which respondent may be
prosecuted for falsification and perjury; and that she
suffered damages and lost rental as a result.
The RTC identified the issues as follows: first,
whether the Deed of Absolute Sale is valid; second; if
valid, whether petitioner is obliged to sign and
execute the necessary documents to effect the
transfer of her rights over the property to the
respondent; and third, whether petitioner is liable for
damages.
On July 29, 1998, the RTC rendered a decision the
dispositive portion of which states:
WHEREFORE, premises considered, the Court hereby
orders the dismissal of the complaint for insufficiency
of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause
or consideration:5
Plaintiff Angeles admission that the borrowers are
the friends of defendant Doles and further admission
that the checks issued by these borrowers in
payment of the loan obligation negates [sic] the
cause or consideration of the contract of sale
executed by and between plaintiff and defendant.
Moreover, the property is not solely owned by
defendant as appearing in Entry No. 9055 of Transfer
Certificate of Title No. 382532 (Annex A, Complaint),
thus:
"Entry No. 9055. Special Power of Attorney in favor of
Jocelyn Doles covering the share of Teodorico Doles
on the parcel of land described in this certificate of
title by virtue of the special power of attorney to
mortgage, executed before the notary public, etc."

The rule under the Civil Code is that contracts

without a cause or consideration produce no effect
whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief,
respondent interposed her sole assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE
AT BAR ON THE GROUND OF [sic] THE DEED OF SALE
BETWEEN THE PARTIES HAS NO CONSIDERATION OR
INSUFFICIENCY OF EVIDENCE.6
On April 30, 2001, the CA promulgated its Decision,
the dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this
appeal is hereby GRANTED. The Decision of the lower
court dated July 29, 1998 is REVERSED and SET
ASIDE. A new one is entered ordering defendantappellee to execute all necessary documents to
effect transfer of subject property to plaintiffappellant with the arrearages of the formers loan
with the NHMFC, at the latters expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower
and, in turn, would "re-lend" the amount borrowed
from the respondent to her friends. Hence, the Deed
of Absolute Sale was supported by a valid
consideration, which is the sum of money petitioner
owed
respondent
amounting
to P405,430.00,
representing both principal and interest.
The CA took into account the following circumstances
in their entirety: the supposed friends of petitioner
never presented themselves to respondent and that
all transactions were made by and between
petitioner and respondent;7 that the money borrowed
was deposited with the bank account of the
petitioner, while payments made for the loan were
deposited by the latter to respondents bank
account;8 that petitioner herself admitted in open
court that she was "re-lending" the money loaned
from respondent to other individuals for profit; 9 and
that the documentary evidence shows that the actual
borrowers, the friends of petitioner, consider her as
their creditor and not the respondent.10

Furthermore, the CA held that the alleged threat or

intimidation by respondent did not vitiate consent,
since the same is considered just or legal if made to
enforce ones claim through competent authority
under Article 133511of the Civil Code;12 that with
respect to the arrearages of petitioner on her
monthly amortization with the NHMFC in the sum
of P26,744.09, the same shall be deemed part of the
balance of petitioners loan with the NHMFC which
respondent agreed to assume; and that the amount
of P3,000.00 representing the rental for January 1997
supposedly collected by petitioner, as well as the
claim for damages and attorneys fees, is denied for
insufficiency of evidence.13
On May 29, 2001, petitioner filed her Motion for
Reconsideration with the CA, arguing that respondent
categorically admitted in open court that she acted
only as agent or representative of Arsenio Pua, the
principal financier and, hence, she had no legal
capacity to sue petitioner; and that the CA failed to
consider the fact that petitioners father, who coowned the subject property, was not impleaded as a
defendant nor was he indebted to the respondent
and, hence, she cannot be made to sign the
documents to effect the transfer of ownership over
the entire property.
On August 6, 2001, the CA issued its Resolution
denying the motion on the ground that the foregoing
matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the
CA Resolution. On August 28, 2001, petitioner filed
the present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE
CONSIDERED AS A DEBTOR OF THE
RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS
NOT AUTHORIZED BY THE PRINCIPAL TO
COLLECT DEBT IN HIS BEHALF COULD
DIRECTLY COLLECT PAYMENT FROM THE
DEBTOR.

III.
WHETHER OR NOT THE CONTRACT OF SALE
WAS EXECUTED FOR A CAUSE.14
Although, as a rule, it is not the business of this Court
to review the findings of fact made by the lower
courts, jurisprudence has recognized several
exceptions, at least three of which are present in the
instant case, namely: when the judgment is based on
a misapprehension of facts; when the findings of
facts of the courts a quo are conflicting; and when
the CA manifestly overlooked certain relevant facts
not disputed by the parties, which, if properly
considered, could justify a different conclusion. 15 To
arrive at a proper judgment, therefore, the Court
finds it necessary to re-examine the evidence
presented by the contending parties during the trial
of the case.

petitioner herself admitted that she was "re-lending"

the money loaned to other individuals for
profit;20 and fourth, the documentary evidence shows
that the actual borrowers, the friends of petitioner,
consider her as their creditor and not the
respondent.21
On the first, third, and fourth points, the CA cites the
testimony of the petitioner, then defendant, during
her cross-examination:22

a. To refer those persons to Aura and to

refer again to Arsenio Pua, sir.
Atty. Diza:
q. Did the plaintiff personally see the
transactions with your friends?
witness:

Atty. Diza:

a. No, sir.

q. You also mentioned that you were not the

one indebted to the plaintiff?

Atty. Diza:

witness:

q. Your friends and the plaintiff did not meet

personally?

a. Yes, sir.

witness:

Atty. Diza:

a. Yes, sir.

q. And you mentioned the persons[,]

namely,
Elizabeth
Tomelden,
Teresa
Moraquin, Maria Luisa Inocencio, Zenaida
Romulo, they are your friends?

Atty. Diza:

The Petition is meritorious.

The principal issue is whether the Deed of Absolute
Sale is supported by a valid consideration.
1. Petitioner argues that since she is merely the
agent or representative of the alleged debtors, then
she is not a party to the loan; and that the Deed of
Sale executed between her and the respondent in
their own names, which was predicated on that preexisting debt, is void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be
supported by a consideration in the form of a price
certain in money16 and that this sum indisputably
pertains to the debt in issue. This Court has
consistently held that a contract of sale is null and
void and produces no effect whatsoever where the
same is without cause or consideration. 17 The
question that has to be resolved for the moment is
whether this debt can be considered as a valid cause
or consideration for the sale.
To restate, the CA cited four instances in the record
to support its holding that petitioner "re-lends" the
amount borrowed from respondent to her friends:
first, the friends of petitioner never presented
themselves to respondent and that all transactions
were made by and between petitioner and
respondent;18 second; the money passed through the
bank accounts of petitioner and respondent; 19 third,

witness:

q. You are intermediaries?

witness:

a. Inocencio and Moraquin are my friends

while [as to] Jacob and Tomelden[,] they
were just referred.

a. We are both intermediaries. As evidenced

by the checks of the debtors they were
deposited to the name of Arsenio Pua
because the money came from Arsenio Pua.

Atty. Diza:

xxxx

q. And you have transact[ed] with the

plaintiff?

Atty. Diza:

witness:

q. Did the plaintiff knew [sic] that you will

lend the money to your friends specifically
the one you mentioned [a] while ago?

a. Yes, sir.
witness:
Atty. Diza:
q. What is that transaction?

a. Yes, she knows the money will go to those

persons.

witness:

Atty. Diza:

q. You are re-lending the money?

witness:

Atty. Villacorta:

witness:

a. Yes, because I am only representing him,

sir.

q. And these friends of the defendant

borrowed money from you with the
assurance of the defendant?

a. Yes, sir.
Atty. Diza:
q. What profit do you have, do you have
commission?

Other portions of the testimony of

respondent must likewise be considered:24
Atty. Villacorta:

witness:
a. They go direct to Jocelyn because I dont
know them.

witness:

q. So it is not actually your money but the

money of Arsenio Pua?

xxxx

a. Yes, sir.

witness:

Atty. Villacorta:

Atty. Diza:

a. Yes, sir.

q. How much?

Court:

witness:

q. It is not your money?

q. And is it not also a fact Madam witness

that everytime that the defendant borrowed
money from you her friends who [are] in
need of money issued check[s] to you?
There were checks issued to you?

a. Two percent to Tomelden, one percent to

Jacob and then Inocencio and my friends
none, sir.

witness:

Based on the foregoing, the CA concluded

that petitioner is the real borrower, while
the respondent, the real lender.

Atty. Villacorta:

But as correctly noted by the RTC,

respondent, then plaintiff, made the
following admission during her cross
examination:23

a. Yes, Your Honor.

q. Is it not a fact Ms. Witness that the

defendant
borrowed
from
you
to
accommodate somebody, are you aware of
that?

witness:
a. Yes, there were checks issued.
Atty. Villacorta:
q. By the friends of the defendant, am I
correct?
witness:

witness:

a. Yes, sir.

Atty. Villacorta:

a. I am aware of that.

Atty. Villacorta:

q. Who is this Arsenio Pua?

Atty. Villacorta:

witness:

q. More or less she [accommodated] several

friends of the defendant?

q. And because of your assistance, the

friends of the defendant who are in need of
money were able to obtain loan to [sic]
Arsenio Pua through your assistance?

a. Principal financier, sir.

witness:
Atty. Villacorta:
a. Yes, sir, I am aware of that.
q. So the money came from Arsenio Pua?
xxxx

witness:
a. Yes, sir.
Atty. Villacorta:

q. So that occasion lasted for more than a

year?

In this case, petitioner knew that the financier of

respondent is Pua; and respondent knew that the
borrowers are friends of petitioner.

witness:
a. Yes, sir.
Atty. Villacorta:
q. And some of the checks that were issued
by the friends of the defendant bounced, am
I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of that Arsenio Pua got mad
with you?
witness:
a. Yes, sir.
Respondent is estopped to deny that she herself
acted as agent of a certain Arsenio Pua, her disclosed
principal. She is also estopped to deny that petitioner
acted as agent for the alleged debtors, the friends
whom she (petitioner) referred.
This Court has affirmed that, under Article 1868 of
the
Civil
Code,
the
basis
of
agency
is
representation.25 The question of whether an agency
has been created is ordinarily a question which may
be established in the same way as any other fact,
either by direct or circumstantial evidence. The
question is ultimately one of intention. 26Agency may
even be implied from the words and conduct of the
parties and the circumstances of the particular
case.27 Though the fact or extent of authority of the
agents may not, as a general rule, be established
from the declarations of the agents alone, if one
professes to act as agent for another, she may be
estopped to deny her agency both as against the
asserted principal and the third persons interested in
the transaction in which he or she is engaged. 28

The CA is incorrect when it considered the fact that

the "supposed friends of [petitioner], the actual
borrowers,
did
not
present
themselves
to
[respondent]" as evidence that negates the agency
relationshipit is sufficient that petitioner disclosed
to respondent that the former was acting in behalf of
her principals, her friends whom she referred to
respondent. For an agency to arise, it is not
necessary that the principal personally encounter the
third person with whom the agent interacts. The law
in fact contemplates, and to a great degree,
impersonal dealings where the principal need not
personally know or meet the third person with whom
her agent transacts: precisely, the purpose of agency
is to extend the personality of the principal through
the facility of the agent.29
In the case at bar, both petitioner and respondent
have undeniably disclosed to each other that they
are representing someone else, and so both of them
are estopped to deny the same. It is evident from the
record that petitioner merely refers actual borrowers
and then collects and disburses the amounts of the
loan upon which she received a commission; and that
respondent transacts on behalf of her "principal
financier", a certain Arsenio Pua. If their respective
principals do not actually and personally know each
other, such ignorance does not affect their juridical
standing as agents, especially since the very purpose
of agency is to extend the personality of the principal
through the facility of the agent.
With respect to the admission of petitioner that she is
"re-lending" the money loaned from respondent to
other individuals for profit, it must be stressed that
the manner in which the parties designate the
relationship is not controlling. If an act done by one
person in behalf of another is in its essential nature
one of agency, the former is the agent of the latter
notwithstanding he or she is not so called. 30 The
question is to be determined by the fact that one
represents and is acting for another, and if relations
exist which will constitute an agency, it will be an
agency whether the parties understood the exact
nature of the relation or not.31
That both parties acted as mere agents is shown by
the undisputed fact that the friends of petitioner

issued checks in payment of the loan in the name of

Pua. If it is true that petitioner was "re-lending", then
the checks should have been drawn in her name and
not directly paid to Pua.
With respect to the second point, particularly, the
finding of the CA that the disbursements and
payments for the loan were made through the bank
accounts of petitioner and respondent,
suffice it to say that in the normal course of
commercial dealings and for reasons of convenience
and practical utility it can be reasonably expected
that the facilities of the agent, such as a bank
account, may be employed, and that a sub-agent be
appointed, such as the bank itself, to carry out the
task, especially where there is no stipulation to the
contrary.32
In view of the two agency relationships, petitioner
and respondent are not privy to the contract of loan
between their principals. Since the sale is predicated
on that loan, then the sale is void for lack of
consideration.
2. A further scrutiny of the record shows, however,
that the sale might have been backed up by another
consideration that is separate and distinct from the
debt: respondent averred in her complaint and
testified that the parties had agreed that as a
condition for the conveyance of the property the
respondent shall assume the balance of the
mortgage loan which petitioner allegedly owed to the
NHMFC.33 This Court in the recent past has declared
that an assumption of a mortgage debt may
constitute a valid consideration for a sale.34
Although the record shows that petitioner admitted
at the time of trial that she owned the property
described in the TCT,35 the Court must stress that the
Transfer Certificate of Title No. 38253236 on its face
shows that the owner of the property which
admittedly forms the subject matter of the Deed of
Absolute Sale refers neither to the petitioner nor to
her father, Teodorico Doles, the alleged co-owner.
Rather, it states that the property is registered in the
name of "Household Development Corporation."
Although there is an entry to the effect that the
petitioner had been granted a special power of
attorney "covering the shares of Teodorico Doles on
the parcel of land described in this certificate," 37 it
cannot be inferred from this bare notation, nor from

any other evidence on the record, that the petitioner

or her father held any direct interest on the property
in question so as to validly constitute a mortgage
thereon38 and, with more reason, to effect the
delivery of the object of the sale at the
consummation stage.39 What is worse, there is a
notation that the TCT itself has been "cancelled."40
In view of these anomalies, the Court cannot
entertain the
possibility that respondent agreed to assume the
balance of the mortgage loan which petitioner
allegedly owed to the NHMFC, especially since the
record is bereft of any factual finding that petitioner
was, in the first place, endowed with any ownership
rights to validly mortgage and convey the property.
As the complainant who initiated the case,
respondent bears the burden of proving the basis of
her complaint. Having failed to discharge such
burden, the Court has no choice but to declare the
sale void for lack of cause. And since the sale is void,
the Court finds it unnecessary to dwell on the issue
of whether duress or intimidation had been foisted
upon petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly
exists, the Court notes respondents allegation that
the mortgage with the NHMFC was for 25 years
which began September 3, 1994. Respondent filed
her Complaint for Specific Performance in 1997.
Since the 25 years had not lapsed, the prayer of
respondent to compel petitioner to execute
necessary documents to effect the transfer of title is
premature.
WHEREFORE, the petition is granted. The Decision
and
Resolution
of
the
Court
of
Appeals
are REVERSED andSET ASIDE. The complaint of
respondent
in
Civil
Case
No.
97-82716
is DISMISSED.
SO ORDERED.

discount, provided that he sets up his own sales

force, acquires and issues his own sales invoice, and
posts a bond with LMICE as security for the credit line
extended to him by LMICE. Failing to comply with the
conditions under the said Dealership Agreement,
private complainant Federico, nonetheless, was still
allowed to act as a part-time sales agent for LMICE
entitled to a percentage commission from the sales
of fire extinguishers.5

G.R. No. 141485

June 30, 2005

PABLITO
MURAO
and
NELIO
HUERTAZUELA, petitioners,.
vs.
PEOPLE OF THE PHILIPPINES, respondent.
DECISION

The amount of private complainant Federicos

commission as sales agent for LMICE was under
contention. Private complainant Federico claimed
that he was entitled to a commission equivalent to
50% of the gross sales he had made on behalf of
LMICE,6 while petitioners maintained that he should
receive only 30% of the net sales. Petitioners even
contended that as company policy, part-time sales
agents were entitled to a commission of only 25% of
the net sales, but since private complainant Federico
helped in establishing the LMICE branch office in
Puerto Princesa City, he was to receive the same
commission as the full-time sales agents of LMICE,
which was 30% of the net sales.7

CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari under Rule 45
of the Rules of Court, petitioners pray for the reversal
of the Decision of the Court of Appeals in CA-G.R. CR
No. 21134, dated 31 May 1999, 1 affirming with
modification the Judgment of the Regional Trial Court
(RTC) of Puerto Princesa City, Palawan, in Criminal
Case No. 11943, dated 05 May 1997, 2 finding
petitioners guilty beyond reasonable doubt of the
crime of estafa under Article 315(1)(b) of the Revised
Penal Code.
Petitioner Pablito Murao is the sole owner of Lorna
Murao Industrial Commercial Enterprises (LMICE), a
company engaged in the business of selling and
refilling fire extinguishers, with branches in Palawan,
Naga, Legaspi, Mindoro, Aurora, Quezon, Isabela, and
Laguna. Petitioner Nelio Huertazuela is the Branch
Manager of LMICE in Puerto Princesa City, Palawan.3
On 01 September 1994, petitioner Murao and private
complainant Chito Federico entered into a Dealership
Agreement for the marketing, distribution, and
refilling of fire extinguishers within Puerto Princesa
City.4 According to the Dealership Agreement, private
complainant Federico, as a dealer for LMICE, could
obtain fire extinguishers from LMICE at a 50%

Private complainant Federicos first successful

transaction as sales agent of LMICE involved two fire
extinguishers sold to Landbank of the Philippines
(Landbank), Puerto Princesa City Branch, for the price
of P7,200.00. Landbank issued a check, dated 08
November 1993, pay to the order of "L.M. Industrial
Comml. Enterprises c/o Chito Federico," for the
amount of P5,936.40,8 after deducting from the
original sales price the 15% discount granted by
private complainant Federico to Landbank and the
3% withholding tax. Private complainant Federico
encashed the check at Landbank and remitted
only P2,436.40 to LMICE, while he kept P3,500.00 for
himself as his commission from the sale.9
Petitioners alleged that it was contrary to the
standard operating procedure of LMICE that private
complainant Federico was named payee of the
Landbank check on behalf of LMICE, and that private
complainant Federico was not authorized to encash
the said check. Despite the supposed irregularities
committed by private complainant Federico in the
collection of the payment from Landbank and in the
premature withholding of his commission from the
said
payment,
petitioners
forgave
private
complainant Federico because the latter promised to
make-up for his misdeeds in the next transaction. 10

Private complainant Federico, on behalf of LMICE,

subsequently facilitated a transaction with the City
Government of Puerto Princesa for the refill of 202
fire extinguishers. Because of the considerable cost,
the City Government of Puerto Princesa requested
that the transaction be split into two purchase
orders, and the City Government of Puerto Princesa
shall pay for each of the purchase orders
separately.11 Pursuant to the two purchase orders,
LMICE refilled and delivered all 202 fire extinguishers
to the City Government of Puerto Princesa: 154 units
on 06 January 1994, 43 more units on 12 January
1994, and the last five units on 13 January 1994.12
The subject of this Petition is limited to the first
purchase order, Purchase Order No. GSO-856, dated
03 January 1994, for the refill of 99 fire extinguishers,
with a total cost of P309,000.00.13 On 16 June 1994,
the City Government of Puerto Princesa issued Check
No. 611437 to LMICE to pay for Purchase Order No.
GSO-856, in the amount of P300,572.73, net of the
3% withholding tax.14 Within the same day, petitioner
Huertazuela claimed Check No. 611437 from the City
Government of Puerto Princesa and deposited it
under the current account of LMICE with PCIBank.15
On 17 June 1994, private complainant Federico went
to see petitioner Huertazuela at the LMICE branch
office in Puerto Princesa City to demand for the
amount of P154,500.00 as his commission from the
payment of Purchase Order No. GSO-856 by the City
Government
of
Puerto
Princesa.
Petitioner
Huertazuela, however, refused to pay private
complainant Federico his commission since the two
of them could not agree on the proper amount
thereof.16
Also on 17 June 1994, private complainant Federico
went to the police station to file an AffidavitComplaint for estafa against petitioners.17 Petitioners
submitted their Joint Counter-Affidavit on 12 July
1994.18 The City Prosecution Office of Puerto Princesa
City issued a Resolution, dated 15 August 1994,
finding that a prima faciecase for estafa existed
against the petitioners and recommending the filing
of an information for estafa against both of them.19
The Information, docketed as Criminal Case No.
11943 and raffled to the RTC of Puerto Princesa City,
Palawan, Branch 52, reads as follows
INFORMATION

The undersigned accuses PABLITO MURAO and NELIO

C. HUERTAZUELA of the crime of ESTAFA, committed
as follows:
That on or about the 16th day of June, 1994, at
Puerto Princesa City, Philippines, and within the
jurisdiction of this Honorable Court, the said accused,
conspiring and confederating together and mutually
helping one another, after having received the
amount of P309,000.00 as payment of the 99 tanks
of refilled fire extinguisher (sic) from the City
Government of Puerto Princesa, through deceit, fraud
and misrepresentation, did then and there willfully,
unlawfully and feloniously defraud one Chito Federico
in the following manner, to wit: said accused, well
knowing that Chito Federico agent of LM Industrial
Commercial
Enterprises
is
entitled
to
50%
commission of the gross sales as per their Dealership
Contract or the amount of P154,500.00 as his
commission for his sale of 99 refilled fire
extinguishers worth P309,000.00, and accused once
in possession of said amount of P309,000.00
misappropriate, misapply and convert the amount
of P154,500.00 for their own personal use and
benefit and despite repeated demands made upon
them by complainant to deliver the amount
of P154,500.00, accused failed and refused and still
fails and refuses to do so, to the damage and
prejudice of said Chito Federico in the amount
of P154,500.00, Philippine Currency.20
After holding trial, the RTC rendered its Judgment on
05 May 1997 finding petitioners guilty beyond
reasonable doubt as co-principals of the crime of
estafa defined and penalized in Article 315(1)(b) of
the Revised Penal Code. Estafa, under the said
provision, is committed by
ART. 315. Swindling (estafa). Any person who shall
defraud another by any of the means mentioned
hereinbelow . . .
1. With unfaithfulness or abuse of confidence,
namely:
(a)
(b) By misappropriating or converting, to the
prejudice of another, money, goods, or any
other personal property received by the
offender in trust or on commission, or for

administration,
or
under
any
other
obligation involving the duty to make
delivery of or to return the same, even
though such obligation be totally or partially
guaranteed by a bond; or by denying having
received such money, goods, or other
property; . . .

The second element cannot be gainsaid. Both Pablito

Murao and Nelio Huertazuela categorically admitted
that they did not give to Chito Federico his
commission. Instead, they deposited the full amount
of the consideration, with the PCIBank in the Current
Account of LMIC.

In the same Judgment, the RTC expounded on its

finding of guilt, thus
For the afore-quoted provision of the Revised Penal
Code to be committed, the following requisites must
concur:
1. That money, goods or other personal
property be received by the offender in
trust,
or
on
commission,
or
for
administration,
or
under
any
other
obligation involving the duty to make
delivery of, or to return, the same;
2. That there be misappropriation or
conversion of such money or property by
the offender, or denial on his part of such
receipt;
3. That such misappropriation or conversion
or denial is to the prejudice of another; and
4. That there is demand made by the
offended party to the offender. (Reyes,
Revised Penal Code of the Philippines, p.
716; Manuel Manahan, Jr. vs. Court of
Appeals, Et Al., G.R. No. 111656, March 20,
1996)
All the foregoing elements are present in this case.
The aborted testimony of Mrs. Norma Dacuan,
Cashier III of the Treasurers Office of the City of
Puerto Princesa established the fact that indeed, on
June 16, 1994, co-accused Nelio Huertazuela took
delivery of Check No. 611437 with face value
of P300,572.73, representing payment for the refill of
99 cylinders of fire extinguishers. Although the
relationship between complaining witness Chito
Federico and LMIC is not fiduciary in nature, still the
clause "any other obligation involving the duty to
make delivery of or to return" personal property is
broad enough to include a "civil obligation" (Manahan
vs. C.A., Et. Al., Mar. 20, 1996).

The refusal by the accused to give Chito Federico

what ever percentage his commission necessarily
caused him prejudice which constitute the third
element of estafa. Demand for payment, although
not an essential element of estafa was nonetheless
made by the complainant but was rebuffed by the
accused. The fraudulent intent by the accused is
indubitably indicated by their refusal to pay Chito
Federico any percentage of the gross sales as
commission. If it were true that what the dealer/sales
Agent is entitled to by way of commission is only
30% of the gross sales, then by all means the
accused should have paid Chito Federico 30%. If he
refused, they could have it deposited in his name. In
that way they may not be said to have
misappropriated for themselves what pertained to
their Agent by way of commission.

WHEREFORE, premises considered judgment is

hereby rendered finding the accused PABLITO MURAO
and NELIO HUERTAZUELA guilty beyond reasonable
doubt as co-principals, of the crime of estafa defined
and penalized in Article 315 par. 1(b) of the Revised
Penal Code, and applying the provisions of the
Indeterminate Sentence Law, both accused are
hereby sentenced to an indeterminate penalty
ranging from a minimum of TWO (2) YEARS, FOUR (4)
MONTHS and ONE (1) DAY of prision correccional in
its medium period, to a maximum of TWENTY (20)
YEARS of reclusion temporal in its maximum period;
to pay Chito Federico, jointly and severally:
a. Sales Commission equivalent to
50%
of P309,000.00
------------------- P154,500.00
with legal interest thereon from

or

June 17, 1994 until fully paid;

b.
Attorneys
---------------------------- P 30,0000.00.21

fees

Resolving the appeal filed by the petitioners before it,

the Court of Appeals, in its Decision, dated 31 May
1999, affirmed the aforementioned RTC Judgment,
finding petitioners guilty of estafa, but modifying the
sentence imposed on the petitioners. The dispositive
portion of the Decision of the Court of Appeals reads

WHEREFORE, the appealed decision is hereby

AFFIRMED with the MODIFICATION that appellants
PABLITO MURAO and NELIO HUERTAZUELA are
hereby each sentenced to an indeterminate penalty
of eight (8) years and One (1) day of prision mayor,
as minimum, to Twenty (20) years of reclusion
temporal, as maximum. The award for attorneys fee
of P30,000.00 is deleted because the prosecution of
criminal action is the task of the State prosecutors.
All other aspects of the appealed decision are
maintained.22
When the Court of Appeals, in its Resolution, dated
19
January
2000,23 denied
their
Motion
for
Reconsideration, petitioners filed the present Petition
for Review24 before this Court, raising the following
errors allegedly committed by the Court of Appeals in
its Decision, dated 31 May 1999
I
WITH DUE RESPECT, THE HONORABLE COURT OF
APPEALS GRAVELY ERRED WHEN IT RULED THAT
PETITIONERS ARE LIABLE FOR ESTAFA UNDER
ARTICLE 315 1(B) OF THE REVISED PENAL CODE
UNDER THE FOREGOING SET OF FACTS, WHEN IT IS
CLEAR FROM THE SAID UNDISPUTED FACTS THAT THE
LIABILITY IS CIVIL IN NATURE.
II
WITH DUE RESPECT, THE HONORABLE COURT ERRED
WHEN IT UPHOLD (sic) PRIVATE COMPLAINANTS
CLAIM THAT HE IS ENTITLED TO A FIFTY (50%)
PERCENT COMMISSION WITHOUT EVIDENCE TO
SUPPORT SUCH CLAIM.

This Court finds the instant Petition impressed with

merit. Absent herein are two essential elements of
the crime of estafa by misappropriation or conversion
under Article 315(1)(b) of the Revised Penal Code,
namely: (1) That money, goods or other personal
property be received by the offender in trust, or on
commission, or for administration, or under any other
obligation involving the duty to make delivery of, or
to return, the same; and (2) That there be a
misappropriation or conversion of such money or
property by the offender.
The findings of the RTC and the Court of Appeals that
petitioners committed estafa rest on the erroneous
belief that private complainant Federico, due to his
right to commission, already owned 50% of the
amount paid by the City Government of Puerto
Princesa to LMICE by virtue of Check No. 611437, so
that the collection and deposit of the said check by
petitioners under the account of LMICE constituted
misappropriation
or
conversion
of
private
complainant Federicos commission.
However, his right to a commission does not
make private complainant Federico a joint
owner of the money paid to LMICE by the City
Government of Puerto Princesa, but merely
establishes the relation of agent and principal. 25 It is
unequivocal that an agency existed between LMICE
and private complainant Federico. Article 1868 of the
Civil Code defines agency as a special contract
whereby "a person binds himself to render some
service or to do something in representation or on
behalf of another, with the consent or authority of
the latter." Although private complainant Federico
never had the opportunity to operate as a dealer for
LMICE under the terms of the Dealership Agreement,
he was allowed to act as a sales agent for LMICE. He
can negotiate for and on behalf of LMICE for the refill
and delivery of fire extinguishers, which he, in fact,
did on two occasions with Landbank and with the
City Government of Puerto Princesa. Unlike the
Dealership Agreement, however, the agreement that
private complainant Federico may act as sales agent
of LMICE was based on an oral agreement.26
As a sales agent, private complainant Federico
entered into negotiations with prospective clients for
and on behalf of his principal, LMICE. When
negotiations for the sale or refill of fire extinguishers
were successful, private complainant Federico
prepared the necessary documentation. Purchase

orders, invoices, and receipts were all in the name of

LMICE. It was LMICE who had the primary duty of
picking up the empty fire extinguishers, filling them
up, and delivering the refilled tanks to the clients,
even though private complainant Federico personally
helped in hauling and carrying the fire extinguishers
during pick-up from and delivery to clients.
All profits made and any advantage gained by an
agent in the execution of his agency should belong to
the principal.27 In the instant case, whether the
transactions negotiated by the sales agent were for
the sale of brand new fire extinguishers or for the
refill of empty tanks, evidently, the business
belonged to LMICE. Consequently, payments made
by clients for the fire extinguishers pertained to
LMICE. When petitioner Huertazuela, as the Branch
Manager of LMICE in Puerto Princesa City, with the
permission of petitioner Murao, the sole proprietor of
LMICE, personally picked up Check No. 611437 from
the City Government of Puerto Princesa, and
deposited the same under the Current Account of
LMICE with PCIBank, he was merely collecting what
rightfully belonged to LMICE. Indeed, Check No.
611437 named LMICE as the lone payee. Private
complainant Federico may claim commission,
allegedly equivalent to 50% of the payment received
by LMICE from the City Government of Puerto
Princesa, based on his right to just compensation
under his agency contract with LMICE,28 but not as
the automatic owner of the 50% portion of the said
payment.
Since LMICE is the lawful owner of the entire
proceeds of the check payment from the City
Government of Puerto Princesa, then the petitioners
who collected the payment on behalf of LMICE did
not receive the same or any part thereof in trust, or
on commission, or for administration, or under any
other obligation involving the duty to make delivery
of, or to return, the same to private complainant
Federico, thus, the RTC correctly found that no
fiduciary relationship existed between petitioners
and private complainant Federico. A fiduciary
relationship between the complainant and the
accused is an essential element of estafa by
misappropriation or conversion, without which the
accused could not have committed estafa. 29
The RTC used the case of Manahan, Jr. v. Court of
Appeals30 to support its position that even in the
absence of a fiduciary relationship, the petitioners

still had the civil obligation to return and deliver to

private complainant Federico his commission. The
RTC failed to discern the substantial differences in
the factual background of theManahan case from the
present Petition. The Manahan case involved the
lease of a dump truck. Although a contract of lease
may not be fiduciary in character, the lessee clearly
had the civil obligation to return the truck to the
lessor at the end of the lease period; and failure of
the lessee to return the truck as provided for in the
contract may constitute estafa. The phrase "or any
other obligation involving the duty to make delivery
of, or to return the same" refers to contracts of
bailment, such as, contract of lease of personal
property, contract of deposit, and commodatum,
wherein juridical possession of the thing was
transferred to the lessee, depositary or borrower, and
wherein the latter is obligated to return the same
thing.31
In contrast, the current Petition concerns an agency
contract whereby the principal already received
payment from the client but refused to give the sales
agent, who negotiated the sale, his commission. As
has been established by this Court in the foregoing
paragraphs, LMICE had a right to the full amount paid
by the City Government of Puerto Princesa. Since
LMICE, through petitioners, directly collected the
payment, then it was already in possession of the
amount, and no transfer of juridical possession
thereof was involved herein. Given that private
complainant Federico could not claim ownership over
the said payment or any portion thereof, LMICE had
nothing at all to deliver and return to him. The
obligation of LMICE to pay private complainant
Federico his commission does not arise from any
duty to deliver or return the money to its supposed
owner, but rather from the duty of a principal to give
just compensation to its agent for the services
rendered by the latter.
Furthermore, the Court of Appeals, in its Decision,
dated 31 May 1999, defined the words "convert" and
"misappropriate" in the following manner
The High Court in Saddul v. Court of Appeals [192
SCRA 277] enunciated that the words "convert" and
"misappropriate" in the crime of estafa punished
under Art. 315, par. 1(b) connote an act of using or
disposing of anothers property as if it were ones
own, or if devoting it to a purpose or use different
from that agreed upon. To misappropriate to ones

use includes, not only conversion to ones personal

advantage, but also every attempt to dispose of the
property of another without right.32
Based on the very same definition, this Court finds
that petitioners did not convert nor misappropriate
the proceeds from Check No. 611437 because the
same belonged to LMICE, and was not "anothers
property." Petitioners collected the said check from
the City Government of Puerto Princesa and
deposited the same under the Current Account of
LMICE with PCIBank. Since the money was already
with its owner, LMICE, it could not be said that the
same had been converted or misappropriated for one
could not very well fraudulently appropriate to
himself money that is his own.33

and SET ASIDE. A new Judgment is hereby entered

ACQUITTING petitioners based on the foregoing
findings of this Court that their actions did not
constitute the crime of estafa by conversion or
misappropriation under Article 315(1)(b) of the
Revised Penal Code. The cash bonds posted by the
petitioners for their provisional liberty are hereby
ordered RELEASED and the amounts thereof
RETURNED to the petitioners, subject to the usual
accounting and auditing procedures.
SO ORDERED.

Although petitioners refusal to pay private

complainant Federico his commission caused
prejudice or damage to the latter, said act does not
constitute a crime, particularly estafa by conversion
or misappropriation punishable under Article 315(1)
(b) of the Revised Penal Code. Without the essential
elements for the commission thereof, petitioners
cannot be deemed to have committed the crime.

G.R. No. 148775

While petitioners may have no criminal liability,

petitioners themselves admit their civil liability to the
private complainant Federico for the latters
commission from the sale, whether it be 30% of the
net sales or 50% of the gross sales. However, this
Court is precluded from making a determination and
an award of the civil liability for the reason that the
said civil liability of petitioners to pay private
complainant Federico his commission arises from a
violation of the agency contract and not from a
criminal act.34 It would be improper and unwarranted
for this Court to impose in a criminal action the civil
liability arising from a civil contract, which should
have been the subject of a separate and independent
civil action.35

VITUG, J.:

WHEREFORE, the assailed Decision of the Court of

Appeals in CA-G.R. CR No. 21134, dated 31 May
1999, affirming with modification the Judgment of the
RTC of Puerto Princesa City, Palawan, in Criminal
Case No. 11943, dated 05 May 1997, finding
petitioners guilty beyond reasonable doubt of estafa
by conversion or misappropriation under Article
315(1)(b) of the Revised Penal Code, and awarding
the amount of P154,500.00 as sales commission to
private complainant Federico, is hereby REVERSED

January 13, 2004

SHOPPERS PARADISE REALTY & DEVELOPMENT

CORPORATION, petitioner,
vs.
EFREN P. ROQUE, respondent.
DECISION

On 23 December 1993, petitioner Shoppers Paradise

Realty & Development Corporation, represented by
its president, Veredigno Atienza, entered into a
twenty-five year lease with Dr. Felipe C. Roque, now
deceased, over a parcel of land, with an area of two
thousand and thirty six (2,036) square meters,
situated at Plaza Novaliches, Quezon City, covered
by Transfer of Certificate of Title (TCT) No. 30591 of
the Register of Deeds of Quezon City in the name of
Dr. Roque. Petitioner issued to Dr. Roque a check for
P250,000.00 by way of "reservation payment."
Simultaneously, petitioner and Dr. Roque likewise
entered into a memorandum of agreement for the
construction, development and operation of a
commercial building complex on the property.
Conformably with the agreement, petitioner issued a
check for another P250,000.00 "downpayment" to Dr.
Roque.
The contract of lease and the memorandum of
agreement, both notarized, were to be annotated on
TCT No. 30591 within sixty (60) days from 23
December 1993 or until 23 February 1994. The

annotations, however, were never made because of

the untimely demise of Dr. Felipe C. Roque. The
death of Dr. Roque on 10 February 1994 constrained
petitioner to deal with respondent Efren P. Roque,
one of the surviving children of the late Dr. Roque,
but the negotiations broke down due to some
disagreements. In a letter, dated 3 November 1994,
respondent advised petitioner "to desist from any
attempt to enforce the aforementioned contract of
lease and memorandum of agreement". On 15
February 1995, respondent filed a case for
annulment of the contract of lease and the
memorandum of agreement, with a prayer for the
issuance of a preliminary injunction, before Branch
222 of the Regional Trial Court of Quezon City. Efren
P. Roque alleged that he had long been the absolute
owner of the subject property by virtue of a deed of
donation inter vivos executed in his favor by his
parents, Dr. Felipe Roque and Elisa Roque, on 26
December 1978, and that the late Dr. Felipe Roque
had no authority to enter into the assailed
agreements with petitioner. The donation was made
in a public instrument duly acknowledged by the
donor-spouses before a notary public and duly
accepted on the same day by respondent before the
notary public in the same instrument of donation.
The title to the property, however, remained in the
name of Dr. Felipe C. Roque, and it was only
transferred to and in the name of respondent sixteen
years later, or on 11 May 1994, under TCT No.
109754 of the Register of Deeds of Quezon City.
Respondent, while he resided in the United States of
America, delegated to his father the mere
administration of the property. Respondent came to
know of the assailed contracts with petitioner only
after retiring to the Philippines upon the death of his
father.
On 9 August 1996, the trial court dismissed the
complaint of respondent; it explained:
"Ordinarily, a deed of donation need not be
registered in order to be valid between the
parties. Registration, however, is important
in binding third persons. Thus, when Felipe
Roque entered into a leased contract with
defendant corporation, plaintiff Efren Roque
(could) no longer assert the unregistered
deed of donation and say that his father,
Felipe, was no longer the owner of the
subject property at the time the lease on
the subject property was agreed upon.

"The registration of the Deed of Donation

after the execution of the lease contract did
not affect the latter unless he had
knowledge thereof at the time of the
registration which plaintiff had not been
able to establish. Plaintiff knew very well of
the existence of the lease. He, in fact, met
with the officers of the defendant
corporation at least once before he caused
the registration of the deed of donation in
his favor and although the lease itself was
not registered, it remains valid considering
that no third person is involved. Plaintiff
cannot be the third person because he is the
successor-in-interest of his father, Felipe
Roque, the lessor, and it is a rule that
contracts take effect not only between the
parties themselves but also between their
assigns and heirs (Article 1311, Civil Code)
and therefore, the lease contract together
with the memorandum of agreement would
be conclusive on plaintiff Efren Roque. He is
bound by the contract even if he did not
participate
therein.
Moreover,
the
agreements have been perfected and
partially executed by the receipt of his
father of the downpayment and deposit
totaling to P500,000.00."1
The Trial court ordered respondent to surrender TCT
No. 109754 to the Register of Deeds of Quezon City
for the annotation of the questioned Contract of
Lease and Memorandum of Agreement.
On appeal, the Court of Appeals reversed the
decision of the trial court and held to be invalid the
Contract of Lease and Memorandum of Agreement.
While it shared the view expressed by the trial court
that a deed of donation would have to be registered
in order to bind third persons, the appellate court,
however, concluded that petitioner was not a lessee
in good faith having had prior knowledge of the
donation in favor of respondent, and that such actual
knowledge had the effect of registration insofar as
petitioner was concerned. The appellate court based
its findings largely on the testimony of Veredigno
Atienza during cross-examination, viz;
"Q. Aside from these two lots, the first in the
name of Ruben Roque and the second, the
subject of the construction involved in this

case, you said there is another lot which

was part of development project?
"A. Yes, this was the main concept of Dr.
Roque so that the adjoining properties of his
two sons, Ruben and Cesar, will comprise
one whole. The other whole property
belongs to Cesar.
"Q. You were informed by Dr. Roque that this
property was given to his three (3) sons;
one to Ruben Roque, the other to Efren, and
the other to Cesar Roque?
"A. Yes.
"Q. You did the inquiry from him, how was
this property given to them?
"A. By inheritance.
"Q. Inheritance in the form of donation?
"A. I mean inheritance.
"Q. What I am only asking you is, were you
told by Dr. Felipe C. Roque at the time of
your transaction with him that all these
three properties were given to his children
by way of donation?
"A. What Architect Biglang-awa told us in his
exact word: "Yang mga yan pupunta sa mga
anak. Yong kay Ruben pupunta kay Ruben.
Yong kay Efren palibhasa nasa America sya,
nasa pangalan pa ni Dr. Felipe C. Roque."
"x x x

xxx

xxx

"Q. When was the information supplied to

you by Biglang-awa? Before the execution of
the Contract of Lease and Memorandum of
Agreement?
"A. Yes.
"Q. That being the case, at the time of the
execution of the agreement or soon before,

did you have such information confirmed by

Dr. Felipe C. Roque himself?
"A. Biglang-awa did it for us.
"Q. But you yourself did not?
"A. No, because I was doing certain things.
We were a team and so Biglang-awa did it
for us.
"Q. So in effect, any information gathered by
Biglang-awa was of the same effect as if
received by you because you were members
of the same team?
"A. Yes."2
In the instant petition for review, petitioner seeks a
reversal of the decision of the Court of Appeals and
the reinstatement of the ruling of the Regional Trial
Court; it argues that the presumption of good faith it
so enjoys as a party dealing in registered land has
not been overturned by the aforequoted testimonial
evidence, and that, in any event, respondent is
barred by laches and estoppel from denying the
contracts.
The existence, albeit unregistered, of the donation in
favor of respondent is undisputed. The trial court and
the appellate court have not erred in holding that the
non-registration of a deed of donation does not affect
its validity. As being itself a mode of acquiring
ownership, donation results in an effective transfer of
title over the property from the donor to the
donee.3 In donations of immovable property, the law
requires for its validity that it should be contained in
a public document, specifying therein the property
donated and the value of the charges which the
donee must satisfy.4 The Civil Code provides,
however, that "titles of ownership, or other rights
over immovable property, which are not duly
inscribed or annotated in the Registry of Property
(now Registry of Land Titles and Deeds) shall not
prejudice third persons."5 It is enough, between the
parties to a donation of an immovable property, that
the donation be made in a public document but, in
order to bind third persons, the donation must be
registered in the registry of Property (Registry of
Land Titles and Deeds).6 Consistently, Section 50 of
Act No. 496 (Land Registration Act), as so amended

by Section 51 of P.D. No. 1529 (Property Registration

Decree), states:
"SECTION
51. Conveyance
and
other
dealings by registered owner.- An owner of
registered land may convey, mortgage,
lease, charge or otherwise deal with the
same in accordance with existing laws. He
may use such forms of deeds, mortgages,
leases or other voluntary instruments as are
sufficient in law. But no deed, mortgage,
lease, or other voluntary instrument, except
a will purporting to convey or affect
registered land shall take effect as a
conveyance or bind the land, but shall
operate only as a contract between the
parties and as evidence of authority to the
Register of Deeds to make registration.
"The act of registration shall be the
operative act to convey or affect the land
insofar as third persons are concerned, and
in all cases under this Decree, the
registration shall be made in the office of
the Register of Deeds for the province or
city where the land lies." (emphasis
supplied)
A person dealing with registered land may thus
safely rely on the correctness of the certificate of title
issued therefore, and he is not required to go beyond
the certificate to determine the condition of the
property7 but, where such party has knowledge of a
prior existing interest which is unregistered at the
time he acquired a right thereto, his knowledge of
that prior unregistered interest would have the effect
of registration as regards to him.8
The appellate court was not without substantial basis
when it found petitioner to have had knowledge of
the donation at the time it entered into the two
agreements with Dr. Roque. During their negotiation,
petitioner, through its representatives, was apprised
of the fact that the subject property actually
belonged to respondent.
It was not shown that Dr. Felipe C. Roque had been
an authorized agent of respondent.
In a contract of agency, the agent acts in
representation or in behalf of another with the

consent of the latter.9Article 1878 of the Civil Code

expresses that a special power of attorney is
necessary to lease any real property to another
person for more than one year. The lease of real
property for more than one year is considered not
merely an act of administration but an act of strict
dominion or of ownership. A special power of
attorney is thus necessary for its execution through
an agent.1awphil.ne+
The Court cannot accept petitioners argument that
respondent is guilty of laches. Laches, in its real
sense, is the failure or neglect, for an unreasonable
and unexplained length of time, to do that which, by
exercising due diligence, could or should have been
done earlier; it is negligence or omission to assert a
right within a reasonable time, warranting a
presumption that the party entitled to assert it either
has abandoned or declined to assert it.10
Respondent learned of the contracts only in February
1994 after the death of his father, and in the same
year, during November, he assailed the validity of
the agreements. Hardly, could respondent then be
said to have neglected to assert his case for
unreasonable length of time.
Neither is respondent estopped from repudiating the
contracts. The essential elements of estoppel in pais,
in relation to the party sought to be estopped, are: 1)
a clear conduct amounting to false representation or
concealment of material facts or, at least, calculated
to convey the impression that the facts are otherwise
than, and inconsistent with, those which the party
subsequently attempts to assert; 2) an intent or, at
least, an expectation, that this conduct shall
influence, or be acted upon by, the other party; and
3) the knowledge, actual or constructive, by him of
the real facts.11 With respect to the party claiming
the estoppel, the conditions he must satisfy are: 1)
lack of knowledge or of the means of knowledge of
the truth as to the facts in question; 2) reliance, in
good faith, upon the conduct or statements of the
party to be estopped; and 3) action or inaction based
thereon of such character as to change his position
or status calculated to cause him injury or
prejudice.12 It has not been shown that respondent
intended to conceal the actual facts concerning the
property; more importantly, petitioner has been
shown not to be totally unaware of the real
ownership of the subject property.

Altogether, there is no cogent reason to reverse the

Court of Appeals in its assailed decision.
WHEREFORE, the petition is DENIED, and the
decision of the Court of Appeals declaring the
contract of lease and memorandum of agreement
entered into between Dr. Felipe C. Roque and
Shoppers
Paradise
Realty
&
Development
Corporation not to be binding on respondent is
AFFIRMED. No costs.
SO ORDERED.

The Case
Before us is a Petition for Review1 under Rule 45 of
the Rules of Court, assailing the September 28, 2001
Decision2 and the January 25, 2002 Resolution3 of the
Court of Appeals (CA) in CA-GR CV No. 64283. The
dispositive part of the assailed Decision reads:
"IN
THE
LIGHT
OF
ALL
THE
FOREGOING, the appeal of the [petitioner]
is partially GRANTED in that the Decision
appealed
from
is AFFIRMED with
the
modification that the award for a brokers
fee in favor of the [respondent] is deleted."4
The assailed Resolution denied reconsideration of the
Decision.
The Facts
The facts are narrated by the CA as follows:

G.R. No. 151963

September 9, 2004

AIR
PHILIPPINES
CORPORATION, petitioner,
vs.
INTERNATIONAL BUSINESS AVIATION SERVICES
PHILS., INC., respondent.
DECISION

"The Air Philippines, Inc., API for brevity,

was in need of the services of a business
establishment to ferry its B-737 airplane,
with Registry Number RP C1938, from the
United States of America to the Philippines,
via Subic Bay International Airport, at
Olongapo City. API, through Captain Alex
Villacampa,
its
Vice-President
for
Operations,
engaged
the
services
of International
Business
Aviation
Services Phils., Inc.,IBASPI for brevity,
as its agent to look for and engage, for API,
a business enterprise to ferry the airplane.
IBASPI did engage the services of Universal
Weather [&] Aviation, Inc., UWAI for
brevity, to ferry the airplane x x x to the
Philippines, via the International Airport at
Subic Bay, Olongapo City, where API took
delivery of the plane.

PANGANIBAN, J.:
Simple negligence of counsel binds the client. This is
especially true in this case in which the client was as
negligent as its lawyer. Hence, petitioner must bear
the consequences and accept its defeat. After all, the
winning party did not take advantage of petitioners
fault, but merely complied with the law in
prosecuting its valid and proven claims.

"UWAI sent its Billings to API, through

IBASPI, in the total amount of US$65,131.55
for its services for the ferry of the airplane.
API failed to pay its account. On December
2, 1996, the [respondent] wrote a letter to
the [petitioner] urging the payment of the
bills of UWAI. The [petitioner] refused.
Exasperated, UWAI blamed IBASPI for the
intransigence of API. IBASPI was impelled to

write a letter to UWAI to clarify critical

points of APIs account. Unable to bear the
pressure of UWAI and to avoid corporate
embarrassment for APIs intransigence,
IBASPI was impelled to advance and pay to
UWAI the said amount of US$65,131.55 for
the account of API. The latter was informed
by UWAI of the payment of said account by
IBASPI via its letter dated May 12, 1997.
"IBASPI forthwith wrote a letter to API
demanding refund to IBASPI the amount it
advanced to UWAI for the account of API.
IBASPI received, via an informant, a copy of
a Memorandum of Rodolfo Estrellado, the
President and Chief Executive Officer of API,
dated July 29, 1997, to the President of API,
recommending that the latter pay only the
amount
of
US$27,730.60,
with
a
recommendation that IBASPI be required to
submit documentations/billings in support of
the difference of US$37,400.00. However,
no payment was effected by API.
"On November 6, 1997, IBASPI, through
counsel, sent another letter to API
demanding the payment of the said amount
of US$65,131.55 and 10% commission. API
ignored the letter. Another letter of demand
was sent to API by IBASPI, on December 1,
1997, to no avail. On January 6, 1998,
IBASPI wrote another letter of demand to
API
enclosing
therein
a
Summary
Statement
of
Account
of
Air
Philippines, Inc. on the disputed amount
of US $37,400.00, appending thereto the
documentations/billings in support of said
claim and 10% commission. On February 26,
1998, API drew Check No. 0521300 against
its account, with the Bank of Philippine
Islands, in the amount of P200,000.00,
payable to the order of IBASPI, and offered
the same in partial first payment of its
account with IBASPI for the amount of
US$65,131.55 as stated in the letter of the
[petitioner]. The [respondent] accepted the
said
check
with
a
simultaneous
Receipt/Agreement executed by IBASPI
and API, the latter, through Atty. Manolito A.
Manalo, the Officer-in-Charge of the Legal
Department of the API, obliging itself to pay
the balance of its account. API in the said
Agreement waived demand by IBASPI.

Despite demands of IBASPI, via its letter,

dated April 22, 1998, API refused to pay the
balance of its account with IBASPI.
"On June 24, 1998, IBASPI filed a complaint
against API, with the Regional Trial Court of
Pasay City, for the collection of its account,
including a 10% brokers fee, praying that,
after due proceedings, judgment be
rendered in its favor as follows:
WHEREFORE,
[respondent]
respectfully prays of this Honorable
Court to render judgment:

6) [Respondent] prays for

such further or other relief
as may be deemed just or
equitable.
"The
[respondent]
appended
to
its
complaint
the
Receipt/Agreement
executed by the [petitioner], on March 20,
1998. In its Unverified Answer, API
alleged, inter alia, by way of Affirmative
Allegations, that:
8. In support of the foregoing
denials and by way of affirmative
allegations, [petitioner] states:

1)
Ordering
the
[petitioner] to pay the
[respondent] the sum of
US$59,798.22 x x x or its
equivalent in legal tender
with interest at the legal
rate from May 1997 until
full payment;

9. On 6 November 1997, we
received a letter from [respondent]
demanding payment of $65,131.00
allegedly for the ferry flight
services rendered by Universal and
brokered by [respondent].

2)
Ordering
the
[petitioner] to pay the
[respondent] further sum
of US$6,513.00 or its
equivalent in legal tender
as
intermediarys
commission;

10. On 1 December 1997 and 12

January 1998, we sent letters to
[respondent]
acknowledging
receipt of their demand letter[.]
However, we mentioned in the
letters that we needed time to
process the documents submitted
by [respondent] to support their
claim.

3)
Ordering
the
[petitioner] to pay the
[respondent] another sum
of US$13,026.00 or its
equivalent in legal tender
as actual damages in the
form of attorneys fees;

11. APC made it very clear that if

an obligation on the part of
[petitioner] is proven to exist,
[petitioner] would be more than
willing to settle the obligation.

4)
Ordering
the
[petitioner] to pay the
[respondent] expenses of
litigation
as
can
be
proved;
5)
Ordering
[petitioner] to pay
costs of the suit; and,

the
the

12. In fact, as mentioned in the

complaint, [petitioner] made a
payment of P200,000.00 to cover
claims which [petitioner] did not
contest; [petitioner] opted not to
settle the balance of the claim
pending
verification
of
the
submitted supporting documents.
13. [Petitioner] verbally requested
[respondent]
to
further
substantiate its claim by sending

their accountants to the offices of

APC[.]
14. [Respondent] did not heed this
request; thus, APC could not
release any other amounts to cover
the claim of [respondent.]
15. The documents sent by
[respondent]
were
not
accompanied by any explanation
and were merely a loose collection
of
statements
from
various
companies[.]
16.
Thus,
[petitioner]
was
surprised when [respondent] filed
the instant complaint[,] for[,] as far
as the former [was] concerned[,]
the accounting of the claim was
nowhere near definite nor clear[.]
"On November 17, 1998, the Court issued a
Pre-Trial Notice setting the pre-trial
conference on December 7, 1998, at 8:30 x
x x in the morning, requiring the parties to
file their respective Pre-Trial Brief at least
two (2) days before the scheduled pre-trial.
The [respondent] did file its Pre-Trial Brief[,]
but the [petitioner] did not. During the pretrial, on December 7, 1998, Atty. Manolito
Manalo,
counsel
of
the
[petitioner],
appeared[,] but without any Special
Power of Attorney from the [petitioner].
The Court granted the [petitioner] a period
of ten (10) days, from said date, within
which to file its Pre-Trial Brief and
Special Power of Attorney executed by
the [petitioner] in favor of its counsel. In the
meantime, the pre-trial was reset to January
11, 1999 at the same time. However, the
[petitioner] failed to file its Pre-Trial Brief.
On January 11, 1999, at 9:20 x x x in the
morning, the [petitioner] filed an Urgent
Ex-Parte Motion for Extension of Time
to File Pre-Trial Brief and For Resetting
of Pre-Trial Conference, with a plea to
the Branch Clerk of Court to submit the said
motion for consideration of the Court
immediately upon receipt thereof. When the
case was called for pre-trial, there was no
appearance for the [petitioner] and its

counsel. The Court issued an Order denying

the motion of the [petitioner] and allowing
the [respondent] to adduce its evidence, ex
parte, before the Branch Clerk of Court,
who was designated, as Commissioner, to
receive the evidence of the [respondent], ex
parte. On January 13, 1999, the [petitioner]
filed with the Court another Urgent ExParte Motion for Extension of Time to
File Pre-Trial Brief and for Resetting of
Pre-Trial Conference. On January 15,
1999, the [petitioner] filed a Motion for
Reconsideration of the Order of the Court,
dated January 11, 1999. The [petitioner]
appended to its motion the Affidavit of
Atty. Manolito Manalo, its counsel, stating
the reason for his failure to appear at the
pre-trial conference on January 11, 1999. On
January 22, 1999, the Court issued an Order
denying the Motion for Reconsideration
of the [petitioner]. On January 25, 1999, the
[respondent] did adduce testimonial and
documentary evidence in support of its
complaint.
"Among the documentary evidence adduced
by the [respondent] were the xerox copy of
the
Certification
of
Captain
Alex
Villacampa, and the Memorandum of
Rodolfo Estrellado.
"On April 7, 1999, the Court rendered
judgment in favor of the [respondent] and
against the [petitioner], the decretal portion
of which reads as follows:
WHEREFORE, IN VIEW OF THE
FOREGOING uncontroverted and
substantiated evidences of the
[respondent], judgment is hereby
rendered
in
favor
of
the
[respondent] and against the
[petitioner] ordering the latter to
pay the former the following:
1.
the
amount
of
US59,798.22 dollars or its
equivalent in legal tender
plus interest at the legal
rate from May, 1997 until
fully paid;

2.
the
amount
US6,513.00
or
equivalent
intermediarys
commission;

of
its
as

3. [P]50,000.00 as and for

attorneys fees; and,
Costs of suit.
SO ORDERED.
"The [petitioner] filed a Motion for New
Trial on the grounds that: (a) it was
deprived of its day in court due to the gross
negligence of its former counsel, Atty.
Manolito
A.
Manalo;
(b)
the
Receipt/Agreement executed by Atty.
Manolito A. Manalo, in behalf of the
[petitioner], was unauthorized as there was
no Resolution of the Board of Directors
authorizing
him
to
execute
said
Receipt/Agreement and, hence, said
counsel acted beyond the scope of his
authority; (c) the claim of IBASPI was
excessive and unjustified; [and] (d) the
[petitioner] never agreed to pay the
[respondent] a commission of 10% of the
billings of UWAI.
"On July 26, 1999, the Court issued a
Resolution denying the Motion for New
Trial of the [petitioner]. The latter forthwith
interposed its appeal, from said Decision
and Resolution of the Court a quo."5
Ruling of the Court of Appeals
Affirming the Decision of the lower court with some
modification, the CA ruled that under the Rules of
Civil Procedure, petitioner could not avail itself of a
new trial, because its former counsel was guilty of
only simple -- not gross -- negligence. In addition,
petitioner, being equally negligent as its counsel,
could notbe relieved from the effects of its
negligence. Thus, it was held liable for US$59,798.22
and attorneys fees, but not for the 10 percent
commission or brokers fee, for which the requisite
quantum of evidence in its favor had not been
mustered by respondent.

Hence this Petition.6

The Issues
Petitioner submits
consideration:

the following

issues

for our

"1. Whether or not the Honorable Court of

Appeals ruled in accordance with prevailing
laws and jurisprudence when it upheld the
ruling of the Honorable Trial Court denying
the Motion for New Trial dated April 27, 1999
despite the fact that the gross negligence,
incompetence and dishonesty of Petitioner
APCs former counsel, Atty. Manolito A.
Manalo, have effectively denied Petitioner
APC of its day in court.
"2. Whether or not the Honorable Court of
Appeals ruled in accordance with prevailing
laws and jurisprudence when it took
cognizance of and/or gave credence to the
Memorandum of Rodolfo Estrellado, and
the Billings of Universal Weather as well as
the documents/receipts in support thereof
despite the fact that they are clearly
hearsay and have no probative value
considering that Luisito Nazareno, the lone
witness of Respondent IBAS, had no
personal knowledge of the contents and/or
factual bases thereof and failed to properly
authenticate and/or identify the same.
"3. Whether or not the Honorable Court of
Appeals ruled in accordance with prevailing
laws and jurisprudence when it took
cognizance of and/or gave credence to the
Receipt/Agreement dated March 20, 1998
despite the fact that Atty. Manolito A.
Manalo was not authorized to execute [the]
same for and [in] behalf of Petitioner APC.
"4. Whether or not the Honorable Court of
Appeals ruled in accordance with prevailing
laws and jurisprudence when it upheld the
ruling of the Honorable Trial Court that
Petitioner APC is liable to pay and/or
reimburse
Respondent
IBAS
for
the
payments allegedly made by the latter to
Universal Weather despite the fact that the
claims submitted by Universal Weather

and/or Respondent IBAS were

baseless and/or unsubstantiated.

patently

"5. Whether or not the Honorable Court of

Appeals ruled in accordance with prevailing
laws and jurisprudence when it upheld the
ruling of the Honorable Trial Court that
Respondent IBAS is entitled to legal interest
and attorneys fees despite the fact that it
has failed to establish its claims against
Petitioner APC."7
These issues all boil down into two: first, whether the
Motion for New Trial should be denied; and second, in
the event of such denial, whether the monetary
awards were duly proven.
The Courts Ruling
The Petition has no merit.
First Issue:
New Trial Not Warranted by Simple Negligence
of Counsel
Axiomatic is the rule that "negligence of counsel
binds the client."8 The basis is the tenet that an act
performed by counsel within the scope of a "general
or implied authority"9 is regarded as an act of the
client.10 "Consequently, the mistake or negligence of
counsel may result in the rendition of an unfavorable
judgment against the client."11
While the application of this general rule certainly
depends upon the surrounding circumstances of a
given case,12 there are exceptions recognized by this
Court: "(1) where reckless or gross negligence of
counsel deprives the client of due process of
law;13 (2) when its application will result in outright
deprivation of the clients liberty or property; 14 or (3)
where the interests of justice 15 so require."16 Woefully
none of these exceptions apply herein. Thus, the
Court cannot "step in and accord relief" 17 to
petitioner, even if it may have suffered 18 by reason of
its own arrant fatuity.
First, as aptly determined by the appellate court,
petitioners counsel is guilty of simple, not gross,
negligence. We cannot consider as gross negligence

his resort to dilatory schemes, such as (1) the filing

of at least three motions to extend the filing of
petitioners Answer; (2) his nonappearance during
the scheduled pretrials; and (3) the failure to file
petitioners pretrial Brief, even after the filing of
several Motions to extend the date for filing. 19 There
was only a plain "disregard of some duty imposed by
law,"20 a slight want of care that "circumstances
reasonably impose,"21 and a mere failure to exercise
that degree of care22 that an ordinarily prudent
person would take under the circumstances. There
was neither a total abandonment or disregard of
petitioners case nor a showing of conscious
indifference to or utter disregard of consequences.23
Because "pre-trial is essential in the simplification
and
the
speedy
disposition
of
disputes,"24 nonobservance of its rules "may result in
prejudice to a partys substantive rights." 25 Such
rules are "not technicalities which the parties may
ignore or trifle with."26 The Rules of Court cannot be
"ignored at will and at random to the prejudice of the
orderly presentation and assessment of the issues
and their just resolution."27
Counsels patent carelessness in citing conflicting
reasons in his Motions for Reconsideration verily
displays his lack of competence, 28 diligence29 and
candor,30 but not his recklessness or total want of
care.
Indeed, the lawyers failure to live up to the dictates
of the canons of the legal profession makes him
answerable to both his profession and his employer. 31
Second, the negligence of petitioner and that of its
counsel are concurrent.32 As an artificial being whose
juridical personality is created by fiction of
law,33 petitioner "can only exercise its powers and
transact its business through the instrumentalities of
its board of directors, and through its officers and
agents, when authorized by resolution or its bylaws."34 Atty. Manalo is an employee, not an outsider
hired by petitioner on a retainer basis. In fact, he is
the officer-in-charge of its Legal Department.
There is no showing that he was not authorized to
exercise the powers of the corporation or to transact
its business, particularly the handling of its legal
affairs. Besides, it is presumed that the ordinary
course of business has been followed. 35 Therefore,

counsels corporate acts are supposed to be known

and assented to by petitioner.
For petitioner to feign and repeatedly insist upon a
lack of awareness of the progress of an important
litigation is to unmask a penchant for the ludicrous.
Although it expects counsel to amply protect its
interest, it cannot just sit back, relax and await the
outcome of its case.36 In keeping with the normal
course of events, it should have taken the initiative
"of making the proper inquiries from its counsel and
the trial court as to the status of its case" 37 and of
extending to him the "necessary assistance."38 For its
failure to do so, it has only itself to blame. Indeed,
from lethargy is misfortune born.
It is of no consequence that its Human Resources and
Personnel Departments were not aware of the
progress of its case. Of judicial notice is the fact that
a corporation has much leeway in determining which
of its units, singly or in consonance with others, is
responsible for specific functions. Yet, it is unusual
that these departments were tasked with monitoring
the progress of legal matters involving petitioner.
Nonetheless, having assigned these matters to them,
it should have undertaken prompt and proper
monitoring and reporting thereof. Again, for its failure
to do so, it has only itself to blame. These
departments do get involved in finance and
accounting, especially in budget preparation and
payroll computation, but billing and collection are
hardly tangential to their concerns.
Third, there was no denial of due process 39 to
petitioner. Under the Rules of Court, an aggrieved
party may ask for a new trial on the ground of
excusable negligence,40 but this was not proved in
this case.41 "Negligence, to be excusable, must be
one which ordinary diligence and prudence could not
have guarded against"42 and by reason of which the
rights of an aggrieved party have probably been
impaired.43
The test of excusable negligence is whether a party
has acted "with ordinary prudence while x x x
transacting important business." 44 The reasons raised
by petitioner in urging for a new trial do not meet
this test; they are flimsy. As we mentioned nearly
thirty years ago, "[p]arties and counsel would be well
advised to avoid such attempts to befuddle the
issues as invariably they will be exposed for what

they are, certainly unethical and degrading to the

dignity of the law profession."45
"The essence of due process is to be found in the
reasonable opportunity to be heard and submit any
evidence one may have in support of ones
defense."46 Where the opportunity to be heard, either
through verbal arguments or pleadings, is accorded,
and the party can "present its side" 47 or defend its
"interest in due course,"48 "there is no denial of
procedural due process."49 Petitioner has been given
its chance, and after being declared in default,
judgment has not been automatically "rendered in
favor of the non-defaulting party." 50
Rather, judgment was made only after carefully
weighing the evidence presented. Substantive and
adjective laws do complement each other 51 "in the
just and speedy resolution of the dispute between
the parties."52
Petitioner was not deprived of its day in court.
Actually, it never even complained against the
manner in which its counsel had handled the
case,53 until late in the day. It must therefore "bear
the consequences"54 of its faulty choice of counsel
whom it hired itself and whom it had "full authority to
fire
at
any
time
and
replace
with
another."55 Moreover, in all the pertinent cases cited
by petitioner, the denial of due process was
attributable to the gross negligence of retained
counsels, who had either been single practitioners or
law firms; none had referred to counsels who, like
Atty. Manalo, were employees of the aggrieved party.
Fourth, the negligence of petitioners counsel did not
result in the outright deprivation of its property. In
fact, it intractably refused to comply with its
obligation to reimburse respondent, after having
already generated profits from operating the ferried
unit. When sued, it simply relied upon its own
dillydallying counsel without even monitoring the
progress of his work. Now it tries to pass the buck
entirely to him, after he has been relieved and
replaced by another. Throughout the course of
litigation, none of its assets was reduced; on the
contrary, its fleet of aircraft even increased. While it
has incurred legal expenses, it has also earned
interest on money that should have been reimbursed
to respondent.

Fifth, the interests of justice require that positive law

be equally observed. Petitioner has not sufficiently
proved the injustice of holding it liable for the
negligence of its counsel. On the contrary, there is a
preponderance of evidence56 to demonstrate that
both law and justice demand otherwise. Much
leniency has already been shown by the lower court
to petitioner, but "aequetas nunquam contravenit
legis."57 Equity never contravenes the law.58
For these reasons, the rendition of an unfavorable
judgment against petitioner by reason of its
counsels simple negligence is therefore apropos. To
hold otherwise and grant a new trial will never put an
end to any litigation,59"as there is a new counsel to
be hired every time it is shown that the prior one had
not been sufficiently diligent, experienced or
learned."60
Second Issue:
Monetary Awards Sufficiently Established by a
Preponderance of Evidence
As correctly put by the appellate court, the
Receipt/Agreement executed by the parties validated
the inter-office Memorandum that petitioner issued
on July 29, 1997, and the set of Billings it had
received from respondent in 1996.
Liability per Receipt/Agreement and Interest Thereon
First, the Receipt/Agreement was entered into by
respondent and petitioner, which was represented by
its agent Atty. Manalo. As an agent, he rendered
service to, and did something in representation 61 or
on behalf of, his principal 62 and with its consent63 and
authority. It cannot be denied that, on its part, there
was an actual intent to appoint its counsel; 64 and, on
the latters part,65 to accept the appointment and
"act on it."66
A corporation, as "a juridical person separate and
distinct from its stockholders," 67 may act "through its
officers or agents in the normal course of
business."68 Thus, the general principles of agency
govern its relationship with its officers or agents,
subject to the articles of incorporation, bylaws and
other relevant provisions of law.69

Second, even assuming that Atty. Manalo exceeded

his authority, petitioner is solidarily liable with him if
it allowed him "to act as though he had full
powers."70 Moreover, as for any obligation wherein
the agent has exceeded his power, the principal is
not bound except when there is ratification, 71 express
or tacit.72
Estoppel likewise applies. For one, respondent lacked
"knowledge and x x x the means of knowledge of the
truth as to the facts in question"; 73 namely, whether
petitioners counsel had any authority to bind his
principal. Moreover, respondent relied "in good
faith"74 upon petitioners conduct and statements;
and its action "based thereon [was] of such character
as to change the position or status of the party
claiming the estoppel, to his injury, detriment or
prejudice."75 If it was also true that petitioners
counsel exceeded his authority in entering into the
Receipt/Agreement, the negligence or omission of
petitioner to assert its right within a reasonable time
only warranted a presumption that it either
abandoned or declined to assert it.76
Third, while it is true that a special power of attorney
(SPA) is necessary to a compromise, it is equally true
that the herein Receipt/Agreement was not a
compromise.77 The payment was made in the
ordinary course of business. Whether total or partial,
the payment of an ordinary obligation 78 is neither
included among nor of a character similar to the
instances enumerated in Article 1878 of the Civil
Code.79 All that the law requires is a general
power,80 not an SPA.
Moreover, the Receipt/Agreement is not a promise to
pay that "amounts to an offer to compromise and
requires a special power of attorney or the express
consent of petitioner."81 A compromise agreement is
"a contract whereby the parties, by making
reciprocal concessions, avoid a litigation or put an
end to one already commenced." 82 No such reciprocal
concessions83 were made in this case. Thus, the
Receipt/Agreement is but an outright admission of
petitioner of its obligation, after making partial
payment, to pay the balance of its account. And even
if we were to consider the same as a compromise,
from its nature as a contract, the absence of an SPA
does not render it void, but merely unenforceable.84
Fourth, in its Answer,85 petitioner failed to deny under
oath the genuineness and due execution of the

Receipt/Agreement,
which
is
thus
deemed
admitted.86 Indeed, before a private document
offered as authentic is received in evidence, its due
execution and authenticity must be proved. However,
after it has been offered, failure to deny it under
oath87 amounts to its admissibility.88 The "party
whose signature it bears admits that he signed it or
that it was signed by another for him with his
authority;89 that at the time it was signed it was in
words and figures exactly as set out in the pleading
of the party relying upon it; that the document was
delivered; and that any formal requisites required by
law, x x x which it lacks, are waived by him." 90 The
Receipt/Agreement is thus an instrument that is
admittedly not "spurious, counterfeit or of different
import on its face from the one executed."91

in fact no indication that the obligation was subject

to such a condition. A pure obligation is demandable
at once,100 and there is nothing to exempt petitioner
from compliance therewith.101 In addition, it would be
preposterous for it to issue a corporate check 102 -without any condition or reservation -- and even
waive a demand for payment of the balance, if it did
not recognize its obligation in the first place.

Fifth, what respondent has paid, it may demand from

petitioner; and even if the payment was made
without the knowledge or against the will of the
latter, respondent can still recover insofar as such
payment was beneficial to petitioner. 92 Such payment
cannot be considered as one that is neither due
under the provisions of solutio indebiti 93 nor
recoverable from the creditor by respondent; 94 the
latters right is against petitioner whose obligation it
has paid in advance.95

Commission or Brokers Fee

Sixth, the Memorandum and the Billings have

probative value. While it is true that Nazareno96 did
not have any personal knowledge of the contents
thereof, nevertheless, these two documents were
validated by the Receipt/Agreement. Petitioners
Memorandum contained a recommendation to pay
respondent the amount of US$27,730.60 and to
require additional documentation in support of the
balance. In compliance, a Summary of Statement of
Account dated January 6, 1998 97 was sent to and
received by petitioner, substantiating it to the extent
of US$37,400.95. Not only did these amounts sum up
to a total of US$65,131.55, the unsettled account
indicated in the Billings, but these are also unrefuted
by petitioner. In fact, the Receipt/Agreement
executed two months later did not contest this
balance, although unvalued therein. When a party
fails to object to hearsay evidence,98 such party is
deemed to have waived its right to do so; thus, "the
evidence offered may be admitted,"99 though its
weight must still be measured by the court.
Seventh, the accounting required by petitioner was
not a legal impediment to the obligation. There was

Eighth, the obligation consisted in the payment of a

sum of money, and petitioner incurred in delay;
hence, there being no stipulation to the contrary, the
indemnity for damages shall be the payment of legal
interest,
which
is
six
percent
(6%)
per
annum.103 Such interest may be allowed upon
damages awarded for a clear breach of contract.104

Indeed, "only questions of law 105 may be raised in a

petition for review on certiorari under Rule 45 of the
Rules of Court."106 Questions of fact cannot be the
subject of this mode of appeal, 107 for this Court -- we
have repeatedly emphasized -- is "not a trier of
facts."108 One of the exceptions to this rule, however,
is when the factual findings of the CA and the trial
court are contradictory.109
The lower court held petitioner liable for the 10
percent brokers fee, but the appellate court found
otherwise. It is true that respondent -- on commission
basis -- engaged itself as a broker to negotiate
"contracts relative to property," 110 the custody of
which it had no concern over; to never act "in its own
name but in the name of those who employed" 111 it;
and "to bring parties together x x x in matters of
trade, commerce or navigation."112However, we
agree with the CA that respondents entitlement to a
brokers fee should have been adequately proven.

It is of no moment that Nazareno testified as to the

intermediarys commission in open court. Whether
the Certification has actually been executed cannot
be proved by his mere testimony, because he was
not a signatory to the document. His assertion was
bare and untested. Without substantiation, "such
testimony is considered hearsay."119 Witnesses can
testify only to those facts that they know of their
personal knowledge or are derived from their own
perception.120 Unlike the unvalued balance in the
Receipt/Agreement, the brokers fee herein has not
been supported by any admissible evidence other
than the demand letters sent by respondents
counsel.
Attorneys Fees
Attorneys fees may be recovered, since petitioner
has compelled respondent to incur expenses to
protect the latters interest121 in reimbursement.
Besides, it is clear from the Receipt/Agreement that
petitioner is obliged to pay 10 percent of the
principal, as attorneys fees.
In sum, petitioner is liable for the unpaid balance of
respondents claim amounting to US$59,798.22 or its
equivalent
in
legal
tender
under
the
Receipt/Agreement, including legal interest from May
12, 1997 until fully paid; and for attorneys fees of 10
percent of this unpaid balance, excluding interest. No
brokers fee can be charged, as it has not been
proven by respondent. Since the counsel of petitioner
is guilty of simple negligence only, and since it was
equally negligent as he, no new trial can be allowed.
WHEREFORE, the Petition is hereby DENIED, and
the assailed Decision and Resolution AFFIRMED.
Costs against petitioner.
SO ORDERED.

The March 19, 1997 Certification issued by Captain

Villacampa is inadmissible in evidence. It was a mere
reproduction of an original that had never been
produced or offered in evidence.113 Under the best
evidence rule114 as applied to documentary evidence,
no evidence shall be admissible other than the
original itself when the subject of inquiry is its
contents.115 Since none of the exceptions to this rule
has been proven,116 "secondary or substitutionary
evidence"117 is not permitted.118

The Antecedents
The respondent Roxas Electric and Construction
Company, Inc. (RECCI), formerly the Roxas Electric
and Construction Company, was the
owner of two parcels of land, identified as Lot No.
491-A-3-B-1 covered by Transfer Certificate of Title
(TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by
TCT No. 78086. A portion of Lot No. 491-A-3-B-1
which abutted Lot No. 491-A-3-B-2 was a dirt road
accessing to the Sumulong Highway, Antipolo, Rizal.
At a special meeting on May 17, 1991, the
respondent's Board of Directors approved a
resolution authorizing the corporation, through its
president, Roberto B. Roxas, to sell Lot No. 491-A-3-B2 covered by TCT No. 78086, with an area of 7,213
square meters, at a price and under such terms and
conditions which he deemed most reasonable and
advantageous to the corporation; and to execute,
sign and deliver the pertinent sales documents and
receive the proceeds of the sale for and on behalf of
the company.3

G.R. No. 140667

August 12, 2004

WOODCHILD
HOLDINGS,
vs.
ROXAS
ELECTRIC
AND
COMPANY, INC., respondent.

INC., petitioner,
CONSTRUCTION

DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the
Decision1 of the Court of Appeals in CA-G.R. CV No.
56125 reversing the Decision 2 of the Regional Trial
Court of Makati, Branch 57, which ruled in favor of
the petitioner.

Petitioner Woodchild Holdings, Inc. (WHI) wanted to

buy Lot No. 491-A-3-B-2 covered by TCT No. 78086
on which it planned to construct its warehouse
building, and a portion of the adjoining lot, Lot No.
491-A-3-B-1, so that its 45-foot container van would
be able to readily enter or leave the property. In a
Letter to Roxas dated June 21, 1991, WHI President
Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2
under stated terms and conditions for P1,000 per
square meter or at the price of P7,213,000. 4 One of
the terms incorporated in Dy's offer was the following
provision:
5. This Offer to Purchase is made on the
representation
and
warranty
of
the
OWNER/SELLER, that he holds a good and
registrable title to the property, which shall
be conveyed CLEAR and FREE of all liens
and encumbrances, and that the area of
7,213 square meters of the subject property
already includes the area on which the right
of way traverses from the main lot (area)
towards the exit to the Sumulong Highway
as shown in the location plan furnished by
the Owner/Seller to the buyer. Furthermore,
in the event that the right of way is
insufficient for the buyer's purposes
(example: entry of a 45-foot container), the
seller agrees to sell additional square meter
from his current adjacent property to allow

the buyer to full access and full use of the

property.5
Roxas indicated his acceptance of the offer on page 2
of the deed. Less than a month later or on July 1,
1991, Roxas, as President of RECCI, as vendor, and
Dy, as President of WHI, as vendee, executed a
contract to sell in which RECCI bound and obliged
itself to sell to Dy Lot No. 491-A-3-B-2 covered by TCT
No. 78086 for P7,213,000.6 On September 5, 1991, a
Deed of Absolute Sale7 in favor of WHI was issued,
under which Lot No. 491-A-3-B-2 covered by TCT No.
78086 was sold for P5,000,000, receipt of which was
acknowledged by Roxas under the following terms
and conditions:
The Vendor agree (sic), as it hereby agrees
and binds itself to give Vendee the
beneficial use of and a right of way from
Sumulong Highway to the property herein
conveyed consists of 25 square meters wide
to be used as the latter's egress from and
ingress to and an additional 25 square
meters in the corner of Lot No. 491-A-3-B-1,
as turning and/or maneuvering area for
Vendee's vehicles.
The Vendor agrees that in the event that the
right of way is insufficient for the Vendee's
use (ex entry of a 45-foot container) the
Vendor agrees to sell additional square
meters from its current adjacent property to
allow the Vendee full access and full use of
the property.

