American Jurisprudence, Second Edition

Database updated November 2011

Agency
Anne E. Melley, J.D., of the staff of the National Legal Research Group, Inc.
I. IN GENERAL
Topic Summary Correlation Table References
1. Generally; definitions
West's Key Number Digest
West's Key Number Digest, Principal and Agent 1

A.L.R. Library
Who is "agent,' so as to subject principal to liability, under 2(a)(1)(A) of
Commodity Exchange Act (7 U.S.C.A. 4), 98 A.L.R. Fed. 588.
The term "agency" means a fiduciary relationship by which a party confides to
another the management of some business to be transacted in the former's
name or on his or her account, and by which such other assumes to do the
business and render an account of it.[FN1] It has also been defined as the
fiduciary relationship which results from the manifestation of consent by one
person to another that the other will act on his or her behalf and subject to his or
her control, and consent by the other so to act.[FN2]
In an agency relationship, the party for whom another acts and from whom such
other derives authority to act is a "principal."[FN3] The one who acts for and
represents the principal and acquires his or her authority from the principal is an
"agent."[FN4] Pursuant to the grant of authority by the principal,[FN5] the agent
is the representative of the principal and acts for, in the place of, and instead of,
the principal.[FN6]
CUMULATIVE SUPPLEMENT
Statutes:
Restatement Third, Agency 1.01 defines "agency" as the fiduciary
relationship that arises when one person (a "principal") manifests assent to
another person (an "agent") that the agent shall act on the principal's behalf and
subject to the principal's control, and the agent manifests assent or otherwise
consents so to act.

Restatement Third, Agency 1.04 defines the terms: coagents, disclosed,

undisclosed, and unidentified principals, gratuitous agent, notice, person, power
given as security, power of attorney, subagent, superior and subordinate
coagents, and trustee and agent-trustee.
Restatement Third, Agency 1.02 provides that an agency relationship arises
only when the elements stated in Restatement Third, Agency 1.01, defining
"agency," are present, and that whether a relationship is characterized as
agency in an agreement between parties or in the context of industry or popular
usage is not controlling.
Cases:
The principal controls the agent. In re J.L.H., 645 S.E.2d 833 (N.C. Ct. App. 2007).
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 167552

April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,

vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review by certiorari assailing the Decision 1 of the Court
of Appeals dated 10 August 2004 and its Resolution 2 dated 17 March 2005 in CAG.R. SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio
T. Echavez." The assailed Decision and Resolution affirmed the Order 3 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. CEB19672.
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. 0933 9prepared 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 Answer 14 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 Memorandum 21 in support of his special
and affirmative defenses and petitioners opposition 22 thereto, the trial court
rendered its assailed Order dated 29 January 2002 dropping respondent EDWIN
as a party defendant in this case. According to the trial court
A study of Annex "G" to the complaint shows that in the Deed of Assignment,
defendant Edwin B. Cuizon acted in behalf of or represented [Impact] Systems
Sales; that [Impact] Systems Sale is a single proprietorship entity and the
complaint shows that defendant Erwin H. Cuizon is the proprietor; that plaintiff
corporation is represented by its general manager Alberto de Jesus in the
contract which is dated June 28, 1995. A study of Annex "H" to the complaint
reveals that [Impact] Systems Sales which is owned solely by defendant Erwin H.
Cuizon, made a down payment of P50,000.00 that Annex "H" is dated June 30,
1995 or two days after the execution of Annex "G", thereby showing that
[Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further
show that plaintiff knew that [Impact] Systems Sales, the principal, ratified the
act of Edwin B. Cuizon, the agent, when it accepted the down payment
of P50,000.00. Plaintiff, therefore, cannot say that it was deceived by defendant
Edwin B. Cuizon, since in the instant case the principal has ratified the act of its
agent and plaintiff knew about said ratification. Plaintiff could not say that the
subject contract was entered into by Edwin B. Cuizon in excess of his powers
since [Impact] Systems Sales made a down payment of P50,000.00 two days
later.

In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be
dropped as party defendant. 23
Aggrieved by the adverse ruling of the trial court, petitioner brought the matter
to the Court of Appeals which, however, affirmed the 29 January 2002 Order of
the court a quo. The dispositive portion of the now assailed Decision of the Court
of Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify the conclusions
reached by the public respondent in his Order dated January 29, 2002, it is
hereby AFFIRMED.24
Petitioners motion for reconsideration was denied by the appellate court in its
Resolution promulgated on 17 March 2005. Hence, the present petition raising,
as sole ground for its allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED
THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS
SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER
ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN THE
PERPETUATION OF A FRAUD.25
To support its argument, petitioner points to Article 1897 of the New Civil Code
which states:
Art. 1897. The agent who acts as such is not personally liable to the party with
whom he contracts, unless he expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of
ERWINs act of collecting the receivables from the Toledo Power Corporation
notwithstanding the existence of the Deed of Assignment signed by EDWIN on
behalf of Impact Systems. While said collection did not revoke the agency
relations of respondents, petitioner insists that ERWINs action repudiated
EDWINs power to sign the Deed of Assignment. As EDWIN did not sufficiently
notify it of the extent of his powers as an agent, petitioner claims that he should
be made personally liable for the obligations of his principal. 26
Petitioner also contends that it fell victim to the fraudulent scheme of
respondents who induced it into selling the one unit of sludge pump to Impact
Systems and signing the Deed of Assignment. Petitioner directs the attention of
this Court to the fact that respondents are bound not only by their principal and
agent relationship but are in fact full-blooded brothers whose successive
contravening acts bore the obvious signs of conspiracy to defraud petitioner. 27
In his Comment,28 respondent EDWIN again posits the argument that he is not a
real party in interest in this case and it was proper for the trial court to have him
dropped as a defendant. He insists that he was a mere agent of Impact Systems
which is owned by ERWIN and that his status as such is known even to petitioner
as it is alleged in the Complaint that he is being sued in his capacity as the sales

manager of the said business venture. Likewise, respondent EDWIN points to the
Deed of Assignment which clearly states that he was acting as a representative
of Impact Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another with the latters
consent.29 The underlying principle of the contract of agency is to accomplish
results by using the services of others to do a great variety of things like
selling, buying, manufacturing, and transporting. 30 Its purpose is to extend the
personality of the principal or the party for whom another acts and from whom
he or she derives the authority to act. 31 It is said that the basis of agency is
representation, that is, the agent acts for and on behalf of the principal on
matters within the scope of his authority and said acts have the same legal
effect as if they were personally executed by the principal. 32 By this legal fiction,
the actual or real absence of the principal is converted into his legal or juridical
presence qui facit per alium facit per se. 33
The elements of the contract of agency are: (1) consent, express or implied, of
the parties to establish the relationship; (2) the object is the execution of a
juridical act in relation to a third person; (3) the agent acts as a representative
and not for himself; (4) the agent acts within the scope of his authority. 34
In this case, the parties do not dispute the existence of the agency relationship
between respondents ERWIN as principal and EDWIN as agent. The only cause of
the present dispute is whether respondent EDWIN exceeded his authority when
he signed the Deed of Assignment thereby binding himself personally to pay the
obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted
beyond the authority granted by his principal and he should therefore bear the
effect of his deed pursuant to Article 1897 of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is
not personally liable to the party with whom he contracts. The same provision,
however, presents two instances when an agent becomes personally liable to a
third person. The first is when he expressly binds himself to the obligation and
the second is when he exceeds his authority. In the last instance, the agent can
be held liable if he does not give the third party sufficient notice of his powers.
We hold that respondent EDWIN does not fall within any of the exceptions
contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as
the sales manager of Impact Systems. As discussed elsewhere, the position of
manager is unique in that it presupposes the grant of broad powers with which to
conduct the business of the principal, thus:
The powers of an agent are particularly broad in the case of one acting as a
general agent or manager; such a position presupposes a degree of confidence

reposed and investiture with liberal powers for the exercise of judgment and
discretion in transactions and concerns which are incidental or appurtenant to
the business entrusted to his care and management. In the absence of an
agreement to the contrary, a managing agent may enter into any contracts that
he deems reasonably necessary or requisite for the protection of the interests of
his principal entrusted to his management. x x x. 35
Applying the foregoing to the present case, we hold that Edwin Cuizon acted
well-within his authority when he signed the Deed of Assignment. To recall,
petitioner refused to deliver the one unit of sludge pump unless it received, in
full, the payment for Impact Systems indebtedness. 36 We may very well assume
that Impact Systems desperately needed the sludge pump for its business since
after it paid 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.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice

ROMEO J. CALLEJO, SR.

Asscociate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1

Penned by Associate Justice Vicente L. Yap with Associate Justices Arsenio J.

Magpale and Ramon M. Bato , Jr., concurring; rollo, pp. 33-36.

Id. at 37-39.

Id. at 83-84.

Annex "H" of the Complaint; records, p. 18.

Referring to Impact Systems Sales.

Referring to petitioner Eurotech Industrial Technologies, Inc.

Annex "G" of the Complaint; records, p. 17.

Annex "H" of the Complaint; id. at 18.

Annex "I" of the Complaint; id. at 19.

10

Annex "J" of the Complaint; id. at 20.

11

Annex "L" of the Complaint; id. at 22.

12

The case was raffled off to Branch 8 of the RTC Cebu City.

13

Records, p. 27.

14

Id. at 38-41.

15

Id. at 38.

16

Ibid.

17

Id. at 1.

18

Id. at 50.

19

Id. at 61.

20

Edwin Cuizons counsel requested that the Special and Affirmative Defenses in
his Answer be treated as his Motion to Dismiss; Order dated 16 October 2001; id.
at 78.
21

Id. at 82-86.

22

Memorandum dated 16 November 2001; id. at 87-91.

23

Id. at 95-96.

24

Rollo, p. 35.

25

Id. at 17.

26

Id. at 21-22.

27

Id. at 25-26.

28

Id. at 98-114.

29

Article 1868 of the Civil Code.

30

Reuschlein and Gregory, Agency and Partnership (1979 edition), p. 1.

31

3 Am Jur 2d, 1.

32

Padilla, Agency Text and Cases, (1986 edition), p. 2.

33

He who acts through another acts by or for himself; id. at 2.

34

Yu Eng Cho v. Pan American World Airways, Inc., 385 Phil. 453, 465 (2000).

35

3 Am Jur 2d, 91, p. 602.

36

Records, p. 2.

37

Annex "H" of the Complaint; records, p. 18.

38

Annex "G" of the Complaint; id. at 17.

39

Philippine Products Company v. Primateria Societe Anonyme Pour Le

Commerce Exterieur, 122 Phil. 698, 702 (1965).
40

De Leon and De Leon, Jr., Comments and Cases on Partnership, Agency, and
Trusts (1999 edition), p. 512.
41

Rule 3, 1 of the Revised Rules of Court.

Republic of the Philippines

SUPREME COURT
Manila
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of CONCEPCION
RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF
APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.

MUOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his
principal, Concepcion Rallos, sold the latter's undivided share in a parcel of land
pursuant to a power of attorney which the principal had executed in favor. The
administrator of the estate of the went to court to have the sale declared
uneanforceable and to recover the disposed share. The trial court granted the

relief prayed for, but upon appeal the Court of Appeals uphold the validity of the
sale and the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed
Rallos were sisters and registered co-owners of a parcel of land known as Lot No.
5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title No.
11116 of the Registry of Cebu. On April 21, 1954, the sisters executed a special
power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell
for and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On
September 12, 1955, Simeon Rallos sold the undivided shares of his sisters
Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation
for the sum of P10,686.90. The deed of sale was registered in the Registry of
Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of
Title No. 12989 was issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of
Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the
Court of First Instance of Cebu, praying (1) that the sale of the undivided share of
the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said share
be reconveyed to her estate; (2) that the Certificate of 'title issued in the name
of Felix Go Chan & Sons Realty Corporation be cancelled and another title be
issued in the names of the corporation and the "Intestate estate of Concepcion
Rallos" in equal undivided and (3) that plaintiff be indemnified by way of
attorney's fees and payment of costs of suit. Named party defendants were Felix
Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of
Cebu, but subsequently, the latter was dropped from the complaint. The
complaint was amended twice; defendant Corporation's Answer contained a
crossclaim against its co-defendant, Simon Rallos while the latter filed third-party
complaint against his sister, Gerundia Rallos While the case was pending in the
trial court, both Simon and his sister Gerundia died and they were substituted by
the respective administrators of their estates.
After trial the court a quo rendered judgment with the following dispositive
portion:
A. On Plaintiffs Complaint
(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half proindiviso share of Concepcion Rallos in the property in question, Lot 5983 of the
Cadastral Survey of Cebu is concerned;
(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of
Title No. 12989 covering Lot 5983 and to issue in lieu thereof another in the
names of FELIX GO CHAN & SONS REALTY CORPORATION and the Estate of
Concepcion Rallos in the proportion of one-half (1/2) share each pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of
an undivided one-half (1/2) share of Lot 5983 to the herein plaintiff;

(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of

Simeon Rallos, to pay to plaintiff in concept of reasonable attorney's fees the
sum of P1,000.00; and
(5) Ordering both defendants to pay the costs jointly and severally.
B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of
Simeon Rallos, to pay to defendant Felix Co Chan & Sons Realty Corporation the
sum of P5,343.45, representing the price of one-half (1/2) share of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of
Simeon Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan &
Sons Realty Corporation the sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of
Estate of Simeon Rallos, against Josefina Rallos special administratrix of the
Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to filing either a
complaint against the regular administrator of the Estate of Gerundia Rallos or a
claim in the Intestate-Estate of Cerundia Rallos, covering the same subjectmatter of the third-party complaint, at bar. (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of
Appeals from the foregoing judgment insofar as it set aside the sale of the onehalf (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to
earlier, resolved the appeal on November 20, 1964 in favor of the appellant
corporation sustaining the sale in question. 1 The appellee administrator, Ramon
Rallos, moved for a reconsider of the decision but the same was denied in a
resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his
principal? Applied more particularly to the instant case, We have the query. is the
sale of the undivided share of Concepcion Rallos in lot 5983 valid although it was
executed by the agent after the death of his principal? What is the law in this
jurisdiction as to the effect of the death of the principal on the authority of the
agent to act for and in behalf of the latter? Is the fact of knowledge of the death
of the principal a material factor in determining the legal effect of an act
performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of law
relevant to the matter tinder consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may
contract in the name of another without being authorized by the latter, or unless
he has by law a right to represent him. 3 A contract entered into in the name of
another by one who has no authority or the 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. 4 Article 1403 (1) of the same Code also
provides:
ART. 1403. The following contracts are unenforceable, unless they are justified:
(1) Those entered into in the name of another person by one who hi - been given
no authority or legal representation or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of
the relationship of agency whereby one party, caged the principal (mandante),
authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of agency are: (1) there
is 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
agents acts as a representative and not for himself, and (4) the agent acts within
the scope of his authority. 5
Agency is basically personal representative, and derivative in nature. 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. Qui facit per alium facit se. "He who acts through another acts
himself". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned
only with one cause death of the principal Paragraph 3 of Art. 1919 of the Civil
Code which was taken from Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the principal or of the
agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent,
agency is extinguished by the death of the principal or the agent. This is the law
in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the
rationale for the law is found in thejuridical basis of agency which
is representation Them being an in. integration of the personality of the principal
integration that of the agent it is not possible for the representation to continue
to exist once the death of either is establish. Pothier agrees with Manresa that by
reason of the nature of agency, death is a necessary cause for its
extinction. Laurent says that the juridical tie between the principal and the agent
is severed ipso jure upon the death of either without necessity for the heirs of
the fact to notify the agent of the fact of death of the former. 9
The same rule prevails at common law the death of the principal effects
instantaneous and absolute revocation of the authority of the agent unless the

Power be coupled with an interest. 10 This is the prevalent rule in American

Jurisprudence where it is well-settled that a power without an interest confer. red
upon an agent is dissolved by the principal's death, and any attempted execution
of the power afterward is not binding on the heirs or representatives of the
deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal
or of the agent extinguishes the agency, subject to any exception, and if so, is
the instant case within that exception? That is the determinative point in issue in
this litigation. It is the contention of respondent corporation which was sustained
by respondent court that notwithstanding the death of the principal Concepcion
Rallos the act of the attorney-in-fact, Simeon Rallos in selling the former's sham
in the property is valid and enforceable inasmuch as the corporation acted in
good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general
rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect even after the death
of the principal, if it has been constituted in the common interest of the latter
and of the agent, or in the interest of a third person who has accepted the
stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the
principal or of any other cause which extinguishes the agency, is valid and shall
be fully effective with respect to third persons who may have contracted with
him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney
executed in favor of Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent
after the death of his principal is valid and effective only under two conditions,
viz: (1) that the agent acted without knowledge of the death of the principal and
(2) that the third person who contracted with the agent himself acted in good
faith. Good faith here means that the third person was not aware of the death of
the principal at the time he contracted with said agent. These two requisites
must concur the absence of one will render the act of the agent invalid and
unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew
of the death of his principal at the time he sold the latter's share in Lot No. 5983
to respondent corporation. The knowledge of the death is clearly to be inferred
from the pleadings filed by Simon Rallos before the trial court. 12 That Simeon
Rallos knew of the death of his sister Concepcion is also a finding of fact of the
court a quo 13 and of respondent appellate court when the latter stated that
Simon Rallos 'must have known of the death of his sister, and yet he proceeded
with the sale of the lot in the name of both his sisters Concepcion and Gerundia

Rallos without informing appellant (the realty corporation) of the death of the
former. 14
On the basis of the established knowledge of Simon Rallos concerning the death
of his principal Concepcion Rallos, Article 1931 of the Civil Code is
inapplicable. The law expressly requires for its application lack of knowledge on
the part of the agent of the death of his principal; it is not enough that the third
person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court
applying Article 1738 of the old Civil rode now Art. 1931 of the new Civil Code
sustained the validity , of a sale made after the death of the principal because it
was not shown that the agent knew of his principal's demise. 15 To the same
effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the
words of Justice Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs
presented no proof and there is no indication in the record, that the agent Luy
Kim Guan was aware of the death of his principal at the time he sold the
property. The death 6f the principal does not render the act of an agent
unenforceable, where the latter had no knowledge of such extinguishment of the
agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of
Appeals reasoned out that there is no provision in the Code which provides that
whatever is done by an agent having knowledge of the death of his principal is
void even with respect to third persons who may have contracted with him in
good faith and without knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence
of the general rule enunciated in Article 1919 that the death of the principal
extinguishes the agency. That being the general rule it follows a fortiorithat any
act of an agent after the death of his principal is void ab initio unless the same
fags under the exception provided for in the aforementioned Articles 1930 and
1931. Article 1931, being an exception to the general rule, is to be strictly
construed, it is not to be given an interpretation or application beyond the clear
import of its terms for otherwise the courts will be involved in a process of
legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the vendee acting in
good faith relied on the power of attorney which was duly registered on the
original certificate of title recorded in the Register of Deeds of the province of
Cebu, that no notice of the death was aver annotated on said certificate of title
by the heirs of the principal and accordingly they must suffer the consequences
of such omission. 17
To support such argument reference is made to a portion
in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of contracting with certain
persons, the revocation must be made known to them. But if the agency is

general iii nature, without reference to particular person with whom the agent is
to contract, it is sufficient that the principal exercise due diligence to make the
revocation of the agency publicity known.
In case of a general power which does not specify the persons to whom
represents' on should be made, it is the general opinion that all acts, executed
with third persons who contracted in good faith, Without knowledge of the
revocation, are valid. In such case, the principal may exercise his right against
the agent, who, knowing of the revocation, continued to assume a personality
which he no longer had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a
mode of terminating an agency which is to be distinguished from revocation
by operation of law such as death of the principal which obtains in this case. On
page six of this Opinion We stressed that by reason of the very nature of the
relationship between principal and agent, agency is extinguished ipso jure upon
the death of either principal or agent. Although a revocation of a power of
attorney to be effective must be communicated to the parties concerned, 18 yet a
revocation by operation of law, such as by death of the principal is, as a rule,
instantaneously effective inasmuch as "by legal fiction the agent's exercise of
authority is regarded as an execution of the principal's continuing will. 19With
death, the principal's will ceases or is the of authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the
death of the principal What the Code provides in Article 1932 is that, if the agent
die his heirs must notify the principal thereof, and in the meantime adopt such
measures as the circumstances may demand in the interest of the latter. Hence,
the fact that no notice of the death of the principal was registered on the
certificate of title of the property in the Office of the Register of Deeds, is not
fatal to the cause of the estate of the principal
6. Holding that the good faith of a third person in said with an agent affords the
former sufficient protection, respondent court drew a "parallel" between the
instant case and that of an innocent purchaser for value of a land, stating that if
a person purchases a registered land from one who acquired it in bad faith
even to the extent of foregoing or falsifying the deed of sale in his favor the
registered owner has no recourse against such innocent purchaser for value but
only against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the
case of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the
brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one
Vallejo was a co-owner of lands with Agustin Nano. The latter had a power of
attorney supposedly executed by Vallejo Nano in his favor. Vallejo delivered to
Nano his land titles. The power was registered in the Office of the Register of
Deeds. When the lawyer-husband of Angela Blondeau went to that Office, he
found all in order including the power of attorney. But Vallejo denied having

executed the power The lower court sustained Vallejo and the plaintiff Blondeau
appealed. Reversing the decision of the court a quo, the Supreme Court, quoting
the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of the defendant- appellee
must be overruled. Agustin Nano had possession of Jose Vallejo's title papers.
Without those title papers handed over to Nano with the acquiescence of Vallejo,
a fraud could not have been perpetuated. When Fernando de la Canters, a
member of the Philippine Bar and the husband of Angela Blondeau, the principal
plaintiff, searched the registration record, he found them in due form including
the power of attorney of Vallajo in favor of Nano. If this had not been so and if
thereafter the proper notation of the encumbrance could not have been made,
Angela Blondeau would not have sent P12,000.00 to the defendant Vallejo.' An
executed transfer of registered lands placed by the registered owner thereof in
the hands of another operates as a representation to a third party that the holder
of the transfer is authorized to deal with the land.
As between two innocent persons, one of whom must suffer the consequence of
a breach of trust, the one who made it possible by his act of coincidence bear the
loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us
because here We are confronted with one who admittedly was an agent of his
sister and who sold the property of the latter after her death with full knowledge
of such death. The situation is expressly covered by a provision of law on agency
the terms of which are clear and unmistakable leaving no room for an
interpretation contrary to its tenor, in the same manner that the ruling in
Blondeau and the cases cited therein found a basis in Section 55 of the Land
Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any voluntary
instrument is presented for registration shall be conclusive authority from the
registered owner to the register of deeds to enter a new certificate or to make a
memorandum of registration in accordance with such instruments, and the new
certificate or memorandum Shall be binding upon the registered owner and upon
all persons claiming under him in favor of every purchaser for value and in good
faith: Provided however, That in all cases of registration provided by fraud, the
owner may pursue all his legal and equitable remedies against the parties to
such fraud without prejudice, however, to the right, of any innocent holder for
value of a certificate of title. ... (Act No. 496 as amended)
7. One last point raised by respondent corporation in support of the appealed
decision is an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v.
McKenzie wherein payments made to an agent after the death of the principal
were held to be "good", "the parties being ignorant of the death". Let us take
note that the Opinion of Justice Rogers was premised on the statement that

the parties were ignorant of the death of the principal. We quote from that
decision the following:
... Here the precise point is, whether a payment to an agent when the Parties are
ignorant of the death is a good payment. in addition to the case in Campbell
before cited, the same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the
general question that a payment after the death of principal is not good. Thus, a
payment of sailor's wages to a person having a power of attorney to receive
them, has been held void when the principal was dead at the time of the
payment. If, by this case, it is meant merely to decide the general proposition
that by operation of law the death of the principal is a revocation of the powers
of the attorney, no objection can be taken to it. But if it intended to say that his
principle applies where there was 110 notice of death, or opportunity of twice I
must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the accident
circumstance of the death of the principal, which he did not know, and which by
no possibility could he know? It would be unjust to the agent and unjust to the
debtor. In the civil law, the acts of the agent, done bona fide in ignorance of the
death of his principal are held valid and binding upon the heirs of the latter. The
same rule holds in the Scottish law, and I cannot believe the common law is so
unreasonable... (39 Am. Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may
evoke, mention may be made that the above represents the minority view in
American jurisprudence. Thus in Clayton v. Merrett, the Court said.
There are several cases which seem to hold that although, as a general principle,
death revokes an agency and renders null every act of the agent thereafter
performed, yet that where a payment has been made in ignorance of the death,
such payment will be good. The leading case so holding is that of Cassiday v.
McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this
view ii broadly announced. It is referred to, and seems to have been followed, in
the case of Dick v. Page,17 Mo. 234, 57 AmD 267; but in this latter case it
appeared that the estate of the deceased principal had received the benefit of
the money paid, and therefore the representative of the estate might well have
been held to be estopped from suing for it again. . . . These cases, in so far, at
least, as they announce the doctrine under discussion, are exceptional. The
Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD 76), is
believed to stand almost, if not quite, alone in announcing the principle in its
broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out
that the opinion, except so far as it related to the particular facts, was a
mere dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded more as an
extrajudicial indication of his views on the general subject, than as the
adjudication of the Court upon the point in question. But accordingly all power

weight to this opinion, as the judgment of a of great respectability, it stands

alone among common law authorities and is opposed by an array too formidable
to permit us to following it. (15 Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in
American jurisprudence, no such conflict exists in our own for the simple reason
that our statute, the Civil Code, expressly provides for two exceptions to the
general rule that death of the principal revokes ipso jure the agency, to wit: (1)
that the agency is coupled with an interest (Art 1930), and (2) that the act of the
agent was executed without knowledge of the death of the principal and the
third person who contracted with the agent acted also in good faith (Art. 1931).
Exception No. 2 is the doctrine followed in Cassiday, and again We stress the
indispensable requirement that the agent acted without knowledge or notice of
the death of the principal In the case before Us the agent Ramon Rallos executed
the sale notwithstanding notice of the death of his principal Accordingly, the
agent's act is unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent
appellate court, and We affirm en toto the judgment rendered by then Hon.
Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3
of this Opinion, with costs against respondent realty corporation at all instances.
So Ordered.
Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.

Footnotes
1 p. 40, rollo
2 p, 42, Ibid.
3 Art. 1317, Civil Code of the Philippines
4 Ibid
5 Art. 1868, Civil Code. By the contract of the agency of a person blinds himself
to render some service or to do something in representation or on behalf of
another, with the consent of the authority of the latter.
Art. 1881, Civil Code. The Agent must act within the scope of his authority. He
may do acts as may be conductive to the accomplishment of the purpose of the
agency.
11 Manresa 422-423; 4 Sanchez Roman 478, 2nd Ed.; 26 Scaevola, 243, 262;
Tolentino, Comments, Civil Code of the Philippines, p.340, vol. 5, 1959 Ed.
See also Columbia University Club v. Higgins, D.CN.Y., 23 f. Supp. 572, 574;
Valentine Oil Co. v. Young 109 P. 2d 180, 185.

6 74 C.J.S. 4; Valentine Oil Co. v. Powers, 59 N.W. 2d 160, 163, 157 Neb. 87;
Purnell v. City of Florence, 175 So. 417, 27 Ala. App. 516; Stroman Motor Co. v.
Brown, 243 P. 133, 126 Ok. 36
7 See Art. 1919 of the Civil Code
8 Hermosa v. Longara, 1953, 93 Phil. 977, 983; Del Rosario, et al. v. Abad, et al.,
1958, 104 Phil. 648, 652
9 11 Manresa 572-573; Tolentino, supra, 369-370
10 2 Kent Comm. 641, cited in Williston on Contracts, 3rd Ed., Vol. 2, p. 288
11 See Notes on Acts of agent after principal's death, 39 Am. Dec. 81,83, citing
Ewell's Evans on Agency, 116; Dunlap's Paley on Agency, 186; Story on Agency,
see. 488; Harper v. Little. 11 Am. Dec. 25; Staples v. Bradbury, 23 Id. 494; Gale v.
Tappan 37 Id. 194; Hunt v. Rousmanier, 2 Mason, 244, S.C. 8 Wheat, 174; Boones
Executor v. Clarke 3 Cranch C.C. 389; Hank of 'Washington v. Person, 2 'Rash.
C.C. 6.85; Scruggs v. Driver's Executor, 31 Ala. 274; McGriff v. Porter, 5 Fla. 373;
Lincoln v. Emerson, 108 Mass 87; 'Wilson v. Edmonds, 24 N.H 517; Easton v. Ellis,
1 Handy (Ohio), 70; McDonald v. Black's Administrators, 20 Ohio, 185; Michigan
Ins. Co. v. Leavenworth, 30 Vt. 11; Huston v. Cantril, 11 Leigh, 136; Campanari v.
'Woodburn, 15 Com B 400
See also ',Williston on Contracts, 3rd Ed., Vol. 2, p. 289
12 see p. 15, 30-31 64 68-69, Record on Appeal
13 pp. 71-72, Ibid.
14 p. 7 of the Decision at page 14, rollo
15 105 Phil. 79:i, 798
16 p. 6 of Decision, at page 13, rollo
17 pp. 6-7 of Decision at pp, 13-14, Ibid.
18 See Articles 1921 & 1922 of the Civil Code
19 2 C.J.S. 1 174 citing American Jurisprudence in different States from Alabama
to Washington; emphasis supplied.
20 p. 8, decision at Page 15, rollo
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18058

January 16, 1923

FABIOLA SEVERINO, plaintiff-appellee,

vs.
GUILLERMO SEVERINO, defendant-appellant.
FELICITAS VILLANUEVA, intervenor-appellee.
Serafin P. Hilado and A. P. Seva for appellant.
Jose Ma. Arroyo, Jose Lopez Vito, and Fisher and DeWitt for appellees.
OSTRAND, J.:
This is an action brought by the plaintiff as the alleged natural daughter and sole
heir of one Melecio Severino, deceased, to compel the defendant Guillermo
Severino to convey to her four parcels of land described in the complaint, or in
default thereof to pay her the sum of P800,000 in damages for wrongfully
causing said land to be registered in his own name. Felicitas Villanueva, in her
capacity as administratrix of the estate of Melecio Severino, has filed a complaint
in intervention claiming in the same relief as the original plaintiff, except in so far
as she prays that the conveyance be made, or damages paid, to the estate
instead of to the plaintiff Fabiola Severino. The defendant answered both
complaints with a general denial.
The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as
the acknowledged natural child of the said Melecio Severino and ordering the
defendant to convey 428 hectares of the land in question to the intervenor as
administratrix of the estate of the said Melecio Severino, to deliver to her the
proceeds in his possession of a certain mortgage placed thereon by him and to
pay the costs. From this judgment only the defendant appeals.
The land described in the complaint forms one continuous tract and consists of
lots Nos. 827, 828, 834, and 874 of the cadaster of Silay, Province of Occidental
Negros, which measure, respectively, 61 hectares, 74 ares, and 79 centiares; 76
hectares, 34 ares, and 79 centiares; 52 hectares, 86 ares, and 60 centiares and
608 hectares, 77 ares and 28 centiares, or a total of 799 hectares, 75 ares, and
46 centiares.
The evidence shows that Melecio Severino died on the 25th day of May, 1915;
that some 428 hectares of the land were recorded in the Mortgage Law Register
in his name in the year 1901 by virtue of possessory information proceedings
instituted on the 9th day of May of that year by his brother Agapito Severino in
his behalf; that during the lifetime of Melecio Severino the land was worked by
the defendant, Guillermo Severino, his brother, as administrator for and on
behalf of the said Melecio Severino; that after Melecio's death, the defendant
Guillermo Severino continued to occupy the land; that in 1916 a parcel survey
was made of the lands in the municipality of Silay, including the land here in
question, and cadastral proceedings were instituted for the registration of the
lands titles within the surveyed area; that in the cadastral proceedings the land
here in question was described as four separate lots numbered as above stated;
that Roque Hofilea, as lawyer for Guillermo Severino, filed answers in behalf of
the latter in said proceedings claiming the lots mentioned as the property of his

client; that no opposition was presented in the proceedings to the claims of

Guillermo Severino and the court therefore decreed the title in his favor, in
pursuance of which decree certificates of title were issued to him in the month of
March, 1917.
It may be further observed that at the time of the cadastral proceedings the
plaintiff Fabiola Severino was a minor; that Guillermo Severino did not appear
personally in the proceedings and did not there testify; that the only testimony in
support of his claims was that of his attorney Hofilea, who swore that he knew
the land and that he also knew that Guillermo Severino inherited the land from
his father and that he, by himself, and through his predecessors in interest, had
possessed the land for thirty years.
The appellant presents the following nine assignments of error:
1. The trial court erred in admitting the evidence that was offered by plaintiff in
order to establish the fact that said plaintiff was the legally acknowledged
natural child of the deceased Melecio Severino.
2. The trial court erred in finding that, under the evidence presented, plaintiff
was the legally acknowledged natural child of Melecio Severino.
3. The trial court erred in rejecting the evidence offered by defendant to
establish the absence of fraud on his part in securing title to the lands in
Nacayao.
4. The trial court erred in concluding that the evidence adduced by plaintiff and
intervenor established that defendant was guilty of fraud in procuring title to the
lands in question in his name.
5. The trial court erred in declaring that the land that was formerly placed in the
name of Melecio Severino had an extent of either 434 or 428 hectares at the
time of his death.
6. The trial court erred in declaring that the value of the land in litigation is P500
per hectare.
7. The trial court erred in granting the petition of the plaintiff for an attachment
without first giving the defendant an opportunity to be heard.
8. The trial court erred in ordering the conveyance of 428 hectares of land by
defendant to the administratrix.
9. The trial court erred in failing or refusing to make any finding as to the
defendant's contention that the petition for attachment was utterly devoid of any
reasonable ground.
In regard to the first two assignments of error, we agree with the appellant that
the trial court erred in making a declaration in the present case as to the
recognition of Fabiola Severino as the natural child of Melecio Severino. We have
held in the case of Briz vs. Briz and Remigio (43 Phil., 763), that "The legitimate

heirs or kin of a deceased person who would be prejudiced by a declaration that

another person is entitled to recognition as the natural child of such decedent,
are necessary and indispensable parties to any action in which a judgment
declaring the right to recognition is sought." In the present action only the
widow, the alleged natural child, and one of the brothers of the deceased are
parties; the other potential heirs have not been included. But, inasmuch as the
judgment appealed from is in favor of the intervenor and not of the plaintiff,
except to the extent of holding that the latter is a recognized natural child of the
deceased, this question is, from the view we take of the case, of no importance
in its final disposition. We may say, however, in this connection, that the point
urged in appellant's brief that it does not appear affirmatively from the evidence
that, at the time of the conception of Fabiola, her mother was a single woman,
may be sufficiently disposed of by a reference to article 130 of the Civil Code and
subsection 1 of section 334 of the Code of Civil Procedure which create the
presumption that a child born out of wedlock is natural rather than illegitimate.
The question of the status of the plaintiff Fabiola Severino and her right to share
in the inheritance may, upon notice to all the interested parties, be determined
in the probate proceedings for the settlement of the estate of the deceased.
The fifth assignment of error relates to the finding of the trial court that the land
belonging to Melecio Severino had an area of 428 hectares. The appellant
contends that the court should have found that there were only 324 hectares
inasmuch as one hundred hectares of the original area were given to Melecio's
brother Donato during the lifetime of the father Ramon Severino. As it appears
that Ramon Severino died in 1896 and that the possessory information
proceedings, upon which the finding of the trial court as to the area of the land is
principally based, were not instituted until the year 1901, we are not disposed to
disturb the conclusions of the trial court on this point. Moreover, in the year
1913, the defendant Guillermo Severino testified under oath, in the case
of Montelibano vs. Severino, that the area of the land owned by Melecio Severino
and of which he (Guillermo) was the administrator, embraced an area of 424
hectares. The fact that Melecio Severino, in declaring the land for taxation in
1906, stated that the area was only 324 hectares and 60 ares while entitled to
some weight is not conclusive and is not sufficient to overcome the positive
statement of the defendant and the recitals in the record of the possessory
information proceedings.
The sixth assignment of error is also of minor importance in view of the fact that
in the dispositive part of the decision of the trial court, the only relief given is an
order requiring the appellant to convey to the administratrix the land in question,
together with such parts of the proceeds of the mortgage thereon as remain in
his hands. We may say further that the court's estimate of the value of the land
does not appear unreasonable and that, upon the evidence before us, it will not
be disturbed.
The seventh and within assignments of error relate to the ex parte granting by
the trial court of a preliminary attachment in the case and the refusal of the

court to dissolve the same. We find no merit whatever in these assignments and
a detailed discussion of them is unnecessary.
The third, fourth, and eight assignments of error involve the vital points in the
case, are inter-related and may be conveniently considered together.
The defendant argues that the gist of the instant action is the alleged fraud on
his part in causing the land in question to be registered in his name; that the trial
court therefore erred in rejecting his offer of evidence to the effect that the land
was owned in common by all the heirs of Ramon Severino and did not belong to
Melecio Severino exclusively; that such evidence, if admitted, would have shown
that he did not act with fraudulent intent in taking title to the land; that the trial
court erred in holding him estopped from denying Melecio's title; that more than
a year having elapsed since the entry of the final decree adjudicating the land to
the defendant, said decree cannot now be reopened; that the ordering of the
defendant to convey the decreed land to the administratrix is, for all practical
purposes, equivalent to the reopening of the decree of registration; that under
section 38 of the Land Registration Act the defendant has an indefeasible title to
the land; and that the question of ownership of the land being thus judicially
settled, the question as to the previous relations between the parties cannot now
be inquired into.
Upon no point can the defendant's contentions be sustained. It may first be
observed that this is not an action under section 38 of the Land Registration Act
to reopen or set aside a decree; it is an action in personam against an agent to
compel him to return, or retransfer, to the heirs or the estate of its principal, the
property committed to his custody as such agent, to execute the necessary
documents of conveyance to effect such retransfer or, in default thereof, to pay
damages.
That the defendant came into the possession of the property here in question as
the agent of the deceased Melecio Severino in the administration of the property,
cannot be successfully disputed. His testimony in the case of Montelibano vs.
Severino (civil case No. 902 of the Court of First Instance of Occidental Negros
and which forms a part of the evidence in the present case) is, in fact, conclusive
in this respect. He there stated under oath that from the year 1902 up to the
time the testimony was given, in the year 1913, he had been continuously in
charge and occupation of the land as the encargado or administrator of Melecio
Severino; that he had always known the land as the property of Melecio
Severino; and that the possession of the latter had been peaceful, continuous,
and exclusive. In his answer filed in the same case, the same defendant, through
his attorney, disclaimed all personal interest in the land and averred that it was
wholly the property of his brother Melecio.
Neither is it disputed that the possession enjoyed by the defendant at the time of
obtaining his decree was of the same character as that held during the lifetime
of his brother, except in so far as shortly before the trial of the cadastral case the
defendant had secured from his brothers and sisters a relinguishment in his favor
of such rights as they might have in the land.

The relations of an agent to his principal are fiduciary and it is an elementary and
very old rule that in regard to property forming the subject-matter of the agency,
he is estopped from acquiring or asserting a title adverse to that of the principal.
His position is analogous to that of a trustee and he cannot consistently, with the
principles of good faith, be allowed to create in himself an interest in opposition
to that of his principal or cestui que trust. Upon this ground, and substantially in
harmony with the principles of the Civil Law (see sentence of the supreme court
of Spain of May 1, 1900), the English Chancellors held that in general whatever a
trustee does for the advantage of the trust estate inures to the benefit of
the cestui que trust. (Greenlaw vs. King, 5 Jur., 18; Ex parte Burnell, 7 Jur.,
116; Ex parte Hughes, 6 Ves., 617; Ex parte James, 8 Ves., 337; Oliver vs. Court,
8 Price, 127.) The same principle has been consistently adhered to in so many
American cases and is so well established that exhaustive citations of authorities
are superfluous and we shall therefore limit ourselves to quoting a few of the
numerous judicial expressions upon the subject. The principle is well stated in
the case of Gilbert vs. Hewetson (79 Minn., 326):
A receiver, trustee, attorney, agent, or any other person occupying fiduciary
relations respecting property or persons, is utterly disabled from acquiring for his
own benefit the property committed to his custody for management. This rule is
entirely independent of the fact whether any fraud has intervened. No fraud in
fact need be shown, and no excuse will be heard from the trustee. It is to avoid
the necessity of any such inquiry that the rule takes so general a form. The rule
stands on the moral obligation to refrain from placing one's self in positions
which ordinarily excite conflicts between self-interest and integrity. It seeks to
remove the temptation that might arise out of such a relation to serve one's selfinterest at the expense of one's integrity and duty to another, by making it
impossible to profit by yielding to temptation. It applies universally to all who
come within its principle.
In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme
Court, speaking through Chief Justice Marshall, said:
But Massie, the agent of Oneale, has entered and surveyed a portion of that land
for himself and obtained a patent for it in his own name. According to the
clearest and best established principles of equity, the agent who so acts
becomes a trustee for his principal. He cannot hold the land under an entry for
himself otherwise than as trustee for his principal.
In the case of Felix vs. Patrick (145 U. S., 317), the United States Supreme Court,
after examining the authorities, said:
The substance of these authorities is that, wherever a person obtains the legal
title to land by any artifice or concealment, or by making use of facilities
intended for the benefit of another, a court of equity will impress upon the land
so held by him a trust in favor of the party who is justly entitled to them, and will
order the trust executed by decreeing their conveyance to the party in whose
favor the trust was created. (Citing Bank of Metropolis vs. Guttschlick, 14 Pet.,
19, 31; Moses vs. Murgatroyd, 1 Johns. Ch., 119; Cumberland vs.Codrington, 3

Johns. Ch., 229, 261; Neilson vs. Blight, 1 Johns. Cas., 205; Weston vs. Barker, 12
Johns., 276.)
The same doctrine has also been adopted in the Philippines. In the case of Uy
Aloc vs. Cho Jan Ling (19 Phil., 202), the facts are stated by the court as follows:
From the facts proven at the trial it appears that a number of Chinese merchants
raised a fund by voluntary subscription with which they purchased a valuable
tract of land and erected a large building to be used as a sort of club house for
the mutual benefit of the subscribers to the fund. The subscribers organized
themselves into an irregular association, which had no regular articles of
association, and was not incorporated or registered in the commercial registry or
elsewhere. The association not having any existence as a legal entity, it was
agreed to have the title to the property placed in the name of one of the
members, the defendant, Cho Jan Ling, who on his part accepted the trust, and
agreed to hold the property as the agent of the members of the association. After
the club building was completed with the funds of the members of the
association, Cho Jan Ling collected some P25,000 in rents for which he failed and
refused to account, and upon proceedings being instituted to compel him to do
so, he set up title in himself to the club property as well as to the rents accruing
therefrom, falsely alleging that he had bought the real estate and constructed
the building with his own funds, and denying the claims of the members of the
association that it was their funds which had been used for that purpose.
The decree of the court provided, among other things, for the conveyance of the
club house and the land on which it stood from the defendant, Cho Jan Ling, in
whose name it was registered, to the members of the association. In affirming
the decree, this court said:
In the case at bar the legal title of the holder of the registered title is not
questioned; it is admitted that the members of the association voluntarily
obtained the inscription in the name of Cho Jan Ling, and that they had no right
to have that inscription cancelled; they do not seek such cancellation, and on the
contrary they allege and prove that the duly registered legal title to the property
is in Cho Jan Ling, but they maintain, and we think that they rightly maintain,
that he holds it under an obligation, both express and implied, to deal with it
exclusively for the benefit of the members of the association, and subject to their
will.
In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the plaintiff,
Camacho, took title to the land in his own name, while acting as agent for the
municipality. The court said:
There have been a number of cases before this court in which a title to real
property was acquired by a person in his own name, while acting under a
fiduciary capacity, and who afterwards sought to take advantage of the
confidence reposed in him by claiming the ownership of the property for himself.
This court has invariably held such evidence competent as between the fiduciary
and the cestui que trust.

xxx

xxx

xxx

What judgment ought to be entered in this case? The court below simply
absolved the defendant from the complaint. The defendant municipality does not
ask for a cancellation of the deed. On the contrary, the deed is relied upon the
supplement the oral evidence showing that the title to the land is in the
defendant. As we have indicated in Consunji vs. Tison, 15 Phil., 81, and Uy Aloc
vs. Cho Jan Ling, 19 Phil., 202, the proper procedure in such a case, so long as
the rights of innocent third persons have not intervened, is to compel a
conveyance to the rightful owner. This ought and can be done under the issues
raised and the proof presented in the case at bar.
The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in point.
As will be seen from the authorities quoted, and agent is not only estopped from
denying his principal's title to the property, but he is also disable from acquiring
interests therein adverse to those of his principal during the term of the agency.
But the defendant argues that his title has become res adjudicata through the
decree of registration and cannot now be disturbed.
This contention may, at first sight, appear to possess some force, but on closer
examination it proves untenable. The decree of registration determined the legal
title to the land as the date of the decree; as to that there is no question. That,
under section 38 of the Land Registration Act, this decree became conclusive
after one year from the date of the entry is not disputed and no one attempts to
disturb the decree or the proceedings upon which it is based; the plaintiff in
intervention merely contends that in equity the legal title so acquired inured to
the benefit of the estate of Melecio Severino, the defendant's principal
and cestui que trust and asks that this superior equitable right be made effective
by compelling the defendant, as the holder of the legal title, to transfer it to the
estate.
We have already shown that before the issuance of the decree of registration it
was the undoubted duty of the defendant to restore the property committed to
his custody to his principal, or to the latter's estate, and that the principal had a
right of action in personam to enforce the performance of this duty and to
compel the defendant to execute the necessary conveyance to that effect. The
only question remaining for consideration is, therefore, whether the decree of
registration extinguishing this personal right of action.
In Australia and New Zealand, under statutes in this respect similar to ours,
courts of equity exercise general jurisdiction in matters of fraud and error with
reference to Torrens registered lands, and giving attention to the special
provisions of the Torrens acts, will issue such orders and direction to all the
parties to the proceedings as may seem just and proper under the
circumstances. They may order parties to make deeds of conveyance and if the
order is disobeyed, they may cause proper conveyances to be made by a Master
in Chancery or Commissioner in accordance with the practice in equity (Hogg,
Australian Torrens System, p. 847).

In the Untied States courts have even gone so far in the exercise of their equity
jurisdiction as to set aside final decrees after the expiration of the statutory
period of limitation for the reopening of such decrees (Baart vs. Martin, 99 Minn.,
197). But, considering that equity follows the law and that our statutes expressly
prohibit the reopening of a decree after one year from the date of its entry, this
practice would probably be out of question here, especially so as the ends of
justice may be attained by other equally effective, and less objectionable means.
Turning to our own Land Registration Act, we find no indication there of an
intention to cut off, through the issuance of a decree of registration, equitable
rights or remedies such as those here in question. On the contrary, section 70 of
the Act provides:
Registered lands and ownership therein, shall in all respects be subject to the
same burdens and incidents attached by law to unregistered land. Nothing
contained in this Act shall in any way be construed to relieve registered land or
the owners thereof from any rights incident to the relation of husband and wife,
or from liability to attachment on mesne process or levy on execution, or from
liability to any lien of any description established by law on land and the
buildings thereon, or the interest of the owner in such land or buildings, or to
change the laws of descent, or the rights of partition between coparceners, joint
tenants and other cotenants, or the right to take the same by eminent domain,
or to relieve such land from liability to be appropriated in any lawful manner for
the payment of debts, or to change or affect in any other way any other rights or
liabilities created by law and applicable to unregistered land, except as otherwise
expressly provided in this Act or in the amendments hereof.
Section 102 of the Act, after providing for actions for damages in which the
Insular Treasurer, as the Custodian of the Assurance Fund is a party, contains the
following proviso:
Provided, however, That nothing in this Act shall be construed to deprive the
plaintiff of any action which he may have against any person for such loss or
damage or deprivation of land or of any estate or interest therein without joining
the Treasurer of the Philippine Archipelago as a defendant therein.
That an action such as the present one is covered by this proviso can hardly
admit of doubt. Such was also the view taken by this court in the case of Medina
Ong-Quingco vs. Imaz and Warner, Barnes & Co. (27 Phil., 314), in which the
plaintiff was seeking to take advantage of his possession of a certificate of title to
deprive the defendant of land included in that certificate and sold to him by the
former owner before the land was registered. The court decided adversely to
plaintiff and in so doing said:
As between them no question as to the indefeasibility of a Torrens title could
arise. Such an action could have been maintained at any time while the property
remained in the hands of the purchaser. The peculiar force of a Torrens title
would have been brought into play only when the purchaser had sold to an
innocent third person for value the lands described in his conveyance. . . .

Generally speaking, as between the vendor and the purchaser the same rights
and remedies exist with reference to land registered under Act No. 496, as exist
in relation to land not so registered.
In Cabanos vs. Register of Deeds of Laguna and Obiana (40 Phil., 620), it was
held that, while a purchaser of land under a pacto de retro cannot institute a real
action for the recovery thereof where the vendor under said sale has caused
such lands to be registered in his name without said vendee's consent, yet he
may have his personal action based on the contract of sale to compel the
execution of an unconditional deed for the said lands when the period for
repurchase has passed.
Torrens titles being on judicial decrees there is, of course, a strong presumption
in favor of their regularity or validity, and in order to maintain an action such as
the present the proof as to the fiduciary relation of the parties and of the breach
of trust must be clear and convincing. Such proof is, as we have seen, not lacking
in this case.
But once the relation and the breach of trust on the part of the fiduciary in thus
established, there is no reason, neither practical nor legal, why he should not be
compelled to make such reparation as may lie within his power for the injury
caused by his wrong, and as long as the land stands registered in the name of
the party who is guilty of the breach of trust and no rights of innocent third
parties are adversely affected, there can be no reason why such reparation
should not, in the proper case, take the form of a conveyance or transfer of the
title to the cestui que trust. No reasons of public policy demand that a person
guilty of fraud or breach of trust be permitted to use his certificate of title as a
shield against the consequences of his own wrong.
The judgment of the trial court is in accordance with the facts and the law. In
order to prevent unnecessary delay and further litigation it may, however, be
well to attach some additional directions to its dipositive clauses. It will be
observed that lots Nos. 827, 828, and 834 of a total area of approximately 191
hectares, lie wholly within the area to be conveyed to the plaintiff in intervention
and these lots may, therefore, be so conveyed without subdivision. The
remaining 237 hectares to be conveyed lie within the western part of lot No. 874
and before a conveyance of this portion can be effected a subdivision of that lot
must be made and a technical description of the portion to be conveyed, as well
as of the remaining portion of the lot, must be prepared. The subdivision shall be
made by an authorized surveyor and in accordance with the provisions of
Circular No. 31 of the General Land Registration Office, and the subdivision and
technical descriptions shall be submitted to the Chief of that office for his
approval. Within thirty days after being notified of the approval of said
subdivision and technical descriptions, the defendant Guillermo Severino shall
execute good and sufficient deed or deeds of conveyance in favor of the
administratrix of the estate of the deceased Melecio Severino for said lots Nos.
827, 828, 834, and the 237 hectares segregated from the western part of lot No.
874 and shall deliver to the register of deeds his duplicate certificates of title for

all of the four lots in order that said certificates may be cancelled and new
certificates issued. The cost of the subdivision and the fees of the register of
deeds will be paid by the plaintiff in intervention. It is so ordered
With these additional directions the judgment appealed from is affirmed, with the
costs against the appellant. The right of the plaintiff Fabiola Severino to establish
in the probate proceedings of the estate of Melecio Severino her status as his
recognized natural child is reserved.
Araullo, C. J., Johnson, Street, Malcolm, Avancea, Villamor, Johns, and
Romualdez, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

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.:p
This case is a consolidation of two (2) petitions for review on certiorari of a
decision 1 of the Court of Appeals in CA-G.R. No. CV-04294, entitled "American
Airlines, Inc. vs. Orient Air Services and Hotel Representatives, Inc." which
affirmed, with modification, the decision 2 of the Regional Trial Court of Manila,
Branch IV, which dismissed the complaint and granted therein defendant's
counterclaim for agent's overriding commission and damages.
The antecedent facts are as follows:

On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American

Air), an air carrier offering passenger and air cargo transportation in the
Philippines, and Orient Air Services and Hotel Representatives (hereinafter
referred to as Orient Air), entered into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), whereby the former authorized the
latter to act as its exclusive general sales agent within the Philippines for the
sale of air passenger transportation. Pertinent provisions of the agreement are
reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto
agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales
Agent within the Philippines, including any United States military installation
therein which are not serviced by an Air Carrier Representation Office (ACRO), for
the sale of air passenger transportation. The services to be performed by Orient
Air Services shall include:
(a) soliciting and promoting passenger traffic for the services of American and, if
necessary, employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be used
exclusively for the transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and promotional
material to sales agents and the general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may
be appointed by Orient Air Services with the prior written consent of American) in
the assigned territory including if required by American the control of
remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general
public in the assigned territory.
In connection with scheduled or non-scheduled air passenger transportation
within the United States, neither Orient Air Services nor its sub-agents will
perform services for any other air carrier similar to those to be performed
hereunder for American without the prior written consent of American. Subject to
periodic instructions and continued consent from American, Orient Air Services
may sell air passenger transportation to be performed within the United States
by other scheduled air carriers provided American does not provide substantially
equivalent schedules between the points involved.
xxx xxx xxx
4. Remittances

Orient Air Services shall remit in United States dollars to American the ticket
stock or exchange orders, less commissions to which Orient Air Services is
entitled hereunder, not less frequently than semi-monthly, on the 15th and last
days of each month for sales made during the preceding half month.
All monies collected by Orient Air Services for transportation sold hereunder on
American's ticket stock or on exchange orders, less applicable commissions to
which Orient Air Services is entitled hereunder, are the property of American and
shall be held in trust by Orient Air Services until satisfactorily accounted for to
American.
5. Commissions
American will pay Orient Air Services commission on transportation sold
hereunder by Orient Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of
transportation by Orient Air Services or its sub-agents over American's services
and any connecting through air transportation, when made on American's ticket
stock, equal to the following percentages of the tariff fares and charges:
(i) For transportation solely between points within the United States and between
such points and Canada: 7% or such other rate(s) as may be prescribed by the
Air Traffic Conference of America.
(ii) For transportation included in a through ticket covering transportation
between points other than those described above: 8% or such other rate(s) as
may be prescribed by the International Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an
overriding commission of 3% of the tariff fares and charges for all sales of
transportation over American's service by Orient Air Service or its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing or performing any of
the provisions of this Agreement or shall become bankrupt or make any
assignment for the benefit of or enter into any agreement or promise with its
creditors or go into liquidation, or suffer any of its goods to be taken in execution,
or if it ceases to be in business, this Agreement may, at the option of American,
be terminated forthwith and American may, without prejudice to any of its rights
under this Agreement, take possession of any ticket forms, exchange orders,
traffic material or other property or funds belonging to American.
11. IATA and ATC Rules

The provisions of this Agreement are subject to any applicable rules or

resolutions of the International Air Transport Association and the Air Traffic
Conference of America, and such rules or resolutions shall control in the event of
any conflict with the provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in the event Orient
Air Services is unable to transfer to the United States the funds payable by
Orient Air Services to American under this Agreement. Either party may
terminate the Agreement without cause by giving the other 30 days' notice by
letter, telegram or cable.
xxx xxx xxx

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, with the following modifications
1) American is ordered to pay Orient the sum of US$53,491.11 representing the
balance of the latter's overriding commission covering the period March 16, 1977
to December 31, 1980, or its Philippine peso equivalent in accordance with the
official rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's
overriding commission per month starting January 1, 1981 until date of
termination, May 9, 1981 or its Philippine peso equivalent in accordance with the
official rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10,
1981 the date the answer with counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American. 8
American Air moved for reconsideration of the aforementioned decision, assailing
the substance thereof and arguing for its reversal. The appellate court's decision
was also the subject of a Motion for Partial Reconsideration by Orient Air which
prayed for the restoration of the trial court's ruling with respect to the monetary
awards. The Court of Appeals, by resolution promulgated on 17 December 1986,
denied American Air's motion and with respect to that of Orient Air, ruled thus:

Orient's motion for partial reconsideration is denied insofar as it prays for

affirmance of the trial court's award of exemplary damages and attorney's fees,
but granted insofar as the rate of exchange is concerned. The decision of January
27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the
payment of the sums mentioned therein shall be at their Philippine peso
equivalent in accordance with the official rate of exchange legally prevailing on
the date of actual payment. 9
Both parties appealed the aforesaid resolution and decision of the respondent
court, Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner in
G.R. No. 76933. By resolution 10 of this Court dated 25 March 1987 both petitions
were consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to
the 3% overriding commission. It is the stand of American Air that such
commission is based only on sales of its services actually negotiated or
transacted by Orient Air, otherwise referred to as "ticketed sales." As basis
thereof, primary reliance is placed upon paragraph 5(b) of the Agreement which,
in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an
overriding commission of 3% of the tariff fees and charges for all sales of
transportation over American's services by Orient Air Services or 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. We 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.
Melencio-Herrera, and Regalado, JJ., concur.
Paras, J., took no part. Son is a partner in one of the counsel.

Sarmiento, J., is on leave.

Footnotes
1 Penned by Justice Serafin B. Camilon and concurred in by Justices Jose C.
Campos, Jr. and Desiderio P. Jurado.
2 Penned by Judge Herminio C. Mariano.
3 Rollo, pp. 110-118.
4 Rollo, p. 102.
5 Ibid., p. 104.
6 Ibid., p. 121.
7 Rollo, p. 162.
8 Rollo, pp. 173-174.
9 Ibid., p. 210.
10 Rollo, p. 212.
11 Rollo, p. 291.
12 NAESS Shipping Philippines, Inc. vs. NLRC, G.R. No. 73441, 4 September 1987,
153 SCRA 657.
13 North Negros Sugar Co. vs. Compania General de Tabacos, No. L-9277, 29
March 1957; Article 1374, Civil Code of the Philippines.
14 Equitable Banking Corporation vs. Intermediate Appellate Court, G.R. No.
74451, 25 May 1988, 161 SCRA 518.
15 Government of the Philippine Islands vs. Derham Brothers and the
International Banking Corporation, 36 Phil. 960.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 130148 December 15, 1997

JOSE BORDADOR and LYDIA BORDADOR, petitioners,
vs.
BRIGIDA D. LUZ, ERNESTO M. LUZ and NARCISO DEGANOS, respondents.

REGALADO, J.:
In this appeal by certiorari, petitioners assail the judgment of the Court of
Appeals in CA-G.R. CV No. 49175 affirming the adjudication of the Regional Trial
Court of Malolos, Bulacan which found private respondent Narciso Deganos liable
to petitioners for actual damages, but absolved respondent spouses Brigida D.
Luz and Ernesto M. Luz of liability. Petitioners likewise belabor the subsequent
resolution of the Court of Appeals which denied their motion for reconsideration
of its challenged decision.
Petitioners were engaged in the business of purchase and sale of jewelry and
respondent Brigida D. Luz, also known as Aida D. Luz, was their regular customer.
On several occasions during the period from April 27, 1987 to September 4,
1987, respondent Narciso Deganos, the brother to Brigida D. Luz, received
several pieces of gold and jewelry from petitioner amounting to
P382,816.00. 1 These items and their prices were indicated in seventeen receipts
covering the same. Eleven of the receipts stated that they were received for a
certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated that
they were received for Brigida D. Luz. 2
Deganos was supposed to sell the items at a profit and thereafter remit the
proceeds and return the unsold items to petitioners. Deganos remitted only the
sum of P53,207.00. He neither paid the balance of the sales proceeds, nor did he
return any unsold item to petitioners. By January 1990, the total of his unpaid
account to petitioners, including interest, reached the sum of
P725,463.98. 3 Petitioners eventually filed a complaint in the barangaycourt
against Deganos to recover said amount.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case,
appeared as a witness for Deganos and ultimately, she and her husband,
together with Deganos, signed a compromise agreement with petitioners. In that
compromise agreement, Deganos obligated himself to pay petitioners, on
installment basis, the balance of his account plus interest thereon. However, he
failed to comply with his aforestated undertakings.
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional
Trial Court of Malolos, Bulacan against Deganos and Brigida, D. Luz for recovery
of a sum of money and damages, with an application for preliminary
attachment. 4 Ernesto Luz was impleaded therein as the spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged
with estafa 5 in the Regional Trial Court of Malolos, Bulacan, which was docketed
as Criminal Case No. 785-M-94. That criminal case appears to be still pending in
said trial court.
During the trial of the civil case, petitioners claimed that Deganos acted as the
agent of Brigida D. Luz when he received the subject items of jewelry and,

because he failed to pay for the same, Brigida, as principal, and her spouse are
solidarily liable with him therefor.
On the other hand, while Deganos admitted that he had an unpaid obligation to
petitioners, he claimed that the same was only in the sum of P382,816.00 and
not P725,463.98. He further asserted that it was he alone who was involved in
the transaction with the petitioners; that he neither acted as agent for nor was
he authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that
six of the receipts indicated that the items were received by him for the latter. He
further claimed that he never delivered any of the items he received from
petitioners to Brigida.
Brigida, on her part, denied that she had anything to do with the transactions
between petitioners and Dangerous. She claimed that she never authorized
Deganos to receive any item of jewelry in her behalf and, for that matter, neither
did she actually receive any of the articles in question.
After trial, the court below found that only Deganos was liable to petitioners for
the amount and damages claimed. It held that while Brigida D. Luz did have
transactions with petitioners in the past, the items involved were already paid for
and all that Brigida owed petitioners was the sum of P21,483.00 representing
interest on the principal account which she had previously paid for. 6
The trial court also found that it was petitioner Lydia Bordador who indicated in
the receipts that the items were received by Deganos for Evelyn Aquino and
Brigida D. Luz. 7 Said court was "persuaded that Brigida D. Luz was behind
Deganos," but because there was no memorandum to this effect, the agreement
between the parties was unenforceable under the Statute of Frauds. 8 Absent the
required memorandum or any written document connecting the respondent Luz
spouses with the subject receipts, or authorizing Deganos to act on their behalf,
the alleged agreement between petitioners and Brigida D. Luz was
unenforceable.
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal
interest thereon June 25, 1990, and attorney's fees. Brigida D. Luz was ordered to
pay P21,483.00 representing the interest on her own personal loan. She and her
co-defendant spouse were absolved from any other or further liability. 9
As stated at the outset, petitioners appealed the judgment of the court a quo to
the Court Appeals which affirmed said judgment. 10 The motion for
reconsideration filed by petitioners was subsequently dismissed, 11 hence the
present recourse to this Court.
The primary issue in the instant petition is whether or not herein respondent
spouses are liable to petitioners for the latter's claim for money and damages in
the sum of P725,463.98, plus interests and attorney's fees, despite the fact that
the evidence does not show that they signed any of the subject receipts or
authorized Deganos to received the items of jewelry on their behalf.

Petitioners argue that the Court of Appeals erred in adopting the findings of the
court a quo that respondent spouses are not liable to them, as said conclusion of
the trial court is contradicted by the finding of fact of the appellate court that
"(Deganos) acted as agent of his sister (Brigida Luz)." 12 In support of this
contention, petitioners quoted several letters sent to them by Brigida D. Luz
wherein the latter acknowledged her obligation to petitioners and requested for
more time to fulfill the same. They likewise aver that Brigida testified in the trial
court that Deganos took some gold articles from petitioners and delivered the
same to her.
Both the Court of Appeals and the trial court, however, found as a fact that the
aforementioned letters concerned the previous obligations of Brigida to
petitioners, and had nothing to do with the money sought to be recovered in the
instant case. Such concurrent factual findings are entitled to great weight, hence,
petitioners cannot plausibly claim in this appellate review that the letters were in
the nature of acknowledgments by Brigida that she was the principal of Deganos
in the subject transactions.
On the other hand, with regard to the testimony of Brigida admitting delivery of
the gold to her, there is no showing whatsoever that her statement referred to
the items which are the subject matter of this case. It cannot, therefore, be
validly said that she admitted her liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter
clothed him with apparent authority as her agent and held him out to the public
as such, hence Brigida can not be permitted to deny said authority to innocent
third parties who dealt with Deganos under such belief. 13 Petitioners further
represent that the Court of Appeals recognized in its decision that Deganos was
an agent of Brigida. 14
The evidence does not support the theory of petitioners that Deganos was an
agent of Brigida D. Luz and that the latter should consequently be held solidarily
liable with Deganos in his obligation to petitioners. While the quoted statement
in the findings of fact of the assailed appellate decision mentioned that Deganos
ostensibly acted as an agent of Brigida, the actual conclusion and ruling of the
Court of Appeals categorically stated that, "(Brigida Luz) never authorized her
brother (Deganos) to act for and in her behalf in any transaction with Petitioners .
. . . 15 It is clear, therefore, that even assuming arguendo that Deganos acted as
an agent of Brigida, the latter never authorized him to act on her behalf with
regard to the transaction subject of this case.
The Civil Code provides:
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.
The basis for agency is representation. Here, there is no showing that Brigida
consented to the acts of Deganos or authorized him to act on her behalf, much

less with respect to the particular transactions involved. Petitioners' attempt to

foist liability on respondent spouses through the supposed agency relation with
Deganos is groundless and ill-advised.
Besides, it was grossly and inexcusably negligent of petitioners to entrust to
Deganos, not once or twice but on at least six occasions as evidenced by six
receipts, several pieces of jewelry of substantial value without requiring a written
authorization from his alleged principal. A person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the agent. 16
The records show that neither an express nor an implied agency was proven to
have existed between Deganos and Brigida D. Luz. Evidently, petitioners, who
were negligent in their transactions with Deganos, cannot seek relief from the
effects of their negligence by conjuring a supposed agency relation between the
two respondents where no evidence supports such claim.
Petitioners next allege that the Court of Appeals erred in ignoring the fact that
the decision of the court below, which it affirmed, is "null and void" as it
contradicted its ruling in CA-G.R. SP No. 39445 holding that there is "sufficient
evidence/proof" against Brigida D. Luz and Deganos for estafa in the pending
criminal case. They further aver that said appellate court erred in ruling against
them in this civil action since the same would result in an inevitable conflict of
decisions should be trial court convict the accused in the criminal case.
By way of backdrop for this argument of petitioners, herein respondents Brigida
D. Luz and Deganos had filed a demurrer to evidence and a motion for
reconsideration in the aforestated criminal case, both of which were denied by
the trial court. They then filed a petition for certiorari in the Court of Appeals to
set aside the denial of their demurrer and motion for reconsideration but, as just
stated, their petition therefor was dismissed. 17
Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the
petition in CA-G.R. SP No. 39445 with respect to the criminal case is equivalent to
a finding that there is sufficient evidence in the estafa case against Brigida D.
Luz and Deganos. Hence, as already stated, petitioners theorize that the decision
and resolution of the Court of Appeals now being impugned in the case at bar
would result in a possible conflict with the prospective decision in the criminal
case. Instead of promulgating the present decision and resolution under review,
so they suggest, the Court of Appeals should have awaited the decision in the
criminal case, so as not to render academic or preempt the same or, worse,
create two conflicting rulings. 18
Petitioners have apparently lost sight of Article 33 of the Civil Code which
provides that in cases involving alleged fraudulent acts, a civil action for
damages, entirely separate and distinct from the criminal action, may be brought
by the injured party. Such civil action shall proceed independently of the criminal
prosecution and shall require only a preponderance of evidence.