The Vendor hereby undertakes and agrees,

at its account, to defend the title of the
Vendee to the parcel of land and
improvements herein conveyed, against all
claims of any and all persons or entities, and
that the Vendor hereby warrants the right of
the Vendee to possess and own the said
parcel of land and improvements thereon
and will defend the Vendee against all
present and future claims and/or action in
relation
thereto,
judicial
and/or
administrative. In particular, the Vendor
shall eject all existing squatters and
occupants of the premises within two (2)
weeks from the signing hereof. In case of
failure on the part of the Vendor to eject all
occupants and squatters within the twoweek period or breach of any of the

stipulations, covenants and terms and

conditions herein provided and that of
contract to sell dated 1 July 1991, the
Vendee shall have the right to cancel the
sale and demand reimbursement for all
payments made to the Vendor with interest
thereon at 36% per annum.8
On September 10, 1991, the Wimbeco Builder's, Inc.
(WBI) submitted its quotation for P8,649,000 to WHI
for the construction of the warehouse building on a
portion of the property with an area of 5,088 square
meters.9 WBI proposed to start the project on
October 1, 1991 and to turn over the building to WHI
on February 29, 1992.10
In a Letter dated September 16, 1991, Ponderosa
Leather Goods Company, Inc. confirmed its lease
agreement with WHI of a 5,000-square-meter portion
of the warehouse yet to be constructed at the rental
rate of P65 per square meter. Ponderosa emphasized
the need for the warehouse to be ready for
occupancy before April 1, 1992.11 WHI accepted the
offer. However, WBI failed to commence the
construction of the warehouse in October 1, 1991 as
planned because of the presence of squatters in the
property and suggested a renegotiation of the
contract after the squatters shall have been
evicted.12 Subsequently, the squatters were evicted
from the property.
On March 31, 1992, WHI and WBI executed a LetterContract for the construction of the warehouse
building for P11,804,160.13 The contractor started
construction in April 1992 even before the building
officials of Antipolo City issued a building permit on
May 28, 1992. After the warehouse was finished, WHI
issued on March 21, 1993 a certificate of occupancy
by the building official. Earlier, or on March 18, 1993,
WHI, as lessor, and Ponderosa, as lessee, executed a
contract of lease over a portion of the property for a
monthly rental of P300,000 for a period of three
years from March 1, 1993 up to February 28, 1996.14
In the meantime, WHI complained to Roberto Roxas
that the vehicles of RECCI were parked on a portion
of the property over which WHI had been granted a
right of way. Roxas promised to look into the matter.
Dy and Roxas discussed the need of the WHI to buy a
500-square-meter portion of Lot No. 491-A-3-B-1
covered by TCT No. 78085 as provided for in the
deed of absolute sale. However, Roxas died soon
thereafter. On April 15, 1992, the WHI wrote the
RECCI, reiterating its verbal requests to purchase a
portion of the said lot as provided for in the deed of

absolute sale, and complained about the latter's

failure to eject the squatters within the three-month
period agreed upon in the said deed.
The WHI demanded that the RECCI sell a portion of
Lot No. 491-A-3-B-1 covered by TCT No. 78085 for its
beneficial use within 72 hours from notice thereof,
otherwise the appropriate action would be filed
against it. RECCI rejected the demand of WHI. WHI
reiterated its demand in a Letter dated May 29,
1992. There was no response from RECCI.
On June 17, 1992, the WHI filed a complaint against
the RECCI with the Regional Trial Court of Makati, for
specific performance and damages, and alleged,
inter alia, the following in its complaint:
5. The "current adjacent property" referred
to in the aforequoted paragraph of the Deed
of Absolute Sale pertains to the property
covered by Transfer Certificate of Title No.
N-78085 of the Registry of Deeds of
Antipolo, Rizal, registered in the name of
herein defendant Roxas Electric.
6. Defendant Roxas Electric in patent
violation of the express and valid terms of
the Deed of Absolute Sale unjustifiably
refused to deliver to Woodchild Holdings the
stipulated beneficial use and right of way
consisting of 25 square meters and 55
square meters to the prejudice of the
plaintiff.
7. Similarly, in as much as the 25 square
meters and 55 square meters alloted to
Woodchild Holdings for its beneficial use is
inadequate as turning and/or maneuvering
area of its 45-foot container van, Woodchild
Holdings manifested its intention pursuant
to para. 5 of the Deed of Sale to purchase
additional square meters from Roxas Electric
to allow it full access and use of the
purchased property, however, Roxas Electric
refused and failed to merit Woodchild
Holdings' request contrary to defendant
Roxas Electric's obligation under the Deed of
Absolute Sale (Annex "A").
8. Moreover, defendant, likewise, failed to
eject all existing squatters and occupants of
the premises within the stipulated time
frame and as a consequence thereof,
plaintiff's planned construction has been

considerably delayed for seven (7) months

due to the squatters who continue to
trespass and obstruct the subject property,
thereby
Woodchild
Holdings
incurred
substantial
losses
amounting
to
P3,560,000.00 occasioned by the increased
cost of construction materials and labor.
9. Owing further to Roxas Electric's
deliberate refusal to comply with its
obligation under Annex "A," Woodchild
Holdings suffered unrealized income of
P300,000.00 a month or P2,100,000.00
supposed income from rentals of the subject
property for seven (7) months.
10. On April 15, 1992, Woodchild Holdings
made a final demand to Roxas Electric to
comply with its obligations and warranties
under the Deed of Absolute Sale but
notwithstanding such demand, defendant
Roxas Electric refused and failed and
continue to refuse and fail to heed plaintiff's
demand for compliance.
Copy of the demand letter dated April 15,
1992 is hereto attached as Annex "B" and
made an integral part hereof.
11. Finally, on 29 May 1991, Woodchild
Holdings made a letter request addressed to
Roxas Electric to particularly annotate on
Transfer Certificate of Title No. N-78085 the
agreement under Annex "A" with respect to
the beneficial use and right of way,
however, Roxas Electric unjustifiably ignored
and disregarded the same.
Copy of the letter request dated 29 May
1992 is hereto attached as Annex "C" and
made an integral part hereof.
12. By reason of Roxas Electric's continuous
refusal and failure to comply with Woodchild
Holdings' valid demand for compliance
under Annex "A," the latter was constrained
to litigate, thereby incurring damages as
and by way of attorney's fees in the amount
of P100,000.00 plus costs of suit and
expenses of litigation.15
The WHI prayed that, after due proceedings,
judgment be rendered in its favor, thus:

WHEREFORE, it is respectfully prayed that

judgment be rendered in favor of Woodchild
Holdings and ordering Roxas Electric the
following:

During the trial, Dy testified that he told Roxas that

the petitioner was buying a portion of Lot No. 491-A3-B-1 consisting of an area of 500 square meters, for
the price of P1,000 per square meter.

a) to deliver to Woodchild Holdings the

beneficial use of the stipulated 25 square
meters and 55 square meters;

On November 11, 1996, the trial court rendered

judgment in favor of the WHI, the decretal portion of
which reads:

b) to sell to Woodchild Holdings additional

25 and 100 square meters to allow it full
access and use of the purchased property
pursuant to para. 5 of the Deed of Absolute
Sale;

WHEREFORE, judgment is hereby rendered

directing defendant:

c) to cause annotation on Transfer

Certificate of Title No. N-78085 the
beneficial use and right of way granted to
Woodchild Holdings under the Deed of
Absolute Sale;
d) to pay Woodchild Holdings the amount of
P5,660,000.00,
representing
actual
damages and unrealized income;
e) to pay attorney's fees in the amount of
P100,000.00; and

(1) To allow plaintiff the beneficial use of the

existing right of way plus the stipulated 25
sq. m. and 55 sq. m.;
(2) To sell to plaintiff an additional area of
500 sq. m. priced at P1,000 per sq. m. to
allow said plaintiff full access and use of the
purchased property pursuant to Par. 5 of
their Deed of Absolute Sale;
(3) To cause annotation on TCT No. N-78085
the beneficial use and right of way granted
by their Deed of Absolute Sale;

f) to pay the costs of suit.

(4) To pay plaintiff the amount of P5,568,000

representing actual damages and plaintiff's
unrealized income;

Other reliefs just and equitable are prayed

for.16

(5) To pay plaintiff P100,000 representing

attorney's fees; and

In its answer to the complaint, the RECCI alleged that

it never authorized its former president, Roberto
Roxas, to grant the beneficial use of any portion of
Lot No. 491-A-3-B-1, nor agreed to sell any portion
thereof or create a lien or burden thereon. It alleged
that, under the Resolution approved on May 17,
1991, it merely authorized Roxas to sell Lot No. 491A-3-B-2 covered by TCT No. 78086. As such, the grant
of a right of way and the agreement to sell a portion
of Lot No. 491-A-3-B-1 covered by TCT No. 78085 in
the said deed are ultra vires. The RECCI further
alleged that the provision therein that it would sell a
portion of Lot No. 491-A-3-B-1 to the WHI lacked the
essential elements of a binding contract.17

To pay the costs of suit.

The trial court ruled that the RECCI was estopped

from disowning the apparent authority of Roxas
under the May 17, 1991 Resolution of its Board of
Directors. The court reasoned that to do so would
prejudice the WHI which transacted with Roxas in
good faith, believing that he had the authority to
bind the WHI relating to the easement of right of
way, as well as the right to purchase a portion of Lot
No. 491-A-3-B-1 covered by TCT No. 78085.

In its amended answer to the complaint, the RECCI

alleged that the delay in the construction of its
warehouse building was due to the failure of the
WHI's contractor to secure a building permit
thereon.18

The RECCI appealed the decision to the CA, which

rendered a decision on November 9, 1999 reversing
that of the trial court, and ordering the dismissal of
the complaint. The CA ruled that, under the
resolution of the Board of Directors of the RECCI,

SO ORDERED.19

Roxas was merely authorized to sell Lot No. 491-A-3B-2 covered by TCT No. 78086, but not to grant right
of way in favor of the WHI over a portion of Lot No.
491-A-3-B-1, or to grant an option to the petitioner to
buy a portion thereof. The appellate court also ruled
that the grant of a right of way and an option to the
respondent were so lopsided in favor of the
respondent because the latter was authorized to fix
the location as well as the price of the portion of its
property to be sold to the respondent. Hence, such
provisions contained in the deed of absolute sale
were not binding on the RECCI. The appellate court
ruled that the delay in the construction of WHI's
warehouse was due to its fault.
The Present Petition
The petitioner now comes to this Court asserting
that:
I.
THE COURT OF APPEALS ERRED IN HOLDING
THAT THE DEED OF ABSOLUTE SALE (EXH.
"C") IS ULTRA VIRES.
II.
THE COURT OF APPEALS GRAVELY ERRED IN
REVERSING THE RULING OF THE COURT A
QUO ALLOWING THE PLAINTIFF-APPELLEE
THE BENEFICIAL USE OF THE EXISTING
RIGHT OF WAY PLUS THE STIPULATED 25
SQUARE METERS AND 55 SQUARE METERS
BECAUSE THESE ARE VALID STIPULATIONS
AGREED BY BOTH PARTIES TO THE DEED OF
ABSOLUTE SALE (EXH. "C").
III.
THERE IS NO FACTUAL PROOF OR EVIDENCE
FOR THE COURT OF APPEALS TO RULE THAT
THE STIPULATIONS OF THE DEED OF
ABSOLUTE
SALE
(EXH.
"C")
WERE
DISADVANTAGEOUS TO THE APPELLEE, NOR
WAS APPELLEE DEPRIVED OF ITS PROPERTY
WITHOUT DUE PROCESS.
IV.

IN FACT, IT WAS WOODCHILD WHO WAS

DEPRIVED OF PROPERTY WITHOUT DUE
PROCESS BY THE ASSAILED DECISION.
V.
THE DELAY IN THE CONSTRUCTION WAS
DUE TO THE FAILURE OF THE APPELLANT TO
EVICT THE SQUATTERS ON THE LAND AS
AGREED IN THE DEED OF ABSOLUTE SALE
(EXH. "C").
VI.
THE COURT OF APPEALS GRAVELY ERRED IN
REVERSING THE RULING OF THE COURT A
QUO DIRECTING THE DEFENDANT TO PAY
THE
PLAINTIFF
THE
AMOUNT
OF
P5,568,000.00
REPRESENTING
ACTUAL
DAMAGES AND PLAINTIFF'S UNREALIZED
INCOME AS WELL AS ATTORNEY'S FEES.20
The threshold issues for resolution are the following:
(a) whether the respondent is bound by the
provisions in the deed of absolute sale granting to
the petitioner beneficial use and a right of way over a
portion of Lot
No. 491-A-3-B-1 accessing to the Sumulong Highway
and granting the option to the petitioner to buy a
portion thereof, and, if so, whether such agreement
is enforceable against the respondent; (b) whether
the respondent failed to eject the squatters on its
property within two weeks from the execution of the
deed of absolute sale; and, (c) whether the
respondent is liable to the petitioner for damages.
On the first issue, the petitioner avers that, under its
Resolution of May 17, 1991, the respondent
authorized Roxas, then its president, to grant a right
of way over a portion of Lot No. 491-A-3-B-1 in favor
of the petitioner, and an option for the respondent to
buy a portion of the said property. The petitioner
contends that when the respondent sold Lot No. 491A-3-B-2 covered by TCT No. 78086, it (respondent)
was well aware of its obligation to provide the
petitioner with a means of ingress to or egress from
the property to the Sumulong Highway, since the
latter had no adequate outlet to the public highway.
The petitioner asserts that it agreed to buy the
property covered by TCT No. 78085 because of the
grant by the respondent of a right of way and an
option in its favor to buy a portion of the property
covered by TCT No. 78085. It contends that the

respondent never objected to Roxas' acceptance of

its offer to purchase the property and the terms and
conditions therein; the respondent even allowed
Roxas to execute the deed of absolute sale in its
behalf. The petitioner asserts that the respondent
even received the purchase price of the property
without any objection to the terms and conditions of
the said deed of sale. The petitioner claims that it
acted in good faith, and contends that after having
been benefited by the said sale, the respondent is
estopped from assailing its terms and conditions. The
petitioner notes that the respondent's Board of
Directors never approved any resolution rejecting the
deed of absolute sale executed by Roxas for and in
its behalf. As such, the respondent is obliged to sell a
portion of Lot No. 491-A-3-B-1 covered by TCT No.
78085 with an area of 500 square meters at the price
of P1,000 per square meter, based on its evidence
and Articles 649 and 651 of the New Civil Code.
For its part, the respondent posits that Roxas was not
so authorized under the May 17, 1991 Resolution of
its Board of Directors to impose a burden or to grant
a right of way in favor of the petitioner on Lot No.
491-A-3-B-1, much less convey a portion thereof to
the petitioner. Hence, the respondent was not bound
by such provisions contained in the deed of absolute
sale. Besides, the respondent contends, the
petitioner cannot enforce its right to buy a portion of
the said property since there was no agreement in
the deed of absolute sale on the price thereof as well
as the specific portion and area to be purchased by
the petitioner.
We agree with the respondent.
In San Juan Structural and Steel Fabricators, Inc. v.
Court of Appeals,21 we held that:
A corporation is a juridical person separate
and distinct from its stockholders or
members. Accordingly, the property of the
corporation is not the property of its
stockholders or members and may not be
sold by the stockholders or members
without express authorization from the
corporation's board of directors. Section 23
of BP 68, otherwise known as the
Corporation Code of the Philippines,
provides:
"SEC. 23. The Board of Directors or
Trustees.

Unless
otherwise
provided
in
this
Code,
the
corporate
powers
of
all

corporations formed under this

Code shall be exercised, all
business
conducted
and
all
property of such corporations
controlled and held by the board of
directors or trustees to be elected
from among the holders of stocks,
or where there is no stock, from
among the members of the
corporation, who shall hold office
for one (1) year and until their
successors
are
elected
and
qualified."
Indubitably, a corporation may act only
through its board of directors or, when
authorized either by its by-laws or by its
board resolution, through its officers or
agents in the normal course of business.
The general principles of agency govern the
relation between the corporation and its
officers or agents, subject to the articles of
incorporation,
by-laws,
or
relevant
provisions of law. 22
Generally, the acts of the corporate officers within
the scope of their authority are binding on the
corporation. However, under Article 1910 of the New
Civil Code, acts done by such officers beyond the
scope of their authority cannot bind the corporation
unless it has ratified such acts expressly or tacitly, or
is estopped from denying them:
Art. 1910. The principal must comply with
all the obligations which the agent may
have contracted within the scope of his
authority.
As for any obligation wherein the agent has
exceeded his power, the principal is not
bound except when he ratifies it expressly
or tacitly.
Thus, contracts entered into by corporate
officers beyond the scope of authority are
unenforceable against the corporation
unless ratified by the corporation.23
In BA Finance Corporation v. Court of Appeals,24 we
also ruled that persons dealing with an assumed
agency, whether the assumed agency be a general
or special one, are bound at their peril, if they would
hold the principal liable, to ascertain not only the fact
of agency but also the nature and extent of authority,

and in case either is controverted, the burden of

proof is upon them to establish it.
In this case, the respondent denied authorizing its
then president Roberto B. Roxas to sell a portion of
Lot No. 491-A-3-B-1 covered by TCT No. 78085, and
to create a lien or burden thereon. The petitioner was
thus burdened to prove that the respondent so
authorized Roxas to sell the same and to create a
lien thereon.
Central to the issue at hand is the May 17, 1991
Resolution of the Board of Directors of the
respondent, which is worded as follows:
RESOLVED, as it is hereby resolved, that the
corporation, thru the President, sell to any
interested
buyer,
its
7,213-sq.-meter
property at the Sumulong Highway,
Antipolo,
Rizal,
covered
by
Transfer
Certificate of Title No. N-78086, at a price
and on terms and conditions which he
deems most reasonable and advantageous
to the corporation;
FURTHER RESOLVED, that Mr. ROBERTO B.
ROXAS, President of the corporation, be, as
he is hereby authorized to execute, sign and
deliver the pertinent sales documents and
receive the proceeds of sale for and on
behalf of the company.25
Evidently, Roxas was not specifically authorized
under the said resolution to grant a right of way in
favor of the petitioner on a portion of Lot No. 491-A3-B-1 or to agree to sell to the petitioner a portion
thereof. The authority of Roxas, under the resolution,
to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086
did not include the authority to sell a portion of the
adjacent lot, Lot No. 491-A-3-B-1, or to create or
convey real rights thereon. Neither may such
authority be implied from the authority granted to
Roxas to sell Lot No. 491-A-3-B-2 to the petitioner "on
such terms and conditions which he deems most
reasonable and advantageous." Under paragraph 12,
Article 1878 of the New Civil Code, a special power of
attorney is required to convey real rights over
immovable property.26 Article 1358 of the New Civil
Code requires that contracts which have for their
object the creation of real rights over immovable
property must appear in a public document. 27 The
petitioner cannot feign ignorance of the need for
Roxas to have been specifically authorized in writing
by the Board of Directors to be able to validly grant a
right of way and agree to sell a portion of Lot No.

491-A-3-B-1. The rule is that if the act of the agent is

one which requires authority in writing, those dealing
with him are charged with notice of that fact. 28
Powers of attorney are generally construed strictly
and courts will not infer or presume broad powers
from deeds which do not sufficiently include property
or subject under which the agent is to deal. 29 The
general rule is that the power of attorney must be
pursued within legal strictures, and the agent can
neither go beyond it; nor beside it. The act done
must be legally identical with that authorized to be
done.30 In sum, then, the consent of the respondent
to the assailed provisions in the deed of absolute sale
was not obtained; hence, the assailed provisions are
not binding on it.
We reject the petitioner's submission that, in allowing
Roxas to execute the contract to sell and the deed of
absolute sale and failing to reject or disapprove the
same, the respondent thereby gave him apparent
authority to grant a right of way over Lot No. 491-A3-B-1 and to grant an option for the respondent to
sell a portion thereof to the petitioner. Absent
estoppel or ratification, apparent authority cannot
remedy the lack of the written power required under
the statement of frauds.31 In addition, the petitioner's
fallacy is its wrong assumption of the unproved
premise that the respondent had full knowledge of all
the terms and conditions contained in the deed of
absolute sale when Roxas executed it.
It bears stressing that apparent authority is based on
estoppel and can arise from two instances: first, the
principal may knowingly permit the agent to so hold
himself out as having such authority, and in this way,
the principal becomes estopped to claim that the
agent does not have such authority; second, the
principal may so clothe the agent with the indicia of
authority as to lead a reasonably prudent person to
believe that he actually has such authority. 32 There
can be no apparent authority of an agent without
acts or conduct on the part of the principal and such
acts or conduct of the principal must have been
known and relied upon in good faith and as a result
of the exercise of reasonable prudence by a third
person as claimant and such must have produced a
change of position to its detriment. The apparent
power of an agent is to be determined by the acts of
the principal and not by the acts of the agent. 33
For the principle of apparent authority to apply, the
petitioner was burdened to prove the following: (a)
the acts of the respondent justifying belief in the
agency by the petitioner; (b) knowledge thereof by

the respondent which is sought to be held; and, (c)

reliance thereon by the petitioner consistent with
ordinary care and prudence.34 In this case, there is no
evidence on record of specific acts made by the
respondent35 showing or indicating that it had full
knowledge of any representations made by Roxas to
the petitioner that the respondent had authorized
him to grant to the respondent an option to buy a
portion of Lot No. 491-A-3-B-1 covered by TCT No.
78085, or to create a burden or lien thereon, or that
the respondent allowed him to do so.
The petitioner's contention that by receiving and
retaining the P5,000,000 purchase price of Lot No.
491-A-3-B-2, the respondent effectively and impliedly
ratified the grant of a right of way on the adjacent
lot, Lot No. 491-A-3-B-1, and to grant to the petitioner
an option to sell a portion thereof, is barren of merit.
It bears stressing that the respondent sold Lot No.
491-A-3-B-2 to the petitioner, and the latter had
taken possession of the property. As such, the
respondent had the right to retain the P5,000,000,
the purchase price of the property it had sold to the
petitioner. For an act of the principal to be considered
as an implied ratification of an unauthorized act of an
agent, such act must be inconsistent with any other
hypothesis than that he approved and intended to
adopt what had been done in his name.36 Ratification
is based on waiver the intentional relinquishment of
a known right. Ratification cannot be inferred from
acts that a principal has a right to do independently
of the unauthorized act of the agent. Moreover, if a
writing is required to grant an authority to do a
particular act, ratification of that act must also be in
writing.37 Since the respondent had not ratified the
unauthorized acts of Roxas, the same are
unenforceable.38 Hence,
by
the
respondent's
retention of the amount, it cannot thereby be implied
that it had ratified the unauthorized acts of its agent,
Roberto Roxas.
On the last issue, the petitioner contends that the CA
erred in dismissing its complaint for damages against
the respondent on its finding that the delay in the
construction of its warehouse was due to its
(petitioner's) fault. The petitioner asserts that the CA
should have affirmed the ruling of the trial court that
the respondent failed to cause the eviction of the
squatters from the property on or before September
29, 1991; hence, was liable for P5,660,000. The
respondent, for its part, asserts that the delay in the
construction of the petitioner's warehouse was due to
its late filing of an application for a building permit,
only on May 28, 1992.

The petitioner's contention is meritorious. The

respondent does not deny that it failed to cause the
eviction of the squatters on or before September 29,
1991. Indeed, the respondent does not deny the fact
that when the petitioner wrote the respondent
demanding that the latter cause the eviction of the
squatters on April 15, 1992, the latter were still in the
premises. It was only after receiving the said letter in
April 1992 that the respondent caused the eviction of
the squatters, which thus cleared the way for the
petitioner's contractor to commence the construction
of its warehouse and secure the appropriate building
permit therefor.
The petitioner could not be expected to file its
application for a building permit before April 1992
because the squatters were still occupying the
property. Because of the respondent's failure to
cause their eviction as agreed upon, the petitioner's
contractor failed to commence the construction of
the warehouse in October 1991 for the agreed price
of P8,649,000. In the meantime, costs of construction
materials spiraled. Under the construction contract
entered into between the petitioner and the
contractor, the petitioner was obliged to pay
P11,804,160,39including the additional work costing
P1,441,500, or a net increase of P1,712,980. 40 The
respondent is liable for the difference between the
original cost of construction and the increase
thereon, conformably to Article 1170 of the New Civil
Code, which reads:

obligation, and which the parties have

foreseen or could have reasonably foreseen
at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton
attitude, the obligor shall be responsible for
all damages which may be reasonably
attributed to the non-performance of the
obligation.
In sum, we affirm the trial court's award of damages
and attorney's fees to the petitioner.
IN LIGHT OF ALL THE FOREGOING, judgment is
hereby rendered AFFIRMING the assailed Decision
of the Court of Appeals WITH MODIFICATION. The
respondent is ordered to pay to the petitioner the
amount of P5,612,980 by way of actual damages and
P100,000 by way of attorney's fees. No costs.
SO ORDERED.

Art. 1170. Those who in the performance of

their obligations are guilty of fraud,
negligence, or delay and those who in any
manner contravene the tenor thereof, are
liable for damages.
The petitioner, likewise, lost the amount of
P3,900,000 by way of unearned income from the
lease of the property to the Ponderosa Leather Goods
Company. The respondent is, thus, liable to the
petitioner for the said amount, under Articles 2200
and 2201 of the New Civil Code:
Art. 2200. Indemnification for damages shall
comprehend not only the value of the loss
suffered, but also that of the profits which
the obligee failed to obtain.
Art. 2201. In contracts and quasi-contracts,
the damages for which the obligor who
acted in good faith is liable shall be those
that are the natural and probable
consequences of the breach of the

G.R. No. 129919

February 6, 2002

DOMINION
INSURANCE
CORPORATION, petitioner,
vs.
COURT OF APPEALS, RODOLFO S. GUEVARRA,
and FERNANDO AUSTRIA, respondents.
DECISION

PARDO, J.:

party defendant and plaintiff, respectively, the rest

were postponed upon joint request of the parties.

The Case
This is an appeal via certiorari1 from the decision of
the Court of Appeals2 affirming the decision3 of the
Regional Trial Court, Branch 44, San Fernando,
Pampanga, which ordered petitioner Dominion
Insurance Corporation (Dominion) to pay Rodolfo S.
Guevarra
(Guevarra)
the
sum
of
P156,473.90 representing the total amount advanced
by Guevarra in the payment of the claims of
Dominions clients.

"On May 22, 1992 the case was again called for pretrial conference. Only plaintiff and counsel were
present. Despite due notice, defendant and counsel
did not appear, although a messenger, Roy Gamboa,
submitted to the trial court a handwritten note sent
to him by defendants counsel which instructed him
to request for postponement. Plaintiffs counsel
objected to the desired postponement and moved to
have defendant declared as in default. This was
granted by the trial court in the following order:

The Facts

"ORDER

The facts, as found by the Court of Appeals, are as

follows:

"When this case was called for pre-trial this afternoon

only plaintiff and his counsel Atty. Romeo Maglalang
appeared. When shown a note dated May 21, 1992
addressed to a certain Roy who was requested to ask
for postponement, Atty. Maglalang vigorously
objected to any postponement on the ground that
the note is but a mere scrap of paper and moved that
the defendant corporation be declared as in default
for its failure to appear in court despite due notice.

"On January 25, 1991, plaintiff Rodolfo S. Guevarra

instituted Civil Case No. 8855 for sum of money
against defendant Dominion Insurance Corporation.
Plaintiff sought to recover thereunder the sum of
P156,473.90 which he claimed to have advanced in
his capacity as manager of defendant to satisfy
certain claims filed by defendants clients.
"In its traverse, defendant denied any liability to
plaintiff
and
asserted
a
counterclaim
for
P249,672.53, representing premiums that plaintiff
allegedly failed to remit.
"On August 8, 1991, defendant filed a third-party
complaint against Fernando Austria, who, at the time
relevant to the case, was its Regional Manager for
Central Luzon area.
"In due time, third-party defendant Austria filed his
answer.
"Thereafter the pre-trial conference was set on the
following dates: October 18, 1991, November 12,
1991, March 29, 1991, December 12, 1991, January
17, 1992, January 29, 1992, February 28, 1992,
March 17, 1992 and April 6, 1992, in all of which
dates no pre-trial conference was held. The record
shows that except for the settings on October 18,
1991, January 17, 1992 and March 17, 1992 which
were cancelled at the instance of defendant, third-

trial conference was due to an unavoidable

circumstance and that counsel had sent his
representative on that date to inform the trial court
of his inability to appear. The Motion was vehemently
opposed by plaintiff.
"On August 25, 1992 the trial court denied
defendants motion for reasons, among others, that it
was neither verified nor supported by an affidavit of
merit and that it further failed to allege or specify the
facts constituting his meritorious defense.
"On September 28, 1992 defendant moved for
reconsideration of the aforesaid order. For the first
time counsel revealed to the trial court that the
reason for his nonappearance at the pre-trial
conference was his illness. An Affidavit of Merit
executed by its Executive Vice-President purporting
to explain its meritorious defense was attached to
the said Motion. Just the same, in an Order dated
November 13, 1992, the trial court denied said
Motion.
"On November 18, 1992, the court a quo rendered
judgment as follows:

"Finding the verbal motion of plaintiffs counsel to be

meritorious and considering that the pre-trial
conference has been repeatedly postponed on
motion of the defendant Corporation, the defendant
Dominion Insurance Corporation is hereby declared
(as) in default and plaintiff is allowed to present his
evidence on June 16, 1992 at 9:00 oclock in the
morning.

"WHEREFORE, premises considered, judgment is

hereby rendered ordering:

"The plaintiff and his counsel are notified of this order

in open court.

"2. The defendant to pay plaintiff

P10,000.00 as and by way of attorneys
fees;

"1. The defendant Dominion Insurance

Corporation to pay plaintiff the sum of
P156,473.90 representing the total amount
advanced by plaintiff in the payment of the
claims of defendants clients;

"SO ORDERED.
"Plaintiff presented his evidence on June 16, 1992.
This was followed by a written offer of documentary
exhibits on July 8 and a supplemental offer of
additional exhibits on July 13, 1992. The exhibits
were admitted in evidence in an order dated July 17,
1992.
"On August 7, 1992 defendant corporation filed a
MOTION TO LIFT ORDER OF DEFAULT. It alleged
therein that the failure of counsel to attend the pre-

"3. The dismissal of the counter-claim of the

defendant and the third-party complaint;
"4. The defendant to pay the costs of suit." 4
On December 14, 1992, Dominion appealed the
decision to the Court of Appeals.5
On July 19, 1996, the Court of Appeals promulgated a
decision affirming that of the trial court.6 On
September 3, 1996, Dominion filed with the Court of

Appeals a motion for reconsideration. 7 On July 16,

1997, the Court of Appeals denied the motion.8
Hence, this appeal.9
The Issues
The issues raised are: (1) whether respondent
Guevarra acted within his authority as agent for
petitioner, and (2) whether respondent Guevarra is
entitled to reimbursement of amounts he paid out of
his personal money in settling the claims of several
insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to
render some service or to do something in
representation or on behalf of another, with the
consent or authority of the latter.10 The basis for
agency is representation.11 On the part of the
principal, there must be an actual intention to
appoint12 or an intention naturally inferrable from his
words or actions;13 and on the part of the agent, there
must be an intention to accept the appointment and
act on it,14 and in the absence of such intent, there is
generally no agency.15
A perusal of the Special Power of Attorney 16 would
show that petitioner (represented by third-party
defendant Austria) and respondent Guevarra
intended to enter into a principal-agent relationship.
Despite the word "special" in the title of the
document, the contents reveal that what was
constituted was actually a general agency. The terms
of the agreement read:
"That we, FIRST
CONTINENTAL
ASSURANCE
COMPANY, INC.,17 a corporation duly organized and
existing under and by virtue of the laws of the
Republic of the Philippines, xxx represented by the
undersigned as Regional Manager, xxx do hereby
appoint
RSG
Guevarra
Insurance
Services
represented by Mr. Rodolfo Guevarra xxx to be our
Agency Manager in San Fdo., for our place and stead,
to do and perform the following acts and things:

"1. To conduct, sign, manager (sic), carry on

and transact Bonding and Insurance
business as usually pertain to a Agency
Office, or FIRE, MARINE, MOTOR CAR,
PERSONAL ACCIDENT, and BONDING with
the right, upon our prior written consent, to
appoint agents and sub-agents.
"2. To accept, underwrite and subscribed
(sic) cover notes or Policies of Insurance and
Bonds for and on our behalf.

"x x x

xxx

xxx

"(15) Any other act of strict dominion."

The payment of claims is not an act of
administration. The settlement of claims is not
included among the acts enumerated in the Special
Power of Attorney, neither is it of a character similar
to the acts enumerated therein. A special power of
attorney is required before respondent Guevarra
could settle the insurance claims of the insured.

"3. To demand, sue, for (sic) collect, deposit,

enforce payment, deliver and transfer for
and receive and give effectual receipts and
discharge for all money to which the FIRST
CONTINENTAL
ASSURANCE
COMPANY,
INC.,18 may hereafter become due, owing
payable or transferable to said Corporation
by reason of or in connection with the
above-mentioned appointment.

Respondent Guevarras authority to settle claims is

embodied in the Memorandum of Management
Agreement23dated
February
18,
1987
which
enumerates the scope of respondent Guevarras
duties and responsibilities as agency manager for
San Fernando, Pampanga, as follows:

"4. To receive notices, summons, and legal

processes for and in behalf of the FIRST
CONTINENTAL ASSURANCE COMPANY, INC.,
in connection with actions and all legal
proceedings
against
the
said
Corporation."19 [Emphasis supplied]

"1. You are hereby given authority to settle

and dispose of all motor car claims in the
amount of P5,000.00 with prior approval of
the Regional Office.

The agency comprises all the business of the

principal,20 but, couched in general terms, it is limited
only to acts of administration.21
A general power permits the agent to do all acts for
which the law does not require a special
power.22 Thus, the acts enumerated in or similar to
those enumerated in the Special Power of Attorney
do not require a special power of attorney.
Article 1878, Civil Code, enumerates the instances
when a special power of attorney is required. The
pertinent portion that applies to this case provides
that:
"Article 1878. Special powers
necessary in the following cases:

of

attorney

are

"(1) To make such payments as are not usually

considered as acts of administration;

"x x x

xxx

xxx

"2. Full authority is given you on TPPI claims

settlement.
"xxx

xxx

x x x "24

In settling the claims mentioned above, respondent

Guevarras authority is further limited by the written
standard authority to pay,25 which states that the
payment shall come from respondent Guevarras
revolving fund or collection. The authority to pay is
worded as follows:
"This is to authorize you to withdraw from your
revolving fund/collection the amount of PESOS
__________________ (P ) representing the payment on
the _________________ claim of assured _______________
under Policy No. ______ in that accident of ___________
at ____________.
"It is further expected, release papers will be signed
and authorized by the concerned and attached to the
corresponding claim folder after effecting payment of
the claim.

"(sgd.)
FERNANDO
Regional Manager"26

C.

AUSTRIA

[Emphasis supplied]
The instruction of petitioner as the principal could not
be any clearer.1wphi1 Respondent Guevarra was
authorized to pay the claim of the insured, but the
payment shall come from the revolving fund or
collection in his possession.
Having deviated from the instructions of the
principal, the expenses that respondent Guevarra
incurred in the settlement of the claims of the
insured may not be reimbursed from petitioner
Dominion. This conclusion is in accord with Article
1918, Civil Code, which states that:
"The principal is not liable for the expenses incurred
by the agent in the following cases:
"(1) If the agent acted in contravention of
the principals instructions, unless the latter
should wish to avail himself of the benefits
derived from the contract;
"xxx

xxx

xxx"

However, while the law on agency prohibits

respondent Guevarra from obtaining reimbursement,
his right to recover may still be justified under the
general law on obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
"Whoever pays for another may demand from the
debtor what he has paid, except that if he paid
without the knowledge or against the will of the
debtor, he can recover only insofar as the payment
has been beneficial to the debtor."
In this case, when the risk insured against occurred,
petitioners liability as insurer arose.1wphi1 This
obligation was extinguished when respondent
Guevarra paid the claims and obtained Release of
Claim Loss and Subrogation Receipts from the
insured who were paid.

Thus, to the extent that the obligation of the

petitioner has been extinguished, respondent
Guevarra may demand for reimbursement from his
principal. To rule otherwise would result in unjust
enrichment of petitioner.
The extent to which petitioner was benefited by the
settlement of the insurance claims could best be
proven by the Release of Claim Loss and Subrogation
Receipts27 which were attached to the original
complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1
and J-l, in the total amount of P116,276.95.
However, the amount of the revolving fund/collection
that was then in the possession of respondent
Guevarra as reflected in the statement of account
dated July 11, 1990 would be deducted from the
above amount.
The
outstanding
balance
and
the
production/remittance for the period corresponding
to the claims was P3,604.84. Deducting this from
P116,276.95, we get P112,672.11. This is the amount
that may be reimbursed to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the Petition.
However, we MODIFY the decision of the Court of
Appeals28 and that of the Regional Trial Court, Branch
44, San Fernando, Pampanga,29 in that petitioner is
ordered to pay respondent Guevarra the amount of
P112,672.11 representing the total amount advanced
by the latter in the payment of the claims of
petitioners clients.
No costs in this instance.
SO ORDERED.

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS,

and JULIAN MERCADO, JR., represented by their
Attorney-In-Fact,
ALFREDO
M.
PEREZ, Petitioners,
vs.
ALLIED BANKING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review
on Certiorari under Rule 45 of the Revised Rules of
Court, filed by petitioners Lillian N. Mercado, Cynthia
M. Fekaris and Julian Mercado, Jr., represented by
their Attorney-In-Fact, Alfredo M. Perez, seeking to
reverse and set aside the Decision 1 of the Court of
Appeals dated
12 October 2005, and its
Resolution2 dated 15 February 2006 in CA-G.R. CV
No. 82636. The Court of Appeals, in its assailed
Decision and Resolution, reversed the Decision 3 of
the Regional Trial Court (RTC) of Quezon City, Branch
220 dated 23 September 2003, declaring the deeds
of real estate mortgage constituted on TCT No. RT18206 (106338) null and void. The dispositive portion
of the assailed Court of Appeals Decision thus reads:
WHEREFORE, the appealed decision is REVERSED
and SET ASIDE, and a new judgment is hereby
entered dismissing the [petitioners] complaint.4
Petitioners are heirs of Perla N. Mercado (Perla).
Perla, during her lifetime, owned several pieces of
real property situated in different provinces of the
Philippines.
Respondent, on the other hand, is a banking
institution duly authorized as such under the
Philippine laws.
On 28 May 1992, Perla executed a Special Power of
Attorney (SPA) in favor of her husband, Julian D.
Mercado (Julian) over several pieces of real property
registered under her name, authorizing the latter to
perform the following acts:

G.R. No. 171460

July 24, 2007

1. To act in my behalf, to sell, alienate,

mortgage, lease and deal otherwise over
the different parcels of land described
hereinafter, to wit:

a)
Calapan,
Oriental
Mindoro
Properties covered by Transfer
Certificates of Title Nos. T-53618 3,522 Square Meters, T-46810
3,953 Square Meters, T-53140
177 Square Meters, T-21403 263
square Meters, T- 46807 39
Square Meters of the Registry of
Deeds of Oriental Mindoro;
b) Susana Heights, Muntinlupa
covered by Transfer Certificates of
Title Nos. T-108954 600 Square
Meters and RT-106338 805
Square Meters of the Registry of
Deeds of Pasig (now Makati);
c) Personal property 1983 Car
with Vehicle Registration No. R16381; Model 1983; Make Toyota;
Engine No. T- 2464
2. To sign for and in my behalf any act of
strict dominion or ownership any sale,
disposition, mortgage, lease or any other
transactions including quit-claims, waiver
and relinquishment of rights in and over the
parcels of land situated in General Trias,
Cavite, covered by Transfer Certificates of
Title Nos. T-112254 and T-112255 of the
Registry of Deeds of Cavite, in conjunction
with his co-owner and in the person ATTY.
AUGUSTO F. DEL ROSARIO;
3. To exercise any or all acts of strict
dominion or ownership over the abovementioned properties, rights and interest
therein. (Emphasis supplied.)
On the strength of the aforesaid SPA, Julian, on 12
December 1996, obtained a loan from the
respondent in the amount of P3,000,000.00, secured
by real estate mortgage constituted on TCT No. RT18206 (106338) which covers a parcel of land with
an area of 805 square meters, registered with the
Registry of Deeds of Quezon City (subject property). 5
Still using the subject property as security, Julian
obtained an additional loan from the respondent in
the sum ofP5,000,000.00, evidenced by a Promissory

Note6 he executed on 5 February 1997 as another

real estate mortgage (REM).
It appears, however, that there was no property
identified in the SPA as TCT No. RT 18206 (106338)
and registered with the Registry of Deeds of Quezon
City. What was identified in the SPA instead was the
property covered by TCT No. RT-106338 registered
with the Registry of Deeds of Pasig.
Subsequently, Julian defaulted on the payment of his
loan obligations. Thus, respondent initiated extrajudicial foreclosure proceedings over the subject
property which was subsequently sold at public
auction wherein the respondent was declared as the
highest bidder as shown in the Sheriffs Certificate of
Sale dated 15 January 1998.7
On 23 March 1999, petitioners initiated with the RTC
an action for the annulment of REM constituted over
the subject property on the ground that the same
was not covered by the SPA and that the said SPA, at
the time the loan obligations were contracted, no
longer had force and effect since it was previously
revoked by Perla on 10 March 1993, as evidenced by
the Revocation of SPA signed by the latter.8
Petitioners likewise alleged that together with the
copy of the Revocation of SPA, Perla, in a Letter
dated 23 January 1996, notified the Registry of
Deeds of Quezon City that any attempt to mortgage
or sell the subject property must be with her full
consent documented in the form of an SPA duly
authenticated before the Philippine Consulate
General in New York. 9

was only subsequently reconstituted as TCT RT18206 (106338). Moreover, TCT No. T-106338 was
actually registered with the Registry of Deeds of
Quezon City and not before the Registry of Deeds of
Pasig (now Makati). Respondent explained that the
discrepancy in the designation of the Registry of
Deeds in the SPA was merely an error that must not
prevail over the clear intention of Perla to include the
subject property in the said SPA. In sum, the property
referred to in the SPA Perla executed in favor of Julian
as covered by TCT No. 106338 of the Registry of
Deeds of Pasig (now Makati) and the subject property
in the case at bar, covered by RT 18206 (106338)
of the Registry of Deeds of Quezon City, are one and
the same.
On 23 September 2003, the RTC rendered a Decision
declaring the REM constituted over the subject
property null and void, for Julian was not authorized
by the terms of the SPA to mortgage the same. The
court a quo likewise ordered that the foreclosure
proceedings and the auction sale conducted
pursuant to the void REM, be nullified. The
dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the [herein petitioners]
and against the [herein respondent] Bank:
1. Declaring the Real Estate Mortgages
constituted and registered under Entry Nos.
PE-4543/RT-18206
and
2012/RT-18206
annotated on TCT No. RT-18206 (106338) of
the Registry of Deeds of Quezon City as
NULL and VOID;

In the absence of authority to do so, the REM

constituted by Julian over the subject property was
null and void; thus, petitioners likewise prayed that
the subsequent extra-judicial foreclosure proceedings
and the auction sale of the subject property be also
nullified.

2. Declaring the Sheriffs Sale and

Certificate of Sale under FRE No. 2217 dated
January 15, 1998 over the property covered
by TCT No. RT-18206 (106338) of the
Registry of Deeds of Quezon City as NULL
and VOID;

In
its
Answer
with
Compulsory
Counterclaim,10 respondent averred that, contrary to
petitioners allegations, the SPA in favor of Julian
included the subject property, covered by one of the
titles specified in paragraph 1(b) thereof, TCT No. RT106338 registered with the Registry of Deeds of Pasig
(now Makati). The subject property was purportedly
registered previously under TCT No. T-106338, and

3. Ordering the defendant Registry of Deeds

of Quezon City to cancel the annotation of
Real Estate Mortgages appearing on Entry
Nos. PE-4543/RT-18206 and 2012/RT-18206
on TCT No. RT-18206 (106338) of the
Registry of Deeds of Quezon City;

4. Ordering the [respondent] Bank to

deliver/return
to
the
[petitioners]
represented by their attorney-in-fact Alfredo
M. Perez, the original Owners Duplicate
Copy of TCT No. RT-18206 (106338) free
from the encumbrances referred to above;
and
5. Ordering the [respondent] Bank to pay
the [petitioners] the amount of P100,000.00
as for attorneys fees plus cost of the suit.
The other claim for damages and counterclaim are
hereby DENIED for lack of merit.11
Aggrieved, respondent appealed
Decision before the Court of Appeals.

the

adverse

In a Decision dated 12 October 2005, the Court of

Appeals reversed the RTC Decision and upheld the
validity of the REM constituted over the subject
property on the strength of the SPA. The appellate
court declared that Perla intended the subject
property to be included in the SPA she executed in
favor of Julian, and that her subsequent revocation of
the said SPA, not being contained in a public
instrument, cannot bind third persons.
The Motion for Reconsideration interposed by the
petitioners was denied by the Court of Appeals in its
Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision
and Resolution rendered by the Court of Appeals
raising several issues, which are summarized as
follows:
I WHETHER OR NOT THERE WAS A VALID
MORTGAGE CONSTITUTED OVER SUBJECT
PROPERTY.
II WHETHER OR NOT THERE WAS A VALID
REVOCATION OF THE SPA.
III WHETHER OR NOT THE RESPONDENT
WAS A MORTGAGEE-IN- GOOD FAITH.
For a mortgage to be valid, Article 2085 of the Civil
Code enumerates the following essential requisites:

Art. 2085. The following requisites are essential to

the contracts of pledge and mortgage:

SPA, so as to render Julians mortgage of the same

valid, is a question we still must resolve.

Registry of Deeds, should not defeat Perlas clear

intention.

(1) That they be constituted to secure the

fulfillment of a principal obligation;

Petitioners insist that the subject property was not

included in the SPA, considering that it contained an
exclusive enumeration of the pieces of property over
which Julian had authority, and these include only:
(1) TCT No. T-53618, with an area of 3,522 square
meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental
Mindoro; (2) TCT No. T-46810, with an area of 3,953
square meters, located at Calapan, Oriental Mindoro,
and registered with the Registry of Deeds of Oriental
Mindoro; (3) TCT No. T-53140, with an area of 177
square meters, located at Calapan, Oriental Mindoro,
and registered with the Registry of Deeds of Oriental
Mindoro; (4) TCT No. T-21403, with an area of 263
square meters, located at Calapan, Oriental Mindoro,
and registered with the Registry of Deeds of Oriental
Mindoro; (5) TCT No. T- 46807, with an area of 39
square meters, located at Calapan, Oriental Mindoro,
and registered with the Registry of Deeds of Oriental
Mindoro; (6) TCT No. T-108954, with an area of 690
square meters and located at Susana Heights,
Muntinlupa; (7) RT-106338 805 Square Meters
registered with the Registry of Deeds of Pasig (now
Makati); and (8) Personal Property consisting of a
1983 Car with Vehicle Registration No. R-16381,
Model 1983, Make Toyota, and Engine No. T- 2464.
Nowhere is it stated in the SPA that Julians authority
extends to the subject property covered by TCT No.
RT 18206 (106338) registered with the Registry of
Deeds of Quezon City. Consequently, the act of Julian
of constituting a mortgage over the subject property
is unenforceable for having been done without
authority.

After an examination of the literal terms of the SPA,

we find that the subject property was not among
those enumerated therein. There is no obvious
reference to the subject property covered by TCT No.
RT-18206 (106338) registered with the Registry of
Deeds of Quezon City.

(2) That the pledgor or mortgagor be the

absolute owner of the thing pledged or
mortgaged;
(3) That the persons constituting the pledge
or mortgage have the free disposal of their
property, and in the absence thereof, that
they be legally authorized for the purpose.
Third persons who are not parties to the principal
obligation may secure the latter by pledging or
mortgaging their own property.
In the case at bar, it was Julian who obtained the loan
obligations from respondent which he secured with
the mortgage of the subject property. The property
mortgaged was owned by his wife, Perla, considered
a third party to the loan obligations between Julian
and respondent. It was, thus, a situation recognized
by the last paragraph of Article 2085 of the Civil
Code afore-quoted. However, since it was not Perla
who personally mortgaged her own property to
secure Julians loan obligations with respondent, we
proceed to determining if she duly authorized Julian
to do so on her behalf.
Under Article 1878 of the Civil Code, a special power
of attorney is necessary in cases where real rights
over
immovable
property
are
created
or
conveyed.12 In the SPA executed by Perla in favor of
Julian on 28 May 1992, the latter was conferred with
the authority to "sell, alienate, mortgage, lease and
deal otherwise" the different pieces of real and
personal property registered in Perlas name. The
SPA likewise authorized Julian "[t]o exercise any
or all acts of strict dominion or ownership" over
the identified properties, and rights and interest
therein. The existence and due execution of this SPA
by Perla was not denied or challenged by petitioners.
There is no question therefore that Julian was vested
with the power to mortgage the pieces of property
identified in the SPA. However, as to whether the
subject property was among those identified in the

Respondent, on the other hand, mainly hinges its

argument on the declarations made by the Court of
Appeals that there was no property covered by TCT
No. 106338 registered with the Registry of Deeds of
Pasig (now Makati); but there exists a property, the
subject property herein, covered by TCT No. RT18206 (106338) registered with the Registry of
Deeds of Quezon City. Further verification would
reveal that TCT No. RT-18206 is merely a
reconstitution of TCT No. 106338, and the property
covered by both certificates of title is actually
situated in Quezon City and not Pasig. From the
foregoing circumstances, respondent argues that
Perla intended to include the subject property in the
SPA, and the failure of the instrument to reflect the
recent TCT Number or the exact designation of the

There was also nothing in the language of the SPA

from which we could deduce the intention of Perla to
include the subject property therein. We cannot
attribute such alleged intention to Perla who
executed the SPA when the language of the
instrument is bare of any indication suggestive of
such intention. Contrariwise, to adopt the intent
theory advanced by the respondent, in the absence
of clear and convincing evidence to that effect, would
run afoul of the express tenor of the SPA and thus
defeat Perlas true intention.
In cases where the terms of the contract are clear as
to leave no room for interpretation, resort to
circumstantial evidence to ascertain the true intent
of the parties, is not countenanced. As aptly stated in
the case of JMA House, Incorporated v. Sta. Monica
Industrial and Development Corporation,13 thus:
[T]he law is that if the terms of a contract are clear
and leave no doubt upon the intention of the
contracting parties, the literal meaning of its
stipulation shall control. When the language of the
contract is explicit, leaving no doubt as to the
intention of the drafters, the courts may not read into
it [in] any other intention that would contradict its
main import. The clear terms of the contract should
never be the subject matter of interpretation. Neither
abstract justice nor the rule on liberal interpretation
justifies the creation of a contract for the parties
which they did not make themselves or the
imposition upon one party to a contract or obligation
not assumed simply or merely to avoid seeming
hardships. The true meaning must be enforced, as it
is to be presumed that the contracting parties know
their scope and effects.14
Equally relevant is the rule that a power of attorney
must be strictly construed and pursued. The
instrument will be held to grant only those powers
which are specified therein, and the agent may
neither go beyond nor deviate from the power of

attorney.15 Where powers and duties are specified

and defined in an instrument, all such powers and
duties are limited and are confined to those which
are specified and defined, and all other powers and
duties are excluded.16 This is but in accord with the
disinclination of courts to enlarge the authority
granted beyond the powers expressly given and
those which incidentally flow or derive therefrom as
being usual and reasonably necessary and proper for
the performance of such express powers. 17
Even the commentaries of renowned Civilist
Manresa18 supports a strict and limited construction
of the terms of a power of attorney:
The law, which must look after the interests of all,
cannot permit a man to express himself in a vague
and general way with reference to the right he
confers upon another for the purpose of alienation or
hypothecation, whereby he might be despoiled of all
he possessed and be brought to ruin, such excessive
authority must be set down in the most formal and
explicit terms, and when this is not done, the law
reasonably presumes that the principal did not mean
to confer it.
In this case, we are not convinced that the property
covered by TCT No. 106338 registered with the
Registry of Deeds of Pasig (now Makati) is the same
as the subject property covered by TCT No. RT-18206
(106338) registered with the Registry of Deeds of
Quezon City. The records of the case are stripped of
supporting proofs to verify the respondents claim
that the two titles cover the same property. It failed
to present any certification from the Registries of
Deeds concerned to support its assertion. Neither did
respondent take the effort of submitting and making
part of the records of this case copies of TCTs No. RT106338 of the Registry of Deeds of Pasig (now
Makati) and RT-18206 (106338) of the Registry of
Deeds of Quezon City, and closely comparing the
technical descriptions of the properties covered by
the said TCTs. The bare and sweeping statement of
respondent that the properties covered by the two
certificates of title are one and the same contains
nothing but empty imputation of a fact that could
hardly be given any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not
conferred by Perla with the authority to mortgage the
subject property under the terms of the SPA, the real

estate mortgages Julian executed over the said

property are therefore unenforceable.
Assuming arguendo that the subject property was
indeed included in the SPA executed by Perla in favor
of Julian, the said SPA was revoked by virtue of a
public instrument executed by Perla on 10 March
1993. To address respondents assertion that the said
revocation was unenforceable against it as a third
party to the SPA and as one who relied on the same
in good faith, we quote with approval the following
ruling of the RTC on this matter:
Moreover, an agency is extinguished, among others,
by its revocation (Article 1999, New Civil Code of the
Philippines). The principal may revoke the agency at
will, and compel the agent to return the document
evidencing the agency. Such revocation may be
express or implied (Article 1920, supra).
In this case, the revocation of the agency or Special
Power of Attorney is expressed and by a public
document executed on March 10, 1993.
The Register of Deeds of Quezon City was even
notified that any attempt to mortgage or sell the
property covered by TCT No. [RT-18206] 106338
located at No. 21 Hillside Drive, Blue Ridge, Quezon
City must have the full consent documented in the
form of a special power of attorney duly
authenticated at the Philippine Consulate General,
New York City, N.Y., U.S.A.
The non-annotation of the revocation of the Special
Power of Attorney on TCT No. RT-18206 is of no
consequence as far as the revocations existence and
legal effect is concerned since actual notice is always
superior to constructive notice. The actual notice of
the revocation relayed to defendant Registry of
Deeds of Quezon City is not denied by either the
Registry of Deeds of Quezon City or the defendant
Bank. In which case, there appears no reason why
Section 52 of the Property Registration Decree (P.D.
No. 1529) should not apply to the situation. Said
Section 52 of P.D. No. 1529 provides:
"Section 52. Constructive notice upon registration.
Every
conveyance,
mortgage,
lease,
lien,
attachment, order, judgment, instrument or entry
affecting registered land shall, if registered, filed or
entered in the Office of the Register of Deeds for the

province or city where the land to which it relates

lies, be constructive notice to all persons from the
time of such registering, filing or entering. (Pres.
Decree No. 1529, Section 53) (emphasis ours)
It thus developed that at the time the first loan
transaction with defendant Bank was effected on
December 12, 1996, there was on record at the
Office of the Register of Deeds of Quezon City that
the special power of attorney granted Julian, Sr. by
Perla had been revoked. That notice, works as
constructive notice to third parties of its being filed,
effectively rendering Julian, Sr. without authority to
act for and in behalf of Perla as of the date the
revocation letter was received by the Register of
Deeds of Quezon City on February 7, 1996.19
Given that Perla revoked the SPA as early as 10
March 1993, and that she informed the Registry of
Deeds of Quezon City of such revocation in a letter
dated 23 January 1996 and received by the latter on
7 February 1996, then third parties to the SPA are
constructively notified that the same had been
revoked and Julian no longer had any authority to
mortgage the subject property. Although the
revocation may not be annotated on TCT No. RT18206 (106338), as the RTC pointed out, neither the
Registry of Deeds of Quezon City nor respondent
denied that Perlas 23 January 1996 letter was
received by and filed with the Registry of Deeds of
Quezon City. Respondent would have undoubtedly
come across said letter if it indeed diligently
investigated
the
subject
property
and
the
circumstances surrounding its mortgage.
The final issue to be threshed out by this Court is
whether the respondent is a mortgagee-in-good faith.
Respondent fervently asserts that it exercised
reasonable diligence required of a prudent man in
dealing with the subject property.
Elaborating, respondent claims to have carefully
verified Julians authority over the subject property
which was validly contained in the SPA. It stresses
that the SPA was annotated at the back of the TCT of
the subject property. Finally, after conducting an
investigation, it found that the property covered by
TCT No. 106338, registered with the Registry of
Deeds of Pasig (now Makati) referred to in the SPA,
and the subject property, covered by TCT No. 18206
(106338) registered with the Registry of Deeds of
Quezon City, are one and the same property. From

the foregoing, respondent concluded that Julian was

indeed authorized to constitute a mortgage over the
subject property.
We are unconvinced. The property listed in the real
estate mortgages Julian executed in favor of PNB is
the one covered by "TCT#RT-18206(106338)." On the
other hand, the Special Power of Attorney referred to
TCT No. "RT-106338 805 Square Meters of the
Registry of Deeds of Pasig now Makati." The palpable
difference between the TCT numbers referred to in
the real estate mortgages and Julians SPA, coupled
with the fact that the said TCTs are registered in the
Registries of Deeds of different cities, should have
put respondent on guard. Respondents claim of
prudence is debunked by the fact that it had
conveniently
or
otherwise
overlooked
the
inconsistent details appearing on the face of the
documents, which it was relying on for its rights as
mortgagee, and which significantly affected the
identification of the property being mortgaged.
In Arrofo v. Quio,20 we have elucidated that:
[Settled is the rule that] a person dealing with
registered lands [is not required] to inquire further
than what the Torrens title on its face indicates. This
rule, however, is not absolute but admits of
exceptions. Thus, while its is true, x x x that a
person dealing with registered lands need not
go beyond the certificate of title, it is likewise
a well-settled rule that a purchaser or
mortgagee cannot close his eyes to facts which
should put a reasonable man on his guard, and
then claim that he acted in good faith under
the belief that there was no defect in the title
of the vendor or mortgagor. His mere refusal to
face up the fact that such defect exists, or his willful
closing of his eyes to the possibility of the existence
of a defect in the vendors or mortgagors title, will
not make him an innocent purchaser for value, if it
afterwards develops that the title was in fact
defective, and it appears that he had such notice of
the defect as would have led to its discovery had he
acted with the measure of precaution which may be
required of a prudent man in a like situation.
By putting blinders on its eyes, and by refusing to
see the patent defect in the scope of Julians
authority, easily discernable from the plain terms of
the SPA, respondent cannot now claim to be an
innocent mortgagee.

Further, in the case of Abad v. Guimba,21 we laid

down the principle that where the mortgagee does
not directly deal with the registered owner of real
property, the law requires that a higher degree of
prudence be exercised by the mortgagee, thus:
While [the] one who buys from the registered owner
does not need to look behind the certificate of title,
one who buys from [the] one who is not [the]
registered owner is expected to examine not only the
certificate of title but all factual circumstances
necessary for [one] to determine if there are any
flaws in the title of the transferor, or in [the] capacity
to transfer the land. Although the instant case does
not involve a sale but only a mortgage, the same rule
applies inasmuch as the law itself includes a
mortgagee in the term "purchaser."22
This principle is applied more strenuously when the
mortgagee is a bank or a banking institution. Thus, in
the case of Cruz v. Bancom Finance Corporation,23 we
ruled:
Respondent, however, is not an ordinary mortgagee;
it is a mortgagee-bank. As such, unlike private
individuals, it is expected to exercise greater care
and prudence in its dealings, including those
involving registered lands. A banking institution is
expected to exercise due diligence before entering
into a mortgage contract. The ascertainment of the
status or condition of a property offered to it as
security for a loan must be a standard and
indispensable part of its operations.24
Hence, considering that the property being
mortgaged by Julian was not his, and there are
additional doubts or suspicions as to the real identity
of the same, the respondent bank should have
proceeded with its transactions with Julian only with
utmost caution. As a bank, respondent must subject
all its transactions to the most rigid scrutiny, since its
business is impressed with public interest and its
fiduciary character requires high standards of
integrity and performance.25 Where respondent acted
in undue haste in granting the mortgage loans in
favor of Julian and disregarding the apparent defects
in the latters authority as agent, it failed to
discharge the degree of diligence required of it as a
banking corporation.1awphil
Thus, even granting for the sake of argument that
the subject property and the one identified in the SPA

are one and the same, it would not elevate

respondents status to that of an innocent
mortgagee. As a banking institution, jurisprudence
stringently requires that respondent should take
more precautions than an ordinary prudent man
should, to ascertain the status and condition of the
properties offered as collateral and to verify the
scope of the authority of the agents dealing with
these. Had respondent acted with the required
degree of diligence, it could have acquired
knowledge of the letter dated 23 January 1996 sent
by Perla to the Registry of Deeds of Quezon City
which recorded the same. The failure of the
respondent to investigate into the circumstances
surrounding the mortgage of the subject property
belies its contention of good faith.
On a last note, we find that the real estate
mortgages constituted over the subject property are
unenforceable and not null and void, as ruled by the
RTC. It is best to reiterate that the said mortgage was
entered into by Julian on behalf of Perla without the
latters authority and consequently, unenforceable
under
Article
1403(1)
of
the
Civil
Code.
Unenforceable contracts are those which cannot be
enforced by a proper action in court, unless they are
ratified, because either they are entered into without
or in excess of authority or they do not comply with
the statute of frauds or both of the contracting
parties do not possess the required legal
capacity.26 An unenforceable contract may be ratified,
expressly or impliedly, by the person in whose behalf
it has been executed, before it is revoked by the
other contracting party.27 Without Perlas ratification
of the same, the real estate mortgages constituted
by Julian over the subject property cannot be
enforced by any action in court against Perla and/or
her successors in interest.
In sum, we rule that the contracts of real estate
mortgage constituted over the subject property
covered by TCT No. RT 18206 (106338) registered
with the Registry of Deeds of Quezon City are
unenforceable.
Consequently,
the
foreclosure
proceedings and the auction sale of the subject
property
conducted
in
pursuance
of
these
unenforceable contracts are null and void. This,
however, is without prejudice to the right of the
respondent to proceed against Julian, in his personal
capacity, for the amount of the loans.

WHEREFORE, IN VIEW OF THE FOREGOING, the

instant petition is GRANTED. The Decision dated 12
October 2005 and its Resolution dated 15 February
2006 rendered by the Court of Appeals in CA-G.R. CV
No. 82636, are hereby REVERSED. The Decision
dated 23 September 2003 of the Regional Trial Court
of Quezon City, Branch 220, in Civil Case No. Q-9937145, is hereby REINSTATED and AFFIRMED with
modification that the real estate mortgages
constituted over TCT No. RT 18206 (106338) are
not null and void but UNENFORCEABLE. No costs.
SO ORDERED.

G.R. No. 82040 August 27, 1991

BA
FINANCE
CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS, Hon. Presiding Judge
of Regional Trial Court of Manila, Branch 43,
MANUEL CUADY and LILIA CUADY, respondents.

Regional Trial Court of Manila, Branch 43, which

dismissed the complaint in Civil Case No. 82-10478,
and (2) the resolution dated February 9, 1988
denying petitioner's motion for reconsideration.
As gathered from the records, the facts are as
follows:
On July 15, 1977, private respondents Manuel Cuady
and Lilia Cuady obtained from Supercars, Inc. a credit
of P39,574.80, which amount covered the cost of one
unit of Ford Escort 1300, four-door sedan. Said
obligation was evidenced by a promissory note
executed by private respondents in favor of
Supercars, Inc., obligating themselves to pay the
latter or order the sum of P39,574.80, inclusive of
interest at 14% per annum, payable on monthly
installments of P1,098.00 starting August 16, 1977,
and on the 16th day of the next 35 months from
September 16, 1977 until full payment thereof. There
was also stipulated a penalty of P10.00 for every
month of late installment payment. To secure the
faithful and prompt compliance of the obligation
under the said promissory note, the Cuady spouses
constituted a chattel mortage on the aforementioned
motor vehicle. On July 25, 1977, Supercars, Inc.
assigned the promissory note, together with the
chattel mortgage, to B.A. Finance Corporation. The
Cuadys paid a total of P36,730.15 to the B.A. Finance
Corporation, thus leaving an unpaid balance of
P2,344.65 as of July 18, 1980. In addition thereto, the
Cuadys owe B.A. Finance Corporation P460.00
representing penalties or surcharges for tardy
monthly installments (Rollo, pp. 27-29).

PARAS, J.:p

Parenthetically, the B.A. Finance Corporation, as the

assignee of the mortgage lien obtained the renewal
of the insurance coverage over the aforementioned
motor vehicle for the year 1980 with Zenith
Insurance Corporation, when the Cuadys failed to
renew said insurance coverage themselves. Under
the terms and conditions of the said insurance
coverage, any loss under the policy shall be payable
to the B.A. Finance Corporation (Memorandum for
Private Respondents, pp. 3-4).

This is a petition for review on certiorari which seeks

to reverse and set aside (1) the decision of the Court
of Appeals dated July 21, 1987 in CA-G.R. No. CV06522 entitled "B.A. Finance Corporation, PlaintiffAppellant, vs. Manuel Cuady and Lilia Cuady,
Defendants-Appellees," affirming the decision of the

On April 18, 1980, the aforementioned motor vehicle

figured in an accident and was badly damaged. The
unfortunate happening was reported to the B.A.
Finance Corporation and to the insurer, Zenith
Insurance Corporation. The Cuadys asked the B.A.
Finance Corporation to consider the same as a total

Valera, Urmeneta & Associates for petitioner.

Pompeyo L. Bautista for private respondents.

loss, and to claim from the insurer the face value of

the car insurance policy and apply the same to the
payment of their remaining account and give them
the surplus thereof, if any. But instead of heeding the
request of the Cuadys, B.A. Finance Corporation
prevailed upon the former to just have the car
repaired. Not long thereafter, however, the car
bogged down. The Cuadys wrote B.A. Finance
Corporation requesting the latter to pursue their prior
instruction of enforcing the total loss provision in the
insurance coverage. When B.A. Finance Corporation
did not respond favorably to their request, the
Cuadys stopped paying their monthly installments on
the promissory note (Ibid., pp. 45).
On June 29, 1982, in view of the failure of the Cuadys
to pay the remaining installments on the note, B.A.
Finance Corporation sued them in the Regional Trial
Court of Manila, Branch 43, for the recovery of the
said remaining installments (Memorandum for the
Petitioner, p. 1).
After the termination of the pre-trial conference, the
case was set for trial on the merits on April 25, 1984.
B.A. Finance Corporation's evidence was presented
on even date and the presentation of Cuady's
evidence was set on August 15, 1984. On August
7,1984, Atty. Noel Ebarle, counsel for the petitioner,
filed a motion for postponement, the reason being
that the "handling" counsel, Atty. Ferdinand Macibay
was temporarily assigned in Cebu City and would not
be back until after August 15, 1984. Said motion was,
however, denied by the trial court on August 10,
1984. On August 15, 1984, the date of hearing, the
trial court allowed private respondents to adduce
evidence ex-parte in the form of an affidavit to be
sworn to before any authorized officer. B.A. Finance
Corporation filed a motion for reconsideration of the
order of the trial court denying its motion for
postponement. Said motion was granted in an order
dated September 26, 1984, thus:
The Court grants plaintiff's motion
for reconsideration dated August
22, 1984, in the sense that plaintiff
is allowed to adduce evidence in
the form of counter-affidavits of its
witnesses, to be sworn to before
any
person
authorized
to
administer oaths, within ten days
from notice hereof. (Ibid., pp. 1-2).

B.A. Finance Corporation, however, never complied

with the above-mentioned order, paving the way for
the trial court to render its decision on January 18,
1985, the dispositive portion of which reads as
follows:
IN VIEW WHEREOF, the Court
DISMISSES the complaint without
costs.
SO ORDERED. (Rollo, p. 143)
On appeal, the respondent appellate court * affirmed
the decision of the trial court. The decretal portion of
the said decision reads as follows:
WHEREFORE, after consultation
among the undersigned members
of this Division, in compliance with
the provision of Section 13, Article
VIII of the Constitution; and finding
no reversible error in the judgment
appealed from, the same is hereby
AFFIRMED,
without
any
pronouncement
as
to
costs.
(Ibid., p. 33)

the insurance policy of the motor vehicle subject of

the chattel mortgage, said failure does not operate to
extinguish the unpaid balance on the promissory
note, considering that the circumstances obtaining in
the case at bar do not fall under Article 1231 of the
Civil Code relative to the modes of extinguishment of
obligations (Memorandum for the Petitioner, p. 11).
On the other hand, the Cuadys insist that owing to its
failure to enforce the total loss provision in the
insurance policy, B.A. Finance Corporation lost not
only its opportunity to collect the insurance proceeds
on the mortgaged motor vehicle in its capacity as the
assignee of the said insurance proceeds pursuant to
the memorandum in the insurance policy which
states that the "LOSS: IF ANY, under this policy shall
be payable to BA FINANCE CORP., as their respective
rights and interest may appear" (Rollo, p. 91) but
also the remaining balance on the promissory note
(Memorandum for the Respondents, pp. 16-17).
The petition is devoid of merit.

The real issue to be resolved in the case at bar is

whether or not B.A. Finance Corporation has waived
its right to collect the unpaid balance of the Cuady
spouses on the promissory note for failure of the
former to enforce the total loss provision in the
insurance coverage of the motor vehicle subject of
the chattel mortgage.

B.A. Finance Corporation was deemed subrogated to

the rights and obligations of Supercars, Inc. when the
latter assigned the promissory note, together with
the chattel mortgage constituted on the motor
vehicle in question in favor of the former.
Consequently, B.A. Finance Corporation is bound by
the terms and conditions of the chattel mortgage
executed between the Cuadys and Supercars, Inc.
Under the deed of chattel mortgage, B.A. Finance
Corporation was constituted attorney-in-fact with full
power and authority to file, follow-up, prosecute,
compromise or settle insurance claims; to sign
execute and deliver the corresponding papers,
receipts and documents to the Insurance Company
as may be necessary to prove the claim, and to
collect from the latter the proceeds of insurance to
the extent of its interests, in the event that the
mortgaged car suffers any loss or damage (Rollo, p.
89). In granting B.A. Finance Corporation the
aforementioned powers and prerogatives, the Cuady
spouses created in the former's favor an agency.
Thus, under Article 1884 of the Civil Code of the
Philippines, B.A. Finance Corporation is bound by its
acceptance to carry out the agency, and is liable for
damages which, through its non-performance, the
Cuadys, the principal in the case at bar, may suffer.

It is the contention of B.A. Finance Corporation that

even if it failed to enforce the total loss provision in

Unquestionably, the Cuadys suffered pecuniary loss

in the form of salvage value of the motor vehicle in

B.A.
Finance
Corporation
moved
for
the
reconsideration of the above decision, but the motion
was denied by the respondent appellate court in a
resolution dated February 9, 1988 (Ibid., p. 38).
Hence, this present recourse.
On July 11, 1990, this Court gave due course to the
petition and required the parties to submit their
respective memoranda. The parties having complied
with the submission of their memoranda, the case
was submitted for decision.

question, not to mention the amount equivalent to

the unpaid balance on the promissory note, when
B.A. Finance Corporation steadfastly refused and
refrained from proceeding against the insurer for the
payment of a clearly valid insurance claim, and
continued to ignore the yearning of the Cuadys to
enforce the total loss provision in the insurance
policy, despite the undeniable fact that Rea Auto
Center, the auto repair shop chosen by the insurer
itself to repair the aforementioned motor vehicle,
misrepaired and rendered it completely useless and
unserviceable (Ibid., p. 31).
Accordingly, there is no reason to depart from the
ruling set down by the respondent appellate court. In
this connection, the Court of Appeals said:
... Under the established facts and
circumstances, it is unjust, unfair
and inequitable to require the
chattel
mortgagors,
appellees
herein, to still pay the unpaid
balance of their mortgage debt on
the said car, the non-payment of
which account was due to the
stubborn refusal and failure of
appellant mortgagee to avail of the
insurance money which became
due and demandable after the
insured motor vehicle was badly
damaged in a vehicular accident
covered by the insurance risk. ...
(Ibid.)
On the allegation that the respondent court's findings
that B.A. Finance Corporation failed to claim for the
damage to the car was not supported by evidence,
the records show that instead of acting on the
instruction of the Cuadys to enforce the total loss
provision in the insurance policy, the petitioner
insisted on just having the motor vehicle repaired, to
which private respondents reluctantly acceded. As
heretofore mentioned, the repair shop chosen was
not able to restore the aforementioned motor vehicle
to its condition prior to the accident. Thus, the said
vehicle bogged down shortly thereafter. The
subsequent request of the Cuadys for the B.A.
Finance Corporation to file a claim for total loss with
the insurer fell on deaf ears, prompting the Cuadys to
stop paying the remaining balance on the promissory
note (Memorandum for the Respondents, pp. 4-5).

This is a petition for review assailing the Decision 1 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.

Moreover, B.A. Finance Corporation would have this

Court review and reverse the factual findings of the
respondent appellate court. This, of course, the Court
cannot and will not generally do. It is axiomatic that
the judgment of the Court of Appeals is conclusive as
to the facts and may not ordinarily be reviewed by
the Supreme Court. The doctrine is, to be sure,
subject to certain specific exceptions none of which,
however, obtains in the instant case (Luzon
Brokerage Corporation v. Court of Appeals, 176 SCRA
483 [1989]).
Finally, B.A. Finance Corporation contends that
respondent trial court committed grave abuses of
discretion in two instances: First, when it denied the
petitioner's motion for reconsideration praying that
the counsel be allowed to cross-examine the affiant,
and; second, when it seriously considered the
evidence adduced ex-parte by the Cuadys, and
heavily relied thereon, when in truth and in fact, the
same was not formally admitted as part of the
evidence for the private respondents (Memorandum
for the Petitioner, p. 10). This Court does not have to
unduly dwell on this issue which was only raised by
B.A. Finance Corporation for the first time on appeal.
A review of the records of the case shows that B.A.
Finance Corporation failed to directly raise or
ventilate in the trial court nor in the respondent
appellate court the validity of the evidence
adduced ex-parte by private respondents. It was only
when the petitioner filed the instant petition with this
Court that it later raised the aforementioned issue.
As ruled by this Court in a long line of cases, issues
not raised and/or ventilated in the trial court, let
alone in the Court of Appeals, cannot be raised for
the first time on appeal as it would be offensive to
the basic rules of fair play, justice and due process
(Galicia v. Polo, 179 SCRA 375 [1989]; Ramos v.
Intermediate Appellate Court, 175 SCRA 70 [1989];
Dulos Realty & Development Corporation v. Court of
Appeals, 157 SCRA 425 [1988]; Dihiansan, et al. v.
Court of Appeals, et al., 153 SCRA 712 [1987]; De la
Santa v. Court of Appeals, et al., 140 SCRA 44
[1985]).
PREMISES CONSIDERED, the
DENIED, and the decision
AFFIRMED.
SO ORDERED.

instant petition
appealed from

is
is

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

G.R. No. 151319

November 22, 2004

MANILA
MEMORIAL
PARK
INC., petitioner,
vs.
PEDRO L. LINSANGAN, respondent.

CEMETERY,

DECISION
TINGA, J.:
For resolution in this case is a classic and interesting
texbook question in the law on agency.

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 document 6 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

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.

The cross claim of defendant Manila

Memorial Cemetery Incorporated as against
defendant Baluyot is GRANTED up to the
extent of the costs.

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

SO ORDERED.15

Prepared by:
(Signed)
(MRS.)
FLORENCIA
Agency
Holy Cross Memorial Park

C.

BALUYOT
Manager

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.

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.

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,
same was denied for lack of merit.25

24

but the

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

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

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.

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 Answer 48 reveals that the real
arrangement between her and Atty. Linsangan was
for the latter to pay a monthly installment of
P1,800.00 whereas Baluyot was to shoulder the
counterpart amount of P1,455.00 to meet the
P3,255.00 monthly installments as indicated in the
contract. Thus, every time an installment falls due,
payment was to be made through a check from Atty.
Linsangan for P1,800.00 and a cash component of
P1,455.00 from Baluyot.49 However, it appears that
while Atty. Linsangan issued the post-dated checks,
Baluyot failed to come up with her part of the
bargain. This was supported by Baluyot's statements
in her letter50 to Mr. Clyde Williams, Jr., Sales Manager
of MMPCI, two days after she received the copy of
the Complaint. In the letter, she admitted that she
was remiss in her duties when she consented to Atty.
Linsangan's proposal that he will pay the old price
while the difference will be shouldered by her. She
likewise admitted that the contract suffered
arrearages because while Atty. Linsangan issued the
agreed checks, she was unable to give her share of
P1,455.00 due to her own financial difficulties.
Baluyot even asked for compassion from MMPCI for
the error she committed.

Atty. Linsangan failed to show that MMPCI had

knowledge of the arrangement. As far as MMPCI is
concerned, the contract price was P132,250.00, as
stated in the Offer to Purchase signed by Atty.
Linsangan and MMPCI's authorized officer. The down
payment of P19,838.00 given by Atty. Linsangan was
in accordance with the contract as well. Payments of
P3,235.00 for at least two installments were likewise
in accord with the contract, albeit made through a
check and partly in cash. In view of Baluyot's failure
to give her share in the payment, MMPCI received
only P1,800.00 checks, which were clearly
insufficient payment. In fact, Atty. Linsangan would
have incurred arrearages that could have caused the
earlier cancellation of the contract, if not for MMPCI's
application of some of the checks to his account.
However, the checks alone were not sufficient to
cover his obligations.
If MMPCI was aware of the arrangement, it would
have refused the latter's check payments for being
insufficient. It would not have applied to his account
the P1,800.00 checks. Moreover, the fact that
Baluyot had to practically explain to MMPCI's Sales
Manager the details of her "arrangement" with Atty.
Linsangan and admit to having made an error in
entering such arrangement confirm that MMCPI had
no knowledge of the said agreement. It was only
when Baluyot filed her Answer that she claimed that
MMCPI was fully aware of the agreement.
Neither is there estoppel in the instant case. The
essential elements of estoppel are (i) conduct of a
party amounting to false representation or
concealment of material facts or at least calculated
to convey the impression that the facts are otherwise
than, and inconsistent with, those which the party
subsequently attempts to assert; (ii) intent, or at
least expectation, that this conduct shall be acted
upon by, or at least influence, the other party; and
(iii) knowledge, actual or constructive, of the real
facts.51
While there is no more question as to the agency
relationship between Baluyot and MMPCI, there is no
indication that MMPCI let the public, or specifically,
Atty. Linsangan to believe that Baluyot had the
authority to alter the standard contracts of the
company. Neither is there any showing that prior to
signing Contract No. 28660, MMPCI had any
knowledge of Baluyot's commitment to Atty.
Linsangan. One who claims the benefit of an estoppel
on the ground that he has been misled by the
representations of another must not have been
misled through his own want of reasonable care and
circumspection.52 Even assuming that Atty. Linsangan

was misled by MMPCI's actuations, he still cannot

invoke the principle of estoppel, as he was clearly
negligent in his dealings with Baluyot, and could
have easily determined, had he only been cautious
and prudent, whether said agent was clothed with
the authority to change the terms of the principal's
written contract. Estoppel must be intentional and
unequivocal, for when misapplied, it can easily
become a most convenient and effective means of
injustice.53 In view of the lack of sufficient proof
showing estoppel, we refuse to hold MMPCI liable on
this score.
Likewise, this Court does not find favor in the Court
of Appeals' findings that "the authority of defendant
Baluyot may not have been expressly conferred upon
her; however, the same may have been derived
impliedly by habit or custom which may have been
an accepted practice in their company in a long
period of time." A perusal of the records of the case
fails to show any indication that there was such a
habit or custom in MMPCI that allows its agents to
enter into agreements for lower prices of its
interment spaces, nor to assume a portion of the
purchase price of the interment spaces sold at such
lower price. No evidence was ever presented to this
effect.
As the Court sees it, there are two obligations in the
instant case. One 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 CAG.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.