It is worth noting that this civil case was instituted four years before the criminal
case for estafa was filed, and that although there was a move to consolidate
both cases, the same was denied by the trial court. Consequently, it was the
duty of the two branches of the Regional Trial Court concerned to independently
proceed with the civil and criminal cases. It will also be observed that a final
judgment rendered in a civil action absolving the defendant from civil liability is
no bar to a criminal action. 19
It is clear, therefore, that this civil case may proceed independently of the
criminal case 20 especially because while both cases are based on the same
facts, the quantum of proof required for holding the parties liable therein differ.
Thus, it is improvident of petitioners to claim that the decision and resolution of
the Court of Appeals in the present case would be preemptive of the outcome of
the criminal case. Their fancied fear of possible conflict between the disposition
of this civil case and the coutcome of the pending criminal case is illusory.
Petitioners surprisingly postulate that the Court of Appeals had lost its
jurisdiction to issue the denial resolution dated August 18, 1997, as the same
was tainted with irregularities and badges of fraud perpetrated by its court
officers. 21 They charge that said appellate court, through conspiracy and fraud
on the part of its officers, gravely abused its discretion in issuing that resolution
denying their motion for reconsideration. They claim that said resolution was
drafted by the ponente, then signed and issued by the members of the Eleventh
Division of said court within one and a half days from the elevation thereof by
the division clerk of court to the office of theponente.
It is the thesis of petitioners that there was undue haste in issuing the resolution
as the same was made without waiting for the lapse of the ten-day period for
respondents to file their comment and for petitioners to file their reply. It was
allegedly impossible for the Court of Appeals to resolve the issue in just one and
a half days, especially because its ponente, the late Justice Maximiano C.
Asuncion, was then recuperating from surgery and, that, additionally, "hundreds
of more important cases were pending." 22
These lamentable allegation of irregularities in the Court of Appeals and in the
conduct of its officers strikes us as a desperate attempt of petitioners to induce
this Court to give credence to their arguments which, as already found by both
the trial and intermediate appellate courts, are devoid of factual and legal
substance. The regrettably irresponsible attempt to tarnish the image of the
intermediate appellate tribunal and its judicial officers through ad
hominem imputations could well be contumacious, but we are inclined to let that
pass with a strict admonition that petitioners refrain from indulging in such
conduct in litigations.
On July 9, 1997, the Court of Appeals rendered judgment in this case affirming
the trial court's decision. 23Petitioners moved for reconsideration and the Court of
Appeals ordered respondents to file a comment. Respondents filed the same on
August 5, 1997 24 and petitioners filed their reply to said comment on August 15,

1997. 25 The Eleventh Division of said court issued the questioned resolution
denying petitioner's motion for reconsideration on August 18, 1997. 26
It is ironic that while some litigants malign the judiciary for being supposedly
slothful in disposing of cases, petitioners are making a show of calling out for
justice because the Court of Appeals issued a resolution disposing of a case
sooner than expected of it. They would even deny the exercise of discretion by
the appellate court to prioritize its action on cases in line with the procedure it
has adopted in disposing thereof and in declogging its dockets. It is definitely not
for the parties to determine and dictate when and how a tribunal should act upon
those cases since they are not even aware of the status of the dockets and the
internal rules and policies for acting thereon.
The fact that a resolution was issued by said court within a relatively short period
of time after the records of the case were elevated to the office of
the ponente cannot, by itself, be deemed irregular. There is no showing
whatsoever that the resolution was issued without considering the reply filed by
petitioners. In fact, that brief pleading filed by petitioners does not exhibit any
esoteric or ponderous argument which could not be analyzed within an hour. It is
a legal presumption, born of wisdom and experience, that official duty has been
regularly performed; 27 that the proceedings of a judicial tribunal are regular and
valid, and that judicial acts and duties have been and will be duly and properly
performed. 28 The burden of proving irregularity in official conduct is on the part
of petitioners and they have utterly failed to do so. It is thus reprehensible for
them to cast aspersions on a court of law on the bases of conjectures or
surmises, especially since one of the petitioners appears to be a member of the
Philippine Bar.
Lastly, petitioners fault the trial court's holding that whatever contract of agency
was established between Brigida D. Luz and Narciso Deganos is unenforceable
under the Statute of Frauds as that aspect of this case allegedly is not covered
thereby. 29 They proceed on the premise that the Statute of Frauds applies only
to executory contracts and not to executed or to partially executed ones. From
there, they move on to claim that the contract involved in this case was an
executed contract as the items had already been delivered by petitioners to
Brigida D. Luz, hence, such delivery resulted in the execution of the contract and
removed the same from the coverage of the Statute of Frauds.
Petitioners' claim is speciously unmeritorious. It should be emphasized that
neither the trial court nor the appellate court categorically stated that there was
such a contractual relation between these two respondents. The trial court
merely said that if there was such an agency existing between them, the same is
unenforceable as the contract would fall under the Statute of Frauds which
requires the presentation of a note or memorandum thereof in order to be
enforceable in court. That was merely a preparatory statement of a principle of
law. What was finally proven as a matter of fact is that there was no such
contract between Brigida D. Luz and Narciso Deganos, executed or partially

executed, and no delivery of any of the items subject of this case was ever made
to the former.
WHEREFORE, no error having been committed by the Court of Appeals in
affirming the judgment of the court a quo, its challenged decision and resolution
are hereby AFFIRMED and the instant petition is DENIED, with double costs
against petitioners.
SO ORDERED.
Puno, Mendoza and Martinez, JJ., concur.
Footnotes
1 Rollo, 86.
2 Ibid., 203.
3 Ibid., 85.
4 Ibid., 78-84.
5 Ibid., 111-112.
6 Ibid., 85-97.
7 Ibid., 94.
8 Article 1403 of the Civil Code pertinently provides that the following contracts
are unenforceable unless they are ratified:
1. Those entered into the name of another person by one who had been given no
authority or legal representation, or who has acted beyond his power.
2. Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases, an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing or
a secondary evidence of its contents:
xxx xxx xxx
(b) A special promise to answer for the debt, default, or miscarriage of another;
xxx xxx xxx
9 Rollo, 97.
10 Justice Maximiano C. Asuncion as ponente, with the concurrence of Justice
Jesus M. Elbinias and Justice Ramon A. Barcelona of the Eleventh Division of the
Court of Appeals, affirmed the decision of the trial court in a decision dated July
9, 1997; Rollo, 9-13.

11 The resolution was dated August 18, 1997; Rollo, 70-A.

12 Rollo, 33-40.
13 Ibid., 40.
14 Ibid., 40-41.
15 Ibid., 12.
16 Toyota Shaw, Inc. vs. Court of Appeals, et al., G.R. No. 116650, May 23, 1995,
244 SCRA 320.
17 Rollo, 128-131.
18 Ibid., 41.
19 Section 4, Rule 111, Rules of Court.
20 Salta vs. De Veyra, etc., et al., L-37733 and Philippine National Bank vs.
Purisima, etc., et al., L-38035, jointly decided on September 30, 1992, 117 SCRA
212.
21 Rollo, 47.
22 Ibid., 48.
23 Ibid., 9-13.
24 Ibid., 160-167.
25 Ibid., 178-182.
26 Ibid., 70-A.
27 Section 3(m), Rule 131, Rules of Court.
28 Section 3(n), Rule 131, Rules of Court provides that it is presumed that a
court, or judge acting as such, whether in the Philippines or elsewhere, was
acting in the lawful exercise of jurisdiction.
29 Rollo, 52.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. 152613 & 152628

November 20, 2009

APEX MINING CO., INC., petitioner,

vs.
SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication

board, provincial mining regulatory board (PMRB-DAVAO), MONKAYO

INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO
VILLAFLOR, BALITE COMMUNAL PORTAL MINING COOPERATIVE, DAVAO
UNITED MINERS COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD
MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS
GALANG, RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA,
EDWIN ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO
BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL
GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and JOEL BRILLANTES
Management Mining Corporation, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 152619-20
BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORP., APEX MINING CO., INC.,
The Mines Adjudication Board, Provincial Mining Regulatory Board
(PMRB-DAVAO), MONKAYO INTEGRATED SMALL SCALE MINERS
ASSOCIATION, INC., ROSENDO VILLAFLOR, DAVAO UNITED MINERS
COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD MINERS
COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS GALANG,
RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN
ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO
BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL
GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and JOEL BRILLANTES
Management Mining Corporation, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 152870-71
THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON. VICTOR
O. RAMOS (Chairman), UNDERSECRETARY VIRGILIO MARCELO (Member)
and DIRECTOR HORACIO RAMOS (Member),petitioners,
vs.
SOUTHEAST MINDANAO GOLD MINING CORPORATION, Respondent.
RESOLUTION
CHICO-NAZARIO, J.:
This resolves the motion for reconsideration dated 12 July 2006, filed by
Southeast Mindanao Gold Mining Corporation (SEM), of this Courts Decision
dated 23 June 2006 (Assailed Decision). The Assailed Decision held that the
assignment of Exploration Permit (EP) 133 in favor of SEM violated one of the
conditions stipulated in the permit, i.e., that the same shall be for the exclusive
use and benefit of Marcopper Mining Corporation (MMC) or its duly authorized
agents. Since SEM did not claim or submit evidence that it was a designated

agent of MMC, the latter cannot be considered as an agent of the former that can
use EP 133 and benefit from it. It also ruled that the transfer of EP 133 violated
Presidential Decree No. 463, which requires that the assignment of a mining right
be made with the prior approval of the Secretary of the Department of
Environment and Natural Resources (DENR). Moreover, the Assailed Decision
pointed out that EP 133 expired by non-renewal since it was not renewed before
or after its expiration.
The Assailed Decision likewise upheld the validity of Proclamation No. 297 absent
any question against its validity. In view of this, and considering that under
Section 5 of Republic Act No. 7942, otherwise known as the "Mining Act of 1995,"
mining operations in mineral reservations may be undertaken directly by the
State or through a contractor, the Court deemed the issue of ownership of
priority right over the contested Diwalwal Gold Rush Area as having been
overtaken by the said proclamation. Thus, it was held in the Assailed Decision
that it is now within the prerogative of the Executive Department to undertake
directly the mining operations of the disputed area or to award the operations to
private entities including petitioners Apex and Balite, subject to applicable laws,
rules and regulations, and provided that these private entities are qualified.
SEM also filed a Motion for Referral of Case to the Court En Banc and for Oral
Arguments dated 22 August 2006.
Apex, for its part, filed a Motion for Clarification of the Assailed Decision, praying
that the Court elucidate on the Decisions pronouncement that "mining
operations, are now, therefore within the full control of the State through the
executive branch." Moreover, Apex asks this Court to order the Mines and
Geosciences Board (MGB) to accept its application for an exploration permit.
In its Manifestation and Motion dated 28 July 2006, Balite echoes the same
concern as that of Apex on the actual takeover by the State of the mining
industry in the disputed area to the exclusion of the private sector. In addition,
Balite prays for this Court to direct MGB to accept its application for an
exploration permit.
Camilo Banad, et al., likewise filed a motion for reconsideration and prayed that
the disputed area be awarded to them.
In the Resolution dated 15 April 2008, the Court En Banc resolved to accept the
instant cases. The Court, in a resolution dated 29 April 2008, resolved to set the
cases for Oral Argument on 1 July 2008.
During the Oral Argument, the Court identified the following principal issues to
be discussed by the parties:
1. Whether the transfer or assignment of Exploration Permit (EP) 133 by MMC to
SEM was validly made without violating any of the terms and conditions set forth
in Presidential Decree No. 463 and EP 133 itself.

2. Whether Southeast Mindanao Mining Corp. acquired a vested right over the
disputed area, which constitutes a property right protected by the Constitution.
3. Whether the assailed Decision dated 23 June 2006 of the Third Division in this
case is contrary to and overturns the earlier Decision of this Court in Apex v.
Garcia (G.R. No. 92605, 16 July 1991, 199 SCRA 278).
4. Whether the issuance of Proclamation No. 297 declaring the disputed area as
mineral reservation outweighs the claims of SEM, Apex Mining Co. Inc. and Balite
Communal Portal Mining Cooperative over the Diwalwal Gold Rush Area.
5. Whether the issue of the legality/constitutionality of Proclamation No. 297 was
belatedly raised.
6. Assuming that the legality/constitutionality of Proclamation No. 297 was timely
raised, whether said proclamation violates any of the following:
a. Article XII, Section 4 of the Constitution;
b. Section 1 of Republic Act No. 3092;
c. Section 14 of the Administrative Code of 1987;
d. Section 5(a) of Republic Act No. 7586;
e. Section 4(a) of Republic Act No. 6657; and
f. Section 2, Subsection 2.1.2 of Executive Order No. 318 dated 9 June 2004.
After hearing the arguments of the parties, the Court required them to submit
their respective memoranda. Memoranda were accordingly filed by SEM, Apex,
Balite and Mines Adjudication Board (MAB).
We shall resolve the second issue before dwelling on the first, third and the rest
of the issues.
MMC or SEM Did Not Have Vested Rights Over the Diwalwal Gold Rush Area
Petitioner SEM vigorously argues that Apex Mining Co., Inc. v. Garcia 1 vested in
MMC mining rights over the disputed area. It claims that the mining rights that
MMC acquired under the said case were the ones assigned to SEM, and not the
right to explore under MMCs EP 133. It insists that mining rights, once obtained,
continue to subsist regardless of the validity of the exploration permit; thus,
mining rights are independent of the exploration permit and therefore do not
expire with the permit. SEM insists that a mining right is a vested property right
that not even the government can take away. To support this thesis, SEM cites
this Courts ruling in McDaniel v. Apacible and Cuisia 2 and in Gold Creek Mining
Corporation v. Rodriguez,3 which were decided in 1922 and 1938, respectively.
McDaniel and Gold Creek Mining Corporation are not in point.

In 1916, McDaniel, petitioner therein, located minerals, i.e., petroleum, on an

unoccupied public land and registered his mineral claims with the office of the
mining recorder pursuant to the Philippine Bill of 1902, where a mining claim
locator, soon after locating the mine, enjoyed possessory rights with respect to
such mining claim with or without a patent therefor. In that case, the Agriculture
Secretary, by virtue of Act No. 2932, approved in 1920, which provides that "all
public lands may be leased by the then Secretary of Agriculture and Natural
Resources," was about to grant the application for lease of therein respondent,
overlapping the mining claims of the subject petitioner. Petitioner argued that,
being a valid locator, he had vested right over the public land where his mining
claims were located. There, the Court ruled that the mining claim perfected
under the Philippine Bill of 1902, is "property in the highest sense of that term,
which may be sold and conveyed, and will pass by descent, and is not therefore
subject to the disposal of the Government." The Court then declared that since
petitioner had already perfected his mining claim under the Philippine Bill of
1902, a subsequent statute, i.e., Act No. 2932, could not operate to deprive him
of his already perfected mining claim, without violating his property right.
Gold Creek Mining reiterated the ruling in McDaniel that a perfected mining claim
under the Philippine Bill of 1902 no longer formed part of the public domain;
hence, such mining claim does not come within the prohibition against the
alienation of natural resources under Section 1, Article XII of the 1935
Constitution.
Gleaned from the ruling on the foregoing cases is that for this law to apply, it
must be established that the mining claim must have been perfected when the
Philippine Bill of 1902 was still in force and effect. This is so because, unlike the
subsequent laws that prohibit the alienation of mining lands, the Philippine Bill of
1902 sanctioned the alienation of mining lands to private individuals. The
Philippine Bill of 1902 contained provisions for, among many other things, the
open and free exploration, occupation and purchase of mineral deposits and the
land where they may be found. It declared "all valuable mineral deposits in
public lands in the Philippine Islands, both surveyed and unsurveyed x x x to be
free and open to exploration, occupation, and purchase, and the land in which
they are found to occupation and purchase, by citizens of the United States, or of
said Islands x x x."4 Pursuant to this law, the holder of the mineral claim is
entitled to all the minerals that may lie within his claim, provided he does three
acts: First, he enters the mining land and locates a plot of ground measuring,
where possible, but not exceeding, one thousand feet in length by one thousand
feet in breadth, in as nearly a rectangular form as possible. 5Second, the mining
locator has to record the mineral claim in the mining recorder within thirty (30)
days after the location thereof.6 Lastly, he must comply with the annual actual
work requirement.7 Complete mining rights, namely, the rights to explore,
develop and utilize, are acquired by a mining locator by simply following the
foregoing requirements.1avvphi1
With the effectivity of the 1935 Constitution, where the regalian doctrine was
adopted, it was declared that all natural resources of the Philippines, including

mineral lands and minerals, were property belonging to the State. 8Excluded,
however, from the property of public domain were the mineral lands and
minerals that were located and perfected by virtue of the Philippine Bill of 1902,
since they were already considered private properties of the locators. 9
Commonwealth Act No. 137 or the Mining Act of 1936, which expressly adopted
the regalian doctrine following the provision of the 1935 Constitution, also
proscribed the alienation of mining lands and granted only lease rights to mining
claimants, who were prohibited from purchasing the mining claim itself.
When Presidential Decree No. 463, which revised Commonwealth Act No. 137,
was in force in 1974, it likewise recognized the regalian doctrine embodied in the
1973 Constitution. It declared that all mineral deposits and public and private
lands belonged to the state while, nonetheless, recognizing mineral rights that
had already been existing under the Philippine Bill of 1902 as being beyond the
purview of the regalian doctrine.10 The possessory rights of mining claim holders
under the Philippine Bill of 1902 remained intact and effective, and such rights
were recognized as property rights that the holders could convey or pass by
descent.11
In the instant cases, SEM does not aver or prove that its mining rights had been
perfected and completed when the Philippine Bill of 1902 was still the operative
law. Surely, it is impossible for SEM to successfully assert that it acquired mining
rights over the disputed area in accordance with the same bill, since it was only
in 1984 that MMC, SEMs predecessor-in-interest, filed its declaration of locations
and its prospecting permit application in compliance with Presidential Decree No.
463. It was on 1 July 1985 and 10 March 1986 that a Prospecting Permit and EP
133, respectively, were issued to MMC. Considering these facts, there is no
possibility that MMC or SEM could have acquired a perfected mining claim under
the auspices of the Philippine Bill of 1902. Whatever mining rights MMC had that
it invalidly transferred to SEM cannot, by any stretch of imagination, be
considered "mining rights" as contemplated under the Philippine Bill of 1902 and
immortalized in McDaniel and Gold Creek Mining.
SEM likens EP 133 with a building permit. SEM likewise equates its supposed
rights attached to the exploration permit with the rights that a private property
land owner has to said landholding. This analogy has no basis in law. As earlier
discussed, under the 1935, 1973 and 1987 Constitutions, national wealth, such
as mineral resources, are owned by the State and not by their discoverer. The
discoverer or locator can only develop and utilize said minerals for his own
benefit if he has complied with all the requirements set forth by applicable laws
and if the State has conferred on him such right through permits, concessions or
agreements. In other words, without the imprimatur of the State, any mining
aspirant does not have any definitive right over the mineral land because, unlike
a private landholding, mineral land is owned by the State, and the same cannot
be alienated to any private person as explicitly stated in Section 2, Article XIV of
the 1987 Constitution:

All lands of public domain, waters, minerals x x x and all other natural resources
are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. (Emphases supplied.)
Further, a closer scrutiny of the deed of assignment in favor of SEM reveals that
MMC assigned to the former the rights and interests it had in EP 133, thus:
1. That for ONE PESO (P1.00) and other valuable consideration received by the
ASSIGNOR from the ASSIGNEE, the ASSIGNOR hereby ASSIGNS, TRANSFERS and
CONVEYS unto the ASSIGNEE whatever rights or interest the ASSIGNOR may
have in the area situated in Monkayo, Davao del Norte and Cateel, Davao
Oriental, identified as Exploration Permit No. 133 and Application for a Permit to
Prospect in Bunawan, Agusan del Sur respectively. (Emphasis supplied.)
It is evident that what MMC had over the disputed area during the assignment
was an exploration permit. Clearly, the right that SEM acquired was limited to
exploration, only because MMC was a mere holder of an exploration permit. As
previously explained, SEM did not acquire the rights inherent in the permit, as
the assignment by MMC to SEM was done in violation of the condition stipulated
in the permit, and the assignment was effected without the approval of the
proper authority in contravention of the provision of the mining law governing at
that time. In addition, the permit expired on 6 July 1994. It is, therefore, quite
clear that SEM has no right over the area.
Even assuming arguendo that SEM obtained the rights attached in EP 133, said
rights cannot be considered as property rights protected under the fundamental
law.
An exploration permit does not automatically ripen into a right to extract and
utilize the minerals; much less does it develop into a vested right. The holder of
an exploration permit only has the right to conduct exploration works on the area
awarded. Presidential Decree No. 463 defined exploration as "the examination
and investigation of lands supposed to contain valuable minerals, by drilling,
trenching, shaft sinking, tunneling, test pitting and other means, for the purpose
of probing the presence of mineral deposits and the extent thereof." Exploration
does not include development and exploitation of the minerals found.
Development is defined by the same statute as the steps necessarily taken to
reach an ore body or mineral deposit so that it can be mined, whereas
exploitation is defined as "the extraction and utilization of mineral deposits." An
exploration permit is nothing more than a mere right accorded to its holder to be
given priority in the governments consideration in the granting of the right to
develop and utilize the minerals over the area. An exploration permit is merely
inchoate, in that the holder still has to comply with the terms and conditions
embodied in the permit. This is manifest in the language of Presidential Decree
No. 463, thus:
Sec. 8. x x x The right to exploit therein shall be awarded by the President under
such terms and conditions as recommended by the Director and approved by the

Secretary Provided, That the persons or corporations who undertook prospecting

and exploration of said area shall be given priority.
In La Bugal-Blaan Tribal Association, Inc. v. Ramos, 12 this Court emphasized:
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a
qualified person the right to conduct exploration for all minerals in specified
areas. Such a permit does not amount to an authorization to extract and carry off
the mineral resources that may be discovered. x x x.
Pursuant to Section 24 of RA 7942, an exploration permit grantee who
determines the commercial viability of a mining area may, within the term of the
permit, file with the MGB a declaration of mining project feasibility accompanied
by a work program for development. The approval of the mining project
feasibility and compliance with other requirements of RA 7942 vests in the
grantee the exclusive right to an MPSA or any other mineral agreement, or to an
FTAA. (Underscoring ours.)
The non-acquisition by MMC or SEM of any vested right over the disputed area is
supported by this Courts ruling in Southeast Mindanao Gold Mining Corporation
v. Balite Portal Mining Cooperative13 :
Clearly then, the Apex Mining case did not invest petitioner with any definite
right to the Diwalwal mines which it could now set up against respondent BCMC
and other mining groups.
Incidentally, it must likewise be pointed out that under no circumstances may
petitioners rights under EP No. 133 be regarded as total and absolute. As
correctly held by the Court of Appeals in its challenged decision, EP No. 133
merely evidences a privilege granted by the State, which may be amended,
modified or rescinded when the national interest so requires. x x x. (Underscoring
supplied.)
Unfortunately, SEM cannot be given priority to develop and exploit the area
covered by EP 133 because, as discussed in the assailed Decision, EP 133
expired by non-renewal on 6 July 1994. Also, as already mentioned, the transfer
of the said permit to SEM was without legal effect because it was done in
contravention of Presidential Decree No. 463 which requires prior approval from
the proper authority. Simply told, SEM holds nothing for it to be entitled to
conduct mining activities in the disputed mineral land.
SEM wants to impress on this Court that its alleged mining rights, by virtue of its
being a transferee of EP 133, is similar to a Financial and Technical Assistance
Agreement (FTAA) of a foreign contractor, which merits protection by the due
process clause of the Constitution. SEM cites La Bugal-Blaan Tribal Association,
Inc. v. Ramos,14 as follows:
To say that an FTAA is just like a mere timber license or permit and does not
involve contract or property rights which merit protection by the due process
clause of the Constitution, and may therefore be revoked or cancelled in the blink

of an eye, is to adopt a well-nigh confiscatory stance; at the very least, it is

downright dismissive of the property rights of businesspersons and corporate
entities that have investments in the mining industry, whose investments,
operations and expenditures do contribute to the general welfare of the people,
the coffers of government, and the strength of the economy. x x x.
Again, this argument is not meritorious. SEM did not acquire the rights attached
to EP 133, since their transfer was without legal effect. Granting for the sake of
argument that SEM was a valid transferee of the permit, its right is not that of a
mining contractor. An exploration permit grantee is vested with the right to
conduct exploration only, while an FTAA or MPSA contractor is authorized to
extract and carry off the mineral resources that may be discovered in the
area.15 An exploration permit holder still has to comply with the mining project
feasibility and other requirements under the mining law. It has to obtain approval
of such accomplished requirements from the appropriate government agencies.
Upon obtaining this approval, the exploration permit holder has to file an
application for an FTAA or an MPSA and have it approved also. Until the MPSA
application of SEM is approved, it cannot lawfully claim that it possesses the
rights of an MPSA or FTAA holder, thus:
x x x prior to the issuance of such FTAA or mineral agreement, the exploration
permit grantee (or prospective contractor) cannot yet be deemed to have
entered into any contract or agreement with the State x x x. 16
But again, SEM is not qualified to apply for an FTAA or any mineral agreement,
considering that it is not a holder of a valid exploration permit, since EP 133
expired by non-renewal and the transfer to it of the same permit has no legal
value.
More importantly, assuming arguendo that SEM has a valid exploration permit, it
cannot assert any mining right over the disputed area, since the State has taken
over the mining operations therein, pursuant to Proclamation No. 297 issued by
the President on 25 November 2002. The Court has consistently ruled that the
nature of a natural resource exploration permit is analogous to that of a license.
In Republic v. Rosemoor Mining and Development Corporation, this Court
articulated:
Like timber permits, mining exploration permits do not vest in the grantee any
permanent or irrevocable right within the purview of the non-impairment of
contract and due process clauses of the Constitution, since the State, under its
all-encompassing police power, may alter, modify or amend the same, in
accordance with the demands of the general welfare. 17 (Emphasis supplied.)
As a mere license or privilege, an exploration permit can be validly amended by
the President of the Republic when national interests suitably necessitate. The
Court instructed thus:
Timber licenses, permits and license agreements are the principal instruments by
which the State regulates the utilization and disposition of forest resources to the

end that the public welfare is promoted. x x x They may be validly amended,
modified, replaced or rescinded by the Chief Executive when national interests so
require.18
Recognizing the importance of the countrys natural resources, not only for
national economic development, but also for its security and national defense,
Section 5 of Republic Act No. 7942 empowers the President, when the national
interest so requires, to establish mineral reservations where mining operations
shall be undertaken directly by the State or through a contractor, viz:
SEC 5. Mineral Reservations. When the national interest so requires, such as
when there is a need to preserve strategic raw materials for industries critical to
national development, or certain minerals for scientific, cultural or ecological
value, the President may establish mineral reservations upon the
recommendation of the Director through the Secretary. Mining operations in
existing mineral reservations and such other reservations as may thereafter be
established, shall be undertaken by the Department or through a contractor x x
x. (Emphasis supplied.)
Due to the pressing concerns in the Diwalwal Gold Rush Area brought about by
unregulated small to medium-scale mining operations causing ecological, health
and peace and order problems, the President, on 25 November 2002, issued
Proclamation No. 297, which declared the area as a mineral reservation and as
an environmentally critical area. This executive fiat was aimed at preventing the
further dissipation of the natural environment and rationalizing the mining
operations in the area in order to attain an orderly balance between socioeconomic growth and environmental protection. The area being a mineral
reservation, the Executive Department has full control over it pursuant to Section
5 of Republic Act No. 7942. It can either directly undertake the exploration,
development and utilization of the minerals found therein, or it can enter into
agreements with qualified entities. Since the Executive Department now has
control over the exploration, development and utilization of the resources in the
disputed area, SEMs exploration permit, assuming that it is still valid, has been
effectively withdrawn. The exercise of such power through Proclamation No. 297
is in accord with jura regalia, where the State exercises its sovereign power as
owner of lands of the public domain and the mineral deposits found within. Thus,
Article XII, Section 2 of the 1987 Constitution emphasizes:
SEC. 2. All lands of the public domain, water, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the State.
With the exception of agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. The State may
directly undertake such activities, or it may enter into co-production, joint
venture, or product-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such citizens.
(Emphasis supplied.)

Furthermore, said proclamation cannot be denounced as offensive to the

fundamental law because the State is sanctioned to do so in the exercise of its
police power.19 The issues on health and peace and order, as well the decadence
of the forest resources brought about by unregulated mining in the area, are
matters of national interest. The declaration of the Chief Executive making the
area a mineral reservation, therefore, is sanctioned by Section 5 of Republic Act
No. 7942.
The Assignment of EP No. 133 by MMC in Favor of SEM Violated Section 97 of
Presidential Decree No. 463 and the Terms and Conditions Set Forth in the Permit
SEM claims that the approval requirement under Section 97 of Presidential
Decree No. 463 is not applicable to this case, because MMC neither applied for
nor was granted a mining lease contract. The said provision states:
SEC. 97. Assignment of Mining Rights. A mining lease contract or any interest
therein shall not be transferred, assigned, or subleased without the prior
approval of the Secretary: Provided, that such transfer, assignment or sublease
may be made only to a qualified person possessing the resources and capability
to continue the mining operations of the lessee and that the assignor has
complied with all the obligations of the lease: Provided, further, That such
transfer or assignment shall be duly registered with the office of the mining
recorder concerned. (Emphasis supplied.)
Exploration Permit 133 was issued in favor of MMC on 10 March 1986, when
Presidential Decree No. 463 was still the governing law. Presidential Decree No.
463 pertains to the old system of exploration, development and utilization of
natural resources through "license, concession or lease." 20
Pursuant to this law, a mining lease contract confers on the lessee or his
successors the right to extract, to remove, process and utilize the mineral
deposits found on or underneath the surface of his mining claims covered by the
lease. The lessee may also enter into a service contract for the exploration,
development and exploitation of the minerals from the lands covered by his
lease, to wit:
SEC. 44. A mining lease contract shall grant to the lessee, his heirs, successors,
and assigns the right to extract all mineral deposits found on or underneath the
surface of his mining claims covered by the lease, continued vertically
downward; to remove, process, and otherwise utilize the mineral deposits for his
own benefit; and to use the lands covered by the lease for the purpose or
purposes specified therein x x x That a lessee may on his own or through the
Government, enter into a service contract for the exploration, development
and exploitation of his claims and the processing and marketing of the product
thereof, subject to the rules and regulations that shall be promulgated by the
Director, with the approval of the Secretary x x x. (Emphases supplied.)
In other words, the lessees interests are not only limited to the extraction or
utilization of the minerals in the contract area, but also to include the right to

explore and develop the same. This right to explore the mining claim or the
contract area is derived from the exploration permit duly issued by the proper
authority. An exploration permit is, thus, covered by the term "any other interest
therein." Section 97 is entitled, "Assignment of Mining Rights." This alone gives a
hint that before mining rights -- namely, the rights to explore, develop and utilize
-- are transferred or assigned, prior approval must be obtained from the DENR
Secretary. An exploration permit, thus, cannot be assigned without the
imprimatur of the Secretary of the DENR.
It is instructive to note that under Section 13 of Presidential Decree No. 463, the
prospecting and exploration of minerals in government reservations, such as
forest reservations, are prohibited, except with the permission of the government
agency concerned. It is the government agency concerned that has the
prerogative to conduct prospecting, exploration and exploitation of such reserved
lands.21 It is only in instances wherein said government agency, in this case the
Bureau of Mines, cannot undertake said mining operations that qualified persons
may be allowed by the government to undertake such operations. PNOC-EDC v.
Veneracion, Jr.22 outlines the five requirements for acquiring mining rights in
reserved lands under Presidential Decree No. 463: (1) a prospecting permit from
the agency that has jurisdiction over the land; (2) an exploration permit from the
Bureau of Mines and Geo-Sciences (BMGS); (3) if the exploration reveals the
presence of commercial deposit, application to BMGS by the permit holder for
the exclusion of the area from the reservation; (4) a grant by the President of the
application to exclude the area from the reservation; and (5) a mining agreement
(lease, license or concession) approved by the DENR Secretary.
Here, MMC met the first and second requirements and obtained an exploration
permit over the disputed forest reserved land. Although MMC still has to prove to
the government that it is qualified to develop and utilize the subject mineral
land, as it has yet to go through the remaining process before it can secure a
lease agreement, nonetheless, it is bound to follow Section 97 of Presidential
Decree No. 463. The logic is not hard to discern. If a lease holder, who has
already demonstrated to the government his capacity and qualifications to
further develop and utilize the minerals within the contract area, is prohibited
from transferring his mining rights (rights to explore, develop and utilize), with
more reason will this proscription apply with extra force to a mere exploration
permit holder who is yet to exhibit his qualifications in conducting mining
operations. The rationale for the approval requirement under Section 97 of
Presidential Decree No. 463 is not hard to see. Exploration permits are strictly
granted to entities or individuals possessing the resources and capability to
undertake mining operations. Mining industry is a major support of the national
economy and the continuous and intensified exploration, development and wise
utilization of mining resources is vital for national development. For this reason,
Presidential Decree No. 463 makes it imperative that in awarding mining
operations, only persons possessing the financial resources and technical skill for
modern exploratory and development techniques are encouraged to undertake
the exploration, development and utilization of the countrys natural resources.
The preamble of Presidential Decree No. 463 provides thus:

WHEREAS, effective and continuous mining operations require considerable

outlays of capital and resources, and make it imperative that persons possessing
the financial resources and technical skills for modern exploratory and
development techniques be encouraged to undertake the exploration,
development and exploitation of our mineral resources;
The Court has said that a "preamble" is the key to understanding the statute,
written to open the minds of the makers to the mischiefs that are to be
remedied, and the purposes that are to be accomplished, by the provisions of the
statute.23 As such, when the statute itself is ambiguous and difficult to interpret,
the preamble may be resorted to as a key to understanding the statute.
Indubitably, without the scrutiny by the government agency as to the
qualifications of the would-be transferee of an exploration permit, the same may
fall into the hands of non-qualified entities, which would be counter-productive to
the development of the mining industry. It cannot be overemphasized that the
exploration, development and utilization of the countrys natural resources are
matters vital to the public interest and the general welfare; hence, their
regulation must be of utmost concern to the government, since these natural
resources are not only critical to the nations security, but they also ensure the
countrys survival as a viable and sovereign republic. 24
The approval requirement of the Secretary of the DENR for the assignment of
exploration permits is bolstered by Section 25 of Republic Act No. 7942
(otherwise known as the Philippine Mining Act of 1995), which provides that:
Sec. 25. Transfer or Assignment. An exploration permit may be transferred or
assigned to a qualified person subject to the approval of the Secretary upon the
recommendation of the Director.
SEM further posits that Section 97 of Presidential Decree No. 463, which requires
the prior approval of the DENR when there is a transfer of mining rights, cannot
be applied to the assignment of EP 133 executed by MMC in favor of SEM
because during the execution of the Deed of Assignment on 16 February 1994,
Executive Order No. 27925became the governing statute, inasmuch as the latter
abrogated the old mining system -- i.e., license, concession or lease -- which was
espoused by the former.
This contention is not well taken. While Presidential Decree No. 463 has already
been repealed by Executive Order No. 279, the administrative aspect of the
former law nonetheless remains applicable. Hence, the transfer or assignment of
exploration permits still needs the prior approval of the Secretary of the DENR.
As ruled in Miners Association of the Philippines, Inc. v. Factoran, Jr. 26 :
Presidential Decree No. 463, as amended, pertains to the old system of
exploration, development and utilization of natural resources through "license,
concession or lease" which, however, has been disallowed by Article XII, Section
2 of the 1987 Constitution. By virtue of the said constitutional mandate and its
implementing law, Executive Order No. 279, which superseded Executive Order

No. 211, the provisions dealing on "license, concession, or lease" of mineral

resources under Presidential Decree No. 463, as amended, and other existing
mining laws are deemed repealed and, therefore, ceased to operate as the
governing law. In other words, in all other areas of administration and
management of mineral lands, the provisions of Presidential Decree No. 463, as
amended, and other existing mining laws, still govern. (Emphasis supplied.)
Not only did the assignment of EP 133 to SEM violate Section 97 of Presidential
Decree No. 463, it likewise transgressed one of the conditions stipulated in the
grant of the said permit. The following terms and conditions attached to EP 133
are as follows:27
1. That the permittee shall abide by the work program submitted with the
application or statements made later in support thereof, and which shall be
considered as conditions and essential parts of this permit;
2. That permittee shall maintain a complete record of all activities and
accounting of all expenditures incurred therein subject to periodic inspection and
verification at reasonable intervals by the Bureau of Mines at the expense of the
applicant;
3. That the permittee shall submit to the Director of Mines within 15 days after
the end of each calendar quarter a report under oath of a full and complete
statement of the work done in the area covered by the permit;
4. That the term of this permit shall be for two (2) years to be effective from this
date, renewable for the same period at the discretion of the Director of Mines
and upon request of the applicant;
5. That the Director of Mines may at any time cancel this permit for violation of
its provision or in case of trouble or breach of peace arising in the area subject
hereof by reason of conflicting interests without any responsibility on the part of
the government as to expenditures for exploration that might have been
incurred, or as to other damages that might have been suffered by the
permittee;
6. That this permit shall be for the exclusive use and benefit of the permittee or
his duly authorized agents and shall be used for mineral exploration purposes
only and for no other purpose.
It must be noted that under Section 9028 of Presidential Decree No. 463, which
was the applicable statute during the issuance of EP 133, the DENR Secretary,
through the Director of the Bureau of Mines and Geosciences, was charged with
carrying out the said law. Also, under Commonwealth Act No. 136, also known as
"An Act Creating the Bureau of Mines," which was approved on 7 November
1936, the Director of Mines had the direct charge of the administration of the
mineral lands and minerals; and of the survey, classification, lease or any other
form of concession or disposition thereof under the Mining Act. 29 This power of
administration included the power to prescribe terms and conditions in granting
exploration permits to qualified entities.

Thus, in the grant of EP 133 in favor of the MMC, the Director of the BMG acted
within his power in laying down the terms and conditions attendant thereto. MMC
and SEM did not dispute the reasonableness of said conditions.
Quite conspicuous is the fact that neither MMC nor SEM denied that they were
unaware of the terms and conditions attached to EP 133. MMC and SEM did not
present any evidence that they objected to these conditions. Indubitably, MMC
wholeheartedly accepted these terms and conditions, which formed part of the
grant of the permit. MMC agreed to abide by these conditions. It must be
accentuated that a party to a contract cannot deny its validity, without outrage
to ones sense of justice and fairness, after enjoying its benefits. 30 Where parties
have entered into a well-defined contractual relationship, it is imperative that
they should honor and adhere to their rights and obligations as stated in their
contracts, because obligations arising from these have the force of law between
the contracting parties and should be complied with in good faith. 31 Condition
Number 6 categorically states that the permit shall be for the exclusive use and
benefit of MMC or its duly authorized agents. While it may be true that SEM, the
assignee of EP 133, is a 100% subsidiary corporation of MMC, records are bereft
of any evidence showing that the former is the duly authorized agent of the
latter. This Court cannot condone such utter disregard on the part of MMC to
honor its obligations under the permit. Undoubtedly, having violated this
condition, the assignment of EP 133 to SEM is void and has no legal effect.
To boot, SEM squandered whatever rights it assumed it had under EP 133. On 6
July 1993, EP 133 was extended for twelve more months or until 6 July 1994.
MMC or SEM, however, never renewed EP 133 either prior to or after its
expiration. Thus, EP 133 expired by non-renewal on 6 July 1994. With the
expiration of EP 133 on 6 July 1994, MMC lost any right to the Diwalwal Gold
Rush Area.
The Assailed Decision Resolved Facts and Issues That Transpired after the
Promulgation of Apex Mining Co., Inc. v. Garcia
SEM asserts that the 23 June 2006 Decision reversed the 16 July 1991 Decision of
the Court en banc entitled, "Apex Mining Co., Inc. v. Garcia." 32
The assailed Decision DID NOT overturn the 16 July 1991 Decision in Apex Mining
Co., Inc. v. Garcia.
It must be pointed out that what Apex Mining Co., Inc. v. Garcia resolved was the
issue of which, between Apex and MMC, availed itself of the proper procedure in
acquiring the right to prospect and to explore in the Agusan-Davao-Surigao
Forest Reserve. Apex registered its Declarations of Location (DOL) with the then
BMGS, while MMC was granted a permit to prospect by the Bureau of Forest
Development (BFD) and was subsequently granted an exploration permit by the
BMGS. Taking into consideration Presidential Decree No. 463, which provides that
"mining rights within forest reservation can be acquired by initially applying for a
permit to prospect with the BFD and subsequently for a permit to explore with

the BMGS," the Court therein ruled that MMC availed itself of the proper
procedure to validly operate within the forest reserve or reservation.
While it is true that Apex Mining Co., Inc. v. Garcia settled the issue of which
between Apex and MMC was legally entitled to explore in the disputed area, such
rights, though, were extinguished by subsequent events that transpired after the
decision was promulgated. These subsequent events, which were not attendant
in Apex Mining Co., Inc. v. Garcia33 dated 16 July 1991, are the following:
(1) the expiration of EP 133 by non-renewal on 6 July 1994;
(2) the transfer/assignment of EP 133 to SEM on 16 February 1994 which was
done in violation to the condition of EP 133 proscribing its transfer;
(3) the transfer/assignment of EP 133 to SEM is without legal effect for violating
PD 463 which mandates that the assignment of mining rights must be with the
prior approval of the Secretary of the DENR.
Moreover, in Southeast Mindanao Gold Mining Corporation v. Balite Portal Mining
Cooperative,34 the Court, through Associate Justice Consuelo Ynares-Santiago
(now retired), declared that Apex Mining Co., Inc. v. Garcia did not deal with the
issues of the expiration of EP 133 and the validity of the transfer of EP 133 to
SEM, viz:
Neither can the Apex Mining case foreclose any question pertaining to the
continuing validity of EP No. 133 on grounds which arose after the judgment in
said case was promulgated. While it is true that the Apex Mining case settled the
issue of who between Apex and Marcopper validly acquired mining rights over
the disputed area by availing of the proper procedural requisites mandated by
law, it certainly did not deal with the question raised by the oppositors in the
Consolidated Mines cases, i.e., whether EP No. 133 had already expired and
remained valid subsequent to its transfer by Marcopper to petitioner. (Emphasis
supplied.)
What is more revealing is that in the Resolution dated 26 November 1992,
resolving the motion for reconsideration of Apex Mining Co., Inc. v. Garcia, the
Court clarified that the ruling on the said decision was binding only between
Apex and MMC and with respect the particular issue raised therein. Facts and
issues not attendant to the said decision, as in these cases, are not settled by
the same. A portion of the disposition of the Apex Mining Co., Inc. v. Garcia
Resolution dated 26 November 1992 decrees:
x x x The decision rendered in this case is conclusive only between the parties
with respect to the particular issue herein raised and under the set of
circumstances herein prevailing. In no case should the decision be considered as
a precedent to resolve or settle claims of persons/entities not parties hereto.
Neither is it intended to unsettle rights of persons/entities which have been
acquired or which may have accrued upon reliance on laws passed by the
appropriate agencies. (Emphasis supplied.)

The Issue of the Constitutionality of Proclamation Is Raised Belatedly

In its last-ditch effort to salvage its case, SEM contends that Proclamation No.
297, issued by President Gloria Macapagal-Arroyo and declaring the Diwalwal
Gold Rush Area as a mineral reservation, is invalid on the ground that it lacks the
concurrence of Congress as mandated by Section 4, Article XII of the
Constitution; Section 1 of Republic Act No. 3092; Section 14 of Executive Order
No. 292, otherwise known as the Administrative Code of 1987; Section 5(a) of
Republic Act No. 7586, and Section 4(a) of Republic Act No. 6657.
It is well-settled that when questions of constitutionality are raised, the court can
exercise its power of judicial review only if the following requisites are present:
(1) an actual and appropriate case exists; (2) there is a personal and substantial
interest of the party raising the constitutional question; (3) the exercise of
judicial review is pleaded at the earliest opportunity; and (4) the constitutional
question is the lis mota of the case.
Taking into consideration the foregoing requisites of judicial review, it is readily
clear that the third requisite is absent. The general rule is that the question of
constitutionality must be raised at the earliest opportunity, so that if it is not
raised in the pleadings, ordinarily it may not be raised at the trial; and if not
raised in the trial court, it will not be considered on appeal. 35
In the instant case, it must be pointed out that in the Reply to Respondent SEMs
Consolidated Comment filed on 20 May 2003, MAB mentioned Proclamation No.
297, which was issued on 25 November 2002. This proclamation, according to
the MAB, has rendered SEMs claim over the contested area moot, as the
President has already declared the same as a mineral reservation and as an
environmentally critical area. SEM did not put to issue the validity of said
proclamation in any of its pleadings despite numerous opportunities to question
the same. It was only after the assailed Decision was promulgated -- i.e., in
SEMs Motion for Reconsideration of the questioned Decision filed on 13 July
2006 and its Motion for Referral of the Case to the Court En Banc and for Oral
Arguments filed on 22 August 2006 -- that it assailed the validity of said
proclamation.
Certainly, posing the question on the constitutionality of Proclamation No. 297 for
the first time in its Motion for Reconsideration is, indeed, too late. 36
In fact, this Court, when it rendered the Decision it merely recognized that the
questioned proclamation came from a co-equal branch of government, which
entitled it to a strong presumption of constitutionality. 37 The presumption of its
constitutionality stands inasmuch as the parties in the instant cases did not
question its validity, much less present any evidence to prove that the same is
unconstitutional. This is in line with the precept that administrative issuances
have the force and effect of law and that they benefit from the same
presumption of validity and constitutionality enjoyed by statutes. 38
Proclamation No. 297 Is in Harmony with Article XII, Section 4, of the Constitution

At any rate, even if this Court were to consider the arguments belatedly raised
by SEM, said arguments are not meritorious.
SEM asserts that Article XII, Section 4 of the Constitution, bars the President from
excluding forest reserves/reservations and proclaiming the same as mineral
reservations, since the power to de-classify them resides in Congress.
Section 4, Article XII of the Constitution reads:
The Congress shall as soon as possible, determine by law the specific limits of
forest lands and national parks, marking clearly their boundaries on the ground.
Thereafter, such forest lands and national parks shall be conserved and may not
be increased nor diminished, except by law. The Congress shall provide, for such
periods as it may determine, measures to prohibit logging in endangered forests
and in watershed areas.
The above-quoted provision says that the area covered by forest lands and
national parks may not be expanded or reduced, unless pursuant to a law
enacted by Congress. Clear in the language of the constitutional provision is its
prospective tenor, since it speaks in this manner: "Congress shall as soon as
possible." It is only after the specific limits of the forest lands shall have been
determined by the legislature will this constitutional restriction apply. SEM does
not allege nor present any evidence that Congress had already enacted a statute
determining with specific limits forest lands and national parks. Considering the
absence of such law, Proclamation No. 297 could not have violated Section 4,
Article XII of the 1987 Constitution. In PICOP Resources, Inc. v. Base Metals
Mineral Resources Corporation,39 the Court had the occasion to similarly rule in
this fashion:
x x x Sec. 4, Art. XII of the 1987 Constitution, on the other hand, provides that
Congress shall determine the specific limits of forest lands and national parks,
marking clearly their boundaries on the ground. Once this is done, the area thus
covered by said forest lands and national parks may not be expanded or reduced
except also by congressional legislation. Since Congress has yet to enact a law
determining the specific limits of the forest lands covered by Proclamation No.
369 and marking clearly its boundaries on the ground, there can be no occasion
that could give rise to a violation of the constitutional provision.
Section 4, Article XII of the Constitution, addresses the concern of the drafters of
the 1987 Constitution about forests and the preservation of national parks. This
was brought about by the drafters awareness and fear of the continuing
destruction of this countrys forests. 40 In view of this concern, Congress is tasked
to fix by law the specific limits of forest lands and national parks, after which the
trees in these areas are to be taken care of. 41Hence, these forest lands and
national parks that Congress is to delimit through a law could be changed only
by Congress.
In addition, there is nothing in the constitutional provision that prohibits the
President from declaring a forest land as an environmentally critical area and

from regulating the mining operations therein by declaring it as a mineral

reservation in order to prevent the further degradation of the forest environment
and to resolve the health and peace and order problems that beset the area.
A closer examination of Section 4, Article XII of the Constitution and Proclamation
No. 297 reveals that there is nothing contradictory between the two.
Proclamation No. 297, a measure to attain and maintain a rational and orderly
balance between socio-economic growth and environmental protection, jibes
with the constitutional policy of preserving and protecting the forest lands from
being further devastated by denudation. In other words, the proclamation in
question is in line with Section 4, Article XII of the Constitution, as the former
fosters the preservation of the forest environment of the Diwalwal area and is
aimed at preventing the further degradation of the same. These objectives are
the very same reasons why the subject constitutional provision is in place.
What is more, jurisprudence has recognized the policy of multiple land use in our
laws towards the end that the countrys precious natural resources may be
rationally explored, developed, utilized and conserved. 42 It has been held that
forest reserves or reservations can at the same time be open to mining
operations, provided a prior written clearance by the government agency having
jurisdiction over such reservation is obtained. In other words mineral lands can
exist within forest reservations. These two terms are not anti-thetical. This is
made manifest if we read Section 47 of Presidential Decree No. 705 or the
Revised Forestry Code of the Philippines, which provides:
Mining operations in forest lands shall be regulated and conducted with due
regard to protection, development and utilization of other surface resources.
Location, prospecting, exploration, utilization or exploitation of mineral resources
in forest reservations shall be governed by mining laws, rules and regulations.
(Emphasis supplied.)
Also, Section 6 of Republic Act No. 7942 or the Mining Act of 1995, states that
mining operations in reserved lands other than mineral reservations, such as
forest reserves/reservations, are allowed, viz:
Mining operations in reserved lands other than mineral reservations may be
undertaken by the Department, subject to limitations as herein provided. In the
event that the Department cannot undertake such activities, they may be
undertaken by a qualified person in accordance with the rules and regulations
promulgated by the Secretary. (Emphasis supplied.)
Since forest reservations can be made mineral lands where mining operations
are conducted, then there is no argument that the disputed land, which lies
within a forest reservation, can be declared as a mineral reservation as well.
Republic Act No. 7942 Otherwise Known as the "Philippine Mining Act of 1995," is
the Applicable Law
Determined to rivet its crumbling cause, SEM then argues that Proclamation No.
297 is invalid, as it transgressed the statutes governing the exclusion of areas

already declared as forest reserves, such as Section 1 of Republic Act No.

3092,43 Section 14 of the Administrative Code of 1987, Section 5(a) of Republic
Act No. 7586,44 and Section 4(a) of Republic Act No. 6657. 45
Citing Section 1 of Republic Act No. 3092, which provides as follows:
Upon the recommendation of the Director of Forestry, with the approval of the
Department Head, the President of the Philippines shall set apart forest reserves
which shall include denuded forest lands from the public lands and he shall by
proclamation declare the establishment of such forest reserves and the
boundaries thereof, and thereafter such forest reserves shall not be entered, or
otherwise disposed of, but shall remain indefinitely as such for forest uses.
The President of the Philippines may, in like manner upon the recommendation of
the Director of Forestry, with the approval of the Department head, by
proclamation, modify the boundaries of any such forest reserve to conform with
subsequent precise survey but not to exclude any portion thereof except with the
concurrence of Congress.(Underscoring supplied.)
SEM submits that the foregoing provision is the governing statute on the
exclusion of areas already declared as forest reserves. Thus, areas already set
aside by law as forest reserves are no longer within the proclamation powers of
the President to modify or set aside for any other purposes such as mineral
reservation.
To bolster its contention that the President cannot disestablish forest reserves
into mineral reservations, SEM makes reference to Section 14, Chapter 4, Title I,
Book III of the Administrative Code of 1987, which partly recites:
The President shall have the power to reserve for settlement or public use, and
for specific public purposes, any of the lands of the public domain, the use of
which is not otherwise directed by law. The reserved land shall thereafter remain
subject to the specific public purpose indicated until otherwise provided by law
or proclamation. (Emphases supplied.)
SEM further contends that Section 7 of Republic Act No. 7586, 46 which declares
that the disestablishment of a protected area shall be done by Congress, and
Section 4(a) of Republic Act No. 6657,47 which in turn requires a law passed by
Congress before any forest reserve can be reclassified, militate against the
validity of Proclamation No. 297.
Proclamation No. 297, declaring a certain portion of land located in Monkayo,
Compostela Valley, with an area of 8,100 hectares, more or less, as a mineral
reservation, was issued by the President pursuant to Section 5 of Republic Act
No. 7942, also known as the "Philippine Mining Act of 1995."
Proclamation No. 297 did not modify the boundaries of the Agusan-DavaoSurigao Forest Reserve since, as earlier discussed, mineral reservations can exist
within forest reserves because of the multiple land use policy. The metes and

bounds of a forest reservation remain intact even if, within the said area, a
mineral land is located and thereafter declared as a mineral reservation.
More to the point, a perusal of Republic Act No. 3092, "An Act to Amend Certain
Sections of the Revised Administrative Code of 1917," which was approved on 17
August 1961, and the Administrative Code of 1987, shows that only those public
lands declared by the President as reserved pursuant to these two statutes are to
remain subject to the specific purpose. The tenor of the cited provisions, namely:
"the President of the Philippines shall set apart forest reserves" and "the
reserved land shall thereafter remain," speaks of future public reservations to be
declared, pursuant to these two statutes. These provisions do not apply to forest
reservations earlier declared as such, as in this case, which was proclaimed way
back on 27 February 1931, by Governor General Dwight F. Davis under
Proclamation No. 369.
Over and above that, Section 5 of Republic Act No. 7942 authorizes the President
to establish mineral reservations, to wit:
Sec. 5. Mineral Reservations. - When the national interest so requires, such as
when there is a need to preserve strategic raw materials for industries critical to
national development, or certain minerals for scientific, cultural or ecological
value, the President may establish mineral reservations upon the
recommendation of the Director through the Secretary. Mining operations in
existing mineral reservations and such other reservations as may thereafter be
established, shall be undertaken by the Department or through a contractor x x
x. (Emphasis supplied.)
It is a rudimentary principle in legal hermeneutics that where there are two acts
or provisions, one of which is special and particular and certainly involves the
matter in question, the other general, which, if standing alone, would include the
matter and thus conflict with the special act or provision, the special act must as
intended be taken as constituting an exception to the general act or provision,
especially when such general and special acts or provisions are
contemporaneous, as the Legislature is not to be presumed to have intended a
conflict.
Hence, it has become an established rule of statutory construction that where
one statute deals with a subject in general terms, and another deals with a part
of the same subject in a more detailed way, the two should be harmonized if
possible; but if there is any conflict, the latter shall prevail regardless of whether
it was passed prior to the general statute. Or where two statutes are of contrary
tenor or of different dates but are of equal theoretical application to a particular
case, the one specially designed therefor should prevail over the other.
It must be observed that Republic Act No. 3092, "An Act to Amend Certain
Sections of the Revised Administrative Code of 1917," and the Administrative
Code of 1987, are general laws. Section 1 of Republic Act No. 3092 and Section
14 of the Administrative Code of 1987 require the concurrence of Congress
before any portion of a forest reserve can be validly excluded therefrom. These

provisions are broad since they deal with all kinds of exclusion or reclassification
relative to forest reserves, i.e., forest reserve areas can be transformed into all
kinds of public purposes, not only the establishment of a mineral reservation.
Section 5 of Republic Act No. 7942 is a special provision, as it specifically treats
of the establishment of mineral reservations only. Said provision grants the
President the power to proclaim a mineral land as a mineral reservation,
regardless of whether such land is also an existing forest reservation.
Sec. 5(a) of Republic Act No. 7586 provides:
Sec. 5. Establishment and Extent of the System. The establishment and
operationalization of the System shall involve the following:
(a) All areas or islands in the Philippines proclaimed, designated or set aside,
pursuant to a law, presidential decree, presidential proclamation or executive
order as national park, game refuge, bird and wildlife sanctuary, wilderness area,
strict nature reserve, watershed, mangrove reserve, fish sanctuary, natural and
historical landmark, protected and managed landscape/seascape as well as
identified virgin forests before the effectivity of this Act are hereby designated as
initial components of the System. The initial components of the System shall be
governed by existing laws, rules and regulations, not inconsistent with this Act.
Glaring in the foregoing enumeration of areas comprising the initial component
of the NIPAS System under Republic Act No. 7586 is the absence of forest
reserves. Only protected areas enumerated under said provision cannot be
modified. Since the subject matter of Proclamation No. 297 is a forest reservation
proclaimed as a mineral reserve, Republic Act No. 7586 cannot possibly be made
applicable. Neither can Proclamation No. 297 possibly violate said law.
Similarly, Section 4(a) of Republic Act No. 6657 cannot be made applicable to the
instant case.
Section 4(a) of Republic Act No. 6657 reads:
All alienable and disposable lands of the public domain devoted to or suitable for
agriculture. No reclassification of forest or mineral lands to agricultural lands
shall be undertaken after the approval of this Act until Congress, taking into
account ecological, developmental and equity considerations, shall have
determined by law, the specific limits of the public domain. (Underscoring
supplied.)
Section 4(a) of Republic Act No. 6657 prohibits the reclassification of forest or
mineral lands into agricultural lands until Congress shall have determined by law
the specific limits of the public domain. A cursory reading of this provision will
readily show that the same is not relevant to the instant controversy, as there
has been no reclassification of a forest or mineral land into an agricultural land.
Furthermore, the settled rule of statutory construction is that if two or more laws
of different dates and of contrary tenors are of equal theoretical application to a

particular case, the statute of later date must prevail being a later expression of
legislative will.48
In the case at bar, there is no question that Republic Act No. 7942 was signed
into law later than Republic Act No. 3092, the Administrative Code of
1987,49 Republic Act No. 7586 and Republic Act No. 6657. Applying the cited
principle, the provisions of Republic Act No. 3092, the Administrative Code of
1987, Republic Act No. 7586 and Republic Act No. 6657 cited by SEM must yield
to Section 5 of Republic Act No. 7942.
Camilo Banad, et al., Cannot Seek Relief from This Court
Camilo Banad and his group admit that they are members of the Balite
Cooperative. They, however, claim that they are distinct from Balite and move
that this Court recognize them as prior mining locators.
Unfortunately for them, this Court cannot grant any relief they seek. Records
reveal that although they were parties to the instant cases before the Court of
Appeals, they did not file a petition for review before this Court to contest the
decision of the appellate court. The only petitioners in the instant cases are the
MAB, SEM, Balite and Apex. Consequently, having no personality in the instant
cases, they cannot seek any relief from this Court.
Apexs Motion for Clarification and Balites Manifestation and Motion
In its Motion for Clarification, Apex desires that the Court elucidate the assailed
Decisions pronouncement that "mining operations, are now, therefore within the
full control of the State through the executive branch" and place the said
pronouncement in the proper perspective as the declaration in La Bugal-BLaan,
which states that
The concept of control adopted in Section 2 of Article XII must be taken to mean
less than dictatorial, all-encompassing control; but nevertheless sufficient to give
the State the power to direct, restrain, regulate and govern the affairs of the
extractive enterprise.50
Apex states that the subject portion of the assailed Decision could send a chilling
effect to potential investors in the mining industry, who may be of the impression
that the State has taken over the mining industry, not as regulator but as an
operator. It is of the opinion that the State cannot directly undertake mining
operations.
Moreover, Apex is apprehensive of the following portion in the questioned
Decision "The State can also opt to award mining operations in the mineral
reservation to private entities including petitioner Apex and Balite, if it wishes." It
avers that the phrase "if it wishes" may whimsically be interpreted to mean a
blanket authority of the administrative authority to reject the formers
application for an exploration permit even though it complies with the prescribed
policies, rules and regulations.1 a vv p h i 1

Apex likewise asks this Court to order the MGB to accept its application for an
exploration permit.
Balite echoes the same concern as that of Apex on the actual take-over by the
State of the mining industry in the disputed area to the exclusion of the private
sector. In addition, Balite prays that this Court direct MGB to accept Balites
application for an exploration permit.
Contrary to the contention of Apex and Balite, the fourth paragraph of Section 2,
Article XII of the Constitution and Section 5 of Republic Act No. 7942 sanctions
the State, through the executive department, to undertake mining operations
directly, as an operator and not as a mere regulator of mineral undertakings. This
is made clearer by the fourth paragraph of Section 2, Article XII of the 1987
Constitution, which provides in part:
SEC. 2. x x x The State may directly undertake such activities, or it may enter
into co-production, joint venture, or production-sharing agreements with Filipino
citizens, or corporations or associations at least sixty per centum of whose
capital is owned by such citizens. x x x. (Emphasis supplied.)
Also, Section 5 of Republic Act No. 7942 states that the mining operations in
mineral reservations shall be undertaken by the Department of Environment and
Natural Resources or a contractor, to wit:
SEC. 5. Mineral Reservations. When the national interest so requires, such as
when there is a need to preserve strategic raw materials for industries critical to
national development, or certain minerals for scientific, cultural or ecological
value, the President may establish mineral reservations upon the
recommendation of the Director through the Secretary. Mining operations in
existing mineral reservations and such other reservations as may thereafter be
established, shall be undertaken by the Department or through a contractor x x
x. (Emphasis supplied.)
Undoubtedly, the Constitution, as well as Republic Act No. 7942, allows the
executive department to undertake mining operations. Besides, La Bugal-BLaan,
cited by Apex, did not refer to the fourth sentence of Section 2, Article XII of the
Constitution, but to the third sentence of the said provision, which states:
SEC. 2. x x x The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. x x x.
Pursuant to Section 5 of Republic Act No. 7942, the executive department has
the option to undertake directly the mining operations in the Diwalwal Gold Rush
Area or to award mining operations therein to private entities. The phrase "if it
wishes" must be understood within the context of this provision. Hence, the
Court cannot dictate this co-equal branch to choose which of the two options to
select. It is the sole prerogative of the executive department to undertake
directly or to award the mining operations of the contested area.

Even assuming that the proper authority may decide to award the mining
operations of the disputed area, this Court cannot arrogate unto itself the task of
determining who, among the applicants, is qualified. It is the duty of the
appropriate administrative body to determine the qualifications of the applicants.
It is only when this administrative body whimsically denies the applications of
qualified applicants that the Court may interfere. But until then, the Court has no
power to direct said administrative body to accept the application of any
qualified applicant.
In view of this, the Court cannot grant the prayer of Apex and Balite asking the
Court to direct the MGB to accept their applications pending before the MGB.
SEMs Manifestation and Motion dated 25 January 2007
SEM wants to emphasize that its predecessor-in-interest, Marcopper or MMC,
complied with the mandatory exploration work program, required under EP 133,
by attaching therewith quarterly reports on exploration work from 20 June 1986
to March 1994.
It must be observed that this is the very first time at this very late stage that
SEM has presented the quarterly exploration reports. From the early phase of this
controversy, SEM did not disprove the arguments of the other parties that
Marcopper violated the terms under EP 133, among other violations, by not
complying with the mandatory exploration work program. Neither did it present
evidence for the appreciation of the lower tribunals. Hence, the non-compliance
with the mandatory exploration work program was not made an issue in any
stage of the proceedings. The rule is that an issue that was not raised in the
lower court or tribunal cannot be raised for the first time on appeal, as this would
violate the basic rules of fair play, justice and due process. 51 Thus, this Court
cannot take cognizance of the issue of whether or not MMC complied with the
mandatory work program.
In sum, this Court finds:
1. The assailed Decision did not overturn the 16 July 1991 Decision in Apex
Mining Co., Inc. v. Garcia. The former was decided on facts and issues that were
not attendant in the latter, such as the expiration of EP 133, the violation of the
condition embodied in EP 133 prohibiting its assignment, and the unauthorized
and invalid assignment of EP 133 by MMC to SEM, since this assignment was
effected without the approval of the Secretary of DENR;
2. SEM did not acquire vested right over the disputed area because its supposed
right was extinguished by the expiration of its exploration permit and by its
violation of the condition prohibiting the assignment of EP 133 by MMC to SEM. In
addition, even assuming that SEM has a valid exploration permit, such is a mere
license that can be withdrawn by the State. In fact, the same has been
withdrawn by the issuance of Proclamation No. 297, which places the disputed
area under the full control of the State through the Executive Department;

3. The approval requirement under Section 97 of Presidential Decree No. 463

applies to the assignment of EP 133 by MMC to SEM, since the exploration permit
is an interest in a mining lease contract;
4. The issue of the constitutionality and the legality of Proclamation No. 297 was
raised belatedly, as SEM questions the same for the first time in its Motion for
Reconsideration. Even if the issue were to be entertained, the said proclamation
is found to be in harmony with the Constitution and other existing statutes;
5. The motion for reconsideration of Camilo Banad, et al. cannot be passed upon
because they are not parties to the instant cases;
6. The prayers of Apex and Balite asking the Court to direct the MGB to accept
their applications for exploration permits cannot be granted, since it is the
Executive Department that has the prerogative to accept such applications, if
ever it decides to award the mining operations in the disputed area to a private
entity;
7. The Court cannot pass upon the issue of whether or not MMC complied with
the mandatory exploration work program, as such was a non-issue and was not
raised before the Court of Appeals and the lower tribunals.
WHEREFORE, premises considered, the Court holds:
1. The Motions for Reconsideration filed by Camilo Banad, et al. and Southeast
Mindanao Gold Mining Corporation are DENIED for lack of merit;
2. The Motion for Clarification of Apex Mining Co., Inc. and the Manifestation and
Motion of the Balite Communal Portal Mining Cooperative, insofar as these
motions/manifestation ask the Court to direct the Mines and Geo-Sciences
Bureau to accept their respective applications for exploration permits, are
DENIED;
3. The Manifestation and Urgent Motion dated 25 January 2007 of Southeast
Mindanao Gold Mining Corporation is DENIED.
4. The State, through the Executive Department, should it so desire, may now
award mining operations in the disputed area to any qualified entities it may
determine. The Mines and Geosciences Bureau may process exploration permits
pending before it, taking into consideration the applicable mining laws, rules and
regulations relative thereto.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice

ANTONIO T. CARPIO
Associate Justice

On official leave
RENATO C. CORONA*
Associate Justice

CONCHITA CARPIO MORALES

Associate Justice

On official leave
PRESBITERO J. VELASCO, JR.*
Associate Justice

(No Part)
ANTONIO EDUARDO B.
NACHURA**
Associate Justice

TERESITA J. LEONARDO-DE
CASTRO
Associate Justice

ARTURO D. BRION
Associate Justice

On official leave
DIOSDADO M. PERALTA*
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that
the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court.
REYNATO S. PUNO
Chief Justice

Footnotes
*

**

On official leave.
No part.

G.R. No. 92605, 16 July 1991, 199 SCRA 278.

42 Phil. 749 (1922).

66 Phil. 259 (1938).

Atok Big-Wedge Mining Co. v. Intermediate Appellate Court, 330 Phil. 244, 262
(1996).
5

Id. at 262.

Id.

Id. at 263.

Id.

Id. at 264.

10

Id.

11

Id. at 267-268.

12

486 Phil. 754, 828-829 (2004).

13

429 Phil. 668, 682 (2002).

14

Supra note 12 at 895.

15

Southeast Mindanao Gold Mining Corporation v. Balite Portal Mining

Cooperative, supra note 13 at 682-683.
16

Id.

17

G.R. No. 149927, 30 March 2004, 426 SCRA 517, 530.

18

Id.

19

Id at 531.

20

Miners Association of the Philippines, Inc. v. Factoran, Jr., 310 Phil. 113, 130
(1995).
21

PNOC-Energy Development Corporation (PNOC-EDC) v. Veneracion, Jr., G.R. No.

129820, 30 November 2006, 509 SCRA 93, 106.
22

Id. at 107-110.

23

Estrada v. Escritor, 455 Phil. 411, 569 (2003).

24

Miners Association of the Philippines, Inc. v. Factoran, Jr., 310 Phil. 113, 130131 (1995).
25

Promulgated on 25 July 1987.

26

Supra note 24 at 130.

27

Records, Vol. 2, pp. 84-85.

28

Executive Officer. - The Secretary, through the Director, shall be the Executive
Officer charged with carrying out the provisions of this Decree. x x x.

29

Section 3, Commonwealth Act No. 136.

30

Premiere Development Bank v. Court of Appeals, 471 Phil. 704, 716 (2004).

31

Id.

32

Supra note 1 at 284.

33

Supra note 1 at 283-284.

34

Supra note 13 at 681.

35

Matibag v. Benipayo, 429 Phil. 554, 578-579 (2002).

36

Umali v. Exececutive Secretary Guingona, Jr., 365 Phil. 77, 87 (1999).

37

Senate of the Philippines v. Ermita, G.R. No. 169777, 20 April 2006, 488 SCRA
1, 66.
38

Mirasol v. Department of Public Works and Highways, G.R. No. 158793, 8 June
2006, 490 SCRA 318, 347-348.
39

G.R. No. 163509, 6 December 2006, 510 SCRA 400, 416.

40

Records of the Constitutional Commission, Vol. III, pp. 592-593.

41

Id.

42

PICOP Resources, Inc. v. Base Metals Mineral Resources Corporation, supra

note 39 at 419.
43

Approved on 17 August 1961.

44

Approved on 1 June 1992, this statute is known as the "National Integrated

Protected Areas System Act of 1992."
45

This Act is known as the "Comprehensive Agrarian Reform Law of 1998." It took
effect on 15 June 1988.
46

Disestablishment as Protected Area. When in the opinion of the DENR a

certain protected area should be withdrawn or disestablished, or its boundaries
modified as warranted by a study and sanctioned by the majority of the
members of the respective boards for the protected area as herein established in
Section 11, it shall, in turn, advise Congress. Disestablishment of a protected
area under the System or modification of its boundary shall take effect pursuant
to an act of Congress.
47

All alienable and disposable lands of the public domain devoted to or suitable
for agriculture. No reclassification of forest or mineral lands to agricultural lands
shall be undertaken after the approval of this Act until Congress, taking into
account ecological, developmental and equity considerations, shall have
determined by law, the specific limits of the public domain.

48

Philippine National Bank v. Cruz, G.R. No. 80593, 18 December 1989, 180 SCRA
206, 213.
49

This law is dated 25 July 1987.

50

Supra note 12 at 1093.

51

Multi-Realty Development Corporation v. Makati Tuscany Condominium

Corporation, G.R. No. 146726, 16 June 2006, 491 SCRA 9, 23.
The Lawphil Project - Arellano Law Foundation

SEPARATE OPINION
BERSAMIN, J.:
I concur with Honorable Minita V. Chico-Nazarios disposition of the challenges
posed by the motion for reconsideration and manifestation and urgent motion
dated January 25, 2007 filed by Southeast Mindanao Gold Mining Corporation
(SEM); the motion for clarification dated July 18, 2006 filed by Apex Mining
(Apex); and the manifestation and motion dated July 28, 2006 filed by Balite
Communal Portal Mining Cooperative (Balite).
Yet, I feel compelled to write in order to suggest that we should look at and
determine which between Apex and Balite has any priority right to explore,
develop and mine the Diwalwal Gold Rush Area in the event that the State,
represented by the Executive Department, decides either to develop and mine
the area directly, or to outsource the task to a service contractor. I am sure that
doing so will preclude further litigations from arising. I feel that such an approach
can only further the intent and letter of
Section 1,1 Rule 36, of the Rules of Court to determine the merits of the case, not
leaving anything undetermined.
Antecedents
The relevant antecedents excellently recounted in the decision are adopted
herein for purposes of giving this separate opinion the requisite backdrop, viz:
On 27 February 1931, Governor General Dwight F. Davis issued Proclamation No.
369, establishing the Agusan-Davao-Surigao Forest Reserve consisting of
approximately 1,927,400 hectares.
The disputed area, a rich tract of mineral land, is inside the forest reserve
located at Monkayo, Davao del Norte, and Cateel, Davao Oriental, consisting of
4,941.6759 hectares. This mineral land is encompassed by Mt. Diwata, which is

situated in the municipalities of Monkayo and Cateel. It later became known as

the "Diwalwal Gold Rush Area." It has since the early 1980s been stormed by
conflicts brought about by the numerous mining claimants scrambling for gold
that lies beneath its bosom.
On 21 November 1983, Camilo Banad and his group, who claimed to have first
discovered traces of gold in Mount Diwata, filed a Declaration of Location (DOL)
for six mining claims in the area.
Camilo Banad and some other natives pooled their skills and resources and
organized the Balite Communal Portal Mining Cooperative (Balite).
On 12 December 1983, Apex Mining Corporation (Apex) entered into operating
agreements with Banad and his group.
From November 1983 to February 1984, several individual applications for
mining locations over mineral land covering certain parts of the Diwalwal gold
rush area were filed with the Bureau of Mines and Geo-Sciences (BMG).
On 2 February 1984, Marcopper Mining Corporation (MMC) filed 16 DOLs or
mining claims for areas adjacent to the area covered by the DOL of Banad and
his group. After realizing that the area encompassed by its mining claims is a
forest reserve within the coverage of Proclamation No. 369 issued by Governor
General Davis, MMC abandoned the same and instead applied for a prospecting
permit with the Bureau of Forest Development (BFD).
On 1 July 1985, BFD issued a Prospecting Permit to MMC covering an area of
4,941.6759 hectares traversing the municipalities of Monkayo and Cateel, an
area within the forest reserve under Proclamation No. 369. The permit embraced
the areas claimed by Apex and the other individual mining claimants.
On 11 November 1985, MMC filed Exploration Permit Application No. 84-40 with
the BMG. On 10 March 1986, the BMG issued to MCC Exploration Permit No. 133
(EP 133).
Discovering the existence of several mining claims and the proliferation of smallscale miners in the area covered by EP 133, MMC thus filed on 11 April 1986
before the BMG a Petition for the Cancellation of the Mining Claims of Apex and
Small Scale Mining Permit Nos. (x-1)-04 and (x-1)-05 which was docketed as MAC
No. 1061. MMC alleged that the areas covered by its EP 133 and the mining
claims of Apex were within an established and existing forest reservation
(Agusan-Davao-Surigao Forest Reserve) under Proclamation No. 369 and that
pursuant to Presidential Decree No. 463, acquisition of mining rights within a
forest reserve is through the application for a permit to prospect with the BFD
and not through registration of a DOL with the BMG.
On 23 September 1986, Apex filed a motion to dismiss MMCs petition alleging
that its mining claims are not within any established or proclaimed forest
reserve, and as such, the acquisition of mining rights thereto must be

undertaken via registration of DOL with the BMG and not through the filing of
application for permit to prospect with the BFD.
On 9 December 1986, BMG dismissed MMCs petition on the ground that the area
covered by the Apex mining claims and MMCs permit to explore was not a forest
reservation. It further declared null and void MMCs EP 133 and sustained the
validity of Apex mining claims over the disputed area.
MMC appealed the adverse order of BMG to the Department of Environment and
Natural Resources (DENR).
On 15 April 1987, after due hearing, the DENR reversed the 9 December 1996
order of BMG and declared MMCs EP 133 valid and subsisting.
Apex filed a Motion for Reconsideration with the DENR which was subsequently
denied. Apex then filed an appeal before the Office of the President. On 27 July
1989, the Office of the President, through Assistant Executive Secretary for Legal
Affairs, Cancio C. Garcia,dismissed Apexs appeal and affirmed the DENR ruling.
Apex filed a Petition for Certiorari before this Court. The Petition was docketed as
G.R. No. 92605 entitled, "Apex Mining Co., Inc. v. Garcia." On 16 July 1991, this
Court rendered a Decision against Apex holding that the disputed area is a forest
reserve; hence, the proper procedure in acquiring mining rights therein is by
initially applying for a permit to prospect with the BFD and not through a
registration of DOL with the BMG.
On 27 December 1991, then DENR Secretary Fulgencio Factoran, Jr. issued
Department Administrative Order No. 66 (DAO No. 66) declaring 729 hectares of
the areas covered by the Agusan-Davao-Surigao Forest Reserve as non-forest
lands and open to small-scale mining purposes.
As DAO No. 66 declared a portion of the contested area open to small scale
miners, several mining entities filed applications for Mineral Production Sharing
Agreement (MPSA).
On 25 August 1993, Monkayo Integrated Small Scale Miners Association
(MISSMA) filed an MPSA application which was denied by the BMG on the
grounds that the area applied for is within the area covered by MMC EP 133 and
that the MISSMA was not qualified to apply for an MPSA under DAO No. 82, Series
of 1990.
On 5 January 1994, Rosendo Villaflor and his group filed before the BMG a
Petition for Cancellation of EP 133 and for the admission of their MPSA
Application. The Petition was docketed as RED Mines Case No. 8-8-94. Davao
United Miners Cooperative (DUMC) and Balite intervened and likewise sought the
cancellation of EP 133.
On 16 February 1994, MMC assigned EP 133 to Southeast Mindanao Gold Mining
Corporation (SEM), a domestic corporation which is alleged to be a 100% -owned
subsidiary of MMC.

On 14 June 1994, Balite filed with the BMG an MPSA application within the
contested area that was later on rejected.
On 23 June 1994, SEM filed an MPSA application for the entire 4,941.6759
hectares under EP 133, which was also denied by reason of the pendency of RED
Mines Case No. 8-8-94. On 1 September 1995, SEM filed another MPSA
application.
On 20 October 1995, BMG accepted and registered SEMs MPSA application and
the Deed of Assignment over EP 133 executed in its favor by MMC. SEMs
application was designated MPSA Application No. 128 (MPSAA 128). After
publication of SEMs application, the following filed before the BMG their adverse
claims or oppositions:
a) MAC Case No. 004 (XI) JB Management Mining Corporation;
b) MAC Case No. 005(XI) Davao United Miners Cooperative;
c) MAC Case No. 006(XI) Balite Integrated Small Scale Miners Cooperative;
d) MAC Case No. 007(XI) Monkayo Integrated Small Scale Miners Association,
Inc. (MISSMA);
e) MAC Case No. 008(XI) Paper Industries Corporation of the Philippines;
f) MAC Case No. 009(XI) Rosendo Villafor, et al.;
g) MAC Case No. 010(XI) Antonio Dacudao;
h) MAC Case No. 011(XI) Atty. Jose T. Amacio;
i) MAC Case No. 012(XI) Puting-Bato Gold Miners Cooperative;
j) MAC Case No. 016(XI) Balite Communal Portal Mining Cooperative;
k) MAC Case No. 97-01(XI) Romeo Altamera, et al.
To address the matter, the DENR constituted a Panel of Arbitrators (PA) to resolve
the following:
(a) The adverse claims on MPSAA No. 128; and
(b) The Petition to Cancel EP 133 filed by Rosendo Villaflor docketed as RED Case
No. 8-8-94.
On 13 June 1997, the PA rendered a resolution in RED Mines Case No. 8-8-94. As
to the Petition for Cancellation of EP 133 issued to MMC, the PA relied on the
ruling in Apex Mining Co., Inc. v. Garcia and opined that EP 133 was valid and
subsisting. It also declared that the BMG Director, under Section 99 of the
Consolidated Mines Administrative Order implementing Presidential Decree No.
463, was authorized to issue exploration permits and to renew the same without
limit.

With respect to the adverse claims on SEMs MPSAA No. 128, the PA ruled that
adverse claimants petitions were not filed in accordance with the existing rules
and regulations governing adverse claims because the adverse claimants failed
to submit the sketch plan containing the technical description of their respective
claims, which was a mandatory requirement for an adverse claim that would
allow the PA to determine if indeed there is an overlapping of the area occupied
by them and the area applied for by SEM. It added that the adverse claimants
were not claim owners but mere occupants conducting illegal mining activities at
the contested area since only MMC or its assignee SEM had valid mining claims
over the area as enunciated in Apex Mining Co., Inc. v. Garcia. Also, it maintained
that the adverse claimants were not qualified as small-scale miners under DENR
Department Administrative Order No. 34 (DAO No. 34), or the Implementing
Rules and Regulation of Republic Act No. 7076 (otherwise known as the "Peoples
Small-Scale Mining Act of 1991"), as they were not duly licensed by the DENR to
engage in the extraction or removal of minerals from the ground, and that they
were large-scale miners. The decretal portion of the PA resolution pronounces:
VIEWED IN THE LIGHT OF THE FOREGOING, the validity of Exploration Permit No.
133 is hereby reiterated and all the adverse claims against MPSAA No. 128 are
DISMISSED.
Undaunted by the PA ruling, the adverse claimants appealed to the Mines
Adjudication Board (MAB). In a Decision dated 6 January 1998, the MAB
considered erroneous the dismissal by the PA of the adverse claims filed against
MMC and SEM over a mere technicality of failure to submit a sketch plan. It
argued that the rules of procedure are not meant to defeat substantial justice as
the former are merely secondary in importance to the latter. Dealing with the
question on EP 133s validity, the MAB opined that said issue was not crucial and
was irrelevant in adjudicating the appealed case because EP 133 has long
expired due to its non-renewal and that the holder of the same, MMC, was no
longer a claimant of the Agusan-Davao-Surigao Forest Reserve having
relinquished its right to SEM. After it brushed aside the issue of the validity of EP
133 for being irrelevant, the MAB proceeded to treat SEMs MPSA application
over the disputed area as an entirely new and distinct application. It approved
the MPSA application, excluding the area segregated by DAO No. 66, which
declared 729 hectares within the Diwalwal area as non-forest lands open for
small-scale mining. The MAB resolved:
WHEREFORE, PREMISES CONSIDERED, the decision of the Panel of Arbitrators
dated 13 June 1997 is hereby VACATED and a new one entered in the records of
the case as follows:
1. SEMs MPSA application is hereby given due course subject to the full and
strict compliance of the provisions of the Mining Act and its Implementing Rules
and Regulations;
2. The area covered by DAO 66, series of 1991, actually occupied and actively
mined by the small-scale miners on or before August 1, 1987 as determined by

the Provincial Mining Regulatory Board (PMRB), is hereby excluded from the area
applied for by SEM;
3. A moratorium on all mining and mining-related activities, is hereby imposed
until such time that all necessary procedures, licenses, permits, and other
requisites as provided for by RA 7076, the Mining Act and its Implementing Rules
and Regulations and all other pertinent laws, rules and regulations are complied
with, and the appropriate environmental protection measures and safeguards
have been effectively put in place;
4. Consistent with the spirit of RA 7076, the Board encourages SEM and all smallscale miners to continue to negotiate in good faith and arrive at an agreement
beneficial to all. In the event of SEMs strict and full compliance with all the
requirements of the Mining Act and its Implementing Rules and Regulations, and
the concurrence of the small-scale miners actually occupying and actively mining
the area, SEM may apply for the inclusion of portions of the areas segregated
under paragraph 2 hereof, to its MPSA application. In this light, subject to the
preceding paragraph, the contract between JB [JB Management Mining
Corporation] and SEM is hereby recognized.
Dissatisfied, the Villaflor group and Balite appealed the decision to this Court.
SEM, aggrieved by the exclusion of 729 hectares from its MPSA application,
likewise appealed. Apex filed a Motion for Leave to Admit Petition for Intervention
predicated on its right to stake its claim over the Diwalwal gold rush which was
granted by the Court. These cases, however, were remanded to the Court of
Appeals for proper disposition pursuant to Rule 43 of the 1997 Rules of Civil
Procedure. The Court of Appeals consolidated the remanded cases as CA-G.R. SP
No. 61215 and No. 61216.
In the assailed Decision dated 13 March 2002, the Court of Appeals affirmed in
toto the decision of the PA and declared null and void the MAB decision.
The Court of Appeals, banking on the premise that the SEM is the agent of MMC
by virtue of its assignment of EP 133 in favor of SEM and the purported fact that
SEM is a 100% subsidiary of MMC, ruled that the transfer of EP 133 was valid. It
argued that since SEM is an agent of MMC, the assignment of EP 133 did not
violate the condition therein prohibiting its transfer except to MMCs duly
designated agent. Thus, despite the non-renewal of EP 133 on 6 July 1994, the
Court of Appeals deemed it relevant to declare EP 133 as valid since MMCs
mining rights were validly transferred to SEM prior to its expiration.
The Court of Appeals also ruled that MMCs right to explore under EP 133 is a
property right which the 1987 Constitution protects and which cannot be
divested without the holders consent. It stressed that MMCs failure to proceed
with the extraction and utilization of minerals did not diminish its vested right to
explore because its failure was not attributable to it.
Reading Proclamation No. 369, Section 11 of Commonwealth Act 137, and
Sections 6, 7, and 8 of Presidential Decree No. 463, the Court of Appeals

concluded that the issuance of DAO No. 66 was done by the DENR Secretary
beyond his power for it is the President who has the sole power to withdraw from
the forest reserve established under Proclamation No. 369 as non-forest land for
mining purposes. Accordingly, the segregation of 729 hectares of mining areas
from the coverage of EP 133 by the MAB was unfounded.
The Court of Appeals also faulted the DENR Secretary in implementing DAO No.
66 when he awarded the 729 hectares segregated from the coverage area of EP
133 to other corporations who were not qualified as small-scale miners under
Republic Act No. 7076.
As to the petitions of Villaflor and company, the Court of Appeals argued that
their failure to submit the sketch plan to the PA, which is a jurisdictional
requirement, was fatal to their appeal. It likewise stated the Villaflor and
companys mining claims, which were based on their alleged rights under DAO
No. 66, cannot stand as DAO No. 66 was null and void. The dispositive portion of
the Decision decreed:
WHEREFORE, premises considered, the Petition of Southeast Mindanao Gold
Mining Corporation is GRANTED while the Petition of Rosendo Villaflor, et al., is
DENIED for lack of merit. The Decision of the Panel of Arbitrators dated 13 June
1997 is AFFIRMED in toto and the assailed MAB Decision is hereby SET ASIDE and
declared as NULL and VOID.
Hence, the instant Petitions for Review on Certiorari under Rule 45 of the Rules of
Court filed by Apex, Balite and MAB.
During the pendency of these Petitions, President Gloria Macapagal-Arroyo issued
Proclamation No. 297 dated 25 November 2002. This proclamation excluded an
area of 8,100 hectares located in Monkayo, Compostela Valley, and proclaimed
the same as mineral reservation and as environmentally critical area.
Subsequently, DENR Administrative Order No. 2002-18 was issued declaring an
emergency situation in the Diwalwal gold rush area and ordering the stoppage of
all mining operations therein. Thereafter, Executive Order No. 217 dated 17 June
2003 was issued by the President creating the National Task Force Diwalwal
which is tasked to address the situation in the Diwalwal Gold Rush Area.
In G.R. No. 152613 and No. 152628, Apex raises the following issues:
I
WHETHER OR NOT SOUTHEAST MINDANAO GOLD MININGS [SEM] E.P. 133 IS
NULL AND VOID DUE TO THE FAILURE OF MARCOPPER TO COMPLY WITH THE
TERMS AND CONDITIONS PRESCRIBED IN EP 133.
II
WHETHER OR NOT APEX HAS A SUPERIOR AND PREFERENTIAL RIGHT TO STAKE
ITS CLAIM OVER THE ENTIRE 4,941 HECTARES AGAINST SEM AND THE OTHER

CLAIMANTS PURSUANT TO THE TIME-HONORED PRINCIPLE IN MINING LAW THAT

"PRIORITY IN TIME IS PRIORITY IN RIGHT."
In G.R. No. 152619-20, Balite anchors its petition on the following grounds:
I
WHETHER OR NOT THE MPSA OF SEM WHICH WAS FILED NINE (9) DAYS LATE
(JUNE 23, 1994) FROM THE FILING OF THE MPSA OF BALITE WHICH WAS FILED ON
JUNE 14, 1994 HAS A PREFERENTIAL RIGHT OVER THAT OF BALITE.
II
WHETHER OR NOT THE DISMISSAL BY THE PANEL OF ARBITRATORS OF THE
ADVERSE CLAIM OF BALITE ON THE GROUND THAT BALITE FAILED TO SUBMIT
THE REQUIRED SKETCH PLAN DESPITE THE FACT THAT BALITE, HAD IN FACT
SUBMITTED ON TIME WAS A VALID DISMISSAL OF BALITES ADVERSE CLAIM.
III
WHETHER OR NOT THE ACTUAL OCCUPATION AND SMALL-MINING OPERATIONS
OF BALITE PURSUANT TO DAO 66 IN THE 729 HECTARES WHICH WAS PART OF
THE 4,941.6759 HECTARES COVERED BY ITS MPSA WHICH WAS REJECTED BY THE
BUREAU OF MINES AND GEOSCIENCES WAS ILLEGAL.
In G.R. No. 152870-71, the MAB submits two issues, to wit:
I
WHETHER OR NOT EP NO. 133 IS STILL VALID AND SUBSISTING.
II
WHETHER OR NOT THE SUBSEQUENT ACTS OF THE GOVERNMENT SUCH AS THE
ISSUANCE OF DAO NO. 66, PROCLAMATION NO. 297, AND EXECUTIVE ORDER 217
CAN OUTWEIGH EP NO. 133 AS WELL AS OTHER ADVERSE CLAIMS OVER THE
DIWALWAL GOLD RUSH AREA.
The common issues raised by petitioners may be summarized as follows:
I. Whether or not the Court of Appeals erred in upholding the validity and
continuous existence of EP 133 as well as its transfer to SEM;
II. Whether or not the Court of Appeals erred in declaring that the DENR
Secretary has no authority to issue DAO No. 66; and
III. Whether or not the subsequent acts of the executive department such as the
issuance of Proclamation No. 297, and DAO No. 2002-18 can outweigh Apex and
Balites claims over the Diwalwal Gold Rush Area.
On the first issue, Apex takes exception to the Court of Appeals ruling upholding
the validity of MMCs EP 133 and its subsequent transfer to SEM asserting that
MMC failed to comply with the terms and conditions in its exploration permit,

thus, MMC and its successor-in-interest SEM lost their rights in the Diwalwal Gold
Rush Area. Apex pointed out that MMC violated four conditions in its permit. First,
MMC failed to comply with the mandatory work program, to complete exploration
work, and to declare a mining feasibility. Second, it reneged on its duty to submit
an Environmental Compliance Certificate. Third, it failed to comply with the
reportorial requirements. Fourth, it violated the terms of EP 133 when it assigned
said permit to SEM despite the explicit proscription against its transfer.
Apex likewise emphasizes that MMC failed to file its MPSA application required
under DAO No. 82 which caused its exploration permit to lapse because DAO No.
82 mandates holders of exploration permits to file a Letter of Intent and a MPSA
application not later than 17 July 1991. It said that because EP 133 expired prior
to its assignment to SEM, SEMs MPSA application should have been evaluated
on its own merit.
As regards the Court of Appeals recognition of SEMs vested right over the
disputed area, Apex bewails the same to be lacking in statutory bases. According
to Apex, Presidential Decree No. 463 and Republic Act No. 7942 impose upon the
claimant the obligation of actually undertaking exploration work within the
reserved lands in order to acquire priority right over the area. MMC, Apex claims,
failed to conduct the necessary exploration work, thus, MMC and its successor-ininterest SEM lost any right over the area.
In its Memorandum, Balite maintains that EP 133 of MMC, predecessor-in-interest
of SEM, is an expired and void permit which cannot be made the basis of SEMs
MPSA application.
Similarly, the MAB underscores that SEM did not acquire any right from MMC by
virtue of the transfer of EP 133 because the transfer directly violates the express
condition of the exploration permit stating that "it shall be for the exclusive use
and benefit of the permittee or his duly authorized agents." It added that while
MMC is the permittee, SEM cannot be considered as MMCs duly designated
agent as there is no proof on record authorizing SEM to represent MMC in its
business dealings or undertakings, and neither did SEM pursue its interest in the
permit as an agent of MMC. According to the MAB, the assignment by MMC of EP
133 in favor of SEM did not make the latter the duly authorized agent of MMC
since the concept of an agent under EP 133 is not equivalent to the concept of
assignee. It finds fault in the assignment of EP 133 which lacked the approval of
the DENR Secretary in contravention of Section 25 of Republic Act No. 7942
requiring his approval for a valid assignment or transfer of exploration permit to
be valid.
SEM, on the other hand, counters that the errors raised by petitioners Apex,
Balite and the MAB relate to factual and evidentiary matters which this Court
cannot inquire into in an appeal by certiorari.
Effects of the Decision

The decision affirms the application in this jurisdiction of the Regalian Doctrine,
which means that the State has dominion over all agricultural, timber and
mineral lands. It also affirms that Proclamation 297 dated November 25, 2002
was a constitutionally-sanctioned act.
Proclamation 297 has excluded 8,100 hectares of mineral land in Monkayo,
Compostela Valley, and has declared that:
xxx. Mining operations in the area may be undertaken either by the DENR
directly, subject to payment of just compensation that may be due to legitimate
and existing claimants, or thru a qualified contractor, subject to existing rights, if
any.
It is clear that under the Proclamation 297 regime of exploration, development
and utilization of mineral resources within the Diwalwal Gold Rush Area, the State
is bound to either pay lawful claimants just compensation (should it elect to
operate the mine directly), or to honor existing rights (should it choose to
outsource mining operations to a service contractor). The priority right of an
interested party is only deemed superseded by Proclamation 297 and DENR
Administrative Order (DAO) 2002-18 if the State elects to directly undertake
mining operations in the Diwalwal Gold Rush Area (but nonetheless requires the
State to pay just compensation that may be due to legitimate and existing
claimants). If the State chooses to outsource mining operations to a service
contractor, Proclamation 297 mandates that the existing rights should still be
recognized and honored.
Yet, the decision states that:
The issue on who has priority right over the disputed area is deemed overtaken
by the above subsequent developments particularly with the issuance of
Proclamation 297 and DAO No. 2002-18, both being constitutionally-sanctioned
acts of the Executive Branch. Mining operations in the Diwalwal Mineral
Reservation are now, therefore, within the full control of the State through the
executive branch. Pursuant to Section 5 of Republic Act No. 7942, the State can
either directly undertake the exploration, development and utilization of the area
or it can enter into agreements with qualified entities, viz:
SEC 5. Mineral Reservations. When the national interest so requires, such as
when there is a need to preserve strategic raw materials for industries critical to
national development, or certain minerals for scientific, cultural or ecological
value, the President may establish mineral reservations upon the
recommendation of the Director through the Secretary. Mining operations in
existing mineral reservations and such other reservations as may thereafter be
established, shall be undertaken by the Department or through a contractor x x x
.
It is now up to the Executive Department whether to take the first option, i.e., to
undertake directly the mining operations of the Diwalwal Gold Rush Area. As
already ruled, the State may not be precluded from considering a direct takeover

of the mines, if it is the only plausible remedy in sight to the gnawing

complexities generated by the gold rush. The State need be guided only by the
demands of public interest in settling on this option, as well as its material and
logistic feasibility. The State can also opt to award mining operations in the
mineral reservation to private entities including petitioners Apex and Balite, if it
wishes. The exercise of this prerogative lies with the Executive Department over
which courts will not interfere.
That the aforequoted passage of the decision, particularly the highlighted
portion, has generated interpretation by the parties causes me to pause in order
to ask whether the issuance of Proclamation 297 declaring the disputed area as a
mineral reservation outweighs the claims of Apex and Balite over the Diwalwal
Gold Rush Area; and which between Apex and Balite will have priority once the
Government opts to award mining operations in the mineral reservation to
private entities, including Apex and Balite, if it so wishes.
I humbly submit that the answers to these questions should be given by the
Court now, not later, if we are to prevent another round of litigation that will
surely undermine the efforts of the Government to establish a new order of
peace, development and prosperity in the Diwalwal Gold Rush Area.
I also submit that these questions are entirely justiciable in the present case. We
have already eliminated the claim of SEM and its parent company, Marcopper
Mining Corporation (MMC), due to the latters numerous violations of the terms of
Exploration Permit (EP) 133, which meanwhile expired without being renewed.
The issuance of Proclamation 297, and the declaration by this Court of the nullity
of DAO No. 66 (declaring 729 hectares within the Agusan-Davao-Surigao Forest
Reserve as non-forest land open to small-scale mining operations) necessitate a
final and definitive determination of the existing right of the remaining claimants
in this dispute, who can replace SEM and fill the void created by the expiration of
EP 133.
I have no difficulty in understanding from the decision that the remaining
claimants are Apex and Balite.
Submissions
The right of a legitimate and existing claimant envisioned in Proclamation 297
(i.e., "Mining operations in the area may be undertaken either by the DENR
directly, subject to payment of just compensation that may be due to legitimate
and existing claimants, or thru a qualified contractor, subject to existing rights, if
any") is a real right acquired over time by a person who discovered mineral
deposits, and was first to stake his claim through location and registration with
the mining recorder.
Under Philippine mining laws, which are essentially patterned after AngloAmerican models, the location and registration of a mining claim must be
followed by actual exploration and extraction of mineral deposits. The person
who is first to locate and register his mining claim and who subsequently

explores the area and extracts mineral deposits has a valid and existing right
regardless of technical defect in the registration.
Which between Apex and Balite has priority?
On the one hand, Apex rests its claim to priority on the precept of first-in-time,
first-in-right, a principle that is explicitly recognized by Section 1 of Presidential
Decree (P.D.) No. 99-A, which amended Commonwealth Act (C.A.) No. 137
(Mining Act), which provides:
Whenever there is a conflict between claim owners over a mining claim, whether
mineral or non-mineral, the locator of the claim who first registered his claim
with the proper mining registrar, notwithstanding any defect in form or
technicality, shall have the exclusive right to possess, exploit, explore, develop
and operate such mining claim.
Apex argues that Proclamation 297 does not extinguish its existing right over
Diwalwal Gold Rush Area, because: (1) it conducted exploration work in the area
from 1983 to 1991; (2) it spent a total of P15 million on exploration and
development work alone; and (3) its petition for intervention was admitted by
the Court in this case, which was indicative of its existing right over the disputed
area.
On the other hand, Balite states that it filed on June 14, 1994 its application for a
Mineral Production Sharing Agreement (MPSA) ahead of SEM; and that it had an
existing right over the disputed area by virtue of its native title right under R.A.
No. 8371 (IPRA),2 because its members are indigenous peoples (IPs) belonging to
the four tribes of Mangguangan, Manobo, Mandaya and Dibabawon.
During the oral arguments, Balites counsel described Balite as a "cooperative for
everybody," for its members were comprised of nomads, lowlanders, and IPs
belonging to the four tribes thus mentioned. Balite further asserts that it is a
small-scale mining cooperative, as defined under R.A. No. 7076, and is thus
entitled to apply for 25% percent of the Diwalwal mineral reservation.
Under the circumstances, it should be Apex who should be recognized as the
claimant with priority, with or without Proclamation 297.
Firstly: Being a cooperative whose principal purpose is to engage in the business
of mining, and not in the protection of the rights and interest of cultural
minorities, Balite is not entitled to preference by virtue of IPRA. I must point out
that IPRA speaks of rights of IPs, and of those belonging to the Indigenous
Cultural Communities (ICCs), but does not include a cooperative like Balite.
Under Sec. 7(b) of IPRA, only IPs and ICCs have the right to "manage and
conserve natural resources within the territories and uphold the responsibilities
for future generations; to benefit and share the profits from the allocation and
utilization of natural resources." IPs and ICCs have also the "right to negotiate
the terms and conditions for the exploration of natural resources."

I hasten to clarify, however, that in order to protect the rights of its IP members
over certain portions of the Diwalwal mineral reservation, Balite may represent
its IP members in negotiating the terms and conditions for the sharing of profit
and other benefits arising from the utilization of the mineral deposits that lay
beneath their ancestral land with the service contractor chosen by the State, but
it cannot directly undertake exploration, development and mining in the Diwalwal
mineral reservation.
Secondly: Upon learning of MMCs assignment of its EP 133 to SEM, Balite filed
with the Regional Executive Director of the Department of Environment and
Natural Resources (DENR) a petition seeking the cancellation of EP 133, and the
admission of its MPSA (entitled Rosendo Villaflor, et al. v. Marcopper Mining
Corporation and docketed as RED MINES Case No. 8-8-94). The petition was
referred to the Panel of Arbitrator (PA) pursuant to R.A. No. 7942.
Yet, Balites application for an MPSA, although filed prior to SEMs application, did
not qualify Balite as a first locator and registrant of a mining claim, because Apex
had registered its claims with the Bureau of Mines and Geo-Sciences (BMG) in
1982, much earlier than either Balite, or any other claimant.
Thirdly: While discovery and prior registration of a mining claim with the mining
recorder pave the way for a claimant to acquire a priority right over mineral land,
it is also important that the claimant must follow his discovery and registration
with actual exploration and mining. The final stage of exploration, development
and utilization is crucial to bestow upon the discoverer or first registrant an
existing right that he can invoke against the whole world, even against the
government.
Apex met the requirements of discovery, registration, actual exploration and
mining. In 1982, it explored and developed the area covered by its claims located
within the Diwalwal mineral reservation. It constructed mining tunnels, access
roads and bridges in and around its mine site to facilitate the extraction and
processing of gold ores. It sold tons of gold bullions to the Philippine government
from 1982 to 1992, and remitted millions of pesos in tax revenues to the national
coffers. It operated a modern gold processing plant, as contrasted from gold
panners who used crude mining techniques to extract gold ores.
Fourthly: The primordial consideration for granting or recognizing the existence
of real rights over mineral lands is discovery. The State rewards the discoverer of
mineral deposits for his labor and perseverance, and encourages other persons
to search for more minerals and sources of renewable energy to propel the
Nations economic growth and development. For this reason, the Philippines
adheres to the first-in-time, first-in-right postulate not only in resolving disputes
involving conflicting claims, but also in determining existing rights of claimants.
In view of the foregoing, Apex has an existing priority right in the Diwalwal
mineral reservation by virtue of first-in-time, first-in-right, for having performed
the requisite acts of location and registration, followed by actual exploration and
mining. Although it did not follow the procedure for registering its mining claim

laid down in theApex Mining Co., Inc. v. Garcia (G.R. No. 92605, July 16, 1991,
199 SCRA 278), Apex is not barred from acquiring a superior right over the area
to the exclusion of other claimants, because the registration of its claims predated that of the other claimants, including MMC, and because by express
provision of law (i.e., Sec. 1 of P.D. No. 99-A, which amended C.A. No. 137, Mining
Act, supra) no defect in form or technicality should bar the priority.
Fifthly: That the Court in Apex Mining Co., Inc. v. Garcia affirmed the decision of
the OP and the DENR nullifying and rendering inoperative Apexs mining claims
or declarations of location (DOLs) is of no moment. The priority right of Apex that
this Court ought to recognize herein, which the State must honor, does not
emanate from the DOLs, but is predicated on the principle of first-in-time, first-inright. The right of Apex to be recognized herein is distinct from its right as a
registered owner and operator of the DOLs, considering that the former arises
from a vacuum resulting from the extinction and nullification of MMCs EP 133.
Conclusion
I vote to grant the motion for clarification of Apex Mining Co., Inc., and to modify
the decision by declaring that Apex Mining Co., Inc. has an existing priority right
to explore, develop and utilize the mineral deposits in the Diwalwal Gold Rush
Area pursuant to Proclamation 297, subject only to the superior right of the State
to directly explore, develop and utilize.
LUCAS P. BERSAMIN
Associate Justice

Footnotes
1

Section 1. Rendition of judgments and final orders. A judgment or final order

determining the merits of the case shall be in writing personally and directly
prepared by the judge, stating clearly and distinctly the facts and the law on
which it is based, signed by him, and filed with the clerk of the court. (1a)
2

Indigenous People Rights Act of 1997.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-7089

August 31, 1954

DOMINGO DE LA CRUZ, plaintiff-appellant,

vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees.

Conrado Rubio for appellant.

Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.
MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the
year 1941 the Northern Theatrical Enterprises Inc., a domestic corporation
operated a movie house in Laoag, Ilocos Norte, and among the persons
employed by it was the plaintiff DOMINGO DE LA CRUZ, hired as a special guard
whose duties were to guard the main entrance of the cine, to maintain peace and
order and to report the commission of disorders within the premises. As such
guard he carried a revolver. In the afternoon of July 4, 1941, one Benjamin Martin
wanted to crash the gate or entrance of the movie house. Infuriated by the
refusal of plaintiff De la Cruz to let him in without first providing himself with a
ticket, Martin attacked him with a bolo. De la Cruz defendant himself as best he
could until he was cornered, at which moment to save himself he shot the gate
crasher, resulting in the latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449
of the Court of First Instance of Ilocos Norte. After a re-investigation conducted
by the Provincial Fiscal the latter filed a motion to dismiss the complaint, which
was granted by the court in January 1943. On July 8, 1947, De la Cruz was again
accused of the same crime of homicide, in Criminal Case No. 431 of the same
Court. After trial, he was finally acquitted of the charge on January 31, 1948. In
both criminal cases De la Cruz employed a lawyer to defend him. He demanded
from his former employer reimbursement of his expenses but was refused, after
which he filed the present action against the movie corporation and the three
members of its board of directors, to recover not only the amounts he had paid
his lawyers but also moral damages said to have been suffered, due to his worry,
his neglect of his interests and his family as well in the supervision of the
cultivation of his land, a total of P15,000. On the basis of the complaint and the
answer filed by defendants wherein they asked for the dismissal of the
complaint, as well as the agreed statement of facts, the Court of First Instance of
Ilocos Norte after rejecting the theory of the plaintiff that he was an agent of the
defendants and that as such agent he was entitled to reimbursement of the
expenses incurred by him in connection with the agency (Arts. 1709-1729 of the
old Civil Code), found that plaintiff had no cause of action and dismissed the
complaint without costs. De la Cruz appealed directly to this Tribunal for the
reason that only questions of law are involved in the appeal.
We agree with the trial court that the relationship between the movie corporation
and the plaintiff was not that of principal and agent because the principle of
representation was in no way involved. Plaintiff was not employed to represent
the defendant corporation in its dealings with third parties. He was a mere
employee hired to perform a certain specific duty or task, that of acting as
special guard and staying at the main entrance of the movie house to stop gate
crashers and to maintain peace and order within the premises. The question
posed by this appeal is whether an employee or servant who in line of duty and

while in the performance of the task assigned to him, performs an act which
eventually results in his incurring in expenses, caused not directly by his master
or employer or his fellow servants or by reason of his performance of his duty,
but rather by a third party or stranger not in the employ of his employer, may
recover said damages against his employer.
The learned trial court in the last paragraph of its decision dismissing the
complaint said that "after studying many laws or provisions of law to find out
what law is applicable to the facts submitted and admitted by the parties, has
found none and it has no other alternative than to dismiss the complaint." The
trial court is right. We confess that we are not aware of any law or judicial
authority that is directly applicable to the present case, and realizing the
importance and far-reaching effect of a ruling on the subject-matter we have
searched, though vainly, for judicial authorities and enlightenment. All the laws
and principles of law we have found, as regards master and servants, or
employer and employee, refer to cases of physical injuries, light or serious,
resulting in loss of a member of the body or of any one of the senses, or
permanent physical disability or even death, suffered in line of duty and in the
course of the performance of the duties assigned to the servant or employee,
and these cases are mainly governed by the Employer's Liability Act and the
Workmen's Compensation Act. But a case involving damages caused to an
employee by a stranger or outsider while said employee was in the performance
of his duties, presents a novel question which under present legislation we are
neither able nor prepared to decide in favor of the employee.
In a case like the present or a similar case of say a driver employed by a
transportation company, who while in the course of employment runs over and
inflicts physical injuries on or causes the death of a pedestrian; and such driver is
later charged criminally in court, one can imagine that it would be to the interest
of the employer to give legal help to and defend its employee in order to show
that the latter was not guilty of any crime either deliberately or through
negligence, because should the employee be finally held criminally liable and he
is found to be insolvent, the employer would be subsidiarily liable. That is why,
we repeat, it is to the interest of the employer to render legal assistance to its
employee. But we are not prepared to say and to hold that the giving of said
legal assistance to its employees is a legal obligation. While it might yet and
possibly be regarded as a normal obligation, it does not at present count with the
sanction of man-made laws.
If the employer is not legally obliged to give, legal assistance to its employee and
provide him with a lawyer, naturally said employee may not recover the amount
he may have paid a lawyer hired by him.
Viewed from another angle it may be said that the damage suffered by the
plaintiff by reason of the expenses incurred by him in remunerating his lawyer, is
not caused by his act of shooting to death the gate crasher but rather by the
filing of the charge of homicide which made it necessary for him to defend
himself with the aid of counsel. Had no criminal charge been filed against him,

there would have been no expenses incurred or damage suffered. So the damage
suffered by plaintiff was caused rather by the improper filing of the criminal
charge, possibly at the instance of the heirs of the deceased gate crasher and by
the State through the Fiscal. We say improper filing, judging by the results of the
court proceedings, namely, acquittal. In other words, the plaintiff was innocent
and blameless. If despite his innocence and despite the absence of any criminal
responsibility on his part he was accused of homicide, then the responsibility for
the improper accusation may be laid at the door of the heirs of the deceased and
the State, and so theoretically, they are the parties that may be held responsible
civilly for damages and if this is so, we fail to see now this responsibility can be
transferred to the employer who in no way intervened, much less initiated the
criminal proceedings and whose only connection or relation to the whole affairs
was that he employed plaintiff to perform a special duty or task, which task or
duty was performed lawfully and without negligence.
Still another point of view is that the damages incurred here consisting of the
payment of the lawyer's fee did not flow directly from the performance of his
duties but only indirectly because there was an efficient, intervening cause,
namely, the filing of the criminal charges. In other words, the shooting to death
of the deceased by the plaintiff was not the proximate cause of the damages
suffered but may be regarded as only a remote cause, because from the
shooting to the damages suffered there was not that natural and continuous
sequence required to fix civil responsibility.
In view of the foregoing, the judgment of the lower court is affirmed. No costs.
Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes,
J.B.L., JJ., concur.
Republic of the Philippines
SUPREME COURT
THIRD DIVISION
G.R. No. 156262 July 14, 2005
MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses
ANASTACIO and MARY T. BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.
DECISION
PANGANIBAN, J.:
Stripped of nonessentials, the present case involves the collection of a sum of
money. Specifically, this case arose from the failure of petitioners to pay
respondents predecessor-in-interest. This fact was shown by the nonencashment 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 Decision 2 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;
"2. The sum of P50,000.00, as attorneys fees;
"3. The sum of P20,000.00, as moral damages
"4. And to pay the costs of suit.
x x x x x x x x x"4
The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988 and June 5,
1988, spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of
rice from [the deceased Bartolome] Ramos [predecessor-in-interest of
respondents]. That of this [quantity,] x x x only 4,437 cavans [have been paid for
so far], leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment
therefor, the spouses Tuazon issued x x x [several] Traders Royal Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks bounced due to
insufficiency of funds. [Respondents] advanced that before issuing said checks[,]
spouses Tuazon already knew that they had no available fund to support the
checks, and they failed to provide for the payment of these despite repeated
demands made on them.
"[Respondents] averred that because spouses Tuazon anticipated that they
would be sued, they conspired with the other [defendants] to defraud them as
creditors by executing x x x fictitious sales of their properties. They executed x x

x simulated sale[s] [of three lots] in favor of the x x x spouses Buenaventura x x

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

Sustaining the RTC, the CA held that petitioners had failed to prove the existence
of an agency between respondents and Spouses Tuazon. The appellate court
disbelieved petitioners contention that Evangeline Santos should have been
impleaded as an indispensable party. Inasmuch as all the checks had been
indorsed by Maria Tuazon, who thereby became liable to subsequent holders for
the amounts stated in those checks, there was no need to implead Santos.
Hence, this Petition.6
Issues
Petitioners raise the following issues for our consideration:
"1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners
are not agents of the respondents.
"2. Whether or not the Honorable Court of Appeals erred in rendering judgment
against the petitioners despite x x x the failure of the respondents to include in
their action Evangeline Santos, an indispensable party to the suit." 7
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Agency
Well-entrenched is the rule that the Supreme Courts role in a petition under Rule
45 is limited to reviewing errors of law allegedly committed by the Court of
Appeals. Factual findings of the trial court, especially when affirmed by the CA,
are conclusive on the parties and this Court. 8 Petitioners have not given us
sufficient reasons to deviate from this rule.
In a contract of agency, one binds oneself to render some service or to do
something in representation or on behalf of another, with the latters consent or
authority.9 The following are the elements of agency: (1) the partiesconsent,
express or implied, to establish the relationship; (2) the object, which is the
execution of a juridical act in relation to a third person; (3) the representation, by
which the one who acts as an agent does so, not for oneself, but as a
representative; (4) the limitation that the agent acts within the scope of his or
her authority.10 As the basis of agency is representation, there must be, on the
part of the principal, an actual intention to appoint, an intention naturally
inferable from the principals words or actions. In the same manner, there must
be an intention on the part of the agent to accept the appointment and act upon
it. Absent such mutual intent, there is generally no agency. 11
This Court finds no reversible error in the findings of the courts a quo that
petitioners were the rice buyers themselves; they were not mere agents of
respondents in their rice dealership. The question of whether a contract is one of
sale or of agency depends on the intention of the parties. 12

The declarations of agents alone are generally insufficient to establish the fact or
extent of their authority.13 The law makes no presumption of agency; proving its
existence, nature and extent is incumbent upon the person alleging it. 14 In the
present case, petitioners raise the fact of agency as an affirmative defense, yet
fail to prove its existence.
The Court notes that petitioners, on their own behalf, sued Evangeline Santos for
collection of the amounts represented by the bounced checks, in a separate civil
case that they sought to be consolidated with the current one. If, as they claim,
they were mere agents of respondents, petitioners should have brought the suit
against Santos for and on behalf of their alleged principal, in accordance with
Section 2 of Rule 3 of the Rules on Civil Procedure. 15 Their filing a suit against
her in their own names negates their claim that they acted as mere agents in
selling the rice obtained from Bartolome Ramos.
Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not allowing Evangeline Santos to
be impleaded as an indispensable party. They insist that respondents Complaint
against them is based on the bouncing checks she issued; hence, they point to
her as the person primarily liable for the obligation.
We hold that respondents cause of action is clearly founded on petitioners
failure to pay the purchase price of the rice. The trial court held that Petitioner
Maria Tuazon had indorsed the questioned checks in favor of respondents, in
accordance with Sections 31 and 63 of the Negotiable Instruments Law. 16 That
Santos was the drawer of the checks is thus immaterial to the respondents
cause of action.
As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the
checks were to be accepted or paid, or both, according to their tenor; and that in
case they were dishonored, she would pay the corresponding amount. 17 After an
instrument is dishonored by nonpayment, indorsers cease to be merely
secondarily liable; they become principal debtors whose liability becomes
identical to that of the original obligor. The holder of a negotiable instrument
need not even proceed against the maker before suing the indorser. 18 Clearly,
Evangeline Santos -- as the drawer of the checks -- is not an indispensable party
in an action against Maria Tuazon, the indorser of the checks.
Indispensable parties are defined as "parties in interest without whom no final
determination can be had."19 The instant case was originally one for the
collection of the purchase price of the rice bought by Maria Tuazon from
respondents predecessor. In this case, it is clear that there is no privity of
contract between respondents and Santos. Hence, a final determination of the
rights and interest of the parties may be made without any need to implead her.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
Costs against petitioners.

SO ORDERED.
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
WECONCUR:
ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA
Associate Justice Associate Justice
CONCHITA CARPIO MORALES CANCIO C. GARCIA
Associate Justice Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairmans Attestation, it is hereby certified that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.
HILARIO G. DAVIDE, JR.
Chief Justice

Footnotes
1

Rollo, pp. 8-21.

Id., pp. 24-33. Seventeenth Division. Penned by Justice Roberto A. Barrios

(Division chairman) and concurred in by Justices Bienvenido L. Reyes and
Edgardo F. Sundiam (members).
3

Id., pp. 153-175.

Id., p. 174. Citations omitted.

Assailed Decision, pp. 5-7; rollo, pp. 28-30.

The case was deemed submitted for decision on September 8, 2003, upon
receipt by this Court of petitioners Memorandum, signed by Atty. Leoncio P.
Ferrer. Respondents Memorandum, signed by Atty. Irineo G. Calderon, was
received by the Court on September 5, 2003.
7

Petitioners Memorandum, pp. 9-10. Original in uppercase.

Ceballos v. Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323, 331,
May 28, 2004 (citingBorromeo v. Sun, 375 Phil. 595, October 22, 1999; Go Ong v.
CA, 154 SCRA 270, September 24, 1987.).
9

Article 1868 of the New Civil Code.

10

Manila Memorial Park Cemetery, Inc. v. Linsangan, GR No. 151319, November

22, 2004; Spouses Yu Eng Cho v. Pan American World Airways Inc., 385 Phil. 453,
465, March 27, 2000 (citing Tolentino, Civil Code of the Philippines, p. 396, Vol. V,
1992 ed.).
11

Dominion Insurance Corporation v. CA, 426 Phil. 620, 626, February 6,

2002; Victorias Milling Co., Inc. v. CA, 389 Phil. 184, 196, June 19, 2000.
12

Victorias Milling Co., Inc. v. CA, supra, p. 197.

13

Litonjua v. Fernandez, 427 SCRA 478, 493, April 14, 2004.

14

Victorias Milling Co., Inc. v. CA, supra, p. 196; Lim v. CA, 321 Phil. 782, 794,
December 19, 1995 (citingPeople v. Yabut, 76 SCRA 624, April 29, 1977).
15

"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."
16

"SEC. 31. Indorsement; how made. - The indorsement must be written on the
instrument itself or upon a paper attached thereto. The signature of the indorser,
without additional words, is a sufficient indorsement."
SEC. 63. When a person deemed indorser. - A person placing his signature upon
an instrument otherwise than as maker, drawer, or acceptor, is deemed to be
indorser unless he clearly indicates by appropriate words his intention to be
bound in some other capacity."
17

66, id.

18

Metropol (Bacolod) Financing & Investment Corp. v. Sambok Motors Company,

205 Phil. 758, 762, February 28, 1983.
19

7, Rule 3 of the Rules of Court.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 117356 June 19, 2000

VICTORIAS MILLING CO., INC., petitioner,
vs.
COURT OF APPEALS and CONSOLIDATED SUGAR
CORPORATION, respondents.

QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the
Rules of Court assailing the decision of the Court of Appeals dated
February 24, 1994, in CA-G.R. CV No. 31717, as well as the respondent
court's resolution of September 30, 1994 modifying said decision. Both
decision and resolution amended the judgment dated February 13,
1991, of the Regional Trial Court of Makati City, Branch 147, in Civil
Case No. 90-118.1wphi1.nt
The facts of this case as found by both the trial and appellate courts are
as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from
petitioner Victorias Milling Co., Inc., (VMC). In the course of their
dealings, petitioner issued several Shipping List/Delivery Receipts
(SLDRs) to STM as proof of purchases. Among these was SLDR No.
1214M, which gave rise to the instant case. Dated October 16, 1989,
SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained 50
kilograms and priced at P638.00 per bag as "per sales order VMC
Marketing No. 042 dated October 16, 1989." 1 The transaction it covered
was a "direct sale." 2 The SLDR also contains an additional note which
reads: "subject for (sic) availability of a (sic) stock at NAWACO
(warehouse)." 3
On October 25, 1989, STM sold to private respondent Consolidated
Sugar Corporation (CSC) its rights in SLDR No. 1214M for

P14,750,000.00. CSC issued one check dated October 25, 1989 and
three checks postdated November 13, 1989 in payment. That same day,
CSC wrote petitioner that it had been authorized by STM to withdraw
the sugar covered by SLDR No. 1214M. Enclosed in the letter were a
copy of SLDR No. 1214M and a letter of authority from STM authorizing
CSC "to withdraw for and in our behalf the refined sugar covered by
Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated
October 16, 1989 in the total quantity of 25,000 bags." 4
On October 27, 1989, STM issued 16 checks in the total amount of
P31,900,000.00 with petitioner as payee. The latter, in turn, issued
Official Receipt No. 33743 dated October 27, 1989 acknowledging
receipt of the said checks in payment of 50,000 bags. Aside from SLDR
No. 1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's
NAWACO warehouse and was allowed to withdraw sugar. However, after
2,000 bags had been released, petitioner refused to allow further
withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner
a letter dated January 23, 1990 informing it that SLDR No. 1214M had
been "sold and endorsed" to it but that it had been refused further
withdrawals of sugar from petitioner's warehouse despite the fact that
only 2,000 bags had been withdrawn. 5 CSC thus inquired when it would
be allowed to withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any
further withdrawals of sugar against SLDR No. 1214M because STM had
already withdrawn all the sugar covered by the cleared checks. 6
On March 2, 1990, CSC sent petitioner a letter demanding the release of
the balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding
to the amount of STM's cleared checks had been fully withdrawn and
hence, there would be no more deliveries of the commodity to STM's
account. Petitioner also noted that CSC had represented itself to be
STM's agent as it had withdrawn the 2,000 bags against SLDR No.
1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance,
docketed as Civil Case No. 90-1118. Defendants were Teresita Ng Sy
(doing business under the name of St. Therese Merchandising) and
herein petitioner. Since the former could not be served with summons,
the case proceeded only against the latter. During the trial, it was
discovered that Teresita Ng Go who testified for CSC was the same
Teresita Ng Sy who could not be reached through summons. 7 CSC,
however, did not bother to pursue its case against her, but instead used
her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar
covered by SLDR No. 1214M. Therefore, the latter had no justification
for refusing delivery of the sugar. CSC prayed that petitioner be ordered
to deliver the 23,000 bags covered by SLDR No. 1214M and sought the

award of P1,104,000.00 in unrealized profits, P3,000,000.00 as

exemplary damages, P2,200,000.00 as attorney's fees and litigation
expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for
the 23,000 bags. 8 Since STM had already drawn in full all the sugar
corresponding to the amount of its cleared checks, it could no longer
authorize further delivery of sugar to CSC. Petitioner also contended
that it had no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not
documents of title, but mere delivery receipts issued pursuant to a
series of transactions entered into between it and STM. The SLDRs
prescribed delivery of the sugar to the party specified therein and did
not authorize the transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was
actually STM's co-conspirator to defraud it through a misrepresentation
that CSC was an innocent purchaser for value and in good faith.
Petitioner then prayed that CSC be ordered to pay it the following
sums: P10,000,000.00 as moral damages; P10,000,000.00 as exemplary
damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed
that cross-defendant STM be ordered to pay it P10,000,000.00 in
exemplary damages, and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the
case on the merits.
As earlier stated, the trial court rendered its judgment favoring private
respondent CSC, as follows:
WHEREFORE, in view of the foregoing, the Court hereby
renders judgment in favor of the plaintiff and against
defendant Victorias Milling Company:
1) Ordering defendant Victorias Milling Company to deliver
to the plaintiff 23,000 bags of refined sugar due under SLDR
No. 1214;
2) Ordering defendant Victorias Milling Company to pay the
amount of P920,000.00 as unrealized profits, the amount of
P800,000.00 as exemplary damages and the amount of
P1,357,000.00, which is 10% of the acquisition value of the
undelivered bags of refined sugar in the amount of
P13,570,000.00, as attorney's fees, plus the costs.
SO ORDERED. 9
It made the following observations:
[T]he testimony of plaintiff's witness Teresita Ng Go, that
she had fully paid the purchase price of P15,950,000.00 of
the 25,000 bags of sugar bought by her covered by SLDR

No. 1214 as well as the purchase price of P15,950,000.00 for

the 25,000 bags of sugar bought by her covered by SLDR
No. 1213 on the same date, October 16, 1989 (date of the
two SLDRs) is duly supported by Exhibits C to C-15 inclusive
which are post-dated checks dated October 27, 1989 issued
by St. Therese Merchandising in favor of Victorias Milling
Company at the time it purchased the 50,000 bags of sugar
covered by SLDR No. 1213 and 1214. Said checks appear to
have been honored and duly credited to the account of
Victorias Milling Company because on October 27, 1989
Victorias Milling Company issued official receipt no. 34734 in
favor of St. Therese Merchandising for the amount of
P31,900,000.00 (Exhibits B and B-1). The testimony of
Teresita Ng Go is further supported by Exhibit F, which is a
computer printout of defendant Victorias Milling Company
showing the quantity and value of the purchases made by
St. Therese Merchandising, the SLDR no. issued to cover the
purchase, the official receipt 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
purchase price were dishonored. However, said witness
failed to present in Court any dishonored check or any
replacement check. Said witness likewise failed to present
any bank record showing that the checks issued by the
buyer, Teresita Ng Go, in payment of the purchase price of
the sugar covered by SLDR No. 1214 were dishonored. 10
Petitioner appealed the trial court's decision to the Court of Appeals.
On appeal, petitioner averted 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 bags allegedly 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 order defendant-appellant to:
1) Deliver to plaintiff-appellee 12,586 bags of sugar covered
by SLDR No. 1214M;
2) Pay to plaintiff-appellee P792,918.00 which is 10% of the
value of the undelivered bags of refined sugar, as attorneys
fees;
3) Pay the costs of suit.
SO ORDERED.

11

Both parties then seasonably filed separate motions for

reconsideration.
In its resolution dated September 30, 1994, the appellate court
modified its decision to read:
WHEREFORE, the Court hereby modifies the assailed
judgment and orders defendant-appellant to:
(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar
under SLDR No. 1214M;
(2) Pay costs of suit.
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. 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 plaintiffappellee was to the effect that it had withdrawn only 2,000
bags of sugar from SLDR 1214M, after which it was not
allowed to withdraw anymore. Documentary evidence
(Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiffappellee 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. Defendant-appellant did not rebut plaintiffappellee'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.1wphi1.nt
After a second look at the evidence, We see no reason to
overturn the findings of the trial court on this point. 13
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
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. 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 withdrawn for and in our behalf (stress
supplied) the refined sugar covered by Shipping
List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated
October 16, 1989 in the total quantity of 25,000 bags. 16
The Civil Coed defines a contract of agency as follows:
Art. 1868. By the contract of agency a person binds himself
to render some service or to do something in representation
or on behalf of another, with the consent or authority of the
latter.
It is clear from Article 1868 that the basis of agency is
representation. 17 On the part of the principal, there must be an actual
intention to appoint 18 or an intention naturally inferable from his words
or actions; 19 and on the part of the agent, there must be an intention to
accept the appointment and act on it, 20and in the absence of such
intent, there is generally no agency. 21 One factor which most clearly
distinguished 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 CCS, 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
established the existence of an agency relation between
plaintiff-appellee and STM. The fact alone that it (STM) had
authorized withdrawal of sugar by plaintiff-appellee "for and
in our (STM's) behalf" should not be eyed as pointing to the
existence of an agency relation. . . It should be viewed in
the context of all the circumstances obtaining. Although it
would seem STM represented plaintiff-appellee as being its
agent by the use of the phrase "for and in our (STM's)
behalf" the matter was cleared when on 23 January 1990,
plaintiff-appellee informed defendant-appellant that SLDFR
No. 1214M had been "sold and endorsed" to it by STM
(Exhibit I, Records, p. 78). Further, plaintiff-appellee has
shown that the 25,000 bags of sugar covered by the SLDR
No. 1214M were sold and transferred by STM to it. . . A
conclusion that there was a valid sale and transfer to
plaintiff-appellee may, therefore, be made thus capacitating
plaintiff-appellee to sue in its own name, without need of
joining its imputed principal STM as co-plaintiff. 24
In the instant case, it appears plain to us that private respondent CSC
was a buyer of the SLDFR form, and not an agent of STM. Private
respondent CSC was not subject to STM's control. The question of
whether a contract is one of sale or agency depends on the intention of
the parties as gathered from the whole scope and effect of the
language employed. 25 That the authorization given to CSC contained
the phrase "for and in our (STM's) behalf" did not establish an agency.
Ultimately, what is decisive is the intention of the parties. 26 That no
agency was meant to be established by the CSC and STM is clearly
shown by CSC's communication to petitioner that SLDR No. 1214M had
been "sold bad endorsed" to it. 27 The use of the word "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.1wphi1.nt
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.
Footnotes
1 Records, p. 60.

2 Ibid.
3 Ibid.
4 Supra Note 1, at 9.
5 Id. at 11.
6 Id. at 12.
7 TSN, October 10, 1990, p. 16.
8 Supra Note 1, at 170.
9 CA Rollo, p. 134.
10 Id. at 131-132.
11 Rollo, p. 89.
12 Id. at 95.
13 Id. at 93-94.
14 Id. at 24.
15 Spouses Felipe and Irma Buag v. Court of Appeals, 303
SCRA 591, 596 (1999); Roman Catholic Archbishop of Manila
v. Court of Appeals, 336 Phil. 138, 149 (1997) citing Gevero
v. Intermediate Appellate Court, 189 SCRA 201, 208 (1990).
16 Records, p. 68.
17 Bordador v. Luz, 283 SCRA 374, 382 (1997).
18 Connell v. McLoughlin, 28 Or. 230; 42 P. 218.
19 Halladay v. Underwood, 90 Ill. App. 130.
20 Internal Trust Co. v. Bridges, 57 F. 753.
21 Security Co. v. Graybeal, 85 Iowa 543, 52 N.W. 497.
22 ROSCOE T. STEFFEN, AGENCY PARNERSHIP IN A
NUTSHEEL (1977) 30-31.
23 Supra, at 33.
24 Supra Note 11, at 87-88.

25 Bessing v. Prince, 52 Cal. App. 190, 198 P. 422;

Greenlease Lied Motors v. Sadler, 216 Iowa 302, 249 N.W.
383; Salisbury v. Brooks, 81 W Va. 233, 94 S.E. 117.
26 State v. Parker, 112 Conn. 39, 151 A. 325; Rucks-Brandt
Const. Co. v. Price, 165 Okl. 178, 23 P2d 690, cert den 291
US 679, 78 L. Ed 1067, 54 S. Ct. 526.
27 Supra Note 5.
28 Art. 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound
principally and that he be at the same time a
principal creditor of the other:
(2) That both debts consist in a sum of money, or
if the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor.
29 Supra Note 1.
30 CIVIL CODE, art. 1308; Rizal Commercial Banking Corp. v.
Court of Appeals, 178 SCRA 739, 744 (1989); Escano v. Court
of Appeals, 100 SCRA 197, 202 (1980).
31 CIVIL CODE, art. 1306; Legarda Koh v. Ongsiaco, 36 Phil. 185, 193
(1917); Icaza, et al. v. Ortega, 5 Phil. 166, 169 (1905).

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
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", 3 petitioner, as seller,
ceded to respondent, as buyer, a parcel of land, as well as the improvements
thereon, with an area of 42 square meters, covered by Transfer Certificate of Title
No. 382532,4 and located at a subdivision project known as Camella Townhomes
Sorrente in Bacoor, Cavite, in order to satisfy her personal loan with respondent;
that this property was mortgaged to National Home Mortgage Finance
Corporation (NHMFC) to secure petitioners loan in the sum of P337,050.00 with
that entity; that as a condition for the foregoing sale, respondent shall assume
the undue balance of the mortgage and pay the monthly amortization
of P4,748.11 for the remainder of the 25 years which began on September 3,
1994; that the property was at that time being occupied by a tenant paying a
monthly rent of P3,000.00; that upon verification with the NHMFC, respondent
learned that petitioner had incurred arrearages amounting to P26,744.09,
inclusive of penalties and interest; that upon informing the petitioner of her
arrears, petitioner denied that she incurred them and refused to pay the same;
that despite repeated demand, petitioner refused to cooperate with respondent
to execute the necessary documents and other formalities required by the
NHMFC to effect the transfer of the title over the property; that petitioner
collected rent over the property for the month of January 1997 and refused to
remit the proceeds to respondent; and that respondent suffered damages as a
result and was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint,
denied that she borrowed money from respondent, and averred that from June to
September 1995, she referred her friends to respondent whom she knew to be
engaged in the business of lending money in exchange for personal checks
through her capitalist Arsenio Pua. She alleged that her friends, namely, Zenaida
Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden,
borrowed money from respondent and issued personal checks in payment of the
loan; that the checks bounced for insufficiency of funds; that despite her efforts
to assist respondent to collect from the borrowers, she could no longer locate

them; that, because of this, respondent became furious and threatened

petitioner that if the accounts were not settled, a criminal case will be filed
against her; that she was forced to issue eight checks amounting to P350,000 to
answer for the bounced checks of the borrowers she referred; that prior to the
issuance of the checks she informed respondent that they were not sufficiently
funded but the latter nonetheless deposited the checks and for which reason
they were subsequently dishonored; that respondent then threatened to initiate
a criminal case against her for violation of Batas Pambansa Blg. 22; that she was
forced by respondent to execute an "Absolute Deed of Sale" over her property in
Bacoor, Cavite, to avoid criminal prosecution; that the said deed had no valid
consideration; that she did not appear before a notary public; that the
Community Tax Certificate number on the deed was not hers and for which
respondent may be prosecuted for falsification and perjury; and that she suffered
damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute Sale
is valid; second; if valid, whether petitioner is obliged to sign and execute the
necessary documents to effect the transfer of her rights over the property to the
respondent; and third, whether petitioner is liable for damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which
states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the
complaint for insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration: 5
Plaintiff Angeles admission that the borrowers are the friends of defendant Doles
and further admission that the checks issued by these borrowers in payment of
the loan obligation negates [sic] the cause or consideration of the contract of
sale executed by and between plaintiff and defendant. Moreover, the property is
not solely owned by defendant as appearing in Entry No. 9055 of Transfer
Certificate of Title No. 382532 (Annex A, Complaint), thus:
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the
share of Teodorico Doles on the parcel of land described in this certificate of title
by virtue of the special power of attorney to mortgage, executed before the
notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration
produce no effect whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed her
sole assignment of error:

THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF
[sic] THE DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR
INSUFFICIENCY OF EVIDENCE.6
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of
which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The
Decision of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A
new one is entered ordering defendant-appellee to execute all necessary
documents to effect transfer of subject property to plaintiff-appellant with the
arrearages of the formers loan with the NHMFC, at the latters expense. No
costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend"
the amount borrowed from the respondent to her friends. Hence, the Deed of
Absolute Sale was supported by a valid consideration, which is the sum of money
petitioner owed respondent amounting to P405,430.00, representing both
principal and interest.
The CA took into account the following circumstances in their entirety: the
supposed friends of petitioner never presented themselves to respondent and
that all transactions were made by and between petitioner and respondent; 7 that
the money borrowed was deposited with the bank account of the petitioner,
while payments made for the loan were deposited by the latter to respondents
bank account;8 that petitioner herself admitted in open court that she was "relending" 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 1335 11of the Civil
Code;12 that with respect to the arrearages of petitioner on her monthly
amortization with the NHMFC in the sum of P26,744.09, the same shall be
deemed part of the balance of petitioners loan with the NHMFC which
respondent agreed to assume; and that the amount of P3,000.00 representing
the rental for January 1997 supposedly collected by petitioner, as well as the
claim for damages and attorneys fees, is denied for insufficiency of evidence. 13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA,
arguing that respondent categorically admitted in open court that she acted only
as agent or representative of Arsenio Pua, the principal financier and, hence, she
had no legal capacity to sue petitioner; and that the CA failed to consider the
fact that petitioners father, who co-owned the subject property, was not
impleaded as a defendant nor was he indebted to the respondent and, hence,

she cannot be made to sign the documents to effect the transfer of ownership
over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the
ground that the foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August
28, 2001, petitioner filed the present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE
RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO
COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE
DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE. 14
Although, as a rule, it is not the business of this Court to review the findings of
fact made by the lower courts, jurisprudence has recognized several exceptions,
at least three of which are present in the instant case, namely: when the
judgment is based on a misapprehension of facts; when the findings of facts of
the courts a quo are conflicting; and when the CA manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly considered, could
justify a different conclusion.15 To arrive at a proper judgment, therefore, the
Court finds it necessary to re-examine the evidence presented by the contending
parties during the trial of the case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale is supported by a valid
consideration.
1. Petitioner argues that since she is merely the agent or representative of the
alleged debtors, then she is not a party to the loan; and that the Deed of Sale
executed between her and the respondent in their own names, which was
predicated on that pre-existing debt, is void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in
the form of a price certain in money16 and that this sum indisputably pertains to
the debt in issue. This Court has consistently held that a contract of sale is null
and void and produces no effect whatsoever where the same is without cause or
consideration.17 The question that has to be resolved for the moment is whether
this debt can be considered as a valid cause or consideration for the sale.