Contract Nos. A601446 and A601655, respectively,

to be delivered within the month of January 1987.
Private respondent, however, failed to deliver the
said coconut oil and, instead, offered a "wash out"
settlement, whereby the coconut oil subject of the
purchase contracts were to be "sold back" to IVO at
the prevailing price in the international market at the
time of wash out. Thus, IVO bound itself to pay to
Safic the difference between the said prevailing price
and the contract price of the 2,000 long tons of crude
coconut oil, which amounted to US$293,500.00. IVO
failed to pay this amount despite repeated oral and
written demands.
Under its second cause of action, Safic alleged that
on eight occasions between April 24, 1986 and
October 31, 1986, it placed purchase orders with IVO
for a total of 4,750 tons of crude coconut oil, covered
by Purchase Contract Nos. A601297A/B, A601384,
A601385, A601391, A601415, A601681, A601683
and A601770A/B/C/. When IVO failed to honor its
obligation under the wash out settlement narrated
above, Safic demanded that IVO make marginal
deposits within forty-eight hours on the eight
purchase contracts in amounts equivalent to the
difference between the contract price and the market
price of the coconut oil, to compensate it for the
damages it suffered when it was forced to acquire
coconut oil at a higher price. IVO failed to make the
prescribed marginal deposits on the eight contracts,
in the aggregate amount of US$391,593.62, despite
written demand therefor.

G.R. No. 126751

March 28, 2001

SAFIC
ALCAN
&
CIE, petitioner,
vs.
IMPERIAL VEGETABLE OIL CO., INC., respondent.
YNARES-SANTIAGO, J.:
Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a
French corporation engaged in the international
purchase, sale and trading of coconut oil. It filed with
the Regional Trial Court of Manila, Branch XXV, a
complaint dated February 26, 1987 against private
respondent Imperial Vegetable Oil Co., Inc.
(hereinafter, "IVO"), docketed as Civil Case No. 8739597. Petitioner Safic alleged that on July 1, 1986
and September 25, 1986, it placed purchase orders
with IVO for 2,000 long tons of crude coconut oil,
valued at US$222.50 per ton, covered by Purchase

The demand for marginal deposits was based on the

customs of the trade, as governed by the provisions
of the standard N.I.O.P. Contract arid the FOSFA
Contract, to wit:
N.I.O.P. Contract, Rule 54 - If the financial
condition of either party to a contract
subject to these rules becomes so impaired
as to create a reasonable doubt as to the
ability of such party to perform its
obligations under the contract, the other
party may from time to time demand
marginal deposits to be made within fortyeight (48) hours after receipt of such
demand, such deposits not to exceed the
difference between the contract price and
the market price of the goods covered by
the contract on the day upon which such
demand is made, such deposit to bear

interest at the prime rate plus one percent

(1%) per annum. Failure to make such
deposit within the time specified shall
constitute a breach of contract by the party
upon whom demand for deposit is made,
and all losses and expenses resulting from
such breach shall be for the account of the
party upon whom such demand is made.
(Underscoring ours.)1
FOSFA
Contract,
Rule
54
BANKRUPTCY/INSOLVENCY: If before the
fulfillment of this contract either party shall
suspend payment, commit an act of
bankruptcy, notify any of his creditors that
he is unable to meet his debts or that he
has suspended payment or that he is about
to suspend payment of his debts, convene,
call or hold a meeting either of his creditors
or to pass a resolution to go into liquidation
(except for a voluntary winding up of a
solvent company for the purpose of
reconstruction or amalgamation) or shall
apply for an official moratorium, have a
petition presented for winding up or shal1i
have a Receiver appointed, the contract
shall forthwith be closed either at the
market price then current for similar goods
or, at the option of the other party at a price
to be ascertained by repurchase or resale
and the difference between the contract
price and such closing-out price shall be the
amount which the other party shall be
entitled to claim shall be liable to account
for under this contract (sic). Should either
party be dissatisfied with the price, the
matter shall be referred to arbitration.
Where no such resale or repurchase takes
place, the closing-out price shall be fixed by
a Price Settlement Committee appointed by
the Federation. (Underscoring ours.)2
Hence, Safic prayed that IVO be ordered to pay the
sums of US$293,500.00 and US$391,593.62, plus
attorney's fees and litigation expenses. The
complaint also included an application for a writ of
preliminary attachment against the properties of IVO.
Upon Safic's posting of the requisite bond, the trial
court issued a writ of preliminary attachment.
Subsequently, the trial court ordered that the assets

of IVO be placed under receivership, in order to

ensure the preservation of the same.
In its answer, IVO raised the following special
affirmative defenses: Safic had no legal capacity to
sue because it was doing business in the Philippines
without the requisite license or authority; the subject
contracts were speculative contracts entered into by
IVO's then President, Dominador Monteverde, in
contravention of the prohibition by the Board of
Directors against engaging in speculative paper
trading, and despite IVO's lack of the necessary
license from Central Bank to engage in such kind of
trading activity; and that under Article 2018 of the
Civil Code, if a contract which purports to be for the
delivery of goods, securities or shares of stock is
entered into with the intention that the difference
between the price stipulated and the exchange or
market price at the time of the pretended delivery
shall be paid by the loser to the winner, the
transaction is null and void.1wphi1.nt
IVO set up counterclaims anchored on harassment,
paralyzation of business, financial losses, rumormongering and oppressive action. Later, IVO filed a
supplemental counterclaim alleging that it was
unable to operate its business normally because of
the arrest of most of its physical assets; that its
suppliers were driven away; and that its major
creditors have inundated it with claims for immediate
payment of its debts, and China Banking Corporation
had foreclosed its chattel and real estate mortgages.
During the trial, the lower court found that in 1985,
prior to the date of the contracts sued upon, the
parties had entered into and consummated a number
of contracts for the sale of crude coconut oil. In those
transactions, Safic placed several orders and IVO
faithfully filled up those orders by shipping out the
required crude coconut oil to Safic, totaling 3,500
metric tons. Anent the 1986 contracts being sued
upon, the trial court refused to declare the same as
gambling transactions, as defined in Article 2018 of
the Civil Code, although they involved some degree
of speculation. After all, the court noted, every
business enterprise carries with it a certain measure
of speculation or risk. However, the contracts
performed in 1985, on one hand, and the 1986
contracts subject of this case, on the other hand,
differed in that under the 1985 contracts, deliveries
were to be made within two months. This, as alleged
by Safic, was the time needed for milling and

building up oil inventory. Meanwhile, the 1986

contracts stipulated that the coconut oil were to be
delivered within period ranging from eight months to
eleven to twelve months after the placing of orders.
The coconuts that were supposed to be milled were
in all likelihood not yet growing when Dominador
Monteverde sold the crude coconut oil. As such, the
1986 contracts constituted trading in futures or in
mere expectations.
The lower court further held that the subject
contracts were ultra vires and were entered into by
Dominador Monteverde without authority from the
Board of Directors. It distinguished between the 1985
contracts, where Safic likewise dealt with Dominador
Monteverde, who was presumably authorized to bind
IVO, and the 1986 contracts, which were highly
speculative in character. Moreover, the 1985
contracts were covered by letters of credit, while the
1986 contracts were payable by telegraphic
transfers, which were nothing more than mere
promises to pay once the shipments became ready.
For these reasons, the lower court held that Safic
cannot invoke the 1985 contracts as an implied
corporate sanction for the high-risk 1986 contracts,
which were evidently entered into by Monteverde for
his personal benefit.
The trial court ruled that Safic failed to substantiate
its claim for actual damages. Likewise, it rejected
IVO's counterclaim and supplemental counterclaim.
Thus, on August 28, 1992, the trial court rendered
judgment as follows:
WHEREFORE, judgment is hereby rendered
dismissing the complaint of plaintiff Safic
Alcan & Cie, without prejudice to any action
it might subsequently institute against
Dominador
Monteverde,
the
former
President of Imperial Vegetable Oil Co., Inc.,
arising from the subject matter of this case.
The
counterclaim
and
supplemental
counterclaim of the latter defendant are
likewise hereby dismissed for lack of merit.
No pronouncement as to costs.
The writ of preliminary attachment issued in
this case as well as the order placing
Imperial Vegetable Oil Co., Inc. under
receivership are hereby dissolved and set
aside.3

Both IVO and Safic appealed to the Court of Appeals,

jointly docketed as CA-G.R. CV No.40820.
IVO raised only one assignment of error, viz:
THE TRIAL COURT ERRED IN HOLDING 'I'HAT
THE
ISSUANCE
OF
THE
WRIT
OF
PRELIMINARY ATTACHMENT WAS NOT THE
MAIN CAUSE OF THE DAMAGES SUFFERED
BY DEFENDANT AND IN NOT AWARDING
DEFENDANT-APPELLANT SUCH DAMAGES.
For its part, Safic argued that:
THE TRIAL COURT ERRED IN HOLDING THAT
IVO'S
PRESIDENT,
DOMINADOR
MONTEVERDE, ENTERED INTO CONTRACTS
WHICH WERE ULTRA VIRES AND WHICH DID
NOT BIND OR MAKE IVO LIABLE.
THE TRIAL COURT ERRED IN HOLDING THA
SAFIC WAS UNABLE TO PROVE THE
DAMAGES SUFFERED BY IT AND IN NOT
AWARDING SUCH DAMAGES.
THE TRIAL COURT ERRED IN NOT HOLDING
THAT IVO IS LIABLE UNDER THE WASH OUT
CONTRACTS.
On September 12, 1996, the Court of Appeals
rendered the assailed Decision dismissing the,
appeals and affirming the judgment appealed from in
toto.4
Hence, Safic filed the instant petition for review with
this Court, substantially reiterating the errors it
raised before the Court of Appeals and maintaining
that the Court of Appeals grievously erred when:
a. it declared that the 1986 forward
contracts (i.e., Contracts Nos. A601446 and
A60155 (sic) involving 2,000 long tons of
crude coconut oil, and Contracts Nos.
A60l297A/B, A601385, A60l39l, A60l4l5,
A601681. A601683 and A60l770A/B/C
involving 4,500 tons of crude coconut oil)
were unauthorized acts of Dominador
Monteverde which do not bind IVO in whose
name they were entered into. In this
connection, the Court of Appeals erred when

(i) it ignored its own finding that (a)

Dominador Monteverde, as IVO's President,
had "an implied authority to make any
contract necessary or appropriate to the
contract of the ordinary business of the
company"; and (b) Dominador Monteverde
had validly entered into similar forward
contracts for and on behalf of IVO in 1985;
(ii) it distinguished between the 1986
forward contracts despite the fact that the
Manila RTC has struck down IVO's objection
to the 1986 forward contracts (i.e. that they
were highly speculative paper trading which
the IVO Board of Directors had prohibited
Dominador Monteverde from engaging in
because it is a form of gambling where the
parties do not intend actual delivery of the
coconut oil sold) and instead found that the
1986 forward contracts were not gambling;
(iii) it relied on the testimony of Mr. Rodrigo
Monteverde in concluding that the IVO
Board of Directors did not authorize its
President, Dominador Monteverde, to enter
into the 1986 forward contracts; and (iv) it
did not find IVO, in any case, estopped from
denying responsibility for, and liability
under, the 1986 forward contracts because
IVO had recognized itself bound to similar
forward
contracts
which
Dominador
Monteverde entered into (for and on behalf
of IVO) with Safic in 1985 notwithstanding
that Dominador Monteverde was (like in the
1986 forward contracts) not expressly
authorized by the IVO Board of Directors to
enter into such forward contracts;
b. it declared that Safic was not able, to
prove damages suffered by it, despite the
fact that Safic had presented not only
testimonial, but also documentary, evidence
which proved the higher amount it had to
pay for crude coconut oil (vis--vis the
contract price it was to pay to IVO) when
IVO refused to deliver the crude coconut oil
bought by Safic under the 1986 forward
contracts; and
c. it failed to resolve the issue of whether or
not IVO is liable to Safic under the wash out
contracts involving Contracts Nos. A601446
and A60155 (sic), despite the fact that Safic
had properly raised the issue on its appeal,

and the evidence and the law support

Safic's position that IVO is so liable to Safic.
In fine, Safic insists that the appellate court
grievously erred when it did not declare that IVO's
President, Dominador Monteverde, validly entered
into the 1986 contracts for and on behalf of IVO.
We disagree.
Article III, Section 3 [g] of the By-Laws 5 of IVO
provides, among others, that
Section 3. Powers and Duties of the
President. - The President shall be elected
by the Board of Directors from their own
number .
He shall have the following duties:

identical contracts with Safic. The basis for agency is

representation and a person dealing with an agent is
put upon inquiry and must discover upon his peril the
authority of the agent.9 In the case of Bacaltos Coal
Mines v. Court of Appeals,10 we elucidated the rule on
dealing with an agent thus:
Every person dealing with an agent is put
upon inquiry and must discover upon his
peril the authority of the agent. If he does
not make such inquiry, he is chargeable with
knowledge of the agent's authority, and his
ignorance of that authority will not be any
excuse. Persons dealing with an assumed
agent, whether the assumed agency be a
general or special one, are bound at their
peril, if they would hold the principal, to
ascertain not only the fact of the agency but
also the nature and extent of the authority,
and in case either is controverted, the
burden of proof is upon them to establish
it.11

xxxxxxxxx
[g] Have direct and active management of
the business and operation of the
corporation, conducting the same according
to, the orders, resolutions and instruction of
the Board of Directors and according to his
own discretion whenever and wherever the
same is not expressly limited by such
orders, resolutions and instructions.
It can be clearly seen from the foregoing provision of
IVO's By-laws that Monteverde had no blanket
authority to bind IVO to any contract. He must act
according to the instructions of the Board of
Directors. Even in instances when he was authorized
to act according to his discretion, that discretion
must not conflict with prior Board orders, resolutions
and instructions. The evidence shows that the IVO
Board knew nothing of the 1986 contracts 6 and that
it did not authorize Monteverde to enter into
speculative contracts.7 In fact, Monteverde had
earlier proposed that the company engage in such
transactions but the IVO Board rejected his
proposal.8 Since the 1986 contracts marked a sharp
departure from past IVO transactions, Safic should
have
obtained
from
Monteverde
the
prior
authorization of the IVO Board. Safic can not rely on
the doctrine of implied agency because before the
controversial 1986 contracts, IVO did not enter into

The most prudent thing petitioner should have done

was to ascertain the extent of the authority of
Dominador Monteverde. Being remiss in this regard,
petitioner can not seek relief on the basis of a
supposed agency.
Under Article 189812 of the Civil Code, the acts of an
agent beyond the scope of his authority do not bind
the principal unless the latter ratifies the same
expressly or impliedly. It also bears emphasizing that
when the third person knows that the agent was
acting beyond his power or authority, the principal
can not be held liable for the acts of the agent. If the
said third person is aware of such limits of authority,
he is to blame, and is not entitled to recover
damages from the agent, unless the latter undertook
to secure the principal's ratification.13
There was no such ratification in this case. When
Monteverde entered into the speculative contracts
with Safic, he did not secure the Board's
approval.14 He also did not submit the contracts to
the Board after their consummation so there was, in
fact, no occasion at all for ratification. The contracts
were not reported in IVO's export sales book and
turn-out book.15 Neither were they reflected in other
books and records of the corporation. 16 It must be
pointed out that the Board of Directors, not
Monteverde, exercises corporate power.17 Clearly,

Monteverde's speculative contracts with Safic never

bound IVO and Safic can not therefore enforce those
contracts against IVO.

is for the company to engaged (sic) or to

purely engaged (sic) in physical trading.
Q. What do you mean by physical trading?

To bolster its cause, Safic raises the novel point that

the IVO Board of Directors did not set limitations on
the extent of Monteverde's authority to sell coconut
oil. It must be borne in mind in this regard that a
question that was never raised in the courts below
can not be allowed to be raised for the first time on
appeal without offending basic rules of fair play,
justice and due process.18 Such an issue was not
brought to the fore either in the trial court or the
appellate court, and would have been disregarded by
the latter tribunal for the reasons previously stated.
With more reason, the same does not deserve
consideration by this Court.
Be that as it may, Safic's belated contention that the
IVO Board of Directors did not set limitations on
Monteverde's authority to sell coconut oil is belied by
what appears on the record. Rodrigo Monteverde,
who succeeded Dominador Monteverde as IVO
President, testified that the IVO Board had set down
the policy of engaging in purely physical trading
thus:
Q. Now you said that IVO is engaged in
trading. With whom does, it usually trade its
oil?
A. I am not too familiar with trading because
as of March 1987, I was not yet an officer of
the corporation, although I was at the time
already a stockholder, I think IVO is engaged
in trading oil.

A. Physical Trading means - we buy and sell

copras that are only available to us. We only
have to sell the available stocks in our
inventory.
Q. And what is the other form of trading?

Q. Do you know where this meeting took

place?

Atty. Fernando

A. As far as I know it was sometime in 1985.

No basis, your Honor.

Atty. Abad
Well, the witness said they are
engaged in physical trading and
what I am saying [is] if there are
any other kind or form of trading.
Court
Witness may answer if he knows.
Witness

Atty. Fernando
Objection, your Honor, no basis.

Why don't you lay the basis?

Atty. Abad

A. Trading future[s] contracts

wherein the trader commits a price
and to deliver coconut oil in the
future in which he is yet to acquire
the stocks in the future.
Atty. Abad

A. It was purely on physical trading.

Q. Who established the so-called physical

trading in IVO?

A. As a stockholder, rather as member of

[the] Board of Directors, I frequently visited
the plant and from my observation, as I
have to supervise and monitor purchases of
copras and also the sale of the same, I
observed that the policy of the corporation

Q. Do you know why the Board of Directors

rejected
the proposal of Dominador
Monteverde that the company should
engaged (sic) in future[s] contracts?

Court

Q. As far as you know, what kind of trading

was IVO engaged with?

Q. How did you know this?

A. There was a meeting held in the office at

the factory and it was brought out and
suggested
by our former
president,
Dominador Monteverde, that the company
should engaged (sic) in future[s] contract[s]
but it was rejected by the Board of
Directors. It was only Ador Monteverde who
then wanted to engaged (sic) in this
future[s] contract[s].

A. The Board of Directors, sir.

Atty. Abad.
Q. How did you know that?

Q. Were you a member of the board at the

time?
A. In 1975, I am already a stockholder and a
member.
Q. Then would
question?

[you]

now

answer

my

Atty. Fernando
No basis, your Honor. What we are
talking is about 1985.
Atty. Abad
Q. When you mentioned about the meeting
in 1985 wherein the Board of Directors

rejected the future[s] contract[s], were you

already a member of the Board of Directors
at that time?

A. Dominador Monteverde never records

those transactions he entered into in
connection with these future[s] contracts in
the company's books of accounts.

A. Yes, sir.
Atty. Abad
Q. Do you know the reason why the said
proposal of Mr. Dominador Monteverde to
engage in future[s] contract[s] was rejected
by the Board of Directors?
A. Because this future[s] contract is too risky
and it partakes of gambling.
Q. Do you keep records of the Board
meetings of the company?

Q. What do you mean by that the future[s]

contracts were not entered into the books of
accounts of the company?
Witness
A. Those were not recorded at all in the
books of accounts of the company, sir.20
xxxxxxxxx

A. Yes, sir.
Q. Do you have a copy of the minutes of
your meeting in 1985?
A. Incidentally our Secretary of the Board of
Directors, Mr. Elfren Sarte, died in 1987 or
1988, and despite [the] request of our office
for us to be furnished a copy he was not
able to furnish us a copy.19
xxxxxxxxx
Atty. Abad
Q. You said the Board of Directors were
against the company engaging in future[s]
contracts. As far as you know, has this
policy of the Board of Directors been
observed or followed?
Witness
A. Yes, sir.
Q. How far has this Dominador Monteverde
been using the name of I.V.0. in selling
future
contracts
without
the
proper
authority and consent of the company's
Board of Directors?

Q. What did you do when you discovered

these transactions?
A. There was again a meeting by the Board
of Directors of the corporation and that we
agreed to remove the president and then I
was made to replace him as president.
Q. What else?
A. And a resolution was passed disowning
the illegal activities of the former
president.21
Petitioner next argues that there was actually no
difference between the 1985 physical contracts and
the 1986 futures contracts.
The contention is unpersuasive for, as aptly pointed
out by the trial court and sustained by the appellate
court
Rejecting IVO's position, SAFIC claims that
there is no distinction between the 1985
and 1986 contracts, both of which groups of
contracts were signed or authorized by IVO's
President, Dominador Monteverde. The 1986
contracts, SAFIC would bewail, were
similarly with their 1985 predecessors,
forward sales contracts in which IVO had
undertaken to deliver the crude coconut oil

months after such contracts were entered

into. The lead time between the closing of
the deal and the delivery of the oil
supposedly allowed the seller to accumulate
enough copra to mill and to build up its
inventory and so meet its delivery
commitment to its foreign buyers. SAFIC
concludes that the 1986 contracts were
equally binding, as the 1985 contracts were,
on IVO.
Subjecting the evidence on both sides to
close scrutiny, the Court has found some
remarkable distinctions between the 1985
and 1986 contracts. x x x
1. The 1985 contracts were performed
within an average of two months from the
date of the sale. On the other hand, the
1986 contracts were to be performed within
an average of eight and a half months from
the dates of the sale. All the supposed
performances fell in 1987. Indeed, the
contract covered by Exhibit J was to be
performed 11 to 12 months from the
execution of the contract. These pattern
(sic) belies plaintiffs contention that the lead
time merely allowed for milling and building
up of oil inventory. It is evident that the
1986 contracts constituted trading in
futures or in mere expectations. In all
likelihood, the coconuts that were supposed
to be milled for oil were not yet on their
trees when Dominador Monteverde sold the
crude oil to SAFIC.
2. The mode of payment agreed on by the
parties in their 1985 contracts was
uniformly thru the opening of a letter of
credit LC by SAFIC in favor of IVO. Since the
buyer's letter of credit guarantees payment
to the seller as soon as the latter is able to
present the shipping documents covering
the cargo, its opening usually mark[s] the
fact that the transaction would be
consummated. On the other hand, seven
out of the ten 1986 contracts were to be
paid
by
telegraphic
transfer
upon
presentation of the shipping documents.
Unlike the letter of credit, a mere promise to
pay by telegraphic transfer gives no
assurance of [the] buyer's compliance with

its contracts. This fact lends an uncertain

element in the 1986 contracts.1wphi1.nt
3. Apart from the above, it is not disputed
that with respect to the 1985 contracts, IVO
faithfully complied with Central Bank
Circular No. 151 dated April 1, 1963,
requiring a coconut oil exporter to submit a
Report of Foreign Sales within twenty-four
(24) hours "after the closing of the relative
sales contract" with a foreign buyer of
coconut oil. But with respect to the disputed
1986 contracts, the parties stipulated during
the hearing that none of these contracts
were ever reported to the Central Bank, in
violation of its above requirement. (See
Stipulation of Facts dated June 13, 1990).
The 1986 sales were, therefore suspect.
4. It is not disputed that, unlike the 1985
contacts, the 1986 contracts were never
recorded either in the 1986 accounting
books of IVO or in its annual financial
statement for 1986, a document that was
prepared prior to the controversy. (Exhibits
6 to 6-0 and 7 to 7-1). Emelita Ortega,
formerly
an
assistant
of
Dominador
Monteverde, testified that they were strange
goings-on about the 1986 contract. They
were neither recorded in the books nor
reported to the Central Bank. What is more,
in those unreported cases where profits
were made, such profits were ordered
remitted to unknown accounts in California,
U.S.A., by Dominador Monteverde.
xxxxxxxxx
Evidently, Dominador Monteverde made
business or himself, using the name of IVO
but concealing from it his speculative
transactions.
Petitioner further contends that both the trial and
appellate courts erred in concluding that Safic was
not able to prove its claim for damages. Petitioner
first points out that its wash out agreements with
Monteverde where IVO allegedly agreed to pay
US$293,500.00 for some of the failed contracts was
proof enough and, second, that it presented
purchases of coconut oil it made from others during
the period of IVO's default.

We remain unconvinced. The so-called "wash out"

agreements are clearly ultra vires and not binding on
IVO. Furthermore, such agreements did not prove
Safic's actual losses in the transactions in question.
The fact is that Safic did not pay for the coconut oil
that it supposedly ordered from IVO through
Monteverede. Safic only claims that, since it was
ready to pay when IVO was not ready to deliver, Safic
suffered damages to the extent that they had to buy
the same commodity from others at higher prices.
The foregoing claim of petitioner is not, however,
substantiated by the evidence and only raises
several questions, to wit: 1.] Did Safic commit to
deliver the quantity of oil covered by the 1986
contracts to its own buyers? Who were these buyers?
What were the terms of those contracts with respect
to quantity, price and date of delivery? 2.] Did Safic
pay damages to its buyers? Where were the receipts?
Did Safic have to procure the equivalent oil from
other sources? If so, who were these sources? Where
were their contracts and what were the terms of
these contracts as to quantity, price and date of
delivery?
The records disclose that during the course of the
proceedings in the trial court, IVO filed an amended
motion22for production and inspection of the
following documents: a.] contracts of resale of
coconut oil that Safic bought from IVO; b.] the
records of the pooling and sales contracts covering
the oil from such pooling, if the coconut oil has been
pooled and sold as general oil; c.] the contracts of
the purchase of oil that, according to Safic, it had to
resort to in order to fill up alleged undelivered
commitments of IVO; d.] all other contracts,
confirmations, invoices, wash out agreements and
other documents of sale related to (a), (b) and (c).
This amended motion was opposed by Safic.23 The
trial court, however, in its September 16, 1988
Order ,24 ruled that:
From the analysis of the parties' respective
positions, conclusion can easily be drawn
therefrom that there is materiality in the
defendant's move: firstly, plaintiff seeks to
recover damages from the defendant and
these are intimately related to plaintiffs
alleged losses which it attributes to the
default of the defendant in its contractual
commitments; secondly, the documents are
specified in the amended motion. As such,

plaintiff would entertain no confusion as to

what, which documents to locate and
produce considering plaintiff to be (without
doubt) a reputable going concern in the
management of the affairs which is serviced
by competent, industrious, hardworking and
diligent personnel; thirdly, the desired
production and inspection of the documents
was precipitated by the testimony of
plaintiffs witness (Donald O'Meara) who
admitted, in open court, that they are
available. If the said witness represented
that the documents, as generally described,
are available, reason there would be none
for the same witness to say later that they
could not be produced, even after they have
been clearly described.
Besides, if the Court may additionally dwell
on the issue of damages, the production and
inspection of the desired documents would
be of tremendous help in the ultimate
resolution thereof. Plaintiff claims for the
award of liquidated or actual damages to
the tune of US$391,593.62 which, certainly,
is a huge amount in terms of pesos, and
which defendant disputes. As the defendant
cannot be precluded in taking exceptions to
the correctness and validity of such claim
which plaintiffs witness (Donald O'Meara)
testified to, and as, by this nature of the
plaintiffs claim for damages, proof thereof is
a must which can be better served, if not
amply ascertained by examining the records
of the related sales admitted to be in
plaintiffs possession, the amended motion
for production and inspection of the
defendant is in order.
The interest of justice will be served best, if
there would be a full disclosure by the
parties on both sides of all documents
related to the transactions in litigation.
Notwithstanding the foregoing ruling of the trial
court, Safic did not produce the required documents,
prompting the court a quo to assume that if
produced, the documents would have been adverse
to Safic's cause. In its efforts to bolster its claim for
damages it purportedly sustained, Safic suggests a
substitute mode of computing its damages by getting
the average price it paid for certain quantities of

coconut oil that it allegedly bought in 1987 and

deducting this from the average price of the 1986
contracts. But this mode of computation if flawed
.because: 1.] it is conjectural since it rests on
average prices not on actual prices multiplied by the
actual volume of coconut oil per contract; and 2.] it is
based on the unproven assumption that the 1987
contracts of purchase provided the coconut oil
needed to make up for the failed 1986 contracts.
There is also no evidence that Safic had contracted
to supply third parties with coconut oil from the 1986
contracts and that Safic had to buy such oil from
others to meet the requirement.
Along the same vein, it is worthy to note that the
quantities of oil covered by its 1987 contracts with
third parties do not match the quantities of oil
provided under the 1986 contracts. Had Safic
produced the documents that the trial court required,
a substantially correct determination of its actual
damages
would
have
been
possible.
This,
unfortunately, was not the case. Suffice it to state in
this regard that "[T]he power of the courts to grant
damages and attorney's fees demands factual, legal
and equitable justification; its basis cannot be left to
speculation and conjecture."25
WHEREFORE, in view of all the foregoing, the
petition is DENIED for lack of merit.
SO ORDERED.

G.R. No. 159489

February 4, 2008

FILIPINAS LIFE ASSURANCE COMPANY (now

AYALA
LIFE
ASSURANCE,
INC.), petitioner,
vs.
CLEMENTE N. PEDROSO, TERESITA O. PEDROSO
and JENNIFER N. PALACIO thru her Attorney-inFact PONCIANO C. MARQUEZ, respondents.
DECISION
QUISUMBING, J.:

This petition for review on certiorari seeks the

reversal of the Decision1 and Resolution,2 dated
November 29, 2002 and August 5, 2003,
respectively, of the Court of Appeals in CA-G.R. CV
No. 33568. The appellate court had affirmed the
Decision3 dated October 10, 1989 of the Regional
Trial Court (RTC) of Manila, Branch 3, finding
petitioner as defendant and the co-defendants below
jointly and severally liable to the plaintiffs, now
herein respondents.
The antecedent facts are as follows:
Respondent Teresita O. Pedroso is a policyholder of a
20-year endowment life insurance issued by
petitioner Filipinas Life Assurance Company (Filipinas
Life). Pedroso claims Renato Valle was her insurance
agent since 1972 and Valle collected her monthly
premiums. In the first week of January 1977, Valle
told her that the Filipinas Life Escolta Office was
holding a promotional investment program for
policyholders. It was offering 8% prepaid interest a
month for certain amounts deposited on a monthly
basis. Enticed, she initially invested and issued a
post-dated
check
dated
January
7,
1977
for P10,000.4 In return, Valle issued Pedroso his
personal check forP800 for the 8%5 prepaid interest
and a Filipinas Life "Agents Receipt" No. 807838.6
Subsequently, she called the Escolta office and
talked to Francisco Alcantara, the administrative
assistant, who referred her to the branch manager,
Angel Apetrior. Pedroso inquired about the
promotional investment and Apetrior confirmed that
there was such a promotion. She was even told she
could "push through with the check" she issued. From
the records, the check, with the endorsement of
Alcantara at the back, was deposited in the account
of Filipinas Life with the Commercial Bank and Trust
Company (CBTC), Escolta Branch.
Relying on the representations made by the
petitioners duly authorized representatives Apetrior
and Alcantara, as well as having known agent Valle
for quite some time, Pedroso waited for the maturity
of her initial investment. A month after, her
investment of P10,000 was returned to her after she
made a written request for its refund. The formal
written request, dated February 3, 1977, was written
on an inter-office memorandum form of Filipinas Life
prepared by Alcantara.7 To collect the amount,
Pedroso personally went to the Escolta branch where

Alcantara gave her the P10,000 in cash. After a

second investment, she made 7 to 8 more
investments in varying amounts, totaling P37,000
but at a lower rate of 5% 8 prepaid interest a month.
Upon maturity of Pedrosos subsequent investments,
Valle
would
take
back
from
Pedroso
the
corresponding yellow-colored agents receipt he
issued to the latter.
Pedroso told respondent Jennifer N. Palacio, also a
Filipinas Life insurance policyholder, about the
investment plan. Palacio made a total investment
of P49,5509 but at only 5% prepaid interest.
However, when Pedroso tried to withdraw her
investment, Valle did
not want to return
some P17,000 worth of it. Palacio also tried to
withdraw hers, but Filipinas Life, despite demands,
refused to return her money. With the assistance of
their lawyer, they went to Filipinas Life Escolta Office
to collect their respective investments, and to inquire
why they had not seen Valle for quite some time. But
their attempts were futile. Hence, respondents filed
an action for the recovery of a sum of money.
After trial, the RTC, Branch 3, Manila, held Filipinas
Life and its co-defendants Valle, Apetrior and
Alcantara jointly and solidarily liable to the
respondents.
On appeal, the Court of Appeals affirmed the trial
courts ruling and subsequently denied the motion
for reconsideration.
Petitioner now comes before us raising a single issue:
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED A REVERSIBLE ERROR AND
GRAVELY ABUSED ITS DISCRETION IN
AFFIRMING THE DECISION OF THE LOWER
COURT HOLDING FLAC [FILIPINAS LIFE] TO
BE JOINTLY AND SEVERALLY LIABLE WITH ITS
CO-DEFENDANTS ON THE CLAIM OF
RESPONDENTS INSTEAD OF HOLDING ITS
AGENT, RENATO VALLE, SOLELY LIABLE TO
THE RESPONDENTS.10
Simply put, did the Court of Appeals err in holding
petitioner and its co-defendants jointly and severally
liable to the herein respondents?

Filipinas Life does not dispute that Valle was its

agent, but claims that it was only a life insurance
company and was not engaged in the business of
collecting investment money. It contends that the
investment scheme offered to respondents by Valle,
Apetrior and Alcantara was outside the scope of their
authority as agents of Filipinas Life such that, it
cannot be held liable to the respondents.11
On the other hand, respondents contend that
Filipinas Life authorized Valle to solicit investments
from them. In fact, Filipinas Lifes official documents
and facilities were used in consummating the
transactions. These transactions, according to
respondents, were confirmed by its officers Apetrior
and Alcantara. Respondents assert they exercised all
the diligence required of them in ascertaining the
authority of petitioners agents; and it is Filipinas Life
that failed in its duty to ensure that its agents act
within the scope of their authority.
Considering the issue raised in the light of the
submissions of the parties, we find that the petition
lacks merit. The Court of Appeals committed no
reversible error nor abused gravely its discretion in
rendering the assailed decision and resolution.
It appears indisputable that respondents Pedroso and
Palacio
had
invested P47,000
and P49,550,
respectively. These were received by Valle and
remitted to Filipinas Life, using Filipinas Lifes official
receipts, whose authenticity were not disputed.
Valles authority to solicit and receive investments
was also established by the parties. When
respondents sought confirmation, Alcantara, holding
a supervisory position, and Apetrior, the branch
manager, confirmed that Valle had authority. While it
is true that a person dealing with an agent is put
upon inquiry and must discover at his own peril the
agents authority, in this case, respondents did
exercise due diligence in removing all doubts and in
confirming the validity of the representations made
by Valle.
Filipinas Life, as the principal, is liable for obligations
contracted by its agent Valle. By the contract of
agency, a person binds himself to render some
service or to do something in representation or on
behalf of another, with the consent or authority of
the latter.12 The general rule is that the principal is
responsible for the acts of its agent done within the
scope of its authority, and should bear the damage

caused to third persons.13 When the agent exceeds

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

E. Rubio. Respondent amended her complaint to

include specific performance and damages.

G.R. No. 137162

January 24, 2007

CORAZON L. ESCUETA, assisted by her husband

EDGAR ESCUETA, IGNACIO E. RUBIO, THE HEIRS
OF LUZ R. BALOLOY, namely, ALEJANDRINO R.
BALOLOY and BAYANI R. BALOLOY, Petitioners,
vs.
RUFINA LIM, Respondent.
DECISION
AZCUNA, J.:
This is an appeal by certiorari 1 to annul and set aside
the Decision and Resolution of the Court of Appeals
(CA) dated October 26, 1998 and January 11, 1999,
respectively, in CA-G.R. CV No. 48282, entitled
"Rufina Lim v. Corazon L. Escueta, etc., et. al."
2

The facts appear as follows:

Respondent Rufina Lim filed an action to remove
cloud on, or quiet title to, real property, with
preliminary injunction and issuance of [a holddeparture order] from the Philippines against Ignacio

In her amended complaint, respondent averred inter

alia that she bought the hereditary shares (consisting
of 10 lots) of Ignacio Rubio [and] the heirs of Luz
Baloloy, namely: Alejandrino, Bayani, and other coheirs; that said vendors executed a contract of sale
dated April 10, 1990 in her favor; that Ignacio Rubio
and the heirs of Luz Baloloy received [a down
payment] or earnest money in the amount
of P102,169.86 and P450,000, respectively; that it
was agreed in the contract of sale that the vendors
would secure certificates of title covering their
respective hereditary shares; that the balance of the
purchase price would be paid to each heir upon
presentation of their individual certificate[s] of [title];
that Ignacio Rubio refused to receive the other half of
the down payment which is P[100,000]; that Ignacio
Rubio refused and still refuses to deliver to
[respondent] the certificates of title covering his
share on the two lots; that with respect to the heirs
of Luz Baloloy, they also refused and still refuse to
perform the delivery of the two certificates of title
covering their share in the disputed lots; that
respondent was and is ready and willing to pay
Ignacio Rubio and the heirs of Luz Baloloy upon
presentation of their individual certificates of title,
free from whatever lien and encumbrance;
As to petitioner Corazon Escueta, in spite of her
knowledge that the disputed lots have already been
sold by Ignacio Rubio to respondent, it is alleged that
a simulated deed of sale involving said lots was
effected by Ignacio Rubio in her favor; and that the
simulated deed of sale by Rubio to Escueta has
raised doubts and clouds over respondents title.
In their separate amended answers, petitioners
denied the material allegations of the complaint and
alleged inter alia the following:
For the heirs of Luz Baloloy (Baloloys for brevity):
Respondent has no cause of action, because the
subject contract of sale has no more force and effect
as far as the Baloloys are concerned, since they have
withdrawn their offer to sell for the reason that
respondent failed to pay the balance of the purchase
price as orally promised on or before May 1, 1990.

For petitioners Ignacio Rubio (Rubio for brevity) and

Corazon Escueta (Escueta for brevity):

With costs against [petitioners] Alejandrino Baloloy

and Bayani Baloloy.

Respondent has no cause of action, because Rubio

has not entered into a contract of sale with her; that
he has appointed his daughter Patricia Llamas to be
his attorney-in-fact and not in favor of Virginia Rubio
Laygo Lim (Lim for brevity) who was the one who
represented him in the sale of the disputed lots in
favor of respondent; that theP100,000 respondent
claimed he received as down payment for the lots is
a simple transaction by way of a loan with Lim.

SO ORDERED.3

The Baloloys failed to appear at the pre-trial. Upon

motion of respondent, the trial court declared the
Baloloys in default. They then filed a motion to lift
the order declaring them in default, which was
denied by the trial court in an order dated November
27, 1991. Consequently, respondent was allowed to
adduce evidence ex parte. Thereafter, the trial court
rendered a partial decision dated July 23, 1993
against the Baloloys, the dispositive portion of which
reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby
rendered in favor of [respondent] and against
[petitioners, heirs] of Luz R. Balolo[y], namely:
Alejandrino Baloloy and Bayani Baloloy. The
[petitioners] Alejandrino Baloloy and Bayani Baloloy
are ordered to immediately execute an [Absolute]
Deed of Sale over their hereditary share in the
properties covered by TCT No. 74392 and TCT No.
74394, after payment to them by [respondent] the
amount of P[1,050,000] or consignation of said
amount in Court. [For] failure of [petitioners]
Alejandrino Baloloy and Bayani Baloloy to execute
the Absolute Deed of Sale over their hereditary share
in the property covered by TCT No. T-74392 and TCT
No. T-74394 in favor of [respondent], the Clerk of
Court is ordered to execute the necessary Absolute
Deed of Sale in behalf of the Baloloys in favor of
[respondent,] with a consideration ofP[1,500,000].
Further[,] [petitioners] Alejandrino Baloloy and
Bayani Baloloy are ordered to jointly and severally
pay [respondent] moral damages in the amount
of P[50,000] and P[20,000] for attorneys fees. The
adverse claim annotated at the back of TCT No. T74392 and TCT No. T-74394[,] insofar as the shares
of Alejandrino Baloloy and Bayani Baloloy are
concerned[,] [is] ordered cancelled.

a. the validity of the subject

contract of sale in favor of
[respondent] is upheld.
b. Rubio is directed to execute a
Deed of Absolute Sale conditioned
upon the payment of the balance
of
the
purchase
price
by
[respondent] within 30 days from
the receipt of the entry of
judgment of this Decision.

The Baloloys filed a petition for relief from judgment

and order dated July 4, 1994 and supplemental
petition dated July 7, 1994. This was denied by the
trial court in an order dated September 16, 1994.
Hence, appeal to the Court of Appeals was taken
challenging the order denying the petition for relief.

c. the contracts of sale between

Rubio
and
Escueta
involving
Rubios share in the disputed
properties is declared NULL and
VOID.

Trial on the merits ensued between respondent and

Rubio and Escueta. After trial, the trial court rendered
its assailed Decision, as follows:
IN VIEW OF THE FOREGOING, the complaint [and]
amended
complaint
are
dismissed
against
[petitioners] Corazon L. Escueta, Ignacio E. Rubio[,]
and the Register of Deeds. The counterclaim of
[petitioners]
[is]
also
dismissed.
However,
[petitioner] Ignacio E. Rubio is ordered to return to
the [respondent], Rufina Lim[,] the amount
of P102,169.80[,] with interest at the rate of six
percent (6%) per annum from April 10, [1990] until
the same is fully paid. Without pronouncement as to
costs.

d. Rubio and Escueta are ordered

to pay jointly and severally the
[respondent]
the
amount
ofP[20,000] as moral damages
and P[20,000] as attorneys fees.
3. the appeal of Rubio and Escueta on the
denial of their counterclaim is DISMISSED.
SO ORDERED.5

SO ORDERED.4
On appeal, the CA affirmed the trial courts order and
partial decision, but reversed the later decision. The
dispositive portion of its assailed Decision reads:
WHEREFORE, upon all the
considered, this Court rules:

foregoing

premises

1. the appeal of the Baloloys from the Order

denying the Petition for Relief from
Judgment and Orders dated July 4, 1994 and
Supplemental Petition dated July 7, 1994 is
DISMISSED. The Order appealed from is
AFFIRMED.
2. the Decision dismissing [respondents]
complaint is REVERSED and SET ASIDE and
a new one is entered. Accordingly,

Petitioners Motion for Reconsideration of the CA

Decision was denied. Hence, this petition.
The issues are:
I
THE HONORABLE COURT OF APPEALS ERRED IN
DENYING THE PETITION FOR RELIEF FROM JUDGMENT
FILED BY THE BALOLOYS.
II
THE HONORABLE COURT OF APPEALS ERRED IN
REINSTATING THE COMPLAINT AND IN AWARDING
MORAL DAMAGES AND ATTORNEYS FEES IN FAVOR
OF RESPONDENT RUFINA L. LIM CONSIDERING THAT:

A. IGNACIO E. RUBIO IS NOT BOUND BY THE

CONTRACT OF SALE BETWEEN VIRGINIA
LAYGO-LIM AND RUFINA LIM.

Furthermore, petitioner Alejandrino was not clothed

with a power of attorney to appear on behalf of
Bayani at the pre-trial conference.

B. THE CONTRACT ENTERED INTO BETWEEN

RUFINA LIM AND VIRGINIA LAYGO-LIM IS A
CONTRACT TO SELL AND NOT A CONTRACT
OF SALE.

Second, the sale by Virginia to respondent is not

binding. Petitioner Rubio did not authorize Virginia to
transact business in his behalf pertaining to the
property. The Special Power of Attorney was
constituted in favor of Llamas, and the latter was not
empowered to designate a substitute attorney-infact. Llamas even disowned her signature appearing
on the "Joint Special Power of Attorney," which
constituted Virginia as her true and lawful attorneyin-fact in selling Rubios properties.

C. RUFINA LIM FAILED TO FAITHFULLY

COMPLY WITH HER OBLIGATIONS UNDER
THE
CONTRACT
TO
SELL
THEREBY
WARRANTING THE CANCELLATION THEREOF.
D. CORAZON L. ESCUETA ACTED IN UTMOST
GOOD FAITH IN ENTERING INTO THE
CONTRACT OF SALE WITH IGNACIO E.
RUBIO.
III
THE CONTRACT OF SALE EXECUTED
BETWEEN IGNACIO E. RUBIO AND CORAZON
L. ESCUETA IS VALID.

Dealing with an assumed agent, respondent should

ascertain not only the fact of agency, but also the
nature and extent of the formers authority. Besides,
Virginia exceeded the authority for failing to comply
with her obligations under the "Joint Special Power of
Attorney."
The amount encashed by Rubio represented not the
down payment, but the payment of respondents
debt. His acceptance and encashment of the check
was not a ratification of the contract of sale.

IV
THE HONORABLE COURT
ERRED
IN
DISMISSING
COUNTERCLAIMS.

OF APPEALS
PETITIONERS

Briefly, the issue is whether the contract of sale

between petitioners and respondent is valid.
Petitioners argue, as follows:
First, the CA did not consider the circumstances
surrounding petitioners failure to appear at the pretrial and to file the petition for relief on time.
As to the failure to appear at the pre-trial, there was
fraud, accident and/or excusable neglect, because
petitioner Bayani was in the United States. There was
no service of the notice of pre-trial or order. Neither
did the former counsel of record inform him.
Consequently, the order declaring him in default is
void, and all subsequent proceedings, orders, or
decision are void.

Third, the contract between respondent and Virginia

is a contract to sell, not a contract of sale. The real
character of the contract is not the title given, but
the intention of the parties. They intended to reserve
ownership of the property to petitioners pending full
payment of the purchase price. Together with taxes
and other fees due on the properties, these are
conditions precedent for the perfection of the sale.
Even assuming that the contract is ambiguous, the
same must be resolved against respondent, the party
who caused the same.
Fourth, Respondent failed to faithfully fulfill her part
of the obligation. Thus, Rubio had the right to sell his
properties to Escueta who exercised due diligence in
ascertaining ownership of the properties sold to her.
Besides, a purchaser need not inquire beyond what
appears in a Torrens title.
The petition lacks merit. The contract of sale
between
petitioners
and
respondent
is
valid.lawphil.net

Bayani Baloloy was represented by his attorney-infact, Alejandrino Baloloy. In the Baloloys answer to
the original complaint and amended complaint, the
allegations relating to the personal circumstances of
the Baloloys are clearly admitted.
"An admission, verbal or written, made by a party in
the course of the proceedings in the same case, does
not require proof."6 The "factual admission in the
pleadings on record [dispenses] with the need x x x
to present evidence to prove the admitted fact."7 It
cannot, therefore, "be controverted by the party
making such admission, and [is] conclusive" 8 as to
them. All proofs submitted by them "contrary thereto
or inconsistent therewith should be ignored whether
objection is interposed by a party or not." 9 Besides,
there is no showing that a palpable mistake has been
committed in their admission or that no admission
has been made by them.
Pre-trial is mandatory.10 The notices of pre-trial had
been sent to both the Baloloys and their former
counsel of record. Being served with notice, he is
"charged with the duty of notifying the party
represented by him."11 He must "see to it that his
client receives such notice and attends the pretrial."12 What the Baloloys and their former counsel
have alleged instead in their Motion to Lift Order of
As In Default dated December 11, 1991 is the
belated receipt of Bayani Baloloys special power of
attorney in favor of their former counsel, not that
they have not received the notice or been informed
of the scheduled pre-trial. Not having raised the
ground of lack of a special power of attorney in their
motion, they are now deemed to have waived it.
Certainly, they cannot raise it at this late stage of the
proceedings. For lack of representation, Bayani
Baloloy was properly declared in default.
Section 3 of Rule 38 of the Rules of Court states:
SEC. 3. Time for filing petition; contents and
verification. A petition provided for in either of the
preceding sections of this Rule must be verified, filed
within sixty (60) days after the petitioner learns of
the judgment, final order, or other proceeding to be
set aside, and not more than six (6) months after
such judgment or final order was entered, or such
proceeding was taken; and must be accompanied
with affidavits showing the fraud, accident, mistake,
or excusable negligence relied upon, and the facts

constituting the petitioners good and substantial

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

x the trial x x x that it would not be necessary for

him to take an active part in the case x x x by relying
on another person to attend to the case for him,
when such other person x x x was chargeable with
that duty x x x, or by other circumstances not
involving fault of the moving party." 18
Article 1892 of the Civil Code provides:
Art. 1892. The agent may appoint a substitute if the
principal has not prohibited him from doing so; but
he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one
x x x.
Applying the above-quoted provision to the special
power of attorney executed by Ignacio Rubio in favor
of his daughter Patricia Llamas, it is clear that she is
not prohibited from appointing a substitute. By
authorizing Virginia Lim to sell the subject properties,
Patricia merely acted within the limits of the
authority given by her father, but she will have to be
"responsible for the acts of the sub-agent," 19 among
which is precisely the sale of the subject properties in
favor of respondent.
Even assuming that Virginia Lim has no authority to
sell the subject properties, the contract she executed
in favor of respondent is not void, but simply
unenforceable, under the second paragraph of Article
1317 of the Civil Code which reads:
Art. 1317. x x x
A contract entered into in the name of another by
one who has no authority or legal representation, or
who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other
contracting party.
Ignacio Rubio merely denies the contract of sale. He
claims, without substantiation, that what he received
was a loan, not the down payment for the sale of the
subject properties. His acceptance and encashment
of the check, however, constitute ratification of the
contract of sale and "produce the effects of an
express power of agency." 20"[H]is action necessarily

implies that he waived his right of action to avoid the

contract, and, consequently, it also implies the tacit,
if not express, confirmation of the said sale effected"
by Virginia Lim in favor of respondent.
Similarly, the Baloloys have ratified the contract of
sale when they accepted and enjoyed its benefits.
"The doctrine of estoppel applicable to petitioners
here is not only that which prohibits a party from
assuming inconsistent positions, based on the
principle of election, but that which precludes him
from repudiating an obligation voluntarily assumed
after having accepted benefits therefrom. To
countenance such repudiation would be contrary to
equity, and would put a premium on fraud or
misrepresentation."21
Indeed, Virginia Lim and respondent have entered
into a contract of sale. Not only has the title to the
subject properties passed to the latter upon delivery
of the thing sold, but there is also no stipulation in
the contract that states the ownership is to be
reserved in or "retained by the vendor until full
payment of the price."22
Applying Article 1544 of the Civil Code, a second
buyer of the property who may have had actual or
constructive knowledge of such defect in the sellers
title, or at least was charged with the obligation to
discover such defect, cannot be a registrant in good
faith. Such second buyer cannot defeat the first
buyers title. In case a title is issued to the second
buyer, the first buyer may seek reconveyance of the
property subject of the sale.23 Even the argument
that a purchaser need not inquire beyond what
appears in a Torrens title does not hold water. A
perusal of the certificates of title alone will reveal
that the subject properties are registered in common,
not in the individual names of the heirs.
Nothing in the contract "prevents the obligation of
the vendor to convey title from becoming
effective"24 or gives "the vendor the right to
unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period."25Petitioners
themselves have failed to deliver their individual
certificates of title, for which reason it is obvious that
respondent cannot be expected to pay the stipulated
taxes, fees, and expenses.
"[A]ll the elements of a valid contract of sale under
Article 1458 of the Civil Code are present, such as:

(1) consent or meeting of the minds; (2) determinate

subject matter; and (3) price certain in money or its
equivalent."26Ignacio Rubio, the Baloloys, and their
co-heirs sold their hereditary shares for a price
certain to which respondent agreed to buy and pay
for the subject properties. "The offer and the
acceptance are concurrent, since the minds of the
contracting parties meet in the terms of the
agreement."27
In fact, earnest money has been given
respondent. "[I]t shall be considered as part of
price and as proof of the perfection of
contract.28 It constitutes an advance payment to
deducted from the total price."29

by
the
the
"be

Article 1477 of the same Code also states that "[t]he

ownership of the thing sold shall be transferred to
the vendee upon actual or constructive delivery
thereof."30 In the present case, there is actual
delivery as manifested by acts simultaneous with
and subsequent to the contract of sale when
respondent not only took possession of the subject
properties but also allowed their use as parking
terminal for jeepneys and buses. Moreover, the
execution itself of the contract of sale is constructive
delivery.
Consequently, Ignacio Rubio could no longer sell the
subject properties to Corazon Escueta, after having
sold them to respondent. "[I]n a contract of sale, the
vendor loses ownership over the property and cannot
recover it until and unless the contract is resolved or
rescinded x x x."31 The records do not show that
Ignacio Rubio asked for a rescission of the contract.
What he adduced was a belated revocation of the
special power of attorney he executed in favor of
Patricia Llamas. "In the sale of immovable property,
even though it may have been stipulated that upon
failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place, the
vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the
contract has been made upon him either judicially or
by a notarial act."32
WHEREFORE, the petition is DENIED. The Decision
and Resolution of the Court of Appeals in CA-G.R. CV
No. 48282, dated
October 26, 1998 and January 11, 1999, respectively,
are hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

The Facts
Paciencia Regala owns a seven (7)-hectare fishpond
located at Sasmuan, Pampanga. Her Attorney-in-Fact
Faustino R. Mercado leased the fishpond for PhP
230,000.00 to Eduardo Lapid for a three (3)-year
period, that is, from August 7, 1990 to August 7,
1993.10 Lessee Eduardo Lapid in turn sub-leased the
fishpond to Rafael Lopez for PhP 50,000.00 during
the last seven (7) months of the original lease, that
is, from January 10, 1993 to August 7,
1993.11 Respondent Ernesto Salenga was hired by
Eduardo Lapid as fishpond watchman (banteencargado). In the sub-lease, Rafael Lopez rehired
respondent Salenga.

G.R. No. 136433

December 6, 2006
ANTONIO
B.
BALTAZAR, petitioner,
vs.
HONORABLE
OMBUDSMAN,
EULOGIO
M.
MARIANO, JOSE D. JIMENEZ, JR., TORIBIO E.
ILAO,
JR.
and
ERNESTO
R.
SALENGA, respondents.
VELASCO, JR., J.:
The Case
Ascribing grave abuse of discretion to respondent
Ombudsman,
this
Petition
for
Review
on
Certiorari,1 under Rule 45 pursuant to Section 27 of
RA 6770,2 seeks to reverse and set aside the
November 26, 1997 Order3 of the Office of the
Special Prosecutor (OSP) in OMB-1-94-3425 duly
approved by then Ombudsman Aniano Desierto on
August 21, 1998, which recommended the dismissal
of the Information4 in Criminal Case No. 23661 filed
before the Sandiganbayan against respondents
Pampanga Provincial Adjudicator Toribio E. Ilao, Jr.,
Chief Legal Officer Eulogio M. Mariano and Legal
Officer Jose D. Jimenez, Jr. (both of the DAR Legal
Division in San Fernando, Pampanga), and Ernesto R.
Salenga. The petition likewise seeks to set aside the
October 30, 1998 Memorandum5 of the OSP duly
approved by the Ombudsman on November 27, 1998
which
denied
petitioner's
Motion
for
Reconsideration.6 Previously, the filing of the
Information against said respondents was authorized
by the May 10, 1996 Resolution7 and October 3, 1996
Order8 of the Ombudsman which found probable
cause that they granted unwarranted benefits,
advantage, and preference to respondent Salenga in
violation of Section 3 (e) of RA 3019.9

Meanwhile, on March 11, 1993, respondent Salenga,

through a certain Francis Lagman, sent his January
28, 1993 demand letter12 to Rafael Lopez and
Lourdes Lapid for unpaid salaries and non-payment
of the 10% share in the harvest.
On June 5, 1993, sub-lessee Rafael Lopez wrote a
letter to respondent Salenga informing the latter that
for the last two (2) months of the sub-lease, he had
given the rights over the fishpond to Mario Palad and
Ambit Perez for PhP 20,000.00. 13 This prompted
respondent Salenga to file a Complaint14 before the
Provincial Agrarian Reform Adjudication Board
(PARAB), Region III, San Fernando, Pampanga
docketed
as
DARAB
Case
No.
552-P93
entitled Ernesto R. Salenga v. Rafael L. Lopez and
Lourdes L. Lapid for Maintenance of Peaceful
Possession, Collection of Sum of Money and
Supervision of Harvest. The Complaint was signed by
respondent Jose D. Jimenez, Jr., Legal Officer of the
Department of Agrarian Reform (DAR) Region III
Office in San Fernando, Pampanga, as counsel for
respondent Salenga; whereas respondent Eulogio M.
Mariano was the Chief Legal Officer of DAR Region III.
The case was assigned to respondent Toribio E. Ilao,
Jr., Provincial Adjudicator of DARAB, Pampanga.
On May 10, 1993, respondent Salenga amended his
complaint.15 The amendments included a prayer for
the issuance of a temporary restraining order (TRO)
and preliminary injunction. However, before the
prayer for the issuance of a TRO could be acted
upon, on June 16, 1993, respondent Salenga filed a
Motion to Maintain Status Quo and to Issue
Restraining Order16 which was set for hearing on June
22, 1993. In the hearing, however, only respondent
Salenga with his counsel appeared despite notice to
the
other
parties.
Consequently,
the expartepresentation of respondent Salengas evidence

in support of the prayer for the issuance of a

restraining order was allowed, since the motion was
unopposed, and on July 21, 1993, respondent Ilao, Jr.
issued a TRO.17
Thereafter, respondent Salenga asked for supervision
of the harvest, which the board sheriff did.
Accordingly, defendants Lopez and Lapid received
their respective shares while respondent Salenga
was given his share under protest. In the subsequent
hearing for the issuance of a preliminary injunction,
again, only respondent Salenga appeared and
presented his evidence for the issuance of the writ.
Pending resolution of the case, Faustino Mercado, as
Attorney-in-Fact of the fishpond owner Paciencia
Regala, filed a motion to intervene which was
granted by respondent Ilao, Jr. through the November
15, 1993 Order. After the trial, respondent Ilao, Jr.
rendered a Decision on May 29, 1995 dismissing the
Complaint for lack of merit; but losing plaintiff,
respondent Salenga, appealed the decision before
the DARAB Appellate Board.
Complaint Before the Ombudsman
On November 24, 1994, pending resolution of the
agrarian case, the instant case was instituted by
petitioner Antonio Baltazar, an alleged nephew of
Faustino
Mercado,
through
a
ComplaintAffidavit18 against private respondents before the
Office of the Ombudsman which was docketed as
OMB-1-94-3425 entitled Antonio B. Baltazar v.
Eulogio Mariano, Jose Jimenez, Jr., Toribio Ilao, Jr. and
Ernesto Salenga for violation of RA 3019. Petitioner
charged private respondents of conspiracy through
the issuance of the TRO in allowing respondent
Salenga to retain possession of the fishpond, operate
it, harvest the produce, and keep the sales under the
safekeeping of other private respondents. Moreover,
petitioner maintains that respondent Ilao, Jr. had no
jurisdiction to hear and act on DARAB Case No. 552P93 filed by respondent Salenga as there was no
tenancy relation between respondent Salenga and
Rafael L. Lopez, and thus, the complaint was
dismissible on its face.
Through the December 14, 1994 Order, 19 the
Ombudsman required private respondents to file
their counter-affidavits, affidavits of their witnesses,
and other controverting evidence. While the other
respondents submitted their counter-affidavits,
respondent Ilao, Jr. instead filed his February 9, 1995
motion to dismiss, February 21, 1995 Reply, and
March 24, 1995 Rejoinder.

Ombudsmans
Cause

Determination

of

Probable

On May 10, 1996, the Ombudsman issued a

Resolution20 finding cause to bring respondents to
court, denying the motion to dismiss of respondent
Ilao, Jr., and recommending the filing of an
Information for violation of Section 3 (e) of RA 3019.
Subsequently, respondent Ilao, Jr. filed his September
16, 1996 Motion for Reconsideration and/or Reinvestigation21 which was denied through the October
3, 1996 Order.22Consequently, the March 17, 1997
Information23 was filed against all the private
respondents before the Sandiganbayan which was
docketed as Criminal Case No. 23661.
Before the graft court, respondent Ilao, Jr. filed his
May 19, 1997 Motion for Reconsideration and/or Reinvestigation which was granted through the August
29, 1997 Order.24 On September 8, 1997, respondent
Ilao, Jr. subsequently filed his Counter-Affidavit 25 with
attachments while petitioner did not file any replyaffidavit despite notice to him. The OSP of the
Ombudsman conducted the re-investigation; and the
result of the re-investigation was embodied in the
assailed
November
26,
1997
Order 26 which
recommended the dismissal of the complaint in OMB1-94-3425 against all private respondents. Upon
review, the Ombudsman approved the OSPs
recommendation on August 21, 1998.
Petitioners Motion for Reconsideration 27 was likewise
denied by the OSP through the October 30, 1998
Memorandum28 which
was
approved
by
the
Ombudsman on November 27, 1998. Consequently,
the trial prosecutor moved orally before the
Sandiganbayan for the dismissal of Criminal Case No.
23661 which was granted through the December 11,
1998 Order.29
Thus, the instant petition is before us.
The Issues
Petitioner raises two assignments of errors, to wit:
THE HONORABLE OMBUDSMAN ERRED IN
GIVING
DUE
COURSE
A
MISPLACED
COUNTER-AFFIDAVIT FILED AFTER THE
TERMINATION
OF
THE
PRELIMINARY
INVESTIGATION AND/OR THE CASE WAS
ALREADY
FILED
BEFORE
THE
SANDIGANBAYAN.

ASSUMING OTHERWISE, THE HONORABLE

OMBUDSMAN
LIKEWISE
ERRED
IN
REVERSING HIS OWN RESOLUTION WHERE
IT WAS RESOLVED THAT ACCUSED AS
PROVINCIAL AGRARIAN ADJUDICATOR HAS
NO JURISDICTION OVER A COMPLAINT
WHERE THERE EXIST [sic] NO TENANCY
RELATIONSHIP
CONSIDERING
[sic]
COMPLAINANT IS NOT A TENANT BUT A
"BANTE-ENCARGADO"
OR
WATCHMANOVERSEER HIRED FOR A SALARY OF
P3,000.00 PER MONTH AS ALLEGED IN HIS
OWN COMPLAINT.30
Before delving into the errors raised by petitioner, we
first address the preliminary procedural issue of the
authority and locus standi of petitioner to pursue the
instant petition.
Preliminary Issue: Legal Standing
Locus standi is defined as "a right of appearance in a
court of justice x x x on a given question."31 In private
suits, standing is governed by the "real-parties-in
interest" rule found in Section 2, Rule 3 of the 1997
Rules of Civil Procedure which provides that "every
action must be prosecuted or defended in the name
of the real party in interest." Accordingly, the "realparty-in interest" is "the party who stands to be
benefited or injured by the judgment in the suit or
the
party
entitled
to
the
avails
of
the
suit."32 Succinctly put, the plaintiffs standing is
based on their own right to the relief sought.
The records show that petitioner is a non-lawyer
appearing for himself and conducting litigation in
person. Petitioner instituted the instant case before
the Ombudsman in his own name. In so far as the
Complaint-Affidavit filed before the Office of the
Ombudsman is concerned, there is no question on his
authority and legal standing. Indeed, the Office of the
Ombudsman is mandated to "investigate and
prosecute on its own or on complaint by any person,
any act or omission of any public officer or employee,
office or agency, when such act or omission appears
to be illegal, unjust, improper or inefficient (emphasis
supplied)."33 The Ombudsman can act on anonymous
complaints and motu proprio inquire into alleged
improper official acts or omissions from whatever
source, e.g., a newspaper. 34 Thus, any complainant
may be entertained by the Ombudsman for the latter
to initiate an inquiry and investigation for alleged
irregularities.

However, filing the petition in person before this

Court is another matter. The Rules allow a non-lawyer
to conduct litigation in person and appear for oneself
only when he is a party to a legal controversy.
Section 34 of Rule 138 pertinently provides, thus:
SEC. 34. By whom litigation conducted. In
the court of a justice of the peace a party
may conduct his litigation in person, with
the aid of an agent or friend appointed by
him for that purpose, or with the aid of an
attorney. In any other court, a party may
conduct his litigation personally or by aid of
an attorney, and hisappearance must be
either personal or by a duly authorized
member of the bar (emphases supplied).
Petitioner has no legal standing
Is petitioner a party or a real party in interest to have
the locus standi to pursue the instant petition? We
answer in the negative.
While petitioner may be the complainant in OMB-194-3425, he is not a real party in interest. Section 2,
Rule 3 of the 1997 Rules of Civil Procedure stipulates,
thus:
SEC. 2. Parties in interest. A real party in
interest is the party who stands to be
benefited or injured by the judgment in the
suit, or the party entitled to the avails of the
suit. Unless otherwise authorized by law or
these Rules, every action must be
prosecuted or defended in the name of the
real party in interest.
The same concept is
administrative cases.

applied

in

criminal

and

In the case at bar which involves a criminal

proceeding stemming from a civil (agrarian) case, it
is clear that petitioner is not a real party in interest.
Except being the complainant, the records show that
petitioner is a stranger to the agrarian case. It must
be recalled that the undisputed owner of the
fishpond is Paciencia Regala, who intervened in
DARAB Case No. 552-P93 through her Attorney-inFact Faustino Mercado in order to protect her interest.
The motion for intervention filed by Faustino
Mercado, as agent of Paciencia Regala, was granted
by respondent Provincial Adjudicator Ilao, Jr. through
the November 15, 1993 Order in DARAB Case No.
552-P93.

Agency cannot be further delegated

Petitioner has not

judicial protection

Petitioner asserts that he is duly authorized by

Faustino Mercado to institute the suit and presented
a Special Power of Attorney 35 (SPA) from Faustino
Mercado. However, such SPA is unavailing for
petitioner. For one, petitioners principal, Faustino
Mercado, is an agent himself and as such cannot
further delegate his agency to another. Otherwise
put, an agent cannot delegate to another the same
agency. The legal maxim potestas delegata non
delegare potest; a power once delegated cannot be
re-delegated, while applied primarily in political law
to the exercise of legislative power, is a principle of
agency.36 For another, a re-delegation of the agency
would be detrimental to the principal as the second
agent has no privity of contract with the former. In
the instant case, petitioner has no privity of contract
with Paciencia Regala, owner of the fishpond and
principal of Faustino Mercado.
Moreover, while the Civil Code under Article
189237 allows the agent to appoint a substitute, such
is not the situation in the instant case. The SPA
clearly delegates the agency to petitioner to pursue
the case and not merely as a substitute. Besides, it is
clear in the aforecited Article that what is allowed is a
substitute and not a delegation of the agency.
Clearly, petitioner is neither a real party in interest
with regard to the agrarian case, nor is he a real
party in interest in the criminal proceedings
conducted by the Ombudsman as elevated to the
Sandiganbayan. He is not a party who will be
benefited or injured by the results of both cases.
Petitioner: a stranger
private complainant

and

not

an

injured

Petitioner only surfaced in November 1994 as

complainant before the Ombudsman. Aside from
that, not being an agent of the parties in the agrarian
case, he has no locus standi to pursue this petition.
He cannot be likened to an injured private
complainant in a criminal complaint who has direct
interest in the outcome of the criminal case.
More so, we note that the petition is not pursued as a
public suit with petitioner asserting a "public right" in
assailing an allegedly illegal official action, and doing
so as a representative of the general public. He is
pursuing the instant case as an agent of an
ineffective agency.

shown

entitlement

to

Even if we consider the instant petition as a public

suit, where we may consider petitioner suing as a
"stranger," or in the category of a "citizen," or
"taxpayer," still petitioner has not adequately shown
that he is entitled to seek judicial protection. In other
words, petitioner has not made out a sufficient
interest in the vindication of the public order and the
securing of relief as a "citizen" or "taxpayer"; more
so when there is no showing that he was injured by
the dismissal of the criminal complaint before the
Sandiganbayan.
Based on the foregoing discussion, petitioner
indubitably does not have locus standi to pursue this
action and the instant petition must be forthwith
dismissed on that score. Even granting arguendo that
he has locus standi, nonetheless, petitioner fails to
show grave abuse of discretion of respondent
Ombudsman to warrant a reversal of the assailed
November 26, 1997 Order and the October 30, 1998
Memorandum.
First Issue: Submission of Counter-Affidavit
The Sandiganbayan, not
ordered re-investigation

the

Ombudsman,

On the substantive aspect, in the first assignment of

error, petitioner imputes grave abuse of discretion on
public
respondent
Ombudsman
for
allowing
respondent Ilao, Jr. to submit his Counter-Affidavit
when the preliminary investigation was already
concluded and an Information filed with the
Sandiganbayan which assumed jurisdiction over the
criminal case. This contention is utterly erroneous.
The facts clearly show that it was not the
Ombudsman through the OSP who allowed
respondent Ilao, Jr. to submit his Counter-Affidavit. It
was the Sandiganbayan who granted the prayed for
re-investigation and ordered the OSP to conduct the
re-investigation through its August 29, 1997 Order,
as follows:
Considering the manifestation of Prosecutor
Cicero Jurado, Jr. that accused Toribio E. Ilao,
Jr. was not able to file his counter-affidavit in
the preliminary investigation, there appears
to be some basis for granting the motion of
said accused for reinvestigation.

WHEREFORE, accused Toribio E. Ilao, Jr. may

file his counter-affidavit, with documentary
evidence attached, if any, with the Office of
the Special Prosecutor within then (10) days
from today. Theprosecution is ordered to
conduct a reinvestigation within a period
of thirty (30) days.38 (Emphases supplied.)
As it is, public respondent Ombudsman through the
OSP did not exercise any discretion in allowing
respondent Ilao, Jr. to submit his Counter-Affidavit.
The OSP simply followed the graft courts directive to
conduct the re-investigation after the CounterAffidavit of respondent Ilao, Jr. was filed. Indeed,
petitioner did not contest nor question the August
29, 1997 Order of the graft court. Moreover,
petitioner did not file any reply-affidavit in the reinvestigation despite notice.
Re-investigation upon sound discretion of graft
court
Furthermore, neither can we fault the graft court in
granting the prayed for re-investigation as it can
readily be seen from the antecedent facts that
respondent Ilao, Jr. was not given the opportunity to
file his Counter-Affidavit. Respondent Ilao, Jr. filed a
motion to dismiss with the Ombudsman but such was
not resolved before the Resolutionfinding cause to
bring respondents to trialwas issued. In fact,
respondent Ilao, Jr.s motion to dismiss was resolved
only through the May 10, 1996 Resolution which
recommended the filing of an Information.
Respondent Ilao, Jr.s Motion for Reconsideration
and/or Re-investigation was denied and the
Information was filed with the graft court.
Verily, courts are given wide latitude to accord the
accused ample opportunity to present controverting
evidence even before trial as demanded by due
process. Thus, we held in Villaflor v. Vivar that "[a]
component part of due process in criminal justice,
preliminary investigation is a statutory and
substantive right accorded to the accused before
trial. To deny their claim to a preliminary
investigation would be to deprive them of the full
measure of their right to due process." 39
Second Issue: Agrarian Dispute
Anent the second assignment of error, petitioner
contends that DARAB Case No. 552-P93 is not an
agrarian dispute and therefore outside the
jurisdiction of the DARAB. He maintains that

respondent Salenga is not an agricultural tenant but

a mere watchman of the fishpond owned by
Paciencia Regala. Moreover, petitioner further argues
that Rafael Lopez and Lourdes Lapid, the
respondents in the DARAB case, are not the owners
of the fishpond.
Nature of the case determined by allegations
in the complaint
This argument is likewise bereft of merit. Indeed, as
aptly pointed out by respondents and as borne out by
the antecedent facts, respondent Ilao, Jr. could not
have acted otherwise. It is a settled rule that
jurisdiction over the subject matter is determined by
the allegations of the complaint. 40 The nature of an
action is determined by the material averments in
the complaint and the character of the relief
sought,41 not by the defenses asserted in the answer
or motion to dismiss.42 Given that respondent
Salengas complaint and its attachment clearly spells
out the jurisdictional allegations that he is an
agricultural tenant in possession of the fishpond and
is about to be ejected from it, clearly, respondent
Ilao, Jr. could not be faulted in assuming jurisdiction
as said allegations characterize an agricultural
dispute. Besides, whatever defense asserted in an
answer or motion to dismiss is not to be considered
in resolving the issue on jurisdiction as it cannot be
made dependent upon the allegations of the
defendant.
Issuance of TRO upon the sound discretion of
hearing officer
As regards the issuance of the TRO, considering the
proper assumption of jurisdiction by respondent Ilao,
Jr., it can be readily culled from the antecedent facts
that his issuance of the TRO was a proper exercise of
discretion. Firstly, the averments with evidence as to
the existence of the need for the issuance of the
restraining order were manifest in respondent
Salengas Motion to Maintain Status Quo and to Issue
Restraining Order,43 the attached Police Investigation
Report,44 and Medical Certificate.45 Secondly, only
respondent Salenga attended the June 22, 1993
hearing despite notice to parties. Hence, Salengas
motion was not only unopposed but his evidence
adduced ex-parte also adequately supported the
issuance of the restraining order.
Premises considered, respondent Ilao, Jr. has
correctly assumed jurisdiction and properly exercised
his discretion in issuing the TROas respondent Ilao,
Jr. aptly maintained that giving due course to the

complaint and issuing the TRO do not reflect the final

determination of the merits of the case. Indeed, after
hearing the case, respondent Ilao, Jr. rendered a
Decision on May 29, 1995 dismissing DARAB Case
No. 552-P93 for lack of merit.
Court
will
not
review
determination of probable cause

prosecutors

Finally, we will not delve into the merits of the

Ombudsmans reversal of its initial finding of
probable cause or cause to bring respondents to trial.
Firstly, petitioner has not shown that the
Ombudsman committed grave abuse of discretion in
rendering such reversal. Secondly, it is clear from the
records that the initial finding embodied in the May
10, 1996 Resolution was arrived at before the filing of
respondent Ilao, Jr.s Counter-Affidavit. Thirdly, it is
the responsibility of the public prosecutor, in this
case the Ombudsman, to uphold the law, to
prosecute the guilty, and to protect the innocent.
Lastly, the function of determining the existence of
probable cause is proper for the Ombudsman in this
case and we will not tread on the realm of this
executive function to examine and assess evidence
supplied by the parties, which is supposed to be
exercised at the start of criminal proceedings.
In Perez v. Hagonoy Rural Bank, Inc.,46 as cited
in Longos
Rural
Waterworks
and
Sanitation
Association, Inc. v. Hon. Desierto,47 we had occasion
to rule that we cannot pass upon the sufficiency or
insufficiency of evidence to determine the existence
of probable cause.48
WHEREFORE, the instant petition is DENIED for lack
of merit, and the November 26, 1997 Order and the
October 30, 1998 Memorandum of the Office of the
Special Prosecutor in Criminal Case No. 23661 (OMB1-94-3425) are hereby AFFIRMED IN TOTO, with
costs against petitioner.SO ORDERED.
G.R. No. 130423

November 18, 2002

VIRGIE
SERONA, petitioner,
vs.
HON. COURT OF APPEALS and THE PEOPLE OF
THE PHILIPPINES, respondents.
DECISION
YNARES-SANTIAGO, J.:

During the period from July 1992 to September 1992,

Leonida Quilatan delivered pieces of jewelry to
petitioner Virgie Serona to be sold on commission
basis. By oral agreement of the parties, petitioner
shall remit payment or return the pieces of jewelry if
not sold to Quilatan, both within 30 days from receipt
of the items.
Upon petitioners failure to pay on September 24,
1992, Quilatan required her to execute an
acknowledgment receipt (Exhibit B) indicating their
agreement and the total amount due, to wit:
Ako, si Virginia Serona, nakatira sa Mother Earth
Subd., Las Pinas, ay kumuha ng mga alahas kay Gng.
Leonida Quilatan na may kabuohang halaga na
P567,750.00 para ipagbili para ako magkakomisyon
at ibibigay ang benta kung mabibili o ibabalik sa
kanya ang mga nasabing alahas kung hindi mabibili
sa loob ng 30 araw.
Las Pinas, September 24, 1992.1
The receipt was signed by petitioner and a witness,
Rufina G. Navarette.
Unknown to Quilatan, petitioner had earlier entrusted
the jewelry to one Marichu Labrador for the latter to
sell on commission basis. Petitioner was not able to
collect payment from Labrador, which caused her to
likewise fail to pay her obligation to Quilatan.
Subsequently, Quilatan, through counsel, sent a
formal letter of demand2 to petitioner for failure to
settle her obligation. Quilatan executed a complaint
affidavit3 against petitioner before the Office of the
Assistant Provincial Prosecutor. Thereafter, an
information for estafa under Article 315, paragraph
1(b)4 of the Revised Penal Code was filed against
petitioner, which was raffled to Branch 255 of the
Regional Trial Court of Las Pinas. The information
alleged:
That on or about and sometime during the period
from July 1992 up to September 1992, in the
Municipality of Las Pinas, Metro Manila, Philippines,
and within the jurisdiction of this Honorable Court,
the said accused received in trust from the
complainant Leonida E. Quilatan various pieces of
jewelry in the total value of P567,750.00 to be sold
on commission basis under the express duty and

obligation of remitting the proceeds thereof to the

said complainant if sold or returning the same to the
latter if unsold but the said accused once in
possession of said various pieces of jewelry, with
unfaithfulness and abuse of confidence and with
intent to defraud, did then and there willfully,
unlawfully and feloniously misappropriate and
convert the same for her own personal use and
benefit and despite oral and written demands, she
failed and refused to account for said jewelry or the
proceeds of sale thereof, to the damage and
prejudice of complainant Leonida E. Quilatan in the
aforestated total amount of P567,750.00.
CONTRARY TO LAW.5
Petitioner pleaded not guilty to the charge upon
arraignment.6 Trial on the merits thereafter ensued.