To restate, the CA cited four instances in the record to support its holding that
petitioner "re-lends" the amount borrowed from respondent to her friends: first,
the friends of petitioner never presented themselves to respondent and that all
transactions were made by and between petitioner and respondent; 18 second;
the money passed through the bank accounts of petitioner and
respondent;19 third, petitioner herself admitted that she was "re-lending" the
money loaned to other individuals for profit; 20 and fourth, the documentary
evidence shows that the actual borrowers, the friends of petitioner, consider her
as their creditor and not the respondent. 21
On the first, third, and fourth points, the CA cites the testimony of the petitioner,
then defendant, during her cross-examination: 22
Atty. Diza:
q. You also mentioned that you were not the one indebted to the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa
Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are your friends?
witness:
a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,]
they were just referred.
Atty. Diza:
q. And you have transact[ed] with the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. What is that transaction?
witness:
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:
a. No, sir.

Atty. Diza:
q. Your friends and the plaintiff did not meet personally?
witness:
a. Yes, sir.
Atty. Diza:
q. You are intermediaries?
witness:
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.
xxxx
Atty. Diza:
q. Did the plaintiff knew [sic] that you will lend the money to your friends
specifically the one you mentioned [a] while ago?
witness:
a. Yes, she knows the money will go to those persons.
Atty. Diza:
q. You are re-lending the money?
witness:
a. Yes, sir.
Atty. Diza:
q. What profit do you have, do you have commission?
witness:
a. Yes, sir.
Atty. Diza:
q. How much?
witness:
a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my
friends none, sir.

Based on the foregoing, the CA concluded that petitioner is the real borrower,
while the respondent, the real lender.
But as correctly noted by the RTC, respondent, then plaintiff, made the following
admission during her cross examination: 23
Atty. Villacorta:
q. Who is this Arsenio Pua?
witness:
a. Principal financier, sir.
Atty. Villacorta:
q. So the money came from Arsenio Pua?
witness:
a. Yes, because I am only representing him, sir.
Other portions of the testimony of respondent must likewise be considered: 24
Atty. Villacorta:
q. So it is not actually your money but the money of Arsenio Pua?
witness:
a. Yes, sir.
Court:
q. It is not your money?
witness:
a. Yes, Your Honor.
Atty. Villacorta:
q. Is it not a fact Ms. Witness that the defendant borrowed from you to
accommodate somebody, are you aware of that?
witness:
a. I am aware of that.
Atty. Villacorta:
q. More or less she [accommodated] several friends of the defendant?
witness:

a. Yes, sir, I am aware of that.

xxxx
Atty. Villacorta:
q. And these friends of the defendant borrowed money from you with the
assurance of the defendant?
witness:
a. They go direct to Jocelyn because I dont know them.
xxxx
Atty. Villacorta:
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?
witness:
a. Yes, there were checks issued.
Atty. Villacorta:
q. By the friends of the defendant, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
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?
witness:
a. Yes, sir.
Atty. Villacorta:
q. So that occasion lasted for more than a year?
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
In this case, petitioner knew that the financier of respondent is Pua; and
respondent knew that the borrowers are friends of petitioner.
The CA is incorrect when it considered the fact that the "supposed friends of
[petitioner], the actual borrowers, did not present themselves to [respondent]" as
evidence that negates the agency relationshipit is sufficient that petitioner
disclosed to respondent that the former was acting in behalf of her principals,
her friends whom she referred to respondent. For an agency to arise, it is not
necessary that the principal personally encounter the third person with whom
the agent interacts. The law in fact contemplates, and to a great degree,
impersonal dealings where the principal need not personally know or meet the
third person with whom her agent transacts: precisely, the purpose of agency is
to extend the personality of the principal through the facility of the agent. 29
In the case at bar, both petitioner and respondent have undeniably disclosed to
each other that they are representing someone else, and so both of them are
estopped to deny the same. It is evident from the record that petitioner merely
refers actual borrowers and then collects and disburses the amounts of the loan
upon which she received a commission; and that respondent transacts on behalf
of her "principal financier", a certain Arsenio Pua. If their respective principals do
not actually and personally know each other, such ignorance does not affect

their juridical standing as agents, especially since the very purpose of agency is
to extend the personality of the principal through the facility of the agent.
With respect to the admission of petitioner that she is "re-lending" the money
loaned from respondent to other individuals for profit, it must be stressed that
the manner in which the parties designate the relationship is not controlling. If
an act done by one person in behalf of another is in its essential nature one of
agency, the former is the agent of the latter notwithstanding he or she is not so
called.30 The question is to be determined by the fact that one represents and is
acting for another, and if relations exist which will constitute an agency, it will be
an agency whether the parties understood the exact nature of the relation or
not.31
That both parties acted as mere agents is shown by 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 subagent 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 thereon 38 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.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson
CONSUELO YNARES-SANTIAGO
Associate Justice

ROMEO J. CALLEJO, SR.

Asscociate Justice

MINITA V. CHICO-NAZARIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that
the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes
1

Penned by Associate Justice Fermin A. Martin (now retired), with Associate

Justices Portia Alio-Hormachuelos and Mercedes Gozo-Dadole, concurring.
2

Penned by Associate Justice Mercedes Gozo-Dadole (vice retired Justice Fermin

A. Martin, Jr.), with Associate Justices Portia Alio-Hormachuelos and Marina L.
Buzon (new Third Member).
3

Exhibit "B", records, p. 9.

Exhibit "A"; records, p 7.

RTC Decision, at 7-8.

CA records, p. 19.

CA Decision, rollo, pp. 52-54.

Id. at 54-55.

Id. at 9.

10

Id. at 9-10.

11

Article 1335 of the Civil Code provides:

Art. 1335. There is violence when in order to wrest consent, serious or irresistible
force is employed.
There is intimidation when one of the contracting parties is compelled by a
reasonable and well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his spouse, descendants or
ascendants, to give his consent.
xxxx
A threat to enforce one's claim through competent authority, if the claim is just
or legal, does not vitiate consent. (emphasis supplied).
12

CA Decision, at 10-12.

13

Id. at 12.

14

Rollo, p. 81.

15

See Rivera v. Roman, G.R. No. 142402, September 20, 2005, 470 SCRA
276; The Insular Life Assurance Company, Ltd. v. Court of Appeals, G.R. No.

126850, April 28, 2004, 428 SCRA 79, 86; Aguirre v. Court of Appeals, G.R. No.
122249, January 29, 2004, 421 SCRA 310, 319; C & S Fishfarm Corporation v.
Court of Appeals, 442 Phil. 279 (2002).
16

The fourth paragraph of the Deed of Absolute Sale reads: "NOW THEREFORE,
for and in consideration of the sum of FOUR HUNDRED FIVE THOUSAND FOUR
HUNDRED THIRTY PESOS ONLY (P 405,430.00) Philippine Currency, the Seller
hereby SELLS, TRANSFERS and CONVEYS to the Buyer, his heirs, successors or
assigns, the above-described parcel of land together with all the improvements
thereon." Exhibit "B".
17

See Zulueta v. Wong, G.R. No. 153514, June 8, 2005, 459 SCRA
671; Buenaventura v. Court of Appeals, G.R. No. 126376, November 20, 2003,
416 SCRA 263; Montecillo v. Reynes, 434 Phil. 456 (2002);Cruz v. Bancom
Finance Co., 429 Phil. 224 (2002); Rongavilla v. Court of Appeals, 355 Phil. 720
(1998);Bagnas v. Court of Appeals, G.R. No. 38498, August 10, 1989, 176 SCRA
159; Civil Code (1950) Arts. 1352, 1458 & 1471.
18

CA Decision, at 5-7; rollo, p. 48.

19

Id. at 7-8.

20

Id. at 9.

21

Id. at 9-10.

22

TSN, March 23, 1998, pp. 15-18, 20-21.

23

TSN, January 29, 1998, p. 18.

24

Id. at 19-23.

25

See Amon Trading Co. v. Court of Appeals, G.R. No. 158585, December 13,
2005; Victorias Milling Co., Inc. v. Court of Appeals, 389 Phil. 184 (2000); Civil
Code (1950), Art. 1868.
26

See Victorias Milling Co., Inc. v. Court of Appeals, id. citing Connell v.
McLoughlin, 28 Or. 230, 42 P. 218;Halladay v. Underwood, 90 Ill. App.
130; Internal Trust Co. v. Bridges, 57 F. 753; Hector M. De Leon & Hector M. De
Leon, Jr. Comments and Cases on Partnership, Agency, and Trusts, 356-57
(1999).
27

Civil Code (1950), Arts. 1869-72.

28

De Leon & De Leon, Jr., supra note 24, at 409.

29

Id. at 349, citing Orient Air Services & Hotel Representatives v. Court of
Appeals, 274 Phil. 926 (1991).
30

Id. at 356, citing Cia v. Phil. Refining Co., 45 Phil. 556, December 20, 1923; 5
Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines 398 (1991).

31

See Cia v. Phil. Refining Co., id. citing 3 Am. Jur. 2d., 430-31.

32

Civil Code (1950), Arts. 1892-93.

33

Paragraph 6 of respondents complaint reads:

6. On October 5. 1996 after defendant continuously failed to settle her personal

obligation to plaintiff, defendant offered to pay plaintiff by way of ceding the
above-described property on condition that plaintiff would assume the balance of
the mortgage and pay the monthly amortization of P4,748.11 for the remainder
of the 25 years to which the latter agreed; x x x
Annex "D" of the Petition, Rollo, p. 39. Respondent testified as follows:
Q. At the time of the sale, can you tell to this Court whether the defendant [is]
still indebted to the [NHMFC]?
A. I am aware that she is indebted.
Q. Is there any agreement with respect to the obligation of the defendant to the
NHMFC?
A. We have a verbal agreement that I will be the one to assume the balance.
Q. When you speak of balance what are you talking to? [sic]
A. Undue [sic] balance, sir.
TSN, January 13, 1998, at 14 (emphasis supplied).
34

See Bravo-Guerrero v. Bravo, G.R. No. 152658, July 29, 2005, 465 SCRA 244.

35

TSN, February 26, 1998, pp. 5-6.

36

Exhibit "A"; Rollo, p. 17.

37

Id. Exhibit "A-1"; Rollo, p. 72.

38

Civil Code (1950), Art. 2085(3).

39

See Gonzales v. Toledo, G.R. No. 149465, December 8, 2003, 417 SCRA
260; Tsai v. Court of Appeals, 418 Phil. 606 (2001); Philippine Bank of
Communications v. Court of Appeals, et al., 418 Phil. 606 (2001);Noel v. Court of
Appeals, 310 Phil. 89 (1995); Segura v. Segura, 165 SCRA 368, 375 (1988).
40

Exhibit "A"; Rollo, p. 71.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

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 asdaos
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.1wphi1.nt
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-infact 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 attorney-in-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-in-interest. 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.
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
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-in-interest 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-ininterest 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
Do petitioners, under substantive law, possess the right they seek to enforce?
We rule in the negative.
The applicable substantive law in this case is Article 1311 of the Civil Code,
which states:
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. . . .
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 Espaol-Filipino, 10 we held that the rule requiring every action to be
prosecuted in the name of the real party-in-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 non-performance 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 on the above subsection is illuminating:
The fact that an agent who makes a contract for his principal will gain or suffer
loss by the performance or nonperformance of the contract by the principal or by
the other party thereto does not entitle him to maintain an action on his own
behalf against the other party for its breach. An agent entitled to receive a
commission from his principal upon the performance of a contract which he has
made on his principal's account does not, from this fact alone, have any claim
against the other party for breach of the contract, either in an action on the
contract or otherwise. An agent who is not a promisee cannot maintain an action
at law against a purchaser merely because he is entitled to have his
compensation or advances paid out of the purchase price before payment to the
principal. . . .
Thus, in Hopkins vs. Ives, 12 the Supreme Court of Arkansas, citing Section 372
(2) above, denied the claim of a real estate broker to recover his alleged
commission against the purchaser in an agreement to purchase property.
In Goduco vs. Court of appeals,

13

this Court held that:

. . . granting that appellant had the authority to sell the property, the same did
not make the buyer liable for the commission she claimed. At most, the owner of
the property and the one who promised to give her a commission should be the
one liable to pay the same and to whom the claim should have been
directed. . . .
As petitioners are not parties, heirs, assignees, or beneficiaries of a
stipulation pour autrui under the contracts of sale, they do not, under
substantive law, possess the right they seek to enforce. Therefore, they are not
the real parties-in-interest in this case.
Petitioners not being the real parties-in-interest, any decision rendered herein
would be pointless since the same would not bind the real parties-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.1wphi1.nt
Cause is the essential reason which moves the contracting parties to enter into
it. 19 In other words, the cause is the immediate, direct and proximate reason
which justifies the creation of an obligation through the will of the contracting
parties. 20 Cause, which is the essential reason for the contract, should be
distinguished from motive, which is the particular reason of a contracting party
which does not affect the other party. 21
For example, in a contract of sale of a piece of land, such as in this case, the
cause of the vendor (petitioners' principals) in entering into the contract is to
obtain the price. For the vendee, NHA, it is the acquisition of the land. 22 The
motive of the NHA, on the other hand, is to use said lands for housing. This is
apparent from the portion of the Deeds of Absolute Sale 23 stating:
WHEREAS, under the Executive Order No. 90 dated December 17, 1986, the
VENDEE is mandated to focus and concentrate its efforts and resources in
providing housing assistance to the lowest thirty percent (30%) of urban income
earners, thru slum upgrading and development of sites and services projects;
WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by Letter of
Instruction No. 630, prescribed slum improvement and upgrading, as well as the
development of sites and services as the principal housing strategy for dealing
with slum, squatter and other blighted communities;
xxx xxx xxx

WHEREAS, the VENDEE, in pursuit of and in compliance with the above-stated

purposes offers to buy and the VENDORS, in a gesture of their willing to
cooperate with the above policy and commitments, agree to sell the aforesaid
property together with all the existing improvements there or belonging to the
VENDORS;
NOW, THEREFORE, for and in consideration of the foregoing premises and the
terms and conditions hereinbelow stipulated, the VENDORS hereby, sell, transfer,
cede and convey unto the VENDEE, its assigns, or successors-in-interest, a parcel
of land located at Bo. Tadiangan, Tuba, Benguet containing a total area of FIFTY
SIX THOUSAND EIGHT HUNDRED NINETEEN (56,819) SQUARE METERS, more or
less . . . .
Ordinarily, a party's motives for entering into the contract do not affect the
contract. However, when the motive predetermines the cause, the motive may
be regarded as the cause. In Liguez vs. Court of Appeals, 24 this Court, speaking
through Justice J.B.L. REYES, HELD:
. . . it is well to note, however, that Manresa himself (Vol. 8, pp. 641-642), while
maintaining the distinction and upholding the inoperativeness of the motives of
the parties to determine the validity of the contract, expressly excepts from the
rule those contracts that are conditioned upon the attainment of the motives of
either party.
The same view is held by the Supreme Court of Spain, in its decisions of February
4, 1941, and December 4, 1946, holding that the motive may be regarded
as causa when it predetermines the purpose of the contract.
In this case, it is clear, and petitioners do not dispute, that NHA would not have
entered into the contract were the lands not suitable for housing. In other words,
the quality of the land was an implied condition for the NHA to enter into the
contract. On the part of the NHA, therefore, the motive was the cause for its
being a party to the sale.
Were the lands indeed unsuitable for housing as NHA claimed?
We deem the findings contained in the report of the Land Geosciences Bureau
dated 15 July 1991 sufficient basis for the cancellation of the sale, thus:
In Tadiangan, Tuba, the housing site is situated in an area of moderate
topography. There [are] more areas of less sloping ground apparently habitable.
The site is underlain by . . . thick slide deposits (4-45m) consisting of huge
conglomerate boulders (see Photo No. 2) mix[ed] with silty clay materials.These
clay particles when saturated have some swelling characteristics which is
dangerous for any civil structures especially mass housing development. 25
Petitioners contend that the report was merely "preliminary," and not conclusive,
as indicated in its title:
MEMORANDUM

TO: EDWIN G. DOMINGO

Chief, Lands Geology Division
FROM: ARISTOTLE A. RILLON
Geologist II
SUBJECT: Preliminary Assessment of
Tadiangan Housing Project in Tuba, Benguet

26

Thus, page 2 of the report states in part:

xxx xxx xxx
Actually there is a need to conduct further geottechnical [sic] studies in the NHA
property. Standard Penetration Test (SPT) must be carried out to give an
estimate of the degree of compaction (the relative density) of the slide deposit
and also the bearing capacity of the soil materials. Another thing to consider is
the vulnerability of the area to landslides and other mass movements due to
thick soil cover. Preventive physical mitigation methods such as surface and
subsurface drainage and regrading of the slope must be done in the area. 27
We read the quoted portion, however, to mean only that further tests are
required to determine the "degree of compaction," "the bearing capacity of the
soil materials," and the "vulnerability of the area to landslides," since the tests
already conducted were inadequate to ascertain such geological attributes. It is
only in this sense that the assessment was "preliminary."
Accordingly, we hold that the NHA was justified in canceling the contract. The
realization of the mistake as regards the quality of the land resulted in the
negation of the motive/cause thus rendering the contract inexistent. 28 Article
1318 of the Civil Code states that:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (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.
Puno, Pardo and Ynares-Santiago, JJ., concur.
Davide, Jr., C.J., on leave.

Footnotes
1 Exhibit "4.
2 Rollo, pp. 26-27. Emphasis in the original.
3 Id., at 11.
4 Petitioners alleged in their complaint:
14. Exhausted with the procrastinations and unjustified positions being assumed
by the defendant NHA, herein plaintiffs hereby acquiesce to the notice of
rescission handed down by the defendant NHA, through its General Manager
Robert Balao, subject to the award of a reasonable and fair amount of damages.
14.a. Unearned Income: Had defendant NHA paid for the last three parcels of
land covered by Res. No. 1632, and the deeds of absolute sale referred to in par.
10 above, herein plaintiffs would have made an income of approximately P6.4
Million. Defendant NHA should be held answerable to the plaintiffs for this
unearned income as shall be proven in the course of the trial.1wphi1.nt
14.b. Opportunity Loss: Had defendant NHA paid for the subject parcels of land
within a reasonable time from February 1989, herein plaintiffs could have
invested their income of P6.4 Million and earn at a conservative return on
investment of 2%/year or at least P4.6 million over the last three years. Again,
defendant NHA should be required to indemnify the herein plaintiffs for this lost
opportunity as shall be proven in the course of the trial.
14.c. Expenses: Through the last three years, herein plaintiffs had consistently
and unhesitantly spent reasonable sums of money by way of representations,
advances to landowners, advances for the clearing of titles subject of the herein
transactions, advances to sub-agents, logistical expenses and lawyer's fees, in
the process, they also incurred loans to finance these expenses total expenses
incurred prior to the filing of the present case being estimated at P1.3 million.
Defendants should be required to reimburse the plaintiffs for these expenses as
shall be proven in the course of the trial.
15. Plaintiffs had suffered and continue to suffer prolonged agony and mental
anguish from the defendant NHA's previous procrastination and condescending
approach to the herein plaintiffs' plight for which defendant NHA should be
charged moral damages in favor of the plaintiffs in the amount of P600,000.00.
16. To set an example, and to prevent the recurrence of the herein
circumstances, defendant NHA should be charged exemplary damages in the
amount of P600,000.00 in favor of the herein plaintiff.
17. To vindicate their rights in the premises, plaintiffs had to contract the
services of herein counsel, and to incur cost of suit, as shall be proven in the
course of the trial. Defendant NHA should be held liable to the plaintiffs for these
amounts by way of attorney's fees in the amount of P1 million. (Records, pp. 45.)

5 Filipinas Industrial Corp. vs. San Diego, 23 SCRA 706 (1968); Brown vs. Brown,
3 SCRA 451 (1961); Marcelo vs. De Leon, 105 Phil. 1175 (1959); Esperanza and
Bullo vs. Catindig, 27 Phil. 397 (1914).
6 University of the Philippines vs. Ligot-Telan, 227 SCRA 343 (1993), Ralla vs.
Ralla, 199 SCRA 495 (1991); Rebolido vs. Court of Appeals, 170 SCRA 800 (1989).
7 1 FRANCISCO, The Revised Rules of Court in the Phil., ed., p. 211. See
also Lubbock Feed Lots, Inc. v. lowe Beef processors, 630 F. 2d 250 (1980).
8 Art. 1868, Civil Code.
9 Marimperio Compaa Naviera, S.A. vs. Court of Appeals, 156 SCRA 368
(1987). See also I MORAN, Comments on the Rules of Court, 1979 ed., p. 157.
10 13 Phil. 429 (1909).
11 As Adopted and Promulgated by the American Law institute at Washington,
D.C, May 23, 1957.
12 566 S.W.2d 147.
13 10 SCRA 275 (1964).
14 Filipinas Industrial Corporation vs. San Diego, 23 SCRA 706 (1968).
15 See: Arroyo and Granada and Gentero, 18 Phil. 484 (1911).
16 Romero vs. Court of Appeals, 250 SCRA 223 (1995).
17 Boysaw vs. Interphil Promotions, Inc., 148 SCRA 635, cited in Romero vs.
Court of Appeals, supra.
18 See Ocampo vs. Court of Appeals, 233 SCRA 551(1994). See also Power
Commercial and Industrial Corp vs. Court of Appeals, 274 SCRA 597 (1997), and
Massive Construction, Inc. vs. Intermediate Appelate Court, 223 SCRA 1 (1993).
19 Basic Books (Phil.), Inc. vs. Lopez, et al, 16 SCRA 291 (1966), citing General
Enterprises Inc. vs. Lienga Bay Logging Co., 11 SCRA 733 (1964).
20 Id., citing 3 Castan, 4th ed., p. 347.
21 Republic vs. Cloribel, 36 SCRA 534 (1970). See also Article 1351, Civil Code.
22 Art. 1350, Civil Code. In onerous contracts, the cause is understood to be, for
each contracting party, the prestation or promise of a thing or service by the
other. . . .
23 Exhibits "B," "C," and "D."
24 102 Phil. 577 (1957), cited in E. Razon Inc. vs. Philippine Ports Authority, 151
SCRA 233 (1987). See also Philippine National Construction Corp. vs. Court of
Appeals, 272 SCRA 183 (1997), where the Court held that ". . . As a general

principle, the motive or particular purpose of a party in entering into a contract

does not affed the validity nor existence of the contract; an exception is when
the realization of such motive or particular purpose has been made a condition
upon which the contract is made to depend." . . .
25 Records, p. 32. Emphasis supplied.
26 Id., at 31. Emphasis supplied.
27 Id., 32. Emphasis supplied.
28 Note that said contract is also voidable under Article 1331 of the Civil Code
which states:
Art. 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract.
xxx xxx xxx
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 150128 August 31, 2006
LAUREANO T. ANGELES, Petitioner,
vs.
PHILIPPINE NATIONAL RAILWAYS (PNR) AND RODOLFO
FLORES, 1Respondents.
DECISION
GARCIA, J.:
Under consideration is this petition for review under Rule 45 of the Rules of Court
assailing and seeking to set aside the following issuances of the Court of Appeals
(CA) in CA-G.R. CV No. 54062, to wit:
1. Decision 2 dated June 4, 2001, affirming an earlier decision of the Regional Trial
Court (RTC) of Quezon City, Branch 79, which dismissed the complaint for
specific performance and damages thereat commenced by the petitioner against
the herein respondents; and
2. Resolution 3 dated September 17, 2001, denying the petitioner's motion for
reconsideration.
The facts:
On May 5, 1980, the respondent Philippine National Railways (PNR) informed a
certain Gaudencio Romualdez (Romualdez, hereinafter) that it has accepted the

latters offer to buy, on an "AS IS, WHERE IS" basis, the PNRs
scrap/unserviceable rails located in Del Carmen and Lubao, Pampanga
at P1,300.00 and P2,100.00 per metric ton, respectively, for the total amount
of P96,600.00. After paying the stated purchase price, Romualdez addressed a
letter to Atty. Cipriano Dizon, PNRs Acting Purchasing Agent. Bearing date May
26, 1980, the letter reads:
Dear Atty. Dizon:
This is to inform you as President of San Juanico Enterprises, that I have
authorized the bearer, LIZETTE R. WIJANCO of No. 1606 Aragon St., Sta. Cruz,
Manila, to be my lawful representative in the withdrawal of the
scrap/unserviceable rails awarded to me.
For this reason, I have given her the original copy of the award, dated May 5,
1980 and O.R. No. 8706855 dated May 20, 1980 which will indicate my waiver of
rights, interests and participation in favor of LIZETTE R. WIJANCO.
Thank you for your cooperation.
Very truly yours,
(Sgd.) Gaudencio Romualdez
The Lizette R. Wijanco mentioned in the letter was Lizette Wijanco- Angeles,
petitioner's now deceased wife. That very same day May 26, 1980 Lizette
requested the PNR to transfer the location of withdrawal for the reason that the
scrap/unserviceable rails located in Del Carmen and Lubao, Pampanga were not
ready for hauling. The PNR granted said request and allowed Lizette to withdraw
scrap/unserviceable rails in Murcia, Capas and San Miguel, Tarlac instead.
However, the PNR subsequently suspended the withdrawal in view of what it
considered as documentary discrepancies coupled by reported pilferages of
over P500,000.00 worth of PNR scrap properties in Tarlac.
Consequently, the spouses Angeles demanded the refund of the amount
of P96,000.00. The PNR, however, refused to pay, alleging that as per delivery
receipt duly signed by Lizette, 54.658 metric tons of unserviceable rails had
already been withdrawn which, at P2,100.00 per metric ton, were
worth P114,781.80, an amount that exceeds the claim for refund.
On August 10, 1988, the spouses Angeles filed suit against the PNR and its
corporate secretary, Rodolfo Flores, among others, for specific performance and
damages before the Regional Trial Court of Quezon City. In it, they prayed that
PNR be directed to deliver 46 metric tons of scrap/unserviceable rails and to pay
them damages and attorney's fees.
Issues having been joined following the filing by PNR, et al., of their answer, trial
ensued. Meanwhile, Lizette W. Angeles passed away and was substituted by her
heirs, among whom is her husband, herein petitioner Laureno T. Angeles.

On April 16, 1996, the trial court, on the postulate that the spouses Angeles are
not the real parties-in-interest, rendered judgment dismissing their complaint for
lack of cause of action. As held by the court, Lizette was merely a representative
of Romualdez in the withdrawal of scrap or unserviceable rails awarded to him
and not an assignee to the latter's rights with respect to the award.
Aggrieved, the petitioner interposed an appeal with the CA, which, as stated at
the threshold hereof, in its decision of June 4, 2001, dismissed the appeal and
affirmed that of the trial court. The affirmatory decision was reiterated by the CA
in its resolution of September 17, 2001, denying the petitioners motion for
reconsideration.
Hence, the petitioners present recourse on the submission that the CA erred in
affirming the trial court's holding that petitioner and his spouse, as plaintiffs a
quo, had no cause of action as they were not the real parties-in-interest in this
case.
We DENY the petition.
At the crux of the issue is the matter of how the aforequoted May 26, 1980 letter
of Romualdez to Atty. Dizon of the PNR should be taken: was it meant to
designate, or has it the effect of designating, Lizette W. Angeles as a mere agent
or as an assignee of his (Romualdez's) interest in the scrap rails awarded to San
Juanico Enterprises? The CAs conclusion, affirmatory of that of the trial court, is
that Lizette was not an assignee, but merely an agent whose authority was
limited to the withdrawal of the scrap rails, hence, without personality to sue.
Where agency exists, the third party's (in this case, PNR's) liability on a contract
is to the principal and not to the agent and the relationship of the third party to
the principal is the same as that in a contract in which there is no agent.
Normally, the agent has neither rights nor liabilities as against the third party. He
cannot thus sue or be sued on the contract. Since a contract may be violated
only by the parties thereto as against each other, the real party-in-interest,
either as plaintiff or defendant in an action upon that contract must, generally,
be a contracting party.
The legal situation is, however, different where an agent is constituted as an
assignee. In such a case, the agent may, in his own behalf, sue on a contract
made for his principal, as an assignee of such contract. The rule
requiring every action to be prosecuted in the name of the real party-in-interest
recognizes the assignment of rights of action and also recognizes
that when one has a right assigned to him, he is then the real party-in-interest
and may maintain an action upon such claim or right. 4
Upon scrutiny of the subject Romualdez's letter to Atty. Cipriano Dizon dated May
26, 1980, it is at once apparent that Lizette was to act just as a "representative"
of Romualdez in the "withdrawal of rails," and not an assignee. For perspective,
we reproduce the contents of said letter:

This is to inform you as President of San Juanico Enterprises, that I

have authorized the bearer, LIZETTE R. WIJANCO x x x to be my lawful
representative in the withdrawal of the scrap/unserviceable rails
awarded to me.
For this reason, I have given her the original copy of the award, dated May 5,
1980 and O.R. No. 8706855 dated May 20, 1980 which will indicate my waiver of
rights, interests and participation in favor of LIZETTE R. WIJANCO. (Emphasis
added)
If Lizette was without legal standing to sue and appear in this case, there is more
reason to hold that her petitioner husband, either as her conjugal partner or her
heir, is also without such standing.
Petitioner makes much of the fact that the terms "agent" or "attorney-in-fact"
were not used in the Romualdez letter aforestated. It bears to stress, however,
that the words "principal" and "agent," are not the only terms used to designate
the parties in an agency relation. The agent may also be called an attorney,
proxy, delegate or, as here, representative.
It cannot be over emphasized that Romualdez's use of the active verb
"authorized," instead of "assigned," indicated an intent on his part to keep and
retain his interest in the subject matter. Stated a bit differently, he intended to
limit Lizettes role in the scrap transaction to being the representative of his
interest therein.
Petitioner submits that the second paragraph of the Romualdez letter, stating - "I
have given [Lizette] the original copy of the award x x x which will indicate my
waiver of rights, interests and participation in favor of Lizette R. Wijanco" clarifies that Lizette was intended to be an assignee, and not a mere agent.
We are not persuaded. As it were, the petitioner conveniently omitted an
important phrase preceding the paragraph which would have put the whole
matter in context. The phrase is "For this reason," and the antecedent thereof is
his (Romualdez) having appointed Lizette as his representative in the matter of
the withdrawal of the scrap items. In fine, the key phrase clearly conveys the
idea that Lizette was given the original copy of the contract award to enable her
to withdraw the rails as Romualdezs authorized representative.
Article 1374 of the Civil Code provides that the various stipulations of a contract
shall be read and interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. In fine, the real intention of
the parties is primarily to be determined from the language used and gathered
from the whole instrument. When put into the context of the letter as a whole, it
is abundantly clear that the rights which Romualdez waived or ceded in favor of
Lizette were those in furtherance of the agency relation that he had established
for the withdrawal of the rails.
At any rate, any doubt as to the intent of Romualdez generated by the way his
letter was couched could be clarified by the acts of the main players themselves.

Article 1371 of the Civil Code provides that to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be
principally considered. In other words, in case of doubt, resort may be made to
the situation, surroundings, and relations of the parties.
The fact of agency was, as the trial court aptly observed, 5 confirmed in
subsequent letters from the Angeles spouses in which they themselves refer to
Lizette as "authorized representative" of San Juanico Enterprises. Mention may
also be made that the withdrawal receipt which Lizette had signed indicated that
she was doing so in a representative capacity. One professing to act as agent for
another is estopped to deny his agency both as against his asserted principal
and third persons interested in the transaction which he engaged in.
Whether or not an agency has been created is a question to be determined by
the fact that one represents and is acting for another. The appellate court, and
before it, the trial court, had peremptorily determined that Lizette, with respect
to the withdrawal of the scrap in question, was acting for Romualdez. And with
the view we take of this case, there were substantial pieces of evidence adduced
to support this determination. The desired reversal urged by the petitioner
cannot, accordingly, be granted. For, factual findings of the trial court, adopted
and confirmed by the CA, are, as a rule, final and conclusive and may not be
disturbed on appeal. 6 So it must be here.
Petitioner maintains that the Romualdez letter in question was not in the form of
a special power of attorney, implying that the latter had not intended to merely
authorize his wife, Lizette, to perform an act for him (Romualdez). The contention
is specious. In the absence of statute, no form or method of execution is required
for a valid power of attorney; it may be in any form clearly showing on its face
the agents authority. 7
A power of attorney is only but an instrument in writing by which a person, as
principal, appoints another as his agent and confers upon him the authority to
perform certain specified acts on behalf of the principal. The written
authorization itself is the power of attorney, and this is clearly indicated by the
fact that it has also been called a "letter of attorney." Its primary purpose is not
to define the authority of the agent as between himself and his principal but to
evidence the authority of the agent to third parties with whom the agent
deals. 8 The letter under consideration is sufficient to constitute a power of
attorney. Except as may be required by statute, a power of attorney is valid
although no notary public intervened in its execution. 9
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. 10Contextually, all
that Lizette was authorized to do was to withdraw the unserviceable/scrap
railings. Allowing her authority to sue therefor, especially in her own name,
would be to read something not intended, let alone written in the Romualdez
letter.

Finally, the petitioner's claim that Lizette paid the amount of P96,000.00 to the
PNR appears to be a mere afterthought; it ought to be dismissed outright under
the estoppel principle. In earlier proceedings, petitioner himself admitted in his
complaint that it was Romualdez who paid this amount.
WHEREFORE, the petition is DENIED and the assailed decision of the CA
is AFFIRMED.
Costs against the petitioner.
SO ORDERED.
CANCIO C. GARCIA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Associate Justice
Chairperson
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

(ON LEAVE)
RENATO C. CORONA
Associate Justice

ADOLFO S. AZCUNA
Associate Justice
ATTESTATION
I attest that the conclusions in the above decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S . PUNO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, and the Division
Chairperson's Attestation, it is hereby certified that the conclusions in the above
decision were reached in consultation before the case was assigned to the writer
of the opinion of the Court.
ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes

As filed, the petition impleads the Court of Appeals as among the respondents.
Pursuant to Sec. 4, Rule 45, the CA need not be impleaded.
2

Penned by Associate Justice Martin S. Villarama, Jr., with Associate Justices

Conrado M. Vasquez, Jr. and Alicia L. Santos, concurring; Rollo, pp. 46-53.
3

Id. at 75.

Uy v. Court of Appeals, G.R. No. 120465, September 9, 1999, 314 SCRA 69.

RTC Decision, pp. 17-18; Rollo, pp. 71-72.

Lubos v. Galupo, G.R. No. 139136, January 16, 2002, 373 SCRA 618.

3 Am Jur. 2d, Agency, Sec. 25.

Ibid. Sec. 23.

Reyes v. Santiago, CA-G.R. No. 47996-7-R, Nov. 27, 1975.

10

3 Am. Jur. 2d, Agency, Sec. 31.

FIRST DIVISION

[G.R. No. 119858. April 29, 2003]

EDWARD C. ONG, petitioner, vs. THE COURT OF APPEALS AND THE

PEOPLE OF THE PHILIPPINES,respondents.
DECISION
CARPIO, J.:

The Case
Petitioner Edward C. Ong (petitioner) filed this petition for review
on certiorari[1] to nullify the Decision[2] dated 27 October 1994 of the Court of
Appeals in CA-G.R. C.R. No. 14031, and its Resolution [3] dated 18 April 1995,
denying petitioners motion for reconsideration. The assailed Decision affirmed in
toto petitioners conviction[4] by the Regional Trial Court of Manila, Branch 35,
[5]
on two counts of estafa for violation of the Trust Receipts Law, [6] as follows:
WHEREFORE, judgment is rendered: (1) pronouncing accused EDWARD C. ONG
guilty beyond reasonable doubt on two counts, as principal on both counts, of
ESTAFA defined under No. 1 (b) of Article 315 of the Revised Penal Code in
relation to Section 13 of Presidential Decree No. 115, and penalized under the 1st
paragraph of the same Article 315, and sentenced said accused in each count to
TEN (10) YEARS of prision mayor, as minimum, to TWENTY (20) YEARS
of reclusion temporal, as maximum;

(2)
ACQUITTING accused BENITO ONG of the crime charged against him, his
guilt thereof not having been established by the People beyond reasonable
doubt;
(3)
Ordering accused Edward C. Ong to pay private complainant Solid Bank
Corporation the aggregate sum of P2,976,576.37 as reparation for the damages
said accused caused to the private complainant, plus the interest thereon at the
legal rate and the penalty of 1% per month, both interest and penalty
computed from July 15, 1991, until the principal obligation is fully paid;
(4)
Ordering Benito Ong to pay, jointly and severally with Edward C. Ong, the
private complainant the legal interest and the penalty of 1% per month due and
accruing on the unpaid amount of P1,449,395.71, still owing to the private
offended under the trust receipt Exhibit C, computed from July 15, 1991, until the
said unpaid obligation is fully paid;
(5)

Ordering accused Edward C. Ong to pay the costs of these two actions.

SO ORDERED.[7]

The Charge
Assistant City Prosecutor Dina P. Teves of the City of Manila charged
petitioner and Benito Ong with two counts of estafa under separate Informations
dated 11 October 1991.
In Criminal Case No. 92-101989, the Information indicts petitioner and Benito
Ong of the crime of estafa committed as follows:
That on or about July 23, 1990, in the City of Manila, Philippines, the said
accused, representing ARMAGRI International Corporation, conspiring and
confederating together did then and there willfully, unlawfully and feloniously
defraud the SOLIDBANK Corporation represented by its Accountant, DEMETRIO
LAZARO, a corporation duly organized and existing under the laws of the
Philippines located at Juan Luna Street, Binondo, this City, in the following
manner, to wit: the said accused received in trust from said SOLIDBANK
Corporation the following, to wit:
10,000 bags of urea
valued at P2,050,000.00 specified in a Trust Receipt Agreement and covered by a
Letter of Credit No. DOM GD 90-009 in favor of the Fertiphil Corporation; under
the express obligation on the part of the said accused to account for said goods
to Solidbank Corporation and/or remit the proceeds of the sale thereof within the
period specified in the Agreement or return the goods, if unsold immediately or
upon demand; but said accused, once in possession of said goods, far from
complying with the aforesaid obligation failed and refused and still fails and
refuses to do so despite repeated demands made upon him to that effect and
with intent to defraud, willfully, unlawfully and feloniously misapplied,
misappropriated and converted the same or the value thereof to his own
personal use and benefit, to the damage and prejudice of the said Solidbank
Corporation in the aforesaid amount of P2,050,000.00 Philippine Currency.

Contrary to law.
In Criminal Case No. 92-101990, the Information likewise charges petitioner
of the crime of estafa committed as follows:
That on or about July 6, 1990, in the City of Manila, Philippines, the said accused,
representing ARMAGRI International Corporation, did then and there willfully,
unlawfully and feloniously defraud the SOLIDBANK Corporation represented by its
Accountant, DEMETRIO LAZARO, a corporation duly organized and existing under
the laws of the Philippines located at Juan Luna Street, Binondo, this City, in the
following manner, to wit: the said accused received in trust from said SOLIDBANK
Corporation the following goods, to wit:
125 pcs. Rear diff. assy RNZO 49
50 pcs. Front & Rear diff assy. Isuzu Elof
85 units 1-Beam assy. Isuzu Spz
all valued at P2,532,500.00 specified in a Trust Receipt Agreement and covered
by a Domestic Letter of Credit No. DOM GD 90-006 in favor of the Metropole
Industrial Sales with address at P.O. Box AC 219, Quezon City; under the express
obligation on the part of the said accused to account for said goods to Solidbank
Corporation and/or remit the proceeds of the sale thereof within the period
specified in the Agreement or return the goods, if unsold immediately or upon
demand; but said accused, once in possession of said goods, far from complying
with the aforesaid obligation failed and refused and still fails and refuses to do so
despite repeated demands made upon him to that effect and with intent to
defraud, willfully, unlawfully and feloniously misapplied, misappropriated and
converted the same or the value thereof to his own personal use and benefit, to
the damage and prejudice of the said Solidbank Corporation in the aforesaid
amount of P2,532,500.00 Philippine Currency.
Contrary to law.

Arraignment and Plea

With the assistance of counsel, petitioner and Benito Ong both pleaded not
guilty when arraigned. Thereafter, trial ensued.

Version of the Prosecution

The prosecutions evidence disclosed that on 22 June 1990, petitioner,
representing ARMAGRI International Corporation [8](ARMAGRI), applied for a
letter of credit for P2,532,500.00 with SOLIDBANK Corporation (Bank) to
finance the purchase of differential assemblies from Metropole Industrial Sales.
On 6 July 1990, petitioner, representing ARMAGRI, executed a trust
receipt[9] acknowledging receipt from the Bank of the goods valued
at P2,532,500.00.
On 12 July 1990, petitioner and Benito Ong, representing ARMAGRI, applied
for another letter of credit for P2,050,000.00 to finance the purchase of

merchandise from Fertiphil Corporation. The Bank approved the application,

opened the letter of credit and paid to Fertiphil Corporation the amount
of P2,050,000.00. On 23 July 1990, petitioner, signing for ARMAGRI, executed
another trust receipt[10] in favor of the Bank acknowledging receipt of the
merchandise.
Both trust receipts contained the same stipulations. Under the trust receipts,
ARMAGRI undertook to account for the goods held in trust for the Bank, or if the
goods are sold, to turn over the proceeds to the Bank. ARMAGRI also undertook
the obligation to keep the proceeds in the form of money, bills or receivables as
the separate property of the Bank or to return the goods upon demand by the
Bank, if not sold. In addition, petitioner executed the following additional
undertaking stamped on the dorsal portion of both trust receipts:
I/We jointly and severally agreed to any increase or decrease in the interest rate
which may occur after July 1, 1981, when the Central Bank floated the interest
rates, and to pay additionally the penalty of 1% per month until the amount/s or
installment/s due and unpaid under the trust receipt on the reverse side hereof
is/are fully paid.[11]
Petitioner signed alone the foregoing additional undertaking in the Trust Receipt
for P2,253,500.00, while both petitioner and Benito Ong signed the additional
undertaking in the Trust Receipt for P2,050,000.00.
When the trust receipts became due and demandable, ARMAGRI failed to pay
deliver the goods to the Bank despite several demand letters.
[12]
Consequently, as of 31 May 1991, the unpaid account under the first trust
receipt amounted to P1,527,180.66,[13] while the unpaid account under the
second trust receipt amounted to P1,449,395.71.[14]
or

Version of the Defense

After the prosecution rested its case, petitioner and Benito Ong, through
counsel, manifested in open court that they were waiving their right to present
evidence. The trial court then considered the case submitted for decision. [15]

The Ruling of the Court of Appeals

Petitioner appealed his conviction to the Court of Appeals. On 27 October
1994, the Court of Appeals affirmed the trial courts decisionin toto. Petitioner
filed a motion for reconsideration but the same was denied by the Court of
Appeals in the Resolution dated 18 April 1995.
The Court of Appeals held that although petitioner is neither a director nor an
officer of ARMAGRI, he certainly comes within the term employees or other x x x
persons therein responsible for the offense in Section 13 of the Trust Receipts
Law. The Court of Appeals explained as follows:
It is not disputed that appellant transacted with the Solid Bank on behalf of
ARMAGRI. This is because the Corporation cannot by itself transact business or
sign documents it being an artificial person. It has to accomplish these through

its agents. A corporation has a personality distinct and separate from those
acting on its behalf. In the fulfillment of its purpose, the corporation by necessity
has to employ persons to act on its behalf.
Being a mere artificial person, the law (Section 13, P.D. 115) recognizes the
impossibility of imposing the penalty of imprisonment on the corporation itself.
For this reason, it is the officers or employees or other persons whom the law
holds responsible.[16]
The Court of Appeals ruled that what made petitioner liable was his failure to
account to the entruster Bank what he undertook to perform under the trust
receipts. The Court of Appeals held that ARMAGRI, which petitioner represented,
could not itself negotiate the execution of the trust receipts, go to the Bank to
receive, return or account for the entrusted goods. Based on the representations
of petitioner, the Bank accepted the trust receipts and, consequently, expected
petitioner to return or account for the goods entrusted. [17]
The Court of Appeals also ruled that the prosecution need not prove that
petitioner is occupying a position in ARMAGRI in the nature of an officer or similar
position to hold him the person(s) therein responsible for the offense. The
Court of Appeals held that petitioners admission that his participation was
merely incidental still makes him fall within the purview of the law as one of the
corporations employees or other officials or persons therein responsible for the
offense. Incidental or not, petitioner was then acting on behalf of ARMAGRI,
carrying out the corporations decision when he signed the trust receipts.
The Court of Appeals further ruled that the prosecution need not prove that
petitioner personally received and misappropriated the goods subject of the trust
receipts. Evidence of misappropriation is not required under the Trust Receipts
Law. To establish the crime ofestafa, it is sufficient to show failure by the
entrustee to turn over the goods or the proceeds of the sale of the goods
covered by a trust receipt. Moreover, the bank is not obliged to determine if the
goods came into the actual possession of the entrustee. Trust receipts are issued
to facilitate the purchase of merchandise. To obligate the bank to examine the
fact of actual possession by the entrustee of the goods subject of every trust
receipt will greatly impede commercial transactions.
Hence, this petition.

The Issues
Petitioner seeks to reverse his conviction by contending that the Court of
Appeals erred:
1. IN RULING THAT, BY THE MERE CIRCUMSTANCE THAT PETITIONER ACTED AS
AGENT AND SIGNED FOR THE ENTRUSTEE CORPORATION, PETITIONER WAS
NECESSARILY THE ONE RESPONSIBLE FOR THE OFFENSE; AND
2. IN CONVICTING PETITIONER UNDER SPECIFICATIONS NOT ALLEGED IN THE
INFORMATION.

The Ruling of the Court

The Court sustains the conviction of petitioner.

First Assigned Error: Petitioner comes within

the purview of Section 13 of the Trust Receipts Law.
Petitioner contends that the Court of Appeals erred in finding him liable for
the default of ARMAGRI, arguing that in signing the trust receipts, he merely
acted as an agent of ARMAGRI. Petitioner asserts that nowhere in the trust
receipts did he assume personal responsibility for the undertakings of ARMAGRI
which was the entrustee.
Petitioners arguments fail to persuade us.
The pivotal issue for resolution is whether petitioner comes within the
purview of Section 13 of the Trust Receipts Law which provides:
x x x. If the violation is committed by a corporation, partnership, association or
other juridical entities, the penalty provided for in this Decree shall be imposed
upon the directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil liabilities arising from
the offense. (Emphasis supplied)
We hold that petitioner is a person responsible for violation of the Trust
Receipts Law.
The relevant penal provision of the Trust Receipts Law reads:
SEC. 13. Penalty Clause. The failure of the entrustee to turn over the
proceeds of the sale of the goods, documents or instruments covered by a trust
receipt to the extent of the amount owing to the entruster or as appears in the
trust receipt or to return said goods, documents or instruments if they were not
sold or disposed of in accordance with the terms of the trust receipt shall
constitute the crime of estafa, punishable under the provisions of Article Three
Hundred and Fifteen, Paragraph One (b), of Act Numbered Three Thousand Eight
Hundred and Fifteen, as amended, otherwise known as the Revised Penal Code. If
the violation or offense is committed by a corporation, partnership, association
or other juridical entities, the penalty provided for in this Decree shall be
imposed upon the directors, officers, employees or other officials or persons
therein responsible for the offense, without prejudice to the civil liabilities arising
from the criminal offense. (Emphasis supplied)
The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn
over the proceeds of the sale of the goods, or (2) return the goods covered by
the trust receipts if the goods are not sold. [18] The mere failure to account or
return gives rise to the crime which ismalum prohibitum.[19] There is no
requirement to prove intent to defraud. [20]
The Trust Receipts Law recognizes the impossibility of imposing the penalty
of imprisonment on a corporation. Hence, if the entrustee is a corporation, the
law makes the officers or employees or other persons responsible for the offense
liable to suffer the penalty of imprisonment. The reason is obvious: corporations,
partnerships, associations and other juridical entities cannot be put to jail.

Hence, the criminal liability falls on the human agent responsible for the violation
of the Trust Receipts Law.
In the instant case, the Bank was the entruster while ARMAGRI was the
entrustee. Being the entrustee, ARMAGRI was the one responsible to account for
the goods or its proceeds in case of sale. However, the criminal liability for
violation of the Trust Receipts Law falls on the human agent responsible for the
violation. Petitioner, who admits being the agent of ARMAGRI, is the person
responsible for the offense for two reasons. First, petitioner is the signatory to
the trust receipts, the loan applications and the letters of credit. Second, despite
being the signatory to the trust receipts and the other documents, petitioner did
not explain or show why he is not responsible for the failure to turn over the
proceeds of the sale or account for the goods covered by the trust receipts.
The Bank released the goods to ARMAGRI upon execution of the trust
receipts and as part of the loan transactions of ARMAGRI. The Bank had a right to
demand from ARMAGRI payment or at least a return of the goods. ARMAGRI
failed to pay or return the goods despite repeated demands by the Bank.
It is a well-settled doctrine long before the enactment of the Trust Receipts
Law, that the failure to account, upon demand, for funds or property held in trust
is evidence of conversion or misappropriation. [21] Under the law, mere failure by
the entrustee to account for the goods received in trust constitutes estafa. The
Trust Receipts Law punishes dishonesty and abuse of confidence in the handling
of money or goods to the prejudice of public order. [22] The mere failure to deliver
the proceeds of the sale or the goods if not sold constitutes a criminal offense
that causes prejudice not only to the creditor, but also to the public interest.
[23]
Evidently, the Bank suffered prejudice for neither money nor the goods were
turned over to the Bank.
The Trust Receipts Law expressly makes the corporations officers or
employees or other persons therein responsible for the offense liable to suffer
the penalty of imprisonment. In the instant case, petitioner signed the two trust
receipts on behalf of ARMAGRI[24] as the latter could only act through its agents.
When petitioner signed the trust receipts, he acknowledged receipt of the goods
covered by the trust receipts. In addition, petitioner was fully aware of the terms
and conditions stated in the trust receipts, including the obligation to turn over
the proceeds of the sale or return the goods to the Bank, to wit:
Received, upon the TRUST hereinafter mentioned from SOLIDBANK
CORPORATION (hereafter referred to as the BANK), the following goods and
merchandise, the property of said BANK specified in the bill of lading as follows: x
x x and in consideration thereof, I/we hereby agree to hold said goods in
Trust for the said BANK and as its property with liberty to sell the same for its
account but without authority to make any other disposition whatsoever of the
said goods or any part thereof (or the proceeds thereof) either by way of
conditional sale, pledge, or otherwise.
In case of sale I/we agree to hand the proceeds as soon as received to
the BANK to apply against the relative acceptance (as described above) and for
the payment of any other indebtedness of mine/ours to SOLIDBANK
CORPORATION.
x x x.

I/we agree to keep said goods, manufactured products, or proceeds thereof,

whether in the form of money or bills, receivables, or accounts, separate and
capable of identification as the property of the BANK.
I/we further agree to return the goods, documents, or instruments in
the event of their non-sale, upon demand or within _______ days, at the
option of the BANK.
x x x. (Emphasis supplied)[25]
True, petitioner acted on behalf of ARMAGRI. However, it is a well-settled rule
that the law of agency governing civil cases has no application in criminal cases.
When a person participates in the commission of a crime, he cannot escape
punishment on the ground that he simply acted as an agent of another party.
[26]
In the instant case, the Bank accepted the trust receipts signed by petitioner
based on petitioners representations. It is the fact of being the signatory to the
two trust receipts, and thus a direct participant to the crime, which makes
petitioner a person responsible for the offense.
Petitioner could have raised the defense that he had nothing to do with the
failure to account for the proceeds or to return the goods. Petitioner could have
shown that he had severed his relationship with ARMAGRI prior to the loss of the
proceeds or the disappearance of the goods. Petitioner, however, waived his
right to present any evidence, and thus failed to show that he is not responsible
for the violation of the Trust Receipts Law.
There is no dispute that on 6 July 1990 and on 23 July 1990, petitioner signed
the two trust receipts[27] on behalf of ARMAGRI. Petitioner, acting on behalf of
ARMAGRI, expressly acknowledged receipt of the goods in trust for the Bank.
ARMAGRI failed to comply with its undertakings under the trust receipts. On the
other hand, petitioner failed to explain and communicate to the Bank what
happened to the goods despite repeated demands from the Bank. As of 13 May
1991, the unpaid account under the first and second trust receipts amounted
to P1,527,180.60 and P1,449,395.71, respectively.[28]

Second Assigned Error: Petitioners conviction under

the allegations in the two Informations for Estafa.
Petitioner argues that he cannot be convicted on a new set of facts not
alleged in the Informations. Petitioner claims that the trial courts decision found
that it was ARMAGRI that transacted with the Bank, acting through petitioner as
its agent. Petitioner asserts that this contradicts the specific allegation in the
Informations that it was petitioner who was constituted as the entrustee and was
thus obligated to account for the goods or its proceeds if sold. Petitioner
maintains that this absolves him from criminal liability.
We find no merit in petitioners arguments.
Contrary to petitioners assertions, the Informations explicitly allege that
petitioner, representing ARMAGRI, defrauded the Bank by failing to remit the
proceeds of the sale or to return the goods despite demands by the Bank, to the
latters prejudice. As an essential element of estafa with abuse of confidence, it
is sufficient that the Informations specifically allege that the entrustee received
the goods. The Informations expressly state that ARMAGRI, represented by

petitioner, received the goods in trust for the Bank under the express obligation
to remit the proceeds of the sale or to return the goods upon demand by the
Bank. There is no need to allege in the Informations in what capacity petitioner
participated to hold him responsible for the offense. Under the Trust Receipts
Law, it is sufficient to allege and establish the failure of ARMAGRI, whom
petitioner represented, to remit the proceeds or to return the goods to the Bank.
When petitioner signed the trust receipts, he claimed he was representing
ARMAGRI. The corporation obviously acts only through its human agents and it is
the conduct of such agents which the law must deter. [29] The existence of the
corporate entity does not shield from prosecution the agent who knowingly and
intentionally commits a crime at the instance of a corporation. [30]

Penalty for the crime of Estafa.

The penalty for the crime of estafa is prescribed in Article 315 of the Revised
Penal Code, as follows:
1st. The penalty of prision correccional in its maximum period to prision mayor in
its minimum period, if the amount of the fraud is over 12,000 pesos but does not
exceed 22,000 pesos; and if such amount exceeds the latter sum, the penalty
provided in this paragraph shall be imposed in its maximum period, adding one
year for each additional 10,000 pesos; but the total penalty which may be
imposed should not exceed twenty years. x x x.
In the instant case, the amount of the fraud in Criminal Case No. 92-101989
is P1,527,180.66. In Criminal Case No. 92-101990, the amount of the fraud
is P1,449,395.71. Since
the
amounts
of
the
fraud
in
each estafa exceeds P22,000.00, the penalty of prision correccional maximum
to prision mayor minimum should be imposed in its maximum period as
prescribed in Article 315 of the Revised Penal Code. The maximum indeterminate
sentence should be taken from this maximum period which has a duration of 6
years, 8 months and 21 days to 8 years. One year is then added for each
additional P10,000.00, but the total penalty should not exceed 20 years. Thus,
the maximum penalty for each count of estafa in this case should be 20 years.
Under the Indeterminate Sentence Law, the minimum indeterminate
sentence can be anywhere within the range of the penalty next lower in degree
to the penalty prescribed by the Code for the offense. The minimum range of the
penalty is determined without first considering any modifying circumstance
attendant to the commission of the crime and without reference to the periods
into which it may be subdivided. [31] The modifying circumstances are considered
only in the imposition of the maximum term of the indeterminate sentence.
[32]
Since the penalty prescribed in Article 315 is prision correccional maximum
to prision mayor minimum, the penalty next lower in degree would be prision
correccional minimum to medium. Thus, the minimum term of the indeterminate
penalty should be anywhere within 6 months and 1 day to 4 years and 2 months.
[33]

Accordingly, the Court finds a need to modify in part the penalties imposed
by the trial court. The minimum penalty for each count ofestafa should be
reduced to four (4) years and two (2) months of prision correccional.

As for the civil liability arising from the criminal offense, the question is
whether as the signatory for ARMAGRI, petitioner is personally liable pursuant to
the provision of Section 13 of the Trust Receipts Law.
In Prudential Bank v. Intermediate Appellate Court,[34] the Court
discussed the imposition of civil liability for violation of the Trust Receipts Law in
this wise:
It is clear that if the violation or offense is committed by a corporation,
partnership, association or other juridical entities, the penalty shall be imposed
upon the directors, officers, employees or other officials or persons responsible
for the offense. The penalty referred to is imprisonment, the duration of which
would depend on the amount of the fraud as provided for in Article 315 of the
Revised Penal Code. The reason for this is obvious: corporation, partnership,
association or other juridical entities cannot be put in jail. However, it is these
entities which are made liable for the civil liabilities arising from the
criminal offense. This is the import of the clause without prejudice to the civil
liabilities arising from the criminal offense. (Emphasis supplied)
In Prudential Bank, the Court ruled that the person signing the trust receipt for
the corporation is not solidarily liable with the entrustee-corporation for the civil
liability arising from the criminal offense. He may, however, be personally liable
if he bound himself to pay the debt of the corporation under a separate contract
of surety or guaranty.
In the instant case, petitioner did not sign in his personal capacity the
solidary guarantee clause[35] found on the dorsal portion of the trust receipts.
Petitioner placed his signature after the typewritten words ARMCO INDUSTRIAL
CORPORATION found at the end of the solidary guarantee clause. Evidently,
petitioner did not undertake to guaranty personally the payment of the principal
and interest of ARMAGRIs debt under the two trust receipts.
In contrast, petitioner signed the stamped additional undertaking without
any indication he was signing for ARMAGRI. Petitioner merely placed his
signature after the additional undertaking. Clearly, what petitioner signed in his
personal capacity was the stamped additional undertaking to pay a monthly
penalty of 1% of the total obligation in case of ARMAGRIs default.
In the additional undertaking, petitioner bound himself to pay jointly and
severally a monthly penalty of 1% in case of ARMAGRIs default. [36] Thus,
petitioner is liable to the Bank for the stipulated monthly penalty of 1% on the
outstanding amount of each trust receipt. The penalty shall be computed from
15 July 1991, when petitioner received the demand letter, [37] until the debt is fully
paid.
WHEREFORE, the assailed Decision is AFFIRMED with MODIFICATION. In
Criminal Case No. 92-101989 and in Criminal Case No. 92-101990, for each count
of estafa, petitioner EDWARD C. ONG is sentenced to an indeterminate penalty of
imprisonment from four (4) years and two (2) months of prision correccional as
MINIMUM, to twenty (20) years of reclusion temporal as MAXIMUM. Petitioner is
ordered to pay SOLIDBANK CORPORATION the stipulated penalty of 1% per
month on the outstanding balance of the two trust receipts to be computed from
15 July 1991 until the debt is fully paid.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.

[1]

Under Rule 45 of the Rules of Court.

[2]

Penned by Associate Justice Antonio M. Martinez with Associate Justices Fermin

A. Martin, Jr. and Conrado M. Vasquez, Jr. concurring, Rollo, pp. 19-29.

[3]

Rollo, p. 31.

[4]

In Criminal Case Nos. 92-101989 & 92-101990, entitled People v. Benito Ong
& Edward C. Ong.

[5]

Penned by Judge Ramon Makasiar, CA Records, pp.10-16.

[6]

Section 13 of PD No. 115, the Trust Receipts Law.

[7]

CA Records, p. 16.

[8]

Formerly ARMCO Industrial Corporation, Rollo, p. 21, CA Decision, p. 3.

[9]

Exhibit B, Records, p. 103.

[10]

Exhibit C, ibid., p. 104.

[11]

Exhibits B-3 & B-4, Records, p. 103; Exhibits C-3 & C-4, Records, p. 104.

[12]

Exhibits D, H & I, ibid., pp. 105 & 108-A.

[13]

Exhibit E, ibid., p. 106.

[14]

Exhibit F, ibid., p. 107.

[15]

Records, p. 116.

[16]

Rollo, pp. 24-25.

[17]

Ibid., p. 25.

[18]

Metropolitan Bank and Trust Company v. Tonda, G.R. No. 134436, 16 August
2000, 338 SCRA 254.

[19]

People v. Nitafan, G.R. Nos. 81559-60, 6 April 1992, 207 SCRA 726.

[20]

Colinares v. Court of Appeals, G.R. No. 90828, 5 September 2000, 339 SCRA
609.

[21]

Hayco v. CA, Nos. L-55775-86, 26 August 1995, 138 SCRA 227; Dayawon v.
Badilla, A.M. No. MTJ- 00-1309, 6 September 2000, 339 SCRA 702.

[22]

Supra, see note 18.

[23]

Supra, see note 20.

[24]

Exhibits B-1 & C-2, Records, pp. 103 & 104.

[25]

Exhibits B & C, Records, pp. 103 & 104.

[26]

People v. Chowdury, G.R. Nos. 129577-80, 15 February 2000, 325 SCRA 572.

[27]

Supra, see notes 9 & 10.

[28]

Supra, see notes 13 & 14.

[29]

Supra, see note 26.

[30]

Supra, see note 26.

[31]

People v. Gabres, 335 Phil. 242 (1997).

[32]

Ibid.

[33]

People v. Bautista, 311 Phil. 227 (1995); Dela Cruz v. CA, 333 Phil. 126 (1996);
People v. Ortiz-Miyake, 344 Phil. 598 (1997); People v. Saley, 353 Phil. 897
(1998).

[34]

G.R. No. 74886, 8 December 1992, 216 SCRA 257.

[35]

This clause states: In consideration of SOLIDBANK CORPORATION complying

with the foregoing, we jointly and severally agree and undertake to pay on
demand to SOLIDBANK CORPORATION, all sums of money which the said
SOLIDBANK CORPORATION may call upon us to pay arising out of or
pertaining to, and/or in any event connected with the default of and/or
non-fulfillment in any respect of the undertaking of the aforesaid: x x x.

[36]

Supra, see note 11.