WHEREFORE, in the light of the foregoing, the court

finds the accused Virgie Serona guilty beyond
reasonable
doubt,
and
as
the
amount
misappropriated is P424,750.00 the penalty provided
under the first paragraph of Article 315 of the
Revised Penal Code has to be imposed which shall be
in the maximum period plus one (1) year for every
additional P10,000.00.
Applying the Indeterminate Sentence Law, the said
accused is hereby sentenced to suffer the penalty of
imprisonment ranging from FOUR (4) YEARS and ONE
(1) DAY of prision correccional as minimum to TEN
(10) YEARS and ONE (1) DAY of prision mayor as
maximum; to pay the sum of P424,750.00 as cost for
the unreturned jewelries; to suffer the accessory
penalties provided by law; and to pay the costs.
SO ORDERED.14

Quilatan testified that petitioner was able to remit

P100,000.00 and returned P43,000.00 worth of
jewelriy;7 that at the start, petitioner was prompt in
settling her obligation; however, subsequently the
payments were remitted late;8 that petitioner still
owed her in the amount of P424,750.00.9
On the other hand, petitioner admitted that she
received several pieces of jewelry from Quilatan and
that she indeed failed to pay for the same. She
claimed that she entrusted the pieces of jewelry to
Marichu Labrador who failed to pay for the same,
thereby causing her to default in paying
Quilatan.10 She presented handwritten receipts
(Exhibits 1 & 2)11 evidencing payments made to
Quilatan prior to the filing of the criminal case.
Marichu Labrador confirmed that she received pieces
of jewelry from petitioner worth P441,035.00. She
identified an acknowledgment receipt (Exhibit
3)12 signed by her dated July 5, 1992 and testified
that she sold the jewelry to a person who absconded
without paying her. Labrador also explained that in
the past, she too had directly transacted with
Quilatan for the sale of jewelry on commission basis;
however, due to her outstanding account with the
latter, she got jewelry from petitioner instead. 13
On November 17, 1994, the trial court rendered a
decision finding petitioner guilty of estafa, the
dispositive portion of which reads:

Petitioner appealed to the Court of Appeals, which

affirmed the judgment of conviction but modified the
penalty as follows:
WHEREFORE, the appealed decision finding the
accused-appellant guilty beyond reasonable doubt of
the crime of estafa is hereby AFFIRMED with the
following MODIFICATION:
Considering
that
the
amount
involved
is
P424,750.00, the penalty should be imposed in its
maximum period adding one (1) year for each
additional P10,000.00 albeit the total penalty should
not exceed Twenty (20) Years (Art. 315). Hence,
accused-appellant is hereby SENTENCED to suffer the
penalty of imprisonment ranging from Four (4) Years
and One (1) Day of Prision Correccional as minimum
to Twenty (20) Years of Reclusion Temporal.

ENTRUSTING THE SUBJECT JEWELRIES (sic) TO HER

SUB-AGENT FOR SALE ON COMMISSION TO
PROSPECTIVE BUYERS.
II
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED
IN
CONCLUDING
THAT
THERE
WAS
MISAPPROPRIATION OR CONVERSION ON THE PART
OF PETITIONER WHEN SHE FAILED TO RETURN THE
SUBJECT
JEWELRIES
(sic)
TO
PRIVATE
COMPLAINANT.17
Petitioner argues that the prosecution failed to
establish the elements of estafa as penalized under
Article 315, par. 1(b) of the Revised Penal Code. In
particular, she submits that she neither abused the
confidence reposed upon her by Quilatan nor
converted or misappropriated the subject jewelry;
that her giving the pieces of jewelry to a sub-agent
for sale on commission basis did not violate her
undertaking with Quilatan. Moreover, petitioner
delivered the jewelry to Labrador under the same
terms upon which it was originally entrusted to her. It
was established that petitioner had not derived any
personal benefit from the loss of the jewelry.
Consequently, it cannot be said that she
misappropriated or converted the same.
We find merit in the petition.

The elements of estafa through misappropriation or

conversion as defined in Article 315, par. 1(b) of the
Revised Penal Code are: (1) that the money, good or
other personal property is received by the offender in
trust, or on commission, or for administration, or
under any other obligation involving the duty to
make delivery of, or to return, the same; (2) that
there be misappropriation or conversion of such
money or property by the offender or denial on his
part of such receipt; (3) that such misappropriation
or conversion or denial is to the prejudice of another;
and (4) that there is a demand made by the offended
party on the offender.18 While the first, third and
fourth elements are concededly present, we find the
second element of misappropriation or conversion to
be lacking in the case at bar.

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED

IN CONCLUDING THAT THERE WAS AN ABUSE OF
CONFIDENCE ON THE PART OF PETITIONER IN

Petitioner did not ipso facto commit the crime of

estafa through conversion or misappropriation by
delivering the jewelry to a sub-agent for sale on

SO ORDERED.15
Upon
denial
of
her
motion
for
reconsideration,16 petitioner filed the instant petition
under Rule 45, alleging that:

commission basis. We are unable to agree with the

lower courts conclusion that this fact alone is
sufficient ground for holding that petitioner disposed
of the jewelry "as if it were hers, thereby committing
conversion and a clear breach of trust."19
It must be pointed out that the law on agency in our
jurisdiction allows the appointment by an agent of a
substitute or sub-agent in the absence of an express
agreement to the contrary between the agent and
the principal.20 In the case at bar, the appointment of
Labrador as petitioners sub-agent was not expressly
prohibited by Quilatan, as the acknowledgment
receipt, Exhibit B, does not contain any such
limitation. Neither does it appear that petitioner was
verbally forbidden by Quilatan from passing on the
jewelry
to
another
person
before
the
acknowledgment receipt was executed or at any
other time. Thus, it cannot be said that petitioners
act of entrusting the jewelry to Labrador is
characterized by abuse of confidence because such
an act was not proscribed and is, in fact, legally
sanctioned.
The essence of estafa under Article 315, par. 1(b) is
the appropriation or conversion of money or property
received to the prejudice of the owner. The words
"convert" and "misappropriated" connote an act of
using or disposing of anothers property as if it were
ones own, or of devoting it to a purpose or use
different from that agreed upon. To misappropriate
for ones own use includes not only conversion to
ones personal advantage, but also every attempt to
dispose of the property of another without right. 21
In the case at bar, it was established that the
inability of petitioner as agent to comply with her
duty to return either the pieces of jewelry or the
proceeds of its sale to her principal Quilatan was due,
in turn, to the failure of Labrador to abide by her
agreement with petitioner. Notably, Labrador
testified that she obligated herself to sell the jewelry
in behalf of petitioner also on commission basis or to
return the same if not sold. In other words, the pieces
of jewelry were given by petitioner to Labrador to
achieve the very same end for which they were
delivered to her in the first place. Consequently,
there is no conversion since the pieces of jewelry
were not devoted to a purpose or use different from
that agreed upon.

Similarly, it cannot be said that petitioner

misappropriated the jewelry or delivered them to
Labrador "without right." Aside from the fact that no
condition or limitation was imposed on the mode or
manner by which petitioner was to effect the sale, it
is also consistent with usual practice for the seller to
necessarily part with the valuables in order to find a
buyer and allow inspection of the items for sale.
22

In People v. Nepomuceno, the accused-appellant

was acquitted of estafa on facts similar to the instant
case. Accused-appellant therein undertook to sell two
diamond rings in behalf of the complainant on
commission basis, with the obligation to return the
same in a few days if not sold. However, by reason of
the fact that the rings were delivered also for sale on
commission to sub-agents who failed to account for
the rings or the proceeds of its sale, accusedappellant likewise failed to make good his obligation
to the complainant thereby giving rise to the charge
of estafa. In absolving the accused-appellant of the
crime charged, we held:
Where, as in the present case, the agents to whom
personal
property
was
entrusted
for
sale,
conclusively proves the inability to return the same is
solely due to malfeasance of a subagent to whom the
first agent had actually entrusted the property in
good faith, and for the same purpose for which it was
received; there being no prohibition to do so and the
chattel being delivered to the subagent before the
owner demands its return or before such return
becomes due, we hold that the first agent can not be
held guilty of estafa by either misappropriation or
conversion. The abuse of confidence that is
characteristic of this offense is missing under the
circumstances.23
Accordingly, petitioner herein must be acquitted. The
lower courts reliance on People v. Flores 24 and U.S. v.
Panes25 to justify petitioners conviction is misplaced,
considering that the factual background of the cited
cases differ from those which obtain in the case at
bar. In Flores, the accused received a ring to sell
under the condition that she would return it the
following day if not sold and without authority to
retain the ring or to give it to a sub-agent. The
accused in Panes, meanwhile, was obliged to return
the jewelry he received upon demand, but passed on
the same to a sub-agent even after demand for its
return had already been made. In the foregoing

cases, it was held that there was conversion or

misappropriation.
Furthermore, in Lim v. Court of Appeals, 26 the Court,
citing Nepomuceno and the case of People v.
Trinidad,27held that:
In cases of estafa the profit or gain must be obtained
by the accused personally, through his own acts, and
his mere negligence in permitting another to take
advantage or benefit from the entrusted chattel
cannot constitute estafa under Article 315,
paragraph 1-b, of the Revised Penal Code; unless of
course the evidence should disclose that the agent
acted in conspiracy or connivance with the one who
carried out the actual misappropriation, then the
accused would be answerable for the acts of his coconspirators. If there is no such evidence, direct or
circumstantial, and if the proof is clear that the
accused herself was the innocent victim of her subagents
faithlessness,
her
acquittal
is
in
order.28 (Italics copied)
Labrador admitted that she received the jewelry from
petitioner and sold the same to a third person. She
further acknowledged that she owed petitioner
P441,035.00, thereby negating any criminal intent on
the part of petitioner. There is no showing that
petitioner derived personal benefit from or conspired
with Labrador to deprive Quilatan of the jewelry or its
value. Consequently, there is no estafa within
contemplation of the law.
Notwithstanding the above, however, petitioner is
not entirely free from any liability towards Quilatan.
The rule is that an accused acquitted of estafa may
nevertheless be held civilly liable where the facts
established by the evidence so warrant. Then too, an
agent who is not prohibited from appointing a subagent but does so without express authority is
responsible
for
the
acts
of
the
subagent.29 Considering that the civil action for the
recovery of civil liability arising from the offense is
deemed
instituted
with
the
criminal
action,30 petitioner is liable to pay complainant
Quilatan the value of the unpaid pieces of jewelry.
WHEREFORE, the petition is GRANTED. The decision
of the Court of Appeals in CA-G.R. CR No. 17222
dated April 30,1997 and its resolution dated August
28, 1997 are REVERSED and SET ASIDE. Petitioner
Virgie Serona is ACQUITTED of the crime charged, but

is held civilly liable in the amount of P424,750.00 as

actual damages, plus legal interest, without
subsidiary imprisonment in case of insolvency.
SO ORDERED.
G.R. No. L-55630 March 6, 1990
IMPERIAL INSURANCE, INC. represented by the
IMPERIAL INSURANCE, INC., Cagayan de Oro
Branch
Office
Manager
BERNARDITO
R.
PULVERA, petitioner,
vs.
THE HONORABLE EULALIO D. ROSETE, Judge of
the Court of First Instance of Misamis Oriental,
Branch V, and CHIU ENG HUA respondents.
Ariston M. Magallanes and Jesus Ma. Jajalla for
petitioner.
Quimpo, Willkom , Dadole & Mutia for private
respondent.

counsel to represent petitioner at the pre-trial

conference, to enter into any amicable settlement
and to do such other acts as may be necessary to
implement the authority. The presiding judge refused
to honor the same and observed that it is only the
Board of Directors of the petitioner who may
authorize the appearance of the regional manager in
behalf of petitioner and that he cannot delegate his
functions. Counsel for private respondent stated he
was willing to give petitioner a chance to produce the
appropriate authority. Nevertheless, the respondent
judge declared the petitioner in default in an order
dated August 5, 1980 and set the reception of the
evidence for the private respondent on August 12,
1980. 1
A motion to set aside the said order of default was
filed by petitioner, stating therein that the rules of
court should be liberally construed, that the special
power of attorney was submitted in good faith and
that there are meritorious and good defenses as
shown in the attached affidavit showing that as early
as June 1980 Pulvera had asked for such a special
power of attorney from the main office in Manila but
the same had not yet arrived and will be submitted
upon receipt. The motion was denied in an order
dated August 27, 1980.

GANCAYCO, J.:
Section 2, Rule 1 of the Rules of Court provides for
the basic rule of thumb that said "rules shall be
liberally construed in order to promote its objective
and to assist the parties in obtaining just, speedy,
and inexpensive determination of every action and
proceeding." Its application is put into test in the
present case.
The antecedent facts are undisputed. Private
respondent filed a complaint for specific performance
and damages against petitioner dated April 11, 1980
in the Court of First Instance of Misamis Oriental,
docketed as Civil Case No. 7072. After receipt of
service of summons petitioner filed an answer with
counterclaim within the reglementary period.
The case was set for pre-trial conference on August
5, 1980 of which the parties and their counsel were
duly notified. At said pre-trial conference petitioner
was represented by Atty. Arturo A. Magallanes who
presented a special power of attorney executed by
Bernardito R. Pulvera, regional branch manager of
petitioner for Mindanao and Visayas, authorizing said

A motion for reconsideration of the denial was filed

by the petitioner alleging that it is within the implied
powers and duties of the regional branch manager of
petitioner to represent the petitioner and in the
process to settle claims against petitioner as this has
been done in a similar case that was amicably settled
before the same court docketed as Civil Case No.
6316; and that the special power of attorney of Atty.
Arturo Magallanes to represent the petitioner was
executed
in
good
faith.
The
motion
for
reconsideration was likewise denied for lack of merit
on October 17, 1982.
Hence,
the
herein
petition
for certiorari and/or mandamus wherein
petitioner
alleges that the respondent judge acted without or in
excess of jurisdiction and in grave abuse of discretion
in declaring petitioner in default and in denying the
motion for reconsideration of the order of default.

plaintiff vs. Imperial Insurance, third

party
defendant", filed in the Court of First Instance of
Misamis Oriental, Cagayan de Oro City, presided by
the respondent Judge, a special power of attorney
was presented dated June 20, 1979 executed by the
same regional manager of petitioner in favor of
Carmelito Gaburno, production manager of sales of
petitioner, to appear in behalf of petitioner in all
stages of the case and to enter into any stipulation of
facts. 2 A compromise agreement was entered into by
the parties assisted by their respective counsel and
the same was submitted for approval of the court
wherein Carmelito Gaburno signed for and in behalf
of petitioner. In an order dated November 27, 1979
the respondent judge approved the compromise
agreement by rendering judgment in accordance
therewith. 3
Thus, when at the pre-trial conference of Civil Case
No. 7072 before the same respondent judge a special
power of attorney executed by Pulvera on July 31,
1980 in favor of Atty. Magallanes to appear in behalf
of petitioner and to enter into any amicable
settlement 4 was presented, the court finds no
cogent reason why the respondent judge refused to
honor the said special power of attorney for purposes
of the pre-trial and instead declared the petitioner to
be in default.
Obviously in the earlier case, Civil Case No. 6316, the
respondent judge accepted and/or acknowledged the
authority of Pulvera as regional branch manager of
the petitioner to represent the petitioner, to enter
into a compromise agreement and as such to
execute a special power of attorney in favor of
another person to act in his place and to represent
the petitioner in the litigation.
Indeed, in another case docketed as Civil Case No.
2899 entitled Gil Ecleo vs. Lydia Sacal and Imperial
Insurance, Inc., in the Court of First Instance of
Surigao del Norte, Surigao City a similar special
power of attorney for purposes of pre-trial was
executed by regional branch manager Pulvera in
favor of Atty. Magallanes dated December 9,
1980. 5 A compromise agreement was entered into
by Magallanes in behalf of petitioner which was duly
approved by the trial court on January 13, 1981. 6

The petition is impressed with merit.

In Civil Case No. 6316 entitled "Heirs of Ruiz Dosdos,
et al. vs. Andres Tan; and Andres Tan as third party

There can be no doubt therefore that regional branch

manager Pulvera, as regional manager for Visayas
and Mindanao of petitioner, was authorized to

represent petitioner in any litigation and in the

process to enter into a compromise agreement or
settlement thereof. As such agent of petitioner he
may appoint a substitute as he was not prohibited
from doing so by his principal. 7
Moreover, even assuming for the sake of argument
that the observations of the respondent judge is
correct in that a board resolution of the petitioner is
required for the purposes of authorizing Pulvera
and/or Magallanes to bind the petitioner, the counsel
for the private respondent manifested to the
respondent judge his willingness to give the
petitioner an opportunity to comply with the
requirement of the court. Just the same, the
respondent judge declared petitioner to be in default.
No doubt, the respondent judge was unnecessarily
harsh when the Rules call for liberality in such cases.
This is a case where petitioner filed an answer with
counterclaim and advanced apparently a meritorious
and valid defense. It should be given its day in court
and the opportunity to prove its assertions. This is
the situation contemplated by the Rules. The courts
must lean in favor of affording substantial justice as
against a technical requirement.
WHEREFORE, the questioned orders of the
respondent judge dated August 6, 1980, August 27,
1980 and October 17, 1980 are hereby REVERSED
AND SET ASIDE and the record of this case is
remanded to the trial court for further proceedings.
No costs in this instance.
SO ORDERED.

Augusto Gatmaytan for Private Respondent.

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:chanrob1es virtual
1aw
library
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

THIRD
[G.R.

DIVISION
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.
Bede

S.

Talingcos,

for Petitioners.

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.chanrobles
virtual
lawlibrary
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.chanrobles.com:cralaw:red
On November 17, 1980, the trial court rendered a
decision 1) declaring the contracts to sell issued in
favor of the Ventanillas valid and subsisting and
annulling the contracts to sell in Crisostomos favor;
2) ordering Manila Remnant to execute in favor of the
Ventanillas an Absolute Deed of Sale free from all
liens and encumbrances; and 3) condemning
defendants A.U. Valencia and Co. Inc., Manila
Remnant and Carlos Crisostomo jointly and severally
to pay the Ventanillas the amount of P100,000.00 as
moral
damages,
P100,000.00
as
exemplary
damages, and P100,000.00 as attorneys fees. The
lower court also added that if, for any legal reason,
the transfer of the lots could no longer be effected,
the defendants should reimburse jointly and
severally to the Ventanillas the total amount of
P73,122.35 representing the total amount paid for
the two lots plus legal interest thereon from March
1970 plus damages as aforestated. With regard to
the cross claim of Manila Remnant against Valencia,
the court found that Manila Remnant could have not
been dragged into this suit without the fraudulent
manipulations of Valencia. Hence, it adjudged A.U.
Valencia and Co. to pay the Manila Remnant
P5,000.00 as moral damages and exemplary
damages and P5,000.00 as attorneys fees. 17
Subsequently, Manila Remnant and A.U. Valencia and
Co. elevated the lower courts decision to the Court
of Appeals through separate appeals. On October 13,
1987, the Appellate Court affirmed in toto the
decision of the lower court. Reconsideration sought
by petitioner Manila Remnant was denied, hence the
instant
petition.
There is no question that the contracts to sell in favor
of the Ventanilla spouses are valid and subsisting.
The only issue remaining is whether or not petitioner
Manila Remnant should be held solidarily liable
together with A.U. Valencia and Co. and Carlos
Crisostomo for the payment of moral, exemplary
damages and attorneys fees in favor of the
Ventanillas.
18
While petitioner Manila Remnant has not refuted the
legality of the award of damages per se, it believes
that it cannot be made jointly and severally liable
with its agent A.U. Valencia and Co. since it was not
aware of the illegal acts perpetrated nor did it
consent or ratify said acts of its agent.
The

argument

is

devoid

of

merit.

In the case at bar, the Valencia realty firm had clearly

overstepped the bounds of its authority as agent

and for that matter, even the law when it

undertook the double sale of the disputed lots. Such
being the case, the principal, Manila Remnant, would
have been in the clear pursuant to Article 1897 of the
Civil Code which states that" (t)he agent who acts as
such is not personally liable to that party with whom
he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving
such
party
sufficient
notice
of
his
powers." chanrobles.com.ph : virtual law library
However, the unique relationship existing between
the principal and the agent at the time of the dual
sale must be underscored. Bear in mind that the
president then of both firms was Artemio U. Valencia,
the individual directly responsible for the sale scam.
Hence, despite the fact that the double sale was
beyond the power of the agent, Manila Remnant as
principal was chargeable with the knowledge or
constructive notice of that fact and not having done
anything to correct such an irregularity was deemed
to
have
ratified
the
same.
19
More in point, we find that by the principle of
estoppel, Manila Remnant is deemed to have allowed
its agent to act as though it had plenary powers.
Article
1911
of
the
Civil
Code
provides:jgc:chanrobles.com.ph
"Even when the agent has exceeded his authority,
the principal is solidarily liable with the agent if the
former allowed the latter to act as though he had full
powers."
(Emphasis
supplied)
The above-quoted article is new. It is intended to
protect the rights of innocent persons. In such a
situation, both the principal and the agent may be
considered as joint feasors whose liability is joint and
solidary.
20
Authority by estoppel has arisen in the instant case
because by its negligence, the principal, Manila
Remnant, has permitted its agent, A.U. Valencia and
Co., to exercise powers not granted to it. That the
principal might not have had actual knowledge of the
agents misdeed is of no moment. Consider the
following circumstances:chanrob1es virtual 1aw
library
Firstly, Manila Remnant literally gave carte blanche
to its agent A.U. Valencia and Co. in the sale and
disposition of the subdivision lots. As a disclosed
principal in the contracts to sell in favor of the
Ventanilla couple, there was no doubt that they were
in fact contracting with the principal. Section 7 of the
Ventanillas
contracts
to
sell
states:jgc:chanrobles.com.ph

"7. That all payments whether deposits, down

payment and monthly installment agreed to be made
by the vendee shall be payable to A.U. Valencia and
Co., Inc. It is hereby expressly understood that
unauthorized payments made to real estate brokers
or agents shall be the sole and exclusive
responsibility and at the risk of the vendee and any
and all such payments shall not be recognized by the
vendors unless the official receipts therefor shall
have been duly signed by the vendors duly
authorized agent, A.U. Valencia and Co., Inc."
(Emphasis
supplied)
Indeed, once Manila Remnant had been furnished
with the usual copies of the contracts to sell, its only
participation then was to accept the collections and
pay the commissions to the agent. The latter had
complete control of the business arrangement. 21
Secondly, it is evident from the records that Manila
Remnant was less than prudent in the conduct of its
business as a subdivision owner. For instance, Manila
Remnant failed to take immediate steps to avert any
damage that might be incurred by the lot buyers as a
result of its unilateral abrogation of the agency
contract. The publication of the cancelled contracts
to sell in the Times Journal came three years after
Manila Remnant had revoked its agreement with A.U.
Valencia and Co.chanrobles virtual lawlibrary

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.

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

On March 27, 1989, the private respondent,

Philippines Air Lines, Inc. (PAL), issued to the herein
petitioner, Nicholas Cervantes (Cervantes), a round
trip plane ticket for Manila-Honolulu-Los AngelesHonolulu-Manila, which ticket expressly provided an
expiry of date of one year from issuance, i.e., until
March 27, 1990. The issuance of the said plane ticket
was in compliance with a Compromise Agreement
entered into between the contending parties in two
previous suits, docketed as Civil Case Nos. 3392 and
3451 before the Regional Trial Court in Surigao City. 2
On March 23, 1990, four days before the expiry date
of subject ticket, the petitioner used it. Upon his
arrival in Los Angeles on the same day, he
immediately booked his Los Angeles-Manila return
ticket with the PAL office, and it was confirmed for
the April 2, 1990 flight.
Upon learning that the same PAL plane would make a
stop-over in San Francisco, and considering that he
would be there on April 2, 1990, petitioner made
arrangements with PAL for him to board the flight In
San Francisco instead of boarding in Las Angeles.

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.

This Petition for Review on certiorari assails the 25

July 1995 decision of the Court of Appeals 1 in CA GR
CV No. 41407, entitled "Nicholas Y. Cervantes vs.
Philippine Air Lines Inc.", affirming in toto the
judgment of the trial court dismissing petitioner's
complaint for damages.

On April 2, 1990, when the petitioner checked in at

the PAL counter in San Francisco, he was not allowed
to board. The PAL personnel concerned marked the
following notation on his ticket: "TICKET NOT
ACCEPTED DUE EXPIRATION OF VALIDITY."

G.R. No. 125138 March 2, 1999

NICHOLAS
Y.
CERVANTES, petitioner,
vs.
COURT OF APPEALS AND THE PHILIPPINE AIR
LINES, INC., respondent.
PURISMA, J.:

Aggrieved, petitioner Cervantes filed a Complaint for

Damages, for breach of contract of carriage docketed
as Civil Case No. 3807 before Branch 32 of the
Regional Trial Court of Surigao del Norte in Surigao
City. But the said complaint was dismissed for lack of
merit. 3
On September 20, 1993, petitioner interposed an
appeal to the Court of Appeals, which came out with
a Decision, on July 25, 1995, upholding the dismissal
of the case.

On May 22, 1996, petitioner came to this Court via

the Petition for Review under consideration.
The issues raised for resolution are: (1) Whether or
not the act of the PAL agents in confirming subject
ticket extended the period of validity of petitioner's
ticket; (2) Whether or not the defense of lack of
authority was correctly ruled upon; and (3) Whether
or not the denial of the award for damages was
proper.
To rule on the first issue, there is a need to quote the
findings below. As a rule, conclusions and findings of
fact arrived at by the trial court are entitled to great
weight on appeal and should not be disturbed unless
for strong and cogent reasons. 4
The facts of the case as found by the lower
court 5 are, as follows:
The plane ticket itself (Exhibit A for
plaintiff; Exhibit 1 for defendant)
provides that it is not valid after
March 27, 1990. (Exhibit 1-F). It is
also stipulated in paragraph 8 of
the Conditions of Contract (Exhibit
1, page 2) as follows:
8. This ticket is
good for carriage
for one year from
date
of
issue, except as
otherwise
provided in this
ticket, in carrier's
tariffs, conditions
of carriage, or
related
regulations. The
fare for carriage
hereunder
is
subject to change
prior
to
commencement
of
carriage.
Carrier
may
refuse
transportation if
the
applicable
fare has not been
paid. 6

The question on the validity of subject ticket can be

resolved in light of the ruling in the case of Lufthansa
vs. Court of Appeals. 7 In the said case, the Tolentinos
were issued first class tickets on April 3, 1982, which
will be valid until April 10, 1983. On June 10, 1982,
they changed their accommodations to economy
class but the replacement tickets still contained the
same restriction. On May 7, 1983, Tolentino
requested that subject tickets be extended, which
request was refused by the petitioner on the ground
that the said tickets had already expired. The nonextension of their tickets prompted the Tolentinos to
bring a complaint for breach of contract of carriage
against the petitioner. In ruling against the award of
damages, the Court held that the "ticket constitute
the contract between the parties. It is axiomatic that
when the terms are clear and leave no doubt as to
the intention of the contracting parties, contracts are
to be interpreted according to their literal meaning."
In his effort to evade this inevitable conclusion,
petitioner theorized that the confirmation by the
PAL's agents in Los Angeles and San Francisco
changed the compromise agreement between the
parties.
As aptly by the appellate court:
. . . on March 23,
1990, he was
aware of the risk
that his ticket
could expire, as it
did, before he
returned to the
Philippines.' (pp.
320-321, Original
Records) 8
The question is:
"Did these two
(2) employees, in
effect, extend the
validity
or
lifetime of the
ticket
in
question?
The
answer is in the
negative.
Both
had no authority
to
do
so.
Appellant
knew

this from the very

start when he
called
up
the
Legal
Department
of
appellee in the
Philippines before
he left for the
United States of
America. He had
first
hand
knowledge
that
the
ticket
in
question
would
expire on March
27, 1990 and that
to
secure
an
extension,
he
would have to file
a written request
for extension at
the PAL's office in
the
Philippines
(TSN, Testimony
of
Nicholas
Cervantes,
August 2, 1991,
pp.
20-23).
Despite
this
knowledge,
appellant
persisted to use
the
ticket
in
question." 9
From the aforestated facts, it can be gleaned that the
petitioner was fully aware that there was a need to
send a letter to the legal counsel of PAL for the
extension of the period of validity of his ticket.
Since the PAL agents are not privy to the said
Agreement and petitioner knew that a written
request to the legal counsel of PAL was necessary, he
cannot use what the PAL agents did to his advantage.
The said agents, according to the Court of
Appeals, 10 acted without authority when they
confirmed the flights of the petitioner.
Under Article 1989 11 of the New Civil Code, the acts
an agent beyond the scope of his authority do not
bind the principal, unless the latter ratifies the same
expressly or impliedly. Furthermore, when the third

person (herein petitioner) knows that the agent was

acting beyond his power or authority, the principal
cannot be held liable for the acts of the agent. If the
said third person is aware of such limits of authority,
he is to blame, and is not entitled to recover
damages from the agent, unless the latter undertook
to secure the principal's ratification. 12
Anent the second issue, petitioner's stance that the
defense of lack of authority on the part of the PAL
employees was deemed waived under Rule 9,
Section 2 of the Revised Rules of Court, is
unsustainable. Thereunder, failure of a party to put
up defenses in their answer or in a motion to dismiss
is a waiver thereof.
Petitioner stresses that the alleged lack of authority
of the PAL employees was neither raised in the
answer nor in the motion to dismiss. But records
show that the question of whether there was
authority on the part of the PAL employees was acted
upon by the trial court when Nicholas Cervantes was
presented as a witness and the depositions of the
PAL employees, Georgina M. Reyes and Ruth
Villanueva, were presented.
The admission by Cervantes that he was told by
PAL's legal counsel that he had to submit a letter
requesting for an extension of the validity of subject
tickets was tantamount to knowledge on his part that
the PAL employees had no authority to extend the
validity of subject tickets and only PAL's legal counsel
was authorized to do so.
However, notwithstanding PAL's failure to raise the
defense of lack of authority of the said PAL agents in
its answer or in a motion to dismiss, the omission
was cured since the said issue was litigated upon, as
shown by the testimony of the petitioner in the
course of trial. Rule 10, Section 5 of the 1997 Rules
of Civil Procedure provides:
Sec. 5. Amendment to conform, or
authorize presentation of evidence.
When issues not raised by the
pleadings are tried with express or
implied consent of the parties, as if
they had been raised in the
pleadings. Such amendment of the
pleadings as may be necessary to
cause them to conform to the
evidence and to raise these issues

may be made upon motion of any

party at any time, even after
judgment; but failure to amend
does not affect the result of the
trial of these issues. . . .
Thus, "when evidence is presented by one party, with
the express or implied consent of the adverse party,
as to issues not alleged in the pleadings, judgment
may be rendered validly as regards the said issue,
which shall be treated as if they have been raised in
the pleadings. There is implied consent to the
evidence thus presented when the adverse party
fails to object thereto." 13
Re: the third issue, an award of damages is improper
because petitioner failed to show that PAL acted in
bad faith in refusing to allow him to board its plane in
San Francisco.
In awarding moral damages for breach of contract of
carriage, the breach must be wanton and
deliberately injurious or the one responsible acted
fraudulently or with malice or bad faith. 14 Petitioner
knew there was a strong possibility that he could not
use the subject ticket, so much so that he bought a
back-up ticket to ensure his departure. Should there
be a finding of bad faith, we are of the opinion that it
should be on the petitioner. What the employees of
PAL did was one of simple negligence. No injury
resulted on the part of petitioner because he had a
back-up ticket should PAL refuse to accommodate
him with the use of subject ticket.
Neither can the claim for exemplary damages be
upheld. Such kind of damages is imposed by way of
example or correction for the public good, and the
existence of bad faith is established. The wrongful
act must be accompanied by bad faith, and an award
of damages would be allowed only if the guilty party
acted in a wanton, fraudulent, reckless or malevolent
manner. 15 Here, there is no showing that PAL acted
in such a manner. An award for attorney's fees is also
improper.
WHEREFORE, the Petition is DENIED and the decision
of the Court of Appeals dated July 25, 1995
AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
G.R. No. 129039. September 17, 2002]

SIREDY ENTERPRISES, INC. petitioner, vs. HON.

COURT OF APPEALS and CONRADO DE
GUZMAN, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review seeking to
annul the decision[1] dated April 26, 1996 of the Court
of Appeals in CA-G.R. CV No. 30374, reversing the
decision of the Regional Trial Court of Malolos,
Bulacan, and the resolution[2] dated April 22, 1997,
denying petitioners motion for reconsideration.

Village, Sta. Rosa, Marilao, Bulacan. However, all

proceeds from said contract or contracts shall be
deposited in my name, payments of all obligation in
connection with the said contract or contracts should
be made and the remainder will be paid to MR.
HERMOGENES B. SANTOS.

3.) That, the PRINCIPAL has contracted to

build the said units at the amount of
FORTY FIVE THOUSAND (P45,000.00)
PESOS for the 2-bedroom single and
SIXTY NINE THOUSAND (P69,000.00)
PESOS, Philippine Currency for the
duplex residences;

2. To sell lots on our subdivisions and;

3. To represent us, intercede and agree for or make
agreements for all payments in our favor, provided
that actual receipts thereof shall be made by the
undersigned.
(

The following are the facts as found by the

Court of Appeals,[3] undisputed by the parties and
adopted by petitioner:[4]

SGD) DR. ISMAEL E. YANGA, SR.

F

5.) That, the CONTRACTOR agrees to

supply all Construction Materials,
labor, tools and equipments necessary
for the completion of the said housing
units;

or myself and in my capacity as President

Private respondent Conrado De Guzman is an
architect-contractor doing business under the name
and style of Jigscon Construction. Herein petitioner
Siredy Enterprises, Inc. (hereafter Siredy) is the
owner and developer of Ysmael Village, a subdivision
in Sta. Cruz, Marilao, Bulacan.[5] The president of
Siredy is Ismael E. Yanga.[6]

o
f SIREDY ENTERPRISE, INCORPORATED
P
RINCIPAL

As stated in its Articles of Incorporation, [7] the

primary corporate purpose of Siredy is to acquire
lands, subdivide and develop them, erect buildings
and houses thereon, and sell, lease or otherwise
dispose of said properties to interested buyers.[8]

On October 15, 1978, Santos entered into a

Deed of Agreement[10] with De Guzman. The deed
expressly stated that Santos was representing Siredy
Enterprises, Inc. Private respondent was referred to
as contractor while petitioner Siredy was cited as
principal.

Sometime
before
October
1978,
Yanga
executed an undated Letter of Authority, [9] hereunder
reproduced verbatim:

In said Deed of Agreement we find the following

stipulations:

KNOW ALL MEN BY THESE PRESENTS:

That I, DR. ISMAEL E. YANGA, SR., of legal age,
Filipino, married, resident of and with Postal address
at Poblacion, Bocaue, Bulacan and duly authorized to
execute this LETTER OF AUTHORITY, do hereby
authorize MR. HERMOGENES B. SANTOS of legal age,
Filipino, married, resident of and with Postal Address
at 955 Banawe St., Quezon City to do and execute all
or any of the following acts:
1. To negotiate and enter into contract or contracts to
build Housing Units on our subdivision lots in Ysmael

4.) That, the CONTRACTOR intends to build

for the PRINCIPAL eighty (80) units
singles and eighteen (18) units duplex
residences
at
the
cost
above
mentioned or a lump sum total of
FOUR MILLION, EIGHT HUNDRED
FORTY
TWO
THOUSAND
(P4,842,000.00)
PESOS,
Philippine
Currency;

6.) That, the PRINCIPAL agrees to pay all

necessary permits and papers in
accordance with Government rules and
regulations;
7.) That, the PRINCIPAL agrees to supply
water and electrical facilities needed
during the time of construction;

1.) That, the PRINCIPAL has contracts with

different SSS members employed with
different domestic entities to build for
them 2-bedroom single housing units
and 4-bedroom duplex housing units;

8.) That, the manner of payment shall be

in accordance with SSS releases.
Should the SSS fail to pay the
PRINCIPAL, the PRINCIPAL is still in
obligation to pay the CONTRACTOR for
whatever
accomplishments
the
CONTRACTOR have finished provided,
that the failure of the SSS to pay is not
due to defective work of the
CONTRACTOR;

2.) That, the site of the said housing

project is at YSMAEL VILLAGE, Bo. Sta.
Rosa, Marilao, Bulacan owned and
developed by SIREDY ENTERPRISES
and Mr. Ismael E. Yanga, Sr.;

9.) That, the CONTRACTOR promises to

finish the project at the rate of TEN
(10) units in THIRTY (30) days or a total
of THREE HUNDRED (300) working
days;

10.) That, the integral

CONTRACT are:

part

of

this

a. Plans and Specifications

b. Subdivision Plan indicating
the Lot location of each unit
c. Authority of the National
Housing Authority;
11.) That, the CONTRACTOR agree[s] to
start work on the housing units thirty
(30) days after signing of this
CONTRACT.
NOW THEREFORE, for and in consideration of the
amount of FOUR MILLION, EIGHT HUNDRED FORTY
TWO THOUSAND (P4,842,000.00) PESOS, Philippine
Currency, the PARTIES agree and herein set their
hands on the date and place above-mentioned.
xxx
From October 1978 to April 1990, De Guzman
constructed 26 residential units
at Ysmael
Village. Thirteen (13) of these were fully paid but the
other 13 remained unpaid. The total contractual price
of these 13 unpaid houses is P412,154.93 which was
verified and confirmed to be correct by Santos, per
an Accomplishment Billing[11] that the latter signed.
De Guzman tried but failed to collect the unpaid
account from petitioner. Thus, he instituted the
action below for specific performance against Siredy,
Yanga, and Santos who all denied liability.
During the trial, Santos disappeared and his
whereabouts remain unknown.
In its defense, petitioner presented testimonial
evidence to the effect that Siredy had no contract
with De Guzman and had not authorized Santos to
enter into a contract with anyone for the construction
of housing units at Ysmael Village.
The trial court agreed with petitioner based on
the doctrine of privity of contract and gave the
following rationale:[12]

The Deed of Agreement (Exh. A and A-1) clearly

reflects that the said contract was entered into by
and between plaintiff De Guzman, on one hand, and
defendant Hermogenes B. Santos as purported
authorized representative of defendant Siredy
Enterprises, on the other. Plainly and clearly enough,
defendants Siredy Enterprises and Ismael Yanga, Sr.
were neither parties nor signatories to the same. It
does not bear any legal significance that Dr. Yanga
appears to have signed the Letter of Authority (Exh.
B) designating defendant Santos as the authorized
representative for myself and as president of the
Siredy Enterprises, Inc. For the evidentiary fact
remains that Siredy Enterprises and Dr. Yanga had
absolutely had nothing to do with the fulfillment of
the terms and conditions stipulated in the Deed of
Agreement, much less had they benefited in any
perceptible degree therefrom.
In the light of the foregoing circumstances, Siredy
Enterprises and Dr. Yanga cannot be held liable in
favor of the plaintiff in any manner whatsoever
respecting the unpaid residential units constructed
by the plaintiff. This is as it should be, because
contracts take effect only between the parties, their
assigns and heirs, except only in the cases provided
for by law. (Art. 1311, Civil Code of the Philippines).
Not one of the exceptions obtains in this case.[13]
Thus, the trial court disposed of the case as
follows:
WHEREFORE, premises
hereby rendered:

considered,

judgment

a) directing defendant Hermogenes B.

Santos to pay unto plaintiff Conrado de
Guzman the amount of P412,154.93 as
actual damages with legal interest
thereon from the filing of the complaint
on July 29, 1982 until the same shall
have been fully paid, and P25,000.00
as attorneys fees, plus costs;
b) dismissing the above-entitled case as
against defendants Siredy Enterprises,
Inc. and Dr. Ismael Yanga, Sr.
SO ORDERED.[14]

is

On appeal, De Guzman obtained a favorable

judgment from the Court of Appeals. The appellate
court held that the Letter of Authority duly signed by
Yanga clearly constituted Santos as Siredys agent,
[15]
whose authority included entering into a contract
for the building of housing units at Ysmael
Village. Consequently, Siredy cannot deny liability for
the Deed of Agreement with private respondent De
Guzman, since the same contract was entered into
by Siredys duly designated agent, Santos. There was
no need for Yanga himself to be a signatory to the
contract, for him and Siredy to be bound by the
terms thereof.
Hence, the Court of Appeals held:
WHEREFORE, We find merit in the appeal and We
hereby REVERSE the appealed Decision. In its stead,
we render the following verdict: Appellee Siredy
Enterprises. Inc. is ordered to pay appellant Conrado
de Guzman cost (sic) and P412,154.93 as actual
damage plus legal interest thereon from the filing of
the Complaint on July 29, 1982 until full payment
thereof. All other claims and counterclaims are
dismissed.
SO ORDERED.[16]
Petitioner Siredy Enterprises, Inc. now comes to
us via a petition for review on certiorari[17] under Rule
45 of the Rules of Court, on the following grounds:
I. RESPONDENT
COURT
ERRED
IN
HOLDING THAT A VALID AGENCY WAS
CONSTITUTED DESPITE THE FACT THAT
PETITIONER WAS NOT INVOLVED IN
THE CONSTRUCTION BUSINESS;
II. RESPONDENT COURT ERRED IN FAILING
TO CONSIDER A VITAL PROVISION IN
THE DEED OF AGREEMENT (PAR. 8),
WHEN IT RENDERED ITS DECISION;
and
III. RESPONDENT COURT ERRED IN FAILING
TO
CONSIDER
THAT
PRIVATE
RESPONDENT WAS NOT ENTITLED TO
HIS CLAIM AS HE WAS THE PARTY WHO
VIOLATED THE CONTRACT.[18]

We find two main issues presented for

resolution: First, whether or not Hermogenes B.
Santos was a duly constituted agent of Siredy, with
authority to enter into contracts for the construction
of residential units in Ysmael Village and thus the
capacity to bind Siredy to the Deed of Agreement;
and Second, assuming arguendo that Siredy was
bound by the acts of Santos, whether or not under
the terms of the Deed of Agreement, Siredy can be
held liable for the amount sought to be collected by
private respondent De Guzman.
By the relationship of agency, one party called
the principal authorizes another called the agent to
act for and in his behalf in transactions with third
persons. The authority of the agent to act emanates
from the powers granted to him by his principal; his
act is the act of the principal if done within the scope
of the authority. He who acts through another acts
himself.[19]
Was Santos then an agent of Siredy? Was he
acting within the scope of his authority?
Resolution of the first issue necessitates a
review of the Letter of Authority executed by Ismael
E. Yanga as president of Siredy in favor of Santos.
Within its terms can be found the nature and extent
of the authority granted to Santos which, in turn,
determines the extent of Siredys participation in the
Deed of Agreement.
On its face, the instrument executed by Yanga
clearly and unequivocally constituted Santos to do
and execute, among other things, the act of
negotiating and entering into contract or contracts to
build Housing Units on our subdivision lots in Ysmael
Village, Sta. Rosa, Marilao, Bulacan.[20] Nothing could
be more express than the written stipulations
contained therein.
It was upon the authority of this document that
De Guzman transacted business with Santos that
resulted in the construction contract denominated as
the Deed of Agreement.
However, petitioner denies any liability by
stating that: (1) the nature of Siredys business did
not involve the construction of housing units since it
was merely engaged in the selling of empty lots; (2)
the Letter of Authority is defective, and hence

needed reformation; (3) Santos entering into the

Deed of Agreement was invalid because the same
was in excess of his authority; and (4) there is now
implied revocation of such Letter of Authority.
Testifying on the nature of the business and the
business practices of Siredy, its owner Yanga
testified[21] that Siredy was interested only in the sale
of lots. It was up to the buyers, as owners, to
construct their houses in the particular style they
prefer. It was allegedly never the practice of the
company to sell lots with houses already erected
thereon. On the basis of the foregoing testimony,
petitioner states that despite the letter of authority,
it is quite certain that such provision would go
against the nature of the business of Siredy as the
same has absolutely no capability of undertaking
such a task as constructing houses.
However, the self-serving contention of
petitioner cannot stand against the documentary
evidence clearly showing the companys liability to
De Guzman. As we stated in the case ofCuizon vs.
Court of Appeals:[22]
As it is, the mere denial of petitioner cannot
outweigh the strength of the documentary evidence
presented by and the positive testimony of private
respondents. As a jurist once said, I would sooner
trust the smallest slip of paper for truth than the
strongest and most retentive memory ever bestowed
on moral man.[23]
Aside from the Letter of Authority, Siredys
Articles of Incorporation, duly approved by the
Securities and Exchange Commission, shows that
Siredy may also undertake to erect buildings and
houses on the lots and sell, lease, or otherwise
dispose of said properties to interested buyers.
[24]
Such Articles, coupled with the Letter of Authority,
is sufficient to have given De Guzman reason to
believe that Santos was duly authorized to represent
Siredy for the purpose stated in the Deed of
Agreement. Petitioners theory that it merely sold lots
is effectively debunked.
Thus, it was error for the trial court to have
ignored the Letter of Authority. As correctly held by
the Court of Appeals:

There is absolutely no question that the Letter of

Authority (Exhibit B) executed by appellee Yanga
constituted defendant Santos as his and appellee
Siredys agent. As agent, he was empowered inter
alia to enter into a contract to build housing units in
the Ysmael Village. This was in furtherance of
appellees business of developing and subdividing
lands, erecting houses thereon, and selling them to
the public.
xxx

[25]

We find that a valid agency was created

between Siredy and Santos, and the authority
conferred upon the latter includes the power to enter
into a construction contract to build houses such as
the Deed of Agreement between Santos and De
Guzmans
Jigscon
Construction.
Hence,
the
inescapable conclusion is that Siredy is bound by the
contract through the representation of its agent
Santos.
The basis of agency is representation, that is, the
agent acts for and in behalf of the principal on
matters within the scope of his authority (Art, 1881)
and said acts have the same legal effect as if they
were personally done by the principal. By this legal
fiction of representation, the actual or legal absence
of the principal is converted into his legal or juridical
presence.[26]
Moreover, even if arguendo Santos mandate
was only to sell subdivision lots as Siredy asserts, the
latter is still bound to pay De Guzman. De Guzman is
considered a third party to the agency agreement
who had no knowledge of the specific instructions or
agreements between Siredy and its agent. What De
Guzman only saw was the written Letter of Authority
where Santos appears to be duly authorized. Article
1900 of the Civil Code provides:
Art. 1900. So far as third persons are concerned, an
act is deemed to have been performed within the
scope of the agents authority, if such act is within the
terms of the power of attorney, as written, even if
the agent has in fact exceeded the limits of his
authority according to an understanding between the
principal and the agent.
The scope of the agents authority is what
appears in the written terms of the power of

attorney. While third persons are bound to inquire

into the extent or scope of the agents authority, they
are not required to go beyond the terms of the
written power of attorney. Third persons cannot be
adversely affected by an understanding between the
principal and his agent as to the limits of the latters
authority. In the same way, third persons need not
concern themselves with instructions given by the
principal to his agent outside of the written power of
attorney.
The essence of agency being the representation
of another, it is evident that the obligations
contracted are for and on behalf of the principal. This
is what gives rise to the juridical relation. A
consequence of this representation is the liability of
the principal for the acts of his agent performed
within the limits of his authority that is equivalent to
the performance by the principal himself who should
answer therefor.[27]
Petitioner belatedly asserts, however, that the
Letter of Authority was defective as it allegedly failed
to reduce into writing the real intentions of the
parties, and insists on its reformation.
Such
an
argument
deserves
scant
consideration. As found by the Court of Appeals,
being a doctor of medicine and a businessman,
Yanga knew the meaning and import of this
document and had in fact admitted having signed
it. As aptly observed by the Court of Appeals, there is
no evidence that ante litem, he abrogated the Letter
of Authority and withdrew the power conferred on
Santos.
Siredys contention that the present case is in
effect a revocation of the Letter of Authority also
deserves scant consideration. This is a patently
erroneous claim considering that it was, in fact,
private respondent De Guzman who instituted the
civil case before the RTC.
With regard to the second issue put forth by
petitioner, this Court notes that this issue is being
raised for the first time on appeal. From the trial in
the RTC to the appeal before the Court of Appeals,
the alleged violation of the Deed of Agreement by
Conrado
de
Guzman
was
never
put
in
issue. Heretofore, the substance of petitioners
defense before the courts a quoconsisted of its denial
of any liability under the Deed of Agreement.

As we held in the case of Safic Alcan & Cie vs.

Imperial Vegetable Oil Co., Inc.:[28]
It must be borne in mind that a question that was
never raised in the courts below cannot be allowed to
be raised for the first time on appeal without
offending basic rules of fair play, justice and due
process. Such an issue was not brought to the fore
either in the trial court or the appellate court, and
would have been disregarded by the latter tribunal
for the reasons previously stated. With more reason,
the same does not deserve consideration by this
Court.[29]
WHEREFORE, this petition is DENIED for lack
of merit. The Decision of the Court of Appeals dated
April 26, 1996, in CA-G.R. CV No. 30374, is hereby
AFFIRMED. Petitioner Siredy Enterprises, Inc. is
ordered to pay Conrado de Guzman actual damages
in the amount of P412,154.93, with legal interest
thereon from the time the case was filed until its full
payment.Costs against petitioner.
SO ORDERED.

G.R. No. 85685 September 11, 1991

LAURO
CRUZ, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and PURE
FOODS CORP., respondents.
DAVIDE, JR., J.:p
In C.A.-G.R. CV No. 07859 (entitled Pure Foods
Corporation versus Lauro Cruz, doing business under
the name and style Mang Uro Store), a decision was
promulgated on 9 August 1988 by respondent Court
of
Appeals 1affirming in
toto the
decision
promulgated on 28 February 1985 of the Regional
Trial Court of Pasig (Branch 151) of the National
Capital
Judicial
Region
in
Civil
Case
No.
49672 2 which, by reason of its unusual brevity, is
fully reproduced as follows:
DECISION
This is an action for sum of money.
From the record, the following facts
are gathered: The plaintiff is a
domestic corporation engaged in
the manufacture, processing and
selling of various meat products
while
the
defendant
is
the
owner/manager of Mang Uro Store

in Dela Paz Street, Marikina, Metro

Manila. Sometime in November
1977, the defendant was granted
by the plaintiff a credit line on
which the defendant, on several
occasions, bought on credit several
Purefoods products. The defendant
had an unpaid balance with the
plaintiff
in
the
amount
of
P57,897.63, from which the former
was credited the amount of
P2,651.42 representing the amount
of returned goods, thereby leaving
the balance of P 55,246.21.
Demands were made upon the
defendant for him to settle his
account with the plaintiff. A
demand letter dated January 17,
1983 was sent to and was received
by the defendant who failed to
heed the same. The plaintiff, to
protect
its
interest,
was
constrained to hire the services of
counsel.
WHEREFORE, judgment is hereby
rendered in favor of the plaintiff
and
against
the
defendant,
ordering the latter to pay the
former the following:
1. The sum of P 55,246.21,
representing
his
outstanding
unpaid account plus interest of
12% percent per annum to be
counted from the date of the filing
of this case on April 15, 1983 until
fully paid; and
2. The sum equivalent to 15% of
the total amount due as and for
attorney's
fees
and
litigation
expenses.
Costs against the defendant.
SO ORDERED.
His motion for reconsideration having been denied in
the resolution of respondent Court on 27 October
1988, 3petitioner filed the instant appeal by certiorari

under Rule 45 of the Rules of Court urging Us to

annul and set aside the aforesaid decision and
resolution because respondent Court committed the
following errors which are the very errors he
ascribed to the trial court: (a) in not holding that
petitioner is not a signatory to the credit application
card attached as Annex "A" of private respondent's
complaint as clearly evidenced by the fact that only
the signatures of Me Cruz and Marilou Cruz, who are
not impleaded as party defendants, appear therein;
(b) in not holding that his signature does not appear
in the invoices submitted by private respondent; (c)
in not holding that he did not receive the letters of
demand; (d) in not finding and concluding that
private respondent failed to comply with the Order of
the trial court to amend the complaint; and (e) in
denying his motion for reconsideration.
The antecedent facts are not disputed.
On 15 April 1983, private respondent Pure Foods
Corporation filed with the trial court a complaint 4 for
sum of money against petitioner alleging therein that
sometime in November 1977, petitioner applied for a
credit line with the plaintiff which was consequently
approved by the latter subject to the conditions
therein stated; pursuant to said approved credit
arrangement, defendant (petitioner herein) made
various purchases from plaintiff until the early part of
1982, when he accumulated a total unpaid account
of P57,897.63 as evidenced by short payment
notices and invoices; against this obligation,
defendant was credited with the amount of
P2,651.42 representing the value of returned goods,
thereby leaving a balance of P55,246.21, which
remained unpaid despite numerous demands made
upon him.
The parties who signed the Credit Application card as
applicants are Me Cruz, who signed over the printed
wordsname of signatory, and Marilou L. Cruz, who
signed
over
the
printed
words Authorized
Signature. The opening paragraph thereof reads:
I/We hereby apply for a charge
account in the amount stated
above, and herewith are the
information for your consideration
as a basis for the extension of
credit to us:
TRADE NAME: MANG URO STORE

Owner/Manager: Lauro Cruz

xxx xxx xxx
Petitioner did not sign any of the invoices attached to
the complaint.
For failure to file an answer within the reglementary
period, and upon motion of private respondent, the
trial court issued an Order on 29 September 1983
declaring the petitioner in default and authorizing the
private respondent to present its evidence ex
parte on 4 October 1983. 5
On 19 October 1983, petitioner filed a motion to set
aside the order of default 6 alleging therein that he
did not file an answer anymore because upon
examination of the records of the case, he discovered
that it was his son Rodolfo who received the
summons and copy of the complaint; he never
entered into any transaction with private respondent
and that although the store referred to is still
licensed in his name, it has, since 1977, been owned
and operated by his son Rodolfo Cruz for the reason
that he "is getting old already and moreover,
because of deteriorating physical condition;" and
according to his son Rodolfo, he had already settled
the matter with the private respondent under an
agreement whereby Rodolfo would make partial
payments and the private respondent would dismiss
the case.
In its Order of 9 November 1983, 7 the trial court
granted the aforesaid motion, required petitioner to
file his responsive pleading within five (5) days, and
to present his evidence on 6 January 1984.
Petitioner filed an Answer With Counterclaim on 28
March 1983. 8 He reiterates therein his allegations in
the motion to lift the default order and further avers
that his signature does not even appear on the credit
application card. On the counter-claim, he prays for
judgment awarding him moral damages in an
amount to be proved at the trial, and attorney's fees
in the amount of P15,000.00.
Pre-trial was set on 2 January 1984. It was reset by
the trial court for 19 January 1984, and further reset
for 21 February 1984 at 1:00 P.M. upon motion of
private respondent. On the last mentioned date,
however, petitioner arrived late and by then, the

court had already issued an order declaring him in

default for failure to appear at the pre-trial.
Forthwith, he filed a motion for reconsideration which
the trial court granted in its order of 22 February
1984. Pre-trial was reset to 27 March 1984. 9
Pre-trial was held as above scheduled and was
concluded with the issuance of the following order:
As prayed for, the plaintiff is given
ten (10) days from today to file
amended complaint.
By agreement, the presentation of
defendant's evidence is set for May
16, 1984, at 8:30 a.m., without
prejudice to the filing of a
compromise agreement. 10
As stated by petitioner, 11 which is not denied by
private respondent, the purpose of the amendment
was to implead Me Cruz and Marilou Cruz as parties
defendants since they are the applicants in the credit
application card.
Both parties did not appear on 16 May 1984.
Thereupon, the trial court issued an order declaring
the case as submitted for decision on the basis of the
evidence on record. 12

because in his motion to set aside the order of

default, he admitted that the Mang Uro Store is still
licensed under his name and the credit application
card indicates that he is the owner/manager thereof.
Hence, even on the assumption that there had been
a transfer of ownership and management of the store
to Rodolfo Cruz, previous to the transactions made
with appellee, petitioner permitted the business to be
carried on in his name as its ostensible owner.
Private respondent should not be expected to be
aware of such a transfer and whatever agreement or
understanding appellant had with petitioner's son
Rodolfo regarding the store cannot bind or affect
private respondent, for matters accomplished
between two parties ought not to operate to the
prejudice of a third person.16 Accordingly, it also finds
as superfluous the amendment of the complaint for
the purpose of impleading Rodolfo Cruz, Marilou Cruz
and Me Cruz; moreover, it contends that failure to
amend the complaint is no cause for reversal
because these persons were known to private
respondent as petitioner's "progeny"; besides, the
transfer of business, if indeed there was such, is a
matter of defense which need not be "negatived" in
the complaint. A complaint should not, by the
averments, anticipate a defense thereto.

The appeal was docketed as C.A.-G.R. CV No. 07859.

In respect to the failure of private respondent to

comply with the order of 27 March 1984 directing it
to amend the complaint, respondent Court held that
the non-compliance was "muted by the subsequent
order of 16 May 1984 which considered the case
submitted for decision." By such order, the trial court
gave its assent to resolving the case on the basis of
the unamended complaint. Section 11 of Rule 3
(erroneously stated as Section 3 of Rule 11) of the
Rules of Court provides that parties may be dropped
or added by order of the court on motion of any party
or on its own initiative at any stage of the action and
on such terms as are just; in the instant case, it may
be inferred that the trial court opted to resolve the
case without the proposed change in parties
defendants.

In his Brief in said case, petitioner attributes to the

trial court the errors 15 which, as earlier mentioned,
are the very same errors submitted before Us as
having been committed by the respondent court.

Finally, it ruled that both oral and documentary

evidence presented at the hearing on 3 October
1983 proved petitioner's unsatisfied obligation to the
private respondent.

According to the respondent Court, these errors bring

into focus one crucial issue: the liability of petitioner
for the amounts adjudged by the trial court in favor
of private respondent. It held that petitioner is liable

To bring this petition within Our authority, petitioner

asserts, in effect, that at the bottom of the assigned
errors is the issue of whether the respondent Court

As adverted to earlier, on 28 February 1985, the trial

court rendered its decision against petitioner who, on
21 March 1985, filed a motion to reconsider 13 the
decision, which the trial court denied for lack of merit
in its order of 16 May 1985. 14
Petitioner appealed from the decision to the then
Intermediate Appellate Court, now Court of Appeals.

has made conclusions of fact which are not

substantiated by the evidence on record. Petitioner
asserts that it did.
We have held in a long line of cases that findings of
facts of the Court of Appeals are conclusive upon this
Court.17 There are, however, recognized exceptions
to this rule, 18 as where the findings are totally
devoid of support in the record, or are glaringly
erroneous as to constitute serious abuse of
discretion, 19 or when the findings are grounded
entirely on speculation, surmise or conjecture. 20
Deliberating on this case, We hold that the findings
and conclusions of both the trial court and the
respondent Court are not supported by the evidence
and that such conclusions are glaringly erroneous.
This petition is impressed with merit.
In its very brief decision, the trial court, without even
laying the factual premises, made a sweeping
conclusion that it was the petitioner who applied for
a credit line with private respondent and which the
latter approved for him; on the basis of such
approval, he subsequently bought Purefoods
products on credit from private respondent.
Evidently, the trial court may have in mind the Credit
Application Card 21 and the several invoices for the
delivery of the goods. 22 But as correctly pointed out
by the petitioner, and as the documents themselves
show, he did not sign any of them.
It is the respondent Court which endeavored to
supply the arguments in support of the foregoing
conclusion. According to the respondent court:
In his Motion to Set Aside Order of
Default filed on October 19, 1983
appellant 23 admitted that subject
store is still licensed under his
name ... Also, the credit application
card accomplished in behalf of the
store clearly indicates appellant as
owner/manager thereof ... Hence,
even on the assumption that there
really had been a transfer of
ownership and management of the
"Mang Uro Store" to Rodolfo Cruz
previous to the transactions made
with appellee 24 the fact is that
appellant permitted the carrying of
the business of Id store with him as

ostensible owner. Appellee should

not be expected to be aware of
such transfer. Whatever private
agreement
or
understanding
appellant made with his son
Rodolfo regarding the store cannot
bind or affect appellee. Insofar as
the latter is concerned, the store is
business property of appellant. The
maxim res inter alios acta alteri
nocere
non
debet is
square.
Matters accomplished between two
parties ought not to operate to the
prejudice of a third person (Blanza
vs. Arcangel, 21 SCRA 4; Perez vs.
Mendoza, 65 SCRA 493; Tinitigan
vs. Tinitigan 100 SCRA 636). 25
Unfortunately, however, this conclusion is bereft of
substantial factual basis and disregards fundamental
principles concerning the primary duty of persons
dealing with parties who act for others, and of
estoppel. Indisputably, the credit application card is a
form prepared and supplied by private respondent.
There is no evidence, much less an allegation by
private respondent, that it was petitioner who filled
up the entries in said form. It is logical to presume
then that the parties who signed it (Me Cruz and
Marilou L. Cruz), or anyone of them, made or
accomplished the entries. Needless to state, since on
the face of the document, the "owner/manager" of
the "Mang Uro Store", which is written on the column
Trade Name, is Lauro Cruz, and not the parties
signing the same, it was incumbent upon the private
respondent to inquire into the relationship of the
signatories to the petitioner or to satisfy itself as to
their authority to act for or represent the petitioner.
Under the circumstances, it is apparent that
petitioner had no direct participation and that the
two applicants could have acted without authority
from him or as his duly authorized representatives. In
either case, for the protection of its interest, private
respondent should have made the necessary inquiry
verification as to the authority of the applicants and
to find out from them whether Lauro Cruz is both
the owner and manager or merely the owner or
the manager, for that is what "owner/manager" in its
form could signify.
A person dealing with an agent is put upon inquiry
and must discover upon his peril the authority of the
agent. 26It is for this reason that under Article No.
1902 of the Civil Code, a third person with whom the

agent wishes to contract on behalf of the principal

may require the presentation of the power of
attorney, or the instructions as regards the agency,
and that private or secret orders and instructions of
the principal do not prejudice third persons who have
relied upon the power of attorney or instructions
shown them.
In short, petitioner is not under estoppel, as against
the claim of private respondent, which seems to be
at the bottom of the respondent Court's
rationalization.
In Kalalo vs. Luz, 27 We held that the essential
elements of estoppel in respect to the party claiming
it are: (a) lack of knowledge and of the means of
knowledge of the truth as the facts in question; (b)
reliance, in good faith, upon the conduct or
statements of the party to be estopped; and (c)
action or inaction based thereon of such character as
to change the position or status of the party claiming
the estoppel, to his injury, detriment, or prejudice.
The above disquisitions ineluctably show the absence
of said elements in this case.
In the instant case, there is no showing at all that
private respondent tried to ascertain the ownership
of Mang Uro Store and the extent of the authority of
the applicants to represent Lauro Cruz at any time
before it approved the credit application card.
There is as well no evidence, much less any claim by
private respondent, that before Me Cruz and Marilou
Cruz signed the credit application card, it had been
dealing with petitioner or the Mang Uro Store, or that
for sometime prior thereto, petitioner ever
represented to it as the owner of the store that he
has authorized the above signatories to represent
him in any transaction. Clearly, it was error for the
respondent Court to conclude that petitioner should
be held liable to private respondent on account of
the credit application card on the theory that he
permitted the carrying of the business of the store.
This theory further erroneously assumes that the
business of the store before the filing of the credit
application card included the sale of products of
private respondent. There is evidence on this
appoint.

Moreover, it is apparent that the purpose of the

request of private respondent to file an amended
complaint within ten (10) days from 27 March 1984,
the date when the pre-trial was held, which the trial
court granted, 28 was precisely to implead the
signatories to the credit application card. This was
precisely prompted by the insistence of petitioner
that he is not liable for the claims in the complaint
because he did not sign the credit card application
and the invoices. In short, he is erroneously
impleaded as defendant. Since among the matters to
be considered at pre-trial is the necessity or
desirability of amendments to pleadings, 29 the
request was seasonably and properly made.
Private respondent did not amend the complaint
within the period aforesaid. So, when the case was
caned for heating on 16 May 1984, pursuant to the
Order of 27 March 1984, and the parties did not
appear, the trial court should have dismissed the
case for failure on the part of private respondent to
file the amended complaint. Such dismissal is
authorized under Section 3 of Rule 17 of the Rules of
Court. The respondent Court, however, brushed aside
this point by holding that the non-compliance by
private respondent "was muted by the subsequent
order dated May 16, 1984 which submitted the case
for decision;" and that by said order "the trial court
appears to have given its assent to resolving the
case on the basis of the unamended complaint,"
which is authorized by Section 11 of Rule 3 of the
Rules of Court. Although this justification is flimsy
and begs the question, the foregoing resolution on
the issue of petitioner's liability to the private
respondent renders unnecessary further discussion
on the remaining assigned errors.
WHEREFORE, the instant petition is GRANTED, and
the decision of the respondent Court of Appeals of 9
August 1988 and its resolution of 27 October 1988 in
C.A.-G.R. CV No. 07859, as well as the decision of the
trial court of 28 February 1985 in Civil Case No.
49672, are hereby REVERSED and SET ASIDE. With
costs against private respondent.
SO ORDERED.

G.R. No. 88866

February 18, 1991

METROPOLITAN
BANK
&
TRUST
COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN
ASSOCIATION, INC., LUCIA CASTILLO, MAGNO
CASTILLO and GLORIA CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for
petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson &
Bengson
for
Magno
and
Lucia
Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for
respondent Golden Savings & Loan Association, Inc.

CRUZ, J.:
This case, for all its seeming complexity, turns on a
simple question of negligence. The facts, pruned of
all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial
bank with branches throughout the Philippines and
even abroad. Golden Savings and Loan Association
was, at the time these events happened, operating in
Calapan, Mindoro, with the other private respondents
as its principal officers.
In January 1979, a certain Eduardo Gomez opened an
account with Golden Savings and deposited over a
period of two months 38 treasury warrants with a
total value of P1,755,228.37. They were all drawn by
the Philippine Fish Marketing Authority and
purportedly signed by its General Manager and
countersigned by its Auditor. Six of these were
directly payable to Gomez while the others appeared
to have been indorsed by their respective payees,
followed by Gomez as second indorser. 1
On various dates between June 25 and July 16, 1979,
all these warrants were subsequently indorsed by
Gloria Castillo as Cashier of Golden Savings and
deposited to its Savings Account No. 2498 in the
Metrobank branch in Calapan, Mindoro. They were
then sent for clearing by the branch office to the
principal office of Metrobank, which forwarded them
to the Bureau of Treasury for special clearing. 2

More than two weeks after the deposits, Gloria

Castillo went to the Calapan branch several times to
ask whether the warrants had been cleared. She was
told to wait. Accordingly, Gomez was meanwhile not
allowed to withdraw from his account. Later,
however, "exasperated" over Gloria's repeated
inquiries and also as an accommodation for a "valued
client," the petitioner says it finally decided to allow
Golden Savings to withdraw from the proceeds of the
warrants. 3
The first withdrawal was made on July 9, 1979, in the
amount of P508,000.00, the second on July 13, 1979,
in the amount of P310,000.00, and the third on July
16, 1979, in the amount of P150,000.00. The total
withdrawal was P968.000.00. 4
In turn, Golden Savings subsequently allowed Gomez
to make withdrawals from his own account,
eventually
collecting
the
total
amount
of
P1,167,500.00 from the proceeds of the apparently
cleared warrants. The last withdrawal was made on
July 16, 1979.
On July 21, 1979, Metrobank informed Golden
Savings that 32 of the warrants had been dishonored
by the Bureau of Treasury on July 19, 1979, and
demanded the refund by Golden Savings of the
amount it had previously withdrawn, to make up the
deficit in its account.
The demand was rejected. Metrobank then sued
Golden Savings in the Regional Trial Court of
Mindoro. 5 After trial, judgment was rendered in favor
of Golden Savings, which, however, filed a motion for
reconsideration even as Metrobank filed its notice of
appeal. On November 4, 1986, the lower court
modified its decision thus:
ACCORDINGLY,
rendered:

judgment

is

hereby

1. Dismissing the complaint with costs

against the plaintiff;
2. Dissolving and lifting the writ of
attachment of the properties of defendant
Golden Savings and Loan Association, Inc.
and defendant Spouses Magno Castillo and
Lucia Castillo;
3. Directing the plaintiff to reverse its action
of debiting Savings Account No. 2498 of the

sum of P1,754,089.00 and to reinstate and

credit to such account such amount existing
before the debit was made including the
amount of P812,033.37 in favor of
defendant Golden Savings and Loan
Association, Inc. and thereafter, to allow
defendant Golden Savings and Loan
Association, Inc. to withdraw the amount
outstanding thereon before the debit;
4. Ordering the plaintiff to pay the
defendant Golden Savings and Loan
Association, Inc. attorney's fees and
expenses of litigation in the amount of
P200,000.00.
5. Ordering the plaintiff to pay the
defendant Spouses Magno Castillo and Lucia
Castillo attorney's fees and expenses of
litigation in the amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court, 6 the decision was
affirmed, prompting Metrobank to file this petition for
review on the following grounds:
1. Respondent Court of Appeals erred in
disregarding and failing to apply the clear
contractual terms and conditions on the
deposit slips allowing Metrobank to charge
back any amount erroneously credited.
(a) Metrobank's right to charge
back is not limited to instances
where the checks or treasury
warrants
are
forged
or
unauthorized.
(b) Until such time as Metrobank is
actually paid, its obligation is that
of a mere collecting agent which
cannot be held liable for its failure
to collect on the warrants.
2. Under the lower court's decision, affirmed
by respondent Court of Appeals, Metrobank
is made to pay for warrants already
dishonored, thereby perpetuating the fraud
committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not
finding that as between Metrobank and

Golden Savings, the latter should bear the

loss.
4. Respondent Court of Appeals erred in
holding that the treasury warrants involved
in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to
the Court that Metrobank was indeed negligent in
giving Golden Savings the impression that the
treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw
the proceeds thereof from his account with it.
Without such assurance, Golden Savings would not
have allowed the withdrawals; with such assurance,
there was no reason not to allow the withdrawal.
Indeed, Golden Savings might even have incurred
liability for its refusal to return the money that to all
appearances belonged to the depositor, who could
therefore withdraw it any time and for any reason he
saw fit.
It was, in fact, to secure the clearance of the treasury
warrants that Golden Savings deposited them to its
account with Metrobank. Golden Savings had no
clearing facilities of its own. It relied on Metrobank to
determine the validity of the warrants through its
own services. The proceeds of the warrants were
withheld from Gomez until Metrobank allowed Golden
Savings itself to withdraw them from its own
deposit. 7 It was only when Metrobank gave the gosignal that Gomez was finally allowed by Golden
Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings
should have exercised more care in checking the
personal circumstances of Gomez before accepting
his deposit does not hold water. It was Gomez who
was entrusting the warrants, not Golden Savings that
was extending him a loan; and moreover, the
treasury warrants were subject to clearing, pending
which the depositor could not withdraw its proceeds.
There was no question of Gomez's identity or of the
genuineness of his signature as checked by Golden
Savings. In fact, the treasury warrants were
dishonored allegedly because of the forgery of the
signatures of the drawers, not of Gomez as payee or
indorser. Under the circumstances, it is clear that
Golden Savings acted with due care and diligence
and cannot be faulted for the withdrawals it allowed
Gomez to make.

By contrast, Metrobank exhibited extraordinary

carelessness. The amount involved was not trifling
more than one and a half million pesos (and this was
1979). There was no reason why it should not have
waited until the treasury warrants had been cleared;
it would not have lost a single centavo by waiting.
Yet, despite the lack of such clearance and
notwithstanding that it had not received a single
centavo from the proceeds of the treasury warrants,
as it now repeatedly stresses it allowed Golden
Savings to withdraw not once, not twice, but thrice
from the uncleared treasury warrants in the total
amount of P968,000.00
Its reason? It was "exasperated" over the persistent
inquiries of Gloria Castillo about the clearance and it
also wanted to "accommodate" a valued client. It
"presumed" that the warrants had been cleared
simply because of "the lapse of one week." 8 For a
bank with its long experience, this explanation is
unbelievably naive.
And now, to gloss over its carelessness, Metrobank
would invoke the conditions printed on the dorsal
side of the deposit slips through which the treasury
warrants were deposited by Golden Savings with its
Calapan branch. The conditions read as follows:
Kindly note that in receiving items on
deposit, the bank obligates itself only as the
depositor's collecting agent, assuming no
responsibility beyond care in selecting
correspondents, and until such time as
actual payment shall have come into
possession of this bank, the right is
reserved to charge back to the depositor's
account any amount previously credited,
whether or not such item is returned. This
also applies to checks drawn on local banks
and bankers and their branches as well as
on this bank, which are unpaid due
to insufficiency
of
funds,
forgery,
unauthorized overdraft or any other reason.
(Emphasis supplied.)
According to Metrobank, the said conditions clearly
show that it was acting only as a collecting agent for
Golden Savings and give it the right to "charge back
to the depositor's account any amount previously
credited, whether or not such item is returned. This
also applies to checks ". . . which are unpaid due to
insufficiency
of
funds,
forgery,
unauthorized
overdraft of any other reason." It is claimed that the
said conditions are in the nature of contractual
stipulations and became binding on Golden Savings

when Gloria Castillo, as its Cashier, signed the

deposit slips.
Doubt may be expressed about the binding force of
the conditions, considering that they have apparently
been imposed by the bank unilaterally, without the
consent of the depositor. Indeed, it could be argued
that the depositor, in signing the deposit slip, does so
only to identify himself and not to agree to the
conditions set forth in the given permit at the back of
the deposit slip. We do not have to rule on this
matter at this time. At any rate, the Court feels that
even if the deposit slip were considered a contract,
the petitioner could still not validly disclaim
responsibility thereunder in the light of the
circumstances of this case.
In stressing that it was acting only as a collecting
agent for Golden Savings, Metrobank seems to be
suggesting that as a mere agent it cannot be liable to
the principal. This is not exactly true. On the
contrary, Article 1909 of the Civil Code clearly
provides that
Art. 1909. The agent is responsible not
only for fraud, but also for negligence, which
shall be judged 'with more or less rigor by
the courts, according to whether the agency
was or was not for a compensation.
The negligence of Metrobank has been sufficiently
established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it
was already safe to allow Gomez to withdraw the
proceeds of the treasury warrants he had deposited
Metrobank misled Golden Savings. There may have
been no express clearance, as Metrobank insists
(although this is refuted by Golden Savings) but in
any case that clearance could be implied from its
allowing Golden Savings to withdraw from its account
not only once or even twice but three times. The
total withdrawal was in excess of its original balance
before the treasury warrants were deposited, which
only added to its belief that the treasury warrants
had indeed been cleared.
Metrobank's argument that it may recover the
disputed amount if the warrants are not paid for any
reason is not acceptable. Any reason does not mean
no reason at all. Otherwise, there would have been
no need at all for Golden Savings to deposit the
treasury warrants with it for clearance. There would
have been no need for it to wait until the warrants
had been cleared before paying the proceeds thereof
to Gomez. Such a condition, if interpreted in the way

the petitioner suggests, is not binding for being

arbitrary and unconscionable. And it becomes more
so in the case at bar when it is considered that the
supposed dishonor of the warrants was not
communicated to Golden Savings before it made its
own payment to Gomez.
The belated notification aggravated the petitioner's
earlier negligence in giving express or at least
implied clearance to the treasury warrants and
allowing payments therefrom to Golden Savings. But
that is not all. On top of this, the supposed reason for
the dishonor, to wit, the forgery of the signatures of
the general manager and the auditor of the drawer
corporation, has not been established. 9 This was the
finding of the lower courts which we see no reason to
disturb. And as we said in MWSS v. Court of
Appeals: 10
Forgery cannot be presumed (Siasat, et al.
v. IAC, et al., 139 SCRA 238). It must be
established
by
clear,
positive
and
convincing evidence. This was not done in
the present case.
A no less important consideration is the circumstance
that the treasury warrants in question are not
negotiable instruments. Clearly stamped on their
face is the word "non-negotiable." Moreover, and this
is of equal significance, it is indicated that they are
payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments
Law, especially the underscored parts, are pertinent:
Sec. 1. Form of negotiable instruments.
An instrument to be negotiable must
conform to the following requirements:
(a) It must be in writing and signed by the
maker or drawer;
(b) Must contain an unconditional promise
or order to pay a sum certain in money;
(c) Must be payable on demand, or at a
fixed or determinable future time;
(d) Must be payable to order or to bearer;
and

(e) Where the instrument is addressed to a

drawee, he must be named or otherwise
indicated therein with reasonable certainty.
xxx

xxx

xxx

Sec. 3. When promise is unconditional. An

unqualified order or promise to pay is
unconditional within the meaning of this Act
though coupled with
(a) An indication of a particular fund out of
which reimbursement is to be made or a
particular account to be debited with the
amount; or
(b) A statement of the transaction which
gives rise to the instrument judgment.
But an order or promise to pay out of a
particular fund is not unconditional.
The indication of Fund 501 as the source of the
payment to be made on the treasury warrants makes
the order or promise to pay "not unconditional" and
the warrants themselves non-negotiable. There
should be no question that the exception on Section
3 of the Negotiable Instruments Law is applicable in
the case at bar. This conclusion conforms to
Abubakar vs. Auditor General 11 where the Court
held:
The petitioner argues that he is a holder in
good faith and for value of a negotiable
instrument and is entitled to the rights and
privileges of a holder in due course, free
from defenses. But this treasury warrant is
not within the scope of the negotiable
instrument law. For one thing, the document
bearing on its face the words "payable from
the appropriation for food administration, is
actually an Order for payment out of "a
particular fund," and is not unconditional
and does not fulfill one of the essential
requirements of a negotiable instrument
(Sec. 3 last sentence and section [1(b)] of
the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the
warrants in general, Golden Savings assumed that
they were "genuine and in all respects what they
purport to be," in accordance with Section 66 of the
Negotiable Instruments Law. The simple reason is

that this law is not applicable to the non-negotiable

treasury warrants. The indorsement was made by
Gloria Castillo not for the purpose of guaranteeing
the genuineness of the warrants but merely to
deposit them with Metrobank for clearing. It was in
fact Metrobank that made the guarantee when it
stamped on the back of the warrants: "All prior
indorsement
and/or
lack
of
endorsements
guaranteed, Metropolitan Bank & Trust Co., Calapan
Branch."
The petitioner lays heavy stress on Jai Alai
Corporation v. Bank of the Philippine Islands, 12 but
we feel this case is inapplicable to the present
controversy.1wphi1 That case involved checks
whereas this case involves treasury warrants. Golden
Savings never represented that the warrants were
negotiable but signed them only for the purpose of
depositing them for clearance. Also, the fact of
forgery was proved in that case but not in the case
before us. Finally, the Court found the Jai Alai
Corporation negligent in accepting the checks
without question from one Antonio Ramirez
notwithstanding that the payee was the Inter-Island
Gas Services, Inc. and it did not appear that he was
authorized to indorse it. No similar negligence can be
imputed to Golden Savings.
We find the challenged decision to be basically
correct. However, we will have to amend it insofar as
it directs the petitioner to credit Golden Savings with
the full amount of the treasury checks deposited to
its account.
The total value of the 32 treasury warrants
dishonored was P1,754,089.00, from which Gomez
was allowed to withdraw P1,167,500.00 before
Golden Savings was notified of the dishonor. The
amount he has withdrawn must be charged not to
Golden Savings but to Metrobank, which must bear
the consequences of its own negligence. But the
balance of P586,589.00 should be debited to Golden
Savings, as obviously Gomez can no longer be
permitted to withdraw this amount from his deposit
because of the dishonor of the warrants. Gomez has
in fact disappeared. To also credit the balance to
Golden Savings would unduly enrich it at the
expense of Metrobank, let alone the fact that it has
already been informed of the dishonor of the treasury
warrants.
WHEREFORE, the challenged decision is AFFIRMED,
with the modification that Paragraph 3 of the
dispositive portion of the judgment of the lower court
shall be reworded as follows:

3. Debiting Savings Account No. 2498 in the

sum of P586,589.00 only and thereafter
allowing defendant Golden Savings & Loan
Association, Inc. to withdraw the amount
outstanding thereon, if any, after the debit.
SO ORDERED.