[37]

Supra, see note 12.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 142616

July 31, 2001

PHILIPPINE NATIONAL BANK, petitioner,

vs.
RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN
GENERAL MERCHANDISE,respondents.
KAPUNAN, J.:
In a petition for review on certiorari under Rule 45 of the Revised Rules of Court,
petitioner seeks to annul and set aside the Court of Appeals' decision in C.A. CV
G.R. S.P. No. 55374 dated March 27, 2000, affirming the Order issuing a writ of
preliminary injunction of the Regional Trial Court of Makati, Branch 147 dated
June 30, 1999, and its Order dated October 4, 1999, which denied petitioner's
motion to dismiss.
The antecedents of this case are as follows:
Petitioner Philippine National Bank is a domestic corporation organized and
existing under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto
International, Inc. and Dadasan General Merchandise are domestic corporations,
likewise, organized and existing under Philippine law.
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company
of PNB, organized and doing business in Hong Kong, extended a letter of credit in
favor of the respondents in the amount of US$300,000.00 secured by real estate

mortgages constituted over four (4) parcels of land in Makati City. This credit
facility was later increased successively to US$1,140,000.00 in September 1996;
to US$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997;
and decreased to US$1,421,316.18 in April 1998. Respondents made repayments
of the loan incurred by remitting those amounts to their loan account with PNBIFL in Hong Kong.
However, as of April 30, 1998, their outstanding obligations stood at
US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL,
through its attorney-in-fact PNB, notified the respondents of the foreclosure of all
the real estate mortgages and that the properties subject thereof were to be sold
at a public auction on May 27, 1999 at the Makati City Hall.
On May 25, 1999, respondents filed a complaint for injunction with prayer for the
issuance of a writ of preliminary injunction and/or temporary restraining order
before the Regional Trial Court of Makati. The Executive Judge of the Regional
Trial Court of Makati issued a 72-hour temporary restraining order. On May 28,
1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati.
The trial judge then set a hearing on June 8, 1999. At the hearing of the
application for preliminary injunction, petitioner was given a period of seven days
to file its written opposition to the application. On June 15, 1999, petitioner filed
an opposition to the application for a writ of preliminary injunction to which the
respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismiss
on the grounds of failure to state a cause of action and the absence of any privity
between the petitioner and respondents. On June 30, 1999, the trial court judge
issued an Order for the issuance of a writ of preliminary injunction, which writ
was correspondingly issued on July 14, 1999. On October 4, 1999, the motion to
dismiss was denied by the trial court judge for lack of merit.
Petitioner, thereafter, in a petition for certiorari and prohibition assailed the
issuance of the writ of preliminary injunction before the Court of Appeals. In the
impugned decision,1 the appellate court dismissed the petition. Petitioner thus
seeks recourse to this Court and raises the following errors:
1.
THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE
COMPLAINT A QUO, CONSIDERING THAT BY THE ALLEGATIONS OF THE
COMPLAINT, NO CAUSE OF ACTION EXISTS AGAINST PETITIONER, WHICH IS
NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT
AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.
2.
THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT
TO ISSUE IN EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY
INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN THE
COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR.,
101 SCRA 827.2
Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27,
2000 and the trial court's Orders dated June 30, 1999 and October 4, 1999 be set
aside and the dismissal of the complaint in the instant case. 3

In their Comment, respondents argue that even assuming arguendo that

petitioner and PNB-IFL are two separate entities, petitioner is still the party-ininterest in the application for preliminary injunction because it is tasked to
commit acts of foreclosing respondents' properties. 4 Respondents maintain that
the entire credit facility is void as it contains stipulations in violation of the
principle of mutuality of contracts. 5 In addition, respondents justified the act of
the court a quo in applying the doctrine of "Piercing the Veil of Corporate
Identity" by stating that petitioner is merely an alter ego or a business conduit of
PNB-IFL.6
The petition is impressed with merit.
Respondents, in their complaint, anchor their prayer for injunction on alleged
invalid provisions of the contract:
GROUNDS
I
THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE
DISCRETION OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF
MUTUALITY OF CONTRACTS.
II
THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF
INTEREST AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT,
THERE WAS NO STIPULATION THAT THE RATE OF INTEREST SHALL BE
REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF
INTEREST IS REDUCED BY LAW OR BY THE MONETARY BOARD. 7
Based on the aforementioned grounds, respondents sought to enjoin and restrain
PNB from the foreclosure and eventual sale of the property in order to protect
their rights to said property by reason of void credit facilities as bases for the real
estate mortgage over the said property. 8
The contract questioned is one entered into between respondent and PNB-IFL,
not PNB. In their complaint, respondents admit that petitioner is a mere attorneyin-fact for the PNB-IFL with full power and authority to, inter alia, foreclose on the
properties mortgaged to secure their loan obligations with PNB-IFL. In other
words, herein petitioner is an agent with limited authority and specific duties
under a special power of attorney incorporated in the real estate mortgage. It is
not privy to the loan contracts entered into by respondents and PNB-IFL.
The issue of the validity of the loan contracts is a matter between PNB-IFL, the
petitioner's principal and the party to the loan contracts, and the respondents.
Yet, despite the recognition that petitioner is a mere agent, the respondents in
their complaint prayed that the petitioner PNB be ordered to re-compute the
rescheduling of the interest to be paid by them in accordance with the terms and
conditions in the documents evidencing the credit facilities, and crediting the
amount previously paid to PNB by herein respondents. 9

Clearly, petitioner not being a part to the contract has no power to re-compute
the interest rates set forth in the contract. Respondents, therefore, do not have
any cause of action against petitioner.
The trial court, however, in its Order dated October 4, 1994, ruled that since
PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the
suit against the defendant PNB is a suit against PNB-IFL. 10 In justifying its ruling,
the trial court, citing the case of Koppel Phil. Inc. vs. Yatco,11 reasoned that the
corporate entity may be disregarded where a corporation is the mere alter ego,
or business conduit of a person or where the corporation is so organized and
controlled and its affairs are so conducted, as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation. 12
We disagree.
The general rule is that as a legal entity, a corporation has a personality distinct
and separate from its individual stockholders or members, and is not affected by
the personal rights, obligations and transactions of the latter. 13The mere fact that
a corporation owns all of the stocks of another corporation, taken alone is not
sufficient to justify their being treated as one entity. If used to perform legitimate
functions, a subsidiary's separate existence may be respected, and the liability of
the parent corporation as well as the subsidiary will be confined to those arising
in their respective business. The courts may in the exercise of judicial discretion
step in to prevent the abuses of separate entity privilege and pierce the veil of
corporate entity.
We find, however, that the ruling in Koppel finds no application in the case at bar.
In said case, this Court disregarded the separate existence of the parent and the
subsidiary on the ground that the latter was formed merely for the purpose of
evading the payment of higher taxes. In the case at bar, respondents fail to show
any cogent reason why the separate entities of the PNB and PNB-IFL should be
disregarded.
While there exists no definite test of general application in determining when a
subsidiary may be treated as a mere instrumentality of the parent corporation,
some factors have been identified that will justify the application of the
treatment of the doctrine of the piercing of the corporate veil. The case
of Garrett vs. Southern Railway Co.14is enlightening. The case involved a suit
against the Southern Railway Company. Plaintiff was employed by Lenoir Car
Works and alleged that he sustained injuries while working for Lenoir. He,
however, filed a suit against Southern Railway Company on the ground that
Southern had acquired the entire capital stock of Lenoir Car Works, hence, the
latter corporation was but a mere instrumentality of the former. The Tennessee
Supreme Court stated that as a general rule the stock ownership alone by one
corporation of the stock of another does not thereby render the dominant
corporation liable for the torts of the subsidiary unless the separate corporate
existence of the subsidiary is a mere sham, or unless the control of the
subsidiary is such that it is but an instrumentality or adjunct of the dominant
corporation. Said Court then outlined the circumstances which may be useful in
the determination of whether the subsidiary is but a mere instrumentality of the
parent-corporation:

The Circumstance rendering the subsidiary an instrumentality. It is

manifestly impossible to catalogue the infinite variations of fact that can
arise but there are certain common circumstances which are important
and which, if present in the proper combination, are controlling.
These are as follows:
(a) The parent corporation owns all or most of the capital stock of the
subsidiary.
(b) The parent and subsidiary corporations have common directors or
officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the
subsidiary or otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses
of the subsidiary.
(g) The subsidiary has substantially no business except with the parent
corporation or no assets except those conveyed to or by the parent
corporation.
(h) In the papers of the parent corporation or in the statements of its
officers, the subsidiary is described as a department or division of the
parent corporation, or its business or financial responsibility is referred to
as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently
in the interest of the subsidiary but take their orders from the parent
corporation.
(k) The formal legal requirements of the subsidiary are not observed.
The Tennessee Supreme Court thus ruled:
In the case at bar only two of the eleven listed indicia occur, namely, the
ownership of most of the capital stock of Lenoir by Southern, and possibly
subscription to the capital stock of Lenoir. . . The complaint must be
dismissed.
Similarly, in this jurisdiction, we have held that the doctrine of piercing the
corporate veil is an equitable doctrine developed to address situations where the
separate corporate personality of a corporation is abused or used for wrongful
purposes. The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or when it is made as
a shield to confuse the legitimate issues, or where a corporation is the mere alter

ego or business conduit of a person, or where the corporation is so organized and

controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation. 15
In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the
applicability of the doctrine of piercing the veil of corporate fiction, to wit:
1. Control, not mere majority or complete control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own.
2. Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and, unjust act in contravention of plaintiffs legal rights;
and,
3. The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of.
The absence of any one of these elements prevents "piercing the
corporate veil." In applying the "instrumentality" or "alter ego" doctrine,
the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant's relationship to the
operation.17
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB,
there is no showing of the indicative factors that the former corporation is a mere
instrumentality of the latter are present. Neither is there a demonstration that
any of the evils sought to be prevented by the doctrine of piercing the corporate
veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil
based on the alter ego or instrumentality doctrine finds no application in the
case at bar.
In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not
the significant legal relationship involved in this case since the petitioner was not
sued because it is the parent company of PNB-IFL. Rather, the petitioner was
sued because it acted as an attorney-in-fact of PNB-IFL in initiating the
foreclosure proceedings. A suit against an agent cannot without compelling
reasons be considered a suit against the principal. Under the Rules of Court,
every action must be prosecuted or defended in the name of the real party-ininterest, unless otherwise authorized by law or these Rules. 18 In mandatory
terms, the Rules require that "parties-in-interest without whom no final
determination can be had, an action shall be joined either as plaintiffs or
defendants."19 In the case at bar, the injunction suit is directed only against the
agent, not the principal.
Anent the issuance of the preliminary injunction, the same must be lifted as it is
a mere provisional remedy but adjunct to the main suit. 20 A writ of preliminary
injunction is an ancillary or preventive remedy that may only be resorted to by a
litigant to protect or preserve his rights or interests and for no other purpose
during the pendency of the principal action. The dismissal of the principal action
thus results in the denial of the prayer for the issuance of the writ. Further, there

is no showing that respondents are entitled to the issuance of the writ. Section 3,
Rule 58, of the 1997 Rules of Civil Procedure provides:
SECTION 3. Grounds for issuance of preliminary injunction. A
preliminary injunction may be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or
part of such relief consists in restraining the commission or continuance of
the act or acts complained of, or in requiring the performance of an act or
acts, either for a limited period or perpetually,
(b) That the commission, continuance or non-performance of the acts or
acts complained of during the litigation would probably work injustice to
the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is
attempting to do, or is procuring or suffering to be done, some act or acts
probably in violation of the rights of the applicant respecting the subject of
the action or proceeding, and tending to render the judgment ineffectual.
Thus, an injunctive remedy may only be resorted to when there is a pressing
necessity to avoid injurious consequences which cannot be remedied under any
standard compensation.21 Respondents do not deny their indebtedness. Their
properties are by their own choice encumbered by real estate mortgages. Upon
the non-payment of the loans, which were secured by the mortgages sought to
be foreclosed, the mortgaged properties are properly subject to a foreclosure
sale. Moreover, respondents questioned the alleged void stipulations in the
contract only when petitioner initiated the foreclosure proceedings. Clearly,
respondents have failed to prove that they have a right protected and that the
acts against which the writ is to be directed are violative of said right. 22The Court
is not unmindful of the findings of both the trial court and the appellate court
that there may be serious grounds to nullify the provisions of the loan
agreement. However, as earlier discussed, respondents committed the mistake
of filing the case against the wrong party, thus, they must suffer the
consequences of their error.
All told, respondents do not have a cause of action against the petitioner as the
latter is not privy to the contract the provisions of which respondents seek to
declare void. Accordingly, the case before the Regional Trial Court must be
dismissed and the preliminary injunction issued in connection therewith, must be
lifted.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed
decision of the Court of Appeals is hereby REVERSED. The Orders dated June 30,
1999 and October 4, 1999 of the Regional Trial Court of Makati, Branch 147 in
Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the complaint
in said case DISMISSED.
SO ORDERED.
Puno, Pardo and Santiago, JJ ., concur.
Davide, Jr., C .J ., on official leave.

Footnotes
1

Decision, Court of Appeals, pp. 1-6; Rollo, pp. 37-42.

Petition, p. 10; Rollo, p. 20.

Id., at 24; Id., at 34.

Comment, pp. 12-13; Rollo, pp. 438-439.

Id., at 17-19; Id., at 443-445.

Id., at 20-24; Id., at 446-450.

Rollo, p. 266.

Id., at 270.

See Complaint, p. 15; Rollo, p. 64.

10

Rollo, p. 49.

11

77 Phil. 496 (1946).

12

Ibid.

13

Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160

(1961).
14

173 F. Supp. 915, E.D. Tenn. (1959).

15

Umali v. Court of Appeals, 189 SCRA 529, 524 (1990).

16

257 SCRA 149 (1996).

17

Id., at 159.

18

See RULES OF COURT, Rule 3, sec. 2.

19

RULES OF COURT, Rule 3, sec. 7.

20

Philippine Airlines, Inc. vs. NLRC, 287 SCRA 672 (1998).

21

Union Bank of the Philippines v. Court of Appeals, 311 SCRA 795, 805806 (1999).
22

China Banking Corporation v. Court of Appeals, 265 SCRA 327, 343

(1996).

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-18287

March 30, 1963

TRINIDAD J. FRANCISCO, plaintiff-appellee,

vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant.
----------------------------G.R. No. L-18155

March 30, 1963

TRINIDAD J. FRANCISCO, plaintiff-appellant,

vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellee.
Vicente J. Francisco for plaintiff-appellee.
The Government Corporate Counsel for defendant-appellant.
REYES, J.B.L., J.:
Appeal by the Government Service Insurance System from the decision of the
Court of First Instance of Rizal (Hon. Angel H. Mojica, presiding), in its Civil Case
No. 2088-P, entitled "Trinidad J. Francisco, plaintiff, vs. Government Service
Insurance System, defendant", the dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered: (a) Declaring null and void the
consolidation in the name of the defendant, Government Service Insurance
System, of the title of the VIC-MARI Compound; said title shall be restored to the
plaintiff; and all payments made by the plaintiff, after her offer had been
accepted by the defendant, must be credited as amortizations on her loan; and
(b) Ordering the defendant to abide by the terms of the contract created by
plaintiff's offer and it's unconditional acceptance, with costs against the
defendant.
The plaintiff, Trinidad J. Francisco, likewise appealed separately (L-18155),
because the trial court did not award the P535,000.00 damages and attorney's
fees she claimed. Both appeals are, therefore, jointly treated in this decision.
The following facts are admitted by the parties: On 10 October 1956, the
plaintiff, Trinidad J. Francisco, in consideration of a loan in the amount of
P400,000.00, out of which the sum of P336,100.00 was released to her,
mortgaged in favor of the defendant, Government Service Insurance System
(hereinafter referred to as the System) a parcel of land containing an area of
18,232 square meters, with twenty-one (21) bungalows, known as Vic-Mari

Compound, located at Baesa, Quezon City, payable within ten (10) years in
monthly installments of P3,902.41, and with interest of 7% per annum
compounded monthly.
On 6 January 1959, the System extrajudicially foreclosed the mortgage on the
ground that up to that date the plaintiff-mortgagor was in arrears on her monthly
installments in the amount of P52,000.00. Payments made by the plaintiff at the
time of foreclosure amounted to P130,000.00. The System itself was the buyer of
the property in the foreclosure sale.
On 20 February 1959, the plaintiff's father, Atty. Vicente J. Francisco, sent a letter
to the general manager of the defendant corporation, Mr. Rodolfo P. Andal, the
material portion of which recited as follows:
Yesterday, I was finally able to collect what the Government owed me and I now
propose to pay said amount of P30,000 to the GSIS if it would agree that after
such payment the foreclosure of my daughter's mortgage would be set aside. I
am aware that the amount of P30,000 which I offer to pay will not cover the total
arrearage of P52,000 but as regards the balance, I propose this arrangement: for
the GSIS to take over the administration of the mortgaged property and to collect
the monthly installments, amounting to about P5,000, due on the unpaid
purchase price of more than 31 lots and houses therein and the monthly
installments collected shall be applied to the payment of Miss Francisco's
arrearage until the same is fully covered. It is requested, however, that from the
amount of the monthly installments collected, the sum of P350.00 be deducted
for necessary expenses, such as to pay the security guard, the street-caretaker,
the Meralco Bill for the street lights and sundry items.
It will be noted that the collectible income each month from the mortgaged
property, which as I said consists of installments amounting to about P5,000, is
more than enough to cover the monthly amortization on Miss Francisco's loan.
Indeed, had she not encountered difficulties, due to unforeseen circumstances, in
collecting the said installments, she could have paid the amortizations as they
fell due and there would have been really no need for the GSIS to resort to
foreclosure.
The proposed administration by the GSIS of the mortgaged property will continue
even after Miss Francisco's account shall have been kept up to date. However,
once the arrears shall have been paid, whatever amount of the monthly
installments collected in excess of the amortization due on the loan will be
turned over to Miss Francisco.
I make the foregoing proposal to show Francisco's sincere desire to work out any
fair arrangement for the settlement of her obligation. I trust that the GSIS, under
the broadminded policies of your administration, would give it serious
consideration.
Sincerely,.

s/ Vicente J. Francisco
t/ VICENTE J. FRANCISCO
On the same date, 20 February 1959, Atty. Francisco received the following
telegram:.
VICENTE FRANCISCO
SAMANILLO BLDG. ESCOLTA.
GSIS BOARD APPROVED YOUR REQUEST RE REDEMPTION OF FORECLOSED
PROPERTY OF YOUR DAUGHTER
ANDAL"
On 28 February 1959, Atty. Francisco remitted to the System, through Andal, a
check for P30,000.00, with an accompanying letter, which reads:
I am sending you herewith BPI Check No. B-299484 for Thirty Thousand Pesos
(P30,000.00) in accordance with my letter of February 20th and your reply
thereto of the same date, which reads:
GSIS BOARD APPROVED YOUR REQUEST RE REDEMPTION OF FORECLOSED
PROPERTY OF YOUR DAUGHTER
xxx

xxx

xxx

The defendant received the amount of P30,000.00, and issued therefor its official
receipt No. 1209874, dated 4 March 1959. It did not, however, take over the
administration of the compound. In the meantime, the plaintiff received the
monthly payments of some of the occupants thereat; then on 4 March 1960, she
remitted, through her father, the amount of P44,121.29, representing the total
monthly installments that she received from the occupants for the period from
March to December 1959 and January to February 1960, minus expenses and
real estate taxes. The defendant also received this amount, and issued the
corresponding official receipt.
Remittances, all accompanied by letters, corresponding to the months of March,
April, May, and June, 1960 and totalling P24,604.81 were also sent by the
plaintiff to the defendant from time to time, all of which were received and duly
receipted for.
Then the System sent three (3) letters, one dated 29 January 1960, which was
signed by its assistant general manager, and the other two letters, dated 19 and
26 February 1960, respectively, which were signed by Andal, asking the plaintiff
for a proposal for the payment of her indebtedness, since according to the
System the one-year period for redemption had expired.
In reply, Atty. Francisco sent a letter, dated 11 March 1960, protesting against
the System's request for proposal of payment and inviting its attention to the
concluded contract generated by his offer of 20 February 1959, and its
acceptance by telegram of the same date, the compliance of the terms of the

offer already commenced by the plaintiff, and the misapplication by the System
of the remittances she had made, and requesting the proper corrections.
By letter, dated 31 May 1960, the defendant countered the preceding protest
that, by all means, the plaintiff should pay attorney's fees of P35,644.14,
publication expenses, filing fee of P301.00, and surcharge of P23.64 for the
foreclosure work done; that the telegram should be disregarded in view of its
failure to express the contents of the board resolution due to the error of its
minor employees in couching the correct wording of the telegram. A copy of the
excerpts of the resolution of the Board of Directors (No. 380, February 20, 1959)
was attached to the letter, showing the approval of Francisco's offer
... subject to the condition that Mr. Vicente J. Francisco shall pay all expenses
incurred by the GSIS in the foreclosure of the mortgage.
Inasmuch as, according to the defendant, the remittances previously made by
Atty. Francisco were allegedly not sufficient to pay off her daughter's arrears,
including attorney's fees incurred by the defendant in foreclosing the mortgage,
and the one-year period for redemption has expired, said defendant, on 5 July
1960, consolidated the title to the compound in its name, and gave notice
thereof to the plaintiff on 26 July 1960 and to each occupant of the compound.
Hence, the plaintiff instituted the present suit, for specific performance and
damages. The defendant answered, pleading that the binding acceptance of
Francisco's offer was the resolution of the Board, and that Andal's telegram,
being erroneous, should be disregarded. After trial, the court below found that
the offer of Atty. Francisco, dated 20 February 1959, made on behalf of his
daughter, had been unqualifiedly accepted, and was binding, and rendered
judgment as noted at the start of this opinion.
The defendant-appellant corporation assigns six (6) errors allegedly committed
by the lower court, all of which, however, are resolvable on the single issue as to
whether or not the telegram generated a contract that is valid and binding upon
the parties.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be
admitted and approved by this Honorable Court, without prejudice to the parties
adducing other evidence to prove their case not covered by this stipulation of
facts. 1wph1.t
We find no reason for altering the conclusion reached by the court below that the
offer of compromise made by plaintiff in the letter, Exhibit "A", had been validly
accepted, and was binding on the defendant. The terms of the offer were clear,
and over the signature of defendant's general manager, Rodolfo Andal, plaintiff
was informed telegraphically that her proposal had been accepted. There was
nothing in the telegram that hinted at any anomaly, or gave ground to suspect
its veracity, and the plaintiff, therefore, can not be blamed for relying upon it.
There is no denying that the telegram was within Andal's apparent authority, but
the defense is that he did not sign it, but that it was sent by the Board Secretary

in his name and without his knowledge. Assuming this to be true, how was
appellee to know it? Corporate transactions would speedily come to a standstill
were every person dealing with a corporation held duty-bound to disbelieve
every act of its responsible officers, no matter how regular they should appear on
their face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634,
654-655, that
In passing upon the liability of a corporation in cases of this kind it is always well
to keep in mind the situation as it presents itself to the third party with whom the
contract is made. Naturally he can have little or no information as to what occurs
in corporate meetings; and he must necessarily rely upon the external
manifestations of corporate consent. The integrity of commercial transactions
can only be maintained by holding the corporation strictly to the liability fixed
upon it by its agents in accordance with law; and we would be sorry to announce
a doctrine which would permit the property of a man in the city of Paris to be
whisked out of his hands and carried into a remote quarter of the earth without
recourse against the corporation whose name and authority had been used in
the manner disclosed in this case. As already observed, it is familiar doctrine that
if a corporation knowingly permits one of its officers, or any other agent, to do
acts within the scope of an apparent authority, and thus holds him out to the
public as possessing power to do those acts, the corporation will, as against any
one who has in good faith dealt with the corporation through such agent, be
estopped from denying his authority; and where it is said "if the corporation
permits" this means the same as "if the thing is permitted by the directing power
of the corporation."
It has also been decided that
A very large part of the business of the country is carried on by corporations. It
certainly is not the practice of persons dealing with officers or agents who
assume to act for such entities to insist on being shown the resolution of the
board of directors authorizing the particular officer or agent to transact the
particular business which he assumes to conduct. A person who knows that the
officer or agent of the corporation habitually transacts certain kinds of business
for such corporation under circumstances which necessarily show knowledge on
the part of those charged with the conduct of the corporate business assumes,
as he has the right to assume, that such agent or officer is acting within the
scope of his authority. (Curtis Land & Loan Co. vs. Interior Land Co., 137 Wis.
341, 118 N.W. 853, 129 Am. St. Rep. 1068; as cited in 2 Fletcher's Encyclopedia,
Priv. Corp. 263, perm. Ed.)
Indeed, it is well-settled that
If a private corporation intentionally or negligently clothes its officers or agents
with apparent power to perform acts for it, the corporation will be estopped to
deny that such apparent authority is real, as to innocent third persons dealing in
good faith with such officers or agents. (2 Fletcher's Encyclopedia, Priv. Corp.
255, Perm. Ed.)

Hence, even if it were the board secretary who sent the telegram, the
corporation could not evade the binding effect produced by the telegram..
The defendant-appellant does not disown the telegram, and even asserts that it
came from its offices, as may be gleaned from the letter, dated 31 May 1960, to
Atty. Francisco, and signed "R. P. Andal, general manager by Leovigildo
Monasterial, legal counsel", wherein these phrases occur: "the telegram
sent ... by this office" and "the telegram we sent your" (emphasis supplied), but
it alleges mistake in couching the correct wording. This alleged mistake cannot
be taken seriously, because while the telegram is dated 20 February 1959, the
defendant informed Atty. Francisco of the alleged mistake only on 31 May 1960,
and all the while it accepted the various other remittances, starting on 28
February 1959, sent by the plaintiff to it in compliance with her performance of
her part of the new contract.
The inequity of permitting the System to deny its acceptance become more
patent when account is taken of the fact that in remitting the payment of
P30,000 advanced by her father, plaintiff's letter to Mr. Andal quoted verbatim
the telegram of acceptance. This was in itself notice to the corporation of the
terms of the allegedly unauthorized telegram, for as Ballentine says:
Knowledge of facts acquired or possessed by an officer or agent of a corporation
in the course of his employment, and in relation to matters within the scope of
his authority, is notice to the corporation, whether he communicates such
knowledge or not. (Ballentine, Law on Corporations, section 112.)
since a corporation cannot see, or know, anything except through its officers.
Yet, notwithstanding this notice, the defendant System pocketed the amount,
and kept silent about the telegram not being in accordance with the true facts,
as it now alleges. This silence, taken together with the unconditional acceptance
of three other subsequent remittances from plaintiff, constitutes in itself a
binding ratification of the original agreement (Civil Code, Art. 1393).
ART. 1393. Ratification may be effected expressly or tacitly. It is understood that
there is a tacit ratification if, with knowledge of the reason which renders the
contract voidable and such reason having ceased, the person who has a right to
invoke it should execute an act which necessarily implies an intention to waive
his right.
Nowhere else do the circumstances call more insistently for the application of the
equitable maxim that 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..
The defendant's assertion that the telegram came from it but that it was
incorrectly worded renders unnecessary to resolve the other point on controversy
as to whether the said telegram constitutes an actionable document..
Since the terms offered by the plaintiff in the letter of 20 February 1959 (Exhibit
"A") provided for the setting aside of the foreclosure effected by the defendant

System, the acceptance of the offer left the account of plaintiff in the same
condition as if no foreclosure had taken place. It follows, as the lower court has
correctly held, that the right of the System to collect attorneys' fees equivalent
to 10% of the due (P35,694.14) and the expenses and charges of P3,300.00 may
no longer be enforced, since by the express terms of the mortgage contract,
these sums were collectible only "in the event of foreclosure."
The court a quo also called attention to the unconscionability of defendant's
charging the attorney's fees, totalling over P35,000.00; and this point appears
well-taken, considering that the foreclosure was merely extra-judicial, and the
attorneys' work was limited to requiring the sheriff to effectuate the foreclosure.
However, in view of the parties' agreement to set the same aside, with the
consequential elimination of such incidental charges, the matter of
unreasonableness of the counsel fees need not be labored further.
Turning now to the plaintiff's separate appeal (Case G.R. No. L-18155): Her prayer
for an award of actual or compensatory damages for P83,333.33 is predicated on
her alleged unrealized profits due to her inability to sell the compound for the
price of P750,000.00 offered by one Vicente Alunan, which sale was allegedly
blocked because the System consolidated the title to the property in its name.
Plaintiff reckons the amount of P83,333.33 by placing the actual value of the
property at P666,666.67, a figure arrived at by assuming that the System's loan
of P400,000.00 constitutes 60% of the actual value of the security. The court a
quo correctly refused to award such actual or compensatory damages because it
could not determine with reasonable certainty the difference between the offered
price and the actual value of the property, for lack of competent evidence.
Without proof we cannot assume, or take judicial notice, as suggested by the
plaintiff, that the practice of lending institutions in the country is to give out as
loan 60% of the actual value of the collateral. Nor should we lose sight of the fact
that the price offered by Alunan was payable in installments covering five years,
so that it may not actually represent true market values.
Nor was there error in the appealed decision in denying moral damages, not only
on account of the plaintiff's failure to take the witness stand and testify to her
social humiliation, wounded feelings, anxiety, etc., as the decision holds, but
primarily because a breach of contract like that of defendant, not being malicious
or fraudulent, does not warrant the award of moral damages under Article 2220
of the Civil Code (Ventanilla vs. Centeno, L-14333, 28 Jan. 1961; Fores vs.
Miranda, L-12163, 4 March 1959).
There is no basis for awarding exemplary damages either, because this species
of damages is only allowed in addition to moral, temperate, liquidated, or
compensatory damages, none of which have been allowed in this case, for
reasons herein before discussed (Art. 2234, Civil Code; Velayo vs. Shell Co. of P.I.,
L-7817, Res. July 30, 1957; Singson, et al. vs. Aragon and Lorza, L-5164, Jan. 27,
1953, 49 O.G. No. 2, 515).
As to attorneys' fees, we agree with the trial court's stand that in view of the
absence of gross and evident bad faith in defendant's refusal to satisfy the

plaintiff's claim, and there being none of the other grounds enumerated in Article
2208 of the Civil Code, such absence precludes a recovery. The award of
attorneys' fees is essentially discretionary in the trial court, and no abuse of
discretion has been shown.
FOR THE FOREGOING REASONS, the appealed decision is hereby affirmed, with
costs against the defendant Government Service Insurance System, in G.R. No.L18287.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes,
Dizon, Regala and Makalintal, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 161757

January 25, 2006

SUNACE INTERNATIONAL MANAGEMENT SERVICES, INC.Petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, Second Division; HON.
ERNESTO S. DINOPOL, in his capacity as Labor Arbiter, NLRC; NCR,
Arbitration Branch, Quezon City and DIVINA A.
MONTEHERMOZO,Respondents.
DECISION
CARPIO MORALES, J.:
Petitioner, Sunace International Management Services (Sunace), a corporation
duly organized and existing under the laws of the Philippines, deployed to Taiwan
Divina A. Montehermozo (Divina) as a domestic helper under a 12-month
contract effective February 1, 1997.1 The deployment was with the assistance of
a Taiwanese broker, Edmund Wang, President of Jet Crown International Co., Ltd.
After her 12-month contract expired on February 1, 1998, Divina continued
working for her Taiwanese employer, Hang Rui Xiong, for two more years, after
which she returned to the Philippines on February 4, 2000.
Shortly after her return or on February 14, 2000, Divina filed a complaint2 before
the National Labor Relations Commission (NLRC) against Sunace, one Adelaide
Perez, the Taiwanese broker, and the employer-foreign principal alleging that she
was jailed for three months and that she was underpaid.
The following day or on February 15, 2000, Labor Arbitration Associate Regina T.
Gavin issued Summons3 to the Manager of Sunace, furnishing it with a copy of
Divinas complaint and directing it to appear for mandatory conference on
February 28, 2000.

The scheduled mandatory conference was reset. It appears to have been

concluded, however.
On April 6, 2000, Divina filed her Position Paper4 claiming that under her original
one-year contract and the 2-year extended contract which was with the
knowledge and consent of Sunace, the following amounts representing income
tax and savings were deducted:
Year

Deduction for Income Tax

Deduction for Savings

1997 NT10,450.00

NT23,100.00

1998 NT9,500.00

NT36,000.00

1999 NT13,300.00

NT36,000.00;5

and while the amounts deducted in 1997 were refunded to her, those deducted
in 1998 and 1999 were not. On even date, Sunace, by its Proprietor/General
Manager Maria Luisa Olarte, filed its Verified Answer and Position Paper, 6 claiming
as follows, quoted verbatim:
COMPLAINANT IS NOT ENTITLED FOR THE REFUND OF HER 24 MONTHS
SAVINGS
3. Complainant could not anymore claim nor entitled for the refund of her 24
months savings as she already took back her saving already last year and the
employer did not deduct any money from her salary, in accordance with
a Fascimile Message from the respondent SUNACEs employer, Jet Crown
International Co. Ltd., a xerographic copy of which is herewith attached
as ANNEX "2" hereof;
COMPLAINANT IS NOT ENTITLED TO REFUND OF HER 14 MONTHS TAX
AND PAYMENT OF ATTORNEYS FEES
4. There is no basis for the grant of tax refund to the complainant as the she
finished her one year contract and hence, was not illegally dismissed by her
employer. She could only lay claim over the tax refund or much more be
awarded of damages such as attorneys fees as said reliefs are available only
when the dismissal of a migrant worker is without just valid or lawful cause as
defined by law or contract.
The rationales behind the award of tax refund and payment of attorneys fees is
not to enrich the complainant but to compensate him for actual injury suffered.
Complainant did not suffer injury, hence, does not deserve to be compensated
for whatever kind of damages.
Hence, the complainant has NO cause of action against respondent SUNACE for
monetary claims, considering that she has been totally paid of all the monetary
benefits due her under her Employment Contract to her full satisfaction.

6. Furthermore, the tax deducted from her salary is in compliance with the
Taiwanese law, which respondent SUNACE has no control and complainant has to
obey and this Honorable Office has no authority/jurisdiction to intervene because
the power to tax is a sovereign power which the Taiwanese Government is
supreme in its own territory. The sovereign power of taxation of a state is
recognized under international law and among sovereign states.
7. That respondent SUNACE respectfully reserves the right to file supplemental
Verified Answer and/or Position Paper to substantiate its prayer for the dismissal
of the above case against the herein respondent. AND BY WAY OF x x x x (Emphasis and underscoring supplied)
Reacting to Divinas Position Paper, Sunace filed on April 25, 2000 an ". . . answer
to complainants position paper"7 alleging that Divinas 2-year extension of her
contract was without its knowledge and consent, hence, it had no liability
attaching to any claim arising therefrom, and Divina in fact executed a
Waiver/Quitclaim and Release of Responsibility and an Affidavit of Desistance,
copy of each document was annexed to said ". . . answer to complainants
position paper."
To Sunaces ". . . answer to complainants position paper," Divina filed a 2-page
reply,8 without, however, refuting Sunaces disclaimer of knowledge of the
extension of her contract and without saying anything about the Release, Waiver
and Quitclaim and Affidavit of Desistance.
The Labor Arbiter, rejected Sunaces claim that the extension of Divinas contract
for two more years was without its knowledge and consent in this wise:
We reject Sunaces submission that it should not be held responsible for the
amount withheld because her contract was extended for 2 more years without its
knowledge and consent because as Annex "B"9 shows, Sunace and Edmund
Wang have not stopped communicating with each other and yet the matter of
the contracts extension and Sunaces alleged non-consent thereto has not been
categorically established.
What Sunace should have done was to write to POEA about the extension and its
objection thereto, copy furnished the complainant herself, her foreign employer,
Hang Rui Xiong and the Taiwanese broker, Edmund Wang.
And because it did not, it is presumed to have consented to the extension and
should be liable for anything that resulted thereform (sic).10 (Underscoring
supplied)
The Labor Arbiter rejected too Sunaces argument that it is not liable on account
of Divinas execution of a Waiver and Quitclaim and an Affidavit of Desistance.
Observed the Labor Arbiter:

Should the parties arrive at any agreement as to the whole or any part of the
dispute, the same shall be reduced to writing and signed by the parties and their
respective counsel (sic), if any, before the Labor Arbiter.
The settlement shall be approved by the Labor Arbiter after being satisfied that it
was voluntarily entered into by the parties and after having explained to them
the terms and consequences thereof.
A compromise agreement entered into by the parties not in the presence of the
Labor Arbiter before whom the case is pending shall be approved by him, if after
confronting the parties, particularly the complainants, he is satisfied that they
understand the terms and conditions of the settlement and that it was entered
into freely voluntarily (sic) by them and the agreement is not contrary to law,
morals, and public policy.
And because no consideration is indicated in the documents, we strike them
down as contrary to law, morals, and public policy. 11
He accordingly decided in favor of Divina, by decision of October 9, 2000, 12 the
dispositive portion of which reads:
Wherefore, judgment is hereby rendered ordering respondents SUNACE
INTERNATIONAL SERVICES and its owner ADELAIDA PERGE, both in their personal
capacities and as agent of Hang Rui Xiong/Edmund Wang to jointly and severally
pay complainant DIVINA A. MONTEHERMOZO the sum of NT91,950.00 in its peso
equivalent at the date of payment, as refund for the amounts which she is
hereby adjudged entitled to as earlier discussed plus 10% thereof as attorneys
fees since compelled to litigate, complainant had to engage the services of
counsel.
SO ORDERED.13 (Underescoring supplied)
On appeal of Sunace, the NLRC, by Resolution of April 30, 2002, 14 affirmed the
Labor Arbiters decision.
Via petition for certiorari,15 Sunace elevated the case to the Court of Appeals
which dismissed it outright by Resolution of November 12, 2002, 16 the full text of
which reads:
The petition for certiorari faces outright dismissal.
The petition failed to allege facts constitutive of grave abuse of discretion on the
part of the public respondent amounting to lack of jurisdiction when the NLRC
affirmed the Labor Arbiters finding that petitioner Sunace International
Management Services impliedly consented to the extension of the contract of
private respondent Divina A. Montehermozo. It is undisputed that petitioner was
continually communicating with private respondents foreign employer (sic). As
agent of the foreign principal, "petitioner cannot profess ignorance of such
extension as obviously, the act of the principal extending

complainant (sic) employment contract necessarily bound it." Grave

abuse of discretion is not present in the case at bar.
ACCORDINGLY, the petition is hereby DENIED DUE
COURSE and DISMISSED.17
SO ORDERED.
(Emphasis on words in capital letters in the original; emphasis on words in small
letters and underscoring supplied)
Its Motion for Reconsideration having been denied by the appellate court by
Resolution of January 14, 2004,18Sunace filed the present petition for review on
certiorari.
The Court of Appeals affirmed the Labor Arbiter and NLRCs finding that Sunace
knew of and impliedly consented to the extension of Divinas 2-year contract. It
went on to state that "It is undisputed that [Sunace] was continually
communicating with [Divinas] foreign employer." It thus concluded that "[a]s
agent of the foreign principal, petitioner cannot profess ignorance of such
extension as obviously, the act of the principal extending complainant (sic)
employment contract necessarily bound it."
Contrary to the Court of Appeals finding, the alleged continuous communication
was with the Taiwanese brokerWang, not with the foreign employer Xiong.
The February 21, 2000 telefax message from the Taiwanese broker to Sunace,
the only basis of a finding of continuous communication, reads verbatim:
xxxx
Regarding to Divina, she did not say anything about her saving in police
station. As we contact with her employer, she took back her saving
already last years. And they did not deduct any money from her salary.
Or she will call back her employer to check it again. If her employer said
yes! we will get it back for her.
Thank you and best regards.
(Sgd.)
Edmund Wang
President19
The finding of the Court of Appeals solely on the basis of the above-quoted
telefax message, that Sunace continually communicated with the foreign
"principal" (sic) and therefore was aware of and had consented to the execution
of the extension of the contract is misplaced. The message does not provide
evidence that Sunace was privy to the new contract executed after the
expiration on February 1, 1998 of the original contract. That Sunace and the
Taiwanese broker communicated regarding Divinas allegedly withheld savings

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

WHEREFORE, the petition is GRANTED. The challenged resolutions of the Court

of Appeals are herebyREVERSED and SET ASIDE. The complaint of respondent
Divina A. Montehermozo against petitioner isDISMISSED.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
ANTONIO T. CARPIO
Associate Justice

DANTE O. TINGA
Asscociate Justice

ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, and the Division
Chairmans Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Court.
ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes
1

NLRC records, p. 18.

Id. at 2.

Id. at 5.

Id. at 21-26.

Id. at 52.

Id. at 13-19.

Id. at 28-34.

Id. at 36-37.

Photocopy of a telefax message of Taiwanese broker Wang to Sunace, NLRC

records, p. 26.
10

NLRC records, pp. 55-56.

11

Id. at 56-57 (citations omitted).

12

Id. at 51-58.

13

Id. at 57-58.

14

Id. at 190-196.

15

CA rollo, pp. 2-113.

16

Penned by Associate Justice Ruben T. Reyes with Associate Justices Remedios

Salazar-Fernando and Edgardo F. Sundiam, concurring.
17

CA rollo, pp. 115-116 (citations omitted).

18

Id. at 154-157.

19

Supra note 9.

20

CA rollo, pp. 146-152.

21

Id. at 148.

22

Id. at 29, 116 and 157.

23

Rovels Enterprises, Inc. v. Ocampo, G.R. No. 136821, October 17, 2002, 391
SCRA 176; vide Air France v. Court of Appeals, et al., 211 Phil. 601 (1983).
24

Civil Code, Article 1311.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 114311 November 29, 1996

COSMIC LUMBER CORPORATION, petitioner,
vs.
COURT OF APPEAL and ISIDRO PEREZ, respondents.

BELLOSILLO, J.:
COSMIC LUMBER CORPORATION through its General Manager executed on 28
January 1985 a Special Power of Attorney appointing Paz G. Villamil-Estrada as
attorney-in-fact
. . . to initiate, institute and file any court action for the ejectment of third
persons and/or squatters of the entire lot 9127 and 443 and covered by TCT Nos.
37648 and 37649, for the said squatters to remove their houses and vacate the
premises in order that the corporation may take material possession of the entire
lot, and for this purpose, to appear at the pre-trial conference and enter into any
stipulation of facts and/or compromise agreement so far as it shall protect the
rights and interest of the corporation in the aforementioned lots. 1
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney,
instituted an action for the ejectment of private respondent Isidro Perez and
recover the possession of a portion of Lot No. 443 before the Regional Trial Court
of Dagupan, docketed as Civil Case No. D-7750. 2
On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement
with respondent Perez, the terms of which follow:
1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer
Rodolfo dela Cruz the area at present occupied by defendant wherein his house
is located is 333 square meters on the easternmost part of lot 443 and which
portion has been occupied by defendant for several years now;
2. That to buy peace said defendant pays unto the plaintiff through herein
attorney-in-fact the sum of P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and possession of the defendant by
virtue of this compromise agreement over said portion of 333 square m. of lot
443 which portion will be located on the easternmost part as indicated in the
sketch as annex A;
4. Whatever expenses of subdivision, registration, and other incidental expenses
shall be shouldered by the defendant. 3
On 27 November 1985 the "Compromise Agreement" was approved by the trial
court and judgment was rendered in accordance therewith. 4
Although the decision became final and executory it was not executed within the
5-year period from date of its finality allegedly due to the failure of petitioner to
produce the owner's duplicate copy of Title No. 37649 needed to segregate from
Lot No. 443 the portion sold by the attorney-in-fact, Paz G. Villamil-Estrada, to
private respondent under the compromise agreement. Thus on 25 January 1993
respondent filed a complaint to revive the judgment, docketed as Civil Case No.
D-10459. 5
Petitioner asserts that it was only when the summons in Civil Case No. D-10459
for the revival of judgment was served upon it that it came to know of the

compromise agreement entered into between Paz G. Villamil-Estrada and

respondent Isidro Perez upon which the trial court based its decision of 26 July
1993 in Civil Case No. D-7750. Forthwith, upon learning of the fraudulent
transaction, petitioner sought annulment of the decision of the trial court before
respondent Court of Appeals on the ground that the compromise agreement was
void because: (a) the attorney-in-fact did not have the authority to dispose of,
sell, encumber or divest the plaintiff of its ownership over its real property or any
portion thereof; (b) the authority of the attorney-in-fact was confined to the
institution and filing of an ejectment case against third persons/squatters on the
property of the plaintiff, and to cause their eviction therefrom; (c) while the
special power of attorney made mention of an authority to enter into a
compromise agreement, such authority was in connection with, and limited to,
the eviction of third persons/squatters thereat, in order that "the corporation
may take material possession of the entire lot;" (d) the amount of P26,640.00
alluded to as alleged consideration of said agreement was never received by the
plaintiff; (e) the private defendant acted in bad faith in. the execution of said
agreement knowing fully well the want of authority of the attorney-in-fact to sell,
encumber or dispose of the real property of plaintiff; and, (f) the disposal of a
corporate property indispensably requires a Board Resolution of its Directors, a
fact which is wanting in said Civil Case No. D-7750, and the General Manager is
not the proper officer to encumber a corporate property. 6
On 29 October 1993 respondent court dismissed the complaint on the basis of its
finding that not one of the grounds for annulment, namely, lack of jurisdiction,
fraud or illegality was shown to exist. 7 It also denied the motion for
reconsideration filed by petitioner, discoursing that the alleged nullity of the
compromise judgment on the ground that petitioner's attorney-in-fact VillamilEstrada was not authorized to sell the subject propety may be raised as a
defense in the execution of the compromise judgment as it does not bind
petitioner, but not as a ground for annulment of judgment because it does not
affect the jurisdiction of the trial court over the action nor does it amount to
extrinsic fraud. 8
Petitioner challenges this verdict. It argues that the decision of the trial court is
void because the compromise agreement upon which it was based is void.
Attorney-in-fact Villamil-Estrada did not possess the authority to sell or was she
armed with a Board Resolution authorizing the sale of its property. She was
merely empowered to enter into a compromise agreement in the recovery suit
she was authorized to file against persons squatting on Lot No. 443, such
authority being expressly confined to the "ejectment of third persons or
squatters of . . . lot . . . (No.) 443 . . . for the said squatters to remove their
houses and vacate the premises in order that the corporation may take material
possession of the entire lot . . ."
We agree with petitioner. The authority granted Villamil-Estrada under the
special power of attorney was explicit and exclusionary: for her to institute any
action in court to eject all persons found on Lots Nos. 9127 and 443 so that
petitioner could take material possession thereof, and for this purpose, to appear

at the pre-trial and enter into any stipulation of facts and/or compromise
agreement but only insofar as this was protective of the rights and interests of
petitioner in the property. Nowhere in this authorization was Villamil-Estrada
granted expressly or impliedly any power to sell the subject property nor a
portion thereof. Neither can a conferment of the power to sell be validly inferred
from the specific authority "to enter into a compromise agreement" because of
the explicit limitation fixed by the grantor that the compromise entered into shall
only be "so far as it shall protect the rights and interest of the corporation in the
aforementioned lots." In the context of the specific investiture of powers to
Villamil-Estrada, alienation by sale of an immovable certainly cannot be deemed
protective of the right of petitioner to physically possess the same, more so when
the land was being sold for a price of P80.00 per square meter, very much less
than its assessed value of P250.00 per square meter, and considering further
that petitioner never received the proceeds of the sale.
When the sale of a piece of land or any interest thereon is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void. 9 Thus
the authority of an agent to execute a contract for the sale of real estate must be
conferred in writing and must give him specific authority, either to conduct the
general business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute. 10 A special power
of attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable
consideration. 11 The express mandate required by law to enable an appointee of
an agency (couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of the act
mentioned. 12 For the principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the powers of the agent in clear and
unmistakable language. When there is any reasonable doubt that the language
so used conveys such power, no such construction shall be given the
document. 13
It is therefore clear that by selling to respondent Perez a portion of petitioner's
land through a compromise agreement, Villamil-Estrada acted without or in
obvious authority. The sale ipso jure is consequently void. So is the compromise
agreement. This being the case, the judgment based thereon is necessarily void.
Antipodal to the opinion expressed by respondent court in resolving petitioner's
motion for reconsideration, the nullity of the settlement between Villamil-Estrada
and Perez impaired the jurisdiction of the trial court to render its decision based
on the compromise agreement. In Alviar v. Court of First Instance of La
Union, 14the Court held
. . . this court does not hesitate to hold that the judgment in question is null and
void ab initio. It is not binding upon and cannot be executed against the
petitioners. It is evident that the compromise upon which the judgment was
based was not subscribed by them . . . Neither could Attorney Ortega bind them
validly in the compromise because he had no special authority . . .

As the judgment in question is null and void ab initio, it is evident that the court
acquired no jurisdiction to render it, much less to order the execution thereof . . .
. . . A judgment, which is null and void ab initio, rendered by a court without
jurisdiction to do so, is without legal efficacy and may properly be impugned in
any proceeding by the party against whom it is sought to be enforced . . .
This ruling was adopted in Jacinto v. Montesa, 15 by Mr. Justice J. B.L. Reyes, a
much-respected authority on civil law, where the Court declared that a judgment
based on a compromise entered into by an attorney without specific authority
from the client is void. Such judgment may be impugned and its execution
restrained in any proceeding by the party against whom it is sought to be
enforced. The Court also observed that a defendant against whom a judgment
based on a compromise is sought to be enforced may file a petition
for certiorari to quash the execution. He could not move to have the compromise
set aside and then appeal from the order of denial since he was not a party to
the compromise. Thus it would appear that the obiter of the appellate court that
the alleged nullity of the compromise agreement should be raised as a defense
against its enforcement is not legally feasible. Petitioner could not be in a
position to question the compromise agreement in the action to revive the
compromise judgment since it was never privy to such agreement. VillamilEstrada who signed the compromise agreement may have been the attorney-infact but she could not legally bind petitioner thereto as she was not entrusted
with a special authority to sell the land, as required in Art. 1878, par. (5), of the
Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the
Court of Appeals to annul and set aside judgments of Regional Trial
Courts. 16 "Thus, the Intermediate Appellant Court (now Court of Appeals) shall
exercise . . . (2) Exclusive original jurisdiction over action for annulment of
judgments of the Regional Trial Courts . . ." However, certain requisites must first
be established before a final and executory judgment can be the subject of an
action for annulment. It must either be void for want of jurisdiction or for lack of
due process of law, or it has been obtained by fraud. 17
Conformably with law and the above-cited authorities, the petition to annul the
decision of the trial court in Civil Case No. D-7750 before the Court of Appeals
was proper. Emanating as it did from a void compromise agreement, the trial
court had no jurisdiction to render a judgment based thereon. 18
It would also appear, and quite contrary to the finding of the appellate court, that
the highly reprehensible conduct of attorney-in-fact Villamil-Estrada in Civil Case
No. 7750 constituted an extrinsic or collateral fraud by reason of which the
judgment rendered thereon should have been struck down. Not all the legal
semantics in the world can becloud the unassailable fact that petitioner was
deceived and betrayed by its attorney-in-fact, Villamil-Estrada deliberately
concealed from petitioner, her principal, that a compromise agreement had been
forged with the end-result that a portion of petitioner's property was sold to the
deforciant, literally for a song. Thus completely kept unaware of its agent's

artifice, petitioner was not accorded even a fighting chance to repudiate the
settlement so much so that the judgment based thereon became final and
executory.
For sure, the Court of Appeals restricted the concept of fraudulent acts within too
narrow limits. Fraud may assume different shapes and be committed in as many
different ways and here lies the danger of attempting to define fraud. For man in
his ingenuity and fertile imagination will always contrive new schemes to fool the
unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129,
where it is one the effect of which prevents a party from hearing a trial, or real
contest, or from presenting all of his case to the court, or where it operates upon
matters, not pertaining to the judgment itself, but to the manner in which it was
procured so that there is not a fair submission of the controversy. In other words,
extrinsic fraud refers to any fraudulent act of the prevailing party in the litigation
which is committed outside of the trial of the case, whereby the defeated party
has been prevented from exhibiting fully his side of the case by fraud or
deception practiced on him by his opponent. 19 Fraud is extrinsic where the
unsuccessful party has been prevented from exhibiting fully his case, by fraud or
deception practiced on him by his opponent, as by keeping him away from court,
a false promise of a compromise; or where the defendant never had knowledge
of the suit, being kept in ignorance by the acts of the plaintiff; or where an
attorney fraudulently or without authority connives at his defeat; these and
similar cases which show that there has never been a real contest in the trial or
hearing of the case are reasons for which a new suit may be sustained to set
aside and annul the former judgment and open the case for a new and fair
hearing. 20
It may be argued that petitioner knew of the compromise agreement since the
principal is chargeable with and bound by the knowledge of or notice to his agent
received while the agent was acting as such. But the general rule is intended to
protect those who exercise good faith and not as a shield for unfair dealing.
Hence there is a well-established exception to the general rule as where the
conduct and dealings of the agent are such as to raise a clear presumption that
he will not communicate to the principal the facts in controversy. 21 The logical
reason for this exception is that where the agent is committing a fraud, it would
be contrary to common sense to presume or to expect that he would
communicate the facts to the principal. Verily, when an agent is engaged in the
perpetration of a fraud upon his principal for his own exclusive benefit, he is not
really acting for the principal but is really acting for himself, entirely outside the
scope of his agency. 22 Indeed, the basic tenets of agency rest on the highest
considerations of justice, equity and fair play, and an agent will not be permitted
to pervert his authority to his own personal advantage, and his act in secret
hostility to the interests of his principal transcends the power afforded him. 23
WHEREFORE, the petition is GRANTED. The decision and resolution of respondent
Court of Appeals dated 29 October 1993 and 10 March 1994, respectively, as

well as the decision of the Regional Trial Court of Dagupan City in Civil Case No.
D-7750 dated 27 November 1985, are NULLIFIED and SET ASIDE. The
"Compromise Agreement" entered into between Attorney-in-fact Paz G. VillamilEstrada and respondent Isidro Perez is declared VOID. This is without prejudice to
the right of petitioner to pursue its complaint against private respondent Isidro
Perez in Civil Case No. D-7750 for the recovery of possession of a portion of Lot
No. 443.
SO ORDERED.
Padilla, Vitug and Hermosisima, Jr., JJ., concur.
Kapunan, J., took no part.
Footnotes
1 CA Rollo, pp. 11.
2 Assigned to Br. 44.
3 CA Rollo, p. 17.
4 Penned by Judge Crispin C. Laron; id., p. 19.
5 Assigned to Br. 42.
6 CA Rollo, pp. 5-6.
7 Penned by Justice Minerva P. Gonzaga-Reyes with the concurrence of Justices
Santiago M. Kapunan and Eduardo G. Montenegro; Rollo, p. 43.
8 Rollo, p. 49.
9 Art. 1847, Civil Code of the Philippines.
10 Johnson v. Lennox, 55 Colo. 125, 133 P 744.
11 Art. 1878, par. (5), Civil Code of the Philippines.
12 Strong v. Gutierrez Repide, 6 Phil. 680 (1906).
13 Lian v. Puno, 31 Phil. 259 (1915).
14 64 Phil. 301, 305-306 (1937).
15 No. L-23098, 28 February 1967, 19 SCRA 513, 518-519. See also Quiban v.
Butalid, G.R. No. 90974, 27 August 1990, 189 SCRA 107.
16 Goldhoop Properties, Inc. v. Court of Appeals, G.R. No. 99431, 11 August
1992, 212 SCRA 498; Mercado v. Ubay, No. L-36830, 24 July 1990, 187 SCRA 719;
Gerardo v. De la Pea, G.R. No. 61527, 26 December 1990, 192 SCRA 691.
17 Islamic Da 'Wah Council of the Philippines v. Court of Appeals, G.R. No. 80892,
29 September 1989, 178 SCRA 178; Ramirez v. Court of Appeals, G.R. No. 76366,

3 July 1990, 187 SCRA 153; Ruiz v. Court of Appeals, G.R. No. 93454, 13
September 1991, 210 SCRA 577; Santos v. Court of Appeals, G.R. No. 59771, 21
July 1993, 224 SCRA 673. See also Parcon v. Court of Appeals, G.R. No. 85740, 9
November 1990, 191 SCRA 284.
18 See notes 14 and 15.
19 Macabingkil v. PHHC, No. L-29080, 17 August 1976, 72 SCRA 326, 343-344.
20 Id., p. 344 citing US v. Throckmorton, 25 L. Ed. 93, 95.
21 Mutual Life Ins. Co. v. Hilton Green, 241 US 613, 60 L Ed. 1202.
22 Aetna Casualty and Surety Co. v. Local Bldg. and Loan Assoc., 19 P2d 612,
616.
23 Strong v. Strong, 36 A2d 410, 415.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 94071 March 31, 1992

NEW LIFE ENTERPRISES and JULIAN SY, petitioners,
vs.
HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION,
RELIANCE SURETY AND INSURANCE CO., INC. and WESTERN GUARANTY
CORPORATION, respondents.

REGALADO, J.:
This appeal by certiorari seeks the nullification of the decision 1 of respondent
Court of Appeals in CA-G.R. CV No. 13866 which reversed the decision of the
Regional Trial Court, Branch LVII at Lucena City, jointly deciding Civil Cases Nos.
6-84, 7-84 and 8-84 thereof and consequently ordered the dismissal of the
aforesaid actions filed by herein petitioners.
The undisputed background of this case as found by the court a quo and
adopted by respondent court, being sustained by the evidence on record, we
hereby reproduce the same with approval. 2
The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a
business partnership in the City of Lucena. Under the business name of New Life
Enterprises, the partnership engaged in the sale of construction
materials at its place of business, a two storey building situated at Iyam,

Lucena City. The facts show that Julian Sy insured the stocks in trade of New Life
Enterpriseswith Western Guaranty Corporation, Reliance Surety and Insurance.
Co., Inc., and Equitable Insurance Corporation.
On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No.
37201 in the amount of P350,000.00. This policy was renewed on May, 13, 1982.
On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire
Insurance Policy No. 69135 inthe amount of P300,000.00 (Renewed under
Renewal Certificate No. 41997) An additional
insurancewas issued by the same company on
November 12, 1981 under Fire Insurance Policy No. 71547 in the amount of
P700,000.00.
On February 8, 1982, Equitable Insurance
Corporation issued Fire Insurance Policy No. 39328 in the amount of
P200,000.00.
Thus when the building occupied by the New Life Enterprises
was gutted by fire at about 2:00 o'clockin the morning of October 19, 1982, the
stocks in the trade inside said building were insured against
fire in the total amount of P1,550,000.00.
According to the certification issued by the Headquarters,Philippine Constabulary
/Integrated National Police, Camp Crame, the cause of fire was
electrical innature. According to the plaintiffs,
the building and the stocks inside were burned.
After the fire, JulianSy went to the agent of
Reliance Insurance whom he asked to accompany him to the
office of thecompany so that he can file
his claim. He averred that in support of his claim, he
submitted the fireclearance, the insurance policies and inventory of stocks. He
further testified that the three insurance companies are sister
companies, and as a matter of fact when he was following-up his claim with
Equitable Insurance, the Claims Manager told him to go first to Reliance
Insurance and if saidcompany agrees to pay, they would also pay. The same
treatment was given him by the otherinsurance
companies. Ultimately, the three insurance companies denied plaintiffs' claim for
payment.
In its letter of denial dated March 9, 1983, (Exhibit "C" No. 884) Western Guaranty Corporationthrough Claims Manager Bernard S. Razon told
the plaintiff that his claim "is
denied for breach ofpolicy conditions." Reliance Insurance purveyed the same
message in its letter dated November 23, 1982 and signed by Executive VicePresident Mary Dee Co (Exhibit "C" No. 7-84) which said that "plaintiff's
claim is denied for breach of policy conditions."
The letter of denial received by the plaintifffrom Equitable Insurance
Corporation (Exhibit "C" No. 6-84) was of the same tenor, as said letter dated
February 22, 1983, and signed by Vice-President

Elma R. Bondad, said "we find that certain

policy conditions were violated, therefore, we regret,
we have to deny your claim, as it is hereby denied in its entirety."
In relation to the case against Reliance
Surety and Insurance Company, a certain Atty. Serafin D. Dator, actingin behalf
of the plaintiff, sent a letter dated February 13, 1983 (Exhibit "G-l" No 784) to Executive Vice-President Mary Dee Co asking that he be informed as to
the specific policy conditions allegedly violated by theplaintiff. In her reply-letter
dated March 30, 1983, Executive Vice-President Mary Dee Co informed Atty.
Datorthat Julian Sy violated Policy Condition No. "3" which requires the insured
to give notice of any insurance orinsurances already effected covering the stocks
in trade. 3
Because of the denial of their claims for payment by the three (3) insurance
companies, petitioner filed separate
civil actions against the former before the Regional Trial
Court of Lucena City, which cases were consolidated for trial,
and thereafter the court below rendered its decision on December 19, l986 with
the following disposition:
WHEREFORE, judgment in the above-entitled cases is rendered in the following
manner, viz:
1. In Civil Case No. 6-84, judgment is rendered for the
plaintiff New Life Enterprises and against the defendant Equitable Insurance
Corporation ordering the latter to pay the former the sum of
TwoHundred Thousand (P200,000.00) Pesos and
considering that payment of the claim of the insuredhas been unreasonably deni
ed, pursuant to Sec. 244 of the Insurance Code, defendant is furtherordered to p
ay the plaintiff attorney's fees in the amount of Twenty Thousand (P20,000.00)
Pesos. Allsums of money to be paid by virtue
hereof shall bear interest at 12% per annum (pursuant
to Sec.244 of the Insurance Code) from
February 14, 1983, (91st day from November 16, 1982, when SwornStatement of
Fire Claim was received from the insured) until they are fully paid;
2. In Civil Case No. 784, judgment is rendered for the plaintiff Julian Sy and against
the defendantReliance Surety and Insurance Co.,
Inc., ordering the latter to pay the former the sum
ofP1,000,000.00 (P300,000.00 under Policy
No. 69135 and P700,000.00 under Policy No. 71547)
andconsidering that payment of the claim of the
insured has been unreasonably denied, pursuant to
Sec.244 of the Insurance Code, defendant is further ordered
to pay the plaintiff the amount of P100,000.00 as attorney's fees.

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

petitioners. 6 The policy

issued by respondent Western GuarantyCorporation (Western) did not
declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and
respondent Equitable Insurance Corporation (Equitable) as coinsurers on the same stocks,
while Reliance'sPolicies covering the same stocks did not
likewise declare Western and Equitable as such co-insurers. It is
furtheradmitted by petitioners that Equitable's policy stated "nil" in the space
thereon requiring indication of any co-insurance although there were three (3)
policies subsisting on the same stocks in trade at the time of the loss,namely,
that of Western in the amount of P350,000.00 and two (2) policies of Reliance in
the total amount of P1,000,000.00. 7
In other words, the coverage by other insurance or co-insurance effected
or subsequently arranged by petitioners were neither stated nor endorsed in the
policies of the three (3) private respondents, warranting forfeiture of all benefits
thereunder if we are to follow the express stipulation in the aforequoted Policy
Condition No. 3.
Petitioners contend that they are not to be blamed for the omissions,
alleging that insurance agent Leon Alvarez (for Western) and Yap Kam Chuan (for
Reliance and Equitable) knew about the existence of the additional
insurance coverage and that they were not informed about the requirement that
such other or additional insurance should be stated in the
policy, as they have not even read policies. 8 These contentions cannot pass
judicial muster.
The terms of the contract are clear and unambiguous.
The insured is specifically required to disclose to the insurer any other insurance
and its particulars which he may have effected on the
same subject matter. Theknowledge of such insurance
by the insurer's agents, even assuming the acquisition thereof by the former,
is notthe "notice" that would estop the insurers from denying the claim. Besides,
the so-called theory of imputed knowledge, that is, knowledge of the agent is
knowledge of the principal, aside from being
of dubious applicabilityhere has likewise been roundly
refuted by respondent court whose factual findings we find acceptable.
Thus, it points out that while petitioner Julian Sy
claimed that he had informed insurance agent Alvarez regarding the coinsurance on the property, he contradicted
himself by inexplicably claiming that he had not read the termsof the policies;
that Yap Dam Chuan could not likewise have obtained such
knowledge for the same reason, asidefrom the fact that
the insurance with Western was obtained before those of
Reliance and Equitable; and that theconclusion of
the trial court that Reliance and Equitable are "sister
companies" is an unfounded conjecture drawnfrom the mere fact that Yap Kam

Chuan was an agent for both companies which also had the
same insuranceclaims adjuster. Availment of the
services of the same agents and adjusters by different companies is a
commonpractice in the insurance business and such facts
do not warrant the speculative conclusion of the trial court.
Furthermore, when the words and language of documents are clear and plain
or readily understandable by an ordinary reader thereof, there is absolutely no
room for interpretation or construction anymore. 9 Courts are not allowed to
make contracts for the parties; rather, they will intervene
only when the terms of the policy areambiguous, equivocal,
or uncertain. 10 The parties must abide by the
terms of the contract because such termsconstitute the
measure of the insurer's liability and compliance therewith is a
condition precedent to the insured'sright of recovery from the insurer. 11
While it is a cardinal principle of insurance law that a policy or contract
of insurance is to be construed liberally
infavor of the insured and strictly against the insurer
company, yet contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which
the parties themselves have used. If suchterms are clear and
unambiguous, they must be taken and understood in their plain, ordinary and
popular sense.12 Moreover,
obligations arising from contracts have the force of law between
the contracting parties and shouldbe complied with in good faith. 13
Petitioners should be aware of the fact that a party is not relieved of the duty to
exercise the ordinary care and prudence that would be exacted in relation to
other contracts. The conformity of the insured to the terms of the
policy is implied from his failure to express any disagreement with
what is provided for. 14 It may be true that themajority rule, as cited
by petitioners, is that injured
persons may accept policies without reading them, and that this is not
negligence per se. 15 But, this is not without any exception. It is and was
incumbent upon petitioner Sy to read the insurance contracts, and this can be
reasonably expected of him considering that he has been a businessman since
1965 16 and the contract concerns indemnity in case of loss in his moneymaking trade ofwhich important
consideration he could not have been unaware as it was pre-in case of loss in his
money-making trade of which important consideration he could not have been
unaware as it was precisely the reason for his procuring the same.
We reiterate our pronouncement in Pioneer Insurance and Surety Corporation vs.
Yap: 17
...
And considering the terms of the policy which required the insured to declare oth
er insurances,the statement in question must be deemed to be a statement

(warranty) binding on both insurer and insured, that there were no other
insurance on the property. . . .
The annotation then, must be deemed
to be a warranty that the property was not insured by any other policy.
Violation thereof entitled the insurer to rescind (Sec. 69, Insurance
Act). Suchmisrepresentation is fatal in the light of our views in Santa Ana vs.
Commercial Union Assurance Company, Ltd., 55 Phil. 329. The materiality of nondisclosure of other insurance policies is not open to doubt.
xxx xxx xxx
The obvious purpose of the aforesaid requirement in the policy
is to prevent over-insurance and thus avert the perpetration of fraud. The public,
as well as the insurer, is interested in preventing the situation
in which a fire would be profitable to the insured. According to Justice Story: "The
insured has no right to complain, for he assents to comply
with all the stipulations on his side, in order toentitle himself to the
benefit of the contract, which, upon reason or principle, he
has no right to askthe court to dispense with the
performance of his own part of the agreement, and yet to bind the otherparty to
obligations, which, but for those stipulations, would not have been entered into."
Subsequently, in the case of Pacific Banking Corporation vs. Court of Appeals, et
al., 18 we held:
It is not disputed that the insured failed to reveal before the
loss three other insurances. As found by the Court
of Appeals, by reason of said unrevealed insurances, the insured had been
guilty of a falsedeclaration; a clear misrepresentation and a vital one because
where the insured had been asked to reveal
but did not, that was deception. Otherwise stated, had the
insurer known that there were many co-insurances, it could have hesitated or
plainly desisted from entering into such contract.
Hence, theinsured was guilty of clear fraud (Rollo, p. 25).
Petitioner's contention that the allegation of fraud is but
a mere inference or suspicion is untenable. In fact, concrete evidence of fraud or
false declaration by the insured was furnished by the petitioner itself when the
facts alleged in the policy under clauses "Co-Insurances Declared" and
"OtherInsurance Clause" are materially different from the actual number of coinsurances taken over thesubject property. Consequently, "the whole foundation
of the contract fails, the
risk does not attachand the policy never becomes a contract between the
parties." Representations of facts are the foundation of the contract and if
the foundation does not exist, the superstructure does
not arise.Falsehood in such representations is not shown to vary
or add to the contract, or to terminate a contract which has once been made, but
to show that no contract has ever

existed (Tolentino,Commercial Laws of the Philippines, p.

991, Vol. II, 8th Ed.,) A void or inexistent contract is one which has no
force and effect from the very beginning, as if it had never been entered into,
and which cannot be validated either by time or by ratification
(Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA, 1986).
As the insurance policy against fire expressly required that notice should be
given by the insured ofother insurance upon the same property,
the total absence of such notice nullifies the policy.
To further warrant and justify the forfeiture of the
benefits under the insurance contracts involved, we need
merelyto turn to Policy Condition No. 15 thereof, which reads in part:
15. . . . if any false declaration be made or used
in support thereof, . . . all benefits under this Policy shall be forfeited . . . .

19

Additionally, insofar as the liability of respondent

Reliance is concerned, it is not denied that the complaint for recovery was filed in
court by petitioners only on
January 31, 1984, or after more than one (1) year had
elapsedfrom petitioners' receipt of the insurers' letter of
denial on November 29, 1982. Policy Condition No. 27 of their insurance contract
with Reliance provides:
27. Action or suit
clause. If a claim be made and rejected and an action or suit be not commenc
ed
either inthe Insurance Commission or any court of competent jurisdiction of notic
e of such rejection, or in case ofarbitration taking place
as provided herein, within twelve (12) months after due
notice of the award made by thearbitrator or arbitrators
or umpire, then the claim shall for all purposes be
deemed to have been abandoned andshall not thereafter be recoverable
hereunder. 20
On this point, the trial court ruled:
. . . However, because of the peculiar circumstances of this case, we hesitate
in concluding that plaintiff's rightto ventilate his claim in court has been barred b
y reason of the time constraint provided in the insurancecontract. It is
evident that after the plaintiff had received
the letter of denial, he still found it necessary to beinformed of the specific cause
s or reasons for the denial of his claim, reason for which his lawyer, Atty. Dator
deemed it wise to send a
letter of inquiry to the defendant which was answered by
defendant's Executive Vice-President in a letter
dated March 30, 1983, . . . . Assuming, gratuitously, that the letter of Executive V
ice-President Mary Dee Co dated March 30, 1983, was received by plaintiff

on the same date, the period oflimitation should start to run only from said date
in the spirit of fair play and equity. . . . 21
We have perforce to reject this theory of the court below for being contrary to
what we have heretofore declared:
It is important to note the principle laid down by this Court in the case of Ang vs.
Fulton Fire Insurance Co. (2 SCRA 945 [1961]) to wit:
The condition contained in an insurance policy that claims must be presented
within one year
after rejection is not merely a procedural requirement but an important matter
essential to a prompt settlement of claims against insurance companies as it
demandsthat insurance suits be brought by
the insured while the evidence as to the origin andcause of destruction have not
yet disappeared.
In enunciating the above-cited principle, this Court had definitely
settled the rationale for the necessity of bringing suits against the Insurer
within one year from the rejection of the claim. The contention
of the respondents that the one-year prescriptive period does
not start to run until thepetition for reconsideration had been resolved by the ins
urer, runs counter to the declared purpose for requiring that an
action or suit be filed in the Insurance Commission or in a court of competent
jurisdiction from the denial of the claim. To uphold respondents' contention would
contradict anddefeat the very principle which this Court had
laid down. Moreover, it can easily be used by insured persons as a scheme or
device to waste time until any evidence which may be considered againstthem is
destroyed.
xxx xxx xxx
While in the Eagle Star case (96 Phil. 701),
this Court uses the phrase "final rejection", the
same cannot betaken to mean the rejection of a petition for reconsideration as
insisted by respondents.
Such was clearly notthe meaning contemplated by this Court. The insurance poli
cy in said case provides that the insured should file his claim first, with
the carrier and then with the insurer.
The "final rejection" being referred to in said case is the rejection by the
insurance company. 22
Furthermore, assuming arguendo that petitioners felt the
legitimate need to be clarified as to the policy condition violated, there was a
considerable lapse of time from their receipt of the insurer's clarificatory letter
dated March 30, 1983, up to the time the complaint was filed in court on
January 31, 1984. The one-year prescriptive periodwas yet
to expire on November 29, 1983, or about eight (8) months from the
receipt of the clarificatory letter, butpetitioners let the

period lapse without bringing their action in court.

We accordingly find no "peculiarcircumstances" sufficient to
relax the enforcement of the one-year prescriptive period and
we, therefore, hold thatpetitioners' claim was definitely filed out of time.
WHEREFORE, finding no cogent reason to disturb the judgment
of respondent Court of Appeals, the same ishereby AFFIRMED.
SO ORDERED.
Melencio-Hererra and Nocon, JJ., concur.
Paras, J., took no part.
Padilla, J., took no part.

Footnotes
1 Justice Serafin V.C. Guingona, ponente, with Justices Gloria C. Paras and
Bonifacio A. Cacdac, Jr., concurring Rollo, 51.
2 Per Judge Hoover S. Abling.
3 Rollo, 34-36.
4 Ibid., 32-33.
5 Exhibits "20-c", "18-b", "14-b"; Folder of Exhibit, 20, 29, 31.
6 Memorandum for Petitioners, 13.
7 Rollo, 35.
8 Memorandum for the Petitioners, 13.
9 Marina Port Services, Inc. vs. Iniego, et al., 181 SCRA 304 (1990).
10 Pan Malayan Insurance Corporation vs. Court of Appeals, et al., 184 SCRA 54
(1990).
11 Perla Compania de Seguros, Inc. vs. Court of Appeals, et al., 185 SCRA 741
(1990).
12 Sun Insurance Office, Ltd. vs. Court of Appeals, et al., 195 SCRA 193 (1991).
13 Article 1159, Civil Code.
14 Ang Giok Chip, etc. vs. Springfield Fire & Marine Insurance Company, 56 SCRA
375 (1931).
15 Vance on Insurance, 1951 ed., 257; Memorandum for the Petitioners, 22.

16 TSN, February 11, 1986, 28.

17 61 SCRA 426 (1974), citing General Insurance & Surety Corporation vs.
Ng Hua, 106 Phil. 1117, 1119-1120 (1960).
18 168 SCRA 1 (1988).
19 Exhibits "20-d", "18-e, "14-e"; Folder of Exhibits, 21, 30, 33.
20 Exhibit "14-f"; Folder of Exhibits, 33.
21 Rollo, 49.
22 Sun Insurance Office, Ltd. vs. Court of Appeals, et al., supra, Fn. 12.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28740 February 24, 1981
FERMIN Z. CARAM, JR., petitioner,
vs.
CLARO L. LAURETA, respondent.
FERNANDEZ, J.:
This is a petition for certiorari to review the decision of the Court of Appeals
promulgated on January 29, 1968 in CA-G. R. NO. 35721-R entitled "Claro L.
Laureta, plaintiff-appellee versus Marcos Mata, Codidi Mata and Fermin Caram,
Jr., defendants- appellants; Tampino (Mansaca), et al. Intervenors-appellants,"
affirming the decision of the Court of First Instance of Davao in Civil Case No.
3083. 1
On June 25, 1959, Claro L. Laureta filed in the Court of First Instance of Davao an
action for nullity, recovery of ownership and/or reconveyance with damages and
attorney's fees against Marcos Mata, Codidi Mata, Fermin Z. Caram, Jr. and the
Register of Deeds of Davao City. 2
On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land
covered by Original Certificate of Title No. 3019 in favor of Claro Laureta,
plaintiff, the respondent herein. The deed of absolute sale in favor of the plaintiff
was not registered because it was not acknowledged before a notary public or
any other authorized officer. At the time the sale was executed, there was no
authorized officer before whom the sale could be acknowledged inasmuch as the
civil government in Tagum, Davao was not as yet organized. However, the
defendant Marcos Mata delivered to Laureta the peaceful and lawful possession
of the premises of the land together with the pertinent papers thereof such as
the Owner's Duplicate Original Certificate of Title No. 3019, sketch plan, tax
declaration, tax receipts and other papers related thereto. 3 Since June 10, 1945,

the plaintiff Laureta had been and is stin in continuous, adverse and notorious
occupation of said land, without being molested, disturbed or stopped by any of
the defendants or their representatives. In fact, Laureta had been paying realty
taxes due thereon and had introduced improvements worth not less than
P20,000.00 at the time of the filing of the complaint. 4
On May 5, 1947, the same land covered by Original Certificate of Title No. 3019
was sold by Marcos Mata to defendant Fermin Z. Caram, Jr., petitioner herein. The
deed of sale in favor of Caram was acknowledged before Atty. Abelardo
Aportadera. On May 22, 1947, Marcos Mata, through Attys. Abelardo Aportadera
and Gumercindo Arcilla, filed with the Court of First Instance of Davao a petition
for the issuance of a new Owner's Duplicate of Original Certificate of Title No.
3019, alleging as ground therefor the loss of said title in the evacuation place of
defendant Marcos Mata in Magugpo, Tagum, Davao. On June 5, 1947, the Court
of First Instance of Davao issued an order directing the Register of Deeds of
Davao to issue a new Owner's Duplicate Certificate of Title No. 3019 in favor of
Marcos Mata and declaring the lost title as null and void. On December 9, 1947,
the second sale between Marcos Mata and Fermin Caram, Jr. was registered with
the Register of Deeds. On the same date, Transfer Certificate of Title No. 140 was
issued in favor of Fermin Caram Jr. 5
On August 29, 1959, the defendants Marcos Mata and Codidi Mata filed their
answer with counterclaim admitting the existence of a private absolute deed of
sale of his only property in favor of Claro L. Laureta but alleging that he signed
the same as he was subjected to duress, threat and intimidation for the plaintiff
was the commanding officer of the 10th division USFIP operating in the
unoccupied areas of Northern Davao with its headquarters at Project No. 7 (Km.
60, Davao Agusan Highways), in the Municipality of Tagum, Province of Davao;
that Laureta's words and requests were laws; that although the defendant Mata
did not like to sell his property or sign the document without even understanding
the same, he was ordered to accept P650.00 Mindanao Emergency notes; and
that due to his fear of harm or danger that will happen to him or to his family, if
he refused he had no other alternative but to sign the document. 6
The defendants Marcos Mata and Codidi Mata also admit the existence of a
record in the Registry of Deeds regarding a document allegedly signed by him in
favor of his co-defendant Fermin Caram, Jr. but denies that he ever signed the
document for he knew before hand that he had signed a deed of sale in favor of
the plaintiff and that the plaintiff was in possession of the certificate of title; that
if ever his thumb mark appeared in the document purportedly alienating the
property to Fermin Caram, did his consent was obtained through fraud and
misrepresentation for the defendant Mata is illiterate and ignorant and did not
know what he was signing; and that he did not receive a consideration for the
said sale. 7
The defendant Fermin Caram Jr. filed his answer on October 23, 1959 alleging
that he has no knowledge or information about the previous encumbrances,

transactions, and alienations in favor of plaintiff until the filing of the

complaints. 8
The trial court rendered a decision dated February 29, 1964, the dispositive
portion of which reads: 9
1. Declaring that the deed of sale, Exhibit A, executed by Marcos Mata in favor of
Claro L. Laureta stands and prevails over the deed of sale, Exhibit F, in favor of
Fermin Caram, Jr.;
2. Declaring as null and void the deed of sale Exhibit F, in favor of Fermin Caram,
Jr.;
3. Directing Marcos Mata to acknowledge the deed of sale, Exhibit A, in favor of
Claro L. Laureta;
4. Directing Claro L. Laureta to secure the approval of the Secretary of
Agriculture and Natural Resources on the deed, Exhibit A, after Marcos Mata shall
have acknowledged the same before a notary public;
5. Directing Claro L. Laureta to surrender to the Register of Deeds for the City
and Province of Davao the Owner's Duplicate of Original Certificate of Title No.
3019 and the latter to cancel the same;
6. Ordering the Register of Deeds for the City and Province of Davao to cancel
Transfer Certificate of Title No. T-140 in the name of Fermin Caram, Jr.;
7. Directing the Register of Deeds for the City and Province of Davao to issue a
title in favor of Claro L. Laureta, Filipino, resident of Quezon City, upon
presentation of the deed executed by Marcos Mata in his favor, Exhibit A, duly
acknowledged by him and approved by the Secretary of Agriculture and Natural
Resources, and
8. Dismissing the counterclaim and cross claim of Marcos Mata and Codidi Mata,
the counterclaim of Caram, Jr., the answer in intervention, counterclaim and
cross-claim of the Mansacas.
The Court makes no pronouncement as to costs.
SO ORDERED.
The defendants appealed from the judgment to the Court of Appeals.
appeal was docketed as CA-G.R. NO. 35721- R.

10

The

The Court of Appeals promulgated its decision on January 29, 1968 affirming the
judgment of the trial court.
In his brief, the petitioner assigns the following errors:
I

11

THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT IRESPE AND

APORTADERA WERE ATTORNEYS-IN-FACT OF PETITIONER CARAM FOR THE
PURPOSE OF BUYING THE PROPERTY IN QUESTION.
II
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE
EVIDENCE ADDUCED IN THE TRIAL COURT CONSTITUTE LEGAL EVIDENCE OF
FRAUD ON THE PART OF IRESPE AND APORTADERA AT TRIBUTABLE TO
PETITIONER.
III
THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ERROR OF LAW IN
HOLDING THAT KNOWLEDGE OF IRESPE AND APORTADERA OF A PRIOR
UNREGISTERED SALE OF A TITLED PROPERTY ATTRIBUTABLE TO PETITIONER AND
EQUIVALENT IN LAW OF REGISTRATION OF SAID SALE.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT AN ACTION
FOR RECONVEYANCE ON THE GROUND OF FRAUD PRESCRIBES WITHIN FOUR (4)
YEARS.
The petitioner assails the finding of the trial court that the second sale of the
property was made through his representatives, Pedro Irespe and Atty. Abelardo
Aportadera. He argues that Pedro Irespe was acting merely as a broker or
intermediary with the specific task and duty to pay Marcos Mata the sum of
P1,000.00 for the latter's property and to see to it that the requisite deed of sale
covering the purchase was properly executed by Marcos Mata; that the Identity
of the property to be bought and the price of the purchase had already been
agreed upon by the parties; and that the other alleged representative, Atty.
Aportadera, merely acted as a notary public in the execution of the deed of sale.
The contention of the petitioner has no merit. The facts of record show that Mata,
the vendor, and Caram, the second vendee had never met. During the trial,
Marcos Mata testified that he knows Atty. Aportadera but did not know
Caram. 12 Thus, the sale of the property could have only been through Caram's
representatives, Irespe and Aportadera. The petitioner, in his answer, admitted
that Atty. Aportadera acted as his notary public and attorney-in-fact at the same
time in the purchase of the property. 13
The petitioner contends that he cannot be considered to have acted in bad faith
because there is no direct proof showing that Irespe and Aportadera, his alleged
agents, had knowledge of the first sale to Laureta. This contention is also without
merit.
The Court of Appeals, in affirming the decision of the trial court, said:

14

The trial court, in holding that appellant Caram. Jr. was not a purchaser in good
faith, at the time he bought the same property from appellant Mata, on May 5,

1947, entirely discredited the testimony of Aportadera. Thus it stated in its

decision:
The testimony of Atty. Aportadera quoted elsewhere in this decision is hollow.
There is every reason to believe that Irespe and he had known of the sale of the
property in question to Laureta on the day Mata and Irespe, accompanied by
Leaning Mansaca, went to the office of Atty. Aportadera for the sale of the same
property to Caram, Jr., represented by Irespe as attorney-in-fact. Ining Mansaca
was with the two Irespe and Mata to engage the services 6f Atty.
Aportadera in the annulment of the sale of his land to Laureta. When Leaning
Mansaca narrated to Atty. Aportadera the circumstances under which his
property had been sold to Laureta, he must have included in the narration the
sale of the land of Mata, for the two properties had been sold on the same
occassion and under the same circumstances. Even as early as immediately after
liberation, Irespe, who was the witness in most of the cases filed by Atty.
Aportadera in his capacity as Provincial Fiscal of Davao against Laureta, must
have known of the purchases of lands made by Laureta when he was regimental
commander, one of which was the sale made by Mata. It was not a mere
coincidence that Irespe was made guardian ad litem of Leaning Mansaca, at the
suggestion of Atty. Aportadera and attorney-in-fact of Caram, Jr.
The Court cannot help being convinced that Irespe, attorney-in-fact of Caram, Jr.
had knowledge of the prior existing transaction, Exhibit A, between Mata and
Laureta over the land, subject matter of this litigation, when the deed, Exhibit F,
was executed by Mata in favor of Caram, Jr. And this knowledge has the effect of
registration as to Caram, Jr. RA pp. 123-124)
We agree with His Honor's conclusion on this particular point, on two grounds
the first, the same concerns matters affecting the credibility of a witness of
which the findings of the trial court command great weight, and second, the
same is borne out by the testimony of Atty. Aportadera himself. (t.s.n., pp. 187190, 213-215, Restauro).
Even if Irespe and Aportadera did not have actual knowledge of the first sale, still
their actions have not satisfied the requirement of good faith. Bad faith is not
based solely on the fact that a vendee had knowledge of the defect or lack of
title of his vendor. In the case of Leung Yee vs. F. L. Strong Machinery Co. and
Williamson, this Court held: 15
One who purchases real estate with knowledge of a defect or lack of title in his
vendor can not claim that he has acquired title thereto in good faith, as against
the true owner of the land or of an interest therein, and the same rule must be
applied to one who has knowledge of facts which should have put him upon such
inquiry and investigation as might be necessary to acquaint him with the defects
in the title of his vendor.
In the instant case, Irespe and Aportadera had knowledge of circumstances
which ought to have put them an inquiry. Both of them knew that Mata's
certificate of title together with other papers pertaining to the land was taken by

soldiers under the command of Col. Claro L. Laureta. 16 Added to this is the fact
that at the time of the second sale Laureta was already in possession of the land.
Irespe and Aportadera should have investigated the nature of Laureta's
possession. If they failed to exercise the ordinary care expected of a buyer of real
estate they must suffer the consequences. The rule of caveat emptor requires
the purchaser to be aware of the supposed title of the vendor and one who buys
without checking the vendor's title takes all the risks and losses consequent to
such failure. 17
The principle that a person dealing with the owner of the registered land is not
bound to go behind the certificate and inquire into transactions the existence of
which is not there intimated 18 should not apply in this case. It was of common
knowledge that at the time the soldiers of Laureta took the documents from
Mata, the civil government of Tagum was not yet established and that there were
no officials to ratify contracts of sale and make them registerable. Obviously,
Aportadera and Irespe knew that even if Mata previously had sold t he Disputed
such sale could not have been registered.
There is no doubt then that Irespe and Aportadera, acting as agents of Caram,
purchased the property of Mata in bad faith. Applying the principle of agency,
Caram as principal, should also be deemed to have acted in bad faith.
Article 1544 of the New Civil Code provides that:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recordered it in the Registry of Property.
Should there be no inscription, the ownership shag pertain to the person who in
good faith was first in the possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith. (1473)
Since Caram was a registrant in bad faith, the situation is as if there was no
registration at all. 19
The question to be determined now is, who was first in possession in good faith?
A possessor in good faith is one who is not aware that there exists in his title or
mode of acquisition any flaw which invalidates it. 20 Laureta was first in
possession of the property. He is also a possessor in good faith. It is true that
Mata had alleged that the deed of sale in favor of Laureta was procured by
force. 21 Such defect, however, was cured when, after the lapse of four years
from the time the intimidation ceased, Marcos Mata lost both his rights to file an
action for annulment or to set up nullity of the contract as a defense in an action
to enforce the same.
Anent the fourth error assigned, the petitioner contends that the second deed of
sale, Exhibit "F", is a voidable contract. Being a voidable contract, the action for

annulment of the same on the ground of fraud must be brought within four (4)
years from the discovery of the fraud. In the case at bar, Laureta is deemed to
have discovered that the land in question has been sold to Caram to his
prejudice on December 9, 1947, when the Deed of Sale, Exhibit "F" was recorded
and entered in the Original Certificate of Title by the Register of Deeds and a new
Certificate of Title No. 140 was issued in the name of Caram. Therefore, when the
present case was filed on June 29, 1959, plaintiff's cause of action had long
prescribed.
The petitioner's conclusion that the second deed of sale, "Exhibit F", is a voidable
contract is not correct. I n order that fraud can be a ground for the annulment of
a contract, it must be employed prior to or simultaneous to the, consent or
creation of the contract. The fraud or dolo causante must be that which
determines or is the essential cause of the contract. Dolo causante as a ground
for the annulment of contract is specifically described in Article 1338 of the New
Civil Code of the Philippines as "insidious words or machinations of one of the
contracting parties" which induced the other to enter into a contract, and
"without them, he would not have agreed to".
The second deed of sale in favor of Caram is not a voidable contract. No
evidence whatsoever was shown that through insidious words or machinations,
the representatives of Caram, Irespe and Aportadera had induced Mata to enter
into the contract.
Since the second deed of sale is not a voidable contract, Article 1391, Civil Code
of the Philippines which provides that the action for annulment shall be brought
within four (4) years from the time of the discovery of fraud does not apply.
Moreover, Laureta has been in continuous possession of the land since he bought
it in June 1945.
A more important reason why Laureta's action could not have prescribed is that
the second contract of sale, having been registered in bad faith, is null and void.
Article 1410 of the Civil Code of the Philippines provides that any action or
defense for the declaration of the inexistence of a contract does not prescribe.
In a Memorandum of Authorities 22 submitted to this Court on March 13, 1978,
the petitioner insists that the action of Laureta against Caram has prescribed
because the second contract of sale is not void under Article 1409 23 of the Civil
Code of the Philippines which enumerates the kinds of contracts which are
considered void. Moreover, Article 1544 of the New Civil Code of the Philippines
does not declare void a second sale of immovable registered in bad faith.
The fact that the second contract is not considered void under Article 1409 and
that Article 1544 does not declare void a deed of sale registered in bad faith
does not mean that said contract is not void. Article 1544 specifically provides
who shall be the owner in case of a double sale of an immovable property. To
give full effect to this provision, the status of the two contracts must be declared
valid so that one vendee may contract must be declared void to cut off all rights
which may arise from said contract. Otherwise, Article 1544 win be meaningless.

The first sale in favor of Laureta prevails over the sale in favor of Caram.
WHEREFORE, the petition is hereby denied and the decision of the Court of
Appeals sought to be reviewed is affirmed, without pronouncement as to costs.
SO ORDERED.
Makasiar Guerrero, De Castro* and Melencio-Herrera concur.

Footnotes
1 Annex "A", Rollo, pp. 35-48. Written by Justice Nicasio Yatco and concurred in
by Justice Salvador Esquerra and Justice Eulogio S. Serrano.
2 Record on Appeal, pp. 2-13, Rollo, p. 61.
3 Ibid., pp. 3-4.
4 Ibid., P.10; TSN, January 22, 1964, pp. 108, 110-111.
5 Ibid., pp. 6-8.
6 Ibid., p. 27.
7 Ibid., p. 29.
8 Ibid., p. 39.
9 Ibid., pp. 126-127.
10 Ibid., pp. 128-129.
11 Brief for Petitioner, pp. 1-2, Rollo, p. 139.
12 TSN, January 22, 1964, p. 98.
13 Record on Appeal, p. 38, Rollo, p. 61.
14 Rollo, pp. 45-47.
15 Leung Yee vs. Strong Machinery Co. and Williamson, 37 Phil. 644.
16 TSN, January 22, 1964, pp. 187-188.
17 Salvoro vs. Taega, 87 SCRA 349. 361.
18 Quimson vs. Suarez, 45 Phil. 906.
19 Salvorro vs. Taega, 87 SCRA 363.
20 Article 526, Civil Code of the Philippines.

21 The trial court found that the contract in favor of Laureta is voidable, but the
action to annul the same has long prescribed. See Record on Appeal, p. 120,
Rollo, p. 61.
22 Rollo, pp. 159-177.
23 Article 1409, Civil Code of the Philippines - The following contracts are
inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law
These contracts cannot be ratified. Neither can the right to set the defense of
illegality be waived.
* Mr. Justice de Castro was designation to sit with the First Division.
FIRST DIVISION
[G. R. No. 129919. February 6, 2002]
DOMINION INSURANCE CORPORATION, petitioner, vs.COURT OF
APPEALS, RODOLFO S. GUEVARRA, and FERNANDO
AUSTRIA, respondents.
DECISION
PARDO, J.:
The Case
This is an appeal via certiorari[1] from the decision of the Court of
Appeals[2] affirming the decision[3] 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
P156,473.90representing the total amount advanced by Guevarra in the
payment of the claims of Dominions clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:

On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855
for sum of money against defendant Dominion Insurance Corporation. Plaintiff
sought to recover thereunder the sum of P156,473.90 which he claimed to have
advanced in his capacity as manager of defendant to satisfy certain claims filed
by 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-party defendant and
plaintiff, respectively, the rest were postponed upon joint request of the parties.
On May 22, 1992 the case was again called for pre-trial conference. Only
plaintiff and counsel were present. Despite due notice, defendant and counsel
did not appear, although a messenger, Roy Gamboa, submitted to the trial court
a handwritten note sent to him by 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:
ORDER
When this case was called for pre-trial this afternoon only plaintiff and his
counsel Atty. Romeo Maglalang appeared. When shown a note dated May 21,
1992 addressed to a certain Roy who was requested to ask for postponement,
Atty. Maglalang vigorously objected to any postponement on the ground that the
note is but a mere scrap of paper and moved that the defendant corporation be
declared as in default for its failure to appear in court despite due notice.
Finding the verbal motion of 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.
The plaintiff and his counsel are notified of this order in open court.
SO ORDERED.

Plaintiff presented his evidence on June 16, 1992. This was followed by a written
offer of documentary exhibits on July 8 and a supplemental offer of additional
exhibits on July 13, 1992. The exhibits were admitted in evidence in an order
dated July 17, 1992.
On August 7, 1992 defendant corporation filed a MOTION TO LIFT ORDER OF
DEFAULT. It alleged therein that the failure of counsel to attend the pre-trial
conference was due to an unavoidable circumstance and that counsel had sent
his representative on that date to inform the trial court of his inability to appear.
The Motion was vehemently opposed by plaintiff.
On August 25, 1992 the trial court denied defendants motion for reasons,
among others, that it was neither verified nor supported by an affidavit of merit
and that it further failed to allege or specify the facts constituting his meritorious
defense.
On September 28, 1992 defendant moved for reconsideration of the aforesaid
order. For the first time counsel revealed to the trial court that the reason for his
nonappearance at the pre-trial conference was his illness. An Affidavit of Merit
executed by its Executive Vice-President purporting to explain its meritorious
defense was attached to the said Motion. Just the same, in an Order dated
November 13, 1992, the trial court denied said Motion.
On November 18, 1992, the court a quo rendered judgment as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering:
1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of
P156,473.90 representing the total amount advanced by plaintiff in the payment
of the claims of defendants clients;
2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys fees;
3. The dismissal of the counter-claim of the defendant and the third-party
complaint;
4. The defendant to pay the costs of suit.[4]
On December 14, 1992, Dominion appealed the decision to the Court of Appeals.
[5]
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of
the trial court.[6] On September 3, 1996, Dominion filed with the Court of
Appeals a motion for reconsideration.[7] On July 16, 1997, the Court of Appeals
denied the motion.[8]
Hence, this appeal.[9]
The Issues
The issues raised are: (1) whether respondent Guevarra acted within his
authority as agent for petitioner, and (2) whether respondent Guevarra is

entitled to reimbursement of amounts he paid out of his personal money in

settling the claims of several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or to
do something in representation or on behalf of another, with the consent or
authority of the latter.[10] The basis for agency is representation.[11] On the
part of the principal, there must be an actual intention to appoint[12] 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
dohereby appoint RSG Guevarra Insurance Services represented by Mr. Rodolfo
Guevarra xxx to be our Agency Manager in San Fdo., for our place and stead, to
do and perform the following acts and things:
1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance
business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR,
PERSONAL ACCIDENT, and BONDING with the right, upon our prior written
consent, to appoint agents and sub-agents.
2. To accept, underwrite and subscribed (sic) cover notes or Policies of
Insurance and Bonds for and on our behalf.
3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and
transfer for and receive and give effectual receipts and discharge for all money
to which the FIRST CONTINENTAL ASSURANCE COMPANY, INC.,[18] may hereafter
become due, owing payable or transferable to said Corporation by reason of or in
connection with the above-mentioned appointment.
4. To receive notices, summons, and legal processes for and in behalf of the
FIRST CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and
all legal proceedings against the said Corporation.[19] [Emphasis supplied]
The agency comprises all the business of the principal,[20] but, couched in
general terms, it is limited only to acts of administration.[21]
A general power permits the agent to do all acts for which the law does not
require a special power.[22] Thus, the acts enumerated in or similar to those

enumerated in the Special Power of Attorney do not require a special power of

attorney.
Article 1878, Civil Code, enumerates the instances when a special power of
attorney is required. The pertinent portion that applies to this case provides that:
Article 1878. Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of
administration;
xxx xxx xxx
(15) Any other act of strict dominion.
The payment of claims is not an act of administration. The settlement of claims is
not included among the acts enumerated in the Special Power of Attorney,
neither is it of a character similar to the acts enumerated therein. A special
power of attorney is required before respondent Guevarra could settle the
insurance claims of the insured.
Respondent Guevarras authority to settle claims is embodied in the
Memorandum of Management Agreement[23] dated February 18, 1987 which
enumerates the scope of respondent Guevarras duties and responsibilities as
agency manager for San Fernando, Pampanga, as follows:
xxx xxx xxx
1. You are hereby given authority to settle and dispose of all motor car claims in
the amount of P5,000.00 with prior approval of the Regional Office.
2. Full authority is given you on TPPI claims settlement.
xxx xxx xxx[24]
In settling the claims mentioned above, respondent Guevarras authority is
further limited by the written standard authority to pay,[25] which states that the
payment shall come from respondent Guevarras revolving fund or collection.
The authority to pay is worded as follows:
This is to authorize you to withdraw from your revolving fund/collection the
amount of PESOS __________________ (P ) representing the payment on the
_________________ claim of assured _______________ under Policy No. ______ in that
accident of ___________ at ____________.
It is further expected, release papers will be signed and authorized by the
concerned and attached to the corresponding claim folder after effecting
payment of the claim.
(sgd.) FERNANDO C. AUSTRIA
Regional Manager[26]

[Emphasis supplied]
The instruction of petitioner as the principal could not be any clearer. 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. 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
Receipts[27] 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 Appeals[28][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. and that of the
Regional Trial Court, Branch 44, San Fernando, Pampanga,
No costs in this instance.
SO ORDERED.
Davide, Jr., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

[1] Under Rule 45, Revised Rules of Court.

[2] In CA-G.R. CV No. 40803, promulgated on July 19, 1996, Petition, Annex B,
pp. 12-18. Godardo A. Jacinto, J., ponente, Salome A. Montoya and Maximiano C.
Asuncion, JJ., concurring..
[3] Decision, original Record, Civil Case 8855, pp. 358-361.
[4] Petition, Annex B, Rollo, pp. 12-18, at pp. 12-15.
[5] Notice of Appeal, Original Record, Civil Case No. 8855, p. 362.
[6] Petition, Annex B, Rollo, pp. 12-18.
[7] CA Rollo, pp. 99-112.
[8] Petition, Annex A, Rollo, p. 10.
[9] Filed on September 8, 1997, Rollo, pp. 20-50. On January 31, 2000, we
resolved to give due course to the petition (Rollo, pp. 79-80).
[10] Article 1869, Civil Code.
[11] Bordador v. Luz, 347 Phil. 654, 662 (1997).
[12] Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663, 675 (2000),
citing Connell v. McLoughlin, 28 Or. 230; 42 P. 218.
[13] Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663, 675 (2000),
citing Halladay v. Underwood, 90 Ill. App. 130.
[14] Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663, 675 (2000),
citing Internal Trust Co. v. Bridges, 57 F. 753.
[15] Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663, 675 (2000),
citing Security Co. v. Graybeal, 85 Iowa 543, 52 N.W. 497.

[16] Original Record, Civil Case No. 8855, p. 235.

[17] Now Dominion Insurance Corporation.
[18] Now Dominion Insurance Corporation.
[19] Original Record, Civil Case No. 8855, p. 235.
[20] Article 1876, Civil Code.
[21] Article 1877, Civil Code.
[22] Tolentino, Arturo M., Commentaries and Jurisprudence on the Civil Code of
the Philippines, Vol. V (1997), p. 405, citing 6 Llerena 137.
[23] Original Record, Civil Case No. 8855, pp. 236-237.
[24] Original Record, Civil Case No. 8855, pp. 236-237, at p. 236.
[25] Original Record, Civil Case No. 8855, p. 299.
[26] Original Record, Civil Case No. 8855, p. 299.
[27] Original Records, Civil Case No. 8855, pp. 11, 13, 15, 17, 19, 21, 23, 25.
[28] In CA-G.R. CV No. 40803.
[29] In Civil Case No. 8855.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 102737 August 21, 1996

FRANCISCO A. VELOSO, petitioner,
vs.
COURT OF APPEALS, AGLALOMA B. ESCARIO, assisted by her husband
GREGORIO L. ESCARIO, the REGISTER OF DEEDS FOR THE CITY OF
MANILA, respondents.

TORRES, JR., J.:p

This petition for review assails the decision of the Court of Appeals, dated July 29,
1991, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED IN TOTO. Costs
against appellant. 1

The following are the antecedent facts:

Petitioner Francisco Veloso was the owner of a parcel of land situated in the
district of Tondo, Manila, with an area of one hundred seventy seven (177)
square meters and covered by Transfer Certificate of Title No. 49138 issued by
the Registry of Deeds of Manila. 2 The title was registered in the name of
Francisco A. Veloso, single, 3 on October 4, 1957. 4 The said title was
subsequently cancelled and a new one, Transfer Certificate of Title No. 180685,
was issued in the name of Aglaloma B. Escario, married to Gregorio L. Escario, on
May 24, 1988. 5
On August 24, 1988, petitioner Veloso filed an action for annulment of
documents, reconveyance of property with damages and preliminary injunction
and/or restraining order. The complaint, docketed as Civil Case No. 88-45926,
was raffled to the Regional Trial Court, Branch 45, Manila. Petitioner alleged
therein that he was the absolute owner of the subject property and he never
authorized anybody, not even his wife, to sell it. He alleged that he was in
possession of the title but when his wife, Irma, left for abroad, he found out that
his copy was missing. He then verified with the Registry of Deeds of Manila and
there he discovered that his title was already cancelled in favor of defendant
Aglaloma Escario. The transfer of property was supported by a General Power of
Attorney 6 dated November 29, 1985 and Deed of Absolute Sale, dated
November 2, 1987, executed by Irma Veloso, wife of the petitioner and appearing
as his attorney-in-fact, and defendant Aglaloma Escario. 7 Petitioner Veloso,
however, denied having executed the power of attorney and alleged that his
signature was falsified. He also denied having seen or even known Rosemarie
Reyes and Imelda Santos, the supposed witnesses in the execution of the power
of attorney. He vehemently denied having met or transacted with the defendant.
Thus, he contended that the sale of the property, and the subsequent transfer
thereof, were null and void. Petitioner Veloso, therefore, prayed that a temporary
restraining order be issued to prevent the transfer of the subject property; that
the General Power of Attorney, the Deed of Absolute Sale and the Transfer
Certificate of Title No. 180685 be annulled; and the subject property be
reconveyed to him.
Defendant Aglaloma Escario in her answer alleged that she was a buyer in good
faith and denied any knowledge of the alleged irregularity. She allegedly relied
on the general power of attorney of Irma Veloso which was sufficient in form and
substance and was duly notarized. She contended that plaintiff (herein
petitioner), had no cause of action against her. In seeking for the declaration of
nullity of the documents, the real party in interest was Irma Veloso, the wife of
the plaintiff. She should have been impleaded in the case. In fact, Plaintiff's
cause of action should have been against his wife, Irma. Consequently,
defendant Escario prayed for the dismissal of the complaint and the payment to
her of damages. 8
Pre-trial was conducted. The sole issue to be resolved by the trial court was
whether or not there was a valid sale of the subject property. 9

During the trial, plaintiff (herein petitioner) Francisco Veloso testified that he
acquired the subject property from the Philippine Building Corporation, as
evidenced by a Deed of Sale dated October 1, 1957. 10 He married Irma Lazatin
on January 20, 1962. 11 Hence, the property did not belong to their conjugal
partnership. Plaintiff further asserted that he did not sign the power of attorney
and as proof that his signature was falsified, he presented Allied Bank Checks
Nos. 16634640, 16634641 and 16634643, which allegedly bore his genuine
signature.
Witness for the plaintiff Atty. Julian G. Tubig denied any participation in the
execution of the general power of attorney. He attested that he did not sign
thereon, and the same was never entered in his Notarial Register on November
29, 1985.
In the decision of the trial court dated March 9, 1990, 12 defendant Aglaloma
Escario was adjudged the lawful owner of the property as she was deemed an
innocent purchaser for value. The assailed general power of attorney was held to
be valid and sufficient for the purpose. The trial court ruled that there was no
need for a special power of attorney when the special power was already
mentioned in the general one. It also declared that plaintiff failed to substantiate
his allegation of fraud. The court also stressed that plaintiff was not entirely
blameless for although he admitted to be the only person who had access to the
title and other important documents, his wife was still able to possess the copy.
Citing Section 55 of Act 496, the court held that Irma's possession and
production of the certificate of title was deemed a conclusive authority from the
plaintiff to the Register of Deeds to enter a new certificate. Then applying the
principle of equitable estoppel, plaintiff was held to bear the loss for it was he
who made the wrong possible. Thus:
WHEREFORE, the Court finds for the defendants and against plaintiff
a. declaring that there was a valid sale of the subject property in favor of the
defendant;
b. denying all other claims of the parties for want of legal and factual basis.
Without pronouncement as to costs.
SO ORDERED.
Not satisfied with the decision, petitioner Veloso filed his appeal with the Court of
Appeals. The respondent court affirmed in toto the findings of the trial court.
Hence, this petition for review before Us.
This petition for review was initially dismissed for failure to submit an affidavit of
service of a copy of the petition on the counsel for private respondent. 13 A
motion for reconsideration of the resolution was filed but it was denied in are
resolution dated March 30, 1992. 14 A second motion for reconsideration was filed

and in a resolution dated Aug. 3, 1992, the motion was granted and the petition
for review was reinstated. 15
A supplemental petition was filed on October 9, 1992 with the following
assignment of errors:
I
The Court of Appeals committed a grave error in not finding that the forgery of
the power of attorney (Exh . "C") had been adequately proven, despite the
preponderant evidence, and in doing so, it has so far departed from the
applicable provisions of law and the decisions of this Honorable Court, as to
warrant the grant of this petition for review on certiorari.
II
There are principles of justice and equity that warrant a review of the decision.
III
The Court of Appeals erred in affirming the decision of the trial court which
misapplied the principle of equitable estoppel since the petitioner did not fail in
his duty of observing due diligence in the safekeeping of the title to the property.
We find petitioner's contentions not meritorious.
An examination of the records showed that the assailed power of attorney was
valid and regular on its face. It was notarized and as such, it carries the
evidentiary weight conferred upon it with respect to its due execution. While it is
true that it was denominated as a general power of attorney, a perusal thereof
revealed that it stated an authority to sell, to wit:
2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands,
tenements and hereditaments or other forms of real property, more specifically
TCT No. 49138, upon such terms and conditions and under such covenants as my
said attorney shall deem fit and proper. 16
Thus, there was no need to execute a separate and special power of attorney
since the general power of attorney had expressly authorized the agent or
attorney in fact the power to sell the subject property. The special power of
attorney can be included in the general power when it is specified therein the act
or transaction for which the special power is required.
The general power of attorney was accepted by the Register of Deeds when the
title to the subject property was cancelled and transferred in the name of private
respondent. In LRC Consulta No. 123, Register of Deeds of Albay, Nov. 10, 1956,
it stated that:
Whether the instrument be denominated as "general power of attorney" or
"special power of attorney", what matters is the extent of the power or powers
contemplated upon the agent or attorney in fact. If the power is couched in

general terms, then such power cannot go beyond acts of administration.

However, where the power to sell is specific, it not being merely implied, much
less couched in general terms, there can not be any doubt that the attorney in
fact may execute a valid sale. An instrument may be captioned as "special power
of attorney" but if the powers granted are couched in general terms without
mentioning any specific power to sell or mortgage or to do other specific acts of
strict dominion, then in that case only acts of administration may be deemed
conferred.
Petitioner contends that his signature on the power of attorney was falsified. He
also alleges that the same was not duly notarized for as testified by Atty. Tubig
himself, he did not sign thereon nor was it ever recorded in his notarial register.
To bolster his argument, petitioner had presented checks, marriage certificate
and his residence certificate to prove his alleged genuine signature which when
compared to the signature in the power of attorney, showed some difference.
We found, however, that the basis presented by the petitioner was inadequate to
sustain his allegation of forgery. Mere variance of the signatures cannot be
considered as conclusive proof that the same were forged. Forgery cannot be
presumed 17 Petitioner, however, failed to prove his allegation and simply relied
on the apparent difference of the signatures. His denial had not established that
the signature on the power of attorney was not his.
We agree with the conclusion of the lower court that private respondent was an
innocent purchaser for value. Respondent Aglaloma relied on the power of
attorney presented by petitioner's wife, Irma. Being the wife of the owner and
having with her the title of the property, there was no reason for the private
respondent not to believe in her authority. Moreover, the power of attorney was
notarized and as such, carried with it the presumption of its due execution. Thus,
having had no inkling on any irregularity and having no participation thereof,
private respondent was a buyer in good faith. It has been consistently held that a
purchaser in good faith is one who buys property of another, without notice that
some other person has a right to, or interest in such property and pays a full and
fair price for the same, at the time of such purchase, or before he has notice of
the claim or interest of some other person in the property. 18
Documents acknowledged before a notary public have the evidentiary weight
with respect to their due execution. The questioned power of attorney and deed
of sale, were notarized and therefore, presumed to be valid and duly executed.
Atty. Tubig denied having notarized the said documents and alleged that his
signature had also been falsified. He presented samples of his signature to prove
his contention. Forgery should be proved by clear and convincing evidence and
whoever alleges it has the burden of proving the same. Just like the petitioner,
witness Atty. Tubig merely pointed out that his signature was different from that
in the power of attorney and deed of sale. There had never been an accurate
examination of the signature, even that of the petitioner. To determine forgery, it
was held in Cesar vs. Sandiganbayan 19(quoting Osborn, The Problem of Proof)
that:

The process of identification, therefore, must include the determination of the

extent, kind, and significance of this resemblance as well as of the variation. It
then becomes necessary to determine whether the variation is due to the
operation of a different personality, or is only the expected and inevitable
variation found in the genuine writing of the same writer. It is also necessary to
decide whether the resemblance is the result of a more or less skillful imitation,
or is the habitual and characteristic resemblance which naturally appears in a
genuine writing. When these two questions are correctly answered the whole
problem of identification is solved.
Even granting for the sake of argument, that the petitioner's signature was
falsified and consequently, the power of attorney and the deed of sale were null
and void, such fact would not revoke the title subsequently issued in favor of
private respondent Aglaloma. In Tenio-Obsequio vs. Court of Appeals, 20 it was
held, viz:
The right of an innocent purchaser for value must be respected and protected,
even if the seller obtained his title through fraud. The remedy of the person
prejudiced is to bring an action for damages against those who caused or
employed the fraud, and if the latter are insolvent, an action against the
Treasurer of the Philippines may be filed for recovery of damages against the
Assurance Fund.
Finally; the trial court did not err in applying equitable estoppel in this case. The
principle of equitable estoppel states that where one or two innocent persons
must suffer a loss, he who by his conduct made the loss possible must bear it.
From the evidence adduced, it should be the petitioner who should bear the loss.
As the court a quo found:
Besides, the records of this case disclosed that the plaintiff is not entirely free
from blame. He admitted that he is the sole person who has access to TCT No.
49138 and other documents appertaining thereto (TSN, May 23, 1989, pp. 7-12)
However, the fact remains that the Certificate of Title, as well as other
documents necessary for the transfer of title were in the possession of plaintiff's
wife, Irma L. Veloso, consequently leaving no doubt or any suspicion on the part
of the defendant as to her authority. Under Section 55 of Act 496, as amended,
Irma's possession and production of the Certificate of Title to defendant operated
as "conclusive authority from the plaintiff to the Register of Deeds to enter a new
certificate." 21
Considering the foregoing premises, we found no error in the appreciation of
facts and application of law by the lower court which will warrant the reversal or
modification of the appealed decision.
ACCORDINGLY, the petition for review is hereby DENIED for lack of merit.
SO ORDERED.
Regalado, Romero, Puno and Mendoza, JJ., concur.

Footnotes
1 Decision, Rollo, p. 59, penned by J.N. Lapea, Jr. and concurred in by J.R.
Pronove and J. C. Santiago.
2 Exh. "A", Annex "A", Records, p. 12 and 155.
3 Exh. "A-1", Ibid.
4 Exh. "A-2", Ibid.
5 Exh. "B", Annex B, Exh. "3", Records, p. 15 and 157.
6 Records, pp. 96-97.
7 Records, pp. 94-95.
8 Answer, Records, pp. 43-47.
9 Order, Records, pp. 74-76.
10 Exh. "F", Records, pp. 163-164.
11 Exh. "H", Records, p. 166.
12 Decision, Records, pp. 283-292.
13 Resolution, February 3, 1992, Rollo, p. 65.
14 Rollo, p. 72.
15 Rollo, p. 93.
16 Records, pp. 96-97.
17 Tenio-Obsequio vs. Court of Appeals, G.R. 107967, March 1, 1994.
18 Bautista, et. al. vs. Court of Appeals, G.R. 106042, Feb. 28, 1994.
19 G.R. Nos. 54719-50, 17 January 1985.
20 G.R. 109767, March 1, 1994.
21 Decision, Records, p. 291.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-47740 July 20, 1982
LIM PIN, petitioner,
vs.

SPS. CONCHITA LIAO TAN, and TAN CHO HUA and HONORABLE CANCIO C.
GARCIA, PRESIDING JUDGE OF BRANCH I, CITY COURT OF CALOOCAN
CITY, respondents.
Raymundo M. Aguila for petitioner.
Teofilo F Manalo for private respondent.

GUTIERREZ, JR., J.:

In this petition for certiorari with prayer for the issuance of a writ of preliminary
injunction, the petitioner prays:
(1) that Judgment be rendered annulling or modifying the Judgment, dated
October 19, 1977, of the Respondent Judge rendered in Civil Case No. 11716,
City Court of Caloocan City. (2) That a Writ of Preliminary Injunction be issued
requiring Private Respondents, and all persons acting in their behalf, to refrain
from the Execution of the Judgment, dated October 19, 1977, of the City Court of
Caloocan City in Civil Case No. 11716 until further order.
The basis of the judgment, subject matter of the petition, is a compromise
agreement entered into between the petitioner, represented by her son, George
Hung and the private respondent Conchita Liao Tan both parties assisted by their
respective counsel, during the October 19, 1977 hearing of Civil Case No. 11716
for unlawful detainer. The complaint for unlawful detainer was filed in the court a
quo on August 12, 1977 by the private respondents against the petitioner. The
judgment incorporating the compromise agreement reads as follows:
When this case was caged for hearing this afternoon, October 19, 1977, plaintiffs
and defendant, the latter acting thru her son, George Hung, as her duly
authorized representative, assisted by their respective counsels, personally
appeared before this Court and mutually agreed as follows:
1. The parties admit that the stipulated rental for the leased premises is as
follows:
(a) For the months of April and May, 1977, at P1,500.00 a month; thereafter a
monthly increase of P500.00 until the rent al reaches to P 5,000.00 by
December, 1977,
2. That defendant admits having been in arrears in the payment of her rental
obligation since April, 1977 and that as of October, 1977, her total accrued
rentals already amounted to P18,000.00, broken down as follows:
April, 1977.........................P 1,500.00
May, 1977............................. 1,500.00
June, 1977............................. 2,000.00

July,1977............................... 2,500.00
August,1977......................... 3,000.00
September,1977.....................3,500.00
October,1977........................ 4,000.00
TOTAL P18,000.00
3. That defendant binds herself to pay in full said accrued rentals of P18,000.00
and attorney's fee of P 2,000.00, not later than October 31, 1977.
4. That the rental for November, 1977, shall be P4,500.00 a month while the
rentals for December, 1977 and for the succeeding months thereafter shall be
P5,000.00, payable at the residence of plaintiff within five (5) days of the current
month.
5. That the Plaintiff hereby agrees to allow the defendant to remain in the leased
premises at the rental herein agreed upon.
6. That should defendant fails to pay her accrued rental of P18,000.00, plus
attorney's fee of P2,000.00 by October 31, 1977, Plaintiff shall be entitled to an
immediate writ of execution to enforce defendant's ejectment from the leased
premises and the collection of all rental in arrears;
7. Defendant's representative, George Hung, affirmed before this court and the
same is confirmed by defendant's counsel, that he (George Hung) has the full
authority of her mother, the herein defendant, to act for her and to sign for and
in behalf this amicable settlement.
WHEREFORE, this Court, as prayed for, hereby approves the foregoing
compromise agreement and consequently renders Judgment in accordance with
the precise terms and conditions hereof. (Annex "D")
Spouses Conchita Liao Tan and Tan Cho Hua alleged in their complaint for
unlawful detainer that the plaintiff Conchita Liao Tan, as owner of a parcel of
registered land with improvements located at Francisco Street, Caloocan City,
had leased a portion of it, more particularly known as 91 Francisco Street,
Caloocan City to defendant Lim Pin on a month to month basis but that the latter
starting April, 1977 had not paid the agreed rental stipulated for such month and
the succeeding months thereafter based on the following schedule of payments:
a) For the month of April, 1977 P 1,500-00; b) For the month of May, 1977
P1,500-00: c) Commencing on the month of June, 1977 and for each calendar
month thereafter P6,000.00 per month; and that despite demand, the defendant
refused to vacate the leased premises. In addition to the actual damages, the
plaintiffs asked for an attorney's fee in the amount of P3,000.00.
On August 25, 1977, the defendant Lim Pin, filed her Answer denying the
material allegations of the complaint and protesting the alleged highly
"unconscionable and unreasonable" increase of rental demanded by plaintiffs. As

a counterclaim, she asked for an attorney's fee in the amount of P5,000.00. The
counterclaim was denied in the plaintiffs' Answer to Counterclaim, dated
September 1, 1982.
The initial hearing set for September 1, 1977 was reset to September 14, 1977
upon the joint motion of the parties who were trying to work out a possible
amicable settlement. Upon the failure of the parties to reach an amicable
settlement, the September 14, 1977 hearing proceeded as scheduled during
which plaintiff Conchita Liao Tan testified. For lack of material time, Conchita Liao
Tan's cross-examination was set for September 27, 1970 but this hearing was
again cancelled and reset to October 19, 1977.
On the scheduled October 19, 1977 hearing, defendant Lim Pin was absent. Her
son George Hung who attended with his mother all the previous hearings was
present together with the defendant's counsel. Plaintiff Conchita Liao Tan
together with her counsel was also present. Through the initiative of the court a
quo, the subject compromise agreement was formulated and executed and it
finally became the basis of the October 19, 1977 judgment in Civil Case No.
11716.
The aforesaid judgment was the subject of a motion for reconsideration filed on
October 28, 1977 by defendant Lim Pin on the following grounds: 1) that she
never authorized her son nor her counsel on record (Atty. Pastor Mamaril) to
enter into such compromise agreement and 2) that had she been present when
said agreement was prepared, she would not have acceded thereto.
The motion prompted the plaintiffs to file an "Opposition To Motion for
Reconsideration With Prayer that defendant's son George Hung and Atty. Pastor
P. Mamaril be cited for contempt" in the event they should belatedly deny that
George Hung was duly authorized by his mother to enter into the compromise
agreement dated November 5, 1982.
In the meantime, the plaintiffs, on November 3, 1977 filed an "Urgent Motion For
Immediate Execution of Judgment dated October 19, 1977."
All the foregoing motions were resolved by the respondent court in its Order
dated January 26, 1978.
The dispositive portion of the Order reads:
IN VIEW OF ALL THE FOREGOING, defendants' 'Motion For Reconsideration,' is
hereby DENIED, For reason hereinbefore mentioned, defendant's son George
Hung, is hereby declared in direct contempt of court and is hereby sentenced to
pay a fine of TWO HUNDRED (P200.00) Pesos, with subsidiary imprisonment in
case of insolvency. Finding the explanations given by Atty. Mamaril during the
hearing of November 18, 1977, to be meritorious, this Court finds no basis to
hold him in contempt. As prayed for by plaintiffs in their motion for execution,
which this Court finds justified, let a writ of execution be issued in this case.

A writ of execution was issued by the respondent court on the same date.
Pursuant to the writ of execution, the City Sheriff of Caloocan City, Metro Manila
served a "Notice of Ejectment" and "Notice to Levy", both dated February 3,
1978, which were received by the plaintiff on February 3, 1978. Hence, this
petition.
On February 8, 1978, We issued a temporary restraining order "enjoining
respondent judge from enforcing the execution of the judgment dated October
19, 1977 issued in Civil Case No. 11714." The petitioner raises two issues in this
petition:
1) Whether the respondent Judge committed grave abuse of discretion in
allowing the October 19, 1977 compromise agreement in the absence of the
petitioner; and
2) Whether the respondent Judge committed grave abuse of discretion
amounting to lack of jurisdiction in denying the petitioner's motion for
reconsideration on the October 19, 1977 judgment and in granting the issuance
of execution thereto upon motion of the private respondents.
Anent the first issue, the petitioner argues that the respondent Judge should not
have allowed her son George Hung and her then counsel, Atty. Pastor Mamaril in
her absence to enter into the October 19, 1977 compromise agreement with the
private respondent Conchita Liao Tan assisted by her counsel. She further argues
that "... considering that such compromise agreement would impose onerous
obligations upon Petitioner, such as a tremendous increase of rentals in the
premises being leased from Private Respondents from P1,500.00 a month to
P5,000.00 a month," and that said agreement contained admissions by
petitioner, the respondent Judge should have required a written authority and
power of attorney from her son and counsel. Her objections to the validity of the
compromise agreement are premised on Article 1878 of the Civil Code and Rule
138, Section 23 of the Rules of Court.
The arguments are not well taken.
Article 1878 is found in Title X of the Civil Code on Agency. It states that a special
power of attorney is necessary to compromise, to submit questions to
arbitration, to renounce the right to appeal from a judgment, to waive objections
to the venue of an action or to abandon a prescription already acquired.
Section 23 of Rule 138 on Attorneys and Admission to the Bar governs the
authority of attorneys to bind their clients and provides that "Attorneys have
authority to bind their clients in any case by any agreement in relation thereto
made in writing, and in taking appeal, and in an matters of ordinary Judicial
Procedure, but they cannot, without special authority, compromise their clients'
litigation or receive anything in discharge of their clients' claims but the full
amount in cash."
The requirements of a special power of attorney in Article 1878 of the Civil Code
and of a special authority in Rule 138 of the Rules of Court refer to the nature of

the authorization and not its form. The requirements are met if there is a clear
mandate from the principal specifically authorizing the performance of the act.
As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that
such a mandate may be either oral or written, the one vital thing being that it
shall be express. And more recently, We stated that, if the special authority is not
written, then it must be duly established by evidence:
... the Rules require, for attorneys to compromise the litigation of their clients, a
special authority. And while the same does not state that the special authority be
in writing the Court has every reason to expect that, if not in writing, the same
be duly established by evidence other than the self-serving assertion of counsel
himself that such authority was verbally given him. (Home Insurance Company
vs. United States lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez,
52 SCRA 210; 225).
We are satisfied from the records of this case that Judge Cancio C. Garcia took
the necessary precautionary measures and acted on the basis of satisfactory
evidence when he allowed the compromise agreement to be executed by George
Hung the petitioner's son.
The records show that prior to the October 19, 1977 hearing, the petitioner as
defendant in Civil Case No. 11-116 had repeatedly asked that the respondent
Judge approve her proposals for a monthly increase of P500.00 starting April,
1977 and that the increases be pegged at that rate until the monthly rental
reaches the sum of P5,000.00 on December, 1977. Such a proposal was not
acceptable at the time to the private respondents. Only at the October 19, 1977
hearing did private respondent Conchita Liao Tan have a change of mind. She
expressed a willingness to accomodate the proposals originating from the
petitioner prompting the court to suspend proceedings and initiate the execution
of the compromise agreement between the parties. Whereupon the following
took place: (1) The court asked George Hung whether he was willing to enter into
the compromise agreement and whether he had the authority of his mother to
enter into such a compromise agreement; (2) The defendant's counsel confirmed
in open court the assurance of George Hung that he had the full authority of his
mother to enter into a compromise agreement: (3) After the formulation of the
compromise agreement the Judge explained in Tagalog to both parties, including
George Hung its terms and conditions after which the same was reduced into
writing; (4) George Hung willingly signed the compromise agreement, the terms
and conditions of which were those originally proposed by the petitioner herself.
Hung was all the while assisted by their counsel.
There were other reasons which led the lower court to a finding that George
Hung had the full authority to enter into the compromise. The court itself
observed during the earlier hearings and it is not disputed that ... defendant Lim
Pin could not decide on anything without first consulting her son." George Hung's
later denial that he never manifested his authority to represent his mother was
rejected by the court. As a matter of fact, this sudden turnabout of George Hung

led the court to cite him for contempt. He was fined Two Hundred Pesos. The
citation for contempt was never appealed.
And finally, even assuming that George Hung and the petitioner's counsel acted
without authority, the compromise agreement itself was not null and void. It
would be merely unenforceable, capable of being ratified. (Dungo v. Lapena, 6
SCRA 1007). The compromise agreement was ratified by the petitioner when, on
October 24, 1977, a few days after the promulgation of the questioned judgment
and before the filing of a motion for reconsideration, she filed an "Ex-Parte
Motion To Withdraw Deposits" in Civil Case No. 11709, a consignation case
pending before the same court between the same parties. The ex-parte motion
in part reads:
xxx xxx xxx
3. That there is another case with this court assigned in Branch I docketed as
Civil Case No. 11716, for unlawful detainer, involving the same parties and
subject property and in the said case, parties have entered into a compromise
agreement whereby, among others, petitioner herein shall pay the accrued
monthly rentals to respondent (plaintiff in the aforementioned case);
4. That in order to implement the aforementioned compromise agreement, it is
necessary that the deposits made by petitioner be withdrawn, the same to be
paid to respondent Conchita Liao Tan. (Annex "2" for the private respondents, p.
71, rollo).
The second ground for this petition is consequently unmeritorious. The Petitioner
alleged that the respondent Judge acted with grave abuse of discretion
amounting to lack of jurisdiction when he denied the motion for reconsideration
of the October 19, 1977 judgment. The motion was based on the same alleged
absence of authority of the petitioner's son and her counsel. A similar allegation
regarding the writ of execution is likewise without merit. It is a well-settled rule
that a compromise judgment is final and executory and unappealable. We also
note that on or before June 26, 1978 the petitioner abandoned the disputed
property, notwithstanding our February 8, 1978 temporary restraining order
enjoining enforcement of the writ of execution.
WHEREFORE, the instant petition is hereby DISMISSED for lack of merit. The
temporary restraining order issued by this Court dated February 8, 1978 is
LIFTED. The judgment appealed from is AFFIRMED with costs against the
petitioner.
SO ORDERED.
Teehankee (Chairman), Makasiar, Plana, Vasquez and Relova, JJ., concur.
Melencio-Herrera, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-18377

December 29, 1962

ANASTACIO G. DUGO, petitioner,

vs.
ADRIANO LOPENA, ROSA RAMOS and HON. ANDRES REYES, Judge of the
Court of First Instance of Rizal, respondents.
Gatchalian, Padilla & Sison for petitioner.
Santiago F. Alidio for respondents.
REGALA, J.:
On September 10, 1959, herein petitioner Anastacio Dugo and one Rodrigo S.
Gonzales purchased 3 parcel of land from the respondents Adriano Lopena and
Rosa Ramos for the total price of P269,804.00. Of this amount P28.000.00 was
given as down payment with the agreement that the balance of P241,804.00
would be paid in 6 monthly installments.
To secure the payment of the balance Anastacio Dugo and Rodrigo S. Gonzales,
the vendees, on September 11, 1958, executed over the same 3 parcels of land
Deed of Real Estate Mortgage in favor of the respondent Adriano Lopena and
Rosa Ramos. This deed was duly registered with the Office of the Register of
Deeds Rizal, with the condition that failure of the vendees to pay any of the
installments on their maturity dates shall automatically cause the entire unpaid
balance to become due and demandable.
The vendees defaulted on the first installment. It resulted then that on November
7, 1959, the vendors, herein respondents Adriano Lopena and Rosa Ramos, filed
a complaint for the foreclosure of the aforementioned real estate mortgage with
the Court of First Instance of Rizal the Hon. Judge Andres Reyes, presiding. This
complaint was answered by the herein petitioner and the other vendee, Rodrigo
S. Gonzales, on December 7, 1959.
Meanwhile, there were 2 other civil cases filed in the same lower court against
the same defendants Anastacio Dugo and Rodrigo S. Gonzales. The plaintiff in
one was a certain Dionisio Lopena, and in the other case, the complainants were
Bernardo Lopena and Maria de la Cruz.
Both complaints involved the same cause of action as that of herein respondents
Adriano Lopena and Rosa Ramos. As a matter of fact all three cases arose out of
one transaction. In view of the identical nature of the above three cases, they
were consolidated by the lower court into just one proceeding.
It must be made clear, however, that this present decision refers solely to the
interests and claim of Adriano Lopena against Anastacio Dugo alone.

Before the cases could be tried, a compromise agreement dated January 15,
1960 was submitted to the lower court for approval. It was signed by herein
respondents Adriano Lopena and Rosa Ramos on one hand, and Rodrigo S.
Gonzales, on the other. It was not signed by the herein petitioner. However,
Rodrigo S. Gonzales represented that his signature was for both himself and the
herein petitioner. Moreover, Anastacio Dugo's counsel of record, Atty. Manuel O.
Chan, the same lawyer who signed and submitted for him the answer to the
complaint, was present at the preparation of the compromise agreement and this
counsel affixed his signature thereto.
The text of this agreement is hereunder quoted:
COMPROMISE AGREEMENT
COME NOW the parties in the above entitled cases and unto this Hon. Court
respectfully set forth:
That, the plaintiffs, have agreed to give the defendants up to June 30, 1960 to
pay the mortgage indebtedness in each of the said cases;
That, should the defendants fail to pay the said mortgage indebtedness,
judgments of foreclosure shall thereafter be entered against the said defendants;
That, the defendants hereby waive the period of redemption provided by law
after entry of judgments;
That, in the event of sale of the properties involved in these three cases, the
defendants agree that the said properties shall be sold at one time at public
auction, that is, one piece of property cannot be sold without the others.
This compromise agreement was approved by the lower court on the same day it
was submitted, January 15, 1960.
Subsequently, on May 3, 1960, a so-called Tri-Party Agreement was drawn. The
signatories to it were Anastacio Dugo (herein petitioner) and Rodrigo S.
Gonzales as debtors, Adriano Lopena and Rosa Ramos (herein respondents) as
creditors, and, one Emma R. Santos as pay or. The stipulations of the Tri-Party
Agreement were as follows: .
A TRI-PARTY AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This contract entered into by and between
(1) MMA R. SANTOS, Filipino, of legal age, single, with residence and postal
address at ..........., Rizal Avenue, Manila, hereinafter referred to as the PAYOR,
(2) ANASTACIO C. DUGO Filipino, of legal age, single, with residence and postal
address at 137 N. Domingo, Quezon City, and RODRIGO S. GONZALES, Filipino, of
legal age, married to Magdalena Balatbat, with residence and postal address at
73 Maryland, Quezon City, hereinafter referred to as the DEBTOR,

and
(3) DIONISIO LOPENA, married to Teofila Nofuente, LIBRADA LOPENA, married to
Arellano Cawagas, BERNARDO LOPENA, married to Maria de la Cruz, and
ADRIANO LOPENA, married to Rosa Ramos, all of whom are Filipinos, of legal
ages, with residence and postal address at Sucat, Muntinlupa, Rizal, hereinafter
represented by their attorney of record, ANTONIO LOPENA, hereinafter referred to
as the CREDITOR,
W I T N E S S E T H:
WHEREAS, the DEBTOR is indebted to the CREDITOR as of this date in the
aggregate amount of P503,000.00 for the collection of which, the latter as party
plaintiffs have institute foreclosure proceedings against the former as party
defendant in Civil Cases Nos. 5872, 5873 and 5874 now pending in the Court of
First Instance, Pasig, Rizal;
WHEREAS, the PAYOR, hereby submits and binds herself to the force and effect of
the Order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal,
Branch VI, which order is hereby made an integral part of this agreement as
ANNEX "A";
WHEREAS, the PAYOR with due knowledge and consent of the DEBTOR, hereby
proposes to pay the aforesaid indebtedness in the sum of P503,000.00 to the
CREDITOR for and in behalf of the DEBTOR under the following terms and
condition petitions:
(a) To pay the said P503,000.00 in installments in the following schedule of
amounts and time: P50,000.00 on or before May 31, 1960 70,000.00 on or before
June 30, 1960 70,000.00 on or before July 31, 1960 313,000.00 on or before Aug.
31, 1960.
(b) That the DEBTOR and the PAYOR hereby waive any right to object and oblige
themselves not to oppose the motion that the CREDITOR may file during the first
week of July 1960, or subsequently thereafter, informing the Court of the exact
money obligation of the DEBTOR which shall be P503,000.00 minus whatever
payments, if any, made before June 30, 1960 by the PAYOR and praying for the
issuance of an order to sell the property covered by the mortgage.
(c) That the CREDITOR, once he has the order referred to, should not execute the
same by giving it to the sheriff if the PAYOR is regular and punctual in the
payment of all of the installments stated above. PROVIDED, however, if the
PAYOR defaults or fails to pay anyone of the installments in the manner stated
above, the PAYOR and the DEBTOR hereby permit the CREDITOR to execute the
order of sale referred to above, and they (PAYOR and DEBTOR) hereby waive any
and all objection's or oppositions to the propriety of the public auction sale and
to the confirmation of the sale to be made by the court.
(d) That the CREDITOR, at his option, may execute the August installment stated
in letter (a) of this paragraph if the PAYOR has paid regularly the May, June, and

July installments, and provided further that one half () of the August installment
in the amount of P156,500.00 is paid on the said date of August 31, 1960.
NOW, THEREFORE, for and in consideration of the foregoing stipulations, the
DEBTOR and CREDITOR hereby accept, approve and ratify the above-mentioned
propositions of the PAYOR and all the parties herein bind and oblige themselves
to comply to the covenants and stipulations aforestated;
That by mutual agreements of all the parties herein, this TRI-PARTY AGREEMENT
may be submitted to Court to form integral parts of the records of the Civil Cases
mentioned above;
IN WITNESS WHEREOF, the parties hereunto affix their signature on this 3rd day
of May, 1960 in the City of Manila, Philippines.
When Anastacio Dugo (herein petitioner) and Rodrigo S. Gonzales failed to pay
the balance of their indebtedness on June 30, 1960, herein respondents Lopena
and Ramos filed on July 5, 1960, a Motion for the Sale of Mortgaged Property.
Although this last motion was filed ex parte, Anastacio Dugo and Rodrigo S.
Gonzales were notified of it by the lower court. Neither of them, however, despite
the notice, filed any opposition thereto. As a result, the lower court granted the
above motion on July 19, 1960, and ordered the sale of the mortgaged property.
On August 25, 1960, the 3 parcels of land above-mentioned were sold by the
Sheriff at a public auction where at herein petitioners, together with the plaintiffs
of the other two cases won as the highest bidders. The said sheriff's sale was
later confirmed by the lower court on August 30, 1960. In this connection, it
should also made of record that before confirming the sale, the lower court gave
due notice of the motion for the confirmation to the herein petitioner who filed no
opposition therefore.
On August 31, 1960, Anastacio Dugo filed a motion to set aside all the
proceedings on the ground that the compromise agreement dated January 15,
1960 was void ab initio with respect to him because he did not sign the same.
Consequently, he argued, all subsequent proceedings under and by virtue of the
compromise agreement, including the foreclosure sale of August 25, 1960, were
void and null as regards him. This motion to set aside, however, was denied by
the lower court in its order of December 14, 1960.
Upon denial of the said motion to set aside, Anastacio Dugo filed a Notice of
Appeal from the order of August 31, 1960 approving the foreclosure sale of
August 25, 1960, as well as the order of December 14, 1960, denying his motion
to set aside. The approval of the record on appeal however, was opposed by the
herein respondent spouses who claimed that the judgment was not appealable
having been rendered by virtue of the compromise agreement. The opposition
was contained in a motion to dismiss the appeal. Anastacio Dugo filed a reply to
the above motion. Soon thereafter, the lower court dismissed the appeal.
Two issues were raised to this Court for review, to wit:

(1) Was the compromise agreement of January 15, 1960, the Order of the same
date approving the same, and, all the proceedings subsequent thereto, valid or
void insofar as the petitioner herein is concerned?
(2) Did the lower court abuse its discretion when it dismissed the appeal of the
herein petitioner?
Petitioner Anastacio Dugo insists that the Compromise Agreement was void ab
initio and could have no effect whatsoever against him because he did not sign
the same. Furthermore, as it was void, all the proceedings subsequent to its
execution, including the Order approving it, were similarly void and could not
result to anything adverse to his interest.
The argument was not well taken. It is true that a compromise is, in itself, a
contract. It is as such that the Civil Code speaks of it.
ART. 2028. A compromise is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already commenced.
Moreover, under Art. 1878 of the Civil Code, a third person cannot bind another
to a compromise agreement unless he, the third person, has obtained a special
power of attorney for that purpose from the party intended to be bound.
ART. 1878. Special powers of attorney are necessary in the following cases:

(3) To compromise, to submit questions to arbitration, to renounce the right to

appeal from a judgment, to waive objections to the venue of an action or to
abandon a prescription already acquired;
However, although the Civil Code expressly requires a special power of attorney
in order that one may compromise an interest of another, it is neither accurate
nor correct to conclude that its absence renders the compromise agreement
void. In such a case, the compromise is merely unenforceable. This results from
its nature is a contract. It must be governed by the rules and the law on
contracts.
ART. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;
Logically, then, the next inquiry in this case should be whether the herein
petitioner, Anastacio Dugo had or had not ratified the compromise agreement.
If he had, then the compromise agreement was legally enforced against him;
otherwise, he should be sustained in his contention that it never bound him, nor
ever could it be made to bind him.