G.R. No. 94050 November 21, 1991

SYLVIA
H.
BEDIA
and
HONTIVEROS
&
ASSOCIATED
PRODUCERS
PHILS.
YIELDS,
INC., petitioners,
vs.
EMILY
A.
WHITE
and
HOLMAN
T.
WHITE, respondents.
Ramon A. Gonzales for petitioner of the Court.
Renato S. Corpuz for private respondents.

CRUZ, J.:p
The basic issue before us is the capacity in which
petitioner Sylvia H. Bedia entered into the subject
contract with private respondent Emily A. White. Both
the trial court and the respondent court held she was
acting in her own personal behalf. She faults this
finding as reversible error and insists that she was
merely acting as an agent.
The case arose when Bedia and White entered into a
Participation Contract 1 reading in full as follows:
THE STATE FAIR OF TEXAS '80
PARTICIPATION CONTRACT
PARTICIPANT
EMILY
ENTERPRISES

(COMPANY

NAME)
WHITE

I/We,
the
abovementioned
company
hereby
agrees
to

participate in the 1980 Dallas State

Fair to be held in Dallas, Texas on
October 3, to October 19,1980.
I/We request for a 15 square meter
booth space worth $2,250.00 U.S.
Dollars.
I/We further understand that this
participation contract shall be
deemed
non-cancellable
after
payment
of
the
said
down
payment, and that any intention on
our part to cancel the same shall
render whatever amount we have
paid
forfeited
in
favor
of
HONTIVEROS
&
ASSOCIATED
PRODUCERS PHILIPPINE YIELDS,
INC.
FOR THE ABOVE CONSIDERATION,
I/We understand the HONTIVEROS
& ASSOCIATED PRODUCERS PHIL.
YIELDS, INC. shall: Reserve said
booth for our exclusive perusal; We
also understand that the above
cost includes overall exterior booth
decoration and materials but does
not include interior designs which
will be per our specifications and
expenses.
PARTICIPANT'S
AUTHORIZED
ACCEPTED BY:

PARTICIPATION
SIGNATURE:

(SGD.) EMILY WHITE (SGD.) SYLVIA

H.
BEDIA
DATE: 8/13/80 DATE: Aug. 1, 1980
On August 10, 1986, White and her husband filed a
complaint in the Regional Trial Court of Pasay City for
damages against Bedia and Hontiveros & Associated
Producers Phil. Yields, Inc. for damages caused by
their fraudulent violation of their agreement. She
averred that Bedia had approached her and
persuaded her to participate in the State of Texas
Fair, and that she made a down payment of $500.00
to Bedia on the agreed display space. In due time,
she enplaned for Dallas with her merchandise but
was dismayed to learn later that the defendants had
not paid for or registered any display space in her
name, nor were they authorized by the state fair

director to recruit participants. She said she incurred

losses as a result for which the defendants should be
held solidarily liable. 2
In their joint answer, the defendants denied the
plaintiff's allegation that they had deceived her and
explained that no display space was registered in her
name as she was only supposed to share the space
leased by Hontiveros in its name. She was not
allowed to display her goods in that space because
she had not paid her balance of $1,750.00, in
violation of their contract. Bedia also made the
particular averment that she did not sign the
Participation Contract on her own behalf but as an
agent of Hontiveros and that she had later returned
the advance payment of $500.00 to the plaintiff. The
defendants filed their own counterclaim and
complained of malice on the part of the plaintiffs. 3
In the course of the trial, the complaint against
Hontiveros was dismissed on motion of the
plaintiffs. 4
In his decision dated May 29, 1986, Judge Fermin
Martin, Jr. found Bedia liable for fraud and awarded
the plaintiffs actual and moral damages plus
attorney's fees and the costs. The court said:
In claiming to be a mere agent of
Hontiveros & Associated Producers
Phil. Yields, Inc., defendant Sylvia
H. Bedia evidently attempted to
escape
liability
for
herself.
Unfortunately
for
her,
the
"Participation Contract" is not
actually in representation or in the
name of said corporation. It is a
covenant entered into by her in her
personal capacity, for no one may
contract in the name of another
without being authorized by the
latter, or unless she has by law a
right to represent her. (Art. 1347,
new Civil Code)
Sustaining the trail court on this point, the
respondent court 5 declared in its decision dated
March 30, 1990:
The evidence, on the whole, shows
that she definitely acted on her

own. She represented herself

asauthorized by the State of Texas
to solicit and assign booths at the
Texas fair; she assured the appellee
that she could give her booth.
Under Article 1883 of the New Civil
Code, if the agent acts in his own
name, the principal has no right of
action against the persons with
whom the agent had contracted.
We do not share these views.
It is noteworthy that in her letter to the Minister of
Trade dated December 23,1984, Emily White began:
I am a local exporter who
was recruited by Hontiveros &
Associated Producers Phil. Yields,
Inc. to participate in the State Fair
of Dallas, Texas which was held last
Oct. 3 to 19, 1980. Hontiveros &
Associated charged me US$150.00
per square meter for display booth
of said fair. I have paid an advance
of US$500.00 as partial payment
for the total space of 15 square
meter of which is $2,250.00 (Two
Thousand
Two
Hundred
Fifty
Dollars). 6
As the Participation Contract was signed by Bedia,
the above statement was an acknowledgment by
White that Bedia was only acting for Hontiveros when
it recruited her as a participant in the Texas State Fair
and charged her a partial payment of $500.00. This
amount was to be fortified to Hontiveros in case of
cancellation by her of the agreement. The fact that
the contract was typewritten on the letterhead
stationery of Hontiveros bolsters this conclusion in
the absence of any showing that said stationery had
been illegally used by Bedia.
Significantly, Hontiveros itself has not repudiated
Bedia's agency as it would have if she had really not
signed in its name. In the answer it filed with Bedia,
it did not deny the latter's allegation in Paragraph 4
thereof that she was only acting as its agent when
she solicited White's participation. In fact, by filing
the answer jointly with Bedia through their common
counsel, Hontiveros affirmed this allegation.

If the plaintiffs had any doubt about the capacity in

which Bedia was acting, what they should have done
was verify the matter with Hontiveros. They did not.
Instead, they simply accepted Bedia's representation
that she was an agent of Hontiveros and dealt with
her as such. Under Article 1910 of the Civil Code,
"the principal must comply with all the obligations
which the agent may have contracted within the
scope of his authority." Hence, the private
respondents cannot now hold Bedia liable for the
acts performed by her for, and imputable to,
Hontiveros as her principal.
The plaintiffs' position became all the more
untenable when they moved on June 5, 1984, for the
dismissal
of
the
complaint
against
Hontiveros, 7 leaving Bedia as the sole defendant.
Hontiveros had admitted as early as when it filed its
answer that Bedia was acting as its agent. The effect
of the motion was to leave the plaintiffs without a
cause of action against Bedia for the obligation, if
any, of Hontiveros.
Our conclusion is that since it has not been found
that Bedia was acting beyond the scope of her
authority when she entered into the Participation
Contract on behalf of Hontiveros, it is the latter that
should be held answerable for any obligation arising
from that agreement. By moving to dismiss the
complaint against Hontiveros, the plaintiffs virtually
disarmed themselves and forfeited whatever claims
they might have proved against the latter under the
contract signed for it by Bedia. It should be obvious
that having waived these claims against the
principal, they cannot now assert them against the
agent.
WHEREFORE, the appealed decision dated March 30,
1990, of the respondent court is REVERSED and a
new judgment is rendered dismissing Civil Case No.
9246-P in the Regional Trial Court of Pasay City.
SO ORDERED.

G.R. No. 95641 September 22, 1994

SANTOS
B.
AREOLA
and
AREOLA, petitioners-appellants,
vs.
COURT
OF
APPEALS
and
GUARANTEE
AND
INC., respondents-appellees.

LYDIA

D.

PRUDENTIAL
ASSURANCE,

ROMERO, J.:
On June 29, 1985, seven months after the issuance of
petitioner
Santos
Areola's
Personal
Accident
Insurance Policy No. PA-20015, respondent insurance
company unilaterally cancelled the same since
company records revealed that petitioner-insured
failed to pay his premiums.
On August 3, 1985, respondent insurance company
offered to reinstate same policy it had previously
cancelled and even proposed to extend its lifetime to
December 17, 1985, upon a finding that the
cancellation was erroneous and that the premiums
were paid in full by petitioner-insured but were not
remitted by Teofilo M. Malapit, respondent insurance
company's branch manager.
These, in brief, are the material facts that gave rise
to the action for damages due to breach of contract
instituted
by
petitioner-insured
before
Branch 40 RTC, Dagupan City against respondent
insurance company.
There are two issues for resolution in this case:
(1) Did the erroneous act of cancelling subject
insurance policy entitle petitioner-insured to payment
of damages?
(2) Did the subsequent act of reinstating the
wrongfully cancelled insurance policy by respondent
insurance company, in an effort to rectify such error,
obliterate whatever liability for damages it may have
to bear, thus absolving it therefrom?

From the factual findings of the trial court, it appears

that petitioner-insured, Santos Areola, a lawyer from
Dagupan
City,
bought,
through
the Baguio City branch of Prudential Guarantee and
Assurance,
Inc.
(hereinafter
referred
to
as
Prudential), a personal accident insurance policy
covering the one-year period between noon of
November 28, 1984 and noon of November 28,
1985. 1 Under the terms of the statement of account
issued by respondent insurance company, petitionerinsured was supposed to pay the total amount of
P1,609.65 which included the premium of P1,470.00,
documentary stamp of P110.25 and 2% premium tax
of P29.40. 2 At the lower left-hand corner of the
statement of account, the following is legibly printed:
This Statement of Account must
not be considered a receipt. Official
Receipt will be issued to you upon
payment of this account.
If payment is made to our
representative, demand for a
Provisional Receipt and if our
Official Receipts is (sic) not
received by you within 7 days
please notify us.
If payment is made to our office,
demand for an OFFICIAL RECEIPT.
On December 17, 1984, respondent insurance
company issued collector's provisional receipt No.
9300 to petitioner-insured for the amount of
P1,609.65 3 On the lower portion of the receipt the
following is written in capital letters:
Note: This collector's provisional
receipt will be confirmed by our
official receipt. If our official receipt
is not received by you within 7
days, please notify us. 4
On June 29, 1985, respondent insurance company,
through its Baguio City manager, Teofilo M. Malapit,
sent
petitioner-insured
Endorsement
No. BG-002/85 which "cancelled flat" Policy No. PA
BG-20015 "for non-payment of premium effective as
of inception dated." 5 The same endorsement also
credited "a return premium of P1,609.65 plus

documentary stamps and premium tax" to the

account of the insured.
Shocked by the cancellation of the policy, petitionerinsured confronted Carlito Ang, agent of respondent
insurance company, and demanded the issuance of
an official receipt. Ang told petitioner-insured that the
cancellation of the policy was a mistake but he would
personally see to its rectification. However,
petitioner-insured failed to receive any official receipt
from Prudential.
Hence, on July 15, 1985, petitioner-insured sent
respondent insurance company a letter demanding
that he be insured under the same terms and
conditions as those contained in Policy No. PA-BG20015 commencing upon its receipt of his letter, or
that the current commercial rate of increase on the
payment he had made under provisional receipt No.
9300 be returned within five days. 6 Areola also
warned that should his demands be unsatisfied, he
would sue for damages.
On July 17, 1985, he received a letter from
production manager Malapit informing him that the
"partial payment" of P1,000.00 he had made on the
policy had been "exhausted pursuant to the
provisions of the Short Period Rate Scale" printed at
the back of the policy. Malapit warned Areola that
should be fail to pay the balance, the company's
liability would cease to operate. 7
In reply to the petitioner-insured's letter of July 15,
1985, respondent insurance company, through its
Assistant Vice-President Mariano M. Ampil III, wrote
Areola a letter dated July 25, 1985 stating that the
company was verifying whether the payment had in
fact been issued therefor. Ampil emphasized that the
official receipt should have been issued seven days
from the issuance of the provisional receipt but
because no official receipt had been issued in
Areola's name, there was reason to believe that no
payment had been made. Apologizing for the
inconvenience, Ampil expressed the company's
concern by agreeing "to hold you cover (sic) under
the terms of the referenced policy until such time
that this matter is cleared." 8
On August 3, 1985, Ampil wrote Areola another letter
confirming that the amount of P1,609.65 covered by
provisional receipt No. 9300 was in fact received by
Prudential on December 17, 1984. Hence, Ampil

informed
Areola that Prudential was "amenable to extending
PGA-PA-BG-20015 up to December 17, 1985 or one
year from the date when payment was received."
Apologizing again for the inconvenience caused
Areola, Ampil exhorted him to indicate his conformity
to the proposal by signing on the space provided for
in the letter. 9
The letter was personally delivered by Carlito Ang to
Areola
on
August 13, 1985 10 but unfortunately, Areola and his
wife, Lydia, as early as August 6, 1985 had filed a
complaint for breach of contract with damages
before the lower court.
In its Answer, respondent insurance company
admitted that the cancellation of petitioner-insured's
policy was due to the failure of Malapit to turn over
the premiums collected, for which reason no official
receipt was issued to him. However, it argued that,
by acknowledging the inconvenience caused on
petitioner-insured and after taking steps to rectify its
omission by reinstating the cancelled policy prior to
the filing of the complaint, respondent insurance
company had complied with its obligation under the
contract. Hence, it concluded that petitioner-insured
no longer has a cause of action against it. It insists
that it cannot be held liable for damages arising from
breach of contract, having demonstrated fully well its
fulfillment of its obligation.
The trial court, on June 30, 1987, rendered a
judgment in favor of petitioner-insured, ordering
respondent insurance company to pay the former the
following:
a) P1,703.65 as actual damages;
b) P200,000.00 as moral damages;
and
c)
P50,000.00
damages;

as

exemplary

2. To pay to the plaintiff, as and for

attorney's fees the amount of
P10,000.00; and
3. To pay the costs.

In its decision, the court below declared that

respondent insurance company acted in bad faith in
unilaterally cancelling subject insurance policy,
having done so only after seven months from the
time that it had taken force and effect and despite
the fact of full payment of premiums and other
charges on the issued insurance policy. Cancellation
from the date of the policy's inception, explained the
lower court, meant that the protection sought by
petitioner-insured from the risks insured against was
never extended by respondent insurance company.
Had the insured met an accident at the time, the
insurance company would certainly have disclaimed
any liability because technically, the petitioner could
not have been considered insured. Consequently, the
trial court held that there was breach of contract on
the part of respondent insurance company, entitling
petitioner-insured to an award of the damages
prayed for.
This ruling was challenged on appeal by respondent
insurance company, denying bad faith on its part in
unilaterally cancelling subject insurance policy.
After consideration of the appeal, the appellate court
issued a reversal of the decision of the trial court,
convinced that the latter had erred in finding
respondent insurance company in bad faith for the
cancellation of petitioner-insured's policy. According
to the Court of Appeals, respondent insurance
company was not motivated by negligence, malice or
bad faith in cancelling subject policy. Rather, the
cancellation of the insurance policy was based on
what the existing records showed, i.e., absence of an
official receipt issued to petitioner-insured confirming
payment of premiums. Bad faith, said the Court of
Appeals, is some motive of self-interest or ill-will; a
furtive design of ulterior purpose, proof of which
must be established convincingly. On the contrary, it
further observed, the following acts indicate that
respondent insurance company did not act
precipitately or willfully to inflict a wrong on
petitioner-insured:
(a) the investigation conducted by Alfredo
Bustamante to verify if petitioner-insured had indeed
paid the premium; (b) the letter of August 3, 1985
confirming that the premium had been paid on
December 17, 1984; (c) the reinstatement of the
policy with a proposal to extend its effective period
to December 17, 1985; and (d) respondent insurance
company's apologies for the "inconvenience" caused
upon petitioner-insured. The appellate court added
that respondent insurance company even relieved

Malapit, its Baguio City manager, of his job by forcing

him to resign.
Petitioner-insured moved for the reconsideration of
the said decision which the Court of Appeals denied.
Hence, this petition for review on certiorari anchored
on these arguments:
I
Respondent Court of Appeals is
guilty of grave abuse of discretion
and committed a serious and
reversible error in not holding
Respondent Prudential liable for the
cancellation of the insurance
contract which was admittedly
caused by the fraudulent acts and
bad faith of its own officers.
II
Respondent Court of Appeals
committed serious and reversible
error and abused its discretion in
ruling that the defenses of good
faith and honest mistake can coexist with the admitted fraudulent
acts and evident bad faith.
III
Respondent Court of Appeals
committed a reversible error in not
finding
that
even
without
considering the fraudulent acts of
its own officer in misappropriating
the premium payment, the act
itself in cancelling the insurance
policy was done with bad faith
and/or
gross
negligence
and
wanton attitude amounting to bad
faith, because among others, it was
Mr. Malapit the person who
committed the fraud who sent
and
signed
the
notice
of
cancellation.
IV

Respondent Court of Appeals has

decided a question of substance
contrary to law and applicable
decision of the Supreme Court
when it refused to award damages
in favor of herein PetitionerAppellants.
It is petitioner-insured's submission that the
fraudulent act of Malapit, manager of respondent
insurance company's branch office in Baguio, in
misappropriating his premium payments is the
proximate cause of the cancellation of the insurance
policy. Petitioner-insured theorized that Malapit's act
of signing and even sending the notice of
cancellation himself, notwithstanding his personal
knowledge of petitioner-insured's full payment of
premiums, further reinforces the allegation of bad
faith. Such fraudulent act committed by Malapit,
argued
petitioner-insured,
is
attributable
to
respondent
insurance
company,
an
artificial
corporate being which can act only through its
officers or employees. Malapit's actuation, concludes
petitioner-insured, is therefore not separate and
distinct from that of respondent-insurance company,
contrary to the view held by the Court of Appeals. It
must, therefore, bear the consequences of the
erroneous cancellation of subject insurance policy
caused by the non-remittance by its own employee
of the premiums paid. Subsequent reinstatement,
according to petitioner-insured, could not possibly
absolve respondent insurance company from liability,
there being an obvious breach of contract. After all,
reasoned out petitioner-insured, damage had already
been inflicted on him and no amount of rectification
could remedy the same.
Respondent insurance company, on the other hand,
argues that where reinstatement, the equitable relief
sought by petitioner-insured was granted at an
opportune moment, i.e. prior to the filing of the
complaint, petitioner-insured is left without a cause
of action on which to predicate his claim for
damages. Reinstatement, it further explained,
effectively restored petitioner-insured to all his rights
under the policy. Hence, whatever cause of action
there might have been against it, no longer exists
and the consequent award of damages ordered by
the lower court in unsustainable.
We uphold petitioner-insured's submission. Malapit's
fraudulent act of misappropriating the premiums paid

by petitioner-insured is beyond doubt directly

imputable to respondent insurance company. A
corporation, such as respondent insurance company,
acts solely thru its employees. The latters' acts are
considered as its own for which it can be held to
account. 11 The facts are clear as to the relationship
between private respondent insurance company and
Malapit. As admitted by private respondent insurance
company in its answer, 12 Malapit was the manager
of its Baguio branch. It is beyond doubt that he
represented its interest and acted in its behalf. His
act of receiving the premiums collected is well within
the province of his authority. Thus, his receipt of said
premiums is receipt by private respondent insurance
company who, by provision of law, particularly under
Article 1910 of the Civil Code, is bound by the acts of
its agent.
Article 1910 thus reads:
Art. 1910. The principal must
comply with all the obligations
which the agent may have
contracted within the scope of his
authority.
As for any obligation wherein the
agent has exceeded his power, the
principal is not bound except when
he ratifies it expressly or tacitly.
Malapit's failure to remit the premiums he received
cannot constitute a defense for private respondent
insurance company; no exoneration from liability
could result therefrom. The fact that private
respondent insurance company was itself defrauded
due to the anomalies that took place in its Baguio
branch office, such as the non-accrual of said
premiums to its account, does not free the same
from its obligation to petitioner Areola. As held
inPrudential Bank v. Court of Appeals 13 citing the
ruling in McIntosh v. Dakota Trust Co.: 14
A bank is liable for wrongful acts of
its officers done in the interests of
the bank or in the course of
dealings of the officers in their
representative capacity but not for
acts outside the scope of their
authority. A bank holding out its
officers and agent as worthy of
confidence will not be permitted to

profit by the frauds they may thus

be enabled to perpetrate in the
apparent
scope
of
their
employment;
nor
will
it
be
permitted to shirk its responsibility
for such frauds, even though no
benefit may accrue to the bank
therefrom. Accordingly, a banking
corporation is liable to innocent
third
persons
where
the
representation is made in the
course of its business by an agent
acting within the general scope of
his authority even though, in the
particular case, the agent is
secretly abusing his authority and
attempting to perpetrate a fraud
upon his principal or some other
person, for his own ultimate
benefit.
Consequently, respondent insurance company is
liable by way of damages for the fraudulent acts
committed by Malapit that gave occasion to the
erroneous cancellation of subject insurance policy. Its
earlier act of reinstating the insurance policy can not
obliterate the injury inflicted on petitioner-insured.
Respondent company should be reminded that a
contract of insurance creates reciprocal obligations
for both insurer and insured. Reciprocal obligations
are those which arise from the same cause and in
which each party is both a debtor and a creditor of
the other, such that the obligation of one is
dependent upon the obligation of the other. 15
Under the circumstances of instant case, the
relationship as creditor and debtor between the
parties arose from a common cause: i.e., by reason
of their agreement to enter into a contract of
insurance under whose terms, respondent insurance
company promised to extend protection to petitionerinsured against the risk insured for a consideration in
the form of premiums to be paid by the latter. Under
the law governing reciprocal obligations, particularly
the second paragraph of Article 1191, 16 the injured
party, petitioner-insured in this case, is given a
choice between fulfillment or rescission of the
obligation in case one of the obligors, such as
respondent insurance company, fails to comply with
what is incumbent upon him. However, said article
entitles the injured party to payment of damages,
regardless of whether he demands fulfillment or
rescission of the obligation. Untenable then is

reinstatement insurance company's argument,

namely, that reinstatement being equivalent to
fulfillment of its obligation, divests petitioner-insured
of a rightful claim for payment of damages. Such a
claim finds no support in our laws on obligations and
contracts.

vs.
CITIBANK, N.A., Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:

The nature of damages to be awarded, however,

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

Before the Court is a Petition for Review

on Certiorari under Rule 45 of the Rules of Court,
seeking to reverse the Decision1 of the Court of
Appeals (CA) dated May 28, 2002 in CA-G.R. CV No.
66649 and its Resolution of December 11, 2002,
which reversed and set aside the Decision of the
Regional Trial Court (RTC) of Makati City.
The case originated as a Complaint 2 for a sum of
money and damages, filed with the RTC of Makati
City on March 2, 1999, by the spouses Raul and
Amalia Panlilio (petitioners) against Citibank N.A.
(respondent).
The factual antecedents are as follows:
On October 10, 1997, petitioner Amalia Panlilio
(Amalia) visited respondent's Makati City office and
deposited one million pesos (PhP1 million) in the
bank's "Citihi" account, a fixed-term savings account
with a higher-than-average interest.3 On the same
day, Amalia also opened a current or checking
account with respondent, to which interest earnings
of
the
Citihi
account
were
to
be
credited.4 Respondent assigned one of its employees,
Jinky Suzara Lee (Lee), to personally transact with
Amalia and to handle the accounts.5

WHEREFORE, the petition for review on certiorari is

hereby GRANTED and the decision of the Court of
Appeals in CA-G.R. No. 16902 on May 31, 1990,
REVERSED. The decision of Branch 40, RTC Dagupan
City, in Civil Case No. D-7972 rendered on June 30,
1987 is hereby REINSTATED subject to the following
modifications: (a) that nominal damages amounting
to P30,000.00 be awarded petitioner in lieu of the
damages adjudicated by court a quo; and (b) that in
the satisfaction of the damages awarded therein,
respondent insurance company is ORDERED to pay
the legal rate of interest computed from date of filing
of complaint until final payment thereof.

Amalia opened the accounts as ITF or "in trust for"

accounts, as they were intended to benefit her minor
children, Alejandro King Aguilar and Fe Emanuelle C.
Panlilio, in case she would meet an untimely
death.6 To open these accounts, Amalia signed two
documents: a Relationship Opening Form (ROF)7 and
an Investor Profiling and Suitability Questionnaire
(Questionnaire).8

SO ORDERED.

G.R. No. 156335

SPOUSES
RAUL
PANLILIO, Petitioners,

November 28, 2007

and

AMALIA

Amalia's initial intention was to invest the money in a

Citibank product called the Peso Repriceable
Promissory Note (PRPN), a product which had a
higher interest. However, as the PRPN was not
available that day, Amalia put her money in the Citihi
savings account.9
More than a month later, or on November 28, 1997,
Amalia phoned Citibank saying she wanted to place

an investment, this time in the amount of three

million pesos (PhP3 million). Again, she spoke with
Lee, the bank employee, who introduced her to
Citibank's various investment offerings. After the
phone conversation, apparently decided on where to
invest the money, Amalia went to Citibank bringing a
PCIBank check in the amount of three million pesos
(PhP3 million). During the visit, Amalia instructed Lee
on what to do with the PhP3 million. Later, she
learned
that
out
of
the
said
amount,
PhP2,134,635.87 was placed by Citibank in a LongTerm Commercial Paper (LTCP), a debt instrument
that paid a high interest, issued by the corporation
Camella and Palmera Homes (C&P Homes). 10 The rest
of the money was placed in two PRPN accounts, in
trust for each of Amalia's two children.11
Allegations
differ
between
petitioners
and
respondent as to whether Amalia instructed Lee to
place the money in the LTCP of C&P Homes.12
An LTCP is an evidence of indebtedness, with a
maturity period of more than 365 days, issued by a
corporation to any person or entity. 13 It is in effect a
loan obtained by a corporation (as borrower) from
the investing public (as lender)14 and is one of many
instruments that investment banks can legally buy
on behalf of their clients, upon the latter's express
instructions,
for
investment
purposes.15 LTCPs'
attraction is that they usually have higher yields than
most investment instruments. In the case of the LTCP
issued by C&P Homes, the gross interest rate was
16.25% per annum at the time Amalia made her
investment.16
On November 28, 1997, the day she made the
PhP3million investment, Amalia signed the following
documents: a Directional Investment Management
Agreement (DIMA),17 Term Investment Application
(TIA),18 and
Directional
Letter/Specific
Instructions.19 Key features of the DIMA and the
Directional Letter are provisions that essentially clear
Citibank of any obligation to guarantee the principal
and interest of the investment, absent fraud or
negligence on the latter's part. The provisions
likewise state that all risks are to be assumed by the
investor (petitioner).
As to the amount invested, only PhP2,134,635.87 out
of the PhP3 million brought by Amalia was placed in
the LTCP since, according to Lee, this was the only
amount of LTCP then available.20 According to Lee,
the balance of the PhP3 million was placed in two
PRPN accounts, each one in trust for Amalia's two
children, per her instructions.21

Following this investment, respondent claims to have

regularly sent confirmations of investment (COIs) to
petitioners.22 A COI is a one-page, computer
generated document informing the customer of the
investment earlier made with the bank. The first of
these COIs was received by petitioners on or about
December 9, 1997, as admitted by Amalia, which is
around a week after the investment was
made.23 Respondent claims that other succeeding
COIs were sent to and received by petitioners.
Amalia claims to have called Lee as soon as she
received the first COI in December 1997, and
demanded that the investment in LTCP be withdrawn
and placed in a PRPN. 24 Respondent, however, denies
this, claiming that Amalia merely called to clarify
provisions in the COI and did not demand a
withdrawal.25
On August 6, 1998, petitioners met with respondent's
other employee, Lizza Colet, to preterminate the
LTCP and their other investments. Petitioners were
told that as to the LTCP, liquidation could be made
only if there is a willing buyer, a prospect which could
be difficult at that time because of the economic
crisis. Still, petitioners signed three sets of Sales
Order Slip to sell the LTCP and left these with Colet.26

The Complaint32 essentially demanded a return of the

investment, alleging that Amalia never instructed
respondent's employee Lee to invest the money in an
LTCP; and that far from what Lee executed, Amalia's
instructions were to invest the money in a "trust
account" with an "interest of around 16.25% with a
term of 91 days." Further, petitioners alleged that it
was only later, or on December 8, 1997, when Amalia
received the first confirmation of investment (COI)
from respondent, that she and her husband learned
of Lee's infidelity to her orders. The COI allegedly
informed petitioners that the money was placed in an
LTCP of C&P Homes with a maturity in 2003, and that
the investment was not guaranteed by respondent.
Petitioners also claimed that as soon as Amalia
received the COI, she immediately called Lee;
however, the latter allegedly convinced her to ignore
the COI, that C&P Homes was an Ayala company,
that the investment was secure, and that it could be
easily "withdrawn"; hence, Amalia decided not to
immediately "withdraw" the investment. Several
months later, or on August 6, 1998, petitioners
allegedly wanted to "withdraw" the investment to
buy a property; however, they failed to do so, since
respondent told them the LTCP had not yet matured,
and that no buyers were willing to buy it. Hence, they
sent various demand letters to respondent, asking
for a return of their money; and when these went
unheeded, they filed the complaint.

On August 18, 1998, Amalia, through counsel, sent

her first formal, written demand to respondent "for a
withdrawal of her investment as soon as
possible."27 The same was followed by another letter
dated September 7, 1998, which reiterated the same
demands.28 In answer to the letters, respondent
noted that the investment had a 2003 maturity, was
not a deposit, and thus, its return to the investor was
not guaranteed by respondent; however, it added
that the LTCP may be sold prior to maturity and had
in fact been put up for sale, but such sale was
"subject to the availability of buyers in the secondary
market."29 At that time, respondent was not able to
find a buyer for the LTCP. As this response did not
satisfy petitioners, Amalia again wrote respondent,
this time a final demand letter dated September 21,
1998, asking for a reconsideration and a return of the
money she invested.30In reply, respondent wrote a
letter dated October 12, 1998 stating that despite
efforts to sell the LTCP, no willing buyers were found
and that even if a buyer would come later, the price
would be lower than Amalia's original investment.31

In its Answer,33 respondent admitted that, indeed,

Amalia was its client and that she invested the
amounts stated in the complaint. However,
respondent disputed the claim that Amalia opened a
"trust account" with a "request for an interest rate of
around 16.25% with a term of 91 days;" instead,
respondent presented documents stating that Amalia
opened a "directional investment management
account," with investments to be made in C&P
Homes' LTCP with a 2003 maturity. Respondent
disputed allegations that it violated petitioners'
express instructions. Respondent likewise denied that
Amalia, upon her receipt of the COI, immediately
called respondent and protested the investment in
LTCP, its 2003 maturity and Citibank's lack of
guarantee. According to respondent, no such protest
was made and petitioners actually decided to
liquidate their investment only months later, after
the newspapers reported that Ayala Land, Inc. was
cancelling plans to invest in C&P Homes.

Thus, petitioners filed with the RTC their complaint

against respondent for a sum of money and
damages.

The rest of respondent's Answer denied (1) that it

convinced Amalia not to liquidate or "withdraw" her
investment or to ignore the contents of the COI; (2)
that it assured Amalia that the investment could be
easily or quickly "withdrawn" or sold; (3) that it

misrepresented that C&P was an Ayala company,

implying that C&P had secure finances; and (4) that
respondent had been unfaithful to and in breach of
its contractual obligations.
After trial, the RTC rendered its Decision,34 dated
February 16, 2000, the dispositive portion of which
states:
The foregoing considered, the court hereby rules in
favor of plaintiffs and order defendant to pay:
1. The sum of PhP2,134,635.87 representing
the actual amount deposited by plaintiffs
with defendant plus interest corresponding
to time deposit during the time material to
this action from date of filing of this case
until fully paid;
2. The sum of PhP300,000.00 representing
moral damages;
3. The sum of PhP100,000.00 representing
attorney's fees;
4. Costs.
SO ORDERED.35
The RTC upheld all the allegations of petitioners and
concluded that Amalia never instructed Citibank to
invest the money in an LTCP. Thus, the RTC found
Citibank in violation of its contractual and fiduciary
duties and held it liable to return the money invested
by petitioners plus damages.
Respondent appealed to the CA.
On appeal, in its Decision promulgated on May 28,
2002, the CA reversed the Decision of the RTC, thus:
WHEREFORE, premises considered, the assailed
decision dated 16 February 2000 is REVERSED and
SET ASIDE and a new one entered DISMISSING Civil
Case No. 99-500.36
The CA held that with respect to the amount of
PhP2,134,635.87, the account opened by Amalia was
an investment management account; as a result, the
money invested was the sole and exclusive
obligation of C&P Homes, the issuer of the LTCP, and

was not guaranteed or insured by herein respondent

Citibank;37 that Amalia opened such an account as
evidenced by the documents she executed with
Citibank, namely, the Directional Investment
Management Agreement (DIMA), Term Investment
Application (TIA), and Directional Letter/Specific
Instructions, which were all dated November 28,
1997, the day Amalia brought the money to Citibank.
Further, the CA brushed aside petitioners' arguments
that Amalia failed to understand the true nature of
the LTCP investment, and that she failed to read the
documents as they were written in fine print. The CA
ruled that petitioners could not seek the court's aid
to extricate them from their contractual obligations.
Citing jurisprudence, the CA held that the courts
protected only those who were innocent victims of
fraud, and not those who simply made bad bargains
or exercised unwise judgment.
On petitioners' motion for reconsideration, the CA
reiterated its ruling and denied the motion in a
Resolution38dated December 11, 2002.
Thus, the instant petition which raises issues,
summarized as follows: (1) whether petitioners are
bound by the terms and conditions of the Directional
Investment Management Agreement (DIMA), Term
Investment
Application
(TIA),
Directional
Letter/Specific Instructions, and Confirmations of
Investment (COIs); (2) and whether petitioners are
entitled to take back the money they invested from
respondent bank; or stated differently, whether
respondent is obliged to return the money to
petitioners upon their demand prior to maturity.
Petitioners contend that they are not bound by the
terms and conditions of the DIMA, Directional Letter
and COIs because these were inconsistent with the
TIA and other documents they signed.39 Further, they
claim that the DIMA and the Directional letter were
signed in blank or contained unauthorized
intercalations by Citibank.40Petitioners argue that
contrary to the contents of the documents, they did
not instruct Citibank to invest in an LTCP or to put
their
money
in
such
high-risk,
long-term
instruments.41
The Court notes the factual nature of the questions
raised in the petition. Although the general rule is
that only questions of law are entertained by the
Court in petitions for review on certiorari, 42 as the
Court is not tasked to repeat the lower courts'
analysis or weighing of evidence,43 there are
instances when the Court may resolve factual issues,
such as (1) when the trial court misconstrued facts

and circumstances of substance which if considered

would alter the outcome of the case; 44 and (2) when
the findings of facts of the CA and the trial court
differ.45
In the instant case, the CA completely reversed the
findings of facts of the trial court on the ground that
the RTC failed to appreciate certain facts and
circumstances.
Thus,
applying
the
standing
jurisprudence on the matter,46the Court proceeded to
examine the evidence on record.
The Court's Ruling
The Court finds no merit in the petition. After a
careful examination of the records, the Court affirms
the CA's ruling for being more in accord with the
facts and evidence on record.
On the first issue of whether petitioners are bound by
the terms and conditions of the DIMA, TIA, Directional
Letter and COIs, the Court holds in the affirmative
and finds for respondent.
The DIMA, Directional Letter and COIs are evidence of
the contract between the parties and are binding on
them, following Article 1159 of the Civil Code which
states that contracts have the force of law between
the parties and must be complied with in good
faith.47 In particular, petitioner Amalia affixed her
signatures on the DIMA, Directional Letter and TIA, a
clear evidence of her consent which, under Article
1330 of the same Code, she cannot deny absent any
evidence of mistake, violence, intimidation, undue
influence or fraud.48
As the documents have the effect of law, an
examination is in order to reveal what underlies
petitioners' zeal to exclude these from consideration.
Under the DIMA, the following provisions appear:
4. Nature of Agreement THIS AGREEMENT IS AN
AGENCY AND NOT A TRUST AGREEMENT. AS SUCH,
THE PRINCIPAL SHALL AT ALL TIMES RETAIN LEGAL
TITLE TO THE FUNDS AND PROPERTIES SUBJECT OF
THE ARRANGEMENT.
THIS AGREEMENT IS FOR FINANCIAL RETURN AND
FOR THE APPRECIATION OF ASSETS OF THE
ACCOUNT. THIS AGREEMENT DOES NOT GUARANTEE
A YIELD, RETURN OR INCOME BY THE INVESTMENT
MANAGER. AS SUCH, PAST PERFORMANCE OF THE

ACCOUNT IS NOT A GUARANTY OF FUTURE

PERFORMANCE AND THE INCOME OF INVESTMENTS
CAN FALL AS WELL AS RISE DEPENDING ON
PREVAILING MARKET CONDITIONS.
IT IS UNDERSTOOD THAT THIS INVESTMENT
MANAGEMENT AGREEMENT IS NOT COVERED BY THE
PHILIPPINE DEPOSIT INSURANCE CORPORATION
(PDIC) AND THAT LOSSES, IF ANY, SHALL BE FOR THE
ACCOUNT
OF
THE
PRINCIPAL.
(Underscoring
supplied.)
xxxx
6. Exemption from Liability. - In the absence of
fraud, bad faith, or gross or willful negligence on the
part of the INVESTMENT MANAGER or any person
acting in its behalf, the INVESTMENT MANAGER shall
not be liable for any loss or damage to the Portfolio
arising out of or in connection with any act done or
omitted or caused to be done or omitted by the
INVESTMENT MANAGER pursuant to the terms and
conditions herein agreed upon, and pursuant to and
in accordance with the written instructions of the
PRINCIPAL to carry out the powers, duties and
purposes for which this Agreement is executed. The
PRINCIPAL will hold the INVESTMENT MANAGER free
and harmless from any liability, claim, damage or
fiduciary responsibility that may arise from any
investment made pursuant to this Agreement and to
such letters or instructions under Paragraph 3 hereof
due to the default, bankruptcy or insolvency of the
Borrower/Issuer or the Broker/Dealer handling the
transaction and or their failure in any manner to
comply with any of their obligations under the
aforesaid transactions, it being the PRINCIPAL'S
understanding
and
intention
that
the
investments/reinvestments under this account shall
be strictly for his/its account and risk except as
indicated above.
The INVESTMENT MANAGER shall manage the
Portfolio with the skill, care, prudence, and diligence
necessary under the prevailing circumstances that a
good father of the family, acting in a like capacity
and familiar with such matters, would exercise in the
conduct of an enterprise of like character and with
similar aims. (Underscoring supplied.)
xxxx
11. Withdrawal of Income/Principal Subject to
availability of funds and taking into consideration the
commitment of this account to third parties, the

PRINCIPAL may withdraw the income/principal of the

Portfolio or portion thereof upon request or
application thereof from the Bank. The INVESTMENT
MANAGER shall not be required to inquire as to the
income/principal so withdrawn from the Portfolio. Any
income of the Portfolio not withdrawn shall be
accumulated and added to the principal of the
Portfolio
for
further
investment
and
reinvestment.49 (Underscoring supplied.)
Under the Directional Letter, which constituted
petitioners' instructions to respondent, the following
provisions are found:
In the absence of fraud, bad faith or gross or willful
negligence on your part or any person acting in your
behalf, you shall not be held liable for any loss or
damage arising out of or in connection with any act
done or performed or caused to be done or
performed by you pursuant to the terms and
conditions of our Agreement. I/We shall hold you free
and harmless from any liability, claim, damage, or
fiduciary responsibility that may arise from this
investment made pursuant to the foregoing due to
the default, bankruptcy or insolvency of the
Borrower/Issuer, or the Broker/Dealer handling the
aforesaid transactions/s, it being our intention and
understanding that the investment/reinvestment
under these transaction/s shall be strictly for my/our
account and risk.
In case of default of the Borrower/Issuers, we hereby
authorize you at your sole option, to terminate the
investment/s therein and deliver to us the
securities/loan documents then constituting the
assets of my/our DIMA/trust account with you
for me/us to undertake the necessary legal action to
collect
and/or
recover
from
the
borrower/issuers.50 (Underscoring supplied.)
The documents, characterized by the quoted
provisions, generally extricate respondent from
liability in case the investment is lost. Accordingly,
petitioners assumed all risks and the task of
collecting from the borrower/issuer C&P Homes.
In addition to the DIMA and Directional Letter,
respondent also sent petitioners the COIs on a
regular basis, the first of which was received by
petitioners on December 9, 1997. The COIs have the
following provisions in common:
xxxx
NATURE OF TRANSACTION INVESTMENT

IN

LTCP
NAME
BORROWER/ISSUER
xxxx
TENOR
xxxx
MATURITY DATE
xxxx
OTHERS

OF

C&P HOMES
91 DAYS
11/05/03
REPRICEABLE
EVERY 91 DAYS

PURSUANT TO THE BANGKO SENTRAL REGULATIONS,

THE PRINCIPAL AND INTEREST OF YOUR INVESTMENT
ARE OBLIGATIONS OF THE BORROWER AND NOT OF
THE BANK. YOUR INVESTMENT IS NOT A DEPOSIT
AND IS NOT GUARANTEED BY CITIBANK N.A.
xxxx
Please examine this Confirmation and notify us in
writing within seven (7) days from receipt hereof of
any deviation from your prior conformity to the
investment. If no notice is received by us within this
period, this Confirmation shall be deemed correct
and approved by you, and we shall be released and
discharged as to all items, particulars, matters and
things set forth in this Confirmation.51
Petitioners admit receiving only the first COI on
December 8, 1997.52 The evidence on record,
however, supports respondent's contentions that
petitioners received the three other COIs on February
12, 1998,53 May 14, 1998,54and August 14,
1998,55 before petitioners' first demand letter dated
August 18, 1998.56
The DIMA, Directional Letter, TIA and COIs, read
together, establish the agreement between the
parties as an investment management agreement,
which created a principal-agent relationship between
petitioners as principals and respondent as agent for
investment purposes. The agreement is not a trust or
an ordinary bank deposit; hence, no trustor-trusteebeneficiary or even borrower-lender relationship
existed between petitioners and respondent with
respect to the DIMA account. Respondent purchased
the LTCPs only as agent of petitioners; thus, the latter
assumed all obligations or inherent risks entailed by
the transaction under Article 1910 of the Civil Code,
which provides:

Article 1910. The principal must comply with all the

obligations which the agent may have contracted
within the scope of his authority.
As for any obligation wherein the agent has
exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
The transaction is perfectly legal, as investment
management activities may be exercised by a
banking institution, pursuant to Republic Act No. 337
or the General Banking Act of 1948, as amended,
which was the law then in effect.1avvphi1 Section 72
of said Act provides:
Sec. 72. In addition to the operations specifically
authorized elsewhere in this Act, banking institutions
other than building and loan associations may
perform the following services:
(a) Receive in custody funds, documents,
and valuable objects, and rent safety
deposit boxes for the safeguarding of such
effects;
(b) Act as financial agent and buy and
sell, by order of and for the account of
their customers, shares, evidences of
indebtedness
and
all
types
of
securities;
(c) Make collections and payments for the
account of others and perform such other
services for their customers as are not
incompatible with banking business.
(d) Upon prior approval of the Monetary
Board, act as managing agent, adviser,
consultant or administrator of investment
management/
advisory/consultancy
accounts.
The banks shall perform the services permitted
under subsections (a), (b) and (c) of this
section
as
depositories
or
as
agents.
Accordingly, they shall keep the funds,
securities and other effects which they thus
receive duly separated and apart from the
bank's own assets and liabilities.

depositors and other

(Emphasis supplied.)

creditors

of

the

banks.

while Section 74 prohibits banks from guaranteeing

obligations of any person, thus:
Sec. 74. No bank or banking institution shall
enter, directly, or indirectly into any contract of
guaranty or suretyship, or shall guarantee the
interest or principal of any obligation of any
person, copartnership, association, corporation
or other entity. The provisions of this section shall,
however, not apply to the following: (a) borrowing of
money
by
banking
institution
through
the
rediscounting of receivables; (b) acceptance of drafts
or bills of exchange (c) certification of checks; (d)
transactions involving the release of documents
attached to items received for collection; (e) letters
of
credit
transaction,
including
stand-by
arrangements; (f) repurchase agreements; (g)
shipside bonds; (h) ordinary guarantees or
indorsements in favor of foreign creditors where the
principal obligation involves loans and credits
extended directly by foreign investment purposes;
and (i) other transactions which the Monetary Board
may, by regulation, define or specify as not covered
by the prohibition. (Emphasis supplied.)
Nothing also taints the legality of the LTCP bought in
behalf of petitioners. C&P Homes' LTCP was duly
registered with the Securities and Exchange
Commission while the issuer was accredited by the
Philippine Trust Committee.57
The evidence also sustains respondent's claim that
its trust department handled the account only
because it was the department tasked to oversee the
trust,
and
other
fiduciary
and
investment
management services of the bank.58 Contrary to
petitioners' claim, this did not mean that petitioners
opened a "trust account." This is consistent
with Bangko Sentral ng Pilipinas (BSP) regulations,
specifically the Manual of Regulations for Banks
(MORB), which groups a bank's trust, and other
fiduciary and investment management activities
under the same set of regulations, to wit:
PART FOUR: TRUST, OTHER FIDUCIARY BUSINESS
AND INVESTMENT MANAGEMENT ACTIVITIES
xxxx

The Monetary Board may regulate the operations

authorized by this section in order to insure that said
operations do not endanger the interests of the

Sec. X402 Scope of Regulations. These regulations

shall govern the grant of authority to and the

management, administration and conduct of trust,

other
fiduciary
business
and
investment
management activities (as these terms are defined in
Sec. X403) of banks. The regulations are divided into
three (3)
Sub-Parts where:
A. Trust and Other Fiduciary Business shall
apply to banks authorized to engage in trust
and other fiduciary business including
investment management activities;
B. Investment Management Activities
shall apply to banks without trust
authority but with authority to engage
in investment management activities;
and
C. General Provisions shall apply to both.
xxxx
Sec. X403 Definitions. For purposes of regulating the
operations of trust and other fiduciary business and
investment management activities, unless the
context clearly connotes otherwise, the following
shall have the meaning indicated.
a. Trust business shall refer to any activity
resulting from a trustor-trustee relationship
(trusteeship) involving the appointment of a
trustee by a trustor for the administration,
holding, management of funds and/or
properties of the trustor by the trustee for
the use, benefit or advantage of the trustor
or of others called beneficiaries.
b. Other fiduciary business shall refer
to any activity of a trust-licensed bank
resulting from a contract or agreement
whereby the bank binds itself to render
services or to act in a representative
capacity such as in an agency,
guardianship,
administratorship
of
wills,
properties
and
estates,
executorship, receivership, and other
similar services which do not create or
result in a trusteeship. It shall exclude
collecting
or
paying
agency
arrangements and similar fiduciary
services which are inherent in the use
of the facilities of the other operating

departments of said bank. Investment

management activities, which are
considered as among other fiduciary
business, shall be separately defined in
the succeeding item to highlight its
being a major source of fiduciary
business.
c. Investment management activity
shall refer to any activity resulting
from a contract or agreement primarily
for financial return whereby the bank
(the investment manager) binds itself
to handle or manage investible funds
or any investment portfolio in a
representative capacity as financial or
managing agent, adviser, consultant or
administrator
of
financial
or
investment
management,
advisory,
consultancy
or
any
similar
arrangement which does not create or
result
in
a
trusteeship.(Emphasis
supplied.)
The Court finds no proof to sustain petitioners'
contention that the DIMA and Directional Letter
contradict other papers on record, or were signed in
blank,
or
had
unauthorized
intercalations.59 Petitioners themselves admit that
Amalia signed the DIMA and the Directional Letter,
which bars them from disowning the contract on the
belated claim that she signed it in blank or did not
read it first because of the "fine print." 60 On the
contrary, the evidence does not support these latter
allegations, and it is highly improbable that someone
fairly educated and with investment experience
would sign a document in blank or without reading it
first.61 Petitioners owned various businesses and
were clients of other banks, which omits the
possibility of such carelessness.62 Even more
damning for petitioners is that, on record, Amalia
admitted that it was not her habit to sign in blank
and that the contents of the documents were
explained to her before she signed.63
Testimonial evidence and the complaint itself
contained allegations that petitioners' reason for
transferring their money from local banks to
respondent is because it is safer to do so, 64 a clear
indicia of their intelligence and keen business sense
which they could not have easily surrendered upon
meeting with respondent.
Nothing irregular or illegal attends the execution or
construction of the DIMA and the Directional Letter,

as their provisions merely conform with BSP

regulations governing these types of transactions.
Specifically, the MORB mandates that investment
managers act as agents, not as trustees, of the
investor;65 that the investment manager is prohibited
from guaranteeing returns on the funds or
properties;66 that a written document should state
that the account is not covered by the PDIC; and that
losses are to be borne by clients. 67 That these legal
requirements were communicated to petitioners is
evident in Amalia's signatures on the documents and
in testimony to this effect.68
As to the allegation that the documents were in "fine
print," the Court notes that although the print may
have looked smaller than average, they were
nevertheless of the same size throughout the
documents, so that no part or provision is hidden
from the reader. The Court also takes judicial notice
that the print is no smaller than those found in
similar contracts in common usage, such as
insurance, mortgage, sales contracts and even
ordinary bank deposit contracts. In the documents in
question, the provisions hurtful to petitioners' cause
were likewise in no smaller print than the rest of the
document, as indeed they were even highlighted
either in bold or in all caps. This disposes of the
argument that they were designed to hide their
damaging nature to the signatory.69 The conclusion is
that the print is readable and should not have
prevented petitioners from studying the papers
before their signing. Considering petitioners' social
stature, the nature of the transaction and the amount
of money involved, the Court presumes that
petitioners exercised adequate care and diligence in
studying the contract prior to its execution.70
In Sweet Lines, Inc. v. Teves,71 the Court pronounced
the general rule regarding contracts of adhesion,
thus:

x x x it is hardly just and proper to expect the

passengers to examine their tickets received from
crowded/congested counters, more often than not
during rush hours, for conditions that may be printed
thereon, much less charge them with having
consented to the conditions, so printed, especially if
there are a number of such conditions in fine print, as
in this case.
However, Sweet Lines72 further expounded that the
validity and/or enforceability of contracts of adhesion
will have to be determined by the peculiar
circumstances obtaining in each case and the nature
of the conditions or terms sought to be
enforced.73 Thus, while any ambiguity, obscurity or
doubt in a contract of adhesion is construed or
resolved strictly against the party who prepared
it,74 it is also equally obvious that in a case where no
such ambiguity, obscurity or doubt exists, no such
construction is warranted. This was the case in the
DIMA and the Directional Letter signed by Amalia in
the instant controversy.
The parties to this case only disagree on whether
petitioners were properly informed of the contents of
the documents. But as earlier stated, petitioners
were free to read and study the contents of the
papers before signing them, without compulsion to
sign immediately or even days after, as indeed the
parties were even free not to sign the documents at
all. Unlike in Sweet Lines, where the plaintiffs had no
choice but to take the services of monopolistic
transport companies during rush hours, in the instant
case, petitioners were under no such pressure;
petitioners were free to invest anytime and through
any of the dozens of local and foreign banks in the
market.

x x x there are certain contracts almost all the

provisions of which have been drafted only by one
party, usually a corporation. Such contracts are
called contracts of adhesion, because the only
participation of the other party is the signing of his
signature or his adhesion thereto. Insurance
contracts, bills of lading, contracts of sale of lots on
the installment plan fall into this category.

In addition, it has been held that contracts of

adhesion are not necessarily voidable. The Court has
consistently held that contracts of adhesion, wherein
one party imposes a ready-made form of contract on
the other, are contracts not entirely prohibited, since
the one who adheres to the contract is in reality free
to reject it entirely; if he adheres, he gives his
consent.75 It is the rule that these contracts are
upheld unless they are in the nature of a patently
lopsided deal where blind adherence is not justified
by other factual circumstances.76

x x x it is drafted only by one party, usually the

corporation, and is sought to be accepted or adhered
to by the other party x x x who cannot change the
same and who are thus made to adhere hereto on
the take it or leave it basis.

Petitioners insist that other documents Amalia signed

-- that is, the ROF,77 Questionnaire78 and TIA79 -contradict the DIMA and Directional Letter.
Specifically, they argue that under the ROF and the
Questionnaire, they manifested an intent to invest

only in a time deposit in the medium term of over a

year to three years, with no risk on the capital, or
with returns in line with a time deposit. 80 However,
this contention is belied by the evidence and
testimony on record. Respondent explains that
investors fill up the ROF and Questionnaire only when
they first visit the bank and only for the account they
first opened,81 as confirmed by the evidence on
record and the fact that there were no subsequent
ROFs and Questionnaires presented by petitioners.
The ROF and Questionnaire were filled up when the
PhP1 million "Citihi" savings account was opened by
Amalia on October 10, 1997, during her first visit to
the bank. When Amalia returned more than a month
later on November 28, 1997, a change in her
investment attitude occurred in that she wanted to
invest an even bigger amount (PhP3 million) and her
interest had shifted to high-yield but riskier long-term
instruments like PRPNs and LTCPs. When Amalia
proceeded to sign new documents like the DIMA and
the Directional Letter for the LTCP investment,
despite their obviously different contents from those
she was used to signing for ordinary deposits, she
essentially confirmed that she knew what she was
agreeing to and that it was different from all her
previous transactions.
In addition, even the ROF and Questionnaire signed
by Amalia during the first visit contained provisions
that clearly contradict petitioners' claims. The ROF
contained the following:
I/We declare the above information to be correct.
I/We hereby acknowledge to have received, read,
understood and agree to be bound by the
general terms and conditions applicable and
governing
my/our
account/s
and/or
investment/s which appear in a separate
brochure/manual
as
well
as
separate
documents relative to said account/s and/or
investment/s. Said terms and conditions shall
likewise apply to all our existing and future account/s
and/or investment/s with Citibank. I/We hereby
further authorize Citibank to open additional
account/s and/or investment/s in the future with the
same account title as contained in this relationship
opening form subject to the rules governing the
aforementioned account/s and/or investment/s and
the terms and conditions therein or herein. I/We
agree to notify you in writing of any change in the
information supplied in this relationship opening
form.82 (Emphasis supplied.)
while the Questionnaire had the following provisions:

I am aware that investment products are not bank

deposits or other obligations of, or guaranteed or
insured by Citibank N.A., Citicorp or their affiliates. I
am aware that the principal and interest of my
investments
are
obligations
of
the
borrower/issuer. They are subject to risk and
possible loss of principal. Past performance is not
indicative of future performance. In addition,
investments are not covered by the Philippine
Deposit Insurance Corporation (PDIC) or the Federal
Deposit Insurance Corporation (FDIC).83

________________
(
)
Check
No.
____________________________
_______________
(
)
Cash
deposit for
P/$
__________________________
_______________
IN THE AMOUNT
FOLLOWS:
PRINCIPAL/Mon
ey In

AND

TERMS

P/$
3,000,000

SPECIFIED

Value

which do not need further elaboration on the matter.

MATURITY AMOUNT/Par Value Maturity

P/$____________
_______

Petitioners contend
Application (TIA), viz:

INTEREST
RATE

that

the

Term

Investment

TERM INVESTMENT APPLICATION

Date
MAKATI
1/28/97
Branch and Service Area
CIF
Keys
TITLE
OF
ACCOUNT
______________
__________________________________
___
______
______________
PANLILIO, AMALIA ITF
___
______________
ALEJANDRO KING AGUILAR
___
&
FE
______________
EMMANUELLE PANLILIO
___
Address
___________________________________________________
___
For corporations, c/o _______________________
Tel.
No. ____________
Dear Sir:
THIS
IS
TO
AUTHORIZE (
CITIBANK, N. A. TO: ( ) open
(

)
rollover
rollover w/
added funds
( ) rollover w/
payout
Ref. No. ____
)

[ ] Dollar TD [ ] Confirmation of
[ ] Peso Time
[
] Sale
Depositories
Multicurrency [ ] CITIHI-Yielder
[ ] NNPN
TD
TRUST
NEW ADDED FUNDS WILL for
P/$
COME
FROM: _______________
( ) debit my/our account no. for
P/$

16.25%

around Term

84

AS

11/28/97
Date
91 days

(Emphasis supplied.)
clearly contradicts the DIMA, Directional Letter and
COIs.
Petitioners insist that the amount PhP3 million in the
TIA does not tally with the actual value of the
investment which appeared on the first COI, which
was PhP2,134,635.87. Petitioners add that the TIA's
interest rate of "around 16.25%" with the term "91
days" contradicts the COI's interest rate of 16.95%
with a tenor of 75 days repriceable after 91
days.85 Further, petitioners claim that the word
"TRUST" inscribed on the TIA obviously meant that
they opened a trust account, and not any other
account.86
The explanation of respondent is plausible. Only
PhP2,134,635.87 out of the PhP3 million was placed
in the LTCP since this was the only amount of LTCP
then available, while the balance was placed in two
PRPN accounts, each one in trust for Amalia's two
children, upon her instructions.87 The disparity in the
interest rate is also explained by the fact that the
16.95% rate placed in the COI is gross and not net
interest,88 and that it is subject to repricing every 91
days.
The
Court
gives
credence
to
respondent's
explanation that the word "TRUST" appearing on the
TIA simply means that the account is to be handled
by the bank's trust department, which handles not
only the trust business but also the other fiduciary
business and investment management activities of
the bank, while the "ITF" or "in trust for" appearing
on the other documents only signifies that the money
was invested by Amalia in trust for her two children,

a device that she uses even in her ordinary deposit

accounts with other banks. 89 The ITF device allows
the children to obtain the money without need of
paying estate taxes in case Amalia meets a
premature death.90However, it creates a trusteebeneficiary relationship only between Amalia and her
children, and not between Amalia, her children, and
Citibank.
All the documents signed by Amalia, including the
DIMA and Directional Letter, show that her
agreement with respondent is one of agency, and not
a trust.
The DIMA, TIA, Directional Letter and COIs, viewed
altogether, establish without doubt the transaction
between the parties, that on November 28, 1997,
with PhP3 million in tow, Amalia opened an
investment management account with respondent,
under which she instructed the latter as her agent to
invest the bulk of the money in LTCP.
Aside from their bare allegations, evidence that
supports petitioners' contentions that no such deal
took place, or that the agreement was different,
simply does not exist in the records.
Petitioners were experienced and intelligent enough
to be able to demand and sign a different document
to signify their real intention; but no such document
exists. Thus, petitioners' acts and omissions negate
their allegations that they were essentially defrauded
by the bank.
Petitioners had other chances to protest respondent's
alleged disregard of their instructions. The COIs sent
by respondent to petitioners encapsulate the spirit of
the DIMA and Directional Letter, with the proviso that
should there be any deviations from petitioners'
instructions, they may inform respondent in writing
within
seven
days.
Assuming arguendo that
respondent violated the instructions, petitioners did
not file a single timely written protest, however,
despite their admission that they received the first
COI on December 8, 1997.91 It took eight months for
petitioners to formally demand the return of their
investment through their counsel in a letter dated
August 18, 1998.92 The letter, however, did not even
contest the placement of the money in an LTCP, but
merely its maturity in the year 2003. Prior to the
letter, it has been shown that petitioners had
received COIs on February 12, 1998,93May 14,
1998,94 and August 14, 1998,95 and in between,
petitioners never demanded a return of the money
they invested.

Petitioners' acts and omissions strongly indicate that

they in fact conformed to the agreement in the
months after the signing. In that period, they were
receiving their bank statements and earning interest
from the investment, as in fact, C&P Homes under
the LTCP continuously paid interest even up to the
time the instant case was already on trial. 96 When
petitioners finally contested the contract months
after its signing, it was suspiciously during the time
when newspaper reports came out that C&P Homes'
stock had plunged in value and that Ayala Land was
withdrawing its offer to invest in the company.97 The
connection is too obvious to ignore. It is reasonable
to conclude that petitioners' repudiation of the
agreement was nothing more than an afterthought, a
reaction to the negative events in the market and an
effort to flee from a losing investment.
Anent the second issue, whether petitioners are
entitled to recover from respondent the amount of
PhP2,134,635.87 invested under the LTCP, the Court
agrees with the CA in dismissing the complaint filed
by petitioners.
Petitioners may not seek a return of their investment
directly from respondent at or prior to maturity. As
earlier explained, the investment is not a deposit and
is not guaranteed by respondent. Absent any fraud or
bad faith, the recourse of petitioners in the LTCP is
solely against the issuer, C&P Homes, and only upon
maturity. The DIMA states, thus:
11. Withdrawal of Income/Principal Subject to
availability
of
funds
and
taking
into
consideration the commitment of this account
to third parties, the PRINCIPAL may withdraw
the income/principal of the Portfolio or portion
thereof upon request or application thereof
from the Bank. The INVESTMENT MANAGER shall
not be required to inquire as to the income/principal
so withdrawn from the Portfolio. Any income of the
Portfolio not withdrawn shall be accumulated and
added to the principal of the Portfolio for further
investment and reinvestment.98 (Emphasis supplied.)
It is clear that since the money is committed to C&P
Homes via LTCP for five years, or until 2003,
petitioners may not seek its recovery from
respondent prior to the lapse of this period.
Petitioners must wait and meanwhile just be content
with receiving their interest regularly. If petitioners
want the immediate return of their investment before
the maturity date, their only way is to find a willing
buyer to purchase the LTCP at an agreed price, or to

go directly against the issuer C&P Homes, not

against the respondent.
The nature of the DIMA and the other documents
signed by the parties calls for this condition. The
DIMA states that respondent is a mere agent of
petitioners and that losses from both the principal
and interest of the investment are strictly on
petitioners' account. Meanwhile, the Directional
Letter clearly states that the investment is to be
made in an LTCP which, by definition, has a term of
more than 365 days.99 Prior to the expiry of the term,
which in the case of the C&P Homes LTCP is five
years, petitioners may not claim back their
investment, especially not from respondent bank.
Having bound themselves under the contract as
earlier discussed, petitioners are governed by its
provisions. Petitioners as principals in an agency
relationship are solely obliged to observe the
solemnity of the transaction entered into by the
agent on their behalf, absent any proof that the latter
acted beyond its authority.100Concomitant to this
obligation is that the principal also assumes the risks
that may arise from the transaction.101Indeed, as in
the instant case, bank regulations prohibit banks
from guaranteeing profits or the principal in an
investment management account.102 Hence, the CA
correctly dismissed petitioners complaint against
respondent.
WHEREFORE, the Petition is DENIED. For lack of
evidence, the Decision of the Court of Appeals dated
dated May 28, 2002 and its Resolution of December
11, 2002, are AFFIRMED.
Costs against the petitioners.
SO ORDERED.

FRANCISCO, J.:
Petitioner Adoracion Lustan is the registered owner of
a parcel of land otherwise known as Lot 8069 of the
Cadastral Survey of Calinog, Iloilo containing an area
of 10.0057 hectares and covered by TCT No. T-561.
On February 25, 1969, petitioner leased the above
described property to private respondent Nicolas
Parangan for a term of ten (10) years and an annual
rent of One Thousand (P1,000.00) Pesos. During the
period of lease, Parangan was regularly extending
loans in small amounts to petitioner to defray her
daily expenses and to finance her daughter's
education. On July 29, 1970, petitioner executed a
Special Power of Attorney in favor of Parangan to
secure an agricultural loan from private respondent
Philippine National Bank (PNB) with the aforesaid lot
as collateral. On February 18, 1972, a second Special
Power of Attorney was executed by petitioner, by
virtue of which, Parangan was able to secure four (4)
additional loans, to wit: the sums of P24,000.00,
P38,000.00,
P38,600.00
and
P25,000.00
on
December 15, 1975, September 6, 1976, July 2, 1979
and June 2, 1980, respectively. The last three loans
were without the knowledge of herein petitioner and
all the proceeds therefrom were used by Parangan
for his own benefit. 1 These encumbrances were duly
annotated on the certificate of title. On April 16,
1973, petitioner signed a Deed of Pacto de
Retro Sale 2 in favor of Parangan which was
superseded by the Deed of Definite Sale 3 dated May
4, 1979 which petitioner signed upon Parangan's
representation that the same merely evidences the
loans extended by him unto the former.

G.R. No. 111924 January 27, 1997

ADORACION
LUSTAN, petitioner,
vs.
COURT OF APPEALS, NICOLAS PARANGAN and
SOLEDAD PARANGAN, PHILIPPINE NATIONAL
BANK,respondents.

For fear that her property might be prejudiced by the

continued
borrowing
of
Parangan,
petitioner
demanded the return of her certificate of title.
Instead of complying with the request, Parangan
asserted his rights over the property which allegedly
had become his by virtue of the aforementioned
Deed of Definite Sale. Under said document,
petitioner conveyed the subject property and all the
improvements thereon unto Parangan absolutely for
and in consideration of the sum of Seventy Five
Thousand (P75,000.00) Pesos.
Aggrieved, petitioner filed an action for cancellation
of liens, quieting of title, recovery of possession and
damages against Parangan and PNB in the Regional
Trial Court of Iloilo City. After trial, the lower court
rendered judgment, disposing as follows:

WHEREFORE and in view of the

foregoing, a decision is rendered as
follows:
1. Ordering cancellation by the
Register of Deeds of the Province of
Iloilo, of the unauthorized loans,
the
liens
and
encumbrances
appearing
in
the
Transfer
Certificate of Title No. T-561,
especially entries nos. 286231;
338638; and 352794;
2. Declaring the Deed of Pacto de
Retro Sale dated April 25, 1978 and
the Deed of Definite Sale dated
May 6, 1979, both documents
executed by Adoracion Lustan in
favor of Nicolas Parangan over Lot
8069 in TCT No. T-561 of the
Register of Deeds of Iloilo, as null
and void, declaring the same to be
Deeds of Equitable Mortgage;
3. Ordering defendant Nicolas
Parangan to pay all the loans he
secured from defendant PNB using
thereto as security TCT No. T-561 of
plaintiff and defendant PNB to
return TCT No. T-561 to plaintiff;
4. Ordering defendant Nicolas
Parangan to return possession of
the land in question, Lot 8069 of
the Calinog Cadastre, described in
TCT No. T-561 of the Register of
Deeds of Iloilo, to plaintiff upon
payment of the sum of P75,000.00
by plaintiff to defendant Parangan
which payment by plaintiff must be
made within ninety (90) days from
receipt of this decision; otherwise,
sale of the land will be ordered by
the court to satisfy payment of the
amount;
5. Ordering defendant Nicolas
Parangan to pay plaintiff attorney's
fees in the sum of P15,000.00 and
to pay the costs of the suit.

SO ORDERED. 4
Upon appeal to the Court of Appeals (CA),
respondent court reversed the trial court's decision.
Hence this petition contending that the CA
committed the following errors:
IN ARRIVING AT THE CONCLUSION
THAT NONE OF THE CONDITIONS
STATED IN ART. 1602 OF THE NEW
CIVIL CODE HAS BEEN PROVEN TO
EXIST BY PREPONDERANCE OF
EVIDENCE;
IN CONCLUDING THAT PETITIONER
SIGNED THE DEED OF SALE WITH
KNOWLEDGE AS TO THE CONTENTS
THEREOF;
IN ARRIVING AT THE CONCLUSION
THAT THE TESTIMONY OF WITNESS
DELIA CABIAL DESERVES FULL
FAITH AND CREDIT;
IN FINDING THAT THE SPECIAL
POWER
OF
ATTORNEY
AUTHORIZING
MORTGAGE
FOR
"UNLIMITED" LOANS AS RELEVANT.
Two main issues confront us in this case, to wit:
whether or not the Deed of Definite Sale is in reality
an equitable mortgage and whether or not
petitioner's property is liable to PNB for the loans
contracted by Parangan by virtue of the special
power of attorney. The lower court and the CA arrived
at different factual findings thus necessitating a
review of the evidence on record. 5 After a thorough
examination, we note some errors, both in fact and in
law, committed by public respondent CA.
The court a quo ruled that the Deed of Definite Sale
is in reality an equitable mortgage as it was shown
beyond doubt that the intention of the parties was
one of a loan secured by petitioner's land. 6 We
agree.
A contract is perfected by mere consent. 7 More
particularly, a contract of sale is perfected at the
moment there is a meeting of minds upon the thing
which is the object of the contract and upon the

price. 8 This meeting of the minds speaks of the

intent of the parties in entering into the contract
respecting the subject matter and the consideration
thereof. If the words of the contract appear to be
contrary to the evident intention of the parties, the
latter shall prevail over the former. 9 In the case at
bench, the evidence is sufficient to warrant a finding
that petitioner and Parangan merely intended to
consolidate the former's indebtedness to the latter in
a single instrument and to secure the same with the
subject property. Even when a document appears on
its face to be a sale, the owner of the property may
prove that the contract is really a loan with mortgage
by raising as an issue the fact that the document
does not express the true intent of the parties. In this
case, parol evidence then becomes competent and
admissible to prove that the instrument was in truth
and in fact given merely as a security for the
repayment of a loan. And upon proof of the truth of
such allegations, the court will enforce the
agreement or understanding in consonance with the
true intent of the parties at the time of the execution
of the contract. 10
Articles 1602 and 1604 of the Civil Code respectively
provide:
The contract shall be presumed to
be an equitable mortgage in any of
the following cases:
1) When the price of a sale with
right to repurchase is unusually
inadequate;
2) When the vendor remains in
possession as lessor or otherwise;
3) When upon or
expiration
of
the
repurchase, another
extending the period of
or granting a new
executed;

after the
right
to
instrument
redemption
period is

4) When the vendor binds himself

to pay the taxes on the thing sold;
5) When the purchaser retains for
himself a part of the purchase
price;

6) In any other case where it may

be fairly inferred that the real
intention of the parties is that the
transaction
shall
secure
the
payment of a debt or the
performance
of
any
other
obligation.
Art. 1604. The provisions of Article
1602 shall also apply to a contract
purporting to be an absolute sale.
From a reading of the above-quoted provisions, for a
presumption of an equitable mortgage to arise, we
must first satisfy two requisites namely: that the
parties entered into a contract denominated as a
contract of sale and that their intention was to secure
an existing debt by way of mortgage. Under Art.
1604 of the Civil Code, a contract purporting to be an
absolute sale shall be presumed to be an equitable
mortgage should any of the conditions in Art. 1602
be present. The existence of any of the
circumstances therein, not a concurrence nor an
overwhelming number of such circumstances,
suffices to give rise to the presumption that the
contract is an equitable mortgage.11
Art. 1602, (6), in relation to Art 1604 provides that a
contract of sale is presumed to be an equitable
mortgage in any other case where it may be fairly
inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or
the performance of any other obligation. That the
case clearly falls under this category can be inferred
from the circumstances surrounding the transaction
as herein set forth:
Petitioner had no knowledge that the contract 12 she
signed is a deed of sale. The contents of the same
were not read nor explained to her so that she may
intelligibly formulate in her mind the consequences
of her conduct and the nature of the rights she was
ceding in favor of Parangan. Petitioner is illiterate and
her condition constrained her to merely rely on
Parangan's assurance that the contract only
evidences her indebtedness to the latter. When one
of the contracting parties is unable to read, or if the
contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been
fully explained to the former. 13 Settled is the rule
that where a party to a contract is illiterate or cannot

read or cannot understand the language in which the

contract is written, the burden is on the party
interested in enforcing the contract to prove that the
terms thereof are fully explained to the former in a
language understood by him. 14 To our mind, this
burden has not been satisfactorily discharged.

A: Yes, sir.
Q: Who invited
you to go there?
A: Parangan.

We do not find the testimony of Parangan and Delia

Cabial that the contract was duly read and explained
to petitioner worthy of credit. The assessment by the
trial court of the credibility of witnesses is entitled to
great respect and weight for having had the
opportunity of observing the conduct and demeanor
of the witnesses while testifying. 15 The lower court
may not have categorically declared Cabial's
testimony as doubtful but this fact is readily apparent
when it ruled on the basis of petitioner's evidence in
total disregard of the positive testimony on
Parangan's side. We have subjected the records to a
thorough examination, and a reading of the
transcript of stenographic notes would bear out that
the court a quo is correct in its assessment. The CA
committed a reversible error when it relied on the
testimony of Cabial in upholding the validity of the
Deed of Definite Sale. For one, there are noted major
contradictions between the testimonies of Cabial and
Judge Lebaquin, who notarized the purported Deed of
Definite Sale. While the former testified that receipts
were presented before Judge Lebaquin, who in turn
made an accounting to determine the price of the
land 16,
the
latter
categorically
denied
the
allegation. 17 This contradiction casts doubt on the
credibility of Cabial as it is ostensible that her version
of the story is concocted.

Q:
You
mean
Nicolas
Parangan?
A: Yes, sir.
Q:
What
did
Nicolas tell you
why he invited
you to go there?
A: He told me
that I will witness
on
the
indebtedness of
Adoracion
to
Parangan.
Q:
Before
Adoracion Lustan
signed her name
in this Exh. "4",
was
this
document read to
her?

On the other hand, petitioner's witness Celso

Pamplona, testified that the contract was not read
nor explained to petitioner. We believe that this
witness gave a more accurate account of the
circumstances surrounding the transaction. He has
no motive to prevaricate or concoct a story as he
witnessed the execution of the document at the
behest of Parangan himself who, at the outset,
informed him that he will witness a document
consolidating petitioner's debts. He thus testified:

A: No, sir.
Q: Did Nicolas
Parangan right in
that very room
tell
Adoracion
what she was
signing?
A: No, sir.

Q: In (sic) May 4,
1979,
you
remember having
went (sic) to the
Municipality
of
Calinog?

xxx xxx xxx

Q: What did you
have
in
mind
when you were

signing
document,
"4"?

this
Exh.

A: To show that
Adoracion Lustan
has debts with
Nicolas
Parangan. 18
Furthermore, we note the absence of any question
propounded to Judge Lebaquin to establish that the
deed of sale was read and explained by him to
petitioner. When asked if witness has any knowledge
whether petitioner knows how to read or write, he
answered in the negative. 19 This latter admission
impresses upon us that the contract was not at all
read or explained to petitioner for had he known that
petitioner is illiterate, his assistance would not have
been necessary.
The foregoing squares with the sixth instance when a
presumption of equitable mortgage prevails. The
contract of definite sale, where petitioner purportedly
ceded all her rights to the subject lot in favor of
Parangan, did not embody the true intention of the
parties. The evidence speaks clearly of the nature of
the agreement it was one executed to secure
some loans.
Anent the issue of whether the outstanding
mortgages on the subject property can be enforced
against petitioner, we rule in the affirmative.
Third persons who are not parties to a loan may
secure the latter by pledging or mortgaging their
own property.20 So long as valid consent was given,
the fact that the loans were solely for the benefit of
Parangan would not invalidate the mortgage with
respect to petitioner's property. In consenting
thereto, even granting that petitioner may not be
assuming personal liability for the debt, her property
shall nevertheless secure and respond for the
performance of the principal obligation. 21 It is
admitted that petitioner is the owner of the parcel of
land mortgaged to PNB on five (5) occasions by
virtue of the Special Powers of Attorney executed by
petitioner in favor of Parangan. Petitioner argues that
the last three mortgages were void for lack of
authority. She totally failed to consider that said
Special Powers of Attorney are a continuing one and
absent a valid revocation duly furnished to the

mortgagee, the same continues to have force and

effect as against third persons who had no
knowledge of such lack of authority. Article 1921 of
the Civil Code provides:
Art. 1921. If the agency has been
entrusted for the purpose of
contracting with specified persons,
its revocation shall not prejudice
the latter if they were not given
notice thereof.
The Special Power of Attorney executed by petitioner
in favor of Parangan duly authorized the latter to
represent and act on behalf of the former. Having
done so, petitioner clothed Parangan with authority
to deal with PNB on her behalf and in the absence of
any proof that the bank had knowledge that the last
three loans were without the express authority of
petitioner, it cannot be prejudiced thereby. As far as
third persons are concerned, an act is deemed to
have been performed within the scope of the agent's
authority if such is within the terms of the power of
attorney as written even if the agent has in fact
exceeded the limits of his authority according to the
understanding between the principal and the
agent. 22 The Special Power of Attorney particularly
provides that the same is good not only for the
principal loan but also for subsequent commercial,
industrial, agricultural loan or credit accommodation
that the attorney-in-fact may obtain and until the
power of attorney is revoked in a public instrument
and a copy of which is furnished to PNB. 23 Even
when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the
former allowed the latter to act as though he had full
powers (Article 1911, Civil Code). 24 The mortgage
directly and immediately subjects the property upon
which it is imposed. 25 The property of third persons
which has been expressly mortgaged to guarantee
an obligation to which the said persons are foreign, is
directly and jointly liable for the fulfillment thereof; it
is therefore subject to execution and sale for the
purpose of paying the amount of the debt for which it
is
liable. 26 However,
petitioner
has
an
unquestionable right to demand proportional
indemnification from Parangan with respect to the
sum paid to PNB from the proceeds of the sale of her
property 27 in case the same is sold to satisfy the
unpaid debts.

WHEREFORE, premises considered, the judgment of

the lower court is hereby REINSTATED with the
following MODIFICATIONS:
1. DECLARING THE DEED OF DEFINITE SALE AS AN
EQUITABLE MORTGAGE;
2. ORDERING PRIVATE RESPONDENT NICOLAS
PARANGAN TO RETURN THE POSSESSION OF THE
SUBJECT LAND UNTO PETITIONER UPON THE
LATTER'S PAYMENT OF THE SUM OF P75,000.00
WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS
DECISION;
3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS
VALID AND SUBSISTING AND MAY THEREFORE BE
SUBJECTED TO EXECUTION SALE.
4. ORDERING PRIVATE RESPONDENT PARANGAN TO
PAY PETITIONER THE AMOUNT OF P15,000.00 BY WAY
OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE
SUIT.
SO ORDERED.