The ratification of the compromise agreement was conclusively established by

the Tri-Party Agreement of May 1960. It is to be noted that the compromise
agreement was submitted to and approved by the lower court January 15, 1960.
Now, the Tri-Party Agreement referred itself to that order when it stipulated thus:
WHEREAS, the MAYOR, hereby submits and binds herself to the force and effect
of the order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal,
Branch which order is hereby made an integral part of this agreement as Annex
"A".lawphil.net
Having so consented to making that court order approving the compromise
agreement an integral part of the Tri-Party Agreement, how can the petitioner
herein now repudiate the compromise agreement and claim he has not
authorized it?
When it appears that the client, on becoming aware the compromise and the
judgment thereon, fails to repudiate promptly the action of his attorney, he will
not afterwards be heard to contest its validity (Rivero vs. Rivero, 59 Phil. 15).
Besides, this Court has not overlooked the fact that which indeed Anastacio
Dugo was not a signatory to the compromise agreement, the principal provision
of the said instrument was for his benefit. Originally, Anastacio Dugo's
obligation matured and became demandable on October 10, 1959. However, the
compromise agreement extended the date of maturity to June 30, 1960. More
than anything, therefore, the compromise agreement operated to benefit the
herein petitioner because it afforded him more time and opportunity to fulfill his
monetary obligations under the contract. If only for this reason, this Court
believes that the herein petitioner should not be heard to repudiate the said
agreement.
Lastly, the compromise agreement stated "that, should the defendants fail to pay
the said mortgage indebtedness, judgment of foreclosure shall thereafter be
entered against the said defendants:" Beyond doubt, this was ratified by the TriParty Agreement when it covenanted that
If the MAYOR defaults or fails to pay anyone of the installments in the manner
stated above, the MAYOR and the DEBTOR hereby permit the CREDITOR to
execute the order of sale referred to above (the Judgment of Foreclosure), and
they (PAYOR and DEBTOR) hereby waive any and all objections or oppositions to
the propriety of the public auction sale and to the confirmation of the sale to be
made by the Court.
Petitioner Dugo finally argued that even assuming that the compromise
agreement was valid, it nevertheless could not be enforced against him because
it has been novated by the Tri-Party Agreement which brought in a third party,
namely, Emma R. Santos, who assumed the mortgaged obligation of the herein
petitioner.
This Court cannot accept the argument. Novation by presumption has never
been favored. To be sustained, it need be established that the old and new

contracts are incompatible in all points, or that the will to novate appears by
express agreement of the parties or in acts of similar import. (Martinez v.
Cavives, 25 Phil. 581; Tiy Sinco vs. Havana, 45 Phil. 707; Asia Banking Corp. vs.
Lacson Co.. 48 Phil. 482; Pascual vs. Lacsamana, 53 O.G. 2467, April 1957).
An obligation to pay a sum of money is not novated, in a new instrument wherein
the old is ratified, by changing only the term of payment and adding other
obligations not incompatible with the old one (Inchausti vs. Yulo, 34 Phil. 978;
Pablo vs. Sapungan, 71 Phil. 145) or wherein the old contract is merely
supplemented by the new one Ramos vs. Gibbon, 67 Phil. 371).
Herein petitioner claims that when a third party Emma R. Santos, came in and
assumed the mortgaged obligation, novation resulted thereby inasmuch as a
new debtor was substituted in place of the original one. In this kind of novation,
however, it is not enough that the juridical relation of the parties to the original
contract is extended to a third person; it is necessary that the old debtor be
released from the obligation, and the third person or new debtor take his place in
the new relation. Without such release, there is no novation; the third person
who has assumed the obligation of the debtor merely becomes a co-debtor or
surety. If there is no agreement as to solidarity, the first and the new debtors are
considered obligation jointly. (IV Tolentino, Civil Code, p. 360, citing Manresa.
There was no such release of the original debtor in the Tri-Party Agreement.
It is a very common thing in the business affairs for a stranger to a contract to
assume its obligations; an while this may have the effect of adding to the
number of persons liable, it does not necessarily imply the extinguishment of the
liability of the first debtor (Rios v Jacinto, etc., 49 Phil. 7; Garcia vs. Khu Yek
Ching, 65 Phil. 466). The mere fact that the creditor receives a guaranty or
accepts payments from a third person who has agreed to assume the obligation,
when there is no agreement that the first debtor shall be released from
responsibility, do not constitute a novation, and the creditor can still enforce the
obligation against the original debtor (Straight vs. Haskell, 49 Phil. 614; Pacific
Commercial Co. vs. Sotto, 34 Phil. 237; Estate of Mota vs. Serra, 47 Phil. 446).
In view of all the foregoing, We hold that the Tri-Party Agreement was an
instrument intended to render effective the compromise agreement. It merely
complemented an ratified the same. That a third person was involved in it is
inconsequential. Nowhere in the new agreement may the release of the herein
petitioner be even inferred.
Having held that the compromise agreement was validity and enforceable
against the herein petitioner, it follows that the lower court committed no abuse
of discretion when it dismissed the appeal of the herein petitioner.
WHEREFORE, the petition for certiorari and mandamus filed by the herein
petitioner is hereby dismissed. The order of the lower court dismissing the
appeal is her by affirmed, with costs.
Labrador, Concepcion, Reyes, J.B.L., Barrera and Makalintal, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-32473 July 31, 1973

IGNACIO VICENTE and MOISES ANGELES, petitioners,
vs.
HON. AMBROSIO M. GERALDEZ, as Judge of the Court of First Instance
of Bulacan, Branch V (Sta. Maria), and HI CEMENT
CORPORATION, respondents
G.R. No. L-32483 July 31, 1973
JUAN BERNABE, petitioner,
vs.
HI CEMENT CORPORATION and THE HON. AMBROSIO M. GERALDEZ,
Presiding Judge, Branch V, Court of First Instance of
Bulacan, respondents.
Librado S. Correa for petitioners Ignacio Vicente and Moises Angeles.
Francisco R. Capistrano and Andreciano F. Caballero for petitioner Juan Bernabe.
Renato L. Cayetano and Jesus G. Diaz for respondent HI Cement Corporation.

ANTONIO, J.:
There are two original actions of certiorari with prayer for preliminary injunction
wherein petitioners seek to annul the orders dated April 24, May 18, and July 18,
1970 of respondent Judge of the Court of First Instance of Bulacan in Civil Case
No. SM-201 (Hi Cement Corporation vs. Juan Bernabe, Ignacio Vicente and Moises
Angeles). The two cases are herein decided jointly because they proceed from
the same case and involve in substance the same question of law.
On September 9, 1967 herein private respondent Hi Cement Corporation filed
with the Court of First Instance of Bulacan a complaint for injunction and
damages against herein petitioners Juan Bernabe, Ignacio Vicente and Moises
Angeles. In said complaint the plaintiff alleged that it had acquired on October
27, 1965, Placer Lease Contract No. V-90, from the Banahaw Shale Mining
Association, under a deed of sale and transfer which was duly registered with the
Office of the Mining Recorder of Bulacan on November 4, 1965 and duly
approved by the Secretary of Agriculture and Natural Resources on December
15, 1965; that the said Placer Lease Contract No. V-90 was for a period of
twenty-five years commencing from August 1, 1960 and covered two mining

claims (Red Star VIII & IX) with a combined area of about fifty-one hectares; that
within the limits of Placer Mining Claim Red Star VIII are three parcels of land
claimed by the defendants Juan Bernabe (about two hectares), Ignacio Vicente
(about two hectares) and Moises Angeles (about one-fourth hectare); that the
plaintiff had, on several occasions, informed the defendants, thru its
representatives, of the plaintiff's acquisition of the aforesaid placer mining claims
which included the areas occupied by them; that the plaintiff had requested the
defendants to allow its workers to enter the area in question for exploration and
development purposes as well as for the extraction of minerals therefrom,
promising to pay the defendants reasonable amounts as damages, but the
defendants refused to allow entry of the plaintiff's representatives; that the
defendants were threatening the plaintiff's workers with bodily harm if they
entered the premises, for which reason the plaintiff had suffered irreparable
damages due to its failure to work on and develop its claims and to extract
minerals therefrom, resulting in its inability to comply with its contractual
commitments, for all of which reasons the plaintiff prayed the court to issue
preliminary writs of mandatory injunction perpetually restraining the defendants
and those cooperating with them from the commission or continuance of the acts
complained of, ordering defendants to allow plaintiff, or its agents and workers,
to enter, develop and extract minerals from the areas claimed by defendants, to
declare the injunction permanent after hearing, and to order the defendants to
pay damages to the plaintiff in the amount of P200,000.00, attorney's fees,
expenses of litigation and costs.
On September 12, 1967 the trial court issued a restraining order and required
the defendants to file their answers. The defendants filed their respective
answers, which contained the usual admissions and denials and interposed
special and affirmative defenses, namely, among others, that they are rightful
owners of certain portions of the land covered by the supposed mining claims of
the plaintiff; that it was the plaintiff and its workers who had committed acts of
force and violence when they entered into and intruded upon the defendants'
lands; and that the complaint failed to state a cause of action. The defendants
set up counter-claims against the plaintiff for actual and moral damages, as well
as for attorney's fees.
In another pleading filed on the same date, defendant Juan Bernabe opposed the
issuance of a writ of preliminary mandatory or prohibitory injunction. In its Order
dated September 30, 1967, the trial court, however, directed the issuance of a
writ of preliminary mandatory injunction upon the plaintiff's posting of a bond in
the amount of P100,000.00. In its order, the court suggested the relocation of the
boundaries of the plaintiff's claims in relation to the properties of the defendants,
and to this end named as Commissioner, a Surveyor from the Office of the
District Engineer of Bulacan to relocate the boundaries of the plaintiff's mining
claims, to show in a survey plan the location of the areas thereof in conflict with
the portions whose ownership is claimed by the defendants and to submit his
report thereof to the court on or before October 31, 1967. The court also directed
the parties to send their representatives to the place of the survey on the date
thereof and to furnish the surveyor with copies of their titles. The Commissioner

submitted his report to the Court on November 24, 1967 containing the following
findings:
1. In the attached survey plan, the area covered and embraced full and heavy
lines is the Placer Mining Claims of the Plaintiff containing an area of 107
hectares while the area bounded by fine-broken lines are the properties of the
Defendants.
2. The property of the Defendant MOISES ANGELES, consisting of two (2) parcels
known as Lot 1-B and Lot 2 of Psu-103374, both described in O.C.T. No. O-1769
with a total area of 34,984 square meters were totally covered by the Claims of
the Plaintiff.
3. The property of the Defendant IGNACIO VICENTE, containing an area of 32,619
square meters, is also inside the Claims of the Plaintiff.
4. The property of the defendant JUAN BERNABE known as Psu-178969,
described in O.C.T. No. 0-2050 is partially covered by the Claims of the Plaintiff
and the area affected is 57,539 square meters.
In an Order issued on December 14, 1967, the court approved the report "with
the conformity of all the parties in this case."
Thereafter, on April 2, 1968 plaintiff HI Cement Corporation filed a motion to
amend the complaint "so as to conform to the facts brought out and/or impliedly
admitted in the pre-trial. This motion was granted by the court on April 6, 1968.
Accordingly, on October 21, 1968, the plaintiff filed its amended complaint. The
amendments consisted in the statement of the correct areas of the land
belonging to defendants Bernabe (57,539 square meters), Vicente (32,619
square meters) and Angles (34,984 square meters), as well as the addition of
allegations to the effect, among others, that at the pre-trial the defendants
Angeles and Vicente declared their willingness to sell to the plaintiff their
properties covered by the plaintiff's mining claims for P10.00 per square meter,
and that when the plaintiff offered to pay only P0.90 per square meter, the said
defendants stated that they were willing to go to trial on the issue of what would
be the reasonable price for the properties of defendants sought to be taken by
plaintiff. With particular reference to defendant Bernabe, the amended complaint
alleged that the said defendant neither protested against nor prohibited the
predecessor-in-interest of the plaintiff from prospecting, discovering, locating and
contracting minerals from the aforementioned claims, or from conducting the
survey thereon, or filed any opposition against the application for lease by the
Red Star Mining Association, and that as a result of the failure of said defendant
to object to the acts of possession or occupation over the said property by
plaintiff, defendant is now estopped from claiming that plaintiff committed acts
of usurpation on said property. The plaintiff prayed the court, among other
things, to fix the reasonable value of the defendants' properties as reasonable
compensation for any resulting damage.

Defendant Bernabe filed an amended answer substantially reproducing his

original answer and denying the averments concerning him in the amended
complaint.
The respective counsels of the parties then conferred among themselves on the
possibility of terminating the case by compromise, the defendants having
previously signified their willingness to sell to the plaintiff their respective
properties at reasonable prices.
On January 30, 1969 the counsels of the parties executed and submitted to the
court for its approval the following Compromise Agreement:
COMPROMISE AGREEMENT
COME NOW the plaintiff and the defendants, represented by their respective
counsel, and respectfully submit the following agreement:
1. That the plaintiff is willing to buy the properties subject of litigation, and the
defendants are willing to sell their respective properties;
2. That this Honorable Court authorizes the plaintiff and the defendants to
appoint their respective commissioners, that is, one for the plaintiff and one for
each defendant;
3. That the parties hereby agree to abide by the decision of the Court based on
the findings of the Commissioners;
4. That the fees of the Commissioners shall be paid as follows:
For those appointed by the parties shall be paid by them respectively; and for
the one appointed by the Court, his fees shall be paid pro-rata by the parties;
5. That the names of the Commissioners to be appointed by the parties shall be
submitted to the Court on or before February 8, 1969.
WHEREFORE, the undersigned respectfully pray that the foregoing agreement be
approved.
Sta. Maria, Bulacan, January 30, 1969.
For the Plaintiff:
(Sgd. ) FRANCISCO VENTURA
t/ FRANCISCO VENTURA.
(Sgd.) FLORENTINO V. CARDENAS
t/ FLORENTINO V. CARDENAS
(Sgd.) ENRIQUETO I. MAGPANTAY
t/ ENRIQUETO I. MAGPANTAY
For Juan Bernabe:

(Sgd.) ANDRECIANO F. CABALLERO

t/ ANDRECIANO F. CABALLERO
For Ignacio Vicente and
Moises Angeles:
(Sgd.) CONRADO MANZANO
t/ CONRADO MANZANO
The Clerk of Court
CFI, Sta. Maria, Bulacan
GREETINGS:
Please submit the foregoing Compromise Agreement to the Honorable Court for
the consideration and approval immediately upon receipt hereof.
VENTURA, CARDENAS & MAGPANTAY
By:
(Sgd.) FRANCISCO VENTURA
t/ FRANCISCO VENTURA
On the same date, the foregoing Compromise Agreement was approved by the
trial court, which enjoined the parties to comply with the terms and conditions
thereof.
Pursuant to the terms of the said compromise agreement the counsels of both
parties submitted the names of the persons designated by them as their
respective commissioners, and in conformity therewith, the trial court, in its
Order dated February 26, 1969, appointed the following as Commissioners: Mr.
Larry G. Marquez, to represent the plaintiff; Mr. Demetrio M. Aquino, to represent
defendant Bernabe; Mr. Moises Correa, to represent defendant Angeles; Mr.
Santiago Cabungcal, to represent defendant Vicente; and Mr. Liberato
Barrameda, to represent the court, and directed that said Commissioners should
appear before the court on March 17, 1969, to take their oath and qualify as such
Commissioners, and then meet on March 31, 1969 in the court for their first
session and to submit their report not later than April 30, 1969.
On September 15, 1969, Commissioner Liberato Barrameda submitted to the
court for its approval a Consolidated Report, containing the three reports of the
Commissioners of the plaintiff and the three defendants, together with an
analysis of the said reports and a summary of the important facts and
conclusions. The following unit prices for the three defendants' properties were
recommended in the Consolidated Report:
A JUAN BERNABE at P12.00 per square meter, wherefrom plaintiff has been
extracting its first output, and would still continue to extract therefrom as the
property consists of a mountain of limestone and shale;

B IGNACIO VICENTE:
a) 60% or 19,571.4 sq. m. (mineral land) at P12.00 per sq. m.
b) 40% or 13,047.6 sq. m. (riceland) at P8.00 per sq. m.
C MOISES ANGELES (riceland) at P8.00 per sq. m.
It is worthy of note that in the individual report of the Commissioner nominated
by plaintiff HI Cement Corporation, the price recommended for defendant Juan
Bernabe's property was P0.60 per square meter, while in the individual report of
the Commissioner nominated by the said defendant, the price recommended
was P50.00 per square meter. The Commissioners named by defendants Vicente
and Angeles recommended was P15.00 per square meter for the lands owned by
the said two defendants, while the Commissioners named by the said two
defendants, while the Commissioner named by the plaintiff recommended P0.65
per square meter for Vicente's land, and P0.55 per square meter for Angeles'
land.
On October 21, 1969, Atty. Francisco Ventura, one of the three lawyers for
plaintiff HI Cement Corporation, filed with the trial court a manifestation stating
that on September 1, 1969 he sent a copy of the Compromise Agreement to Mr.
Antonio Diokno, President of the corporation, requesting the latter to intercede
with the Board of Directors for the confirmation or approval of the commitment
made by the plaintiff's lawyers to abide by the decision of the Court based on the
reports of the Commissioners; and that on October 15, 1969 he received a letter
from Mr. Diokno, a copy of which was attached to the manifestation. In that letter
Mr. Diokno said:
While I realize your interest in cooperating with the Court in its desire to expedite
the disposition of the case, this commitment would deprive us of the right to
appeal if we do not agree with the valuation set by the Court. Our Board,
therefore, cannot waive its rights; only when it knows the value set by the Court
on the properties can it decide whether to abide by it or appeal therefrom. I
would like to stress that, under the law, the compromise agreement requires the
express approval of our Board of Directors to be binding on our corporation. Such
an approval, I regret to say, cannot be obtained at this time.
On November 5, 1969, defendant Bernabe filed an answer to Atty. Ventura's
manifestation, praying the court to ignore, disregard and, if possible, order
striken from the record, the plaintiff's manifestation on the following grounds:
that its filing after the Consolidated Report of the Commissioners had been
submitted and approved, and long after the signing of the Compromise
Agreement on January 30, 1969, cast suspicion on the sincerity of the plaintiff's
motive; that when the Compromise Agreement was being considered, the court
inquired from the parties and their respective lawyers if all the attorneys
appearing in the case had been duly authorized and/or empowered to enter into
a compromise agreement, and the three lawyers for the plaintiff answered in the
affirmative; that in fact it was Atty. Ventura himself who prepared the draft of the

Compromise Agreement in his own handwriting and was the first to sign the
agreement; that one of the three lawyers for the plaintiff, Atty. Florentino V.
Cardenas, who also signed the Compromise Agreement, was the official
representative, indeed was an executive official, of plaintiff corporation; that the
Compromise Agreement, having been executed pursuant to a pre-trial
conference, partakes the nature of a stipulation of facts mutually agreed upon by
the parties and approved by the court, hence, was binding and conclusive upon
the parties; and that the nomination by the plaintiff of Mr. Larry G. Marquez as its
Commissioner pursuant to the Compromise Agreement, was a clear indication of
the plaintiff's tacit approval of the terms and conditions of the Compromise
Agreement, if not an implied ratification of Atty. Ventura's acts.
On March 13, 1970 the court rendered a decision in which the terms and
conditions of the Compromise Agreement are reproduced, and the Consolidated
Report of the Commissioners is extensively quoted. The rationale and dispositive
portion of the decision read:
What is fair and just compensation?
"Just compensation includes all elements of value that inheres in the property,
but it does not exceed market value fairly determined. The sum required to be
paid the owner does not depend upon the usage to which he has devoted his
land but is to be arrived at upon just consideration of all the uses for which it is
suitable. The highest and most profitable use for which the property is adoptable
and needed or likely to be needed in the reasonably near future is to be
considered, not necessarily as the measure of value, but to the full extent that
the prospect of demand for such use affects the market value while the property
is privately held."
The term fair and just compensation as applied in expropriation or eminent
domain proceedings need not necessarily be applied in the present case. In
expropriation proceedings the government is the party involved and its use is for
public purpose. In the instant case, however, private parties are involved and the
use of the land is a private venture and for profit.
It appears that defendants' properties are practically adjacent to plaintiff's plant
site. It also appears that practically all the surrounding areas were acquired by
the plaintiff by purchase.
In the report submitted by the commissioner representing the plaintiff, it is
claimed that the surrounding areas were acquired thru purchase by the plaintiff
in the amount of less than P1.00 per square meter. On the other hand, it appears
from the reports submitted by the commissioners representing the defendants
that there were some recorded sales around the area from P20.00 to P25.00 per
square meter and there were subdivision lots which command even higher
prices.
The properties are reported to consist of mineral land which are rocky and barren
containing limestone and shale. From viewpoint of the owners their property

which is described as rocky and barren mineral land must necessarily command
a higher price, and this Court believes that the plaintiff will adopt the same
attitude from the viewpoint of its business.
While it may be true that the plaintiff acquired properties within the area in
question at a low price, we cannot overlook the fact that this was so at the time
when plaintiff corporation was not yet in operation and that the land owners
were not as yet aware of the potential value of their landholdings.
Irrespective of the different classifications of the properties owned by the
defendants, and considering the benefits that will enure to the plaintiff and
bearing in mind the property rights and privileges to which the property owners
are entitled both under the constitution and the mining law, coupled with the fact
that the plaintiff had already taken advantage of the properties even long before
the rightful acquisition of the same, this Court believes that the just and fair
market value of the land should be in the amount P15.00 per square meter.
In view of the above findings, the plaintiff pursuant to the compromise
agreement, is hereby ordered to pay the defendants the amount of P15.00 per
square meter for the subject properties, and upon full payment, the restraining
order earlier issued by this Court shall be deemed lifted.
On March 23, 1970 defendant Juan Bernabe filed an urgent motion for execution
of judgment anchored on the proposition that the judgment, being based on a
compromise agreement, is not appealable and is, on the other hand,
immediately executory. The other two defendants, Moises Angeles and Ignacio
Vicente, likewise filed their respective motions for execution. These motions were
granted by the court in its Order of April 14, 1970.
On April 17, 1970 the plaintiff filed a motion for reconsideration of the April 14,
1970 Order, alleging that it had an opposition to the defendants' motions for
execution, and that the Compromise Agreement had been repudiated by the
plaintiff corporation through its Vice President, as earlier manifested by the
plaintiff. The plaintiff prayed for ten days from the date of the hearing of the
motion within which to file its written opposition to the motions for execution.
Defendant Juan Bernabe filed an opposition to the plaintiff's motion on April 21,
1970.
On April 22, 1970 the plaintiff filed with the court a motion for new trial on the
ground that the decision of the court dated March 13, 1970 is null and void
because it was based on the Compromise Agreement of January 30, 1969 which
was itself null and void for want of a special authority by the plaintiff's lawyers to
enter into the said agreement. The plaintiff also prayed that the decision dated
March 13, 1970 and the Order dated April 14, 1970 granting the defendants'
motions for execution, be set aside. Defendant Juan Bernabe filed on April 27,
1970 an opposition to the plaintiff's motion on the grounds that the decision of
the court is in accordance with law, for three lawyers for the plaintiff signed the
Compromise Agreement, and one of them, Atty. Cardenas, was an official
representative of plaintiff corporation, hence, when he signed the Compromise

Agreement, he did so in the dual capacity of lawyer and representative of the

management of the corporation; that the plaintiff itself pursued, enforced and
implemented the agreement by appointing Mr. Larry Marquez as its duly
accredited Commissioner; and that the plaintiff is conclusively bound by the acts
of its lawyers in entering into the Compromise Agreement.
In the meantime, or on April 24, 1970, the court issued an Order setting aside its
Order of April 14, 1970 under which the defendants' motions for execution of
judgment had been granted, and gave the plaintiff ten days within which to file
an opposition to the defendants' motions for execution.
On May 9, 1970 the plaintiff filed an opposition to the motions for execution of
judgment, on the grounds that the decision dated March 13, 1970 is contrary to
law for it is based on a compromise agreement executed by the plaintiff's
lawyers who had no special power of attorney as required by Article 1878 of the
Civil Code, or any special authority as required by Section 23, Rule 138 of the
Rules of Court; and that the judgment is void for lack of jurisdiction of the court
because the same is based on a void compromise agreement.
On May 18, 1970 the court issued an Order setting aside its decision dated March
13, 1970, denying the defendants' motions for execution of judgment, and
setting for June 23, 1970 a pre-trial conference in the case. The three defendants
moved for reconsideration, but their motions were denied in an Order dated July
18, 1970.
It is in these factual premises that the defendants in Civil Case No. SM-201 came
to this Court by means of the present petitions. In G.R. No. L-32473, petitioners
Vicente and Angeles pray this Court to issue a writ of preliminary injunction, and,
after hearing, to annul and set aside the Order dated May 18,1970 issued by
respondent Judge setting aside the decision dated March 13, 1970; to declare the
said decision legal, effective and immediately executory; to dissolve the writ of
preliminary mandatory injunction issued by respondent Judge on September 30,
1967 commanding petitioners to allow private respondent to enter their
respective properties and excavate thereon; to make the preliminary injunction
permanent; and to award treble costs in favor of petitioners and against private
respondent. In G.R. No. L-32483, petitioner Juan Bernabe prays this Court to
issue a writ of preliminary injunction or, at least a temporary restraining order,
and, after hearing, to annul and set aside the Order dated April 24, 1970 issued
by respondent Judge setting aside his Order of April 14, 1970 and allowing
private respondent to file an opposition to petitioners' motion for execution, the
Order dated May 18, 1970, and the Order dated July 18, 1970. Petitioner Bernabe
also seeks the reinstatement of the trial court's decision dated May 13, 1970 and
its Order dated April 14, 1970 granting his motion for execution of judgment, and
an award in his favor of attorney's fees and of actual, moral and exemplary
damages.
At issue is whether the respondent court, in setting aside its decision of March
13, 1970 and denying the motions for execution of said decision, had acted

without or in excess of its jurisdiction or with grave abuse of discretion. We hold

that said court did not, in view of the following considerations:
1. Special powers of attorney are necessary, among other cases, in the following:
to compromise and to renounce the right to appeal from a judgment. 1 Attorneys
have authority to bind their clients in any case by any agreement in relation
thereto made in writing, and in taking appeals, and in all matters of ordinary
judicial procedure, but they cannot, without special authority, compromise their
clients' litigation, or receive anything in discharge of their clients' claims but the
full amount in cash. 2
The Compromise Agreement dated January 30, 1969 was signed only by the
lawyers for petitioners and by the lawyers for private respondent corporation. It
is not disputed that the lawyers of respondent corporation had not submitted to
the Court any written authority from their client to enter into a compromise.
This Court has said that the Rules 3 "require, for attorneys to compromise the
litigation of their clients, a special authority. And while the same does not state
that the special authority be in writing the court has every reason to expect that,
if not in writing, the same be duly established by evidence other than the selfserving assertion of counsel himself that such authority was verbally given
him." 4
2. The law specifically requires that "juridical persons may compromise only in
the form and with the requisites which may be necessary to alienate their
property." 5 Under the corporation law the power to compromise or settle claims
in favor of or against the corporation is ordinarily and primarily committed to the
Board of Directors. The right of the Directors "to compromise a disputed claim
against the corporation rests upon their right to manage the affairs of the
corporation according to their honest and informed judgment and discretion as to
what is for the best interests of the corporation." 6 This power may however be
delegated either expressly or impliedly to other corporate officials or agents.
Thus it has been stated, that as a general rule an officer or agent of the
corporation has no power to compromise or settle a claim by or against the
corporation, except to the extent that such power is given to him either
expressly or by reasonable implication from the circumstances. 7 It is therefore
necessary to ascertain whether from the relevant facts it could be reasonably
concluded that the Board of Directors of the HI Cement Corporation had
authorized its lawyers to enter into the said compromise agreement.
Petitioners claim that private respondent's attorneys admitted twice in open
court on January 30, 1969, that they were authorized to compromise their client's
case, which according to them, was never denied by the said lawyers in any of
the pleadings filed by them in the case. The claim is unsupported by evidence.
On the contrary, in private respondent's "Reply to Defendant Bernabe's Answer
Dated November 8, 1969," said counsels categorically denied that they ever
represented to the court that they were authorized to enter into a compromise.
Indeed, the complete transcript of stenographic notes taken at the proceedings
on January 30, 1969 are before Us, and nowhere does it appear therein that

respondent corporation's lawyers ever made such a representation. In any event,

assuming arguendo that they did, such a self-serving assertion cannot properly
be the basis for the conclusion that the respondent corporation had in fact
authorized its lawyers to compromise the litigation.
3. Petitioners however insist that there was tacit ratification on the part of the
corporation, because it nominated Mr. Larry Marquez as its commissioner
pursuant to the agreement, paid his services therefor, and Atty. Florentino V.
Cardenas, respondent corporation's administrative manager, not only did not
object but even affixed his signature to the agreement. It is also argued that
respondent corporation having represented, through its lawyers, to the court and
to petitioners that said lawyers had authority to bind the corporation and having
induced by such representations the petitioners to sign the compromise
agreement, said respondent is now estopped from questioning the same.
The infirmity of these arguments is in their assumption that Atty. Cerdenas as
administrative manager had authority to bind the corporation or to compromise
the case. Whatever authority the officers or agents of a corporation may have is
derived from the board of directors, or other governing body, unless conferred by
the charter of the corporation. A corporation officer's power as an agent of the
corporation must therefore be sought from the statute, the charter, the by-laws,
or in a delegation of authority to such officer, from the acts of board of directors,
formally expressed or implied from a habit or custom of doing business. 8 In the
case at bar no provision of the charter and by-laws of the corporation or any
resolution or any other act of the board of directors of HI Cement Corporation has
been cited, from which We could reasonably infer that the administrative
manager had been granted expressly or impliedly the power to bind the
corporation or the authority to compromise the case. Absent such authority to
enter into the compromise, the signature of Atty. Cardenas on the agreement
would be legally ineffectual.
4. As regards the nomination of Mr. Marquez as commissioner, counsel for
respondent corporation has explained and this has not been disproven that
Atty. Cardenas, apparently on his own, submitted the same to the court. There is
no iota of proof that at the time of the submission to the Court, on February 26,
1969, of the name of Mr. Marquez, respondent corporation knew of the contents
of the compromise agreement. As matter of fact, according to the manifestation
of Atty. Ventura to the court, it was only on September 1, 1969 that he sent to Mr.
Antonio Diokno, Vice-President of the corporation, a copy of the compromise
agreement for the approval by the board of directors and on October 22, 1969,
Mr. Diokno informed him that the approval of the Board cannot be obtained, as
under the agreement the corporation is deprived of its right to appeal from the
judgement.
In the absence of any proof that the governing body of respondent corporation
had knowledge, either actual or constructive, or the contents of the compromise
agreement before September 1, 1969, why should the nomination of Mr. Marquez
as commissioner, by Attys. Ventura, Cardenas and Magpantay, on February 26,

1969, be considered as a form of tacit ratification of the compromise agreement

by the corporation? In order to ratify the unauthorized act of an agent and make
it binding on the corporation, it must be shown that the governing body or officer
authorized to ratify had full and complete knowledge of all the material facts
connected with the transaction to which it relates. 9 It cannot be assumed also
that Atty. Cardenas, as administrative manager of the corporation, had authority
to ratify. For ratification can never be made "on the part of the corporation by the
same persons who wrongfully assume the power to make the contract, but the
ratification must be by the officer or governing body having authority to make
such contract and, as we have seen, must be with full knowledge." 10
5. Equally inapposite is petitioners' invocation of the principle of estoppel. In the
case at bar, except those made by Attys. Ventura, Cardenas and Magpantay,
petitioners have not demonstrated any act or declaration of the corporation
amounting to false representation or concealment of material facts calculated to
mislead said petitioners. The acts or conduct for which the corporation may be
liable under the doctrine of estoppel must be those of the corporation, its
governing body or authorized officers, and not those of the purported agent who
is himself responsible for the misrepresentation. 11
It having been found by the trial court that "the counsel for the plaintiff entered
into the compromise agreement without the written authority of his client and
the latter did not ratify, on the contrary it repudiated and disowned the
same ...", 12 We therefore declare that the orders of the court a quo subject of
these two petitions, have not been issued in excess of its jurisdictional authority
or in grave abuse of its discretion.
WHEREFORE, the petitions in these two cases are hereby dismissed. Costs
against the petitioners.
Makalintal, Actg. C.J., Castro, Teehankee, Barredo, Makasiar and Esguerra, JJ.,
concur.
Zaldivar, J., is on leave.
Fernando, J., took no part.

Footnotes
1 Article 1878[3], Civil Code.
2 Rule 138, Section 23, Rules of Court.
3 Ibid.
4 Home Insurance Company v. United States Lines Co., et al., L-25593,
November 15, 1967, 21 SCRA 863, 866.
5 Article 2033, New Civil Code.

6 2 Fletcher, Cyclopedia Corporations, 572, 1969 Revised Volume. .

7 Golden West Credit & Adjustment Co. v. Wilson, 7 P. 2d. 345, 119 Cal. App. 627.
8 Celeste Sugar Co. v. Dunbar-Dukate Co., 107 So. 493, 160 La. 694.
Massachusetts Hospital Life Ins. Co. v. Nesson 190 N.E. 31, 286 Mass. 216.
Garland Corp. v. Waterloo Loan & Trust Co., 170 N.W. 373, 185 Iowa 190.
Wheatland Tube Co. v. McDowell & Co., 176 A. 217, 317 Pa. 295.
Victoria Park Co. v. Continental Ins. Co. of New York, 178 P. 724, 39 Cal. App. 347.
8 Board of Liquidators v. Kalaw, L-18805, Aug. 14, 1967, 20 SCRA 987.
2 Fletcher, Cyclopedia Corporations, footnote 70, 301, 1969 Revised Volume:
"A corporation is bound by the act of an officer or agent only to the extent that
the power to do the act has been conferred upon him expressly by the charter,
bylaws or action of the stockholders or directors, or can be implied from powers
expressly conferred, or which are incidental thereto, or where the act is within
the apparent powers which the corporation has caused third persons to believe it
has conferred upon the officer or agent. Erie R. Co. v. S.J. Groves & Sons Co., 114
NJL 216, 176 A. 377."
9 "In order to ratify the unauthorized act of an agent and make it effectual and
obligatory upon the principal, the general rule is that the ratification must be
made by the principal with a full and complete knowledge of all the material
facts connected with the transaction to which it relates; and this rule applies, of
course, to ratification by a corporation of an unauthorized contract or other act
by its officers or agents, whether the ratification is by the stockholders or by the
directors, or by a subordinate officer having authority to ratify." (2 Fletcher
Cyclopedia Corporations, 1049-1052, 1969 Revised Volume).
10 "Ratification can never be made on the part of the corporation by the same
person who wrongfully assume the power to make the contract, but the
ratification must be by the officer or governing body having authority to make
such contract and, as we have seen, must be with full knowledge. Accordingly, a
corporate officer or agent cannot ratify an unauthorized act or contract done or
entered into by himself so as to bind the corporation. In other words, one who
makes an unauthorized contract has no more right to ratify their own
unauthorized acts; even though they constitute a majority of the directors or of
the stockholders, and a board of directors, the majority of which were the
members of a preceding board which authorized or entered into an illegal
contract, cannot ratify it, since this would be in effect a ratification of one's own
act." (2 Fletcher, Cyclopedia Corporations, 1067-1069, 1969 Revised Volume.)
11 Dr. Beck & Co. v. General Elec. Co., 210 F Supp. 86.
Grummit v. Sturgeon Bay Winter Shorts Club, 197 F Supp. 455.

Mannion v. Campbell Soup Co., 243 Cal App 2d 317, 52 Cal Rpts 2 & 6.
Spencer Concrete Products Co. v. City of Spencer, 116 NW 2d 455.
12 Order of May 18, 1970.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 171460

July 24, 2007

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR.,

represented by their Attorney-In-Fact, ALFREDO M. PEREZ, Petitioners,
vs.
ALLIED BANKING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, filed by petitioners Lillian N. Mercado, Cynthia M. Fekaris
and Julian Mercado, Jr., represented by their Attorney-In-Fact, Alfredo M. Perez,
seeking to reverse and set aside the 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 Decision3 of the Regional Trial Court (RTC) of Quezon City, Branch 220 dated
23 September 2003, declaring the deeds of real estate mortgage constituted on
TCT No. RT-18206 (106338) null and void. The dispositive portion of the assailed
Court of Appeals Decision thus reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new
judgment is hereby entered dismissing the [petitioners] complaint. 4
Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned
several pieces of real property situated in different provinces of the Philippines.
Respondent, on the other hand, is a banking institution duly authorized as such
under the Philippine laws.
On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her
husband, Julian D. Mercado (Julian) over several pieces of real property
registered under her name, authorizing the latter to perform the following acts:
1. To act in my behalf, to sell, alienate, mortgage, lease and deal otherwise over
the different parcels of land described hereinafter, to wit:
a) Calapan, Oriental Mindoro Properties covered by Transfer Certificates of Title
Nos. T-53618 - 3,522 Square Meters, T-46810 3,953 Square Meters, T-53140

177 Square Meters, T-21403 263 square Meters, T- 46807 39 Square Meters of
the Registry of Deeds of Oriental Mindoro;
b) Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos. T108954 600 Square Meters and RT-106338 805 Square Meters of the Registry
of Deeds of Pasig (now Makati);
c) Personal property 1983 Car with Vehicle Registration No. R-16381; Model
1983; Make Toyota; Engine No. T- 2464
2. To sign for and in my behalf any act of strict dominion or ownership any sale,
disposition, mortgage, lease or any other transactions including quit-claims,
waiver and relinquishment of rights in and over the parcels of land situated in
General Trias, Cavite, covered by Transfer Certificates of Title Nos. T-112254 and
T-112255 of the Registry of Deeds of Cavite, in conjunction with his co-owner and
in the person ATTY. AUGUSTO F. DEL ROSARIO;
3. To exercise any or all acts of strict dominion or ownership over the 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. RT-18206 (106338) which covers a parcel of
land with an area of 805 square meters, registered with the Registry of Deeds of
Quezon City (subject property).5
Still using the subject property as security, Julian obtained an additional loan
from the respondent in the sum ofP5,000,000.00, evidenced by a Promissory
Note6 he executed on 5 February 1997 as another real estate mortgage (REM).
It appears, however, that there was no property identified in the SPA as TCT No.
RT 18206 (106338) and registered with the Registry of Deeds of Quezon City.
What was identified in the SPA instead was the property covered by TCT No. RT106338 registered with the Registry of Deeds of Pasig.
Subsequently, Julian defaulted on the payment of his loan obligations. Thus,
respondent initiated extra-judicial foreclosure proceedings over the subject
property which was subsequently sold at public auction wherein the respondent
was declared as the highest bidder as shown in the Sheriffs Certificate of Sale
dated 15 January 1998.7
On 23 March 1999, petitioners initiated with the RTC an action for the annulment
of REM constituted over the subject property on the ground that the same was
not covered by the SPA and that the said SPA, at the time the loan obligations
were contracted, no longer had force and effect since it was previously revoked
by Perla on 10 March 1993, as evidenced by the Revocation of SPA signed by the
latter.8
Petitioners likewise alleged that together with the copy of the Revocation of SPA,
Perla, in a Letter dated 23 January 1996, notified the Registry of Deeds of Quezon

City that any attempt to mortgage or sell the subject property must be with her
full consent documented in the form of an SPA duly authenticated before the
Philippine Consulate General in New York. 9
In the absence of authority to do so, the REM constituted by Julian over the
subject property was null and void; thus, petitioners likewise prayed that the
subsequent extra-judicial foreclosure proceedings and the auction sale of the
subject property be also nullified.
In its Answer with Compulsory Counterclaim, 10 respondent averred that, contrary
to petitioners allegations, the SPA in favor of Julian included the subject
property, covered by one of the titles specified in paragraph 1(b) thereof, TCT No.
RT- 106338 registered with the Registry of Deeds of Pasig (now Makati). The
subject property was purportedly registered previously under TCT No. T-106338,
and was only subsequently reconstituted as TCT RT-18206 (106338). Moreover,
TCT No. T-106338 was actually registered with the Registry of Deeds of Quezon
City and not before the Registry of Deeds of Pasig (now Makati). Respondent
explained that the discrepancy in the designation of the Registry of Deeds in the
SPA was merely an error that must not prevail over the clear intention of Perla to
include the subject property in the said SPA. In sum, the property referred to in
the SPA Perla executed in favor of Julian as covered by TCT No. 106338 of the
Registry of Deeds of Pasig (now Makati) and the subject property in the case at
bar, covered by RT 18206 (106338) of the Registry of Deeds of Quezon City, are
one and the same.
On 23 September 2003, the RTC rendered a Decision declaring the REM
constituted over the subject property null and void, for Julian was not authorized
by the terms of the SPA to mortgage the same. The court a quo likewise ordered
that the foreclosure proceedings and the auction sale conducted pursuant to the
void REM, be nullified. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
[herein petitioners] and against the [herein respondent] Bank:
1. Declaring the Real Estate Mortgages constituted and registered under Entry
Nos. PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT No. RT-18206
(106338) of the Registry of Deeds of Quezon City as NULL and VOID;
2. Declaring the Sheriffs Sale and Certificate of Sale under FRE No. 2217 dated
January 15, 1998 over the property covered by TCT No. RT-18206 (106338) of the
Registry of Deeds of Quezon City as NULL and VOID;
3. Ordering the defendant Registry of Deeds of Quezon City to cancel the
annotation of Real Estate Mortgages appearing on Entry Nos. PE-4543/RT-18206
and 2012/RT-18206 on TCT No. RT-18206 (106338) of the Registry of Deeds of
Quezon City;
4. Ordering the [respondent] Bank to deliver/return to the [petitioners]
represented by their attorney-in-fact Alfredo M. Perez, the original Owners

Duplicate Copy of TCT No. RT-18206 (106338) free from the encumbrances
referred to above; and
5. Ordering the [respondent] Bank to pay the [petitioners] the amount
of P100,000.00 as for attorneys fees plus cost of the suit.
The other claim for damages and counterclaim are hereby DENIED for lack of
merit.11
Aggrieved, respondent appealed the adverse Decision before the Court of
Appeals.
In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC
Decision and upheld the validity of the REM constituted over the subject property
on the strength of the SPA. The appellate court declared that Perla intended the
subject property to be included in the SPA she executed in favor of Julian, and
that her subsequent revocation of the said SPA, not being contained in a public
instrument, cannot bind third persons.
The Motion for Reconsideration interposed by the petitioners was denied by the
Court of Appeals in its Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision and Resolution rendered by
the Court of Appeals raising several issues, which are summarized as follows:
I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER
SUBJECT PROPERTY.
II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.
III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN- GOOD FAITH.
For a mortgage to be valid, Article 2085 of the Civil Code enumerates the
following essential requisites:
Art. 2085. The following requisites are essential to the contracts of pledge and
mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal
of their property, and in the absence thereof, that they be legally authorized for
the purpose.
Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property.
In the case at bar, it was Julian who obtained the loan obligations from
respondent which he secured with the mortgage of the subject property. The

property mortgaged was owned by his wife, Perla, considered a third party to the
loan obligations between Julian and respondent. It was, thus, a situation
recognized by the last paragraph of Article 2085 of the Civil Code afore-quoted.
However, since it was not Perla who personally mortgaged her own property to
secure Julians loan obligations with respondent, we proceed to determining if
she duly authorized Julian to do so on her behalf.
Under Article 1878 of the Civil Code, a special power of attorney is necessary in
cases where real rights over immovable property are created or conveyed. 12 In
the SPA executed by Perla in favor of Julian on 28 May 1992, the latter was
conferred with the authority to "sell, alienate, mortgage, lease and deal
otherwise" the different pieces of real and personal property registered in Perlas
name. The SPA likewise authorized Julian "[t]o exercise any or all acts of strict
dominion or ownership" over the identified properties, and rights and interest
therein. The existence and due execution of this SPA by Perla was not denied or
challenged by petitioners.
There is no question therefore that Julian was vested with the power to mortgage
the pieces of property identified in the SPA. However, as to whether the subject
property was among those identified in the SPA, so as to render Julians
mortgage of the same valid, is a question we still must resolve.
Petitioners insist that the subject property was not included in the SPA,
considering that it contained an exclusive enumeration of the pieces of property
over which Julian had authority, and these include only: (1) TCT No. T-53618, with
an area of 3,522 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (2) TCT No. T-46810,
with an area of 3,953 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140,
with an area of 177 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403,
with an area of 263 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (5) TCT No. T- 46807,
with an area of 39 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No. T-108954,
with an area of 690 square meters and located at Susana Heights, Muntinlupa;
(7) RT-106338 805 Square Meters registered with the Registry of Deeds of Pasig
(now Makati); and (8) Personal Property consisting of a 1983 Car with Vehicle
Registration No. R-16381, Model 1983, Make Toyota, and Engine No. T- 2464.
Nowhere is it stated in the SPA that Julians authority extends to the subject
property covered by TCT No. RT 18206 (106338) registered with the Registry of
Deeds of Quezon City. Consequently, the act of Julian of constituting a mortgage
over the subject property is unenforceable for having been done without
authority.
Respondent, on the other hand, mainly hinges its argument on the declarations
made by the Court of Appeals that there was no property covered by TCT No.
106338 registered with the Registry of Deeds of Pasig (now Makati); but there

exists a property, the subject property herein, covered by TCT No. RT-18206
(106338) registered with the Registry of Deeds of Quezon City. Further
verification would reveal that TCT No. RT-18206 is merely a reconstitution of TCT
No. 106338, and the property covered by both certificates of title is actually
situated in Quezon City and not Pasig. From the foregoing circumstances,
respondent argues that Perla intended to include the subject property in the SPA,
and the failure of the instrument to reflect the recent TCT Number or the exact
designation of the Registry of Deeds, should not defeat Perlas clear intention.
After an examination of the literal terms of the SPA, we find that the subject
property was not among those enumerated therein. There is no obvious
reference to the subject property covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon City.
There was also nothing in the language of the SPA from which we could deduce
the intention of Perla to include the subject property therein. We cannot attribute
such alleged intention to Perla who executed the SPA when the language of the
instrument is bare of any indication suggestive of such intention. Contrariwise, to
adopt the intent theory advanced by the respondent, in the absence of clear and
convincing evidence to that effect, would run afoul of the express tenor of the
SPA and thus defeat 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 Manresa 18 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. RT-18206 (106338), as
the RTC pointed out, neither the Registry of Deeds of Quezon City nor respondent
denied that Perlas 23 January 1996 letter was received by and filed with the
Registry of Deeds of Quezon City. Respondent would have undoubtedly come
across said letter if it indeed diligently investigated the subject property and the
circumstances surrounding its mortgage.
The final issue to be threshed out by this Court is whether the respondent is a
mortgagee-in-good faith. Respondent fervently asserts that it exercised
reasonable diligence required of a prudent man in dealing with the subject
property.
Elaborating, respondent claims to have carefully verified Julians authority over
the subject property which was validly contained in the SPA. It stresses that the
SPA was annotated at the back of the TCT of the subject property. Finally, after
conducting an investigation, it found that the property covered by TCT No.
106338, registered with the Registry of Deeds of Pasig (now Makati) referred to in

the SPA, and the subject property, covered by TCT No. 18206 (106338) registered
with the Registry of Deeds of Quezon City, are one and the same property. From
the foregoing, respondent concluded that Julian was indeed authorized to
constitute a mortgage over the subject property.
We are unconvinced. The property listed in the real estate mortgages Julian
executed in favor of PNB is the one covered by "TCT#RT-18206(106338)." On the
other hand, the Special Power of Attorney referred to TCT No. "RT-106338 805
Square Meters of the Registry of Deeds of Pasig now Makati." The palpable
difference between the TCT numbers referred to in the real estate mortgages and
Julians SPA, coupled with the fact that the said TCTs are registered in the
Registries of Deeds of different cities, should have put respondent on guard.
Respondents claim of prudence is debunked by the fact that it had conveniently
or otherwise overlooked the inconsistent details appearing on the face of the
documents, which it was relying on for its rights as mortgagee, and which
significantly affected the identification of the property being mortgaged.
In Arrofo v. Quio,20 we have elucidated that:
[Settled is the rule that] a person dealing with registered lands [is not required]
to inquire further than what the Torrens title on its face indicates. This rule,
however, is not absolute but admits of exceptions. Thus, while its is true, x x
x that a person dealing with registered lands need not go beyond the
certificate of title, it is likewise a well-settled rule that a purchaser or
mortgagee cannot close his eyes to facts which should put a reasonable
man on his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor or mortgagor.
His mere refusal to face up the fact that such defect exists, or his willful closing
of his eyes to the possibility of the existence of a defect in the vendors or
mortgagors title, will not make him an innocent purchaser for value, if it
afterwards develops that the title was in fact defective, and it appears that he
had such notice of the defect as would have led to its discovery had he acted
with the measure of precaution which may be required of a prudent man in a like
situation.
By putting blinders on its eyes, and by refusing to see the patent defect in the
scope of Julians authority, easily discernable from the plain terms of the SPA,
respondent cannot now claim to be an innocent mortgagee.
Further, in the case of Abad v. Guimba,21 we laid down the principle that where
the mortgagee does not directly deal with the registered owner of real property,
the law requires that a higher degree of prudence be exercised by the
mortgagee, thus:
While [the] one who buys from the registered owner does not need to look
behind the certificate of title, one who buys from [the] one who is not [the]
registered owner is expected to examine not only the certificate of title but all
factual circumstances necessary for [one] to determine if there are any flaws in
the title of the transferor, or in [the] capacity to transfer the land. Although the

instant case does not involve a sale but only a mortgage, the same rule applies
inasmuch as the law itself includes a mortgagee in the term "purchaser." 22
This principle is applied more strenuously when the mortgagee is a bank or a
banking institution. Thus, in the case of Cruz v. Bancom
Finance Corporation,23 we ruled:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As
such, unlike private individuals, it is expected to exercise greater care and
prudence in its dealings, including those involving registered lands. A banking
institution is expected to exercise due diligence before entering into a mortgage
contract. The ascertainment of the status or condition of a property offered to it
as security for a loan must be a standard and indispensable part of its
operations.24
Hence, considering that the property being mortgaged by Julian was not his, and
there are 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-99-37145, is hereby REINSTATED
and AFFIRMED with modification that the real estate mortgages constituted
over TCT No. RT 18206 (106338) are not null and void but UNENFORCEABLE. No
costs.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

Footnotes
1

Penned by Associate Justice Delilah Vidallon-Magtolis with Associate Justices

Josefina Guevara-Salonga and Fernanda Lampas-Peralta, concurring. Rollo, pp.
44-59.
2

Id. at 61-64.

Id. at 71-84.

Id. at 59.

Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos. T108954 690 square meters; and RT-106338 805 square meters of the Registry
of Deeds of Pasig (now Makati);
6

Id. at 106-109.

Id. at 73

Id. at 74.

Id. at 74-75.

10

Id. at 96-103.

11

Id. at 84.

12

Paragraph 12 of Article 1878, Civil Code of the Philippines.

13

G.R. No. 154156, 31 August 2006, 500 SCRA 526.

14

Id. at 545-546.

15

Angeles v. Philippine National Railways (PNR), G.R. No. 150128, 31 August

2006, 500 SCRA 444, 453.
16

Bank of the Philippine Islands v. De Coster, 49 Phil. 574, 589 (1926) as cited in
Philippine National Bank v. Sta. Maria, 139 Phil. 781, 786 (1969).
17

Philippine National Bank v. Sta. Maria, id.

18

Vol. II, p. 60.

19

Rollo, pp. 80-81.

20

G.R. No. 145794, 26 January 2005, 449 SCRA 284.

21

G.R. No. 157002, 29 July 2005, 465 SCRA 356.

22

Id. at 368-369.

23

429 Phil. 225 (2002).

24

Id. at 239.

25

The General Banking Law of 2000, Section 2.

26

Article 1403, Civil Code of the Philippines.

27

Article 1317, Civil Code of the Philippines.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-23181

March 16, 1925

THE BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellee,

vs.
GABRIELA ANDREA DE COSTER Y ROXAS, ET AL., defendants.
LA ORDEN DE DOMINICOS or PP. PREDICADORES DE LA PROVINCIA DEL
SANTISIMO ROSARIO,defendants-appellees;
GABRIELA ANDREA DE COSTER Y ROXAS, defendant-appellant.
Antonio M. Opisso for appellant.
Araneta and Zaragoza for the bank as appellee.
Perfecto Gabriel for the Dominican Corporation as appellee.
STATEMENT
March 10, 1924, the plaintiff filed a complaint in which it was alleged that it was
a domestic banking corporation with its principal office and place of business in
the City of Manila; that the defendant Gabriela Andrea de Coster y Roxas was the
wife of the defendant Jean M. Poizat, both of whom were residents of the City of
Manila; that the defendant J. M. Poizat and Co. was a duly registered partnership
with its principal office and place of business in the City of Manila; that the
defendant La Orden de Dominicos or PP. Predicadores de la Provincia del
Santisimo Rosario was a religious corporation duly organized and existing under
the laws of the Philippine Islands with its principal office and place of business in
the City of Manila; that on December 29, 1921, for value, the defendant Gabriela
Andrea de Coster y Roxas, having the consent and permission of her husband,
and he acting as her agent, said defendants made to the plaintiff a certain
promissory note for P292,000, payable one year after date, with interest of 9 per
cent per annum, payable monthly, in which, among other things, it is provided
that in the event of a suit or action, the defendants should pay the further sum of
P10,000, as attorney's fees; that the note in question was a joint and several

note; that to secure the payment thereof, the defendants Jean M. Poizat and J. M.
Poizat and Co. executed a chattel mortgage to the plaintiff on the
steamers Roger Poizat and Gabrielle Poizat, with the machinery and materials
belonging to the Poizat Vegetable Oil Mills and certain merchandise; that at the
same time and for the same purpose, the defendant Gabriela Andrea de Coster y
Roxas, having the consent and permission of her husband, and he acting as her
agent, they acknowledged and delivered to this plaintiff a mortgage on certain
real property lying and being situated in the City of Manila, which is specifically
described in the mortgage; that the real property was subject to a prior
mortgage in favor of La Orden de Dominicos or PP. Predicadores de la Provincia
del Santisimo Rosario, hence it is made a party defendant; that the note in
question is long past due and owing. The plaintiff having brought action against
the defendants on the note in the Court of First Instance of the City of Manila,
civil case No. 25218; that in such case the court rendered judgment against the
defendants Gabriela Andrea de Coster y Roxas, Jean M. Poizat and J. M. Poizat
and Co. jointly and severally for P292,000, with interest at the rate of 9 per cent
per annum from the 31st of August, 1923, P10,000 as attorney's fees, and
P2,500 for and in account of insurance upon the steamer Gabrielle Poizat, with
interest on that amount from February 9, 1924, at the rate of 9 per cent per
annum, and costs; that the said defendants have not paid the judgment or any
part thereof, and that the full amount of the debt secured by the mortgaged on
the property described in the complaint is now due and owing. Wherefore,
plaintiff prays for an order of the court to direct the sheriff of the City of Manila to
take immediate possession of the property described in the chattel mortgage
and sell the same according to the Chattel Mortgage Law; that the property
described in the real mortgage or so much thereof as may be required to pay the
amount due the plaintiff be sold according to law; that out of such sales plaintiff
shall be paid the amount due and owing it; and that such defendants be
adjudged to pay any remaining deficiency.
Copies of the chattel and real mortgage are attached to, and made a part of, the
complaint and marked, respectively, Exhibits A and B.
On April 24, 1924, the La Orden de Dominicos or PP. Predicadores de la Provincia
del Santisimo Rosario appeared in the suit and filed the following plea:
The defendant corporation, La Orden de Dominicos or PP. Predicadores de la
Provincia del Santisimo Rosario, for answer to the complaint, shows:
I. That the encumbrance above-mentioned, but not determined in paragraph V of
the complaint, consisting of a first mortgage in favor of the aforesaid religious
corporation on the property described in paragraph IV of the same complaint is
P125,000 with interest of 10 per cent per annum;
II. That the mortgagors Jean M. Poizat and Gabriela Andrea de Coster y Roxas,
have not paid the principal or the interest stipulated and agreed upon from the
16th of December, 1921 up to the present date;

III. The interest due up to the 30th of April of the present year 1924 amounts to a
total sum of P27,925.34.
Wherefore, it is prayed that the credit above-mentioned be taken into account
when the second mortgage is foreclosed.
May 3, 1924, on motion of the plaintiff, for failure to appear or answer, the
defendants Gabriela Andrea de Coster y Roxas and Jean M. Poizat and J.M. Poizat
& Co. were declared in default.
Without giving any notice of the defendants Jean M. Poizat, J.M. Poizat & Co. and
Gabriela Andrea de Coster y Roxas, and after the introduction of evidence on the
part of the plaintiff and the defendant Dominican Fathers, on June 24, 1924, the
court rendered an opinion in substance and to the effect that the plaintiff should
have judgment as prayed for in its complaint, and that the Dominican Fathers
should have judgment for the amount of their claim, and that the property
should be sold and the proceeds applied to satisfy the respective judgments.
About August 26, although her attorney, the defendant Gabriela Andrea de
Coster y Roxas filed a motion in which she recites that she is the legitimate wife
of the defendant Jean M. Poizat; that she had been absent from the Philippine
Islands and residing in the City of Paris from the year 1908 to April 30, 1924,
when she returned to Manila; that at that time of the filing of the complaint and
the issuance of the summons, she was absent from the Philippine Islands; that
the summons was delivered by the sheriff of the City of Manila to her husband,
and that through his malicious negligence, default was taken and judgment
entered for the respective amounts; that she never had any knowledge of the
actual facts until the latter part of July, 1924, when, through the local
newspapers, she learned that a default judgment had been rendered against her
on July 28, 1924; that when she first knew of that fact, she was unable to obtain
the rendition of accounts, because her husband had left the Philippine Islands
two days previous and gone to Hongkong; that she then went to Hongkong and
learned that her husband had left there under a false name and had gone to the
port of Singapore from whence he went to other places unknown to thus
defendant; that she then returned to Manila, and that in August, 1924, she came
into possession of documents showing the illegally of the notes and mortgage in
question; that she has a good and legal defense to the action, which involves the
validity of the order of the Dominican Fathers in this, that their mortgage does
not guarantee any loan made to this defendant; that it is a security only given
for a credit of a third person; that the mortgage was executed without the
marital consent of the wife; and that he did not have nay authority to make her
liable as surety on the debt of a third person; that as regards the notes to the
plaintiff: First, it does not represent any money paid to the defendant by the
bank; second, that it is exclusively the personal debt of the defendants Jean M.
Poizat and J.M. Poizat & Co., third, that it was executed by her husband, because
the bank desired more security for the payment of her husband's debt to the
bank; fourth, that it was executed by her husband in excess of the powers given
to him under his power of attorney; fifth, that it was executed as the result of

collusion between the bank and the defendant liable for the obligation of a third
person. That as to the mortgage: First, it was executed to secure a void
obligation; second, it does not guarantee any loan made to this defendant; third,
it was executed to secure a void litigation; second, it does not guarantee any
loan made to third defendant; third, it was executed without the express marital
consent which the law requires; fourth, it was executed through collusion. That if
the judgment is not set aside, the defendant will suffer irreparable injury; that
through surprise and negligence, for which she was not responsible, this
defendant was prevented from defending herself in this action; that this is a case
which comes under section 113 of the Code of Civil Procedure. She prays that the
judgment annulled and set aside and the case be reopened, and that she be
permitted to file an answer, and that the case be tried on its merits, and that a
final judgment be rendered, absolving her from all liability.
The motion was based upon, and supported by, the affidavit of the defendant
wife, to which was attached a large number of exhibits all of which tended to
support the motion.
After counter showings by the bank and the Dominican Fathers and the
arguments of respective counsel, the motion to set aside and vacate the
judgment was denied. A motion for a reconsideration was then made, and the
motion of the defendant to file an answer and make a defense was again denied.
The defendant Gabriela Andrea de Coster y Roxas appeals, assigning the
following errors;
PART I
AS TO THE JURISDICTION
I. The lower court erred in holding that it had acquired jurisdiction on the
defendant Gabriela Andrea de Coster y Roxas,
(1) There having been no service of the summons on her in the manner required
by section 396 of the Code of Civil Procedure, she being absent from the
Philippine Islands at the time of the filing of the complaint and of the issuance of
the summons in this case, and a resident of Paris, France, where she had lived
permanently and continuously for fifteen years prior thereof, and
(2) There having been no se rive by publication in the manner required by
section 398 of the Code of Civil Procedure.
II. The lower court erred in considering that in a case where the wife is the only
necessary party, service of the summons on the husband, at a place which is not
"the usual place of residence" of the wife and where the wife has never lived or
resided, is sufficient to give the court jurisdiction on the person and property of
the wife and to render judgment by default against her.
III. The court erred in admitting and considering evidence, outside of the sheriff's
return, of the fact that the husband of the defendant Gabriela Andrea de Coster y
Roxas was her attorney in fact with power to appear for the defendant in court.

IV. The court erred in holding that the non-appearance of an agent of the
defendant when service of the summons has been made on him not as the agent
of the defendant but in other capacity, will entitle the plaintiff who has misstated
the material jurisdictional facts of the complaint to a judgment by default against
the principal.
V. The lower court erred in refusing to vacate a judgment by default against the
defendant Gabriela Andrea de Coster y Roxas rendered on a defective summons,
served in a manner not provided for by the law, and in a case where the
complaint shows that plaintiff has no right of action.
PART II
AS TO THE MERITS OF THE DEFENSE
I. The lower court erred, with abuse of discretion, in holding that the negligence,
if any, of J.M. Poizat in not appearing on behalf of the defendant Gabriela Andrea
de Coster y Roxas, can be imputed to this defendant, without redress, and to the
advantage of the plaintiff bank who in collusion with said J.M. Poizat caused the
latter to contract beyond the scope of his powers as agent of this defendant the
obligation which is the subject matter of this case.
II. The lower court erred in holding that the relief on the part of J.M. Poizat that
there was no defense against the claim of the plaintiff on an obligation
contracted by said J.M. Poizat apparently as agent of the defendant Gabriela
Andrea de Coster y Roxas, but in truth beyond the scope of his authority, and
with knowledge on the part of the plaintiff bank that he was so acting beyond his
powers, was such an error was can be imputed to this defendant, and against
which she can obtain no redress.
III. The lower court erred in not holding that a principal is not liable for an
obligation contracted by his agent beyond his power even when both the creditor
and the agent believed that the latter was acting within the scope of his powers.
IV. The lower court erred in holding that because the agent of the defendant
Gabriela Andrea de Coster y Roxas had power to appear for her in court, his nonappearance could render this defendant liable to a judgment by default, when
the record shows that there was no service of the summons in accordance with
any of the forms of service provided by law.
V. The lower court erred in holding that J.M. Poizat was summoned as agent of hi
wife, the defendant Gabriela Andrea de Coster y Roxas, and was, in that
capacity, notified of all the decisions rendered in this case, there being nothing in
the record to support the truth of such finding.
VI. The lower court erred in holding that in contracting the obligations in favor of
the plaintiff Bank of the Philippine Islands and of the defendant Orden de PP.
Predicadores de la Provincia del Santisimo Rosario, the agent of the defendant
Gabriela Andrea de Coster y Roxas acted within the scope of his powers.

VII. The lower court erred in not holding that the plaintiff Bank of the Philippine
Islands and the defendant Orden de PP. Predicadores de la Provincia del
Santisimo Rosario had knowledge of the fact that J.M. Poizat in contracting the
respective obligations in their favor, pretending to act as agent of the defendant
Gabriela Andrea de Coster y Roxas, was acting beyond the scope of his powers
as such agent.
VIII. The lower court erred in making the following statement:
"It is however alleged, by the petitioner, that these loans were obtained to pay
debts, of strangers. Even so, this would not render the loan obtained by the
attorney in fact null and void. The circumstance that the agent used the money,
borrowed by him within the scope of his powers, to purposes for which he was
not authorized by his principal, may entitle the latter to demand from him the
corresponding liability for the damages suffered, but it cannot prejudice the
creditor and cause the nullity of the loan. But, even admitting that the money
borrowed was used by Poizat to pay debts which did not belong to his principal,
even then, he would have acted within his powers, since his principal, together
with the power to borrow money, had given her agent power to loan any amount
of money, and the payment of the debts of a stranger would amount to a loan
made by the agent on behalf of his principal to the person or entity whose debt
was paid with the money obtained from the creditors."
IX. The lower court erred in applying to this case the principle involved in the
case of Palanca vs. Smith, Bell and Co., 9 Phil., 131.
X. The court erred in supplying from its own imagination facts which did not take
place, of which there is no evidence in the record, and which the parties never
claimed to have existed, and then draw the conclusion that if under those
hypothetical facts the transaction between J.M. Poizat and the Bank of the
Philippine Islands might have been legal, then the transaction as it actually took
place was also legal.
XI. The lower court erred in holding that defendant has not alleged any of the
grounds enumerated in section 113 of the Code of Civil Procedure.
XII. The lower court erred in holding that this defendant-appellant has no
meritorious defense against the Dominican Order and the Bank of the Philippine
Islands.
XIII. The lower court erred in taking into consideration Exhibit A appearing at
pages 156-165 of the bill of exceptions.
XIV. The lower court erred in denying the motion filed by this defendantappellant.
XV. The lower court has acted throughout these proceedings with a clear abuse
of discretion.

JOHNS, J.:
We will decide the case of the bank first
The petition of the appellant states under oath:
II. That this defendant has been absent from the Philippine Islands and residing
in the City of Paris, France, since the year 1908 (1909), up to April 30, 1924, on
which date she arrived in this City of Manila, Philippine Islands.
III. That at the time when the complaint in this case was filed and the summons
issued, she was still absent from the Philippine Islands and had no knowledge
either of the filing of this action or of the facts which led to it.
Under oath the plaintiff, through its acting president, says:
I-II. That it admits the allegations contained in paragraphs I and II of the
aforesaid motion.
III. That it admits the first part of this paragraph, to wit: That at the time that the
complaint in the above entitled case was filed, the defendant Gabriela Andrea de
Coster y Roxas was absent from the Philippine Islands.
Paragraph 6 of section 396 of the Code of Civil Procedure provides:
In all other cases, to the defendant personally, or by leaving a copy at his usual
place of residence, in the hands of some person resident therein of sufficient
discretion to receive the same. But service upon a corporation, as provided in
subsections one and two, may be made by leaving the copy at the office of the
proper officer thereof if such officer cannot be found.
The return of the sheriff as to the service is as follows:
On this date I have served a copy of the within summons, and of the complaint
attached, upon Jean M. Poizat, personally, and the copies corresponding to J.M.
Poizat and Co., a company duly organized under the laws of the Philippine
Islands, by delivering said copies to its President Mr. Jean M. Poizat, personally,
and the copies corresponding to Gabriela Andrea de Coster y Roxas, by leaving
the same in the place of her usual residence in the City of Manila and in the
hands of her husband, Mr. J.M. Poizat, a person residing therein and of sufficient
discretion to receive it, personally.
Done at Manila, P.I., this 13th day of March, 1924.
RICARDO SUMMERS
Sheriff of Manila
By GREGORIO GARCIA
I hereby certify that on this date I have delivered a copy of this summons and of
the complaint corresponding to the "La Orden de Dominicos or PP. Predicadores
de la Provincia del Santisimo Rosario," through Father Pedro Pratt, Procurador

General of said Orden de Dominicos or PP. Predicadores de la Provincia del

Santisimo Rosario, personally.
Manila, P.I., April 1, 1924.
RICARDO SUMMERS
Sheriff of Manila
By SIMEON D. SERDEA
It will be noted that the service of summons and complaint was made on this
defendant on the 13th day of March, 1924, and that it is a stipulated fact that
since the year 1908 and up to April 30, 1924, she was "residing in the City of
Paris, France." Even so, it is contended that the service was valid by reason of
the fact that it was made at the usual place of residence and abode of the
defendant husband, and that legally the residence of the wife is that of the
husband. That contention is in direct conflict with the admission of the plaintiff
that since the year 1908 and up to April 30, 1924, the wife was residing in the
City of Paris. The residence of the wife in the City of Paris covered a period of
sixteen years.
It may be that where in the ordinary course of business the wife is absent from
the residence of husband on a pleasure trip or for business reasons or to visit
friends or relatives that, in the nature of such things, the residence of the wife
would continue and remain to be that of the husband. That is not this case. For
sixteen years the residence of the husband was in the City of Manila, and the
residence of the wife was in the City of Paris.
Upon the admitted facts, we are clearly of the opinion that the residence of the
husband was not the usual place of residence of the wife. Giving full force and
effect to the legal presumption that the usual place of residence of the wife is
that of her husband, that presumption is overcome by the admitted fact that the
wife was "residing in the City of Paris, France, since the year 1908 up to April 30,
1924."
Without placing a limitation upon the length of time sufficient to overcome the
legal presumption, suffice it to say that sixteen years is amply sufficient.
It follows that the substituted service attempted to be made under the provisions
of section 396 of the Code of Civil Procedure is null and void, and that by such
service the court never acquired jurisdiction of the person of the defendant wife.
In that event the plaintiff contends that under his power of attorney, the husband
was the general agent of the wife with authority to accept service of process for
her and in her name, and that by reason of the fact that the husband was duly
served and that he failed or neglected to appear or answer, his actions and
conduct were binding on the defendant wife. Be that as it may, there is nothing
in the record tending to show that the husband accepted service of any process
for or on account of his wife or as her agent, or that he was acting for or
representing her in his failure and neglect to appear or answer.