"WHEREFORE, the Court finds defendants

Constante and Corazon Amor de Castro
jointly and solidarily liable to plaintiff the
sum of:
a) P303,606.24
commission;

representing

unpaid

b) P25,000.00 for and by way of moral

damages;
c) P45,000.00 for and by way of attorney's
fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20,
1991."
The Antecedent Facts
On May 29, 1989, private respondent Francisco
Artigo ("Artigo" for brevity) sued petitioners
Constante A. De Castro ("Constante" for brevity) and
Corazon A. De Castro ("Corazon" for brevity) to
collect the unpaid balance of his broker's commission
from the De Castros.4 The Court of Appeals
summarized the facts in this wise:
G.R. No. 115838

July 18, 2002

CONSTANTE AMOR DE CASTRO and CORAZON

AMOR
DE
CASTRO, petitioners,
vs.
COURT
OF
APPEALS
and
FRANCISCO
ARTIGO, respondents.
CARPIO, J.:
The Case
Before
us
is
a
Petition
for
Review
on
Certiorari1 seeking to annul the Decision of the Court
of Appeals2 dated May 4, 1994 in CA-G.R. CV No.
37996, which affirmed in toto the decision3 of the
Regional Trial Court of Quezon City, Branch 80, in
Civil Case No. Q-89-2631. The trial court disposed as
follows:

"x x x. Appellants5 were co-owners of four

(4) lots located at EDSA corner New York
and Denver Streets in Cubao, Quezon City.
In a letter dated January 24, 1984 (Exhibit
"A-1, p. 144, Records), appellee 6 was
authorized by appellants to act as real
estate broker in the sale of these properties
for the amount ofP23,000,000.00, five
percent (5%) of which will be given to the
agent as commission. It was appellee who
first found Times Transit Corporation,
represented by its president Mr. Rondaris, as
prospective buyer which desired to buy two
(2) lots only, specifically lots 14 and 15.
Eventually, sometime in May of 1985, the
sale of lots 14 and 15 was consummated.
Appellee
received
from
appellants P48,893.76 as commission.
It was then that the rift between the
contending parties soon emerged. Appellee
apparently felt short changed because
according to him, his total commission
should be P352,500.00 which is five percent

(5%) of the agreed price of P7,050,000.00

paid by Times Transit Corporation to
appellants for the two (2) lots, and that it
was he who introduced the buyer to
appellants and unceasingly facilitated the
negotiation which ultimately led to the
consummation of the sale. Hence, he sued
below to collect the balance of P303,606.24
after
having
received P48,893.76
in
advance.1wphi1.nt
On the other hand, appellants completely
traverse appellee's claims and essentially
argue that appellee is selfishly asking for
more than what he truly deserved as
commission to the prejudice of other agents
who were more instrumental in the
consummation of the sale. Although
appellants readily concede that it was
appellee who first introduced Times Transit
Corp. to them, appellee was not designated
by them as their exclusive real estate agent
but that in fact there were more or less
eighteen (18) others whose collective efforts
in the long run dwarfed those of appellee's,
considering that the first negotiation for the
sale
where
appellee
took
active
participation failed and it was these other
agents who successfully brokered in the
second negotiation. But despite this and out
of appellants' "pure liberality, beneficence
and magnanimity", appellee nevertheless
was given the largest cut in the commission
(P48,893.76), although on the principle
of quantum meruit he would have certainly
been entitled to less. So appellee should not
have been heard to complain of getting only
a pittance when he actually got the lion's
share of the commission and worse, he
should not have been allowed to get the
entire
commission.
Furthermore,
the
purchase price for the two lots was
only P3.6 million as appearing in the deed of
sale and not P7.05 million as alleged by
appellee. Thus, even assuming that appellee
is entitled to the entire commission, he
would only be getting 5% of the P3.6 million,
or P180,000.00."
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the decision of
the trial court.

First. The Court of Appeals found that Constante

authorized Artigo to act as agent in the sale of two
lots in Cubao, Quezon City. The handwritten
authorization letter signed by Constante clearly
established a contract of agency between Constante
and Artigo. Thus, Artigo sought prospective buyers
and found Times Transit Corporation ("Times Transit"
for brevity). Artigo facilitated the negotiations which
eventually led to the sale of the two lots. Therefore,
the Court of Appeals decided that Artigo is entitled to
the 5% commission on the purchase price as
provided in the contract of agency.
Second. The Court of Appeals ruled that Artigo's
complaint is not dismissible for failure to implead as
indispensable parties the other co-owners of the two
lots. The Court of Appeals explained that it is not
necessary to implead the other co-owners since the
action is exclusively based on a contract of agency
between Artigo and Constante.
Third. The Court of Appeals likewise declared that the
trial court did not err in admitting parol evidence to
prove the true amount paid by Times Transit to the
De Castros for the two lots. The Court of Appeals
ruled that evidence aliunde could be presented to
prove that the actual purchase price was P7.05
million and not P3.6 million as appearing in the deed
of sale. Evidence aliunde is admissible considering
that Artigo is not a party, but a mere witness in the
deed of sale between the De Castros and Times
Transit. The Court of Appeals explained that, "the rule
that oral evidence is inadmissible to vary the terms
of written instruments is generally applied only in
suits between parties to the instrument and
strangers to the contract are not bound by it."
Besides, Artigo was not suing under the deed of sale,
but solely under the contract of agency. Thus, the
Court of Appeals upheld the trial court's finding that
the purchase price was P7.05 million and not P3.6
million.

II. NOT ORDERING THE DISMISSAL OF THE

COMPLAINT
ON
THE
GROUND
THAT
ARTIGO'S CLAIM HAS BEEN EXTINGUISHED
BY
FULL
PAYMENT,
WAIVER,
OR
ABANDONMENT;
III. CONSIDERING INCOMPETENT EVIDENCE;
IV.
GIVING
CREDENCE
PERJURED TESTIMONY;

TO

PATENTLY

V. SANCTIONING AN AWARD OF MORAL

DAMAGES AND ATTORNEY'S FEES;
VI. NOT AWARDING THE DE CASTRO'S
MORAL AND EXEMPLARY DAMAGES, AND
ATTORNEY'S FEES.
The Court's Ruling
The petition is bereft of merit.
First Issue: whether the complaint merits
dismissal for failure to implead other coowners as indispensable parties
The De Castros argue that Artigo's complaint should
have been dismissed for failure to implead all the coowners of the two lots. The De Castros claim that
Artigo always knew that the two lots were co-owned
by Constante and Corazon with their other siblings
Jose and Carmela whom Constante merely
represented. The De Castros contend that failure to
implead such indispensable parties is fatal to the
complaint since Artigo, as agent of all the four coowners, would be paid with funds co-owned by the
four co-owners.

However, the rule on mandatory joinder of

indispensable parties is not applicable to the instant
case.
There is no dispute that Constante appointed Artigo
in a handwritten note dated January 24, 1984 to sell
the properties of the De Castros for P23 million at a 5
percent commission. The authority was on a first
come, first serve basis. The authority reads in full:

"24 Jan. 84

To Whom It May Concern:

This is to state that Mr. Francisco Artigo is
authorized as our real estate broker in
connection with the sale of our property
located at Edsa Corner New York & Denver,
Cubao, Quezon City.
Asking price P 23,000,000.00
commission as agent's fee.

C.C.
owner
co-owners

&

de

with

5%

Castro
representing

This authority is on a first-come

First serve basis CAC"

The De Castros' contentions are devoid of legal basis.

Hence, the instant petition.
The Issues
According to petitioners, the Court of Appeals erred
in I. NOT ORDERING THE DISMISSAL OF THE
COMPLAINT FOR FAILURE TO IMPLEAD
INDISPENSABLE PARTIES-IN-INTEREST;

An indispensable party is one whose interest will be

affected by the court's action in the litigation, and
without whom no final determination of the case can
be had.7 The joinder of indispensable parties is
mandatory and courts cannot proceed without their
presence.8 Whenever it appears to the court in the
course of a proceeding that an indispensable party
has not been joined, it is the duty of the court to stop
the trial and order the inclusion of such party.9

Constante signed the note as owner and as

representative of the other co-owners. Under this
note, a contract of agency was clearly constituted
between Constante and Artigo. Whether Constante
appointed Artigo as agent, in Constante's individual
or representative capacity, or both, the De Castros
cannot seek the dismissal of the case for failure to
implead the other co-owners as indispensable
parties. The De Castros admit that the other coowners are solidarily liable under the contract
of agency,10 citing Article 1915 of the Civil Code,
which reads:

Art. 1915. If two or more persons have

appointed an agent for a common
transaction or undertaking, they shall be
solidarily liable to the agent for all the
consequences of the agency.
The solidary liability of the four co-owners, however,
militates against the De Castros' theory that the
other
co-owners
should
be
impleaded
as
indispensable parties. A noted commentator
explained Article 1915 thus
"The rule in this article applies even when
the appointments were made by the
principals in separate acts, provided that
they are for the same transaction. The
solidarity arises from the common
interest of the principals, and not from
the act of constituting the agency. By
virtue of this solidarity, the agent can
recover from any principal the whole
compensation and indemnity owing to
him by the others.The parties, however,
may, by express agreement, negate this
solidary responsibility. The solidarity does
not disappear by the mere partition effected
by the principals after the accomplishment
of the agency.
If the undertaking is one in which several
are interested, but only some create the
agency, only the latter are solidarily liable,
without
prejudice
to
the
effects
of negotiorum gestio with respect to the
others. And if the power granted includes
various transactions some of which are
common and others are not, only those
interested in each transaction shall be liable
for it."11
When the law expressly provides for solidarity of the
obligation, as in the liability of co-principals in a
contract of agency, each obligor may be compelled
to pay the entire obligation. 12 The agent may recover
the whole compensation from any one of the coprincipals, as in this case.
Indeed, Article 1216 of the Civil Code provides that a
creditor may sue any of the solidary debtors. This
article reads:
Art. 1216. The creditor may proceed against
any one of the solidary debtors or some or
all of them simultaneously. The demand

made against one of them shall not be an

obstacle to those which may subsequently
be directed against the others, so long as
the debt has not been fully collected.
Thus, the Court has ruled in Operators Incorporated
vs. American Biscuit Co., Inc.13 that
"x x x solidarity does not make a
solidary obligor an indispensable party
in a suit filed by the creditor. Article
1216 of the Civil Code says that the creditor
`may proceed against anyone of the
solidary debtors or some or all of them
simultaneously'." (Emphasis supplied)
Second Issue: whether Artigo's claim has been
extinguished by full payment, waiver or
abandonment
The De Castros claim that Artigo was fully paid on
June 14, 1985, that is, Artigo was given "his
proportionate share and no longer entitled to any
balance." According to them, Artigo was just one of
the agents involved in the sale and entitled to a
"proportionate share" in the commission. They assert
that Artigo did absolutely nothing during the second
negotiation but to sign as a witness in the deed of
sale. He did not even prepare the documents for the
transaction as an active real estate broker usually
does.
The De Castros' arguments are flimsy.
A contract of agency which is not contrary to law,
public order, public policy, morals or good custom is
a valid contract, and constitutes the law between the
parties.14 The contract of agency entered into by
Constante with Artigo is the law between them and
both are bound to comply with its terms and
conditions in good faith.
The mere fact that "other agents" intervened in the
consummation of the sale and were paid their
respective commissions cannot vary the terms of the
contract of agency granting Artigo a 5 percent
commission based on the selling price. These "other
agents" turned out to be employees of Times Transit,
the buyer Artigo introduced to the De Castros. This
prompted the trial court to observe:
"The alleged `second group' of agents came
into the picture only during the so-called

`second negotiation' and it is amusing to

note that these (sic) second group,
prominent among whom are Atty. Del
Castillo and Ms. Prudencio, happened to be
employees of Times Transit, the buyer of the
properties. And their efforts were limited to
convincing Constante to 'part away' with the
properties because the redemption period of
the foreclosed properties is around the
corner, so to speak. (tsn. June 6, 1991).
xxx
To accept Constante's version of the story is
to open the floodgates of fraud and deceit.
A seller could always pretend rejection of
the offer and wait for sometime for others to
renew it who are much willing to accept a
commission far less than the original
broker. The immorality in the instant
case easily presents itself if one has to
consider that the alleged `second
group' are the employees of the buyer,
Times Transit and they have not
bettered the offer secured by Mr.
Artigo for P7 million.
It is to be noted also that while Constante
was too particular about the unrenewed real
estate broker's license of Mr. Artigo, he did
not bother at all to inquire as to the licenses
of Prudencio and Castillo. (tsn, April 11,
1991, pp. 39-40)."15 (Emphasis supplied)
In any event, we find that the 5 percent real estate
broker's commission is reasonable and within the
standard practice in the real estate industry for
transactions of this nature.
The De Castros also contend that Artigo's inaction as
well as failure to protest estops him from recovering
more than what was actually paid him. The De
Castros cite Article 1235 of the Civil Code which
reads:
Art. 1235. When the obligee accepts the
performance, knowing its incompleteness
and irregularity, and without expressing any
protest or objection, the obligation is
deemed fully complied with.
The De Castros' reliance on Article 1235 of the Civil
Code is misplaced. Artigo's acceptance of partial
payment of his commission neither amounts to a

waiver of the balance nor puts him in estoppel. This

is the import of Article 1235 which was explained in
this wise:
"The word accept, as used in Article 1235
of the Civil Code, means to take as
satisfactory or sufficient, or agree to an
incomplete
or
irregular
performance. Hence, the mere receipt of
a partial payment is not equivalent to
the
required
acceptance
of
performance as would extinguish the
whole obligation."16 (Emphasis supplied)
There is thus a clear distinction between acceptance
and mere receipt. In this case, it is evident that
Artigo merely received the partial payment without
waiving the balance. Thus, there is no estoppel to
speak of.
The De Castros further argue that laches should
apply because Artigo did not file his complaint in
court until May 29, 1989, or almost four years later.
Hence, Artigo's claim for the balance of his
commission is barred by laches.
Laches means the failure or neglect, for an
unreasonable and unexplained length of time, to do
that which by exercising due diligence could or
should have been done earlier. It is negligence or
omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to
assert it either has abandoned it or declined to assert
it.17
Artigo disputes the claim that he neglected to assert
his rights. He was appointed as agent on January 24,
1984. The two lots were finally sold in June 1985. As
found by the trial court, Artigo demanded in April and
July of 1985 the payment of his commission by
Constante on the basis of the selling price of P7.05
million
but
there
was
no
response
from
Constante.18 After it became clear that his demands
for payment have fallen on deaf ears, Artigo decided
to sue on May 29, 1989.
Actions upon a written contract, such as a contract of
agency, must be brought within ten years from the
time the right of action accrues.19 The right of action
accrues from the moment the breach of right or duty
occurs. From this moment, the creditor can institute
the action even as the ten-year prescriptive period
begins to run.20

The De Castros admit that Artigo's claim was filed

within the ten-year prescriptive period. The De
Castros, however, still maintain that Artigo's cause of
action is barred by laches. Laches does not apply
because only four years had lapsed from the time of
the sale in June 1985. Artigo made a demand in July
1985 and filed the action in court on May 29, 1989,
well within the ten-year prescriptive period. This does
not constitute an unreasonable delay in asserting
one's right. The Court has ruled, "a delay within
the prescriptive period is sanctioned by law
and is not considered to be a delay that would
bar relief."21 In explaining that laches applies only in
the absence of a statutory prescriptive period, the
Court has stated "Laches is recourse in equity. Equity,
however, is applied only in the
absence, never in contravention, of
statutory law. Thus, laches, cannot, as
a rule, be used to abate a collection
suit filed within the prescriptive period
mandated by the Civil Code."22
Clearly, the De Castros' defense of laches finds no
support in law, equity or jurisprudence.
Third issue: whether the determination of the
purchase price was made in violation of the
Rules on Evidence
The De Castros want the Court to re-examine the
probative value of the evidence adduced in the trial
court to determine whether the actual selling price of
the two lots was P7.05 million and not P3.6 million.
The De Castros contend that it is erroneous to base
the 5 percent commission on a purchase price
of P7.05 million as ordered by the trial court and the
appellate court. The De Castros insist that the
purchase price is P3.6 million as expressly stated in
the deed of sale, the due execution and authenticity
of which was admitted during the trial.
The De Castros believe that the trial and appellate
courts committed a mistake in considering
incompetent evidence and disregarding the best
evidence and parole evidence rules. They claim that
the Court of Appeals erroneously affirmed sub
silentio the trial court's reliance on the various
correspondences between Constante and Times
Transit which were mere photocopies that do not
satisfy the best evidence rule. Further, these letters
covered only the first negotiations between
Constante and Times Transit which failed; hence,

these are immaterial

purchase price.

in

determining

the

final

The De Castros further argue that if there was an

undervaluation, Artigo who signed as witness
benefited therefrom, and being equally guilty, should
be left where he presently stands. They likewise
claim that the Court of Appeals erred in relying on
evidence which were not offered for the purpose
considered by the trial court. Specifically, Exhibits
"B", "C", "D" and "E" were not offered to prove that
the purchase price was P7.05 Million. Finally, they
argue that the courts a quo erred in giving credence
to the perjured testimony of Artigo. They want the
entire testimony of Artigo rejected as a falsehood
because he was lying when he claimed at the outset
that he was a licensed real estate broker when he
was not.
Whether the actual purchase price was P7.05 Million
as found by the trial court and affirmed by the Court
of Appeals, or P3.6 Million as claimed by the De
Castros, is a question of fact and not of law.
Inevitably, this calls for an inquiry into the facts and
evidence on record. This we can not do.
It is not the function of this Court to re-examine the
evidence submitted by the parties, or analyze or
weigh the evidence again.23 This Court is not the
proper venue to consider a factual issue as it is not a
trier of facts. In petitions for review on certiorari as a
mode of appeal under Rule 45, a petitioner can only
raise questions of law. Our pronouncement in the
case of Cormero vs. Court of Appeals24 bears
reiteration:
"At the outset, it is evident from the errors
assigned that the petition is anchored on a
plea to review the factual conclusion
reached by the respondent court. Such task
however is foreclosed by the rule that in
petitions for certiorari as a mode of appeal,
like this one, only questions of law distinctly
set forth may be raised. These questions
have been defined as those that do not call
for any examination of the probative value
of the evidence presented by the parties.
(Uniland Resources vs. Development Bank
of the Philippines, 200 SCRA 751 [1991]
citing Goduco vs. Court of appeals, et al.,
119 Phil. 531; Hernandez vs. Court of
Appeals, 149 SCRA 67). And when this court
is asked to go over the proof presented by
the parties, and analyze, assess and weigh
them to ascertain if the trial court and the

appellate court were correct in according

superior credit to this or that piece of
evidence and eventually, to the totality of
the evidence of one party or the other, the
court cannot and will not do the same.
(Elayda vs. Court of Appeals, 199 SCRA 349
[1991]). Thus, in the absence of any
showing that the findings complained of are
totally devoid of support in the record, or
that they are so glaringly erroneous as to
constitute serious abuse of discretion, such
findings must stand, for this court is not
expected or required to examine or contrast
the oral and documentary evidence
submitted by the parties. (Morales vs. Court
of Appeals, 197 SCRA 391 [1991] citing
Santa Ana vs. Hernandez, 18 SCRA 973
[1966])."

his part of the bargain under the contract of agency.

The De Castros should have exercised fairness and
good judgment in dealing with Artigo by fulfilling
their own part of the bargain - paying Artigo his 5
percent broker's commission based on the actual
purchase price of the two lots.
WHEREFORE, the petition is denied for lack of merit.
The Decision of the Court of Appeals dated May 4,
1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto.
SO ORDERED.

We find no reason to depart from this principle. The

trial and appellate courts are in a much better
position to evaluate properly the evidence. Hence,
we find no other recourse but to affirm their finding
on the actual purchase price.1wphi1.nt
Fourth Issue: whether award of moral damages
and attorney's fees is proper
The De Castros claim that Artigo failed to prove that
he is entitled to moral damages and attorney's fees.
The De Castros, however, cite no concrete reason
except to say that they are the ones entitled to
damages since the case was filed to harass and
extort money from them.
Law and jurisprudence support the award of moral
damages and attorney's fees in favor of Artigo. The
award of damages and attorney's fees is left to the
sound discretion of the court, and if such discretion is
well exercised, as in this case, it will not be disturbed
on appeal.25 Moral damages may be awarded when in
a breach of contract the defendant acted in bad faith,
or in
wanton
disregard
of
his
contractual
obligation.26 On the other hand, attorney's fees are
awarded in instances where "the defendant acted in
gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable
claim."27 There is no reason to disturb the trial court's
finding that "the defendants' lack of good faith and
unkind treatment of the plaintiff in refusing to give
his due commission deserve censure." This warrants
the award of P25,000.00 in moral damages
and P 45,000.00 in attorney's fees. The amounts are,
in our view, fair and reasonable. Having found a
buyer for the two lots, Artigo had already performed

G.R. No. 88539 October 26, 1993

KUE CUISON, doing business under the firm
name
and
style"KUE
CUISON
PAPER
SUPPLY," petitioner,
vs.
THE COURT OF APPEALS, VALIANT INVESTMENT
ASSOCIATES, respondents.
BIDIN, J.:
This petition for review assails the decision of the
respondent Court of Appeals ordering petitioner to
pay private respondent, among others, the sum of
P297,482.30 with interest. Said decision reversed the

appealed decision of the trial court rendered in favor

of petitioner.
The case involves an action for a sum of money filed
by respondent against petitioner anchored on the
following antecedent facts:
Petitioner Kue Cuison is a sole proprietorship
engaged in the purchase and sale of newsprint, bond
paper and scrap, with places of business at Baesa,
Quezon City, and Sto. Cristo, Binondo, Manila. Private
respondent Valiant Investment Associates, on the
other hand, is a partnership duly organized and
existing under the laws of the Philippines with
business address at Kalookan City.
From December 4, 1979 to February 15, 1980,
private respondent delivered various kinds of paper
products amounting to P297,487.30 to a certain
Lilian Tan of LT Trading. The deliveries were made by
respondent pursuant to orders allegedly placed by
Tiu Huy Tiac who was then employed in the Binondo
office of petitioner. It was likewise pursuant to Tiac's
instructions that the merchandise was delivered to
Lilian Tan. Upon delivery, Lilian Tan paid for the
merchandise by issuing several checks payable to
cash at the specific request of Tiu Huy Tiac. In turn,
Tiac issued nine (9) postdated checks to private
respondent as payment for the paper products.
Unfortunately, sad checks were later dishonored by
the drawee bank.
Thereafter, private respondent made several
demands upon petitioner to pay for the merchandise
in question, claiming that Tiu Huy Tiac was duly
authorized by petitioner as the manager of his
Binondo office, to enter into the questioned
transactions with private respondent and Lilian Tan.
Petitioner denied any involvement in the transaction
entered into by Tiu Huy Tiac and refused to pay
private respondent the amount corresponding to the
selling price of the subject merchandise.
Left with no recourse, private respondent filed an
action against petitioner for the collection of
P297,487.30
representing
the
price
of
the
merchandise. After due hearing, the trial court
dismissed the complaint against petitioner for lack of
merit. On appeal, however, the decision of the trial
court was modified, but was in effect reversed by the
Court of Appeals, the dispositive portion of which
reads:

WHEREFORE,
the
decision
appealed from is MODIFIED in that
defendant-appellant Kue Cuison is
hereby ordered to pay plaintiffappellant
Valiant
Investment
Associates the sum of P297,487.30
with 12% interest from the filing of
the complaint until the amount is
fully paid, plus the sum of 7% of
the total amount due as attorney's
fees, and to pay the costs. In all
other
respects,
the
decision
appealed from is affirmed. (Rollo, p.
55)
In this petition, petitioner contends that:
THE HONORABLE COURT ERRED IN
FINDING TIU HUY TIAC AGENT OF
DEFENDANT-APPELLANT CONTRARY
TO THE UNDISPUTED/ESTABLISHED
FACTS AND CIRCUMSTANCES.
THE HONORABLE COURT ERRED IN
FINDING
DEFENDANT-APPELLANT
LIABLE
FOR
AN
OBLIGATION
UNDISPUTEDLY BELONGING TO TIU
HUY TIAC.
THE HONORABLE COURT ERRED IN REVERSING THE
WELL-FOUNDED DECISION OF THE TRIAL COURT,
(Rollo, p, 19)
The issue here is really quite simple whether or
not Tiu Huy Tiac possessed the required authority
from petitioner sufficient to hold the latter liable for
the disputed transaction.
This petition ought to have been denied outright,
forin the final analysis, it raises a factual issue. It is
elementary that in petitions for review under Rule 45,
this Court only passes upon questions of law. An
exception thereto occurs where the findings of fact of
the Court of Appeals are at variance with the trial
court, in which case the Court reviews the evidence
in order to arrive at the correct findings based on the
records.
As to the merits of the case, it is a well-established
rule that one who clothes another with apparent
authority as his agent and holds him out to the public

as such cannot be permitted to deny the authority of

such person to act as his agent, to the prejudice of
innocent third parties dealing with such person in
good faith and in the honest belief that he is what he
appears to be (Macke, et al, v. Camps, 7 Phil. 553
(1907]; Philippine National Bank. v Court of Appeals,
94 SCRA 357 [1979]). From the facts and the
evidence on record, there is no doubt that this rule
obtains. The petition must therefore fail.
It is evident from the records that by his own acts
and admission, petitioner held out Tiu Huy Tiac to the
public as the manager of his store in Sto. Cristo,
Binondo, Manila. More particularly, petitioner
explicitly introduced Tiu Huy Tiac to Bernardino
Villanueva,
respondent's
manager,
as
his
(petitioner's) branch manager as testified to by
Bernardino Villanueva. Secondly, Lilian Tan, who has
been doing business with petitioner for quite a while,
also testified that she knew Tiu Huy Tiac to be the
manager of petitioner's Sto. Cristo, Binondo branch.
This general perception of Tiu Huy Tiac as the
manager of petitioner's Sto. Cristo store is even
made manifest by the fact that Tiu Huy Tiac is known
in the community to be the "kinakapatid"
(godbrother) of petitioner. In fact, even petitioner
admitted his close relationship with Tiu Huy Tiac
when he said that they are "like brothers" (Rollo, p.
54). There was thus no reason for anybody especially
those transacting business with petitioner to even
doubt the authority of Tiu Huy Tiac as his manager in
the Sto. Cristo Binondo branch.
In a futile attempt to discredit Villanueva, petitioner
alleges that the former's testimony is clearly selfserving inasmuch as Villanueva worked for private
respondent as its manager.
We disagree, The argument that Villanueva's
testimony is self-serving and therefore inadmissible
on the lame excuse of his employment with private
respondent utterly misconstrues the nature of "'selfserving evidence" and the specific ground for its
exclusion. As pointed out by this Court in Co v. Court
of Appeals et, al., (99 SCRA 321 [1980]):
Self-serving evidence is evidence
made by a party out of court at one
time; it does not include a party's
testimony as a witness in court. It
is excluded on the same ground as
any hearsay evidence, that is the

lack of opportunity for crossexamination by the adverse party,

and on the consideration that its
admission would open the door to
fraud
and
to
fabrication
of
testimony. On theother hand, a
party's testimony in court is sworn
and affords the other party the
opportunity for cross-examination
(emphasis supplied)
Petitioner cites Villanueva's failure, despite his
commitment to do so on cross-examination, to
produce the very first invoice of the transaction
between petitioner and private respondent as
another ground to discredit Villanueva's testimony.
Such failure, proves that Villanueva was not only
bluffing when he pretended that he can produce the
invoice,
but
that
Villanueva
was
likewise
prevaricating when he insisted that such prior
transactions actually took place. Petitioner is
mistaken. In fact, it was petitioner's counsel himself
who withdrew the reservation to have Villanueva
produce the document in court. As aptly observed by
the Court of Appeals in its decision:

In the same manner, petitioner assails the credibility

of Lilian Tan by alleging that Tan was part of an
intricate plot to defraud him. However, petitioner
failed to substantiate or prove that the subject
transaction was designed to defraud him. Ironically, it
was even the testimony of petitioner's daughter and
assistant manager Imelda Kue Cuison which
confirmed the credibility of Tan as a witness. On the
witness stand, Imelda testified that she knew for a
fact that prior to the transaction in question, Tan
regularly transacted business with her father
(petitioner herein), thereby corroborating Tan's
testimony to the same effect. As correctly found by
the respondent court, there was no logical
explanation for Tan to impute liability upon petitioner.
Rather, the testimony of Imelda Kue Cuison only
served to add credence to Tan's testimony as regards
the transaction, the liability for which petitioner
wishes to be absolved.
But of even greater weight than any of these
testimonies, is petitioner's categorical admission on
the witness stand that Tiu Huy Tiac was the manager
of his store in Sto. Cristo, Binondo, to wit:
Court:

. . . However, during the hearing on

March 3, 1981, Villanueva failed to
present the document adverted to
because
defendant-appellant's
counsel withdrew his reservation to
have
the
former
(Villanueva)
produce the document or invoice,
thus prompting plaintiff-appellant
to rest its case that same day
(t.s.n., pp. 39-40, Sess. of March 3,
1981). Now, defendant-appellant
assails the credibility of Villanueva
for having allegedly failed to
produce even one single document
to show that plaintiff-appellant
have had transactions before,
when in fact said failure of
Villanueva
to
produce
said
document is a direct off-shoot of
the action of defendant-appellant's
counsel
who
withdrew
his
reservation for the production of
the document or invoice and which
led plaintiff-appellant to rest its
case that very day. (Rollo, p.52)

xxx xxx xxx

Q And who was
managing
the
store
in
Sto.
Cristo?
A At first it was
Mr. Ang, then
later Mr. Tiu Huy
Tiac but I cannot
remember
the
exact year.
Q So, Mr. Tiu Huy
Tiac took over
the
management,.
A Not that was
because
every
afternoon, I was
there, sir.

Q But in the
morning,
who
takes charge?
A Tiu Huy Tiac
takes charge of
management and
if
there
(sic)
orders
for
newsprint
or
bond papers they
are
always
referred to the
compound
in
Baesa, sir. (t.s.n.,
p. 16, Session of
January 20, 1981,
CA
decision, Rollo, p.
50,
emphasis
supplied).
Such admission, spontaneous no doubt, and standing
alone, is sufficient to negate all the denials made by
petitioner regarding the capacity of Tiu Huy Tiac to
enter into the transaction in question. Furthermore,
consistent with and as an obvious indication of the
fact that Tiu Huy Tiac was the manager of the Sto.
Cristo branch, three (3) months after Tiu Huy Tiac left
petitioner's
employ,
petitioner
even
sent,
communications to its customers notifying them that
Tiu Huy Tiac is no longer connected with petitioner's
business. Such undertaking spoke unmistakenly of
Tiu Huy Tiac's valuable position as petitioner's
manager than any uttered disclaimer. More than
anything else, this act taken together with the
declaration of petitioner in open court amount to
admissions under Rule 130 Section 22 of the Rules of
Court, to wit : "The act, declaration or omission of a
party as to a relevant fact may be given in evidence
against him." For well-settled is the rule that "a
man's acts, conduct, and declaration, wherever
made, if voluntary, are admissible against him, for
the reason that it is fair to presume that they
correspond with the truth, and it is his fault if they do
not. If a man's extrajudicial admissions are
admissible against him, there seems to be no reason
why his admissions made in open court, under oath,
should not be accepted against him." (U.S. vs. Ching
Po, 23 Phil. 578, 583 [1912];).

Moreover,
petitioner's
unexplained
delay
in
disowning the transactions entered into by Tiu Huy
Tiac despite several attempts made by respondent to
collect the amount from him, proved all the more
that petitioner was aware of the questioned
commission was tantamount to an admission by
silence under Rule 130 Section 23 of the Rules of
Court, thus: "Any act or declaration made in the
presence of and within the observation of a party
who does or says nothing when the act or declaration
is such as naturally to call for action or comment if
not true, may be given in evidence against him."
All of these point to the fact that at the time of the
transaction Tiu Huy Tiac was admittedly the manager
of petitioner's store in Sto. Cristo, Binondo.
Consequently, the transaction in question as well as
the concomitant obligation is valid and binding upon
petitioner.
By his representations, petitioner is now estopped
from disclaiming liability for the transaction entered
by Tiu Huy Tiac on his behalf. It matters not whether
the representations are intentional or merely
negligent so long as innocent, third persons relied
upon such representations in good faith and for value
As
held
in
the
case
of Manila
Remnant
Co. Inc. v. Court of Appeals, (191 SCRA 622 [1990]):
More in point, we find that by the
principle
of
estoppel,
Manila
Remnant is deemed to have
allowed its agent to act as though
it had plenary powers. Article 1911
of the Civil Code provides:
"Even when the
agent
has
exceeded
his
authority,
the
principal
issolidarily liable
with the agent if
the
former
allowed the latter
to act as though
he
had
full
powers."
(Emphasis
supplied).

The above-quoted article is new. It

is intended to protect the rights of
innocent persons. In such a
situation, both the principal and the
agent may be considered as joint
tortfeasors whose liability is joint
and solidary.
Authority by estoppel has arisen in
the instant case because by its
negligence, the principal, Manila
Remnant, has permitted its agent,
A.U. Valencia and Co., to exercise
powers not granted to it. That the
principal might not have had actual
knowledge of theagent's misdeed
is of no moment.
Tiu Huy Tiac, therefore, by petitioner's own
representations and manifestations, became an
agent of petitioner by estoppel, an admission or
representation is rendered conclusive upon the
person making it, and cannot be denied or disproved
as against the person relying thereon (Article 1431,
Civil Code of the Philippines). A party cannot be
allowed to go back on his own acts and
representations to the prejudice of the other party
who, in good faith, relied upon them (Philippine
National Bank v. Intermediate Appellate Court, et al.,
189 SCRA 680 [1990]).
Taken in this light,. petitioner is liable for the
transaction entered into by Tiu Huy Tiac on his
behalf. Thus, even when the agent has exceeded his
authority, the principal is solidarily liable with the
agent if the former allowed the latter to fact as
though he had full powers (Article 1911 Civil Code),
as in the case at bar.
Finally, although it may appear that Tiu Huy Tiac
defrauded his principal (petitioner) in not turning
over the proceeds of the transaction to the latter,
such fact cannot in any way relieve nor exonerate
petitioner of his liability to private respondent. For it
is an equitable maxim that as between two innocent
parties, the one who made it possible for the wrong
to be done should be the one to bear the resulting
loss (Francisco vs. Government Service Insurance
System, 7 SCRA 577 [1963]).
Inasmuch as the fundamental issue of the capacity or
incapacity of the purported agent Tiu Huy Tiac, has

already been resolved, the Court deems it

unnecessary to resolve the other peripheral issues
raised by petitioner.
WHEREFORE, the instant petition in hereby DENIED
for lack of merit. Costs against petitioner.
SO ORDERED.

and granted therein defendant's counterclaim for

agent's overriding commission and damages.
The antecedent facts are as follows:

G.R. No. 76931

May 29, 1991

ORIENT
AIR
SERVICES
&
HOTEL
REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES
INCORPORATED, respondents.
G.R. No. 76933

May 29, 1991

AMERICAN
AIRLINES,
INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR SERVICES
&
HOTEL
REPRESENTATIVES,
INCORPORATED,respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for
Orient Air Service and Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American
Airlines, Inc.

PADILLA, J.:
This case is a consolidation of two (2) petitions for
review on certiorari of a decision 1 of the Court of
Appeals in CA-G.R. No. CV-04294, entitled "American
Airlines, Inc. vs. Orient Air Services and Hotel
Representatives,
Inc."
which
affirmed,
with
modification, the decision 2 of the Regional Trial Court
of Manila, Branch IV, which dismissed the complaint

On 15 January 1977, American Airlines, Inc.

(hereinafter referred to as American Air), an air
carrier
offering
passenger
and
air
cargo
transportation in the Philippines, and Orient Air
Services and Hotel Representatives (hereinafter
referred to as Orient Air), entered into a General
Sales Agency Agreement (hereinafter referred to as
the Agreement), whereby the former authorized the
latter to act as its exclusive general sales agent
within the Philippines for the sale of air passenger
transportation. Pertinent provisions of the agreement
are reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants
herein contained, the parties hereto agree
as follows:
1. Representation of American by Orient Air
Services
Orient Air Services will act on American's
behalf as its exclusive General Sales Agent
within the Philippines, including any United
States military installation therein which are
not
serviced
by
an
Air
Carrier
Representation Office (ACRO), for the sale of
air passenger transportation. The services
to be performed by Orient Air Services shall
include:
(a)
soliciting
and
promoting
passenger traffic for the services of
American
and,
if
necessary,
employing staff competent and
sufficient to do so;
(b) providing and maintaining a
suitable area in its place of
business to be used exclusively for
the transaction of the business of
American;
(c) arranging for distribution of
American's timetables, tariffs and
promotional material to sales

agents and the general public in

the assigned territory;

Services until satisfactorily accounted for to

American.

(d) servicing and supervising of

sales agents (including such subagents as may be appointed by
Orient Air Services with the prior
written consent of American) in the
assigned territory including if
required by American the control of
remittances
and
commissions
retained; and

5. Commissions

(e) holding out a passenger

reservation facility to sales agents
and the general public in the
assigned territory.

American will pay Orient Air Services a sales

agency commission for all sales of
transportation by Orient Air Services or its
sub-agents over American's services and
any connecting through air transportation,
when made on American's ticket stock,
equal to the following percentages of the
tariff fares and charges:

In connection with scheduled or nonscheduled air passenger transportation

within the United States, neither Orient Air
Services nor its sub-agents will perform
services for any other air carrier similar to
those to be performed hereunder for
American without the prior written consent
of American. Subject to periodic instructions
and continued consent from American,
Orient Air Services may sell air passenger
transportation to be performed within the
United States by other scheduled air carriers
provided American does not provide
substantially equivalent schedules between
the points involved.
xxx

xxx

American will pay Orient Air Services

commission
on
transportation
sold
hereunder by Orient Air Services or its subagents as follows:
(a) Sales agency commission

(i)
For
transportation
solely
between points within the United
States and between such points
and Canada: 7% or such other
rate(s) as may be prescribed by the
Air Traffic Conference of America.
(ii) For transportation included in a
through
ticket
covering
transportation
between
points
other than those described above:
8% or such other rate(s) as may be
prescribed by the International Air
Transport Association.

xxx

4. Remittances
Orient Air Services shall remit in United
States dollars to American the ticket stock
or exchange orders, less commissions to
which Orient Air Services is entitled
hereunder, not less frequently than semimonthly, on the 15th and last days of each
month for sales made during the preceding
half month.

(b) Overriding commission

In addition to the above commission
American will pay Orient Air Services an
overriding commission of 3% of the tariff
fares and charges for all sales of
transportation over American's service by
Orient Air Service or its sub-agents.
xxx

All monies collected by Orient Air Services

for transportation sold hereunder on
American's ticket stock or on exchange
orders, less applicable commissions to
which Orient Air Services is entitled
hereunder, are the property of American
and shall be held in trust by Orient Air

xxx

xxx

10. Default
If Orient Air Services shall at any time
default in observing or performing any of
the provisions of this Agreement or shall

become bankrupt or make any assignment

for the benefit of or enter into any
agreement or promise with its creditors or
go into liquidation, or suffer any of its goods
to be taken in execution, or if it ceases to be
in business, this Agreement may, at the
option of American, be terminated forthwith
and American may, without prejudice to any
of its rights under this Agreement, take
possession of any ticket forms, exchange
orders, traffic material or other property or
funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject
to any applicable rules or resolutions of the
International Air Transport Association and
the Air Traffic Conference of America, and
such rules or resolutions shall control in the
event of any conflict with the provisions
hereof.
xxx

xxx

xxx

13. Termination
American may terminate the Agreement on
two days' notice in the event Orient Air
Services is unable to transfer to the United
States the funds payable by Orient Air
Services to American under this Agreement.
Either party may terminate the Agreement
without cause by giving the other 30 days'
notice by letter, telegram or cable.
xxx

xxx

x x x3

On 11 May 1981, alleging that Orient Air had reneged

on its obligations under the Agreement by failing to
promptly remit the net proceeds of sales for the
months of January to March 1981 in the amount of
US $254,400.40, American Air by itself undertook the
collection of the proceeds of tickets sold originally by
Orient Air and terminated forthwith the Agreement in
accordance with Paragraph 13 thereof (Termination).
Four (4) days later, or on 15 May 1981, American Air
instituted suit against Orient Air with the Court of
First Instance of Manila, Branch 24, for Accounting
with Preliminary Attachment or Garnishment,
Mandatory
Injunction
and
Restraining
Order 4 averring the aforesaid basis for the
termination of the Agreement as well as therein
defendant's previous record of failures "to promptly

settle past outstanding refunds of which there were

available funds in the possession of the defendant, . .
. to the damage and prejudice of plaintiff." 5
In its Answer 6 with counterclaim dated 9 July 1981,
defendant Orient Air denied the material allegations
of the complaint with respect to plaintiff's
entitlement
to
alleged
unremitted
amounts,
contending that after application thereof to the
commissions due it under the Agreement, plaintiff in
fact still owed Orient Air a balance in unpaid
overriding commissions. Further, the defendant
contended that the actions taken by American Air in
the course of terminating the Agreement as well as
the termination itself were untenable, Orient Air
claiming that American Air's precipitous conduct had
occasioned prejudice to its business interests.
Finding that the record and the evidence
substantiated the allegations of the defendant, the
trial court ruled in its favor, rendering a decision
dated 16 July 1984, the dispositive portion of which
reads:
WHEREFORE, all the foregoing premises
considered, judgment is hereby rendered in
favor of defendant and against plaintiff
dismissing the complaint and holding the
termination made by the latter as affecting
the GSA agreement illegal and improper and
order the plaintiff to reinstate defendant as
its general sales agent for passenger
tranportation
in
the
Philippines
in
accordance with said GSA agreement;
plaintiff is ordered to pay defendant the
balance of the overriding commission on
total flown revenue covering the period from
March 16, 1977 to December 31, 1980 in
the amount of US$84,821.31 plus the
additional amount of US$8,000.00 by way of
proper 3% overriding commission per month
commencing from January 1, 1981 until
such reinstatement or said amounts in its
Philippine peso equivalent legally prevailing
at the time of payment plus legal interest to
commence
from
the
filing
of
the
counterclaim up to the time of payment.
Further, plaintiff is directed to pay
defendant the amount of One Million Five
Hundred Thousand (Pl,500,000.00) pesos as
and for exemplary damages; and the
amount of Three Hundred Thousand
(P300,000.00) pesos as and by way of
attorney's fees.

Costs against plaintiff.

On appeal, the Intermediate Appellate Court (now

Court of Appeals) in a decision promulgated on 27
January 1986, affirmed the findings of the court a
quo on their material points but with some
modifications with respect to the monetary awards
granted. The dispositive portion of the appellate
court's decision is as follows:
WHEREFORE,
modifications

with

the

following

1) American is ordered to pay Orient the

sum
of US$53,491.11 representing
the
balance
of
the
latter's
overriding
commission covering the period March 16,
1977 to December 31, 1980, or its
Philippine peso equivalent in accordance
with the official rate of exchange legally
prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the
sum of US$7,440.00 as the latter's
overriding commission per month starting
January 1, 1981 until date of termination,
May 9, 1981 or its Philippine peso
equivalent in accordance with the official
rate of exchange legally prevailing on July
10, 1981, the date the counterclaim was
filed
3) American is ordered to pay interest of
12% on said amounts from July 10, 1981 the
date the answer with counterclaim was filed,
until full payment;
4)
American
is
ordered
to
pay
Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the
sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the
aforementioned decision, assailing the substance
thereof and arguing for its reversal. The appellate
court's decision was also the subject of a Motion for

Partial Reconsideration by Orient Air which prayed for

the restoration of the trial court's ruling with respect
to the monetary awards. The Court of Appeals, by
resolution promulgated on 17 December 1986,
denied American Air's motion and with respect to
that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is
denied insofar as it prays for affirmance of
the trial court's award of exemplary
damages and attorney's fees, but granted
insofar as the rate of exchange is
concerned. The decision of January 27, 1986
is modified in paragraphs (1) and (2) of the
dispositive part so that the payment of the
sums mentioned therein shall be at their
Philippine peso equivalent in accordance
with the official rate of exchange legally
prevailing on the date of actual payment. 9
Both parties appealed the aforesaid resolution and
decision of the respondent court, Orient Air as
petitioner in G.R. No. 76931 and American Air as
petitioner in G.R. No. 76933. By resolution 10 of this
Court dated 25 March 1987 both petitions were
consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the
extent of Orient Air's right to the 3% overriding
commission. It is the stand of American Air that such
commission is based only on sales of its services
actually negotiated or transacted by Orient Air,
otherwise referred to as "ticketed sales." As basis
thereof, primary reliance is placed upon paragraph
5(b) of the Agreement which, in reiteration, is quoted
as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission,
American will pay Orient Air Services an
overriding commission of 3% of the tariff
fees
and
charges
for all
sales
of
transportation over American's services by
Orient
Air
Servicesor
its subagents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket
stocks of American Air, and the former not having

opted to appoint any sub-agents, it is American Air's

contention that Orient Air can claim entitlement to
the disputed overriding commission based only
on ticketed sales. This is supposed to be the clear
meaning of the underscored portion of the above
provision. Thus, to be entitled to the 3% overriding
commission, the sale must be made by Orient Air
and the sale must be done with the use of American
Air's ticket stocks.
On the other hand, Orient Air contends that the
contractual
stipulation
of
a
3%
overriding
commission covers the total revenue of American Air
and not merely that derived from ticketed sales
undertaken by Orient Air. The latter, in justification of
its
submission,
invokes
its
designation
as
the exclusive General Sales Agent of American Air,
with the corresponding obligations arising from such
agency, such as, the promotion and solicitation for
the services of its principal. In effect, by virtue of
such exclusivity, "all sales of transportation over
American Air's services are necessarily by Orient
Air." 11
It is a well settled legal principle that in the
interpretation of a contract, the entirety thereof must
be taken into consideration to ascertain the meaning
of its provisions. 12 The various stipulations in the
contract must be read together to give effect to
all. 13 After a careful examination of the records, the
Court finds merit in the contention of Orient Air that
the Agreement, when interpreted in accordance with
the foregoing principles, entitles it to the 3%
overriding commission based on total revenue, or as
referred to by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of
American Air, Orient Air was responsible for the
promotion and marketing of American Air's services
for air passenger transportation, and the solicitation
of sales therefor. In return for such efforts and
services, Orient Air was to be paid commissions of
two (2) kinds: first, a sales agency commission,
ranging from 7-8% of tariff fares and charges from
sales by Orient Air when made on American Air ticket
stock; and second, an overriding commission of 3%
of tariff fares and charges for all sales of passenger
transportation over American Air services. It is
immediately observed that the precondition attached
to the first type of commission does not obtain for
the second type of commissions. The latter type of
commissions would accrue for sales of American Air
services made not on its ticket stock but on the ticket
stock of other air carriers sold by such carriers or
other authorized ticketing facilities or travel agents.
To rule otherwise, i.e., to limit the basis of such

overriding commissions to sales from American Air

ticket stock would erase any distinction between the
two (2) types of commissions and would lead to the
absurd conclusion that the parties had entered into a
contract with meaningless provisions. Such an
interpretation must at all times be avoided with
every effort exerted to harmonize the entire
Agreement.
An additional point before finally disposing of this
issue. It is clear from the records that American Air
was the party responsible for the preparation of the
Agreement. Consequently, any ambiguity in this
"contract of adhesion" is to be taken "contra
proferentem", i.e., construed against the party who
caused the ambiguity and could have avoided it by
the exercise of a little more care. Thus, Article 1377
of the Civil Code provides that the interpretation of
obscure words or stipulations in a contract shall not
favor the party who caused the obscurity. 14 To put it
differently, when several interpretations of a
provision are otherwise equally proper, that
interpretation or construction is to be adopted which
is most favorable to the party in whose favor the
provision was made and who did not cause the
ambiguity. 15 We therefore agree with the respondent
appellate court's declaration that:
Any ambiguity in a contract, whose terms
are susceptible of different interpretations,
must be read against the party who drafted
it. 16
We now turn to the propriety of American Air's
termination of the Agreement. The respondent
appellate court, on this issue, ruled thus:
It is not denied that Orient withheld
remittances
but
such
action
finds
justification from paragraph 4 of the
Agreement, Exh. F, which provides for
remittances
to
American less
commissions to which Orient is entitled, and
from paragraph 5(d) which specifically
allows Orient to retain the full amount of its
commissions. Since, as stated ante, Orient
is entitled to the 3% override. American's
premise, therefore, for the cancellation of
the Agreement did not exist. . . ."
We agree with the findings of the respondent
appellate court. As earlier established, Orient Air was
entitled to an overriding commission based on total
flown revenue. American Air's perception that Orient
Air was remiss or in default of its obligations under

the Agreement was, in fact, a situation where the

latter acted in accordance with the Agreementthat
of retaining from the sales proceeds its accrued
commissions before remitting the balance to
American Air. Since the latter was still obligated to
Orient Air by way of such commissions. Orient Air
was clearly justified in retaining and refusing to remit
the sums claimed by American Air. The latter's
termination of the Agreement was, therefore, without
cause and basis, for which it should be held liable to
Orient Air.
On the matter of damages, the respondent appellate
court modified by reduction the trial court's award of
exemplary damages and attorney's fees. This Court
sees no error in such modification and, thus, affirms
the same.
It is believed, however, that respondent appellate
court erred in affirming the rest of the decision of the
trial court.1wphi1We refer particularly to the lower
court's decision ordering American Air to "reinstate
defendant as its general sales agent for passenger
transportation in the Philippines in accordance with
said GSA Agreement."
By affirming this ruling of the trial court, respondent
appellate court, in effect, compels American Air to
extend its personality to Orient Air. Such would be
violative of the principles and essence of agency,
defined by law as a contract whereby "a person binds
himself to render some service or to do something in
representation or on behalf of another, WITH THE
CONSENT
OR
AUTHORITY
OF
THE
LATTER . 17 (emphasis supplied) In an agent-principal
relationship, the personality of the principal is
extended through the facility of the agent. In so
doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the
latter would have him do. Such a relationship can
only be effected with the consent of the principal,
which must not, in any way, be compelled by law or
by any court. The Agreement itself between the
parties states that "either party may terminate the
Agreement without cause by giving the other 30
days' notice by letter, telegram or cable." (emphasis
supplied) We, therefore, set aside the portion of the
ruling of the respondent appellate court reinstating
Orient Air as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the
Court AFFIRMS the decision and resolution of the
respondent Court of Appeals, dated 27 January 1986
and 17 December 1986, respectively. Costs against
petitioner American Air.

SO ORDERED.

G.R. No. 85494

May 7, 1991

CHOITHRAM
JETHMAL
RAMNANI
AND/OR
NIRMLA
V.
RAMNANI
and
MOTI
G.
RAMNANI, petitioners,
vs.
COURT
OF
APPEALS,
SPOUSES
ISHWAR
JETHMAL RAMNANI, SONYA JETHMAL RAMNANI
and OVERSEAS HOLDING CO., LTD., respondents.
G.R. No. 85496

May 7, 1991

SPOUSES ISHWAR JETHMAL RAMNANI AND

SONYA
JET
RAMNANI, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, ORTIGAS
& CO., LTD. PARTNERSHIP, and OVERSEAS
HOLDING CO., LTD., respondents.

Creation. Three other buildings were built thereon by

Choithram through a loan of P100,000.00 obtained
from the Merchants Bank as well as the income
derived from the first building. The buildings were
leased out by Choithram as attorney-in-fact of Ishwar.
Two of these buildings were later burned.

Quasha, Asperilla Ancheta, Pea and Nolasco for

petitioners Ishwar Jethmal Ramnani & Sonya
Ramnani.
Salonga, Andres, Hernandez & Allado for Choithram
Jethmal Ramnani, Nirmla Ramnani & Moti Ramnani.
Rama Law Office for private respondents in
collaboration with Salonga, Andres, Hernandez &
Allado.
Eulogio R. Rodriguez for Ortigas & Co., Ltd.

Sometime in 1970 Ishwar asked Choithram to

account for the income and expenses relative to
these properties during the period 1967 to 1970.
Choithram failed and refused to render such
accounting. As a consequence, on February 4, 1971,
Ishwar revoked the general power of attorney.
Choithram and Ortigas were duly notified of such
revocation on April 1, 1971 and May 24, 1971,
respectively. 3 Said notice was also registered with
the Securities and Exchange Commission on March
29, 1971 4 and was published in the April 2, 1971
issue of The Manila Times for the information of the
general public. 5

GANCAYCO, J.:

Nevertheless, Choithram as such attorney-in-fact of

Ishwar, transferred all rights and interests of Ishwar
and Sonya in favor of his daughter-in-law, Nirmla
Ramnani, on February 19, 1973. Her husband is Moti,
son of Choithram. Upon complete payment of the
lots, Ortigas executed the corresponding deeds of
sale in favor of Nirmla. 6 Transfer Certificates of Title
Nos. 403150 and 403152 of the Register of Deeds of
Rizal were issued in her favor.

This case involves the bitter quarrel of two brothers

over two (2) parcels of land and its improvements
now worth a fortune. The bone of contention is the
apparently conflicting factual findings of the trial
court and the appellate court, the resolution of which
will materially affect the result of the contest.
The following facts are not disputed.
Ishwar, Choithram and Navalrai, all surnamed
Jethmal Ramnani, are brothers of the full blood.
Ishwar and his spouse Sonya had their main business
based in New York. Realizing the difficulty of
managing their investments in the Philippines they
executed a general power of attorney on January 24,
1966 appointing Navalrai and Choithram as
attorneys-in-fact, empowering them to manage and
conduct their business concern in the Philippines. 1
On February 1, 1966 and on May 16, 1966,
Choithram, in his capacity as aforesaid attorney-infact of Ishwar, entered into two agreements for the
purchase of two parcels of land located in Barrio
Ugong, Pasig, Rizal, from Ortigas & Company, Ltd.
Partnership (Ortigas for short) with a total area of
approximately
10,048
square
meters.2 Per
agreement, Choithram paid the down payment and
installments on the lot with his personal checks. A
building was constructed thereon by Choithram in
1966 and this was occupied and rented by Jethmal
Industries and a wardrobe shop called Eppie's

Thus, on October 6, 1982, Ishwar and Sonya

(spouses Ishwar for short) filed a complaint in the
Court of First Instance of Rizal against Choithram
and/or spouses Nirmla and Moti (Choithram et al. for
brevity) and Ortigas for reconveyance of said
properties or payment of its value and damages. An
amended complaint for damages was thereafter filed
by said spouses.
After the issues were joined and the trial on the
merits, a decision was rendered by the trial court on
December 3, 1985 dismissing the complaint and
counterclaim. A motion for reconsideration thereof
filed by spouses Ishwar was denied on March 3,
1986.
An appeal therefrom was interposed by spouses
Ishwar to the Court of Appeals wherein in due course
a decision was promulgated on March 14, 1988, the
dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered
reversing and setting aside the appealed

decision of the lower court dated December

3, 1985 and the Order dated March 3, 1986
which denied plaintiffs-appellants' Motion
for Reconsideration from aforesaid decision.
A new decision is hereby rendered
sentencing
defendantsappellees
Choithram Jethmal Ramnani, Nirmla V.
Ramnani, Moti C. Ramnani, and Ortigas and
Company Limited Partnership to pay, jointly
and severally, plaintiffs-appellants the
following:
1. Actual or compensatory damages to the
extent of the fair market value of the
properties in question and all improvements
thereon covered by Transfer Certificate of
Title No. 403150 and Transfer Certificate of
Title No. 403152 of the Registry of Deeds of
Rizal, prevailing at the time of the
satisfaction of the judgment but in no case
shall such damages be less than the value
of said properties as appraised by Asian
Appraisal, Inc. in its Appraisal Report dated
August 1985 (Exhibits T to T-14, inclusive).
2. All rental incomes paid or ought to be
paid for the use and occupancy of the
properties in question and all improvements
thereon consisting of buildings, and to be
computed as follows:
a) On Building C occupied by
Eppie's
Creation
and
Jethmal
Industries from 1967 to 1973,
inclusive, based on the 1967 to
1973 monthly rentals paid by
Eppie's Creation;
b) Also on Building C above,
occupied by Jethmal Industries and
Lavine from 1974 to 1978, the
rental incomes based on then rates
prevailing as shown under Exhibit
"P"; and from 1979 to 1981, based
on then prevailing rates as
indicated under Exhibit "Q";
c) On Building A occupied by
Transworld Knitting Mills from 1972
to 1978, the rental incomes based
upon then prevailing rates shown
under Exhibit "P", and from 1979 to
1981, based on prevailing rates per
Exhibit "Q";

d) On the two Bays Buildings

occupied by Sigma-Mariwasa from
1972 to 1978, the rentals based on
the Lease Contract, Exhibit "P", and
from 1979 to 1980, the rentals
based on the Lease Contract,
Exhibit "Q",
and thereafter commencing 1982, to
account for and turn over the rental incomes
paid or ought to be paid for the use and
occupancy of the properties and all
improvements totalling 10,048 sq. m based
on the rate per square meter prevailing in
1981 as indicated annually cumulative up to
1984. Then, commencing 1985 and up to
the satisfaction of the judgment, rentals
shall be computed at ten percent (10%)
annually of the fair market values of the
properties as appraised by the Asian
Appraisal, Inc. in August 1985 (Exhibits T to
T-14, inclusive.)
3. Moral damages
P200,000.00;

in

4. Exemplary damages
P100,000.00;

the

in

the

sum

sum

of

of

5. Attorney's fees equivalent to 10% of the

award herein made;
6. Legal interest on the total amount
awarded computed from first demand in
1967 and until the full amount is paid and
satisfied; and
7. The cost of suit.

Acting on a motion for reconsideration filed by

Choithram, et al. and Ortigas, the appellate court
promulgated an amended decision on October 17,
1988 granting the motion for reconsideration of
Ortigas by affirming the dismissal of the case by the
lower court as against Ortigas but denying the
motion for reconsideration of Choithram, et al. 8
Choithram, et al. thereafter filed a petition for review
of said judgment of the appellate court alleging the
following grounds:
1. The Court of Appeals gravely abused its
discretion in making a factual finding not

supported by and contrary, to the evidence

presented at the Trial Court.
2. The Court of Appeals acted in excess of
jurisdiction in awarding damages based on
the value of the real properties in question
where the cause of action of private
respondents is recovery of a sum of money.
ARGUMENTS
I
THE COURT OF APPEALS ACTED IN GRAVE
ABUSE OF ITS DISCRETION IN MAKING A
FACTUAL
FINDING
THAT
PRIVATE
RESPONDENT
ISHWAR
REMITTED
THE
AMOUNT OF US $150,000.00 TO PETITIONER
CHOITHRAM IN THE ABSENCE OF PROOF OF
SUCH REMITTANCE.
II
THE COURT OF APPEALS ACTED WITH
GRAVE
ABUSE
OF DISCRETION
AND
MANIFEST PARTIALITY IN DISREGARDING
THE TRIAL COURTS FINDINGS BASED ON
THE
DIRECT
DOCUMENTARY
AND
TESTIMONIAL EVIDENCE PRESENTED BY
CHOITHRAM
IN
THE
TRIAL
COURT
ESTABLISHING THAT THE PROPERTIES WERE
PURCHASED WITH PERSONAL FUNDS OF
PETITIONER CHOITHRAM AND NOT WITH
MONEY
ALLEGEDLY
REMITTED
BY
RESPONDENT ISHWAR.
III
THE COURT OF APPEALS ACTED IN EXCESS
OF JURISDICTION IN AWARDING DAMAGES
BASED ON THE VALUE OF THE PROPERTIES
AND THE FRUITS OF THE IMPROVEMENTS
THEREON. 9
Similarly, spouses Ishwar filed a petition for review of
said amended decision of the appellate court
exculpating Ortigas of liability based on the following
assigned errors
I

THE RESPONDENT HONORABLE COURT OF

APPEALS COMMITTED GRAVE ERROR AND
HAS DECIDED A QUESTION OF SUBSTANCE
NOT IN ACCORD WITH LAW AND/OR WITH
APPLICABLE
DECISIONS
OF
THIS
HONORABLE COURT
A)
IN
PROMULGATING
THE
QUESTIONED AMENDED DECISION
(ANNEX
"A")
RELIEVING
RESPONDENT
ORTIGAS
FROM
LIABILITY
AND
DISMISSING
PETITIONERS'
AMENDED
COMPLAINT IN CIVIL CASE NO. 534P, AS AGAINST SAID RESPONDENT
ORTIGAS;
B) IN HOLDING IN SAID AMENDED
DECISION THAT AT ANY RATE NO
ONE
EVER
TESTIFIED
THAT
ORTIGAS WAS A SUBSCRIBER TO
THE MANILA TIMES PUBLICATION
OR THAT ANY OF ITS OFFICERS
READ THE NOTICE AS PUBLISHED
IN THE MANILA TIMES, THEREBY
ERRONEOUSLY CONCLUDING THAT
FOR RESPONDENT ORTIGAS TO BE
CONSTRUCTIVELY BOUND BY THE
PUBLISHED
NOTICE
OF
REVOCATION, ORTIGAS AND/OR
ANY OF ITS OFFICERS MUST BE A
SUBSCRIBER AND/OR THAT ANY OF
ITS OFFICERS SHOULD READ THE
NOTICE AS ACTUALLY PUBLISHED;
C) IN HOLDING IN SAID AMENDED
DECISION THAT ORTIGAS COULD
NOT BE HELD LIABLE JOINTLY AND
SEVERALLY
WITH
THE
DEFENDANTS-APPELLEES
CHOITHRAM, MOTI AND NIRMLA
RAMNANI, AS ORTIGAS RELIED ON
THE WORD OF CHOITHRAM THAT
ALL ALONG HE WAS ACTING FOR
AND IN BEHALF OF HIS BROTHER
ISHWAR WHEN IT TRANSFERRED
THE RIGHTS OF THE LATTER TO
NIRMLA V. RAMNANI;
D) IN IGNORING THE EVIDENCE
DULY PRESENTED AND ADMITTED
DURING THE TRIAL THAT ORTIGAS
WAS PROPERLY NOTIFIED OF THE
NOTICE OF REVOCATION OF THE
GENERAL POWER OF ATTORNEY

GIVEN TO CHOITHRAM, EVIDENCED

BY THE PUBLICATION IN THE
MANILA TIMES ISSUE OF APRIL 2,
1971
(EXH.
F)
WHICH
CONSTITUTES NOTICE TO THE
WHOLE WORLD; THE RECEIPT OF
THE NOTICE OF SUCH REVOCATION
WHICH WAS SENT TO ORTIGAS ON
MAY 22, 1971 BY ATTY. MARIANO P.
MARCOS
AND
RECEIVED
BY
ORTIGAS ON MAY 24, 1971 (EXH. G)
AND THE FILING OF THE NOTICE
WITH
THE
SECURITIES
AND
EXCHANGE
COMMISSION
ON
MARCH 29,1971 (EXH. H);
E) IN DISCARDING ITS FINDINGS
CONTAINED IN ITS DECISION OF 14
MARCH 1988 (ANNEX B) THAT
ORTIGAS WAS DULY NOTIFIED OF
THE REVOCATION OF THE POWER
OF ATTORNEY OF CHOITHRAM,
HENCE ORTIGAS ACTED IN BAD
FAITH IN EXECUTING THE DEED OF
SALE TO THE PROPERTIES IN
QUESTION IN FAVOR OF NIRMLA V.
RAMNANI;
F) IN SUSTAINING RESPONDENT
ORTIGAS
VACUOUS
REHASHED
ARGUMENTS IN ITS MOTION FOR
RECONSIDERATION THAT IT WOULD
NOT GAIN ONE CENTAVO MORE
FROM CHOITHRAM FOR THE SALE
OF
SAID
LOTS
AND
THE
SUBSEQUENT TRANSFER OF THE
SAME
TO
THE
MATTER'S
DAUGHTER-IN-LAW, AND THAT IT
WAS IN GOOD FAITH WHEN IT
TRANSFERRED ISHWAR'S RIGHTS
TO THE LOTS IN QUESTION.
II
THE RESPONDENT HONORABLE COURT OF
APPEALS HAS SO FAR DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDING WHEN IT HELD IN THE
QUESTIONED AMENDED DECISION OF 17
NOVEMBER
1988
(ANNEX
A)
THAT
RESPONDENT ORTIGAS & CO., LTD., IS NOT
JOINTLY AND SEVERALLY LIABLE WITH
DEFENDANTS-APPELLEES CHOITHRAM, MOTI
AND NIRMLA RAMNANI IN SPITE OF ITS
ORIGINAL DECISION OF 14 MARCH 1988

THAT ORTIGAS WAS DULY NOTIFIED OF THE

REVOCATION OF THE POWER OF ATTORNEY
OF CHOITHRAM RAMNANI. 10
The center of controversy is the testimony of Ishwar
that during the latter part of 1965, he sent the
amount of US $150,000.00 to Choithram in two bank
drafts of US$65,000.00 and US$85,000.00 for the
purpose of investing the same in real estate in the
Philippines. The trial court considered this lone
testimony unworthy of faith and credit. On the other
hand, the appellate court found that the trial court
misapprehended the facts in complete disregard of
the evidence, documentary and testimonial.
Another crucial issue is the claim of Choithram that
because he was then a British citizen, as a temporary
arrangement, he arranged the purchase of the
properties in the name of Ishwar who was an
American citizen and who was then qualified to
purchase property in the Philippines under the then
Parity Amendment. The trial court believed this
account but it was debunked by the appellate court.
As to the issue of whether of not spouses Ishwar
actually sent US$150,000.00 to Choithram precisely
to be used in the real estate business, the trial court
made the following disquisition
After
a
careful,
considered
and
conscientious examination of the evidence
adduced in the case at bar, plaintiff Ishwar
Jethmal Ramanani's main evidence, which
centers on the alleged payment by sending
through registered mail from New York two
(2)
US$
drafts
of
$85,000.00
and
$65,000.00 in the latter part of 1965 (TSN
28 Feb. 1984, p. 10-11). The sending of
these moneys were before the execution of
that General Power of Attorney, which was
dated in New York, on January 24, 1966.
Because of these alleged remittances of US
$150,000.00 and the subsequent acquisition
of the properties in question, plaintiffs
averred that they constituted a trust in favor
of
defendant
Choithram
Jethmal
Ramnani. This Court can be in full
agreement if the plaintiffs were only able to
prove
preponderantly
these
remittances. The entire record of this case is
bereft of even a shred of proof to that effect.
It is completely barren. His uncorroborated
testimony that he remitted these amounts
in the "later part of 1965" does not
engender enough faith and credence.

Inadequacy of details of such remittance on

the two (2) US dollar drafts in such big
amounts is completely not positive, credible,
probable and entirely not in accord with
human experience. This is a classic
situation, plaintiffs not exhibiting any
commercial document or any document
and/or paper as regard to these alleged
remittances. Plaintiff Ishwar Ramnani is not
an ordinary businessman in the strict sense
of the word. Remember his main business is
based in New York, and he should know
better
how
to
send
these
alleged
remittances. Worst, plaintiffs did not present
even a scum of proof, that defendant
Choithram Ramnani received the alleged
two US dollar drafts. Significantly, he does
not know even the bank where these two (2)
US dollar drafts were purchased. Indeed,
plaintiff Ishwar Ramnani's lone testimony is
unworthy of faith and credit and, therefore,
deserves scant consideration, and since the
plaintiffs' theory is built or based on such
testimony, their cause of action collapses or
falls with it.
Further, the rate of exchange that time in
1966 was P4.00 to $1.00. The alleged two
US dollar drafts amounted to $150,000.00 or
about P600,000.00. Assuming the cash price
of the two (2) lots was only P530,000.00
(ALTHOUGH he said: "Based on my
knowledge I have no evidence," when asked
if he even knows the cash price of the two
lots). If he were really the true and bonafide
investor and purchaser for profit as he
asserted, he could have paid the price in full
in cash directly and obtained the title in his
name and not thru "Contracts To Sell" in
installments paying interest and thru an
attorney-in fact (TSN of May 2, 1984, pp. 1011) and, again, plaintiff Ishwar Ramnani told
this Court that he does not know whether or
not his late father-in-law borrowed the two
US dollar drafts from the Swiss Bank or
whether or not his late father-in-law had any
debit memo from the Swiss Bank (TSN of
May 2, 1984, pp. 9-10). 11
On the other hand, the appellate court, in giving
credence to the version of Ishwar, had this to say
While it is true, that generally the findings of
fact of the trial court are binding upon the
appellate courts, said rule admits of
exceptions such as when (1) the conclusion

is
a
finding
grounded
entirely
on
speculations, surmises and conjectures; (2)
when the inferences made is manifestly
mistaken, absurd and impossible; (3) when
there is grave abuse of discretion; (4) when
the
judgment
is
based
on
a
misapprehension of facts and when the
court, in making its findings, went beyond
the issues of the case and the same are
contrary to the admissions of both appellant
and appellee (Ramos vs. Court of Appeals,
63 SCRA 33; Philippine American Life
Assurance Co. vs. Santamaria, 31 SCRA 798;
Aldaba vs. Court of Appeals, 24 SCRA 189).

COURT:

subject to our continuing objection

from rentals of first building?

Witness can answer.

ATTY. MARAPAO:
A I paid through my attorney-infact. I am the one who gave him
the money.

Your Honor, that is misleading.

COURT;

ATTY. MARAPAO:

Witness (may) answer.

Q You gave him the money?
A Yes, the first building was
immediately put up after the
purchase of the two parcels of land
that was in 1966 and the finds
were used for the construction of
the
building
from
the
US
$150,000.00 (TSN, 7 March 1984,
page 14; Emphasis supplied.)

A That's right.
The evidence on record shows that the t
court acted under a misapprehension of
facts and the inferences made on the
evidence palpably a mistake.

Q How much money did you give

him?
A US $ 150,000.00.

The trial court's observation that "the entire

records of the case is bereft of even a shred
of proof" that plaintiff-appellants have
remitted to defendant-appellee Choithram
Ramnani the amount of US $ 150,000.00 for
investment in real estate in the Philippines,
is not borne by the evidence on record and
shows the trial court's misapprehension of
the facts if not a complete disregard of the
evidence,
both
documentary
and
testimonial.
Plaintiff-appellant Ishwar Jethmal Ramnani
testifying in his own behalf, declared that
during the latter part of 1965, he sent the
amount of US $150,000.00 to his brother
Choithram in two bank drafts of US
$65,000.00 and US $85,000.00 for the
purpose of investing the same in real estate
in the Philippines. His testimony is as
follows:
ATTY. MARAPAO:
Mr. Witness, you said that your
attorney-in-fact paid in your behalf.
Can you tell this Honorable Court
where your attorney-in-fact got the
money to pay this property?
ATTY. CRUZ:
Wait. It is now clear it becomes
incompetent or hearsay.

Q How was it given then?

A
Through
Bank
drafts.
US
$65,000.00 and US $85,000.00
bank drafts. The total amount
which is $ 150,000.00 (TSN, 28
February 1984, p. 10; Emphasis
supplied.)
xxx

xxx

xxx

ATTY. CRUZ:
Q The two bank drafts which you
sent I assume you bought that from
some banks in New York?
A No, sir.
Q But there is no question those
two bank drafts were for the
purpose of paying down payment
and installment of the two parcels
of land?
A Down payment, installment and
to put up the building.
Q I thought you said that the
buildings were constructed . . .

xxx

xxx

xxx

Q These two bank drafts which you

mentioned and the use for it you
sent them by registered mail, did
you send them from New Your?
A That is right.
Q And the two bank drafts which
were put in the registered mail, the
registered mail was addressed to
whom?
A Choithram Ramnani. (TSN, 7
March 1984, pp. 14-15).
On
cross-examination,
the
witness
reiterated the remittance of the money to
his brother Choithram, which was sent to
him by his father-in-law, Rochiram L.
Mulchandoni from Switzerland, a man of
immense wealth, which even defendantsappellees' witness Navalrai Ramnani admits
to be so (tsn., p. 16, S. Oct. 13, 1985). Thus,
on cross-examination, Ishwar testified as
follows:
Q How did you receive these two
bank drafts from the bank the

name
of
remember?

which

you

cannot

A I got it from my father-in-law.

Q From where did your father- inlaw sent these two bank drafts?
A From Switzerland.
Q He was in Switzerland.
A Probably, they sent out these two
drafts from Switzerland.
(TSN, 7 March 1984, pp. 16-17; Emphasis
supplied.)
This positive and affirmative testimony of
plaintiff-appellant that he sent the two (2)
bank drafts totalling US $ 150,000.00 to his
brother, is proof of said remittance. Such
positive testimony has greater probative
force than defendant-appellee's denial of
receipt of said bank drafts, for a witness
who testifies affirmatively that something
did happen should be believed for it is
unlikely that a witness will remember what
never happened (Underhill's Cr. Guidance,
5th Ed., Vol. 1, pp. 10-11).
That is not all. Shortly thereafter, plaintiffappellant Ishwar Ramnani executed a
General Power of Attorney (Exhibit "A")
dated January 24, 1966 appointing his
brothers, defendants-appellees Navalrai and
Choithram as attorney-in-fact empowering
the latter to conduct and manage plaintiffsappellants' business
affairs
in
the
Philippines and specifically
No. 14. To acquire, purchase for us,
real estates and improvements for
the purpose of real estate business
anywhere in the Philippines and to
develop, subdivide, improve and to
resell to buying public (individual,
firm or corporation); to enter in any
contract of sale in oar behalf and to
enter mortgages between the
vendees and the herein grantors
that may be needed to finance the

real
estate
undertaken.

business

being

Pursuant thereto, on February 1, 1966 and

May 16, 1966, Choithram Jethmal Ramnani
entered
into
Agreements
(Exhibits "B' and "C") with
the
other
defendant. Ortigas and Company, Ltd., for
the purchase of two (2) parcels of land
situated at Barrio Ugong, Pasig, Rizal, with
said
defendant-appellee
signing
the
Agreements in his capacity as Attorney-infact of Ishwar Jethmal Ramnani.
Again, on January 5, 1972, almost seven (7)
years after Ishwar sent the US $ 150,000.00
in 1965, Choithram Ramnani, as attorney-in
fact of Ishwar entered into a Contract of
Lease with Sigma-Mariwasa (Exhibit "P")
thereby re-affirming the ownership of
Ishwar over the disputed property and the
trust relationship between the latter as
principal and Choithram as attorney-in-fact
of Ishwar.
All of these facts indicate that if plaintiffappellant Ishwar had not earlier sent the US
$ 150,000.00 to his brother, Choithram,
there would be no purpose for him to
execute a power of attorney appointing his
brothers as s attorney-in-fact in buying real
estate in the Philippines.
As against Choithram's denial that he did
not receive the US $150,000.00 remitted by
Ishwar and that the Power of Attorney, as
well as the Agreements entered into with
Ortigas & Co., were only temporary
arrangements, Ishwar's testimony that he
did send the bank drafts to Choithram and
was received by the latter, is the more
credible version since it is natural,
reasonable and probable. It is in accord with
the common experience, knowledge and
observation of ordinary men (Gardner vs.
Wentors 18 Iowa 533). And in determining
where the superior weight of the evidence
on the issues involved lies, the court may
consider the probability or improbability of
the testimony of the witness (Sec. 1, Rule
133, Rules of Court).
Contrary, therefore, to the trial court's
sweeping observation that 'the entire
records of the case is bereft of even a shred

of proof that Choithram received the alleged

bank drafts amounting to US $ 150,000.00,
we have not only testimonial evidence but
also
documentary
and
circumstantial
evidence proving said remittance of the
money and the fiduciary relationship
between the former and Ishwar.12
The Court agrees. The environmental circumstances
of this case buttress the claim of Ishwar that he did
entrust the amount of US $ 150,000.00 to his
brother, Choithram, which the latter invested in the
real property business subject of this litigation in his
capacity as attorney-in-fact of Ishwar.
True it is that there is no receipt whatever in the
possession of Ishwar to evidence the same, but it is
not unusual among brothers and close family
members to entrust money and valuables to each
other without any formalities or receipt due to the
special relationship of trust between them.
And another proof thereof is the fact that Ishwar, out
of frustration when Choithram failed to account for
the realty business despite his demands, revoked the
general power of attorney he extended to Choithram
and Navalrai. Thereafter, Choithram wrote a letter to
Ishwar pleading that the power of attorney be
renewed or another authority to the same effect be
extended, which reads as follows:
June 25,1971
MR.
NEW YORK

ISHWAR

JETHMAL

(1)
Send
power
of
Atty.
immediately, because the case has
been postponed for two weeks. The
same way as it has been send
before in favor of both names.
Send it immediately otherwise
everything
will
be
lost
unnecessarily, and then it will take
us in litigation. Now that we have
gone ahead with a case and would
like to end it immediately otherwise
squatters will take the entire land.
Therefore, send it immediately.
(2) Ortigas also has sued us
because we are holding the
installments, because they have
refused to give a rebate of P5.00

per meter which they have to give

us as per contract. They have filed
the law suit that since we have not
paid the installment they should
get back the land. The hearing of
this case is in the month of July.
Therefore, please send the power
immediately. In one case DADA
(Elder Brother) will represent and in
another one, I shall.
(3) In case if you do not want to
give power then make one letter in
favor of Dada and the other one in
my favor showing that in any
litigation we can represent you and
your wife, and whatever the court
decide it will be acceptable by me.
You can ask any lawyer, he will be
able to prepare these letters. After
that you can have these letters
ratify before P.I. Consulate. It
should be dated April 15, 1971.
(4) Try to send the power because
it will be more useful. Make it in
any manner whatever way you
have confident in it. But please
send it immediately.
You have cancelled the power. Therefore, you have
lost your reputation everywhere. What can I further
write you about it. I have told everybody that due to
certain reasons I have written you to do this that is
why you have done this. This way your reputation
have been kept intact. Otherwise if I want to do
something about it, I can show you that inspite of the
power you have cancelled you can not do anything.
You can keep this letter because my conscience is
clear. I do not have anything in my mind.
I should not be writing you this, but because my
conscience is clear do you know that if I had
predated papers what could you have done? Or do
you know that I have many paper signed by you and
if had done anything or do then what can you do
about it? It is not necessary to write further about
this. It does not matter if you have cancelled the
power. At that time if I had predated and done
something about it what could you have done? You
do not know me. I am not after money. I can earn
money anytime. It has been ten months since I have
not received a single penny for expenses from Dada
(elder brother). Why there are no expenses? We can
not draw a single penny from knitting (factory). Well I

am not going to write you further, nor there is any

need for it. This much I am writing you because of
the way you have conducted yourself. But remember,
whenever I hale the money I will not keep it myself
Right now I have not got anything at all.
I am not going to write any further.
Keep your business clean with Naru. Otherwise he
will discontinue because he likes to keep his business
very clean. 13
The said letter was in Sindhi language. It was
translated to English by the First Secretary of the
Embassy of Pakistan, which translation was verified
correct by the Chairman, Department of Sindhi,
University of Karachi. 14
From the foregoing letter what could be gleaned is
that
1. Choithram asked for the issuance of
another power of attorney in their favor so
they can continue to represent Ishwar as
Ortigas has sued them for unpaid
installments. It also appears therefrom that
Ortigas learned of the revocation of the
power of attorney so the request to issue
another.
2. Choithram reassured Ishwar to have
confidence in him as he was not after
money, and that he was not interested in
Ishwar's money.
3. To demonstrate that he can be relied
upon, he said that he could have ante-dated
the sales agreement of the Ortigas lots
before the issuance of the powers of
attorney and acquired the same in his
name, if he wanted to, but he did not do so.
4. He said he had not received a single
penny for expenses from Dada (their elder
brother Navalrai). Thus, confirming that if he
was not given money by Ishwar to buy the
Ortigas
lots,
he
could
not
have
consummated the sale.
5. It is important to note that in said letter
Choithram never claimed ownership of the
property in question. He affirmed the fact
that he bought the same as mere agent and

in behalf of Ishwar. Neither did he mention

the
alleged
temporary
arrangement
whereby Ishwar, being an American citizen,
shall appear to be the buyer of the said
property, but that after Choithram acquires
Philippine citizenship, its ownership shall be
transferred to Choithram.
This brings us to this temporary arrangement theory
of Choithram.
The appellate court disposed of this matter in this
wise
Choithram's claim that he purchased the
two parcels of land for himself in 1966 but
placed it in the name of his younger brother,
Ishwar, who is an American citizen, as a
temporary arrangement,' because as a
British subject he is disqualified under the
1935 Constitution to acquire real property in
the Philippines, which is not so with respect
to American citizens in view of the
Ordinance Appended to the Constitution
granting them parity rights, there is nothing
in the records showing that Ishwar ever
agreed to such a temporary arrangement.
During the entire period from 1965, when
the US $ 150,000. 00 was transmitted to
Choithram, and until Ishwar filed a
complaint against him in 1982, or over 16
years, Choithram never mentioned of a
temporary arrangement nor can he present
any memorandum or writing evidencing
such temporary arrangement, prompting
plaintiff-appellant to observe:
The properties in question which
are located in a prime industrial
site in Ugong, Pasig, Metro Manila
have a present fair market value of
no
less
than
P22,364,000.00
(Exhibits T to T-14, inclusive), and
yet for such valuable pieces of
property, Choithram who now
belatedly that he purchased the
same for himself did not document
in writing or in a memorandum the
alleged temporary arrangement
with Ishwar' (pp. 4-41, Appellant's
Brief).

Such verbal allegation of a temporary

arrangement is simply improbable and
inconsistent. It has repeatedly been held
that important contracts made without
evidence are highly improbable.
The improbability of such temporary
arrangement is brought to fore when we
consider that Choithram has a son (Haresh
Jethmal Ramnani) who is an American
citizen under whose name the properties in
question could be registered, both during
the time the contracts to sell were executed
and at the time absolute title over the same
was to be delivered. At the time the
Agreements
were
entered
into
with
defendant Ortigas & Co. in 1966, Haresh,
was already 18 years old and consequently,
Choithram could have executed the deeds in
trust for his minor son. But, he did not do
this. Three (3) years, thereafter, or in 1968
after Haresh had attained the age of 21,
Choithram should have terminated the
temporary arrangement with Ishwar, which
according to him would be effective only
pending the acquisition of citizenship
papers. Again, he did not do anything.
Evidence to be believed, said Vice
Chancellor Van Fleet of New Jersey,
must not only proceed from the
mouth of a credible witness, but it
must be credible in itselfsuch as
the
common
experience
and
observation
of
mankind
can
approve as probable under the
circumstances. We have no test of
the truth of human testimony,
except its conformity to our
knowledge,
observation
and
experience. Whatever is repugnant
to these belongs to the miraculous
and
is
outside
of
judicial
cognizance. (Daggers vs. Van Dyek
37 M.J. Eq. 130, 132).
Another factor that can be counted against
the temporary arrangement excuse is
that upon the revocation on February 4,
1971 of the Power of attorney dated January
24, 1966 in favor of Navalrai and Choithram
by Ishwar, Choithram wrote (tsn, p. 21, S.
July 19, 1985) a letter dated June 25, 1971
(Exhibits R, R-1, R-2 and R-3) imploring
Ishwar to execute a new power of attorney
in their favor. That if he did not want to give

power, then Ishwar could make a letter in

favor of Dada and another in his favor so
that in any litigation involving the properties
in question, both of them could represent
Ishwar and his wife. Choithram tried to
convince Ishwar to issue the power of
attorney in whatever manner he may want.
In said letter no mention was made at all of
any temporary arrangement.
On the contrary, said letter recognize(s) the
existence of principal and attorney-in-fact
relationship between Ishwar and himself.
Choithram wrote: . . . do you know that if I
had predated papers what could you have
done? Or do you know that I have many
papers signed by you and if I had done
anything or do then what can you do about
it?' Choithram was saying that he could
have repudiated the trust and ran away with
the properties of Ishwar by predating
documents and Ishwar would be entirely
helpless. He was bitter as a result of
Ishwar's revocation of the power of attorney
but no mention was made of any temporary
arrangement or a claim of ownership over
the properties in question nor was he able
to present any memorandum or document
to prove the existence of such temporary
arrangement.
Choithram is also estopped in pais or by
deed from claiming an interest over the
properties in question adverse to that of
Ishwar. Section 3(a) of Rule 131 of the Rules
of Court states that whenever a party has,
by his own declaration, act, or omission
intentionally and deliberately led another to
believe a particular thing true and act upon
such belief, he cannot in any litigation
arising out of such declaration, act or
omission be permitted to falsify it.' While
estoppel by deed is a bar which precludes a
party to a deed and his privies from
asserting as against the other and his
privies any right of title in derogation of the
deed, orfrom denying the truth of any
material fact asserted in it (31 C.J.S. 195; 19
Am. Jur. 603).
Thus,
defendants-appellees
are
not
permitted to repudiate their admissions and
representations or to assert any right or title
in derogation of the deeds or from denying
the truth of any material fact asserted in the
(1) power of attorney dated January 24,

1966 (Exhibit A); (2) the Agreements of

February 1, 1966 and May 16, 1966
(Exhibits B and C); and (3) the Contract of
Lease dated January 5, 1972 (Exhibit P).
. . . The doctrine of estoppel is
based upon the grounds of public
policy, fair dealing, good faith and
justice, and its purpose is to forbid
one to speak against his own act,
representations, or commitments
to the injury of one to whom they
were directed and who reasonably
relied thereon. The doctrine of
estoppel springs from equitable
principles and the equities in the
case. It is designed to aid the law in
the administration of justice where
without its aid injustice might
result. It has been applied by court
wherever and whenever special
circumstances of a case so
demands' (Philippine National Bank
vs. Court of Appeals, 94 SCRA 357,
368 [1979]).
It was only after the services of counsel has
been obtained that Choithram alleged for
the first time in his Answer that the General
Power of attorney (Annex A) with the
Contracts to Sell (Annexes B and C) were
made only for the sole purpose of assuring
defendants' acquisition and ownership of
the lots described thereon in due time
under the law; that said instruments do not
reflect the true intention of the parties (par.
2, Answer dated May 30, 1983), seventeen
(17) long years from the time he received
the money transmitted to him by his
brother, Ishwar.
Moreover,
Choithram's
'temporary
arrangement,' by which he claimed
purchasing the two (2) parcels in question
in 1966 and placing them in the name of
Ishwar who is an American citizen, to
circumvent the disqualification provision of
aliens acquiring real properties in the
Philippines under the 1935 Philippine
Constitution, as Choithram was then a
British subject, show a palpable disregard of
the law of the land and to sustain the
supposed "temporary arrangement" with
Ishwar
would
be
sanctioning
the
perpetration of an illegal act and culpable
violation of the Constitution.

Defendants-appellees likewise violated the

Anti-Dummy Law (Commonwealth Act 108,
as amended), which provides in Section 1
thereof that:
In all cases in which any
constitutional or legal provision
requires Philippine or any other
specific citizenship as a requisite
for the exercise or enjoyment of a
right, franchise or privilege, . . . any
alien or foreigner profiting thereby,
shall be punished . . . by
imprisonment . . . and of a fine of
not less than the value of the right,
franchise or privileges, which is
enjoyed or acquired in violation of
the provisions hereof . . .
Having come to court with unclean hands,
Choithram must not be permitted foist his
'temporary arrangement' scheme as a
defense before this court. Being in delicto,
he does not have any right whatsoever
being shielded from his own wrong-doing,
which is not so with respect to Ishwar, who
was not a party to such an arrangement.
The falsity of Choithram's defense is further
aggravated by the material inconsistencies
and contradictions in his testimony. While
on January 23, 1985 he testified that he
purchased the land in question on his own
behalf (tsn, p. 4, S. Jan. 23, 1985), in the July
18, 1985 hearing, forgetting probably what
he stated before, Choithram testified that he
was only an attorney-in-fact of Ishwar (tsn,
p. 5, S. July 18, 1985). Also in the hearing of
January 23, 1985, Choithram declared that
nobody rented the building that was
constructed on the parcels of land in
question (tsn, pp. 5 and 6), only to admit in
the hearing of October 30, 1985, that he
was in fact renting the building for P12,000.
00 per annum (tsn, p. 3). Again, in the
hearing of July 19, 1985, Choithram testified
that he had no knowledge of the revocation
of the Power of Attorney (tsn, pp. 20- 21),
only to backtrack when confronted with the
letter of June 25, 1971 (Exhibits R to R-3),
which he admitted to be in "his own
writing," indicating knowledge of the
revocation of the Power of Attorney.

These inconsistencies are not minor but go

into the entire credibility of the testimony of
Choithram
and
the
rule
is
that
contradictions on a very crucial point by a
witness, renders s testimony incredible
People vs. Rafallo, 80 Phil. 22). Not only this
the doctrine of falsus in uno, falsus in
omnibus is fully applicable as far as the
testimony of Choithram is concerned. The
cardinal rule, which has served in all ages,
and has been applied to all conditions of
men, is that a witness willfully falsifying the
truth in one particular, when upon oath,
ought never to be believed upon the
strength of his own testimony, whatever he
may assert (U.S. vs. Osgood 27 Feb. Case
No. 15971-a, p. 364); Gonzales vs. Mauricio,
52 Phil, 728), for what ground of judicial
relief can there be left when the party has
shown such gross insensibility to the
difference between right and wrong,
between
truth
and
falsehood?
(The
Santisima Trinidad, 7 Wheat, 283, 5 U.S. [L.
ed.] 454).
True, that Choithram's testimony finds
corroboration from the testimony of his
brother, Navalrai, but the same would not
be of much help to Choithram. Not only is
Navalrai an interested and biased witness,
having admitted his close relationship with
Choithram and that whenever he or
Choithram had problems, they ran to each
other (tsn, pp. 17-18, S. Sept. 20, 1985),
Navalrai has a pecuniary interest in the
success of Choithram in the case in
question. Both he and Choithram are
business partners in Jethmal and Sons
and/or Jethmal Industries, wherein he owns
60% of the company and Choithram, 40%
(p. 62, Appellant's Brief). Since the
acquisition of the properties in question in
1966, Navalrai was occupying 1,200 square
meters thereof as a factory site plus the fact
that his son (Navalrais) was occupying the
apartment on top of the factory with his
family rent free except the amount of P
l,000.00 a month to pay for taxes on said
properties (tsn, p. 17, S. Oct. 3, 1985).
Inherent
contradictions
also
marked
Navalrai testimony. "While the latter was
very meticulous in keeping a receipt for the
P 10,000.00 that he paid Ishwar as
settlement in Jethmal Industries, yet in the
alleged payment of P 100,000.00 to Ishwar,

no receipt or voucher was ever issued by

him (tsn, p. 17, S. Oct. 3, 1983). 15
We
concur.
The foregoing findings of facts of the Court of
Appeals which are supported by the evidence is
conclusive on this Court. The Court finds that Ishwar
entrusted US$150,000.00 to Choithram in 1965 for
investment in the realty business. Soon thereafter, a
general power of attorney was executed by Ishwar in
favor of both Navalrai and Choithram. If it is true that
the purpose only is to enable Choithram to purchase
realty temporarily in the name of Ishwar, why the
inclusion of their elder brother Navalrai as an
attorney-in-fact?
Then, acting as attorney-in-fact of Ishwar, Choithram
purchased two parcels of land located in Barrio
Ugong Pasig, Rizal, from Ortigas in 1966. With the
balance of the money of Ishwar, Choithram erected a
building on said lot. Subsequently, with a loan
obtained from a bank and the income of the said
property, Choithram constructed three other
buildings thereon. He managed the business and
collected the rentals. Due to their relationship of
confidence it was only in 1970 when Ishwar
demanded for an accounting from Choithram. And
even as Ishwar revoked the general power of
attorney on February 4, 1971, of which Choithram
was duly notified, Choithram wrote to Ishwar on June
25, 1971 requesting that he execute a new power of
attorney in their favor. 16 When Ishwar did not
respond thereto, Choithram nevertheless proceeded
as such attorney-in-fact to assign all the rights and
interest of Ishwar to his daughter-in-law Nirmla in
1973 without the knowledge and consent of Ishwar.
Ortigas in turn executed the corresponding deeds of
sale in favor of Nirmla after full payment of the
purchase accomplice of the lots.
In the prefatory statement of their petition,
Choithram pictured Ishwar to be so motivated by
greed and ungratefulness, who squandered the
family business in New York, who had to turn to his
wife for support, accustomed to living in ostentation
and who resorted to blackmail in filing several
criminal and civil suits against them. These
statements find no support and should be stricken
from the records. Indeed, they are irrelevant to the
proceeding.
Moreover, assuming Ishwar is of such a low character
as Choithram proposes to make this Court to believe,
why is it that of all persons, under his temporary
arrangement theory, Choithram opted to entrust the

purchase of valuable real estate and built four

buildings thereon all in the name of Ishwar? Is it not
an unconscious emergence of the truth that this
otherwise wayward brother of theirs was on the
contrary able to raise enough capital through the
generosity of his father-in-law for the purchase of the
very properties in question? As the appellate court
aptly observed if truly this temporary arrangement
story is the only motivation, why Ishwar of all
people? Why not the own son of Choithram, Haresh
who is also an American citizen and who was already
18 years old at the time of purchase in 1966? The
Court agrees with the observation that this theory is
an afterthought which surfaced only when
Choithram, Nirmla and Moti filed their answer.
When Ishwar asked for an accounting in 1970 and
revoked the general power of attorney in 1971,
Choithram had a total change of heart. He decided to
claim the property as his. He caused the transfer of
the rights and interest of Ishwar to Nirmla. On his
representation, Ortigas executed the deeds of sale of
the properties in favor of Nirmla. Choithram
obviously surmised Ishwar cannot stake a valid claim
over the property by so doing.
Clearly, this transfer to Nirmla is fictitious and, as
admitted by Choithram, was intended only to place
the property in her name until Choithram acquires
Philippine citizenship. 17 What appears certain is that
it appears to be a scheme of Choithram to place the
property beyond the reach of Ishwar should he
successfully claim the same. Thus, it must be struck
down.
Worse still, on September 27, 1990 spouses Ishwar
filed an urgent motion for the issuance of a writ of
preliminary attachment and to require Choithram, et
al. to submit certain documents, inviting the
attention of this Court to the following:
a) Donation by Choithram of his 2,500
shares of stock in General Garments
Corporation in favor of his children on
December 29, 1989; 18
b) Sale on August 2, 1990 by Choithram of
his 100 shares in Biflex (Phils.), Inc., in favor
of his children; 19and
c) Mortgage on June 20, 1989 by Nirmla
through her attorney-in-fact, Choithram, of
the properties subject of this litigation, for
the amount of $3 Million in favor of

Overseas Holding, Co. Ltd., (Overseas for

brevity), a corporation which appears to be
organized and existing under and by virtue
of the laws of Cayman Islands, with a capital
of only $100.00 divided into 100 shares of
$1.00 each, and with address at P.O. Box
1790, Grand Cayman, Cayman Islands. 20
An opposition thereto was filed by Choithram, et al.
but no documents were produced. A manifestation
and reply to the opposition was filed by spouses
Ishwar.
All these acts of Choithram, et al. appear to be
fraudulent attempts to remove these properties to
the detriment of spouses Ishwar should the latter
prevail in this litigation.
On December 10, 1990 the court issued a resolution
that substantially reads as follows:
Considering the allegations of petitioners
Ishwar Jethmal Ramnani and Sonya Ramnani
that
respondents
Choithram
Jethmal
Ramnani, Nirmla Ramnani and Moti G.
Ramnani have fraudulently executed a
simulated mortgage of the properties
subject of this litigation dated June 20,
1989, in favor of Overseas Holding Co., Ltd.
which appears to be a corporation organized
in Cayman Islands, for the amount of $
3,000,000.00, which is much more than the
value of the properties in litigation; that said
alleged mortgagee appears to be a "shell"
corporation with a capital of only $100.00;
and that this alleged transaction appears to
be intended to defraud petitioners Ishwar
and Sonya Jethmal Ramnani of any
favorable judgment that this Court may
render in this case;

Wherefore the Court Resolved to issue a writ

of preliminary injunction enjoining and
prohibiting said respondents Choithram
Jethmal Ramnani, Nirmla V. Ramnani, Moti
G. Ramnani and the Overseas Holding Co.,
Ltd. from encumbering, selling or otherwise
disposing
of
the
properties
and
improvements subject of this litigation until
further orders of the Court. Petitioners
Ishwar and Sonya Jethmal Ramnani are
hereby required to post a bond of P
100,000.00 to answer for any damages d
respondents may suffer by way of this
injunction if the Court finally decides the
said petitioners are not entitled thereto.
The Overseas Holding Co., Ltd. with address
at P.O. Box 1790 Grand Cayman, Cayman
Islands, is hereby IMPLEADED as a
respondent in these cases, and is hereby
required to SUBMIT its comment on the
Urgent Motion for the Issuance of a Writ of
Preliminary Attachment and Motion for
Production of Documents, the Manifestation
and the Reply to the Opposition filed by said
petitioners, within Sixty (60) days after
service by publication on it in accordance
with the provisions of Section 17, Rule 14 of
the Rules of Court, at the expense of
petitioners Ishwar and Sonya Jethmal
Ramnani.
Let copies of this resolution be served on
the Register of Deeds of Pasig, Rizal, and
the Provincial Assessor of Pasig, Rizal, both
in Metro Manila, for its annotation on the
transfer Certificates of Titles Nos. 403150
and 403152 registered in the name of
respondent Nirmla V. Ramnani, and on the
tax declarations of the said properties and
its improvements subject of this litigation. 21
The required injunction bond in the amount of P
100,000.00 was filed by the spouses Ishwar which
was approved by the Court. The above resolution of
the Court was published in the Manila Bulletin issue
of December 17, 1990 at the expense of said
spouses. 22 On December 19, 1990 the said
resolution and petition for review with annexes in
G.R. Nos. 85494 and 85496 were transmitted to
respondent Overseas, Grand Cayman Islands at its
address c/o Cayman Overseas Trust Co. Ltd., through
the United Parcel Services Bill of Lading 23 and it was
actually delivered to said company on January 23,
1991. 24

On January 22, 1991, Choithram, et al., filed a motion

to dissolve the writ of preliminary injunction alleging
that there is no basis therefor as in the amended
complaint what is sought is actual damages and not
a reconveyance of the property, that there is no
reason for its issuance, and that acts already
executed cannot be enjoined. They also offered to file
a counterbond to dissolve the writ.
A comment/opposition thereto was filed by spouses
Ishwar that there is basis for the injunction as the
alleged mortgage of the property is simulated and
the other donations of the shares of Choithram to his
children are fraudulent schemes to negate any
judgment the Court may render for petitioners.
No comment or answer was filed by Overseas despite
due notice, thus it is and must be considered to be in
default and to have lost the right to contest the
representations of spouses Ishwar to declare the
aforesaid alleged mortgage nun and void.
This purported mortgage of the subject properties in
litigation appears to be fraudulent and simulated.
The stated amount of $3 Million for which it was
mortgaged is much more than the value of the
mortgaged properties and its improvements. The
alleged
mortgagee-company
(Overseas)
was
organized only on June 26,1989 but the mortgage
was executed much earlier, on June 20, 1989, that is
six (6) days before Overseas was organized.
Overseas is a "shelf" company worth only
$100.00. 25 In the manifestation of spouses Ishwar
dated April 1, 1991, the Court was informed that this
matter was brought to the attention of the Central
Bank (CB) for investigation, and that in a letter of
March 20, 1991, the CB informed counsel for spouses
Ishwar that said alleged foreign loan of Choithram, et
al. from Overseas has not been previously
approved/registered with the CB. 26
Obviously, this is another ploy of Choithram, et al. to
place these properties beyond the reach of spouses
Ishwar should they obtain a favorable judgment in
this case. The Court finds and so declares that this
alleged mortgage should be as it is hereby declared
null and void.
All these contemporaneous and subsequent acts of
Choithram, et al., betray the weakness of their cause
so they had to take an steps, even as the case was
already pending in Court, to render ineffective any
judgment that may be rendered against them.

The problem is compounded in that respondent

Ortigas is caught in the web of this bitter fight. It had
all the time been dealing with Choithram as attorneyin-fact of Ishwar. However, evidence had been
adduced that notice in writing had been served not
only on Choithram, but also on Ortigas, of the
revocation of Choithram's power of attorney by
Ishwar's lawyer, on May 24, 1971. 27 A publication of
said notice was made in the April 2, 1971 issue
of The Manila Times for the information of the
general public. 28 Such notice of revocation in a
newspaper of general circulation is sufficient warning
to third persons including Ortigas. 29 A notice of
revocation was also registered with the Securities
and Exchange Commission on March 29, 1 971. 30
Indeed in the letter of Choithram to Ishwar of June
25, 1971, Choithram was pleading that Ishwar
execute another power of attorney to be shown to
Ortigas who apparently learned of the revocation of
Choithram's power of attorney. 31 Despite said
notices, Ortigas nevertheless acceded to the
representation of Choithram, as alleged attorney-infact of Ishwar, to assign the rights of petitioner
Ishwar to Nirmla. While the primary blame should be
laid at the doorstep of Choithram, Ortigas is not
entirely without fault. It should have required
Choithram to secure another power of attorney from
Ishwar. For recklessly believing the pretension of
Choithram that his power of attorney was still good,
it must, therefore, share in the latter's liability to
Ishwar.
In the original complaint, the spouses Ishwar asked
for a reconveyance of the properties and/or payment
of its present value and damages. 32 In the amended
complaint they asked, among others, for actual
damages of not less than the present value of the
real properties in litigation, moral and exemplary
damages, attorneys fees, costs of the suit and further
prayed for "such other reliefs as may be deemed just
and equitable in the premises . 33 The amended
complaint contain the following positive allegations:
7. Defendant Choithram Ramnani, in evident
bad faith and despite due notice of the
revocation of the General Power of Attorney,
Annex 'D" hereof, caused the transfer of the
rights over the said parcels of land to his
daughter-in-law, defendant Nirmla Ramnani
in connivance with defendant Ortigas & Co.,
the latter having agreed to the said transfer
despite receiving a letter from plaintiffs'
lawyer informing them of the said
revocation; copy of the letter is hereto

attached and made an integral part hereof

as Annex "H";
8. Defendant Nirmla Ramnani having
acquired the aforesaid property by fraud is,
by force of law, considered a trustee of an
implied trust for the benefit of plaintiff and
is obliged to return the same to the latter:
9. Several efforts were made to settle the
matter within the family but defendants
(Choithram Ramnani, Nirmla Ramnani and
Moti Ramnani) refused and up to now fail
and still refuse to cooperate and respond to
the same; thus, the present case;
10. In addition to having been deprived of
their rights over the properties (described in
par. 3 hereof), plaintiffs, by reason of
defendants' fraudulent act, suffered actual
damages by way of lost rental on the
property which
defendants
(Choithram
Ramnani, Nirmla Ramnani and Moti Ramnani
have collected for themselves; 34
In said amended complaint, spouses Ishwar, among
others, pray for payment of actual damages in an
amount no less than the value of the properties in
litigation instead of a reconveyance as sought in the
original complaint. Apparently they opted not to
insist on a reconveyance as they are American
citizens as alleged in the amended complaint.
The allegations of the amended complaint above
reproduced clearly spelled out that the transfer of
the property to Nirmla was fraudulent and that it
should be considered to be held in trust by Nirmla for
spouses Ishwar. As above-discussed, this allegation is
well-taken and the transfer of the property to Nirmla
should be considered to have created an implied
trust by Nirmla as trustee of the property for the
benefit of spouses Ishwar. 35
The motion to dissolve the writ of preliminary
injunction filed by Choithram, et al. should be denied.
Its issuance by this Court is proper and warranted
under the circumstances of the case. Under Section
3(c) Rule 58 of the Rules of Court, a writ of
preliminary injunction may be granted at any time
after commencement of the action and before
judgment when it is established:
(c) that the defendant is doing, threatens, or
is about to do, or is procuring or suffering to

be done, some act probably in violation of

plaintiffs's rights respecting the subject of
the action, and tending to render the
judgment ineffectual.

to defraud spouses Ishwar so they may not be able to

recover at all given a judgment in their favor, the
requiring the issuance of the writ of attachment in
this instance.

As above extensively discussed, Choithram, et al.

have committed and threaten to commit further acts
of disposition of the properties in litigation as well as
the other assets of Choithram, apparently designed
to render ineffective any judgment the Court may
render favorable to spouses Ishwar.

Nevertheless, under the peculiar circumstances of

this case and despite the fact that Choithram, et al.,
have committed acts which demonstrate their bad
faith and scheme to defraud spouses Ishwar and
Sonya of their rightful share in the properties in
litigation, the Court cannot ignore the fact that
Choithram must have been motivated by a strong
conviction that as the industrial partner in the
acquisition of said assets he has as much claim to
said properties as Ishwar, the capitalist partner in the
joint venture.

The purpose of the provisional remedy of preliminary

injunction is to preserve the status quo of the things
subject of the litigation and to protect the rights of
the spouses Ishwar respecting the subject of the
action during the pendency of the Suit 36 and not to
obstruct the administration of justice or prejudice the
adverse party. 37 In this case for damages, should
Choithram, et al. continue to commit acts of
disposition of the properties subject of the litigation,
an award of damages to spouses Ishwar would
thereby be rendered ineffectual and meaningless. 38
Consequently, if only to protect the interest of
spouses Ishwar, the Court hereby finds and holds
that the motion for the issuance of a writ of
preliminary attachment filed by spouses Ishwar
should be granted covering the properties subject of
this litigation.
Section 1, Rule 57 of the Rules of Court provides that
at the commencement of an action or at any time
thereafter, the plaintiff or any proper party may have
the property of the adverse party attached as
security for the satisfaction of any judgment that
may be recovered, in, among others, the following
cases:
(d) In an action against a party who has
been guilty of a fraud in contracting the
debt or incurring the obligation upon which
the action is brought, or in concealing or
disposing of the property for the taking,
detention or conversion of which the action
is brought;
(e) In an action against a party who has
removed or disposed of his property, or is
about to do so, with intent to defraud his
creditors; . . .
Verily, the acts of Choithram, et al. of disposing the
properties subject of the litigation disclose a scheme

The scenario is clear. Spouses Ishwar supplied the

capital of $150,000.00 for the business.1wphi1 They
entrusted the money to Choithram to invest in a
profitable business venture in the Philippines. For this
purpose they appointed Choithram as their attorneyin-fact.
Choithram in turn decided to invest in the real estate
business. He bought the two (2) parcels of land in
question from Ortigas as attorney-in-fact of IshwarInstead of paying for the lots in cash, he paid in
installments and used the balance of the capital
entrusted to him, plus a loan, to build two buildings.
Although the buildings were burned later, Choithram
was able to build two other buildings on the property.
He rented them out and collected the rentals.
Through the industry and genius of Choithram,
Ishwar's property was developed and improved into
what it is nowa valuable asset worth millions of
pesos. As of the last estimate in 1985, while the case
was pending before the trial court, the market value
of the properties is no less than P22,304,000.00. 39 It
should be worth much more today.
We have a situation where two brothers engaged in a
business venture. One furnished the capital, the
other contributed his industry and talent. Justice and
equity dictate that the two share equally the fruit of
their joint investment and efforts. Perhaps this
Solomonic solution may pave the way towards their
reconciliation. Both would stand to gain. No one
would end up the loser. After all, blood is thicker than
water.
However, the Court cannot just close its eyes to the
devious machinations and schemes that Choithram
employed in attempting to dispose of, if not
dissipate, the properties to deprive spouses Ishwar of

any possible means to recover any award the Court

may grant in their favor. Since Choithram, et al.
acted with evident bad faith and malice, they should
pay moral and exemplary damages as well as
attorney's fees to spouses Ishwar.
WHEREFORE, the petition in G.R. No. 85494 is
DENIED, while the petition in G.R. No. 85496 is
hereby given due course and GRANTED. The
judgment of the Court of Appeals dated October 18,
1988 is hereby modified as follows:
1. Dividing equally between respondents spouses
Ishwar, on the one hand, and petitioner Choithram
Ramnani, on the other, (in G.R. No. 85494) the two
parcels of land subject of this litigation, including all
the improvements thereon, presently covered by
transfer Certificates of Title Nos. 403150 and 403152
of the Registry of Deeds, as well as the rental income
of the property from 1967 to the present.
2. Petitioner Choithram Jethmal Ramnani, Nirmla V.
Ramnani, Moti C. Ramnani and respondent Ortigas
and Company, Limited Partnership (in G.R. No.
85496) are ordered solidarily to pay in cash the value
of said one-half (1/2) share in the said land and
improvements pertaining to respondents spouses
Ishwar and Sonya at their fair market value at the
time of the satisfaction of this judgment but in no
case less than their value as appraised by the Asian
Appraisal, Inc. in its Appraisal Report dated August
1985 (Exhibits T to T-14, inclusive).
3. Petitioners Choithram, Nirmla and Moti Ramnani
and respondent Ortigas & Co., Ltd. Partnership shall
also be jointly and severally liable to pay to said
respondents spouses Ishwar and Sonya Ramnani
one-half (1/2) of the total rental income of said
properties and improvements from 1967 up to the
date of satisfaction of the judgment to be computed
as follows:
a. On Building C occupied by
Eppie's
Creation
and
Jethmal
Industries from 1967 to 1973,
inclusive, based on the 1967 to
1973 monthly rentals paid by
Eppie's Creation;
b. Also on Building C above,
occupied by Jethmal Industries and
Lavine from 1974 to 1978, the
rental incomes based on then rates
prevailing as shown under Exhibit

"P"; and from 1979 to 1981, based

on then prevailing rates as
indicated under Exhibit "Q";
c. On Building A occupied by
Transworld Knitting Mills from 1972
to 1978, the rental incomes based
upon then prevailing rates shown
under Exhibit "P", and from 1979 to
1981, based on prevailing rates per
Exhibit "Q";
d. On the two Bays Buildings
occupied by Sigma-Mariwasa from
1972 to 1978, the rentals based on
the Lease Contract, Exhibit "P", and
from 1979 to 1980, the rentals
based on the Lease Contract,
Exhibit "Q".
and thereafter commencing 1982, to account for and
turn over the rental incomes paid or ought to be paid
for the use and occupancy of the properties and all
improvements totalling 10,048 sq. m., based on the
rate per square meter prevailing in 1981 as indicated
annually cumulative up to 1984. Then, commencing
1985 and up to the satisfaction of the judgment,
rentals shall be computed at ten percent (10%)
annually of the fair market values of the properties
as appraised by the Asian Appraisals, Inc. in August
1985. (Exhibits T to T-14, inclusive.)

payment of the above awards to spouses Ishwar and

Sonya.
7. The mortgage constituted on the subject property
dated June 20, 1989 by petitioners Choithram and
Nirmla, both surnamed Ramnani in favor of
respondent Overseas Holding, Co. Ltd. (in G.R. No.
85496) for the amount of $3-M is hereby declared
null and void. The Register of Deeds of Pasig, Rizal, is
directed to cancel the annotation of d mortgage on
the titles of the properties in question.
8. Should respondent Ortigas Co., Ltd. Partnership
pay the awards to Ishwar and Sonya Ramnani under
this judgment, it shall be entitled to reimbursement
from petitioners Choithram, Nirmla and Moti, all
surnamed Ramnani.
9. The above awards shag bear legal rate of interest
of six percent (6%) per annum from the time this
judgment becomes final until they are fully paid by
petitioners Choithram Ramnani, Nirmla V. Ramnani,
Moti C. Ramnani and Ortigas, Co., Ltd. Partnership.
Said petitioners Choithram, et al. and respondent
Ortigas shall also pay the costs.
SO ORDERED.

4. To determine the market value of the properties at

the time of the satisfaction of this judgment and the
total rental incomes thereof, the trial court is hereby
directed to hold a hearing with deliberate dispatch
for this purpose only and to have the judgment
immediately executed after such determination.
5. Petitioners Choithram, Nirmla and Moti, all
surnamed Ramnani, are also jointly and severally
liable to pay respondents Ishwar and Sonya Ramnani
the amount of P500,000.00 as moral damages,
P200,000.00 as exemplary damages and attorney's
fees equal to 10% of the total award. to said
respondents spouses.
6. The motion to dissolve the writ of preliminary
injunction dated December 10, 1990 filed by
petitioners Choithram, Nirmla and Moti, all surnamed
Ramnani, is hereby DENIED and the said injunction is
hereby made permanent. Let a writ of attachment be
issued and levied against the properties and
improvements subject of this litigation to secure the

This is a petition for review on certiorari from the

decision dated July 31, 1975 of the Court of Appeals
in CA-G.R. No. 47763-R which affirmed in toto the
decision of the Court of First Instance of Manila,
Branch VII, in Civil Case No. 56355 dismissing the
complaint filed by petitioner CMS Logging, Inc. (CMS,
for brevity) against private respondent D.R.
Aguinaldo Corporation (DRACOR, for brevity) and
ordering the former to pay the latter attorney's fees
in the amount of P1,000.00 and the costs.
The facts of the case are as follows: Petitioner CMS is
a forest concessionaire engaged in the logging
business, while private respondent DRACOR is
engaged in the business of exporting and selling logs
and lumber. On August 28, 1957, CMS and DRACOR
entered into a contract of agency 1 whereby the
former appointed the latter as its exclusive export
and sales agent for all logs that the former may
produce, for a period of five (5) years. The pertinent
portions of the agreement, which was drawn up by
DRACOR, 2 are as follows:
1. SISON [CMS] hereby appoints
DRACOR as his sole and exclusive
export sales agent with full
authority, subject to the conditions
and limitations hereinafter set
forth, to sell and export under a
firm sales contract acceptable to
SISON, all logs produced by SISON
for a period of five (5) years
commencing upon the execution of
the agreement and upon the terms
and conditions hereinafter provided
and DRACOR hereby accepts such
appointment;
xxx xxx xxx

G.R. No. L-41420 July 10, 1992

CMS
LOGGING,
INC., petitioner,
vs.
THE COURT OF APPEALS and D.R. AGUINALDO
CORPORATION, respondents.

NOCON, J.:

3. It is expressly agreed that

DRACOR shall handle exclusively all
negotiations of all export sales of
SISON with the buyers and arrange
the procurement and schedules of
the vessel or vessels for the
shipment of SISON's logs in
accordance with SISON's written
requests, but DRACOR shall not in
anyway
[sic]
be
liable
or
responsible for any delay, default
or failure of the vessel or vessels to

comply with the schedules agreed

upon;
xxx xxx xxx
9. It is expressly agreed by the
parties hereto that DRACOR shall
receive
five
(5%)
per
cent
commission of the gross sales of
logs of SISON based on F.O.B.
invoice value which commission
shall be deducted from the
proceeds of any and/or all moneys
received by DRACOR for and in
behalf and for the account of
SISON;
By virtue of the aforesaid agreement, CMS was able
to sell through DRACOR a total of 77,264,672 board
feet of logs in Japan, from September 20, 1957 to
April 4, 1962.
About six months prior to the expiration of the
agreement, while on a trip to Tokyo, Japan, CMS's
president, Atty. Carlos Moran Sison, and general
manager and legal counsel, Atty. Teodoro R.
Dominguez, discovered that DRACOR had used
Shinko Trading Co., Ltd. (Shinko for brevity) as agent,
representative or liaison officer in selling CMS's logs
in Japan for which Shinko earned a commission of
U.S. $1.00 per 1,000 board feet from the buyer of the
logs. Under this arrangement, Shinko was able to
collect a total of U.S. $77,264.67. 3
CMS claimed that this commission paid to Shinko was
in violation of the agreement and that it (CMS) is
entitled to this amount as part of the proceeds of the
sale of the logs. CMS contended that since DRACOR
had been paid the 5% commission under the
agreement, it is no longer entitled to the additional
commission paid to Shinko as this tantamount to
DRACOR receiving double compensation for the
services it rendered.
After this discovery, CMS sold and shipped logs
valued
at
U.S.
$739,321.13
or
P2,883,351.90, 4 directly to several firms in Japan
without the aid or intervention of DRACOR.
CMS sued DRACOR for the commission received by
Shinko and for moral and exemplary damages, while

DRACOR
counterclaimed
for
its
commission,
amounting to P144,167.59, from the sales made by
CMS of logs to Japanese firms. In its reply, CMS
averred as a defense to the counterclaim that
DRACOR had retained the sum of P101,167.59 as
part of its commission for the sales made by
CMS. 5 Thus, as its counterclaim to DRACOR's
counterclaim, CMS demanded DRACOR return the
amount it unlawfully retained. DRACOR later filed an
amended counterclaim, alleging that the balance of
its commission on the sales made by CMS was
P42,630.82, 6 thus impliedly admitting that it
retained the amount alleged by CMS.
In dismissing the complaint, the trial court ruled that
no evidence was presented to show that Shinko
received the commission of U.S. $77,264.67 arising
from the sale of CMS's logs in Japan, though the trial
court stated that "Shinko was able to collect the total
amount of $77,264.67 US Dollars (Exhs. M and M1)." 7 The counterclaim was likewise dismissed, as it
was shown that DRACOR had waived its rights to the
balance of its commission in a letter dated February
2, 1963 to Atty. Carlos Moran Sison, president of
CMS. 8 From said decision, only CMS appealed to the
Court of Appeals.
The Court of Appeals, in a 3 to 2 decision, 9 affirmed
the dismissal of the complaint since "[t]he trial court
could not have made a categorical finding that
Shinko collected commissions from the buyers of
Sison's logs in Japan, and could not have held that
Sison is entitled to recover from Dracor the amount
collected by Shinko as commissions, plaintiffappellant having failed to prove by competent
evidence its claims." 10
Moreover, the appellate court held:
There is reason to believe that
Shinko Trading Co. Ltd., was paid
by defendant-appellee out of its
own
commission of 5%, as
indicated in the letter of its
president to the president of Sison,
dated February 2, 1963 (Exhibit
"N"), and in the Agreement
between Aguinaldo Development
Corporation (ADECOR) and Shinko
Trading Co., Ltd. (Exhibit "9").
Daniel R. Aguinaldo stated in his
said letter:

. . . , I informed you that if you

wanted to pay me for the service,
then it would be no more than at
the
standard
rate
of
5%
commission because in our own
case, we pay our Japanese agents
2-1/2%. Accordingly, we would only
add a similar amount of 2-1/2% for
the service which we would render
you in the Philippines. 11
Aggrieved, CMS appealed to this Court by way of a
petition for review on certiorari, alleging (1) that the
Court of Appeals erred in not making a complete
findings of fact; (2) that the testimony of Atty.
Teodoro R. Dominguez, regarding the admission by
Shinko's president and director that it collected a
commission of U.S. $1.00 per 1,000 board feet of
logs from the Japanese buyers, is admissible against
DRACOR; (3) that the statement of DRACOR's chief
legal counsel in his memorandum dated May 31,
1965, Exhibit "K", is an admission that Shinko was
able to collect the commission in question; (4) that
the fact that Shinko received the questioned
commissions is deemed admitted by DRACOR by its
silence under Section 23, Rule 130 of the Rules of
Court when it failed to reply to Atty. Carlos Moran
Sison's letter dated February 6, 1962; (5) that
DRACOR is not entitled to its 5% commission arising
from the direct sales made by CMS to buyers in
Japan; and (6) that DRACOR is guilty of fraud and bad
faith in its dealings with CMS.
With regard to CMS's arguments concerning whether
or not Shinko received the commission in question,
We find the same unmeritorious.
To begin with, these arguments question the findings
of fact made by the Court of Appeals, which are final
and conclusive and can not be reviewed on appeal to
the Supreme Court. 12
Moreover, while it is true that the evidence adduced
establishes the fact that Shinko is DRACOR's agent or
liaison in Japan, 13 there is no evidence which
established the fact that Shinko did receive the
amount of U.S. $77,264.67 as commission arising
from the sale of CMS's logs to various Japanese firms.
The fact that Shinko received the commissions in
question was not established by the testimony of
Atty. Teodoro R. Dominguez to the effect that Shinko's

president and director told him that Shinko received

a commission of U.S. $1.00 for every 1,000 board
feet of logs sold, since the same is hearsay. Similarly,
the letter of Mr. K. Shibata of Toyo Menka Kaisha,
Ltd. 14 is also hearsay since Mr. Shibata was not
presented to testify on his letter.
CMS's other evidence have little or no probative
value at all. The statements made in the
memorandum of Atty. Simplicio R. Ciocon to DRACOR
dated May 31, 1965, 15 the letter dated February 2,
1963
of
Daniel
R. Aguinaldo, 16 president of DRACOR, and the replyletter dated January 9, 1964 17 by DRACOR's counsel
Atty. V. E. Del Rosario to CMS's demand letter dated
September 25, 1963 can not be categorized as
admissions that Shinko did receive the commissions
in question.
The alleged admission made by Atty. Ciocon, to wit
Furthermore, as per our records,
our shipment of logs to Toyo Menka
Kaisha, Ltd., is only for a net
volume of 67,747,732 board feet
which should enable Shinko to
collect a commission of US
$67,747.73 only

principal, to concern itself with,

much less question, the right of
Shinko Trading Co., Ltd. with which
our
client
debt
directly,
to
whatever benefits it might have
derived
form
the
ultimate
consumer/buyer of these logs, Toyo
Menka Kaisha, Ltd. There appears
to be no justification for your
client's contention that these
benefits, whether they can be
considered as commissions paid by
Toyo Menka Kaisha to Shinko
Trading, are to be regarded part of
the gross sales.
can not be considered admissions that
Shinko
received
the
questioned
commissions since neither statements
declared categorically that Shinko did in fact
receive the commissions and that these
arose from the sale of CMS's logs.
As correctly stated by the appellate court:

Similarly, the statement of Daniel R. Aguinaldo, to wit

It is a rule that "a statement is not

competent as an admission where
it does not, under a reasonable
construction, appear to admit or
acknowledge the fact which is
sought to be proved by it". An
admission or declaration to be
competent
must
have
been
expressed in definite, certain and
unequivocal language (Bank of the
Philippine Islands vs. Fidelity &
Surety Co., 51 Phil. 57, 64). 18

. . . Knowing as we do that Toyo

Menka is a large and reputable
company, it is obvious that they
paid Shinko for certain services
which
Shinko
must
have
satisfactorily performed for them in
Japan otherwise they would not
have paid Shinko

CMS's contention that DRACOR had admitted by its

silence the allegation that Shinko received the
commissions in question when it failed to respond to
Atty. Carlos Moran Sison's letter dated February 6,
1963, is not supported by the evidence. DRACOR did
in fact reply to the letter of Atty. Sison, through the
letter dated March 5, 1963 of F.A. Novenario, 19 which
stated:

can not be considered as such since the

statement was made in the context of
questioning CMS's tally of logs delivered to
various Japanese firms.

and that of Atty. V. E. Del Rosario,

. . . It does not seem proper,
therefore, for CMS Logging, Inc., as

This is to acknowledge receipt of

your letter dated February 6, 1963,
and addressed to Mr. D. R.
Aguinaldo, who is at present out of
the country.

xxx xxx xxx

We have no record or knowledge of
any such payment of commission
made by Toyo Menka to Shinko. If
the payment was made by Toyo
Menka to Shinko, as stated in your
letter, we knew nothing about it
and had nothing to do with it.
The finding of fact made by the trial court, i.e., that
"Shinko was able to collect the total amount of
$77,264.67 US Dollars," can not be given weight
since this was based on the summary prepared by
CMS itself, Exhibits "M" and "M-1".
Moreover, even if it was shown that Shinko did in fact
receive the commissions in question, CMS is not
entitled thereto since these were apparently paid by
the buyers to Shinko for arranging the sale. This is
therefore not part of the gross sales of CMS's logs.
However, We find merit in CMS's contention that the
appellate court erred in holding that DRACOR was
entitled to its commission from the sales made by
CMS to Japanese firms.
The principal may revoke a contract of agency at will,
and such revocation may be express, or
implied, 20 and may be availed of even if the period
fixed in the contract of agency as not yet
expired. 21 As the principal has this absolute right to
revoke the agency, the agent can not object thereto;
neither may he claim damages arising from such
revocation, 22unless it is shown that such was done in
order
to
evade
the
payment
of
agent's
commission. 23
In the case at bar, CMS appointed DRACOR as its
agent for the sale of its logs to Japanese firms. Yet,
during the existence of the contract of agency,
DRACOR admitted that CMS sold its logs directly to
several Japanese firms. This act constituted an
implied revocation of the contract of agency under
Article 1924 of the Civil Code, which provides:
Art. 1924 The agency is revoked if
the principal directly manages the
business entrusted to the agent,
dealing directly with third persons.

In New Manila Lumber Company, Inc. vs. Republic of

the Philippines, 24 this Court ruled that the act of a
contractor, who, after executing powers of attorney
in favor of another empowering the latter to collect
whatever amounts may be due to him from the
Government, and thereafter demanded and collected
from the government the money the collection of
which
he entrusted to
his attorney-in-fact,
constituted revocation of the agency in favor of the
attorney-in-fact.
Since the contract of agency was revoked by CMS
when it sold its logs to Japanese firms without the
intervention of DRACOR, the latter is no longer
entitled to its commission from the proceeds of such
sale and is not entitled to retain whatever moneys it
may have received as its commission for said
transactions. Neither would DRACOR be entitled to
collect damages from CMS, since damages are
generally not awarded to the agent for the
revocation of the agency, and the case at bar is not
one falling under the exception mentioned, which is
to evade the payment of the agent's commission.
Regarding CMS's contention that the Court of
Appeals erred in not finding that DRACOR had
committed acts of fraud and bad faith, We find the
same unmeritorious. Like the contention involving
Shinko and the questioned commissions, the findings
of the Court of Appeals on the matter were based on
its appreciation of the evidence, and these findings
are binding on this Court.
In fine, We affirm the ruling of the Court of Appeals
that there is no evidence to support CMS's contention
that Shinko earned a separate commission of U.S.
$1.00 for every 1,000 board feet of logs from the
buyer of CMS's logs. However, We reverse the ruling
of the Court of Appeals with regard to DRACOR's right
to retain the amount of P101,536.77 as part of its
commission from the sale of logs by CMS, and hold
that DRACOR has no right to its commission.
Consequently, DRACOR is hereby ordered to remit to
CMS the amount of P101,536.77.
WHEREFORE, the decision appealed from is hereby
MODIFIED as stated in the preceding paragraph.
Costs de officio.
SO ORDERED.

for another year, or from October 1, 1989 to

September 30, 1990, incorporating therein the
increase
of
premium
fromP4,148,005.00
to P7,456,896.00.
Medicard
paid
petitioner P1,342,241.00 as his commission.

G.R. No. 141525 September 2, 2005

CARLOS
SANCHEZ, Petitioners,
vs.
MEDICARD PHILIPPINES, INC., DR. NICANOR
MONTOYA and CARLOS EJERCITO, Respondent.

Prior to the expiration of the renewed contract,

Medicard proposed to Unilab, through petitioner, an
increase of the premium for the next year. Unilab
rejected the proposal "for the reason that it was too
high," prompting Dr. Nicanor Montoya (Medicards
president and general manager), also a respondent,
to request petitioner to reduce his commission, but
the latter refused.
In a letter dated October 3, 1990, Unilab, through
Carlos Ejercito, another respondent, confirmed its
decision not to renew the health program contract
with Medicard.

On appeal, the Court of Appeals affirmed the trial

courts assailed Decision. The Appellate Court held
that there is no proof that the execution of the new
contract between the parties under the "cost plus"
system is a strategy to deprive petitioner of his
commission; that Medicard did not commit any
fraudulent act in revoking its agency contract with
Sanchez; that when Unilab rejected Medicards
proposal for an increase of premium, their Health
Care Program Contract on its third year was
effectively revoked; and that where the contract is
ineffectual, then the agent is not entitled to a
commission.
Petitioner filed a motion for reconsideration, but this
was denied by the Court of Appeals on January 12,
2000.
Hence, the instant petition for review on certiorari.

DECISION
SANDOVAL-GUTIERREZ, J.:
This petition for review on certiorari seeks to reverse
the Decision1 of the Court of Appeals dated February
24, 1999 and its Resolution dated January 12, 2000
in CA-G.R. CV No. 47681.
The facts, as established by the trial court and
affirmed by the Court of Appeals, follow:
Sometime in 1987, Medicard Philippines, Inc.
(Medicard), respondent, appointed petitioner as its
special corporate agent. As such agent, Medicard
gave him a commission based on the "cash brought
in."
In September, 1988, through petitioners efforts,
Medicard and United Laboratories Group of
Companies (Unilab) executed a Health Care Program
Contract. Under this contract, Unilab shall pay
Medicard a fixed monthly premium for the health
insurance
of
its
personnel.
Unilab
paid
Medicard P4,148,005.00 representing the premium
for one (1) year. Medicard then handed petitioner
18% of said amount or P746,640.90 representing his
commission.
Again, through petitioners initiative, the agency
contract between Medicard and Unilab was renewed

Meanwhile, in order not to prejudice its personnel by

the termination of their health insurance, Unilab,
through respondent Ejercito, negotiated with Dr.
Montoya and other officers of Medicard, to discuss
ways in order to continue the insurance coverage of
those personnel.
Under the new scheme, Unilab shall pay Medicard
only the amount corresponding to the actual
hospitalization expenses incurred by each personnel
plus 15% service fee for using Medicard facilities,
which amount shall not be less than P780,000.00.
Medicard did not give petitioner any commission
under the new scheme.
In a letter dated March 15, 1991, petitioner
demanded from Medicard payment of P338,000.00
as his commission plus damages, but the latter
refused to heed his demand.
Thus, petitioner filed with the Regional Trial Court
(RTC), Branch 66, Makati City, a complaint for sum of
money against Medicard, Dr. Nicanor Montoya and
Carlos Ejercito, herein respondents.
After hearing, the RTC rendered its Decision
dismissing petitioners complaint and respondents
counterclaim.

The basic issue for our resolution is whether the

Court of Appeals erred in holding that the contract of
agency has been revoked by Medicard, hence,
petitioner is not entitled to a commission.
It is dictum that in order for an agent to be entitled to
a commission, he must be the procuring cause of the
sale, which simply means that the measures
employed by him and the efforts he exerted must
result in a sale.2 In other words, an agent receives his
commission only upon the successful conclusion of a
sale.3 Conversely, it follows that where his efforts are
unsuccessful, or there was no effort on his part, he is
not entitled to a commission.
In Prats vs. Court of Appeals,4 this Court held that for
the purpose of equity, an agent who is not the
efficient procuring cause is nonetheless entitled to
his commission, where said agent, notwithstanding
the expiration of his authority, nonetheless, took
diligent steps to bring back together the
parties, such that a sale was finalized and
consummated
between
them. In Manotok
Borthers vs. Court of Appeals,5 where the Deed of
Sale was only executed after the agents extended
authority had expired, this Court, applying its ruling
in Prats, held that the agent (in Manotok) is entitled
to a commission since he was the efficient procuring
cause of the sale, notwithstanding that the sale took
place after his authority had lapsed. The proximate,
close, and causal connection between the agents

efforts and the principals sale of his property can not

be ignored.
It may be recalled that through petitioners efforts,
Medicard was able to enter into a one-year Health
Care Program Contract with Unilab. As a result,
Medicard paid petitioner his commission. Again,
through his efforts, the contract was renewed and
once more, he received his commission. Before the
expiration of the renewed contract, Medicard,
through petitioner, proposed an increase in premium,
but Unilab rejected this proposal. Medicard then
requested petitioner to reduce his commission should
the contract be renewed on its third year, but he was
obstinate. Meantime, on October 3, 1990, Unilab
informed Medicard it was no longer renewing the
Health Care Program contract.
In order not to prejudice its personnel, Unilab,
through respondent Ejercito, negotiated with
respondent Dr. Montoya of Medicard, in order to find
mutually beneficial ways of continuing the Health
Care Program. The negotiations resulted in a new
contract wherein Unilab shall pay Medicard the
hospitalization expenses actually incurred by each
employees, plus a service fee. Under the "cost plus"
system which replaced the premium scheme,
petitioner was not given a commission.
It is clear that since petitioner refused to reduce his
commission, Medicard directly negotiated with
Unilab, thus revoking its agency contract with
petitioner. We hold that such revocation is authorized
by Article 1924 of the Civil Code which provides:
"Art. 1924. The agency is revoked if the principal
directly manages the business entrusted to the
agent, dealing directly with third persons."
Moreover, as found by the lower courts, petitioner
did not render services to Medicard, his principal, to
entitle him to a commission. There is no indication
from the records that he exerted any effort in order
that Unilab and Medicard, after the expiration of the
Health Care Program Contract, can renew it for the
third time. In fact, his refusal to reduce his
commission constrained Medicard to negotiate
directly with Unilab. We find no reason in law or in
equity to rule that he is entitled to a commission.
Obviously, he was not the agent or the "procuring
cause" of the third Health Care Program Contract
between Medicard and Unilab.

WHEREFORE,
the
petition
is DENIED.
The
challenged Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 47681 are AFFIRMED IN
TOTO. Costs against petitioner.
SO ORDERED.

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.

G.R. No. 161757

January 25, 2006

On April 6, 2000, Divina filed her Position

Paper4 claiming that under her original one-year
contract and the 2-year extended contract which was
with the knowledge and consent of Sunace, the
following amounts representing income tax and
savings were deducted:
Yea Deduction

for Deduction

for

r
199
7
199
8
199
9

Income Tax

Savings

NT10,450.00

NT23,100.00

NT9,500.00

NT36,000.00

NT13,300.00

NT36,000.00;5

and while the amounts deducted in 1997 were

refunded to her, those deducted in 1998 and 1999
were not. On even date, Sunace, by its
Proprietor/General Manager Maria Luisa Olarte, filed
its Verified Answer and Position Paper, 6 claiming as
follows, quoted verbatim:
COMPLAINANT IS NOT ENTITLED FOR
REFUND OF HER 24 MONTHS SAVINGS

THE

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
President19

Wang

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 Reply 20 filed
before the Court of Appeals,

As can be seen from that letter communication, it

was just an information given to the petitioner that
the private respondent had t[aken] already her
savings from her foreign employer and that no
deduction was made on her salary. It contains
nothing about the extension or the petitioners
consent thereto.21
Parenthetically, since the telefax message is dated
February 21, 2000, it is safe to assume that it was
sent to enlighten Sunace who had been directed, by
Summons issued on February 15, 2000, to appear on
February 28, 2000 for a mandatory conference
following Divinas filing of the complaint on February
14, 2000.
Respecting the Court of Appeals following dictum:
As agent of its foreign principal, [Sunace] cannot
profess ignorance of such an extension as obviously,
the act of its principal extending [Divinas]
employment contract necessarily bound it, 22
it too is a misapplication, a misapplication of the
theory of imputed knowledge.
The theory of imputed knowledge ascribes the
knowledge of the agent, Sunace, to the principal,
employer Xiong,not the other way around.23 The
knowledge of the principal-foreign employer cannot,
therefore, be imputed to its agent Sunace.
There being no substantial proof that Sunace knew of
and consented to be bound under the 2-year
employment contract extension, it cannot be said to
be privy thereto. As such, it and its "owner" cannot
be held solidarily liable for any of Divinas claims
arising from the 2-year employment extension. As
the New Civil Code provides,
Contracts take effect only between the parties, their
assigns, and heirs, except in case where the rights
and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by
provision of law.24
Furthermore, as Sunace correctly points out, there
was an implied revocation of its agency relationship
with its foreign principal when, after the termination
of the original employment contract, the foreign
principal directly negotiated with Divina and entered
into a new and separate employment contract in
Taiwan. Article 1924 of the New Civil Code reading

The agency is revoked if the principal directly

manages the business entrusted to the agent,
dealing directly with third persons.
thus applies.
In light of the foregoing discussions, consideration of
the validity of the Waiver and Affidavit of Desistance
which Divina executed in favor of Sunace is rendered
unnecessary.
WHEREFORE, the petition is GRANTED. The
challenged resolutions of the Court of Appeals are
herebyREVERSED and SET ASIDE. The complaint of
respondent
Divina A. Montehermozo
against
petitioner isDISMISSED.
SO ORDERED.

G.R. No. 175885

February 13, 2009

ZENAIDA
G.
MENDOZA, Petitioner,
vs.
ENGR. EDUARDO PAULE, ENGR. ALEXANDER
COLOMA
and
NATIONAL
IRRIGATION
ADMINISTRATION
(NIA
MUOZ,
NUEVA
ECIJA), Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 176271

February 13, 2009

MANUEL
DELA
CRUZ Petitioner,
vs.
ENGR. EDUARDO M. PAULE, ENGR. ALEXANDER
COLOMA
and
NATIONAL
IRRIGATION
ADMINISTRATION
(NIA
MUOZ,
NUEVA
ECIJA), Respondents.
DECISION
YNARES-SANTIAGO, J.:
These consolidated petitions assail the August 28,
2006 Decision1 of the Court of Appeals in CA-G.R. CV
No. 80819 dismissing the complaint in Civil Case No.
18-SD (2000),2 and its December 11, 2006
Resolution3 denying the herein petitioners motion for
reconsideration.
Engineer Eduardo M. Paule (PAULE) is the proprietor
of E.M. Paule Construction and Trading (EMPCT). On
May 24, 1999, PAULE executed a special power of
attorney (SPA) authorizing Zenaida G. Mendoza
(MENDOZA) to participate in the pre-qualification and
bidding of a National Irrigation Administration (NIA)
project and to represent him in all transactions
related thereto, to wit:
1. To represent E.M. PAULE CONSTRUCTION
& TRADING of which I (PAULE) am the
General Manager in all my business
transactions
with
National
Irrigation
Authority, Muoz, Nueva Ecija.
2. To participate in the bidding, to secure bid
bonds and other documents pre-requisite in
the bidding of Casicnan Multi-Purpose
Irrigation and Power Plant (CMIPPL 04-99),

National Irrigation Authority, Muoz, Nueva

Ecija.
3. To receive and collect payment in check
in behalf of E.M. PAULE CONSTRUCTION &
TRADING.
4. To do and perform such acts and things
that may be necessary and/or required to
make the herein authority effective.4
On September 29, 1999, EMPCT, through MENDOZA,
participated in the bidding of the NIA-Casecnan MultiPurpose Irrigation and Power Project (NIA-CMIPP) and
was awarded Packages A-10 and B-11 of the NIACMIPP Schedule A. On November 16, 1999,
MENDOZA received the Notice of Award which was
signed by Engineer Alexander M. Coloma (COLOMA),
then Acting Project Manager for the NIA-CMIPP.
Packages A-10 and B-11 involved the construction of
a road system, canal structures and drainage box
culverts with a project cost of P5,613,591.69.
When Manuel de la Cruz (CRUZ) learned that
MENDOZA is in need of heavy equipment for use in
the NIA project, he met up with MENDOZA in Bayuga,
Muoz, Nueva Ecija, in an apartment where the latter
was holding office under an EMPCT signboard. A
series of meetings followed in said EMPCT office
among CRUZ, MENDOZA and PAULE.
On December 2 and 20, 1999, MENDOZA and CRUZ
signed two Job Orders/Agreements 5 for the lease of
the latters heavy equipment (dump trucks for
hauling purposes) to EMPCT.
On April 27, 2000, PAULE revoked 6 the SPA he
previously
issued
in
favor
of
MENDOZA;
consequently, NIA refused to make payment to
MENDOZA on her billings. CRUZ, therefore, could not
be paid for the rent of the equipment. Upon advice of
MENDOZA, CRUZ addressed his demands for
payment of lease rentals directly to NIA but the latter
refused to acknowledge the same and informed
CRUZ that it would be remitting payment only to
EMPCT as the winning contractor for the project.
In a letter dated April 5, 2000, CRUZ demanded from
MENDOZA and/or EMPCT payment of the outstanding
rentals which amounted to P726,000.00 as of March
31, 2000.

On June 30, 2000, CRUZ filed Civil Case No. 18-SD

(2000) with Branch 37 of the Regional Trial Court of
Nueva Ecija, for collection of sum of money with
damages and a prayer for the issuance of a writ of
preliminary injunction against PAULE, COLOMA and
the NIA. PAULE in turn filed a third-party complaint
against MENDOZA, who filed her answer thereto, with
a cross-claim against PAULE.

present his evidence ex parte. Among the witnesses

he presented was MENDOZA, who was impleaded as
defendant in PAULEs third-party complaint.

MENDOZA alleged in her cross-claim that because of

PAULEs "whimsical revocation" of the SPA, she was
barred from collecting payments from NIA, thus
resulting in her inability to fund her checks which she
had issued to suppliers of materials, equipment and
labor for the project. She claimed that estafa and B.P.
Blg. 22 cases were filed against her; that she could
no longer finance her childrens education; that she
was evicted from her home; that her vehicle was
foreclosed upon; and that her reputation was
destroyed, thus entitling her to actual and moral
damages in the respective amounts of P3 million and
P1 million.

However, without resolving MENDOZAs motion to

declare PAULE non-suited, and without granting her
the opportunity to present her evidence ex parte, the
trial court rendered its decision dated August 7,
2003, the dispositive portion of which states, as
follows:

Meanwhile, on August 23, 2000, PAULE again

constituted MENDOZA as his attorney-in-fact
1. To represent me (PAULE), in my capacity
as General Manager of the E.M. PAULE
CONSTRUCTION AND TRADING, in all
meetings, conferences and transactions
exclusively for the construction of the
projects known as Package A-10 of Schedule
A and Package No. B-11 Schedule B, which
are 38.61% and 63.18% finished as of June
21, 2000, per attached Accomplishment
Reports x x x;
2. To implement, execute, administer and
supervise the said projects in whatever
stage they are in as of to date, to collect
checks and other payments due on said
projects and act as the Project Manager for
E.M. PAULE CONSTRUCTION AND TRADING;
3. To do and perform such acts and things
that may be necessary and required to
make the herein power and authority
effective.7
At the pre-trial conference, the other parties were
declared as in default and CRUZ was allowed to

On March 6, 2003, MENDOZA filed a motion to

declare third-party plaintiff PAULE non-suited with
prayer that she be allowed to present her
evidence ex parte.

WHEREFORE, judgment is hereby rendered in favor of

the plaintiff as follows:
1. Ordering defendant Paule to pay the
plaintiff the sum of P726,000.00 by way of
actual damages or compensation for the
services rendered by him;
2. Ordering defendant Paule to pay plaintiff
the sum of P500,000.00 by way of moral
damages;
3. Ordering defendant Paule to pay plaintiff
the sum of P50,000.00 by way of reasonable
attorneys fees;
4. Ordering defendant Paule to pay the costs
of suit; and
5. Ordering defendant National Irrigation
Administration (NIA) to withhold the balance
still due from it to defendant Paule/E.M.
Paule Construction and Trading under NIACMIPP Contract Package A-10 and to pay
plaintiff therefrom to the extent of
defendant Paules liability herein adjudged.
SO ORDERED.8
In holding PAULE liable, the trial court found that
MENDOZA was duly constituted as EMPCTs agent for
purposes of the NIA project and that MENDOZA
validly contracted with CRUZ for the rental of heavy
equipment that was to be used therefor. It found

unavailing PAULEs assertion that MENDOZA merely

borrowed and used his contractors license in
exchange for a consideration of 3% of the aggregate
amount of the project. The trial court held that
through the SPAs he executed, PAULE clothed
MENDOZA with apparent authority and held her out
to the public as his agent; as principal, PAULE must
comply with the obligations which MENDOZA
contracted within the scope of her authority and for
his benefit. Furthermore, PAULE knew of the
transactions which MENDOZA entered into since at
various times when she and CRUZ met at the EMPCT
office, PAULE was present and offered no objections.
The trial court declared that it would be unfair to
allow PAULE to enrich himself and disown his acts at
the expense of CRUZ.
PAULE and MENDOZA both appealed the trial courts
decision to the Court of Appeals.
PAULE claimed that he did not receive a copy of the
order of default; that it was improper for MENDOZA,
as third-party defendant, to have taken the stand as
plaintiff CRUZs witness; and that the trial court erred
in finding that an agency was created between him
and MENDOZA, and that he was liable as principal
thereunder.
On the other hand, MENDOZA argued that the trial
court erred in deciding the case without affording her
the opportunity to present evidence on her crossclaim against PAULE; that, as a result, her cross-claim
against PAULE was not resolved, leaving her unable
to
collect
the
amounts
of
P3,018,864.04,
P500,000.00, and P839,450.88 which allegedly
represent the unpaid costs of the project and the
amount PAULE received in excess of payments made
by NIA.
On August 28, 2006, the Court of Appeals rendered
the assailed Decision which dismissed CRUZs
complaint, as well as MENDOZAs appeal. The
appellate court held that the SPAs issued in
MENDOZAs favor did not grant the latter the
authority to enter into contract with CRUZ for hauling
services; the SPAs limit MENDOZAs authority to only
represent EMPCT in its business transactions with
NIA, to participate in the bidding of the project, to
receive and collect payment in behalf of EMPCT, and
to perform such acts as may be necessary and/or
required to make the said authority effective. Thus,

the engagement of CRUZs hauling services was

done beyond the scope of MENDOZAs authority.
As for CRUZ, the Court of Appeals held that he knew
the limits of MENDOZAs authority under the SPAs yet
he still transacted with her. Citing Manila Memorial
Park Cemetery, Inc. v. Linsangan,9 the appellate court
declared that the principal (PAULE) may not be bound
by the acts of the agent (MENDOZA) where the third
person (CRUZ) transacting with the agent knew that
the latter was acting beyond the scope of her power
or authority under the agency.
With respect to MENDOZAs appeal, the Court of
Appeals held that when the trial court rendered
judgment, not only did it rule on the plaintiffs
complaint; in effect, it resolved the third-party
complaint as well;10 that the trial court correctly
dismissed the cross-claim and did not unduly ignore
or disregard it; that MENDOZA may not claim, on
appeal, the amounts of P3,018,864.04, P500,000.00,
and P839,450.88 which allegedly represent the
unpaid costs of the project and the amount PAULE
received in excess of payments made by NIA, as
these are not covered by her cross-claim in the
court a quo, which seeks reimbursement only of the
amounts of P3 million and P1 million, respectively, for
actual damages (debts to suppliers, laborers, lessors
of heavy equipment, lost personal property) and
moral damages she claims she suffered as a result of
PAULEs revocation of the SPAs; and that the
revocation of the SPAs is a prerogative that is allowed
to PAULE under Article 192011 of the Civil Code.
CRUZ and MENDOZAs motions for reconsideration
were denied; hence, these consolidated petitions:
G.R. No. 175885 (MENDOZA PETITION)
a) The Court of Appeals erred in sustaining
the trial courts failure to resolve her motion
praying that PAULE be declared non-suited
on his third-party complaint, as well as her
motion seeking that she be allowed to
present evidence ex parte on her crossclaim;
b) The Court of Appeals erred when it
sanctioned the trial courts failure to resolve
her cross-claim against PAULE; and,

c) The Court of Appeals erred in its

application of Article 1920 of the Civil Code,
and in adjudging that MENDOZA had no
right to claim actual damages from PAULE
for debts incurred on account of the SPAs
issued to her.
G.R. No. 176271 (CRUZ PETITION)
CRUZ argues that the decision of the Court of
Appeals is contrary to the provisions of law on
agency, and conflicts with the Resolution of the Court
in G.R. No. 173275, which affirmed the Court of
Appeals decision in CA-G.R. CV No. 81175, finding
the existence of an agency relation and where PAULE
was declared as MENDOZAs principal under the
subject SPAs and, thus, liable for obligations (unpaid
construction materials, fuel and heavy equipment
rentals) incurred by the latter for the purpose of
implementing and carrying out the NIA project
awarded to EMPCT.
CRUZ argues that MENDOZA was acting within the
scope of her authority when she hired his services as
hauler of debris because the NIA project (both
Packages A-10 and B-11 of the NIA-CMIPP) consisted
of construction of canal structures, which involved
the clearing and disposal of waste, acts that are
necessary and incidental to PAULEs obligation under
the NIA project; and that the decision in a civil case
involving the same SPAs, where PAULE was found
liable as MENDOZAs principal already became final
and executory; that in Civil Case No. 90-SD filed by
MENDOZA against PAULE,12 the latter was adjudged
liable to the former for unpaid rentals of heavy
equipment and for construction materials which
MENDOZA obtained for use in the subject NIA project.
On September 15, 2003, judgment was rendered in
said civil case against PAULE, to wit:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiff (MENDOZA) and against the defendant
(PAULE) as follows:
1. Ordering defendant Paule to pay plaintiff
the sum of P138,304.00 representing the
obligation incurred by the plaintiff with LGH
Construction;
2. Ordering defendant Paule to pay plaintiff
the sum of P200,000.00 representing the

balance of the obligation incurred by the

plaintiff with Artemio Alejandrino;
3. Ordering defendant Paule to pay plaintiff
the sum of P520,000.00 by way of moral
damages, and further sum of P100,000.00
by way of exemplary damages;
4. Ordering defendant Paule to pay plaintiff
the sum of P25,000.00 as for attorneys
fees; and

MENDOZA, for her part, claims that she has a right to

be heard on her cause of action as stated in her
cross-claim against PAULE; that the trial courts
failure to resolve the cross-claim was a violation of
her constitutional right to be apprised of the facts or
the law on which the trial courts decision is based;
that PAULE may not revoke her appointment as
attorney-in-fact for and in behalf of EMPCT because,
as manager of their partnership in the NIA project,
she was obligated to collect from NIA the funds to be
used for the payment of suppliers and contractors
with whom she had earlier contracted for labor,
materials and equipment.

5. To pay the cost of suit.13

PAULE appealed14 the above decision, but it was
dismissed by the Court of Appeals in a
Decision15 which reads, in part:
As to the finding of the trial court that the principle of
agency is applicable in this case, this Court agrees
therewith. It must be emphasized that appellant
(PAULE) authorized appellee (MENDOZA) to perform
any and all acts necessary to make the business
transaction of EMPCT with NIA effective. Needless to
state, said business transaction pertained to the
construction of canal structures which necessitated
the utilization of construction materials and
equipments.1avvphi1 Having given said authority,
appellant cannot be allowed to turn its back on the
transactions entered into by appellee in behalf of
EMPCT.
The amount of moral damages and attorneys fees
awarded by the trial court being justifiable and
commensurate to the damage suffered by appellee,
this Court shall not disturb the same. It is well-settled
that the award of damages as well as attorneys fees
lies upon the discretion of the court in the context of
the facts and circumstances of each case.
WHEREFORE, the appeal is DISMISSED and the
appealed Decision is AFFIRMED.
SO ORDERED.

16

PAULE filed a petition to this Court docketed as G.R.

No. 173275 but it was denied with finality on
September 13, 2006.

PAULE, on the other hand, argues in his Comment

that MENDOZAs authority under the SPAs was for
the limited purpose of securing the NIA project; that
MENDOZA was not authorized to contract with other
parties with regard to the works and services
required for the project, such as CRUZs hauling
services; that MENDOZA acted beyond her authority
in contracting with CRUZ, and PAULE, as principal,
should not be made civilly liable to CRUZ under the
SPAs; and that MENDOZA has no cause of action
against him for actual and moral damages since the
latter exceeded her authority under the agency.
We grant the consolidated petitions.
Records show that PAULE (or, more appropriately,
EMPCT) and MENDOZA had entered into a
partnership in regard to the NIA project. PAULEs
contribution thereto is his contractors license and
expertise, while MENDOZA would provide and secure
the needed funds for labor, materials and services;
deal with the suppliers and sub-contractors; and in
general and together with PAULE, oversee the
effective implementation of the project. For this,
PAULE would receive as his share three per cent (3%)
of the project cost while the rest of the profits shall
go to MENDOZA. PAULE admits to this arrangement
in all his pleadings.17
Although the SPAs limit MENDOZAs authority to such
acts as representing EMPCT in its business
transactions with NIA, participating in the bidding of
the project, receiving and collecting payment in
behalf of EMPCT, and performing other acts in
furtherance thereof, the evidence shows that when
MENDOZA and CRUZ met and discussed (at the
EMPCT office in Bayuga, Muoz, Nueva Ecija) the
lease of the latters heavy equipment for use in the

project, PAULE was present and interposed no

objection to MENDOZAs actuations. In his pleadings,
PAULE does not even deny this. Quite the contrary,
MENDOZAs actions were in accord with what she
and PAULE originally agreed upon, as to division of
labor and delineation of functions within their
partnership. Under the Civil Code, every partner is an
agent of the partnership for the purpose of its
business;18 each one may separately execute all acts
of administration, unless a specification of their
respective duties has been agreed upon, or else it is
stipulated that any one of them shall not act without
the consent of all the others.19 At any rate, PAULE
does not have any valid cause for opposition because
his only role in the partnership is to provide his
contractors license and expertise, while the sourcing
of funds, materials, labor and equipment has been
relegated to MENDOZA.
Moreover, it does not speak well for PAULE that he
reinstated MENDOZA as his attorney-in-fact, this time
with broader powers to implement, execute,
administer and supervise the NIA project, to collect
checks and other payments due on said project, and
act as the Project Manager for EMPCT, even after
CRUZ has already filed his complaint. Despite
knowledge that he was already being sued on the
SPAs, he proceeded to execute another in
MENDOZAs favor, and even granted her broader
powers of administration than in those being sued
upon. If he truly believed that MENDOZA exceeded
her authority with respect to the initial SPA, then he
would not have issued another SPA. If he thought
that his trust had been violated, then he should not
have executed another SPA in favor of MENDOZA,
much less grant her broader authority.
Given the present factual milieu, CRUZ has a cause
of action against PAULE and MENDOZA. Thus, the
Court of Appeals erred in dismissing CRUZs
complaint on a finding of exceeded agency. Besides,
that PAULE could be held liable under the SPAs for
transactions entered into by MENDOZA with laborers,
suppliers of materials and services for use in the NIA
project, has been settled with finality in G.R. No.
173275. What has been adjudged in said case as
regards the SPAs should be made to apply to the
instant case. Although the said case involves
different parties and transactions, it finally disposed
of the matter regarding the SPAs specifically their
effect as among PAULE, MENDOZA and third parties
with whom MENDOZA had contracted with by virtue
of the SPAs a disposition that should apply to CRUZ

as well. If a particular point or question is in issue in

the second action, and the judgment will depend on
the determination of that particular point or question,
a former judgment between the same parties or their
privies will be final and conclusive in the second if
that same point or question was in issue and
adjudicated in the first suit. Identity of cause of
action is not required but merely identity of issues.20
There was no valid reason for PAULE to revoke
MENDOZAs SPAs. Since MENDOZA took care of the
funding and sourcing of labor, materials and
equipment for the project, it is only logical that she
controls the finances, which means that the SPAs
issued to her were necessary for the proper
performance of her role in the partnership, and to
discharge the obligations she had already contracted
prior to revocation. Without the SPAs, she could not
collect from NIA, because as far as it is concerned,
EMPCT and not the PAULE-MENDOZA partnership
is the entity it had contracted with. Without these
payments from NIA, there would be no source of
funds to complete the project and to pay off
obligations incurred. As MENDOZA correctly argues,
an agency cannot be revoked if a bilateral contract
depends upon it, or if it is the means of fulfilling an
obligation already contracted, or if a partner is
appointed manager of a partnership in the contract
of partnership and his removal from the
management is unjustifiable.21
PAULEs revocation of the SPAs was done in evident
bad faith. Admitting all throughout that his only
entitlement in the partnership with MENDOZA is his
3% royalty for the use of his contractors license, he
knew that the rest of the amounts collected from NIA
was owing to MENDOZA and suppliers of materials
and services, as well as the laborers. Yet, he
deliberately revoked MENDOZAs authority such that
the latter could no longer collect from NIA the
amounts necessary to proceed with the project and
settle outstanding obligations.lawphil.net
From the way he conducted himself, PAULE
committed a willful and deliberate breach of his
contractual duty to his partner and those with whom
the partnership had contracted. Thus, PAULE should
be made liable for moral damages.
Bad faith does not simply connote bad judgment or
negligence; it imputes a dishonest purpose or some
moral obliquity and conscious doing of a wrong; a

breach of a sworn duty through some motive or

intent or ill-will; it partakes of the nature of fraud
(Spiegel v. Beacon Participation, 8 NE 2nd Series,
895, 1007). It contemplates a state of mind
affirmatively operating with furtive design or some
motive of self-interest or ill will for ulterior purposes
(Air France v. Carrascoso, 18 SCRA 155, 166-167).
Evident bad faith connotes a manifest deliberate
intent on the part of the accused to do wrong or
cause damage.22

amended rules now unequivocally protect such

counterclaim from peremptory dismissal by reason of
the dismissal of the complaint.23

Moreover, PAULE should be made civilly liable for

abandoning the partnership, leaving MENDOZA to
fend for her own, and for unduly revoking her
authority to collect payments from NIA, payments
which were necessary for the settlement of
obligations contracted for and already owing to
laborers and suppliers of materials and equipment
like CRUZ, not to mention the agreed profits to be
derived from the venture that are owing to MENDOZA
by reason of their partnership agreement. Thus, the
trial court erred in disregarding and dismissing
MENDOZAs cross-claim which is properly a
counterclaim, since it is a claim made by her as
defendant in a third-party complaint against PAULE,
just as the appellate court erred in sustaining it on
the justification that PAULEs revocation of the SPAs
was within the bounds of his discretion under Article
1920 of the Civil Code.

WHEREFORE, the petitions are GRANTED. The August

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

Where the defendant has interposed a counterclaim

(whether compulsory or permissive) or is seeking
affirmative relief by a cross-complaint, the plaintiff
cannot dismiss the action so as to affect the right of
the defendant in his counterclaim or prayer for
affirmative relief. The reason for that exception is
clear. When the answer sets up an independent
action against the plaintiff, it then becomes an action
by the defendant against the plaintiff, and, of course,
the plaintiff has no right to ask for a dismissal of the
defendants action. The present rule embodied in
Sections 2 and 3 of Rule 17 of the 1997 Rules of Civil
Procedure ordains a more equitable disposition of the
counterclaims by ensuring that any judgment
thereon is based on the merit of the counterclaim
itself and not on the survival of the main complaint.
Certainly, if the counterclaim is palpably without
merit or suffers jurisdictional flaws which stand
independent of the complaint, the trial court is not
precluded from dismissing it under the amended
rules, provided that the judgment or order dismissing
the counterclaim is premised on those defects. At the
same time, if the counterclaim is justified, the

Notwithstanding the immutable character of PAULEs

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

SO ORDERED.

G.R. No. 83122 October 19, 1990

ARTURO P. VALENZUELA and HOSPITALITA N.
VALENZUELA, petitioners,
vs.
THE
HONORABLE
COURT
OF
APPEALS,
BIENVENIDO M. ARAGON, ROBERT E. PARNELL,
CARLOS K. CATOLICO and THE PHILIPPINE
AMERICAN GENERAL INSURANCE COMPANY,
INC., respondents.
Albino B. Achas for petitioners.
Angara, Abello, Concepcion, Regala & Cruz for
private respondents.

GUTIERREZ, JR., J.:

This is a petition for review of the January 29, 1988
decision of the Court of Appeals and the April 27,
1988 resolution denying the petitioners' motion for
reconsideration, which decision and resolution
reversed the decision dated June 23,1986 of the
Court of First Instance of Manila, Branch 34 in Civil
Case No. 121126 upholding the petitioners' causes of
action and granting all the reliefs prayed for in their
complaint against private respondents.
The antecedent facts of the case are as follows:

Petitioner Arturo P. Valenzuela (Valenzuela for short)

is a General Agent of private respondent Philippine
American
General
Insurance
Company,
Inc.
(Philamgen for short) since 1965. As such, he was
authorized to solicit and sell in behalf of Philamgen
all kinds of non-life insurance, and in consideration of
services rendered was entitled to receive the full
agent's commission of 32.5% from Philamgen under
the scheduled commission rates (Exhibits "A" and
"1"). From 1973 to 1975, Valenzuela solicited marine
insurance from one of his clients, the Delta Motors,
Inc. (Division of Electronics Airconditioning and
Refrigeration) in the amount of P4.4 Million from
which he was entitled to a commission of 32%
(Exhibit "B"). However, Valenzuela did not receive his
full commission which amounted to P1.6 Million from
the P4.4 Million insurance coverage of the Delta
Motors. During the period 1976 to 1978, premium
payments amounting to P1,946,886.00 were paid
directly to Philamgen and Valenzuela's commission to
which he is entitled amounted to P632,737.00.
In 1977, Philamgen started to become interested in
and expressed its intent to share in the commission
due Valenzuela (Exhibits "III" and "III-1") on a fiftyfifty basis (Exhibit "C"). Valenzuela refused (Exhibit
"D").
On February 8, 1978 Philamgen and its President,
Bienvenido M. Aragon insisted on the sharing of the
commission with Valenzuela (Exhibit E). This was
followed by another sharing proposal dated June 1,
1978. On June 16,1978, Valenzuela firmly reiterated
his objection to the proposals of respondents stating
that: "It is with great reluctance that I have to decline
upon request to signify my conformity to your
alternative proposal regarding the payment of the
commission due me. However, I have no choice for to
do otherwise would be violative of the Agency
Agreement executed between our goodselves."
(Exhibit B-1)
Because of the refusal of Valenzuela, Philamgen and
its officers, namely: Bienvenido Aragon, Carlos
Catolico and Robert E. Parnell took drastic action
against Valenzuela. They: (a) reversed the
commission due him by not crediting in his account
the commission earned from the Delta Motors, Inc.
insurance (Exhibit "J" and "2"); (b) placed agency
transactions on a cash and carry basis; (c)
threatened the cancellation of policies issued by his
agency (Exhibits "H" to "H-2"); and (d) started to leak

out news that Valenzuela has a substantial account

with Philamgen. All of these acts resulted in the
decline of his business as insurance agent (Exhibits
"N", "O", "K" and "K-8"). Then on December 27, 1978,
Philamgen
terminated
the
General
Agency
Agreement of Valenzuela (Exhibit "J", pp. 1-3,
Decision Trial Court dated June 23, 1986, Civil Case
No. 121126, Annex I, Petition).
The petitioners sought relief by filing the complaint
against the private respondents in the court a
quo (Complaint of January 24, 1979, Annex "F"
Petition). After due proceedings, the trial court found:
xxx xxx xxx
Defendants tried to justify the
termination of plaintiff Arturo P.
Valenzuela as one of defendant
PHILAMGEN's General Agent by
making it appear that plaintiff
Arturo
P.
Valenzuela
has
a
substantial account with defendant
PHILAMGEN
particularly
Delta
Motors, Inc.'s Account, thereby
prejudicing
defendant
PHILAMGEN's
interest
(Exhibits
6,"11","11- "12- A"and"13-A").
Defendants
also
invoked
the
provisions of the Civil Code of the
Philippines (Article 1868) and the
provisions of the General Agency
Agreement as their basis for
terminating
plaintiff Arturo
P.
Valenzuela as one of their General
Agents.
That defendants' position could
have been justified had the
termination of plaintiff Arturo P.
Valenzuela was (sic) based solely
on the provisions of the Civil Code
and the conditions of the General
Agency Agreement. But the records
will show that the principal cause
of the termination of the plaintiff as
General
Agent
of
defendant
PHILAMGEN was his refusal to
share his Delta commission.

That it should be noted that there

were several attempts made by
defendant Bienvenido M. Aragon to
share with the Delta commission of
plaintiff Arturo P. Valenzuela. He
had
persistently
pursued
the
sharing scheme to the point of
terminating
plaintiff Arturo
P.
Valenzuela, and to make matters
worse, defendants made it appear
that plaintiff Arturo P. Valenzuela
had substantial accounts with
defendant PHILAMGEN.
Not only that, defendants have also
started (a) to treat separately the
Delta Commission of plaintiff Arturo
P. Valenzuela, (b) to reverse the
Delta commission due plaintiff
Arturo P. Valenzuela by not
crediting
or
applying
said
commission earned to the account
of plaintiff Arturo P. Valenzuela, (c)
placed
plaintiff
Arturo
P.
Valenzuela's agency transactions
on a "cash and carry basis", (d)
sending threats to cancel existing
policies issued by plaintiff Arturo P.
Valenzuela's agency, (e) to divert
plaintiff Arturo P. Valenzuela's
insurance
business
to
other
agencies, and (f) to spread wild and
malicious rumors that plaintiff
Arturo P. Valenzuela has substantial
account
with
defendant
PHILAMGEN to force plaintiff Arturo
P. Valenzuela into agreeing with the
sharing of his Delta commission."
(pp. 9-10, Decision, Annex 1,
Petition).
xxx xxx xxx
These acts of harrassment done by
defendants on plaintiff Arturo P.
Valenzuela to force him to agree to
the
sharing
of
his
Delta
commission, which culminated in
the termination of plaintiff Arturo P.
Valenzuela as one of defendant
PHILAMGEN's General Agent, do
not justify said termination of the

General
Agency
Agreement
entered
into
by
defendant
PHILAMGEN and plaintiff Arturo P.
Valenzuela.
That since defendants are not
justified in the termination of
plaintiff Arturo P. Valenzuela as one
of their General Agents, defendants
shall be liable for the resulting
damage and loss of business of
plaintiff Arturo P. Valenzuela. (Arts.
2199/2200, Civil Code of the
Philippines). (Ibid, p. 11)
The court accordingly rendered
dispositive portion of which reads:

judgment,

the

WHEREFORE, judgment is hereby

rendered in favor of the plaintiffs
and against defendants ordering
the latter to reinstate plaintiff
Arturo P. Valenzuela as its General
Agent, and to pay plaintiffs, jointly
and severally, the following:
1. The amount of five hundred
twenty-one thousand nine hundred
sixty four and 16/100 pesos
(P521,964.16) representing plaintiff
Arturo
P.
Valenzuela's
Delta
Commission with interest at the
legal rate from the time of the filing
of the complaint, which amount
shall be adjusted in accordance
with Article 1250 of the Civil Code
of the Philippines;
2. The amount of seventy-five
thousand pesos (P75,000.00) per
month as compensatory damages
from 1980 until such time that
defendant
Philamgen
shall
reinstate
plaintiff
Arturo
P.
Valenzuela as one of its general
agents;
3. The amount of three hundred
fifty thousand pesos (P350,000.00)
for
each
plaintiff
as
moral
damages;

4. The amount of seventy-five

thousand pesos (P75,000.00) as
and for attorney's fees;
5. Costs of the suit. (Ibid., P. 12)
From the aforesaid decision of the
trial court, Bienvenido Aragon,
Robert E. Parnell, Carlos K. Catolico
and
PHILAMGEN
respondents
herein, and defendants-appellants
below, interposed an appeal on the
following:
ASSIGNMENT OF ERRORS
I
THE LOWER COURT ERRED IN
HOLDING THAT PLAINTIFF ARTURO
P.
VALENZUELA
HAD
NO
OUTSTANDING
ACCOUNT
WITH
DEFENDANT PHILAMGEN AT THE
TIME OF THE TERMINATION OF THE
AGENCY.
II
THE LOWER COURT ERRED IN
HOLDING THAT PLAINTIFF ARTURO
P. VALENZUELA IS ENTITLED TO
THE FULL COMMISSION OF 32.5%
ON THE DELTA ACCOUNT.
III
THE LOWER COURT ERRED IN
HOLDING THAT THE TERMINATION
OF
PLAINTIFF
ARTURO
P.
VALENZUELA WAS NOT JUSTIFIED
AND
THAT
CONSEQUENTLY
DEFENDANTS ARE LIABLE FOR
ACTUAL AND MORAL DAMAGES,
ATTORNEYS FEES AND COSTS.
IV
ASSUMING ARGUENDO THAT THE
AWARD OF DAMAGES AGAINST

DEFENDANT
PHILAMGEN
WAS
PROPER,
THE
LOWER
COURT
ERRED IN AWARDING DAMAGES
EVEN AGAINST THE INDIVIDUAL
DEFENDANTS WHO ARE MERE
CORPORATE
AGENTS
ACTING
WITHIN THE SCOPE OF THEIR
AUTHORITY.
V
ASSUMING ARGUENDO THAT THE
AWARD OF DAMAGES IN FAVOR OF
PLAINTIFF ARTURO P. VALENZUELA
WAS PROPER, THE LOWER COURT
ERRED IN AWARDING DAMAGES IN
FAVOR
OF
HOSPITALITA
VALENZUELA, WHO, NOT BEING
THE REAL PARTY IN INTEREST IS
NOT TO OBTAIN RELIEF.
On January 29, 1988, respondent Court of Appeals
promulgated its decision in the appealed case. The
dispositive portion of the decision reads:
WHEREFORE,
the
decision
appealed from is hereby modified
accordingly and judgment is hereby
rendered ordering:
1. Plaintiff-appellee Valenzuela to
pay defendant-appellant Philamgen
the sum of one million nine
hundred thirty two thousand five
hundred thirty-two pesos and
seventeen
centavos
(P1,902,532.17), with legal interest
thereon from the date of finality of
this judgment until fully paid.
2. Both plaintiff-appellees to pay
jointly and severally defendantsappellants
the
sum
of
fifty
thousand pesos (P50,000.00) as
and by way of attorney's fees.
No pronouncement is made as to
costs. (p. 44, Rollo)

There is in this instance irreconcilable divergence in

the findings and conclusions of the Court of
Appeals, vis-a-visthose of the trial court particularly
on the pivotal issue whether or not Philamgen and/or
its officers can be held liable for damages due to the
termination of the General Agency Agreement it
entered into with the petitioners. In its questioned
decision the Court of Appeals observed that:
In any event the principal's power
to revoke an agency at will is so
pervasive, that the Supreme Court
has
consistently
held
that
termination may be effected even
if the principal acts in bad faith,
subject only to the principal's
liability for damages (Danon v.
Antonio A. Brimo & Co., 42 Phil.
133; Reyes v. Mosqueda, 53 O.G.
2158 and Infante V. Cunanan, 93
Phil. 691, cited in Paras, Vol. V, Civil
Code of the Philippines Annotated
[1986] 696).
The lower court, however, thought
the termination of Valenzuela as
General Agent improper because
the record will show the principal
cause of the termination of the
plaintiff as General Agent of
defendant Philamgen was his
refusal
to
share
his
Delta
commission. (Decision, p. 9; p.
13, Rollo, 41)
Because of the conflicting conclusions, this Court
deemed it necessary in the interest of substantial
justice to scrutinize the evidence and records of the
cases. While it is an established principle that the
factual findings of the Court of Appeals are final and
may not be reviewed on appeal to this Court, there
are however certain exceptions to the rule which this
Court has recognized and accepted, among which,
are
when
the
judgment
is
based
on
a
misapprehension of facts and when the findings of
the appellate court, are contrary to those of the trial
court (Manlapaz v. Court of Appeals, 147 SCRA 236
[1987]); Guita v. Court of Appeals, 139 SCRA 576
[1986]). Where the findings of the Court of Appeals
and the trial court are contrary to each other, this
Court may scrutinize the evidence on record (Cruz v.
Court of Appeals, 129 SCRA 222 [1984]; Mendoza v.

Court of Appeals, 156 SCRA 597 [1987]; Maclan v.

Santos, 156 SCRA 542 [1987]). When the conclusion
of the Court of Appeals is grounded entirely on
speculation, surmises or conjectures, or when the
inference made is manifestly mistaken, absurd or
impossible, or when there is grave abuse of
discretion, or when the judgment is based on a
misapprehension of facts, and when the findings of
facts are conflict the exception also applies
(Malaysian Airline System Bernad v. Court of Appeals,
156 SCRA 321 [1987]).
After a painstaking review of the entire records of the
case and the findings of facts of both the court a
quo and respondent appellate court, we are
constrained to affirm the trial court's findings and
rule for the petitioners.
We agree with the court a quo that the principal
cause of the termination of Valenzuela as General
Agent of Philamgen arose from his refusal to share
his Delta commission. The records sustain the
conclusions of the trial court on the apparent bad
faith of the private respondents in terminating the
General Agency Agreement of petitioners. It is
axiomatic that the findings of fact of a trial judge are
entitled to great weight (People v. Atanacio, 128
SCRA 22 [1984]) and should not be disturbed on
appeal unless for strong and cogent reasons,
because the trial court is in a better position to
examine the evidence as well as to observe the
demeanor of the witnesses while testifying (Chase v.
Buencamino, Sr., 136 SCRA 365 [1985]; People v.
Pimentel, 147 SCRA 25 [1987]; and Baliwag Trans.,
Inc. v. Court of Appeals, 147 SCRA 82 [1987]). In the
case at bar, the records show that the findings and
conclusions of the trial court are supported by
substantial evidence and there appears to be no
cogent reason to disturb them (Mendoza v. Court of
Appeals. 156 SCRA 597 [1987]).
As early as September 30,1977, Philamgen told the
petitioners of its desire to share the Delta
Commission with them. It stated that should Delta
back out from the agreement, the petitioners would
be charged interests through a reduced commission
after full payment by Delta.
On January 23, 1978 Philamgen proposed reducing
the petitioners' commissions by 50% thus giving
them an agent's commission of 16.25%. On February
8, 1978, Philamgen insisted on the reduction scheme

followed on June 1, 1978 by still another insistence

on reducing commissions and proposing two
alternative schemes for reduction. There were other
pressures. Demands to settle accounts, to confer and
thresh out differences regarding the petitioners'
income and the threat to terminate the agency
followed. The petitioners were told that the Delta
commissions would not be credited to their account
(Exhibit "J"). They were informed that the Valenzuela
agency would be placed on a cash and carry basis
thus removing the 60-day credit for premiums due.
(TSN., March 26, 1979, pp. 54-57). Existing policies
were threatened to be cancelled (Exhibits "H" and
"14"; TSN., March 26, 1979, pp. 29-30). The
Valenzuela business was threatened with diversion to
other agencies. (Exhibit "NNN"). Rumors were also
spread about alleged accounts of the Valenzuela
agency (TSN., January 25, 1980, p. 41). The
petitioners consistently opposed the pressures to
hand over the agency or half of their commissions
and for a treatment of the Delta account distinct from
other accounts. The pressures and demands,
however, continued until the agency agreement itself
was finally terminated.
It is also evident from the records that the agency
involving petitioner and private respondent is one
"coupled with an interest," and, therefore, should not
be freely revocable at the unilateral will of the latter.
In the insurance business in the Philippines, the most
difficult and frustrating period is the solicitation and
persuasion of the prospective clients to buy
insurance policies. Normally, agents would encounter
much embarrassment, difficulties, and oftentimes
frustrations in the solicitation and procurement of the
insurance policies. To sell policies, an agent exerts
great effort, patience, perseverance, ingenuity, tact,
imagination, time and money. In the case of
Valenzuela, he was able to build up an Agency from
scratch in 1965 to a highly productive enterprise with
gross billings of about Two Million Five Hundred
Thousand Pesos (P2,500,000.00) premiums per
annum. The records sustain the finding that the
private respondent started to covet a share of the
insurance business that Valenzuela had built up,
developed and nurtured to profitability through over
thirteen (13) years of patient work and perseverance.
When Valenzuela refused to share his commission in
the Delta account, the boom suddenly fell on him.

The private respondents by the simple expedient of

terminating
the
General
Agency
Agreement
appropriated the entire insurance business of
Valenzuela. With the termination of the General
Agency Agreement, Valenzuela would no longer be
entitled to commission on the renewal of insurance
policies of clients sourced from his agency. Worse,
despite the termination of the agency, Philamgen
continued to hold Valenzuela jointly and severally
liable with the insured for unpaid premiums. Under
these circumstances, it is clear that Valenzuela had
an interest in the continuation of the agency when it
was unceremoniously terminated not only because of
the commissions he should continue to receive from
the insurance business he has solicited and procured
but also for the fact that by the very acts of the
respondents, he was made liable to Philamgen in the
event the insured fail to pay the premiums due. They
are estopped by their own positive averments and
claims for damages. Therefore, the respondents
cannot state that the agency relationship between
Valenzuela and Philamgen is not coupled with
interest. "There may be cases in which an agent has
been induced to assume a responsibility or incur a
liability, in reliance upon the continuance of the
authority under such circumstances that, if the
authority be withdrawn, the agent will be exposed to
personal loss or liability" (See MEC 569 p. 406).
Furthermore, there is an exception to the principle
that an agency is revocable at will and that is when
the agency has been given not only for the interest
of the principal but for the interest of third persons or
for the mutual interest of the principal and the agent.
In these cases, it is evident that the agency ceases to
be freely revocable by the sole will of the principal
(See Padilla, Civil Code Annotated, 56 ed., Vol. IV p.
350). The following citations are apropos:
The principal may not defeat the
agent's right to indemnification by
a termination of the contract of
agency
(Erskine
v.
Chevrolet
Motors Co. 185 NC 479, 117 SE
706, 32 ALR 196).
Where the principal terminates or
repudiates the agent's employment
in violation of the contract of
employment and without cause ...
the agent is entitled to receive
either the amount of net losses

caused and gains prevented by the

breach, or the reasonable value of
the services rendered. Thus, the
agent is entitled to prospective
profits which he would have made
except
for
such
wrongful
termination provided that such
profits are not conjectural, or
speculative but are capable of
determination upon some fairly
reliable basis. And a principal's
revocation
of
the
agency
agreement made to avoid payment
of compensation for a result which
he has actually accomplished
(Hildendorf v. Hague, 293 NW 2d
272; Newhall v. Journal Printing Co.,
105 Minn 44,117 NW 228; Gaylen
Machinery Corp. v. Pitman-Moore
Co. [C.A. 2 NY] 273 F 2d 340)
If a principal violates a contractual
or quasi-contractual duty which he
owes his agent, the agent may as a
rule bring an appropriate action for
the breach of that duty. The agent
may in a proper case maintain an
action at law for compensation or
damages
...
A
wrongfully
discharged agent has a right of
action for damages and in such
action the measure and element of
damages are controlled generally
by the rules governing any other
action for the employer's breach of
an employment contract. (Riggs v.
Lindsay, 11 US 500, 3L Ed 419;
Tiffin Glass Co. v. Stoehr, 54 Ohio
157, 43 NE 2798)
At any rate, the question of whether or not the
agency agreement is coupled with interest is helpful
to the petitioners' cause but is not the primary and
compelling reason. For the pivotal factor rendering
Philamgen and the other private respondents liable
in damages is that the termination by them of the
General Agency Agreement was tainted with bad
faith. Hence, if a principal acts in bad faith and with
abuse of right in terminating the agency, then he is
liable in damages. This is in accordance with the
precepts in Human Relations enshrined in our Civil
Code that "every person must in the exercise of his
rights and in the performance of his duties act with

justice, give every one his due, and observe honesty

and good faith: (Art. 19, Civil Code), and every
person who, contrary to law, wilfully or negligently
causes damages to another, shall indemnify the
latter for the same (Art. 20, id). "Any person who
wilfully causes loss or injury to another in a manner
contrary to morals, good customs and public policy
shall compensate the latter for the damages" (Art.
21, id.).
As to the issue of whether or not the petitioners are
liable to Philamgen for the unpaid and uncollected
premiums which the respondent court ordered
Valenzuela to pay Philamgen the amount of One
Million Nine Hundred Thirty-Two Thousand Five
Hundred
Thirty-Two
and
17/100
Pesos
(P1,932,532,17) with legal interest thereon until fully
paid (Decision-January 20, 1988, p. 16; Petition,
Annex "A"), we rule that the respondent court erred
in holding Valenzuela liable. We find no factual and
legal basis for the award. Under Section 77 of the
Insurance Code, the remedy for the non-payment of
premiums is to put an end to and render the
insurance policy not binding
Sec. 77 ... [N]otwithstanding any
agreement to the contrary, no
policy or contract of insurance is
valid and binding unless and until
the premiums thereof have been
paid except in the case of a life or
industrial life policy whenever the
grace period provision applies (P.D.
612, as amended otherwise known
as the Insurance Code of 1974)
In Philippine Phoenix Surety and Insurance, Inc. v.
Woodworks, Inc. (92 SCRA 419 [1979]) we held that
the non-payment of premium does not merely
suspend but puts an end to an insurance contract
since the time of the payment is peculiarly of the
essence of the contract. And in Arce v. The Capital
Insurance and Surety Co. Inc.(117 SCRA 63, [1982]),
we reiterated the rule that unless premium is paid,
an insurance contract does not take effect. Thus:
It is to be noted that Delgado
(Capital Insurance & Surety Co.,
Inc. v. Delgado, 9 SCRA 177 [1963]
was decided in the light of the
Insurance Act before Sec. 72 was
amended by the underscored

portion. Supra. Prior to the

Amendment, an insurance contract
was effective even if the premium
had not been paid so that an
insurer was obligated to pay
indemnity in case of loss and
correlatively he had also the right
to sue for payment of the
premium. But the amendment to
Sec. 72 has radically changed the
legal regime in that unless the
premium is paid there is no
insurance. "
(Arce
v.
Capitol
Insurance and Surety Co., Inc., 117
SCRA 66; Emphasis supplied)
In Philippine Phoenix Surety case, we held:
Moreover, an insurer cannot treat a
contract as valid for the purpose of
collecting premiums and invalid for
the purpose of indemnity. (Citing
Insurance Law and Practice by John
Alan Appleman, Vol. 15, p. 331;
Emphasis supplied)
The
foregoing
findings
are
buttressed by Section 776 of the
insurance
Code
(Presidential
Decree No. 612, promulgated on
December 18, 1974), which now
provides that no contract of
Insurance
by
an
insurance
company is valid and binding
unless and until the premium
thereof
has
been
paid,
notwithstanding any agreement to
the contrary (Ibid., 92 SCRA 425)
Perforce, since admittedly the premiums have not
been paid, the policies issued have lapsed. The
insurance coverage did not go into effect or did not
continue and the obligation of Philamgen as insurer
ceased. Hence, for Philamgen which had no more
liability under the lapsed and inexistent policies to
demand, much less sue Valenzuela for the unpaid
premiums would be the height of injustice and unfair
dealing. In this instance, with the lapsing of the
policies through the nonpayment of premiums by the
insured there were no more insurance contracts to
speak of. As this Court held in the Philippine Phoenix
Surety case, supra "the non-payment of premiums

does not merely suspend but puts an end to an

insurance contract since the time of the payment is
peculiarly of the essence of the contract."
The respondent appellate court also seriously erred
in according undue reliance to the report of Banaria
and Banaria and Company, auditors, that as of
December 31, 1978, Valenzuela owed Philamgen
P1,528,698.40. This audit report of Banaria was
commissioned by Philamgen after Valenzuela was
almost through with the presentation of his evidence.
In essence, the Banaria report started with an
unconfirmed and unaudited beginning balance of
account of P1,758,185.43 as of August 20, 1976. But
even with that unaudited and unconfirmed beginning
balance of P1,758,185.43, Banaria still came up with
the amount of P3,865.49 as Valenzuela's balance as
of December 1978 with Philamgen (Exh. "38-A-3"). In
fact, as of December 31, 1976, and December 31,
1977, Valenzuela had no unpaid account with
Philamgen (Ref: Annexes "D", "D-1", "E", Petitioner's
Memorandum). But even disregarding these annexes
which are records of Philamgen and addressed to
Valenzuela in due course of business, the facts show
that as of July 1977, the beginning balance of
Valenzuela's account with Philamgen amounted to
P744,159.80. This was confirmed by Philamgen itself
not only once but four (4) times on different
occasions, as shown by the records.
On April 3,1978, Philamgen sent Valenzuela a
statement of account with a beginning balance of
P744,159-80 as of July 1977.
On May 23, 1978, another statement of account with
exactly the same beginning balance was sent to
Valenzuela.
On November 17, 1978, Philamgen sent still another
statement of account with P744,159.80 as the
beginning balance.
And on December 20, 1978, a statement of account
with exactly the same figure was sent to Valenzuela.

It was only after the filing of the complaint that a

radically different statement of accounts surfaced in
court. Certainly, Philamgen's own statements made
by its own accountants over a long period of time
and covering examinations made on four different
occasions must prevail over unconfirmed and
unaudited statements made to support a position
made in the course of defending against a lawsuit.
It is not correct to say that Valenzuela should have
presented its own records to refute the unconfirmed
and unaudited finding of the Banaria auditor. The
records of Philamgen itself are the best refutation
against figures made as an afterthought in the
course of litigation. Moreover, Valenzuela asked for a
meeting where the figures would be reconciled.
Philamgen refused to meet with him and, instead,
terminated the agency agreement.
After off-setting the amount of P744,159.80,
beginning balance as of July 1977, by way of credits
representing the commission due from Delta and
other accounts, Valenzuela had overpaid Philamgen
the amount of P530,040.37 as of November 30,
1978. Philamgen cannot later be heard to complain
that it committed a mistake in its computation. The
alleged error may be given credence if committed
only once. But as earlier stated, the reconciliation of
accounts was arrived at four (4) times on different
occasions where Philamgen was duly represented by
its account executives. On the basis of these
admissions and representations, Philamgen cannot
later on assume a different posture and claim that it
was mistaken in its representation with respect to the
correct beginning balance as of July 1977 amounting
to
P744,159.80.
The
Banaria
audit
report
commissioned by Philamgen is unreliable since its
results are admittedly based on an unconfirmed and
unaudited beginning balance of P1,758,185.43 as of
August 20,1976.
As so aptly stated by the trial court in its decision:
Defendants also conducted an
audit of accounts of plaintiff Arturo
P. Valenzuela after the controversy
has started. In fact, after hearing
plaintiffs have already rested their
case.
The results of said audit were
presented in Court to show plaintiff

Arturo
P.
Valenzuela's
accountability
to
defendant
PHILAMGEN. However, the auditor,
when presented as witness in this
case testified that the beginning
balance of their audit report was
based on an unaudited amount of
P1,758,185.43 (Exhibit 46-A) as of
August 20, 1976, which was
unverified and merely supplied by
the
officers
of
defendant
PHILAMGEN.
Even defendants very own Exhibit
38- A-3, showed that plaintiff Arturo
P. Valenzuela's balance as of 1978
amounted to only P3,865.59, not
P826,128.46 as stated in defendant
Bienvenido M. Aragon's letter
dated December 20,1978 (Exhibit
14) or P1,528,698.40 as reflected
in defendant's Exhibit 46 (Audit
Report of Banaria dated December
24, 1980).
These glaring discrepancy (sic) in
the accountability of plaintiff Arturo
P.
Valenzuela
to
defendant
PHILAMGEN only lends credence to
the claim of plaintiff Arturo P.
Valenzuela
that
he
has
no
outstanding
account
with
defendant PHILAMGEN when the
latter, thru defendant Bienvenido
M. Aragon, terminated the General
Agency Agreement entered into by
plaintiff
(Exhibit
A)
effective
January 31, 1979 (see Exhibits "2"
and "2-A"). Plaintiff Arturo P.
Valenzuela has shown that as of
October 31, 1978, he has overpaid
defendant PHILAMGEN in the
amount of P53,040.37 (Exhibit
"EEE", which computation was
based on defendant PHILAMGEN's
balance of P744,159.80 furnished
on several occasions to plaintiff
Arturo P. Valenzuela by defendant
PHILAMGEN (Exhibits H-1, VV, VV-1,
WW, WW-1 , YY , YY-2 , ZZ and , ZZ2).

Prescinding from the foregoing, and considering that

the private respondents terminated Valenzuela with
evidentmala fide it necessarily follows that the
former are liable in damages. Respondent Philamgen
has been appropriating for itself all these years the
gross billings and income that it unceremoniously
took away from the petitioners. The preponderance
of the authorities sustain the preposition that a
principal can be held liable for damages in cases of
unjust termination of agency. In Danon v. Brimo, 42
Phil. 133 [1921]), this Court ruled that where no time
for the continuance of the contract is fixed by its
terms, either party is at liberty to terminate it at will,
subject only to the ordinary requirements of good
faith. The right of the principal to terminate his
authority is absolute and unrestricted, except only
that he may not do so in bad faith.

(P521,964.16) representing the petitioners Delta

commission shall earn only legal interests without
any adjustments under Article 1250 of the Civil Code
and that the contractual relationship between Arturo
P. Valenzuela and Philippine American General
Insurance Company shall be deemed terminated
upon the satisfaction of the judgment as modified.
SO ORDERED.

ACCORDINGLY, the petition is GRANTED. The

impugned decision of January 29, 1988 and
resolution of April 27, 1988 of respondent court are
hereby SET ASIDE. The decision of the trial court
dated January 23, 1986 in Civil Case No. 121126 is
REINSTATED with the MODIFICATIONS that the
amount of FIVE HUNDRED TWENTY ONE THOUSAND
NINE HUNDRED SIXTY-FOUR AND 16/100 PESOS

Before the Court is a Petition for Review on Certiorari

assailing the Decision1 dated October 27, 2003 of the
Court of Appeals, Seventh Division, in CA-G.R. V No.
60392.2
The late Eduardo Ybaez (Ybaez), the owner of a
1,000-square meter lot in Cebu City (the "lot"),
entered into anAgreement and Authority to
Negotiate and Sell (Agency Agreement) with
respondent Florencio Saban (Saban) on February 8,
1994. Under the Agency Agreement, Ybaez
authorized Saban to look for a buyer of the lot for
Two Hundred Thousand Pesos (P200,000.00) and to
mark up the selling price to include the amounts
needed for payment of taxes, transfer of title and
other expenses incident to the sale, as well as
Sabans commission for the sale.3

The trial court in its decision awarded to Valenzuela

the amount of Seventy Five Thousand Pesos
(P75,000,00) per month as compensatory damages
from June 1980 until its decision becomes final and
executory. This award is justified in the light of the
evidence extant on record (Exhibits "N", "N-10", "0",
"0-1", "P" and "P-1") showing that the average gross
premium collection monthly of Valenzuela over a
period of four (4) months from December 1978 to
February 1979, amounted to over P300,000.00 from
which he is entitled to a commission of P100,000.00
more or less per month. Moreover, his annual sales
production amounted to P2,500,000.00 from where
he was given 32.5% commissions. Under Article 2200
of the new Civil Code, "indemnification for damages
shall comprehend not only the value of the loss
suffered, but also that of the profits which the obligee
failed to obtain."
The circumstances of the case, however, require that
the contractual relationship between the parties shall
be terminated upon the satisfaction of the judgment.
No more claims arising from or as a result of the
agency shall be entertained by the courts after that
date.

TINGA, J.:

G.R. No. 163720

December 16, 2004

GENEVIEVE
LIM, petitioner,
vs.
FLORENCIO SABAN, respondents.

DECISION

Through Sabans efforts, Ybaez and his wife were

able to sell the lot to the petitioner Genevieve Lim
(Lim) and the spouses Benjamin and Lourdes Lim
(the Spouses Lim) on March 10, 1994. The price of
the lot as indicated in the Deed of Absolute Sale is
Two Hundred Thousand Pesos (P200,000.00).4 It
appears, however, that the vendees agreed to
purchase the lot at the price of Six Hundred
Thousand Pesos (P600,000.00), inclusive of taxes and
other incidental expenses of the sale. After the sale,
Lim remitted to Saban the amounts of One Hundred
Thirteen Thousand Two Hundred Fifty Seven Pesos
(P113,257.00) for payment of taxes due on the
transaction as well as Fifty Thousand Pesos
(P50,000.00) as brokers commission.5 Lim also
issued in the name of Saban four postdated checks in
the aggregate amount of Two Hundred Thirty Six
Thousand Seven Hundred Forty Three Pesos
(P236,743.00). These checks were Bank of the
Philippine Islands (BPI) Check No. 1112645 dated
June 12, 1994 for P25,000.00; BPI Check No.
1112647 dated June 19, 1994 for P18,743.00; BPI
Check No. 1112646 dated June 26, 1994
for P25,000.00; and Equitable PCI Bank Check No.
021491B dated June 20, 1994 forP168,000.00.
Subsequently, Ybaez sent a letter dated June 10,
1994 addressed to Lim. In the letter Ybaez asked
Lim to cancel all the checks issued by her in Sabans
favor and to "extend another partial payment" for the
lot in his (Ybaezs) favor.6

After the four checks in his favor were dishonored

upon presentment, Saban filed a Complaint for
collection of sum of money and damages against
Ybaez and Lim with the Regional Trial Court (RTC) of
Cebu City on August 3, 1994.7 The case was assigned
to Branch 20 of the RTC.
In his Complaint, Saban alleged that Lim and the
Spouses
Lim
agreed
to
purchase the lot
for P600,000.00, i.e.,with a mark-up of Four Hundred
Thousand Pesos (P400,000.00) from the price set by
Ybaez.
Of
the
total
purchase
price
of P600,000.00, P200,000.00
went
to
Ybaez, P50,000.00 allegedly went to Lims agent,
andP113,257.00 was given to Saban to cover taxes
and other expenses incidental to the sale. Lim also
issued four (4) postdated checks 8 in favor of Saban
for the remaining P236,743.00.9
Saban alleged that Ybaez told Lim that he (Saban)
was not entitled to any commission for the sale since
he concealed the actual selling price of the lot from
Ybaez and because he was not a licensed real
estate broker. Ybaez was able to convince Lim to
cancel all four checks.
Saban further averred that Ybaez and Lim connived
to deprive him of his sales commission by
withholding payment of the first three checks. He
also claimed that Lim failed to make good the fourth
check which was dishonored because the account
against which it was drawn was closed.
In his Answer, Ybaez claimed that Saban was not
entitled to any commission because he concealed
the actual selling price from him and because he was
not a licensed real estate broker.
Lim, for her part, argued that she was not privy to
the agreement between Ybaez and Saban, and that
she issued stop payment orders for the three checks
because Ybaez requested her to pay the purchase
price directly to him, instead of coursing it through
Saban. She also alleged that she agreed with Ybaez
that the purchase price of the lot was
only P200,000.00.
Ybaez died during the pendency of the case before
the RTC. Upon motion of his counsel, the trial court
dismissed the case only against him without any
objection from the other parties.10
On
May
14,
1997,
the
RTC
rendered
its Decision11 dismissing Sabans complaint, declaring

the four (4) checks issued by Lim as stale and nonnegotiable, and absolving Lim from any liability
towards Saban.
Saban appealed the trial courts Decision to the
Court of Appeals.
On October 27, 2003, the appellate court
promulgated its Decision12 reversing the trial courts
ruling. It held that Saban was entitled to his
commission amounting to P236,743.00.13
The Court of Appeals ruled that Ybaezs revocation
of his contract of agency with Saban was invalid
because the agency was coupled with an interest and
Ybaez effected the revocation in bad faith in order
to deprive Saban of his commission and to keep the
profits for himself.14
The appellate court found that Ybaez and Lim
connived to deprive Saban of his commission. It
declared that Lim is liable to pay Saban the amount
of the purchase price of the lot corresponding to his
commission because she issued the four checks
knowing that the total amount thereof corresponded
to Sabans commission for the sale, as the agent of
Ybaez. The appellate court further ruled that, in
issuing the checks in payment of Sabans
commission, Lim acted as an accommodation party.
She signed the checks as drawer, without receiving
value therefor, for the purpose of lending her name
to a third person. As such, she is liable to pay Saban
as the holder for value of the checks.15
Lim filed a Motion for Reconsideration of the
appellate courts Decision, but her Motion was denied
by the Court of Appeals in a Resolution dated May 6,
2004.16
Not satisfied with the decision of the Court of
Appeals, Lim filed the present petition.
Lim argues that the appellate court ignored the fact
that after paying her agent and remitting to Saban
the amounts due for taxes and transfer of title, she
paid the balance of the purchase price directly to
Ybaez.17

She further contends that she is not liable for

Ybaezs debt to Saban under the Agency Agreement
as she is not privy thereto, and that Saban has no
one but himself to blame for consenting to the
dismissal of the case against Ybaez and not moving
for his substitution by his heirs.18
Lim also assails the findings of the appellate court
that she issued the checks as an accommodation
party for Ybaez and that she connived with the
latter to deprive Saban of his commission.19
Lim prays that should she be found liable to pay
Saban the amount of his commission, she should
only be held liable to the extent of one-third (1/3) of
the amount, since she had two co-vendees (the
Spouses Lim) who should share such liability.20
In his Comment, Saban maintains that Lim agreed to
purchase the lot for P600,000.00, which consisted of
theP200,000.00 which would be paid to Ybaez,
the P50,000.00 due to her broker, the P113,257.00
earmarked for taxes and other expenses incidental to
the sale and Sabans commission as broker for
Ybaez. According to Saban, Lim assumed the
obligation to pay him his commission. He insists that
Lim and Ybaez connived to unjustly deprive him of
his commission from the negotiation of the sale. 21
The issues for the Courts resolution are whether
Saban is entitled to receive his commission from the
sale; and, assuming that Saban is entitled thereto,
whether it is Lim who is liable to pay Saban his sales
commission.
The Court gives due course to the petition, but
agrees with the result reached by the Court of
Appeals.
The Court affirms the appellate courts finding that
the agency was not revoked since Ybaez requested
that Lim make stop payment orders for the checks
payable to Saban only after the consummation of the
sale on March 10, 1994. At that time, Saban had
already performed his obligation as Ybaezs agent
when, through his (Sabans) efforts, Ybaez executed
the Deed of Absolute Sale of the lot with Lim and the
Spouses Lim.
To deprive Saban of his commission subsequent to
the sale which was consummated through his efforts
would be a breach of his contract of agency with
Ybaez which expressly states that Saban would be
entitled to any excess in the purchase price after

deducting the P200,000.00 due to Ybaez and the

transfer taxes and other incidental expenses of the
sale.22
In Macondray & Co. v. Sellner,23 the Court recognized
the right of a broker to his commission for finding a
suitable buyer for the sellers property even though
the seller himself consummated the sale with the
buyer.24The Court held that it would be in the height
of injustice to permit the principal to terminate the
contract of agency to the prejudice of the broker
when he had already reaped the benefits of the
brokers efforts.
In Infante v. Cunanan, et al.,25 the Court upheld the
right of the brokers to their commissions although
the seller revoked their authority to act in his behalf
after they had found a buyer for his properties and
negotiated the sale directly with the buyer whom he
met through the brokers efforts. The Court ruled that
the sellers withdrawal in bad faith of the brokers
authority cannot unjustly deprive the brokers of their
commissions as the sellers duly constituted agents.
The pronouncements of the Court in the aforecited
cases are applicable to the present case, especially
considering that Saban had completely performed his
obligations under his contract of agency with Ybaez
by finding a suitable buyer to preparing the Deed of
Absolute Sale between Ybaez and Lim and her covendees. Moreover, the contract of agency very
clearly states that Saban is entitled to the excess of
the mark-up of the price of the lot after deducting
Ybaezs share of P200,000.00 and the taxes and
other incidental expenses of the sale.
However, the Court does not agree with the appellate
courts pronouncement that Sabans agency was one
coupled with an interest. Under Article 1927 of the
Civil Code, an agency cannot be revoked if a bilateral
contract depends upon it, or if it is the means of
fulfilling an obligation already contracted, or if a
partner is appointed manager of a partnership in the
contract of partnership and his removal from the
management is unjustifiable. Stated differently, an
agency is deemed as one coupled with an interest
where it is established for the mutual benefit of the
principal and of the agent, or for the interest of the
principal and of third persons, and it cannot be
revoked by the principal so long as the interest of the
agent or of a third person subsists. In an agency
coupled with an interest, the agents interest must be
in the subject matter of the power conferred and not
merely an interest in the exercise of the power
because it entitles him to compensation. When an

agents interest is confined to earning his agreed

compensation, the agency is not one coupled with an
interest, since an agents interest in obtaining his
compensation as such agent is an ordinary incident
of the agency relationship.26
Sabans entitlement to his commission having been
settled, the Court must now determine whether Lim
is the proper party against whom Saban should
address his claim.
Sabans
right
to
receive
compensation
for
negotiating as broker for Ybaez arises from the
Agency Agreement between them. Lim is not a party
to the contract. However, the record reveals that she
had knowledge of the fact that Ybaez set the price
of the lot at P200,000.00 and that the P600,000.00
the price agreed upon by her and Sabanwas more
than the amount set by Ybaez because it included
the amount for payment of taxes and for Sabans
commission as broker for Ybaez.
According to the trial court, Lim made the following
payments
for
the
lot: P113,257.00
for
taxes, P50,000.00 for her broker, and P400.000.00
directly to Ybaez, or a total of Five Hundred Sixty
Three Thousand Two Hundred Fifty Seven Pesos
(P563,257.00).27 Lim, on the other hand, claims that
on March 10, 1994, the date of execution of the Deed
of Absolute Sale, she paid directly to Ybaez the
amount
of
One
Hundred
Thousand
Pesos
(P100,000.00) only, and gave to Saban P113,257.00
for payment of taxes and P50,000.00 as his
commission,28and One Hundred Thirty Thousand
Pesos (P130,000.00) on June 28, 1994,29 or a total of
Three Hundred Ninety Three Thousand Two Hundred
Fifty Seven Pesos (P393,257.00). Ybaez, for his part,
acknowledged that Lim and her co-vendees paid
him P400,000.00 which he said was the full amount
for the sale of the lot.30 It thus appears that he
received P100,000.00
on
March
10,
1994,
acknowledged
receipt
(through
Saban)
of
theP113,257.00 earmarked for taxes and P50,000.00
for
commission,
and
received
the
balance
of P130,000.00 on June 28, 1994. Thus, a total
of P230,000.00 went directly to Ybaez. Apparently,
although the amount actually paid by Lim
was P393,257.00, Ybaez rounded off the amount
to P400,000.00 and waived the difference.
Lims act of issuing the four checks amounting
to P236,743.00 in Sabans favor belies her claim that
she and her co-vendees did not agree to purchase
the lot at P600,000.00. If she did not agree thereto,
there would be no reason for her to issue those

checks which is the balance of P600,000.00 less the

amounts of P200,000.00 (due to Ybaez), P50,000.00
(commission), and the P113,257.00 (taxes). The only
logical conclusion is that Lim changed her mind
about agreeing to purchase the lot at P600,000.00
after talking to Ybaez and ultimately realizing that
Sabans commission is even more than what Ybaez
received as his share of the purchase price as
vendor. Obviously, this change of mind resulted to
the prejudice of Saban whose efforts led to the
completion of the sale between the latter, and Lim
and her co-vendees. This the Court cannot
countenance.
The ruling of the Court in Infante v. Cunanan, et
al., cited earlier, is enlightening for the facts therein
are similar to the circumstances of the present case.
In that case, Consejo Infante asked Jose Cunanan and
Juan Mijares to find a buyer for her two lots and the
house built thereon for Thirty Thousand Pesos
(P30,000.00) . She promised to pay them five
percent (5%) of the purchase price plus whatever
overprice they may obtain for the property. Cunanan
and Mijares offered the properties to Pio Noche who
in turn expressed willingness to purchase the
properties.
Cunanan
and
Mijares
thereafter
introduced Noche to Infante. However, the latter told
Cunanan and Mijares that she was no longer
interested in selling the property and asked them to
sign a document stating that their written authority
to act as her agents for the sale of the properties was
already cancelled. Subsequently, Infante sold the
properties directly to Noche for Thirty One Thousand
Pesos (P31,000.00). The Court upheld the right of
Cunanan and Mijares to their commission, explaining
that
[Infante] had changed her mind even if
respondent had found a buyer who was
willing to close the deal, is a matter that
would not give rise to a legal consequence if
[Cunanan and Mijares] agreed to call off the
transaction in deference to the request of
[Infante]. But the situation varies if one of
the parties takes advantage of the
benevolence of the other and acts in a
manner that would promote his own selfish
interest. This act is unfair as would amount
to bad faith. This act cannot be sanctioned
without according the party prejudiced the
reward which is due him. This is the
situation in which [Cunanan and Mijares]
were placed by [Infante]. [Infante] took
advantage of the services rendered by
[Cunanan and Mijares], but believing that
she could evade payment of their

commission, she made use of a ruse by

inducing them to sign the deed of
cancellation.This act of subversion cannot
be sanctioned and cannot serve as basis for
[Infante] to escape payment of the
commission agreed upon.31
The appellate court therefore had sufficient basis for
concluding that Ybaez and Lim connived to deprive
Saban of his commission by dealing with each other
directly and reducing the purchase price of the lot
and leaving nothing to compensate Saban for his
efforts.
Considering the circumstances surrounding the case,
and the undisputed fact that Lim had not yet paid the
balance of P200,000.00 of the purchase price
of P600,000.00, it is just and proper for her to pay
Saban the balance of P200,000.00.
Furthermore, since Ybaez received a total
of P230,000.00 from Lim, or an excess of P30,000.00
from his asking price of P200,000.00, Saban may
claim such excess from Ybaezs estate, if that
remedy is still available, 32 in view of the trial courts
dismissal of Sabans complaint as against Ybaez,
with Sabans express consent, due to the latters
demise on November 11, 1994.33
The appellate court however erred in ruling that Lim
is liable on the checks because she issued them as
an accommodation party. Section 29 of the
Negotiable
Instruments
Law
defines
an
accommodation party as a person "who has signed
the negotiable instrument as maker, drawer,
acceptor or indorser, without receiving value
therefor, for the purpose of lending his name to some
other person." The accommodation party is liable on
the instrument to a holder for value even though the
holder at the time of taking the instrument knew him
or her to be merely an accommodation party. The
accommodation
party may of course
seek
reimbursement from the party accommodated. 34
As gleaned from the text of Section 29 of the
Negotiable Instruments Law, the accommodation
party is one who meets all these three requisites, viz:
(1) he signed the instrument as maker, drawer,
acceptor, or indorser; (2) he did not receive value for
the signature; and (3) he signed for the purpose of
lending his name to some other person. In the case
at bar, while Lim signed as drawer of the checks she
did not satisfy the two other remaining requisites.

The absence of the second requisite becomes

pellucid when it is noted at the outset that Lim issued
the checks in question on account of her transaction,
along with the other purchasers, with Ybaez which
was a sale and, therefore, a reciprocal contract.
Specifically, she drew the checks in payment of the
balance of the purchase price of the lot subject of the
transaction. And she had to pay the agreed purchase
price in consideration for the sale of the lot to her
and her co-vendees. In other words, the amounts
covered by the checks form part of the cause or
consideration from Ybaezs end, as vendor, while
the lot represented the cause or consideration on the
side of Lim, as vendee.35 Ergo, Lim received value for
her signature on the checks.
Neither is there any indication that Lim issued the
checks for the purpose of enabling Ybaez, or any
other person for that matter, to obtain credit or to
raise money, thereby totally debunking the presence
of the third requisite of an accommodation party.
WHEREFORE, in view of the foregoing, the petition is
DISMISSED.
SO ORDERED.

operations. At first, PHILEXCHANGE religiously paid

its obligations to PNB by depositing the proceeds of
the sale of sugar with the bank. Subsequently,
however, with the fall of sugar prices in the world
market, PHILEXCHANGE defaulted in the payments of
its loans amounting to P206,070,172.57. 7

G.R. No. 151218

January 28, 2003

NATIONAL SUGAR TRADING and/or the SUGAR

REGULATORY
ADMINISTRATION, petitioners,
vs.
PHILIPPINE NATIONAL BANK, respondent.
YNARES-SANTIAGO, J.:
This is a petition for review which seeks to set aside
the decision of the Court of Appeals dated August 10,
2001 in CA-G.R. SP. No. 58102, 1 upholding the
decision of the Office of the President dated
September 17, 1999, 2 as well as the resolution dated
December 12, 2001 denying petitioners' motion for
reconsideration.
The antecedent facts, as culled from the records, are
as follows:
Sometime in February 1974, then President
Ferdinand E. Marcos issued Presidential Decree No.
388 3constituting the Philippine Sugar Commission
(PHILSUCOM), as the sole buying and selling agent of
sugar on the quedan permit level. In November of
the same year, PD 579 4 was issued, authorizing the
Philippine Exchange Company, Inc. (PHILEXCHANGE),
a wholly owned subsidiary of Philippine National Bank
(PNB) to serve as the marketing agent of
PHILSUCOM. Pursuant to PD 579, PHILEXCHANGE's
purchases of sugar shall be financed by PNB and the
proceeds
of
sugar
trading
operations
of
PHILEXCHANGE shall be used to pay its liabilities with
PNB.5
Similarly, in February 1975, PD 659 was issued,
constituting PHILEXCHANGE and/or PNB as the
exclusive sugar trading agencies of the government
for buying sugar from planters or millers and selling
or exporting them. 6 PNB then extended loans to
PHILEXCHANGE for the latter's sugar trading

In July 1977, the National Sugar Trading Corporation

(NASUTRA)
replaced
PHILEXCHANGE
as
the
marketing agent of PHILSUCOM. Accordingly,
PHILEXCHANGE sold and turned over all sugar
quedans to NASUTRA. However, no physical
inventory of the sugar covered by the quedans was
made. 8 Neither NASUTRA nor PHILSUCOM was
required to immediately pay PHILEXCHANGE.
Notwithstanding this concession, NASUTRA and
PHILSUCOM still failed to pay the sugar stocks
covered by quedans to PHILEXCHANGE which, as of
June 30, 1984, amounted to P498,828,845.03. As a
consequence, PHILEXCHANGE was not able to pay its
obligations to PNB.
To finance its sugar trading operations, NASUTRA
applied for and was granted 9 a P408 Million
Revolving Credit Line by PNB in 1981. Every time
NASUTRA availed of the credit line, 10 its Executive
Vice-President, Jose Unson, executed a promissory
note in favor of PNB.
In order to stabilize sugar liquidation prices at a
minimum of P300.00 per picul, PHILSUCOM issued on
March 15, 1985 Circular Letter No. EC-4-85,
considering all sugar produced during crop year
19841985
as
domestic
sugar.
Furthermore,
PHILSUCOM's Chairman of Executive Committee,
Armando C. Gustillo proposed on May 14, 1985 the
following
liquidation
scheme
of
the
sugar
quedans 11 assigned to PNB by the sugar planters:
Upon notice from NASUTRA, PNB shall credit the
individual producer and millers loan accounts for
their sugar proceeds and shall treat the same as
loans of NASUTRA.
Such loans shall be charged interest at the prevailing
rates and it shall commence five (5) days after
receipt by PNB of quedans from NASUTRA. 12

accounts. The pertinent portion of the Resolution

states:
Five (5) days after receipt of the quedans, NASUTRA
shall absorb the accruing interest on that portion of
the planter/mill loan with PNB commensurate to the
net liquidation value of the sugar delivered, or in
other words, NASUTRA proposes to assume interest
that will run on the planter/mill loan equivalent to the
net proceeds of the sugar quedans, reckoned five (5)
days after quedan delivery to PNB. 14
Despite
such
liquidation
scheme,
NASUTRA/PHILSUCOM still failed to remit the interest
payments to PNB and its branches, which interests
amounted to P65,412,245.84 in 1986. 15 As a result
thereof, then President Marcos issued PD 2005
dissolving NASUTRA effective January 31, 1986.
NASUTRA's records of its sugar trading operations,
however, were destroyed during the Edsa Revolution
in February 1986.
On May 28, 1986, then President Corazon C. Aquino
issued Executive Order (EO) No. 18 creating the
Sugar
Regulatory
Administration
(SRA)
and
abolishing PHILSUCOM. All the assets and records of
PHILSUCOM 16including its beneficial interests over
the assets of NASUTRA were transferred to SRA. 17 On
January 24, 1989, before the completion of the threeyear winding up period, NASUTRA established a
trusteeship
to
liquidate
and
settle
its
accounts. 18 This notwithstanding, NASUTRA still
defaulted in the payment of its loans amounting to
P389,246,324.60 (principal and accrued interest) to
PNB.
In the meantime, PNB received remittances from
foreign banks totaling US$36,564,558.90 or the
equivalent of P696,281,405.09 representing the
proceeds of NASUTRA's sugar exports. 19 Said
remittances were then applied by PNB to the unpaid
accounts of NASUTRA/PHILSUCOM with PNB and
PHILEXCHANGE. The schedule of remittances and
applications are as follows:
SCHEDULE OF REMITTANCES & APPLICATIONS
Account of NASUTRA

PNB, for its part, issued Resolution No. 353 dated

May 20, 1985 approving 13 the PHILSUCOM/NASUTRA
proposal for the payment of the sugar quedans
assigned to it. Pursuant to said resolution, NASUTRA
would assume the interest on the planter/mill loan

July 31, 1988

REMITTANCES

Date Remitting Bank

Amount

111985

Bankers Trust-New York

P259,253,573.4
6

112685

Bankers Trust-New York

144,459,242.84

030686

Credit Lyonnais-Manila

209,880,477.07

042286

Societ General-Manila

82,151,953.10

060986

Credit Lyonnais-Manila

536,158.62

Total

P696,281,405.0
9

APPLICATIONS

Date Applied to

Amount

1986 NASUTRA account with PNB

P389,246,324.6
0

1986 Claims of various CAB planters

15,863,898.79

Claims of various PNB branches

for interest or the unpaid CY
1987 198485 sugar proceeds
65,412,245.84

1987
&

206,070,172.57
Philsucom account carried in
the books of Philexchange
P676,592,641.8
0

1988

Unapplied Remittance

P19,688,763.29
" 20

Subsequently, PNB applied the P19,688,763.29 to

PHILSUCOM's account with PHILEXCHANGE which in
turn was applied to PHILEXCHANGE's account with
PNB. 21
Accordingly, NASUTRA requested 22 PNB to furnish it
with
the
necessary
documents
and/or
explanation 23concerning the disposition/application,
accounting and restitution of the remittances in
question. Dissatisfied, and believing that PNB failed
to provide them with said documents, NASUTRA and
SRA filed a petition for arbitration24 with the
Department of Justice on August 13, 1991.
After due proceedings, the Secretary of Justice
rendered a decision, to wit:
WHEREFORE, judgment is hereby rendered

1. Declaring that of the amount of Six

Hundred Ninety Six Million Two Hundred
Eighty One Thousand Four Hundred Five and
09/100 Pesos (P696,281,405.09) equivalent
of US$36,564,558.90, foreign remittances
received by respondent PNB, for and in
behalf of petitioner NASUTRA
a) the amount of Three Hundred
Eighty Nine Million Two Hundred
Forty Six Thousand Three Hundred
Twenty Four and 60/100 Pesos
(P389,246,324.60)
was
validly
applied to outstanding account of
NASUTRA to PNB;
b) the amount of Sixty Five Billion
Four Hundred Twelve Thousand Two
Hundred Forty Five and 84/100
Pesos (P65,412,245.84) was validly
applied to claims of various PNB
branches for interest on the unpaid
CY 198485 sugar proceeds;
Or a total of Four Hundred Fifty Four Million
Six Hundred Fifty Eight Thousand Five
Hundred Seventy and 44/100 Pesos
(P454,658,570.44).
2. Ordering
petitioners

respondent

PNB

to

pay

a) the amount of Two Hundred Six

Million Seventy Thousand One
Hundred Seventy Two and 57/100
Pesos
(P206,070,172.57)
representing
the
amount
of
remittance applied to PHILSUCOM
account carried in the books of
Philexchange;
b) the amount of Fifteen Million
Eight
Hundred
Sixty
Three
Thousand Eight Hundred Ninety
Eight
and
79/100
Pesos
(P15,863,898.79) representing the
amount applied to settle Claims of
Various CAB Planters; and to pay
interest on both items, at legal rate
from date of filing of this case.
Costs of suit will be shared equally by the
parties.

SO ORDERED.

25

Both parties appealed before the Office of the

President. On September 17, 1999, the Office of the
President modified the decision of the Secretary of
Justice, to wit:
IN VIEW OF ALL THE FOREGOING, the
decision of the Secretary of Justice is hereby
AFFIRMED with the MODIFICATION that the
application by the Philippine National Bank
of the amounts of P225,758,935.86 and
P15,863,898.79
as
payment
of
the
Philippine Sugar Commission's account
carried in the books of Philippine Exchange
Co., Inc. and the claims of various CAB
planters, respectively, is hereby declared
legal and valid.
SO ORDERED.

26

Petitioners' subsequent Motion for Reconsideration

was
denied
by
the
Office
of
the
President. 27 Thereafter, petitioners filed a petition for
review with the Court of Appeals, alleging, inter alia,
that the Office of the President erred when it relied
solely on the documents submitted by PNB to
determine the amount of the subject remittances and
in not ordering PNB to render an accounting of the
said remittances; in declaring as valid and legal
PNB's application of the subject remittances to
alleged NASUTRA's accounts with PNB and
PHILEXCHANGE without NASUTRA's knowledge,
consent and authority.
On August 10, 2001, Court of Appeals rendered
judgment dismissing the petition. 28 Petitioners filed a
Motion for Reconsideration, which was denied on
December 12, 2001.
Hence this petition, raising the lone issue:
THE CA DECIDED NOT IN ACCORD WITH
LAW AND WITH THE APPLICABLE DECISION
OF THIS HONORABLE COURT, AND GRAVELY
ABUSED ITS DISCRETION, WHEN IT UPHELD
THE LEGALITY AND VALIDITY OF THE
OFFSETTING OR COMPENSATION OF THE
SUBJECT
REMITTANCES
TO
ALLEGED
ACCOUNTS OF NASUTRA WITH PNB AND
PHILEX DESPITE THE FACT THAT NO
CREDITOR-DEBTOR RELATIONSHIP EXISTED
BETWEEN PNB AND NASUTRA WITH
RESPECT TO THE SAID REMITTANCES.

In essence, NASUTRA and SRA aver that no

compensation involving the subject remittances can
take effect by operation of law since the relationship
created between PNB and NASUTRA was one of
trustee-beneficiary and not one of creditor and
debtor. They also claim that no legal compensation
can take place in favor of PHILEXCHANGE since the
subject remittances were received by PNB and not
PHILEXCHANGE, a corporation clothed with a
separate and distinct corporate personality from PNB.
They added that PHILEXCHANGE's account had
already prescribed.
Moreover, NASUTRA and SRA contend that, assuming
arguendo that creditor-debtor relationship existed
between PNB and NASUTRA, compensation was still
illegal, since PNB has not proven the existence of the
P408 million revolving credit line and the CAB
Planters Account. Petitioners also assert that the CAB
Planters Account is an unliquidated account
considering that it still has to be recomputed
pursuant to the Sugar Reconstitution Law.29
Respondent PNB counters that it can apply the
foreign remittances on the long-overdue obligations
of NASUTRA. They were entered into by NASUTRA
with the blessing, if not with express mandate, of the
National Government in the pursuit of national
interest and policy. PNB invokes also the Letter of
Intent submitted by the National Government to the
International Monetary Fund (IMF), wherein the
government made specific reference to the
immediate payment by NASUTRA and PHILSUCOM of
their outstanding obligations with PNB to buoy up the
country's sagging economy. 30
Petitioners' arguments are specious.
Article 1306 of the New Civil Code provides:
Contracting parties may establish such stipulations,
clauses terms and conditions as they may deem
convenient provided they are not contrary to law,
morals, good customs, public order or public policy.
In the instant case, NASUTRA applied for a P408
million credit line with PNB in order to finance its
trading operations. PNB, on the other hand, approved
said credit line in its Resolution No. 68. Thereafter,
NASUTRA availed of the credit and in fact drew
P389,246,324.60, in principal and accrued interest,
from the approved credit line. Evidence shows that
every time NASUTRA availed of the credit, its
Executive Vice President, Jose Unson, executed a

promissory note
proviso:

31

in favor of PNB with the following

In the event that this note is not paid at maturity or

when the same becomes due under any of the
provisions hereof, I/We hereby authorize the Bank, at
its option and without notice, to apply to the
payment of this note, any and all moneys, securities
and things of values which may be in the hands on
deposit or otherwise belonging to me/us and for this
purpose, I/We hereby, jointly and severally,
irrevocably constitute and appoint the Bank to be
my/our true Attorney-in-Fact with full power and
authority for me/us and in my/our name and behalf
and without prior notice to negotiate, sell and
transfer any moneys, securities and things of value
which it may hold, by public or private sale and apply
the proceeds thereof to the payment of this note.
(Italics ours)
While we agree with petitioners that the application
of subject remittances cannot be justified under
Article 1278 in relation to Article 1279 of the Civil
Code, considering that some elements of legal
compensation were lacking, application of the
subject remittances to NASUTRA's account with PNB
and the claims of various PNB branches for interest
on the unpaid CY 19841985 sugar proceeds is
authorized under the above-quoted stipulation. PNB
correctly treated the subject remittances for the
account of NASUTRA as moneys in its hands which
may be applied for the payment of the note.
Also, the relationship between NASUTRA/SRA and
PNB when the former constituted the latter as its
attorney-in-fact is not a simple agency. NASUTRA/SRA
has assigned and practically surrendered its rights in
favor of PNB for a substantial consideration. 32 To
reiterate, NASUTRA/SRA executed promissory notes
in favor of PNB every time it availed of the credit line.
The agency established between the parties is one
coupled with interest which cannot be revoked or
cancelled at will by any of the parties. 33
Notwithstanding its availment of the approved credit,
NASUTRA, for reasons only known to itself, insisted in
claiming for refund of the remittances. NASUTRA's
posture is untenable. NASUTRA's actuation runs
counter to the good faith covenant in contractual
relations, required under Article 1159 of the Civil
Code, to wit:
Obligations arising from contract have the force of
law between the contracting parties and should be
complied with in good faith.

Verily, parties may freely stipulate their duties and

obligations which perforce would be binding on them.
Not being repugnant to any legal proscription, the
agreement entered into by NASUTRA/SRA and PNB
must be respected and have the force of law
between them.
With respect to the application of the sum of
P65,412,245.84, 34 the record shows that NASUTRA
failed to remit the interest payments to PNB despite
its obligation under the liquidation scheme proposed
by the Chairman of its Executive Committee,
Armando C. Gustillo, to stabilize sugar liquidation
prices. Certainly, the authority granted by NASUTRA
to Armando Gustillo to propose such liquidation
scheme was an authority to represent NASUTRA.
Undisputedly, any obligation or liability arising from
such agreement shall be binding on the parties.
NASUTRA, for its part, cannot now renege on its
duties, considering that it took advantage of the
loan.
Having established that PNB validly applied the
subject remittances to the interest of NASUTRA's loan
in the amount of P65,412,245.84, the application of
the remainder of the remittance amounting to
P15,863,898.79 to the principal is proper.
With respect to the Central Azucarera de Bais (CAB)
Planters account, petitioners maintained that the
subject remittances cannot be applied to payment
thereof, considering that it is unliquidated and needs
recomputation, pursuant to Section 3 of Republic Act
No. 7202 or the Sugar Reconstitution Law, which
provides:
The Philippine National Bank of the Philippines and
other government-owned and controlled financial
institutions which have granted loans to the sugar
producers shall extend to accounts of said sugar
producers incurred from Crop Year 19741975 up to
and including Crop Year 19841985 the following:
(a) Condonation of interest charged by the
banks in excess of twelve percent (12%) per
annum and all penalties and surcharges:
(b) The recomputed loans shall be
amortized for a period of thirteen (13) years
inclusive of a three-year grace period on
principal portion of the loan will carry an
interest rate of twelve (12%) and on the
outstanding balance effective when the

original promissory notes were signed and

funds released to the producer.
Section 6 of Rules and Regulations implementing RA
No. 7202 also provides:
SECTION 2. In cases, however, where sugar
producers have no outstanding loan balance
with said financial institutions as of the date
of effectivity of RA No. 7202 (i.e. sugar
producers who have fully paid their loans
either
through
actual
payment
or
foreclosure of collateral, or who have
partially paid their loans and after the
computation of the interest charges, they
end up with excess payment to said
financial institutions), said producers shall
be entitled to the benefits of recomputation
in accordance with Sections 3 and 4 of RA
No. 7202, but the said financial institutions,
instead of refunding the interest in excess of
twelve (12%) percent per annum, interests,
penalties and surcharges apply the excess
payment as an offset and/or as payment for
the producers' outstanding loan obligations.
Applications of restructuring banks under
Section 6 of RA No. 7202 shall be filed with
the Central Monetary Authority of the
Philippines within one (1) year from
application of excess payment.
Although it appears from said provision that PNB was
directed to condone interest, penalties and
surcharges charged in excess of 12% per annum, the
passage of said law did not forestall legal
compensation that had taken place before its
effectivity. The loan had been definitely ascertained,
assessed and determined by PNB. Pursuant to
Section 4 35 of RA 7202, there would be condonation
of interest whether the accounts were fully or
partially paid.
With regard to the application of the amount of
P206,070,172.57 to the PHILSUCOM account carried
in the books of PHILEXCHANGE, petitioners maintain
that there could be no application of the subject
remittance, considering that the remittances were
received by PNB and not PHILEXCHANGE which has a
personality separate and distinct from PNB.
Petitioners' contention is not well-taken.
There exist clear indications that insofar as sugar
trading was concerned, PHILEXCHANGE and PNB

were treated as one entity. Purchases of sugar of

PHILEXCHANGE as the exclusive sugar trading arm of
PHILSUCOM were financed by PNB pursuant to PD
579. More importantly, PNB, a wholly owned bank of
the government at that time, in turn wholly owned
and controlled PHILEXCHANGE. Also, Section 2 (a),
PD 659 declared as illegal the sale, transfer and
assignment of sugar by any planter, producer, miller,
central, or refinery to any person or entity other than
Philippine Exchange, Inc. and/or the PNB. To
reiterate, PHILEXCHANGE failed to pay its loans with
PNB because of the fall of the sugar prices in the
world
market.
When
NASUTRA
substituted
PHILEXCHANGE as marketing agent of PHILSUCOM,
1,485,532.47 metric tons 36 of export sugar were
turned over by PHILEXCHANGE to NASUTRA. To
reiterate, the foreign remittances constituted
proceeds of the sale of the sugar covered by quedans
transferred by PHILEXCHANGE to NASUTRA.

informations for two (2) counts of estafa against Atty.

Layag.3Accordingly, two cases for estafa, docketed as
Criminal Cases Nos. C-58087 and C-58088 were filed
with the Regional Trial Court (RTC) of Caloocan City,
Branch 124.4

WHEREFORE, in view of the foregoing, the instant

petition for review is DENIED. The decision of the
Court of Appeals dated August 10, 2001
is AFFIRMED.

Thereafter, this Court resolved on July 10, 2000 to

refer the matter to the Integrated Bar of the
Philippines (IBP) for investigation, report, and
recommendation.5

SO ORDERED.

As
culled
from
the
report
and
recommendation6 dated September 25, 2003 of the
IBP Investigating Commissioner, Atty. Milagros V. San
Juan, the facts in this case are as follows:

A.C. No. 5182

August 12, 2004
SUSANA DE GUZMAN BUADO and
LISING, complainants,
vs.
ATTY. EUFRACIO T. LAYAG, respondent.
RESOLUTION
PER CURIAM:

NENA

The instant case arose from a verified LetterComplaint1 for malpractice filed with this Court on
December 9, 1999, against respondent Atty. Eufracio
T. Layag by Susana de Guzman Buado and Nena
Lising. The complaint stated that de Guzman Buado
and Lising had instituted a criminal action for
estafa2 against Atty. Layag with the Office of the City
Prosecutor of Caloocan City and that the City
Prosecutor had resolved that there was prima
facie evidence to justify the filing in court of

In our Resolution of January 31, 2000, we directed

that Atty. Layag be furnished a copy of the complaint
for his comment.
In his Comment dated April 11, 2000, Atty. Layag
denied committing any malpractice, saying that he
merely complied with the wishes of his client, the
late Rosita de Guzman, to deliver any money
judgment in Civil Case No. C-14265 before the RTC of
Caloocan City, Branch 121, to her attorney-in-fact,
one Marie Paz P. Gonzales. Respondent prayed that
the complaint be dismissed for want of merit.

Herein complainant Lising and her sister, Rosita de

Guzman (mother of herein complainant Susana de
Guzman Buado), were the plaintiffs in Civil Case No.
C-14265, entitled Rosita de Guzman, et al., v. Inland
Trailways, Inc.,which was decided by the RTC of
Caloocan City, Branch 121, in favor of the plaintiffs
on May 16, 1991. Both Lising and de Guzman were
represented in said case by herein respondent, Atty.
Layag. The losing party, Inland Trailways, Inc.,
appealed the trial court's judgment to the Court of
Appeals, said appeal being docketed as CA-G.R. CV
No. 34012.
In its decision dated January 5, 1995, the appellate
court affirmed the judgment of the trial court.
However, on July 3, 1993, or while CA-G.R. CV No.
34012 was pending before the appellate court, de
Guzman died.
Pursuant to the judgment against it, Inland Trailways,
Inc., issued the following checks: (1) Traders Royal
Bank Check No. 0000790549 dated February 15,
1996 for P15,000 payable to Atty. Layag; (2) Traders
Royal Bank Check No. 0000790548 dated March 8,
1996 in the amount of P30,180 payable to Lising; and

(3) Traders Royal Bank Check No. 0000790547 dated

March 8, 1996 for the sum of P49,000 payable to de
Guzman who had by then already passed away. The
aforementioned checks were received by respondent
lawyer from Pablo Gernale, Jr., the deputy sheriff of
the RTC in February 1996. Atty. Layag did not inform
Lising and the heirs of de Guzman about the checks.
Instead he gave the checks to one Marie Paz
Gonzales for encashment on the strength of a Special
Power of Attorney, purportedly executed by de
Guzman constituting Gonzales as her attorney-infact. The Special Power of Attorney supposedly
authorized Gonzales, among others, to encash,
indorse, and/or deposit any check or bill of exchange
received in settlement of Civil Case No. C-14265.
It was only in February 1998 that Lising and de
Guzman Buado, while checking the status of Civil
Case No. C-14265, found that judgment had been
rendered in the said case and that the losing party
had paid the damages awarded by issuing checks
which were received by their counsel, Atty. Layag,
two years earlier. De Guzman Buado and Lising then
made demands upon Atty. Layag to give them the
proceeds of the checks, but to no avail. Marie Paz
Gonzales eventually gave Lising P10,000. No further
amounts were remitted to either Lising or de Guzman
Buado despite demands by them.
After the parties presented their oral and
documentary evidence before the IBP Commissioner,
the matter was deemed submitted for resolution. On
September 25, 2003, the IBP Investigating
Commissioner made the following recommendations:
It is submitted that respondent has betrayed
the trust of her (sic) clients. It is
recommended
that
respondent
be
suspended from the practice of law for the
maximum period allowed under the law and
that he be ordered to turn over to the
Complainants the amounts he received in
behalf of the complainants Susana de
Guzman Buado and Nena Lising.
Respectfully submitted.7
The IBP Investigating Commissioner, in her
recommendation, found that in giving the checks to a
party not entitled to them, Atty. Layag disregarded
the rights and interests of his clients in violation of
Canons 15,8 16,9 and 1710 of the Code of Professional
Responsibility.

On the Special Power of Attorney11 purportedly

executed by Rosita de Guzman in favor of Marie Paz
Gonzales, the Investigating Commissioner held that
even assuming arguendo that there was indeed a
Special Power of Attorney, it nonetheless had no
force and effect after the death of Rosita de Guzman.
Hence, any authority she had conferred upon
Gonzales was already extinguished. According to the
IBP Investigating Commissioner, since respondent
represented de Guzman in Civil Case No. C-14265,
upon her death, respondent had the obligation to
preserve whatever benefits accrued to the decedent
on behalf of and for the benefit of her lawful heirs.
On October 25, 2003, the IBP Board of Governors
passed its resolution on the case, affirming with
modification
the
recommendation
by
the
Investigating Commissioner, thus:
RESOLVED to ADOPT and APPROVE, as it is
hereby ADOPTED and APPROVED, the
Report and Recommendation of the
Investigating Commissioner of the aboveentitled case, herein made part of this
Resolution/Decision as Annex "A"; and,
finding the recommendation fully supported
by the evidence on record and the
applicable
laws
and
rules, with
modification, and
considering
that
Respondent has betrayed the trust of her
(sic) clients in violation of Canon 15, 16 and
17
of
the
Code
of
Professional
Responsibility, Atty. Eufracio T. Layag is
hereby DISBARRED and Ordered to
turn
over immediately to the Complainants the
amounts received in their behalf.12
Respondent then moved for reconsideration of the
foregoing resolution before this Court. In view of the
recommended penalty of disbarment, the Court En
Banc accepted the respondent's motion for our
consideration.
Placed in issue are: (1) the sufficiency of the
evidence to prove the respondent's liability for
violation of the Code of Professional Responsibility;
and (2) the propriety of the recommended penalty.
After careful scrutiny of the proceedings conducted
by the IBP Investigating Commissioner, we find that
the factual findings made in her report and
recommendation are well supported by the evidence
on record. Respondent Atty. Layag does not deny
receiving the checks in question, but he claimed he
turned over said checks to Marie Paz Gonzales,

pursuant to the alleged Special Power of Attorney

executed by Rosita de Guzman in favor of Gonzales,
authorizing the latter to encash, indorse, or deposit
any check received as a result of the judgment in
Civil Case No. C-14265. Respondent contended that
in so doing, he was being true to the wishes and
desires of his client, the late Rosita de Guzman.
The respondent's arguments fail to persuade us. As a
lawyer, with more than thirty (30) years in practice,
respondent is charged with knowledge of the law. He
should know that it was error for him to rely on a
Special Power of Attorney after the death of the
principal, Rosita de Guzman. As pointed out by the
IBP Investigating Commissioner, even assuming
there was a Special Power of Attorney, although
respondent could not produce a copy nor prove its
existence, when de Guzman died that document
ceased to be operative. This is clear from Article
191913 of the Civil Code. While there are instances,
as provided in Article 1930, 14 where the agency is
not extinguished by the death of the principal, the
instant case does not fall under the exceptions.
Clearly, at the time Atty. Layag received and turned
over the checks corresponding to the award of
damages in Civil Case No. C-14265 in February 1996,
there was no longer any valid Special Power of
Attorney. Again, as pointed out by the IBP
Investigating Commissioner, respondent's duty when
the award of damages was made, was to preserve
and deliver the amount received to the heirs of his
client, de Guzman, and not to any other person.
With respect to the check from Inland Trailways, Inc.,
and made payable to Lising, respondent should have
delivered it directly to Lising. The Special Power of
Attorney, which he keeps on harping on, did not
cover Lising's case. Its coverage -- assuming again
that the document existed -- pertained only to de
Guzman. Respondent certainly could not take refuge
in any provision of said Special Power of Attorney
insofar as Lising's check is concerned.
Respondent
now
denies
any
attorney-client
relationship with Lising because, as he insists, he was
only engaged by de Guzman. But in his Comment to
the Complaint, respondent admits that he included
Lising when they filed suit against Inland Trailways,
Inc., before the RTC of Caloocan City, upon the
request of de Guzman. Absent any showing on record
that Lising was represented by another counsel in
Civil Case No. C-14265 and the subsequent appeal,
CA-G.R. CV No. 34012, the only conclusion we could
reach is that she was also represented by Atty.
Layag. But even if granted the opposite conclusion
that he was not Lising's lawyer, it cannot exonerate

the respondent with respect to Lising's check. It

would only make things worse for him, for it would
show that he misappropriated the monetary award of
a party whom he did not represent. In our view,
respondent's insistence that Lising was not his client
is more damaging to his cause.
In the course of his professional relationship with his
client, a lawyer may receive money or property for or
from the client. He shall hold such property in trust,
and he is under obligation to make an accounting
thereof as required by Rule 16.01 15 of the Code of
Professional Responsibility. This obligation to hold
property in trust includes money received by a
lawyer as a result of a judgment favorable to his
client.16 In the present case, Atty. Layag did not make
an accounting of the judgment awards he received
and the checks he allegedly turned over to Marie Paz
Gonzales. Further, when complainants demanded
that he deliver to them the checks pertaining to de
Guzman Buado and Lising for the judgment in Civil
Case No. C-14265, Atty. Layag did not do so, in
violation of Rule 16.03.17
The inescapable conclusion we can make, given the
circumstances in this case, is that by his actions,
respondent failed to observe the utmost good faith,
loyalty, candor and fidelity required of an attorney in
his dealings with his clients. His acts of
misappropriating the money of his clients are grossly
immoral and unprofessional. There is no doubt in our
mind that he deserves severe punishment.
But is disbarment the proper penalty for Atty. Layag?
Disbarment is the most severe form of disciplinary
sanction. The power to disbar must always be
exercised with great caution, for only the most
imperative reasons,18 and in clear cases of
misconduct affecting the standing and moral
character of the lawyer as an officer of the court and
a member of the bar.19 Accordingly, disbarment
should not be decreed where any punishment less
severe such as a reprimand, suspension, or fine would accomplish the end desired. 20 In the instant
case, what we seek to exact from the respondent is

strict compliance and fidelity with his duties to his

clients.
Accordingly,
we
agree
with
the
recommendation
of
the
IBP
Investigating
Commissioner
that
suspension,
rather
than
disbarment, of respondent would suffice. In our view,
however, such suspension should be indefinite,
subject to further orders by this Court.
WHEREFORE, the IBP Board of Governors Resolution
No. XVI-2003-230 in Administrative Case No. 5182
finding respondent LIABLE for violation of the Canons
15, 16, and 17 of the Code of Professional
Responsibility is hereby AFFIRMED with the
MODIFICATION that instead of the recommended
penalty of disbarment, respondent Atty. Eufracio T.
Layag is hereby INDEFINITELY SUSPENDED from the
practice of law. Respondent is further DIRECTED to
immediately turn over to complainants Susana de
Guzman Buado and Nena Lising the amounts
ofP49,000.00 and P30,180.00, respectively, as well
as all other amounts if any, he might have received
for and on their behalf. Respondent is also ORDERED
to REPORT to the Office of the Bar Confidant his
compliance within fifteen (15) days from receipt
hereof. Let a copy of this Resolution be attached to
the personal record of Atty. Eufracio T. Layag and
copies be furnished the Integrated Bar of the
Philippines and the Office of the Court Administrator
for dissemination to all lower courts. This Resolution
is immediately executory.
SO ORDERED.