The first appearance in court of the defendant wife was made when she filed the
motion of August 26, 1924, in which she prays in legal effect that the judgment
against her be annulled and set aside and the case reopened, and that she be
permitted to file an answer and to have the case tried on its merits. That was a
general appearance as distinguished from a special appearance. When she filed
that motion asking to be relieved from the legal force and effect of the judgment,
she submitted herself to the jurisdiction of the court. If, in the first instance, she
had made a special appearance to question only the jurisdiction of the court, and
had not appeared for any other or different purpose, another and a different
question would have been presented. Having made a general appearance for
one purpose, she is now in court for all purposes.
It is an elementary rule of law that as a condition precedent, to entitle a party to
relief from a judgment "taken against him through his mistake, inadvertence,
surprise or excusable neglect," that, among other things, he must show to the
court that he has a meritorious defense. Based upon that legal principle the bank
contends that no such a showing has been made by the defendant wife. That
involves the legal construction of the power of attorney which, it is admitted, the
wife gave to her husband on August 25, 1903, which, among other things
material to this opinion, recites that she gave to him:
Such full and ample power as required or necessary, to the end that he may
perform on my behalf, and in my name and availing himself of all my rights and
actions, the following acts:
5. Loan or borrow any sums of money or fungible things at the rate of interest
and for the time and under the conditions which he might deem convenient,
collecting or paying the capital or the interest on their respective due dates;
executing and signing the corresponding public or private documents related
thereto, and making all these transactions with or without mortgages, pledges or
personal guaranty.
6. Enter into any kind of contracts whether civil or mercantile, giving due form
thereof either by private documents or public deeds with all clauses and
requisites provided by law for their validity and effect, having due regard to the
nature of each contract.
7. Draw, endorse, accept, issue and negotiate any drafts, bills of exchange,
letters of credit, letters of payment, bills, vales, promissory notes and all kinds of
documents representative of value; paying or collecting the value thereof on
their respective due dates, or protesting them for non-acceptance or nonpayment, utilizing in this case the rights granted by the Code of Commerce now
in force, in order to collect the value thereof, interests, expenses and damages
against whomsoever should be liable therefor.
8. Institute before the competent courts the corresponding action in justification
of the possession which I have or might have over any real estate, filing the
necessary pleadings, evidencing them by means of documentary or oral
testimony admissible by law; accepting notices and summons, and instituting all

necessary proceedings for the termination thereof and the consequent

inscription of said action in the corresponding office of the Register of Deeds, in
the same manner in which I might do if personally present and acting.
9. Represent me in all cases before the municipal courts, justice of the peace
courts, courts of first instance, supreme court and all other courts of regular or
any other special jurisdiction, appearing before them in any civil or criminal
proceedings, instituting and filing criminal and ordinary civil actions, claims in
intestate and testamentary proceedings, insolvencies and other actions provided
by law; filing complaints, answers, counterclaims, cross complaints, criminal
complaints and such other pleadings as might be necessary; filing demurrers,
taking and offering judicial admissions, documentary, expert, oral evidence, and
others provided by law, objecting to and opposing whatever contrary actions are
taken, offered and presented; accepting notices, citations and summons and
acknowledging their receipt to the proper judicial officials.
10. For to the end stated above and the incidents related thereto, I confer on him
ample and complete power, binding myself in the most solemn manner as
required by law to recognize as existing and valid all that he might do by virtue
hereof.
It is admitted that on December 29, 1921, the defendant husband signed the
name of the defendant wife to the promissory note in question, and that to
secure the payment of the note, upon the same date and as attorney in fact for
his wife, the husband signed the real mortgage in question in favor of the bank,
and that the mortgage was duly executed.
Based upon such admissions, the bank vigorously contends that the defendant
wife has not shown a meritorious defense. In fact that it appears from her own
showing that she does not have a legal defense. It must be admitted that upon
the face of the instruments, that fact appears to be true. To meet that
contention, the defendant wife points out, first, that the note in question is a
joint and several note, and, second, that it appears from the evidence, which she
submitted, that she is nothing more than an accommodation maker of the note.
She also submits evidence which tends to show:
First. That prior to July 25, 1921, Jean M. Poizat was personally indebted to the
Bank of the Philippine Islands in the sum of P290,050.02 (Exhibit H, page 66, bill
of exceptions);
Second. That on July 25, 1921, the personal indebtedness of Jean M. Poizat was
converted into six promissory notes aggregating the sum of P308,458.58 of
which P16,180 were paid, leaving an outstanding balance of P292,278.58
(Exhibits D, E, F, G, H and I, pages 75-80, bill of exceptions);
Third. That on December 29, 1921, the above promissory notes were cancelled
and substituted by a joint and several note signed by Jean M. Poizat in his
personal capacity and as agent of Gabriela Andrea de Coster y Roxas and as
member of the firm J.M. Poizat and Co.

In other words, that under the power of attorney, the husband had no authority
for and on behalf of the wife to execute a joint and several note or to make her
liable as an accommodation maker. That the debt in question was a preexisting
debt of her husband and of the firm of J.M. Poizat and Co., to which she was not a
party, and for which she was under no legal obligation to pay. That she never
borrowed any money from the bank, and that previous to the signing of the note,
she never had any dealings with the bank and was not indebted to the bank in
any amount. That the old, original debts of her husband and J.M. Poizat and Co.
to the bank, to which she was not a party, were all taken up and merged in the
new note of December 29, 1921, in question, and that at the time the note was
signed, she did not borrow any money, and that no money was loaned by the
bank to the makers of the note.
Assuming such facts to be true, it would be a valid defense by the defendant wife
to the payment of the note. There is no claim or pretense that the bank was
misled or deceived. If it had made an actual loan of P292,000 at the time the
note was executed, another and a different question would be presented. In the
ordinary course of its business, the bank knew that not a dollar was loaned or
borrowed on the strength of the note. It was given at the urgent and pressing
demand of the bank to obtain security for the six different notes which it held
against J.M. Poizat and Co. and Jean M. Poizat of date July 25, 1921, aggregating
about P292,000, and at the time it was given, those notes were taken up and
merged in the note of December 29, 1921, now in question. Upon the record
before us, there is no evidence that the defendant wife was a party to the notes
of July 25, 1921, or that she was under any legal liability to pay them.
The note and mortgage in question show upon their face that at the time they
were executed, the husband was attorney in fact for the defendant wife, and the
bank knew or should have known the nature and extent of his authority and the
limitations upon his power.
You will search the terms and provisions of the power of attorney in vain to find
any authority for the husband to make his wife liable as a surety for the payment
of the preexisting debt of a third person.
Paragraph 5 of the power of attorney above quoted authorizes the husband for in
the name of his wife to "loan or borrow any sums of money or fungible things,
etc." This should be construed to mean that the husband had power only to loan
his wife's money and to borrow money for or on account of his wife as her agent
and attorney in fact. That does not carry with it or imply that he had the legal
right to make his wife liable as a surety for the preexisting debt of a third person.
Paragraph 6 authorizes him to "enter into any kind of contracts whether civil or
mercantile, giving due form thereof either by private documents or public deeds,
etc."
Paragraph 7 authorizes him to "draw, endorse, accept, issue and negotiate any
drafts, bills of exchange, letters of credit, letters of payment, bills, vales,
promissory notes, etc."

The foregoing are the clauses in the power of attorney upon which the bank
relies for the authority of the husband to execute promissory notes for and on
behalf of his wife and as her agent.
It will be noted that there is no provision in either of them which authorizes or
empowers him to sign anything or to do anything which would make his wife
liable as a surety for a preexisting debt.
It is fundamental rule of construction that where in an instrument powers and
duties are specified and defined, that all of such powers and duties are limited
and confined to those which are specified and defined, and that all other powers
and duties are excluded.
Paragraph 8 of the power of attorney authorizes the husband to institute,
prosecute and defend all actions or proceedings in a court of justice, including
"accepting notices and summons."
There is nothing in the record tending to show that the husband accepted the
service of any notice or summons in the action on behalf of the bank, and even
so, if he had, it would not be a defense to open up and vacate a judgment under
section 113 of the Code of Civil Procedure. The same thing is true as to
paragraph 9 of the power of attorney.
The fact that an agent failed and neglected to perform his duties and to
represent the interests of his principal is not a bar to the principal obtaining legal
relief for the negligence of her agent, provided that the application for such a
relief is duly and properly made under the provisions of section 113.
It is very apparent from the face of the instrument that the whole purpose and
intent of the power of attorney was to empower and authorize the husband to
look after and protect the interests of the wife and for her and in her name to
transact any and all of her business. But nowhere does it provide or authorize
him to make her liable as a surety for the payment of the preexisting debt of a
third person.
Hence, it follows that the husband was not authorized or empowered to sign the
note in question for and on behalf of the wife as her act and deed, and that as to
her the note is void for want of power of her husband to execute it.
The same thing is true as to the real mortgage to the bank. It was given to
secure the note in question and was not given for any other purpose. The real
property described in the mortgage to the bank was and is the property of the
wife. The note being void as to her, it follows that as to her the real mortgage to
the bank is also void for want of power to execute it.
It appears that before the motion in question was filed, there were certain
negotiations between the bank and the attorney for the wife with a view of a
compromise or settlement of the bank's claim against her, and that during such
negotiations, there was some evidence or admissions on the part of her attorney
that she was liable for the bank's claim. It now contends that as a result of such

negotiations and admissions, the wife is estopped to deny her liability. but it also
appears that during such negotiations, both the wife and her attorney did not
have any knowledge of the actual facts, and that she was then ignorant of the
defense upon which she now relies. Be that as it may, such negotiations were
more or less in the nature of a compromise which was rejected by the bank, and
it appears that in any event both the wife and her attorney did not have any
knowledge of the facts upon which they now rely as a defense.
There is no claim or pretense that the debt in question was contracted for or on
account of the "usual daily expenses of the family, incurred by the wife or by her
order, with the tacit consent of the husband," as provided for in article 1362 of
the Civil Code. Neither is there any evidence tending to show that the wife was
legally liable for any portion of the original debt evidence by the note in
question.
This decision as to the bank on this motion is based on the assumption that the
facts are true as set forth and alleged in the petition to set aside and vacate the
judgment as to the wife, but we are not making any finding as to the actual truth
of such facts. That remains for the defendant wife to prove such alleged facts
when the case is tried on its merits.
It follows that the opinion of the lower court in refusing to set aside and vacate
the judgment of the plaintiff bank against the defendant wife is reversed, and
that judgment is vacated and set aside, and as to the bank the case is remanded
to the lower court, with leave for the wife to file an answer to plaintiff's cause of
action, and to have the case tried on its merits and for any further proceedings
not inconsistent with this opinion.
As to the judgment in favor of the Dominican Fathers, it appears that their plea
above quoted in the statement of facts was filed on April 24, 1924. In that plea
they say that they have a first mortgage on the property described in paragraph
IV of the complaint for P125,000 with interest at 10 per cent per annum. That the
mortgagors Jean M. Poizat and Gabriela Andrea de Coster y Roxas have not paid
the principal or the stipulated interest from December 16, 1921, to date, which
up to the 30th day of April, 1924, amounts to P27,925.34. Wherefore, it is prayed
that the credit above-mentioned be taken into account when the second
mortgage is foreclosed.
No other plea of any kind, nature or description was filed by it. The record shows
that a copy of this alleged plea was served upon the attorneys for the plaintiff
bank. There is nothing in the record which shows or tends to show that a copy of
it was ever served on either one of the defendants. Neither is there any evidence
that either of the defendants ever appeared in the original action. In fact,
judgment was rendered against them by default.
Under such a state of facts, the judgment in favor of the Dominican Fathers
cannot be sustained. In the first place, the plea above quoted filed on April 24,
1924, would not be sufficient to sustain a judgment. It does not even ask for a
judgment of the foreclosure of its mortgage. In the second place, no copy of the

plea was ever served upon either of the defendants, who were the real parties in
interest, and against whom a judgment was rendered for the full amount of the
note and the foreclosure of the mortgage. Such a proceeding cannot be
sustained on any legal principle.
Unless waived, a defendant has a legal right to service of process, to his day in
court and to be heard in his defense.
From what has been said, it follows that, if the transaction between the
Dominican Fathers and Jean M. Poizat as attorney in fact for his wife was an
original one and the P125,000 was actually loaned at the time the note and
mortgage were executed and the money was in good faith delivered to the
husband as the agent and attorney in fact of the wife, it would then be a valid
exercise of the power given to the husband, regardless of the question as to
what he may have done with the money.
Paragraph 5 of the power of attorney specifically authorizes him to borrow
money for and on account of his wife and her name, "and making all these
transactions with or without mortgages, pledges or personal guaranty."
It follows that the judgment of the lower court in favor of La Orden de Dominicos
or PP. Predicadores de la Provincia del Santisimo Rosario is reversed, without
prejudice to its right to either file an original suit to foreclose its mortgage or to
file a good and sufficient plea as intervenor in the instant suit, setting forth the
facts upon which it relies for a judgment on its note and the foreclosure of its
mortgage, copies of which should be served upon the defendants.
Neither party to recover costs. So ordered.
Ostrand and Romualdez, JJ., concur.
Johnson and Malcolm, JJ., concur in the result.

Separate Opinions
VILLAMOR, J., concurring and dissenting:
I concur in the result reached by the court in ordering the remanding of the case
for further proceedings, for in my opinion, the defendant-appellant, against
whom a judgment by default was rendered, has the right, under section 113 of
the Code of Civil Procedure, to have said judgment set aside and to be given an
opportunity to appear, having alleged facts which, if proven, would constitute a
good defense, but I dissent from the opinion of the majority in so far as it
attempts to decide certain features of the case raised by the defendantappellant, without waiting for the outcome of the new trial wherein the other
parties must naturally have the same opportunity to present their defenses
against the facts alleged by the appellant. In my opinion, the merits of the

question should not now be discussed without giving the trial court an
opportunity to pass upon the allegations and evidence of the parties litigant.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24765

August 29, 1969

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
MAXIMO STA. MARIA, ET AL., defendant,
VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and LEONILA, all
surnamed STA. MARIA, defendants-appellants.
Tomas Besa and Jose B. Galang for plaintiff-appellee.
G.P. Nuguid, Jr. for defendants-appellants.
TEEHANKEE, J.:
In this appeal certified to this Court by the Court of Appeals as involving
purely legal issues, we hold that a special power of attorney to mortgage real
estate is limited to such authority to mortgage and does not bind the grantor
personally to other obligations contracted by the grantee, in the absence of any
ratification or other similar act that would estop the grantor from questioning or
disowning such other obligations contracted by the grantee.
Plaintiff bank filed this action on February 10, 1961 against defendant
Maximo Sta. Maria and his six brothers and sisters, defendants-appellants,
Valeriana, Emeteria, Teofilo, Quintin, Rosario and Leonila, all surnamed Sta.
Maria, and the Associated Insurance & Surety Co., Inc. as surety, for the
collection of certain amounts representing unpaid balances on two agricultural
sugar crop loans due allegedly from defendants. 1
The said sugar crop loans were obtained by defendant Maximo Sta. Maria
from plaintiff bank under a special power of attorney, executed in his favor by his
six brothers and sisters, defendants-appellants herein, to mortgage a 16-odd
hectare parcel of land, jointly owned by all of them, the pertinent portion of
which reads as follows:
That we, VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and LEONILA
all surnamed STA. MARIA, sole heirs of our deceased parents CANDIDO STA.
MARIA and FRANCISCA DE LOS REYES, all of legal age, Filipinos, and residents of
Dinalupihan, Bataan, do hereby name, constitute and appoint Dr. MAXIMO STA.
MARIA, of legal age, married, and residing at Dinalupihan, Bataan to be our true
and lawful attorney of and in our place, name and stead to mortgage, or convey
as security to any bank, company or to any natural or juridical person, our

undivided shares over a certain parcel of land together the improvements

thereon which parcel of land is more particularly described as follows, to wit:
"Situated in the Barrio of Pinulot, Municipality of Dinalupihan, Bataan,
containing an area of 16.7249 hectares and bounded as follows to wit: North by
property of Alejandro Benito; on the Northeast, by public land and property of
Tomas Tulop; on the southeast, by property of Ramindo Agustin; on the
southwest, by properties of Jose V. Reyes and Emilio Reyes; and on the
northwest, by excluded portion claimed by Emilio Reyes."
of which parcel of land aforementioned we are together with our said
attorney who is our brother, the owners in equal undivided shares as evidenced
by Transfer Certificate of Title No. T-2785 of the Registry of Deeds of Bataan
dated Feb. 26th 1951. (Exh. E)2
In addition, Valeriana Sta. Maria alone also executed in favor of her
brother, Maximo, a special power of attorney to borrow money and mortgage any
real estate owned by her, granting him the following authority:
For me and in my name to borrow money and make, execute, sign and
deliver mortgages of real estate now owned by me standing in my name and to
make, execute, sign and deliver any and all promissory notes necessary in the
premises. (Exh. E-I)3
By virtue of the two above powers, Maximo Sta. Maria applied for two
separate crop loans, for the 1952-1953 and 1953-1954 crop years, with plaintiff
bank, one in the amount of P15,000.00, of which only the sum of P13,216.11 was
actually extended by plaintiff, and the other in the amount of P23,000.00, of
which only the sum of P12,427.57 was actually extended by plaintiff. As security
for the two loans, Maximo Sta. Maria executed in his own name in favor of
plaintiff bank two chattel mortgages on the standing crops, guaranteed by surety
bonds for the full authorized amounts of the loans executed by the Associated
Insurance & Surety Co., Inc. as surety with Maximo Sta. Maria as principal. The
records of the crop loan application further disclose that among the securities
given by Maximo for the loans were a "2nd mortgage on 25.3023 Has. of
sugarland, including sugar quota rights therein" including, the parcel of land
jointly owned by Maximo and his six brothers and sisters herein for the 19521953 crop loan, with the notation that the bank already held a first mortgage on
the same properties for the 1951-1952 crop loan of Maximo, 4 and a 3rd
mortgage on the same properties for the 1953-1954 crop loan. 5
The trial court rendered judgment in favor of plaintiff and against
defendants thus:1wph1.t
WHEREFORE premises considered, judgment is hereby rendered
condemning the defendant Maximo R. Sta. Maria and his co-defendants
Valeriana, Quintin, Rosario, Emeteria, Teofilo, and Leonila all surnamed Sta. Maria
and the Associated Insurance and Surety Company, Inc., jointly and severally, to
pay the plaintiff, the Philippine National Bank, Del Carmen Branch, as follows:

1. On the first cause of action, the sum of P8,500.72 with a daily interest of P0.83
on P6,100.00 at 6% per annum beginning August 21, 1963 until fully paid;
2. On the second cause of action, the sum of P14,299.79 with a daily interest of
P1.53 on P9,346.44 at 6% per annum until fully paid; and
3. On both causes of action the further sum equivalent to 10% of the total
amount due as attorney's fee as of the date of the execution of this decision, and
the costs.6
Defendant Maximo Sta. Maria and his surety, defendant Associated
Insurance & Surety Co., Inc. who did not resist the action, did not appeal the
judgment. This appeals been taken by his six brothers and sisters, defendantsappellants who reiterate in their brief their main contention in their answer to the
complaint that under this special power of attorney, Exh. E, they had not given
their brother, Maximo, the authority to borrow money but only to mortgage the
real estate jointly owned by them; and that if they are liable at all, their liability
should not go beyond the value of the property which they had authorized to be
given as security for the loans obtained by Maximo. In their answer, defendantsappellants had further contended that they did not benefit whatsoever from the
loans, and that the plaintiff bank's only recourse against them is to foreclose on
the property which they had authorized Maximo to mortgage.
We find the appeal of defendants-appellants, except for defendant
Valeriana Sta. Maria who had executed another special power of attorney, Exh. E1, expressly authorizing Maximo to borrow money on her behalf, to be well taken.
1. Plaintiff bank has not made out a cause of action against defendantsappellants (except Valeriana), so as to hold them liable for the unpaid balances
of the loans obtained by Maximo under the chattel mortgages executed by him
in his own name alone. In the early case of Bank of P.I. vs. De Coster, this Court,
in holding that the broad power of attorney given by the wife to the husband to
look after and protect the wife's interests and to transact her business did not
authorize him to make her liable as a surety for the payment of the pre-existing
debt of a third person, cited the fundamental construction rule that "where in an
instrument powers and duties are specified and defined, that all of such powers
and duties are limited andconfined to those which are specified and defined, and
all other powers and duties are excluded." 7 This is but in accord with the
disinclination of courts to enlarge an authority granted beyond the powers
expressly given and those which incidentally flow or derive therefrom as being
usual or reasonably necessary and proper for the performance of such express
powers. Even before the filing of the present action, this Court in the similar case
of De Villa vs. Fabricante 8 had already ruled that where the power of attorney
given to the husband by the wife was limited to a grant of authority to mortgage
a parcel of land titled in the wife's name, the wife may not be held liable for the
payment of the mortgage debt contracted by the husband, as the authority to
mortgage does not carry with it the authority to contract obligation. This Court
thus held in the said case:

Appellant claims that the trial court erred in holding that only Cesario A.
Fabricante is liable to pay the mortgage debt and not his wife who is exempt
from liability. The trial court said: "Only the defendant Cesario A. Fabricante is
liable for the payment of this amount because it does not appear that the other
defendant Maria G. de Fabricante had authorized Cesario A. Fabricante to
contract the debt also in her name. The power of attorney was not presented and
it is to be presumed that the power (of attorney) was limited to a grant of
authority to Cesario A. Fabricante to mortgage the parcel of land covered by
Transfer Certificate of Title in the name of Maria G. de Fabricante.
We went over the contents of the deed of mortgage executed by Cesario
Fabricante in favor of Appellant on April 18, 1944, and there is really nothing
therein from which we may infer that Cesario was authorized by his wife to
construct the obligation in her name. The deed shows that the authority was
limited to the execution of the mortgage insofar as the property of the wife is
concerned. There is a difference between authority to mortgage and authority to
contract obligation. Since the power of attorney was not presented as evidence,
the trial court was correct in presuming that the power was merely limited to a
grant of authority to mortgage unless the contrary is shown. 9
2. The authority granted by defendants-appellants (except Valeriana) unto their
brother, Maximo, was merely to mortgage the property jointly owned by them.
They did not grant Maximo any authority to contract for any loans in their names
and behalf. Maximo alone, with Valeriana who authorized him to borrow money,
must answer for said loans and the other defendants-appellants' only liability is
that the real estate authorized by them to be mortgaged would be subject to
foreclosure and sale to respond for the obligations contracted by Maximo. But
they cannot be held personally liable for the payment of such obligations, as
erroneously held by the trial court.
3. The fact that Maximo presented to the plaintiff bank Valeriana's additional
special power of attorney expressly authorizing him to borrow money, Exh. E-1,
aside from the authority to mortgage executed by Valeriana together with the
other defendants-appellants also in Maximo's favor, lends support to our view
that the bank was not satisfied with the authority to mortgage alone. For
otherwise, such authority to borrow would have been deemed unnecessary and a
surplusage. And having failed to require that Maximo submit a similar authority
to borrow, from the other defendants-appellants, plaintiff, which apparently was
satisfied with the surety bond for repayment put up by Maximo, cannot now seek
to hold said defendants-appellants similarly liable for the unpaid loans. Plaintiff's
argument that "a mortgage is simply an accessory contract, and that to effect
the mortgage, a loan has to be secured" 10 falls, far short of the mark. Maximo
had indeed, secured the loan on his own account and the defendants-appellants
had authorized him to mortgage their respective undivided shares of the real
property jointly owned by them as security for the loan. But that was the extent
of their authority land consequent liability, to have the real property answer for
the loan in case of non-payment. It is not unusual in family and business circles
that one would allow his property or an undivided share in real estate to be

mortgaged by another as security, either as an accommodation or for valuable

consideration, but the grant of such authority does not extend to assuming
personal liability, much less solidary liability, for any loan secured by the grantee
in the absence of express authority so given by the grantor.
4. The outcome might be different if there had been an express ratification of the
loans by defendants-appellants or if it had been shown that they had been
benefited by the crop loans so as to put them in estoppel. But the burden of
establishing such ratification or estoppel falls squarely upon plaintiff bank. It has
not only failed to discharge this burden, but the record stands undisputed that
defendant-appellant Quintin Sta. Maria testified that he and his co-defendants
executed the authority to mortgage "to accommodate (my) brother Dr. Maximo
Sta. Maria ... and because he is my brother, I signed it to accommodate him as
security for whatever he may apply as loan. Only for that land, we gave him as,
security" and that "we brothers did not receive any centavo as benefit." 11 The
record further shows plaintiff bank itself admitted during the trial that
defendants-appellants "did not profit from the loan" and that they "did not
receive any money (the loan proceeds) from (Maximo)." 12 No estoppel, therefore,
can be claimed by plaintiff as against defendants-appellants.
5. Now, as to the extent of defendant Valeriana Sta. Maria's liability to plaintiff.
As already stated above, Valeriana stands liable not merely on the mortgage of
her share in the property, but also for the loans which Maximo had obtained from
plaintiff bank, since she had expressly granted Maximo the authority to incur
such loans. (Exh. E-1.) Although the question has not been raised in appellants'
brief, we hold that Valeriana's liability for the loans secured by Maximo is
not joint and several or solidary as adjudged by the trial court, but only joint,
pursuant to the provisions of Article 1207 of the Civil Code that "the
concurrence ... of two or more debtors in one and the same obligation does not
imply that ... each one of the (debtors) is bound to render entire compliance with
the prestation. There is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity." It
should be noted that in the additional special power of attorney, Exh. E-1,
executed by Valeriana, she did not grant Maximo the authority to bind her
solidarity with him on any loans he might secure thereunder.
6. Finally, as to the 10% award of attorney's fees, this Court believes that
considering the resources of plaintiff bank and the fact that the principal debtor,
Maximo Sta. Maria, had not contested the suit, an award of five (5%) per cent of
the balance due on the principal, exclusive of interests, i.e., a balance of
P6,100.00 on the first cause of action and a balance of P9,346.44 on the second
cause of action, per the bank's statements of August 20, 1963, (Exhs. Q-1 and
BB-1, respectively) should be sufficient.
WHEREFORE, the judgment of the trial court against defendants-appellants
Emeteria, Teofilo, Quintin, Rosario and Leonila, all surnamed Sta. Maria is hereby
reversed and set aside, with costs in both instances against plaintiff. The
judgment against defendant-appellant Valeriana Sta. Maria is modified in that her

liability is held to be joint and not solidary, and the award of attorney's fees is
reduced as set forth in the preceding paragraph, without costs in this instance.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando,
Capistrano and Barredo, JJ., concur.
1wph1.t Reyes, J.B.L., J., is on official leave.
Footnotes
1

The original complaint included apparently another sister by the name of Elena,
Rec. on App., p. 2, but this is the only mention of Elena in the record. She
appears not to have been summoned and no answer was filed in her behalf. No
judgment was rendered against Elena; she did not execute the power of attorney
in question, and for all purposes, she is not a party hereto.
2

Rec. on App., 14-15, emphasis supplied.

Rec. on App., pp. 19-20, emphasis supplied.

Exh. A.

Exh. R.

Rec. on Appeal, pp. 156-157.

49 Phil. 574 (1926); 47 Phil. 594, 613 (1925).

105 Phil. 672, (April 30, 1959).

Id., at 673-674, emphasis supplied.

10

Appellee's Brief, p. 15.

11

T.S.N., August 12, 1963, pp. 40-41.

12

T.S.N., August 23, 1963, p. 55.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-38816

November 3, 1933

INSULAR DRUG CO., INC., plaintiff-appellee,

vs.
THE PHILIPPINE NATIONAL BANK, ET AL., defendants.
THE PHILIPPINE NATIONAL BANK, appellant.
Camus and Delgado for appellant.
Franco and Reinoso for appellee.

MALCOLM, J.:
This is an appeal taken by Philippine National Bank from a judgment of the
Court of First Instance of Manila requiring bank to pay to the Insular Drug Co.,
Inc., the sum of P18,285.92 with legal interest and costs.
The record consists of the testimony of Alfred Von Arend, President and
Manager of the Insular Drug Co., Inc., and of exhibits obtained from the
Philippine National Bank showing transactions of U.E. Foerster with the bank. The
Philippine National Bank was content to submit the case without presenting
evidence in its behalf. The meagre record and the statement of facts agreed
upon by the attorneys for the contending parties disclose the following facts:
The Insular Drug Co., Inc., is a Philippine corporation with offices in the City
of Manila. U.E. Foerster was formerly a salesman of drug company for the Islands
of Panay and Negros. Foerster also acted as a collector for the company. He was
instructed to take the checks which came to his hands for the drug company to
the Iloilo branch of the Chartered Bank of India, Australia and China and deposit
the amounts to the credit of the drug company. Instead, Foerster deposited
checks, including those of Juan Llorente, Dolores Salcedo, Estanislao Salcedo,
and a fourth party, with the Iloilo branch of the Philippine National Bank. The
checks were in that bank placed in the personal account of Foerster. Some of the
checks were drawn against the Bank of Philippine National Bank. After the
indorsement on the checks was written "Received payment prior indorsement
guaranteed by Philippine National bank, Iloilo Branch, Angel Padilla, Manager."
The indorsement on the checks took various forms, some being "Insular Drug
Company, Inc., By: (Sgd.) U. Foerster, Agent. (Sgd.) U. Foerster" other being
"Insular Drug Co., Inc., By: (Sgd.) Carmen E. de Foerster, Agent (Sgd.) Carmen E.
de Foerster"; others "Insular Drug Co., Inc., By: (Sgd.) Carmen E. de Foerster,
Carmen E. de Froster"; others "(Sgd.) Carmen E. de Foerster, (Sgd.) Carmen E. de
Foerster"; one (Sgd.) U. Foerster. (Sgd.) U. Foerster"; others; "Insular Drug Co.,
Inc., Carmen E. de Foerster, By: (Sgd.) V. Bacaldo," etc. In this connection it
should be explained that Carmen E. de Foerster was his stenographer. As a
consequence of the indorsements on checks the amounts therein stated were
subsequently withdrawn by U. E., Foerster and Carmen E. de Foerster.
Eventually the Manila office of the drug company investigated the
transactions of Foerster. Upon the discovery of anomalies, Foerster committed
suicide. But there is no evidence showing that the bank knew that Foerster was
misappropriating the funds of his principal. The Insular Drug Company claims
that it never received the face value of 132 checks here in the question covering
a total of P18,285.92.lawphil.net
There is no Philippine authority which directly fits the proven facts. The
case of Fulton Iron Works Co., vs. China Banking Corporation ([1930], 55 Phil.,
208), mentioned by both parties rest on a different states of facts. However,
there are elementary principles governing the relationship between a bank and
its customers which are controlling.

In first place, the bank argues that the drug company was never defrauded
at all. While the evidence on the extent of the loss suffered by the drug company
is not nearly as clear as it should be, it is a sufficient answer to state that no
such special defense was relied upon by the bank in the trial court. The drug
company saw fit to stand on the proposition that checks drawn in its favor were
improperly and illegally cashed by the bank for Foerster and placed in his
personal account, thus making it possible for Foerster to defraud the drug
company, and the bank did not try to go back of this proposition.
The next point relied upon by the bank, to the effect that Foerster had
implied authority to indorse all checks made out in the name of the Insular Drug
Co., Inc., has even less force. Not only did the bank permit Foerster to indorse
checks and then place them to his personal account, but it went farther and
permitted Foerster's wife and clerk to indorse the checks. The right of an agent
to indorse commercial paper is a very responsible power and will not be lightly
inferred. A salesman with authority to collect money belonging to his principal
does not have the implied authority to indorse checks received in payment. Any
person taking checks made payable to a corporation, which can act only by
agent does so at his peril, and must same by the consequences if the agent who
indorses the same is without authority. (Arcade Realty Co. vs. Bank of Commerce
[1919], 180 Cal., 318; Standard Steam Specialty Co., vs. Corn Exchange Bank
[1917], 220 N.Y., 278; People vs. Bank of North America [1879], 75 N.Y., 547;
Graham vs. United States Savings Institution [1870], 46 Mo., 186.) Further
speaking to the errors specified by the bank, it is sufficient to state that no trust
fund was involved; that the fact that bank acted in good faith does not relieve it
from responsibility; that no proof was adduced, admitting that Foerster had right
to indorse the checks, indicative of right of his wife and clerk to do the same ,
and that the checks drawn on the Bank of the Philippine Islands can not be
differentiated from those drawn on the Philippine National Bank because of the
indorsement by the latter.
In brief, this is a case where 132 checks made out in the name of the
Insular Drug Co., Inc., were brought to the branch office of the Philippine National
Bank in Iloilo by Foerster, a salesman of the drug company, Foerster's wife, and
Foerster's clerk. The bank could tell by the checks themselves that the money
belonged to the Insular Drug Co., Inc., and not to Foerster or his wife or his clerk.
When the bank credited those checks to the personal account of Foerster and
permitted Foerster and his wife to make withdrawals without there being made
authority from the drug company to do so, the bank made itself responsible to
the drug company for the amounts represented by the checks. The bank could
relieve itself from responsibility by pleading and proving that after the money
was withdrawn from the bank it passed to the drug company which thus suffered
no loss, but the bank has not done so. Much more could be said about this case,
but it suffices to state in conclusion that bank will have to stand the loss
occasioned by the negligence of its agents.
Overruling the errors assigned, judgment of the trial court will be affirmed,
the costs of this instance to be paid by appellant.

Villa-Real, Hull, Imperial, and Butte, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-42958

October 21, 1936

C. N. HODGES, plaintiff-appellant,
vs.
CARLOTA SALAS and PAZ SALAS, defendants-appellees.
Jose P. Orozco and Gibbs, McDonough and Ozaeta for appellant.
Vicente Varela and Conrado V. Sanchez for appellees.

IMPERIAL, J.:
The action was brought by the plaintiff to foreclose a certain real estate
mortgage constituted by the defendants to secure a loan. The plaintiff appealed
from the judgment of the Court of First Instance of Occidental Negros absolving
the defendants from the complaint and stating: That of the capital of P28,000
referred to in Exhibit A, the defendants were liable only for the sum of
P14,451.71; that the transactions and negotiations specified in Exhibit A as well
as the interest charged are usurious; that the sum of P14,778.77 paid by the
defendants to the plaintiff should be applied to the payment of the capital of
P14,451.71; that the plaintiff must refund the sum of P3,327.06 to the
defendants and, lastly, he must pay the costs.
On September 2, 1923, the defendants executed a power of attorney in
favor of their brother-in-law Felix S. Yulo to enable him to obtain a loan and
secure it with a mortgage on the real property described in transfer certificate of
title No. 3335. The power of attorney was registered in the registry of deeds of
the Province of Occidental Negros and the pertinent clauses thereof read as
follows:
That we confer upon our brother-in-law Mr. Felix S. Yulo, married, of age
and resident of the municipality of Bago, Province of Occidental Negros, P. I., as
required by law, a special power of attorney to obtain, in our respective names
and representation, a loan in any amount which our said brother-in-law may
deem necessary, being empowered, by virtue of the authority conferred in this
power of attorney, to constitute a mortgage on a parcel of land absolutely
belonging to us, the technical description of which is as follows:
"TRANSFER CERTIFICATE OF TITLE NO. 3335
"A parcel of land (lot No. 2464 of the Cadastral Survey of Bago) with the
improvements thereon, situated in municipality of Bago. Bounded on the NE. and

NW. by the Lonoy Sapa and lot No. 2465; on the SE. by the Ilabo Sapa; and on
the SW. by the Ilabo Sapa, lot No. 2508 and the Sapa Talaptapan. Containing an
area of one million nine hundred ninety-four thousand eight hundred and thirtyfour square meters (1,994,834), more or less."
That we confer and grant to our said brother-in-law Mr. Felix S. Yulo power
and authority to perform and execute each and every act necessary to the
performance of his trust, which acts shall be for all purposes as if we had
performed or executed them personally, hereby ratifying and confirming
everything that our said brother-in-law Mr. Felix S. Yulo may execute or cause to
be executed.
Acting under said power of attorney, Felix S. Yulo, on March 27, 1926,
obtained a loan of P28,000 from the plaintiff, binding his principals jointly and
severally, to pay it within ten (10) years, together with interest thereon at 12 per
cent per annum payable annually in advance, to which effect he signed a
promissory note for said amount and executed a deed of mortgage of the real
property described in transfer certificate of title No. 3335 and the improvements
thereon consisting in concrete buildings. It was stated in the deed that in case
the defendants failed to pay the stipulated interest and the taxes on the real
property mortgaged and if the plaintiff were compelled to bring an action to
recover his credit, said defendants would be obliged to pay 10 per cent more on
the unpaid capital, as fees for the plaintiff's attorneys. The mortgage so
constituted was registered in the registry of deeds of the Province of Occidental
Negros and noted on the back of the transfer certificate of title.
The sum of P28,000 was not delivered to Felix S. Yulo, but by agreement
between him and the plaintiff, it was employed as follows:
Interest for one year from March 27, 1926,
to March 26, 1927, collected in advance by P3,360.
the plaintiff .........................
00
Paid for the mortgage constituted by Felix
S. Yulo, cancelled on the date of the
loan ..........................................................

8,188.2
9

Paid by Felix S. Yulo on account of the

purchase price of the real property bought
by him on Ortiz Street ........................

2,000.0
0

Check No. 4590 delivered to Felix S.

Yulo ..........................

3,391.7
1

Check No. 4597 in the name of Rafael

Santos, paid to him to cancel the mortgage 9,200.0
constituted by the defendants .....
0
Check No. 4598 delivered to Felix S.

1,860.0

Yulo ...........................

Total ............................................................. 28,000.

...........
00
The defendants failed to pay at maturity the interest stipulated which
should have been paid one year in advance. All the sums paid by them on
account of accrued interest up to March 27, 1934, on which the complaint was
filed, together with the corresponding exhibits, are as follows:
Date

Amount

Exhibit 1 April 5,
P1,500.
1927 ............................................................... 00
Exhibit 2 May 2,
500.00
1927 ................................................................
Exhibit 4 August 30,
1927 .........................................................

336.00

Exhibit 7 June 4,
3,360.0
1928 ................................................................ 0
Exhibit 8 May 15,
1929 ..............................................................

67.20

Exhibit 9 June 19,

1929 ..............................................................

67.20

Exhibit 10 July 25,

33.60
1929 ...............................................................
Exhibit 11 August 26,
1929 .........................................................

33.60

Exhibit 12 October 7,
1929 ..........................................................

392.55

Exhibit 13 October 7,
1929 ..........................................................

30.00

Exhibit 14 November 9,
1929 ......................................................

29.67

Exhibit 15 November 9,
1929 ......................................................

938.95

Exhibit 16 February 8,
1930 ........................................................

61.04

Exhibit 17 February 8,
1930 ........................................................

936.46

Exhibit 18 No
date .................................................................. 498.75
.....
Exhibit 19 February 10,
1931 ......................................................

498.75

Exhibit 20 August 20,

1931 .........................................................

498.75

Exhibit 21 July 7,
498.75
1932 .................................................................
Exhibit 22 July 29,
500.00
1932 ...............................................................
Exhibit 23 September 23,
1932 ....................................................

500.00

Exhibit 24 December 17,

1932 .....................................................

997.50

Exhibit 25 No
1,000.0
date ..................................................................
0
......
Exhibit 26 January 23,
1934 .........................................................

500.00

Total .................................................................. 14,779.

...........................
77
To the foregoing amount must be added the sum of P3,360 deducted by
the plaintiff upon granting the loan, as interest for one year, thereby making the
total amount of interest paid by the defendants and received by the plaintiff
P18,138.77.
The foregoing are facts inferred from the evidence and are not
controverted by the parties, with the exception of the existence of the
promissory note, the registration of the mortgage deed and the notation on the
back of the certificate of title.lwphi1.nt
I. The action brought by the plaintiff was for the foreclosure of a mortgage
in accordance with the provisions of sections 254 to 261 of the Code of Civil
Procedure. It was not expressly alleged in the complaint that the mortgage deed
had been registered in accordance with Act No. 496, which was the law
applicable in the case of the real property registered under the Torrens system. A

copy of the mortgage deed was attached to the complaint and made a part
thereof, but said copy did not show that the original had been duly registered. In
paragraph 3 of the complaint, however, it was alleged that the mortgage deed
had been noted on the back of transfer certificate of title No. 3335 by the
register of deeds of the Province of Occidental Negros, in accordance with the
provisions of the Mortgage Law. This specific allegation is equivalent to a
statement that the mortgage deed had been duly registered.
At the trial of the case, the attorney for the plaintiff did not present the
mortgage deed showing the registration thereof in the registry, or the owner's
transfer certificate of title. In their stead the plaintiff testified that the mortgage
had been duly registered in the registry of deeds of Occidental Negros and had
been noted on the back of the transfer certificate of title. The oral evidence was
admitted without any objection on the part of the attorney for the defendants. In
the appealed decision the court held that the plaintiff had failed to substantiate
his foreclosure suit and, not having presented competent evidence, the action
arising from his evidence was merely a personal action for the recovery of a
certain sum of money. The plaintiff excepted to this conclusion and assigns it in
his brief as the first error of law committed by the court.
Section 284 of the Code of Civil Procedure requires the contents of a
writing to be proven by the writing itself, except in cases therein specified.
Section 313, No. 6, provides that official or public documents must be proven by
presenting the original or a copy certified by the legal keeper thereof. According
to this, the plaintiff was obliged to present the original or a certified copy of the
mortgage deed showing the registration thereof, as well as the owner's transfer
certificate of title. Both would have been the best evidence to prove the
registration of the mortgage and the notation thereof on the back of the title.
Had the defendants objected to the oral evidence offered, there is no doubt that
it would have been rejected as incompetent. But it is universally accepted that
when secondary or incompetent evidence is presented and accepted without any
objection on the part of the other party, the latter is bound thereby and the court
is obliged to grant it, the probatory value it deserves. (City of
Manila vs. Cabangis, 10 Phil., 151; Bersabal vs. Bernal, 13 Phil., 463; Kuenzle &
Streiff vs. Jiongco, 22 Phil., 110; U. S. vs. Choa Tong, 22 Phil., 562; U. S. vs. Ong
Shiu, 28 Phil., 242; De Leon vs. Director of Prisons, 31 Phil., 60: U.
S. vs. Hernandez, 31 Phil., 342; 23 C. J., 39, section 1783, and the cases therein
cited; 10 R. C. L., 1008, paragraph 197, and the cases therein cited.)
Inasmuch as the registration of the mortgage and the notation thereof on
the back of the transfer certificate of title have been established by the oral
evidence above stated, the court was without authority to conclude that the
action was personal in character and, consequently, the first assignment of error
is well founded.
II. The court held that the loan and the mortgage were usurious and illegal
for two reasons: First, because the plaintiff charged compound interest
notwithstanding the fact that it had not been stipulated, and second, because

the plaintiff charged interest yearly in advance in accordance with the

agreement. These conclusions are the subject matter of the plaintiff's second
assignment of error.
The plaintiff categorically denied having charged compound interest,
stating in his brief that all the interest charged by him should be applied to the
interest unpaid by the defendants. We have examined Exhibits 8 to 17 of the
defendants, which are the evidence offered to establish the fact that compound
interest had been charged, and we have, without any difficulty, arrived at the
conclusion that the plaintiff has really charged said unauthorized and
unstipulated interest. If there is any doubt on this fact, it is dispelled by Exhibit
10, in the handwriting of the plaintiff himself, wherein it appears that the sum of
P33.60 was charged by him on account of interest on unpaid interest. But the
fact of charging illegal interest that may be charged, does not make the loan or
the mortgage usurious because the transactions took place subsequent to the
execution of said contracts and the latter do not appear to be void ab initio (66
C. J., pages 243, 244, section 194). Said interest should be applied first to the
payment of the stipulated and unpaid interest and, later, to that of the capital.
(Aguilar vs. Rubiato and Gonzalez Vila, 40 Phil., 570; Go Chioco vs. Martinez, 45
Phil., 256; Gui Jong & Co. vs. Rivera and Avellar, 45 Phil., 778; Lopez and
Javelona vs. El Hogar Filipino, 47 Phil., 249; Sajo vs. Gustilo, 48 Phil, 451.)
The plaintiff admits having charged in advance the interest corresponding
to the first year. The mortgage deed contains the stipulation that the defendants
should pay in advance the stipulated interest corresponding to each year. The
court declared the contract usurious for this reason, basing its opinion upon
some American authorities holding the same point of view. This court cannot
adopt said doctrine in this jurisdiction. Section 5 of Act No. 2655, as amended by
section 3 of Act No. 3291, expressly permit a creditor to charge in advance
interest corresponding to not more than one year, whatever the duration of the
loan. What is prohibited is the charging in advance of interest for more than one
year. Section 6 reiterates said rule in exempting a creditor found guilty of usury
from the obligation to return the interest and commissions collected by him in
advance, provided said interest and commissions are not for a period of more
than one year and the rate of interest does not exceed the maximum limit fixed
by law.
This court concludes, therefore, that the second assignment of error is well
founded in the sense that both the loan and the mortgage are not usurious or
illegal.
III. In his third assignment of error, the plaintiff contends that the court
should have declared the action for the usury interposed by the defendants in
their cross-complaint barred by the statute of limitations, in accordance with the
provision of section 6 of Act No. 2655, as amended by section 4 of Act No. 3291.
It is true that according to the evidence more than two years have already
elapsed from the time the defendants paid and the plaintiff received the usurious
interest to the registration of the cross-complaint, but the plaintiff cannot

successfully invoke the defense of prescription because he failed to allege it in

his reply to the cross-complaint. In order that prescription may constitute a valid
defense and it may be considered on appeal, it must be specifically pleaded in
the answer and proven with the same degree of certainty with which an essential
allegation in a civil action is established. Otherwise it will not be taken into
consideration, much less if it is alleged for the first time on appeal.
(Aldeguer vs. Hoskyn, 2 Phil., 500; Domingo vs. Osorio, 7 Phil, 405;
Marzon vs. Udtujan, 20 Phil., 232; Pelaez vs.Abreu, 26 Phil., 415; Corporacion de
PP. Agustinos Recoletos vs. Crisostomo, 32 Phil., 427; Karagdag vs. Barado, 33
Phil., 529.)
IV. The defendants proved that their attorney's fees were contracted at
P3,000. The evidence has not been contradicted. The amount so fixed is not
unreasonable or unconscionable. In the fourth assignment of error, the plaintiff
questions that part of the judgment ordering him to pay said fees. He contends
that he is not responsible for the payment thereof because neither the loan nor
the mortgage is usurious. However, this court has already stated that the plaintiff
violated the Usury Law in charging compound interest notwithstanding the fact
that it has not been so stipulated and that adding these sums to the stipulated
interest the average exceeds the maximum rate of interest that may be charged
for the loan which has been the subject matter of the transaction. This violation
falls under the precept of section 6 of the Usury Law and the plaintiff is obliged
to pay the fees of the attorney for the defendants. This court holds that the
fourth assignment of error is unfounded.
V. In the fifth assignment of error, the plaintiff alleges that the judgment is
erroneous for not having declared that the defendants ratified all the obligations
contracted by their attorney in fact. In the sixth assignment of error he contends
that an error was likewise committed in not declaring that by virtue of the
authority conferred by the defendants, agent Yulo was authorized to borrow
money and invest it as he wished, without being obliged to apply it necessarily
for the benefit of his principals. In the seventh assignment of error the plaintiff
alleges that the court erred in fixing the capital, which the defendants are
obliged to pay him by virtue of the power of attorney executed by them, at only
P14,451.71. In the eighth and last assignment of error, he insists that the court
should have ordered the defendants to pay the entire capital owed, with interest
thereon in accordance with the mortgage deed, together with 10 per cent thereof
as attorney's fees, the action having been instituted due to nonfeasance on the
part of the defendants.
These four assignments of errors refer to the interpretation and scope of
the power of attorney and to the computation of the capital and the interest to
be paid by the defendants and, finally, to whether or not the latter are obliged to
pay the fees of the attorney for the plaintiff. For this reason, this court passes
upon them jointly.
The pertinent clauses of the power of attorney from which may be
determined the intention of the principals in authorizing their agent to obtain a

loan, securing it with their real property, were quoted at the beginning. The
terms thereof are limited; the agent was thereby authorized only to borrow any
amount of money which he deemed necessary. There is nothing, however, to
indicate that the defendants had likewise authorized him to convert the money
obtained by him to his personal use. With respect to a power of attorney of
special character, it cannot be interpreted as also authorizing the agent to
dispose of the money as he pleased, particularly when it does not appear that
such was the intention of the principals, and in applying part of the funds to pay
his personal obligations, he exceeded his authority (art. 1714, Civil Code; Bank of
the Philippine Islands vs. De Coster, 47 Phil., 594 and 49 Phil., 574). In the case
like the present one, it should be understood that the agent was obliged to turn
over the money to the principals or, at least, place it at their disposal. In the case
of Manila Trading & Supply Co., vs. Uy Tiepo (G.R. No. 30339, March 2, 1929, not
reported), referring to a power of attorney to borrow any amount of money in
cash and to guarantee the payment thereof by the mortgage of certain property
belonging to the principals, this court held that the agent exceeded his authority
in guaranteeing his personal account for automobile parts by the mortgage, not
having been specially authorized to do so. This court then said:
Inasmuch as Jose S. Uy Tiepo, as agent of Daniel Ramos and Emilio
Villarosa, was only authorized to "borrow any amount of cash", and to guaranty
the payment of the sums of money so borrowed by the mortgage of the property
stated in the power of attorney, he exceeded the authority conferred upon him in
mortgaging his principal's property to secure the payment of his personal debt
for automobile parts, and the guaranties so made are null and void, the
principals in question not being responsible for said obligations.
The plaintiff contends that the agent's act of employing part of the loan to
pay his personal debts was ratified by the defendants in their letter to him dated
August 21, 1927 (Exhibit E). This court has carefully read the contents of said
document and has found nothing implying ratification or approval of the agent's
act. In it the defendants confined themselves to stating that they would notify
their agent of the maturity of the obligation contracted by him. They said nothing
about whether or not their agent was authorized to use the funds obtained by
him in the payment of his personal obligations.
In view of the foregoing, this court concludes that the fifth and sixth
assignments of error are unfounded.
In the seventh assignment of error, the plaintiff insists that the defendants
should answer for the entire loan plus the stipulated interest thereon. This court
has already stated the manner in which the agent employed the loan, according
to the plaintiff. Of the loan of P28,000, the agent applied the sum of P10,188.29
to the payment of his personal debt to the plaintiff. The balance of P17,811.71
constitutes the capital which the defendants are obliged to pay by virtue of the
power conferred upon their agent and the mortgage deed.
In connection with the stipulated interest, it appears that the capital of
P17,811.71 bore interest at 12 per cent per annum from March 27, 1926, to

September 30, 1936, equivalent to P22,460.56. All the interest paid by the
defendants to the plaintiff, including that which is considered as usurious,
amounts to P18,138.77, so that they are still indebted in said concept in the sum
of P4,321.79. Adding this sum to the capital of P17,811.71, makes a total of
P22,133.50, from which the sum of P3,000 constituting the fees of the attorney
for the defendants must be deducted, leaving a net balance of P19,133.50 which
is all that the defendants must pay to the plaintiff up to said date.
The foregoing disposes of the seventh assignment of error.
In the mortgage deed the defendants bound themselves to pay the fees of
the attorney for the plaintiff were to resort to the courts to foreclose the
mortgage. Said fees were fixed at 10 per cent of the capital which the
defendants might owe. This penalty according to what has been stated
heretofore, amounts to P1,781.17 which would have to be added to the total
amount to be paid to the plaintiff by the defendants. The court, having declared
the contracts usurious, did not order the defendants to pay the penalty and for
this reason the plaintiff assigns the omission as the eighth and last assignment of
alleged error. Inasmuch as the fees agreed upon are neither excessive nor
unreasonable, this court finds no good reason to disapprove it, particularly
because the defendants were also granted a larger amount in the same concept.
In view of the conclusions arrived at, the motion for a new trial filed by the
attorneys for the plaintiff on March 12, 1935, is denied, and the amendments to
the complaint proposed by them in their pleading of March 20 of said year are
admitted.
For all the foregoing reasons, the appealed judgment is modified and the
defendants are ordered to, pay jointly and severally to the plaintiff the sums of
P19,133.50 and P1,781.17. Within three months they shall make payment of said
two sums of money or deposit them with the clerk of court, at the disposal of the
plaintiff, upon failure to do which the real property mortgaged with the
improvements thereon shall be sold at public auction and the proceeds thereof
applied to the payment of the two sums of money above-stated; without special
pronouncement as to the costs of this instance. So ordered.
Avancea, C. J., Villa-Real, Abad Santos, Diaz, and Laurel, JJ., concur.
RESOLUTION
December 29, 1936
IMPERIAL, J.:
The motion for reconsideration presented by the appellee based upon the
three grounds: (1) That the capital for which they must answer to the appellant
should be only P16,422.39, not P17,811.71 as stated in the decision; (2) that the
computation of the payments made is incorrect, and (3) that the oral evidence
relative to the registration of the mortgage is insufficient.

I. It is claimed that as the true capital for which the appellees were held
responsible amounts only to P16,422.39, excluding the sum of P3,360 paid in
advance as interest corresponding to the first year, this latter sum should not be
paid in its entirety by the appellees but only that par thereof in proportion to the
capital owed. The contention is without any foundation because, as was already
stated in the decision, the agent was expressly authorized to borrow and receive
the total amount of P28,000. On the other hand, as it was stipulated that the
interest should be paid annually in advance, it is evident and just that the entire
sum of P3,360 representing said interest be paid by the appellees who
contracted the debt through an agent. The fact that after the contract had been
consummated and the interest for the first year paid, the agent, exceeding his
authority, unduly used part of the funds intrusted to him, does not relieve the
appellees of their obligation to answer for the entire interest for the first year. For
this reason, this court declares that the first ground is unfounded.
II. In the computation of the interest paid by the appellees and of that which they
should pay to the appellant by virtue of the terms of the contract, this court
proceeded to determine the time that elapsed from the date the contract
became effective and debited to the appellees the interest at the rate agreed
upon, deducting therefrom what they had paid in said concept, including the
interest paid by them for the first year because, the computation commenced
from the date fixed in the contract, which is March 27, 1926. The difference
represents the interest unpaid by the appellees up to September 30, 1936,
considered by this court as the date, on which the appellees' account with the
appellant was finally liquidated and closed, and added to the capital they
represent the amount appearing in the decision. This court sees no error of
accounting in this computation.
III. The appellees insist that the oral evidence upon which this court based its
opinion in declaring that the mortgage deed is registered, is insufficient. What
has been said in the decision on this point is so clear and understandable that
this court believes itself relieved from the obligation of reproducing it. There is no
merit in the last ground of the motion.
In answering the appellees' motion for reconsideration, the appellant
likewise seeks reconsideration of the decision, alleging that he is entitled to a
larger amount. Without going into details, because this court deems it
unnecessary, it is held that the appellant is not entitled to ask for reconsideration
of the decision on the ground that his petition to that effect has been filed too
late, after the decision in question became final with respect to him.
The appellees' motion for reconsideration is denied.
Avancea, C. J., Villa-Real, Abad Santos, Diaz, and Laurel, JJ., concur.
Republic of the Philippines
SUPREME COURT
FIRST DIVISION

G.R. No. 152658. July 29, 2005

LILY ELIZABETH BRAVO-GUERRERO, BEN MAURICIO P. BRAVO, 1 ROLAND
P. BRAVO, JR., OFELIA BRAVO-QUIESTAS, HEIRS OF CORPUSINIA BRAVONIOR namely: GERSON U. NIOR, MARK GERRY B. NIOR, CLIFF RICHARD B.
NIOR, BRYAN B. NIOR, WIDMARK B. NIOR, SHERRY ANNE B. NIOR,
represented by LILY ELIZABETH BRAVO-GUERRERO as their attorney-infact, and HONORABLE FLORENTINO A. TUASON, JR., Presiding Judge,
Regional Trial Court, Branch 139, Makati City, Petitioners,
vs.
EDWARD P. BRAVO, represented by his attorney-in-fact FATIMA C.
BRAVO, respondent, and DAVID B. DIAZ, JR., intervenor-respondent.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review2 assailing the Decision3 of 21 December
2001 of the Court of Appeals in CA-G.R. CV No. 67794. The Court of Appeals
reversed the Decision4 of 11 May 2000 of the Regional Trial Court of Makati,
Branch No. 139, in Civil Case No. 97-1379 denying respondents prayer to
partition the subject properties.
Antecedent Facts
Spouses Mauricio Bravo ("Mauricio") and Simona 5 Andaya Bravo ("Simona")
owned two parcels of land ("Properties") measuring 287 and 291 square meters
and located along Evangelista Street, Makati City, Metro Manila. The Properties
are registered under TCT Nos. 58999 and 59000 issued by the Register of Deeds
of Rizal on 23 May 1958. The Properties contain a large residential dwelling, a
smaller house and other improvements.
Mauricio and Simona had three children - Roland, Cesar and Lily, all surnamed
Bravo. Cesar died without issue. Lily Bravo married David Diaz, and had a son,
David B. Diaz, Jr. ("David Jr."). Roland had six children, namely, Lily Elizabeth
Bravo-Guerrero ("Elizabeth"), Edward Bravo ("Edward"), Roland Bravo, Jr.
("Roland Jr."), Senia Bravo, Benjamin Mauricio Bravo, and their half-sister, Ofelia
Bravo ("Ofelia").
Simona executed a General Power of Attorney ("GPA") on 17 June 1966
appointing Mauricio as her attorney-in-fact. In the GPA, Simona authorized
Mauricio to "mortgage or otherwise hypothecate, sell, assign and dispose of any
and all of my property, real, personal or mixed, of any kind whatsoever and
wheresoever situated, or any interest therein xxx." 6 Mauricio subsequently
mortgaged the Properties to the Philippine National Bank (PNB) and Development
Bank of the Philippines (DBP) for P10,000 and P5,000, respectively.7

On 25 October 1970, Mauricio executed a Deed of Sale with Assumption of Real

Estate Mortgage ("Deed of Sale") conveying the Properties to "Roland A. Bravo,
Ofelia A. Bravo and Elizabeth Bravo" 8 ("vendees"). The sale was conditioned on
the payment of P1,000 and on the assumption by the vendees of the PNB and
DBP mortgages over the Properties.
As certified by the Clerk of Court of the Regional Trial Court of Manila, the Deed
of Sale was notarized by Atty. Victorio Q. Guzman on 28 October 1970 and
entered in his Notarial Register. 9 However, the Deed of Sale was not annotated
on TCT Nos. 58999 and 59000. Neither was it presented to PNB and DBP. The
mortage loans and the receipts for loan payments issued by PNB and DBP
continued to be in Mauricios name even after his death on 20 November 1973.
Simona died in 1977.
On 23 June 1997, Edward, represented by his wife, Fatima Bravo, filed an action
for the judicial partition of the Properties. Edward claimed that he and the other
grandchildren of Mauricio and Simona are co-owners of the Properties by
succession. Despite this, petitioners refused to share with him the possession
and rental income of the Properties. Edward later amended his complaint to
include a prayer to annul the Deed of Sale, which he claimed was merely
simulated to prejudice the other heirs.
In 1999, David Jr., whose parents died in 1944 and who was subsequently raised
by Simona, moved to intervene in the case. David Jr. filed a complaint-inintervention impugning the validity of the Deed of Sale and praying for the
partition of the Properties among the surviving heirs of Mauricio and Simona. The
trial court allowed the intervention in its Order dated 5 May 1999. 10
The Ruling of the Trial Court
The trial court upheld Mauricios sale of the Properties to the vendees. The trial
court ruled that the sale did not prejudice the compulsory heirs, as the Properties
were conveyed for valuable consideration. The trial court also noted that the
Deed of Sale was duly notarized and was in existence for many years without
question about its validity.
The dispositive portion of the trial courts Decision of 11 May 2000 reads:
WHEREFORE, premises considered, the Court hereby DENIES the JUDICIAL
PARTITION of the properties covered by TCT Nos. 58999 and 59000 registered
with the Office of the Register of Deeds of Rizal.
SO ORDERED.11
Dissatisfied, Edward and David Jr. ("respondents") filed a joint appeal to the Court
of Appeals.
The Ruling of the Court of Appeals
Citing Article 166 of the Civil Code ("Article 166"), the Court of Appeals declared
the Deed of Sale void for lack of Simonas consent. The appellate court held that

the GPA executed by Simona in 1966 was not sufficient to authorize Mauricio to
sell the Properties because Article 1878 of the Civil Code ("Article 1878") requires
a special power of attorney for such transactions. The appellate court reasoned
that the GPA was executed merely to enable Mauricio to mortgage the
Properties, not to sell them.
The Court of Appeals also found that there was insufficient proof that the
vendees made the mortgage payments on the Properties, since the PNB and DBP
receipts were issued in Mauricios name. The appellate court opined that the
rental income of the Properties, which the vendees never shared with
respondents, was sufficient to cover the mortgage payments to PNB and DBP.
The Court of Appeals declared the Deed of Sale void and ordered the partition of
the Properties in its Decision of 21 December 2001 ("CA Decision"), as follows:
WHEREFORE, the decision of the Regional Trial Court of Makati City, MetroManila, Branch 13[9] dated 11 May 2000[,] review of which is sought in these
proceedings[,] is REVERSED.
1. The Deed of Sale with Assumption of Real Estate Mortgage (Exh. 4) dated 28
October 1970 is hereby declared null and void;
2. Judicial Partition on the questioned properties is hereby GRANTED in the
following manner:
A. In representation of his deceased mother, LILY BRAVO-DIAZ, intervenor DAVID
DIAZ, JR., is entitled to one-half (1/2) interest of the subject properties;
B. Plaintiff-appellant EDWARD BRAVO and the rest of the five siblings, namely:
LILY ELIZABETH, EDWARD, ROLAND, JR., SENIA, BENJAMIN and OFELIA are entitled
to one-sixth (1/6) representing the other half portion of the subject properties;
C. Plaintiff-appellant Edward Bravo, intervenor DAVID DIAZ, JR., SENIA and
BENJAMIN shall reimburse the defendant-appellees LILY ELIZABETH, OFELIA and
ROLAND the sum of One Thousand (P1,000.00) PESOS representing the
consideration paid on the questioned deed of sale with assumption of mortgage
with interest of six (6) percent per annum effective 28 October 1970 until fully
paid.
SO ORDERED.12
The Issues
Petitioners seek a reversal of the Decision of the Court of Appeals, raising these
issues:
1. WHETHER THE COURT OF APPEALS ERRED IN NOT UPHOLDING THE VALIDITY
AND ENFORCEMENT OF THE DEED OF SALE WITH ASSUMPTION OF MORTGAGE.
2. WHETHER THE COURT OF APPEALS ERRED IN ORDERING THE PARTITION OF
THE PROPERTY IN QUESTION.13

At the least, petitioners argue that the subject sale is valid as to Mauricios share
in the Properties.
On the other hand, respondents maintain that they are co-owners of the
Properties by succession. Respondents argue that the sale of the conjugal
Properties is void because: (1) Mauricio executed the Deed of Sale without
Simonas consent; and (2) the sale was merely simulated, as shown by the
grossly inadequate consideration Mauricio received for the Properties.
While this case was pending, Leonida Andaya Lolong ("Leonida"), David Jr.s aunt,
and Atty. Cendaa, respondents counsel, informed the Court that David Jr. died
on 14 September 2004. Afterwards, Leonida and Elizabeth wrote separate letters
asking for the resolution of this case. Atty. Cendaa later filed an urgent motion
to annotate attorneys lien on TCT Nos. 58999 and 59000. In its Resolution dated
10 November 2004,14 the Court noted the notice of David Jr.s death, the letters
written by Leonida and Elizabeth, and granted the motion to annotate attorneys
lien on TCT Nos. 58999 and 59000.
The Ruling of the Court
The petition is partly meritorious.
The questions of whether Simona consented to the Deed of Sale and whether the
subject sale was simulated are factual in nature. The rule is factual findings of
the Court of Appeals are binding on this Court. However, there are exceptions,
such as when the factual findings of the Court of Appeals and the trial court are
contradictory, or when the evidence on record does not support the factual
findings.15 Because these exceptions obtain in the present case, the Court will
consider these issues.
On the Requirement of the Wifes Consent
We hold that the Court of Appeals erred when it declared the Deed of Sale void
based on Article 166, which states:
Art. 166. Unless the wife has been declared a non compos mentis or a
spendthrift, or is under civil interdiction or is confined in a leprosarium, the
husband cannot alienate or encumber any real property of the conjugal
partnership without the wifes consent. If she refuses unreasonably to give her
consent, the court may compel her to grant the same.
This article shall not apply to property acquired by the conjugal partnerships
before the effective date of this Code.
Article 166 expressly applies only to properties acquired by the conjugal
partnership after the effectivity of the Civil Code of the Philippines ("Civil Code").
The Civil Code came into force on 30 August 1950. 16 Although there is no dispute
that the Properties were conjugal properties of Mauricio and Simona, the records
do not show, and the parties did not stipulate, when the Properties were
acquired.17 Under Article 1413 of the old Spanish Civil Code, the husband could

alienate conjugal partnership property for valuable consideration without the

wifes consent.18
Even under the present Civil Code, however, the Deed of Sale is not void. It is
well-settled that contracts alienating conjugal real property without the wifes
consent are merely voidable under the Civil Code that is, binding on the parties
unless annulled by a competent court and not void ab initio.19
Article 166 must be read in conjunction with Article 173 of the Civil Code ("Article
173"). The latter prescribes certain conditions before a sale of conjugal property
can be annulled for lack of the wifes consent, as follows:
Art. 173. The wife may, during the marriage and within ten years from
the transaction questioned, ask the courts for the annulment of any contract of
the husband entered into without her consent, when such consent is required, or
any act or contract of the husband which tends to defraud her or impair her
interest in the conjugal partnership property. Should the wife fail to exercise
this right, she or her heirs after the dissolution of the marriage, may
demand the value of property fraudulently alienated by the husband.
(Emphasis supplied)
Under the Civil Code, only the wife can ask to annul a contract that disposes of
conjugal real property without her consent. The wife must file the action for
annulment during the marriage and within ten years from the questioned
transaction. Article 173 is explicit on the remedies available if the wife fails to
exercise this right within the specified period. In such case, the wife or her heirs
can only demand the value of the property provided they prove that the husband
fraudulently alienated the property. Fraud is never presumed, but must be
established by clear and convincing evidence. 20
Respondents action to annul the Deed of Sale based on Article 166 must fail for
having been filed out of time. The marriage of Mauricio and Simona was
dissolved when Mauricio died in 1973. More than ten years have passed since
the execution of the Deed of Sale.
Further, respondents, who are Simonas heirs, are not the parties who can invoke
Article 166. Article 173 reserves that remedy to the wife alone. Only Simona had
the right to have the sale of the Properties annulled on the ground that Mauricio
sold the Properties without her consent.
Simona, however, did not assail the Deed of Sale during her marriage or even
after Mauricios death. The records are bereft of any indication that Simona
questioned the sale of the Properties at any time. Simona did not even attempt
to take possession of or reside on the Properties after Mauricios death. David Jr.,
who was raised by Simona, testified that he and Simona continued to live in
Pasay City after Mauricios death, while her children and other grandchildren
resided on the Properties.21
We also agree with the trial court that Simona authorized Mauricio to dispose of
the Properties when she executed the GPA. True, Article 1878 requires a special

power of attorney for an agent to execute a contract that transfers the ownership
of an immovable. However, the Court has clarified that Article 1878 refers to the
nature of the authorization, not to its form.22 Even if a document is titled as a
general power of attorney, the requirement of a special power of attorney is met
if there is a clear mandate from the principal specifically authorizing the
performance of the act.23
In Veloso v. Court of Appeals,24 the Court explained that a general power of
attorney could contain a special power to sell that satisfies the requirement of
Article 1878, thus:
An examination of the records showed that the assailed power of attorney was
valid and regular on its face. It was notarized and as such, it carries the
evidentiary weight conferred upon it with respect to its due execution. While it is
true that it was denominated as a general power of attorney, a perusal thereof
revealed that it stated an authority to sell, to wit:
"2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands,
tenements and hereditaments or other forms of real property, more specifically
TCT No. 49138, upon such terms and conditions and under such covenants as my
said attorney shall deem fit and proper."
Thus, there was no need to execute a separate and special power of attorney
since the general power of attorney had expressly authorized the agent or
attorney in fact the power to sell the subject property. The special power of
attorney can be included in the general power when it is specified
therein the act or transaction for which the special power is required.
(Emphasis supplied)
In this case, Simona expressly authorized Mauricio in the GPA to "sell, assign
and dispose of any and all of my property, real, personal or mixed, of any
kind whatsoever and wheresoever situated, or any interest therein xxx" as well
as to "act as my general representative and agent, with full authority to buy, sell,
negotiate and contract for me and in my behalf." 25 Taken together, these
provisions constitute a clear and specific mandate to Mauricio to sell the
Properties. Even if it is called a "general power of attorney," the specific
provisions in the GPA are sufficient for the purposes of Article 1878. These
provisions in the GPA likewise indicate that Simona consented to the sale of the
Properties.
Whether the Sale of the Properties was Simulated
or is Void for Gross Inadequacy of Price
We point out that the law on legitime does not bar the disposition of property for
valuable consideration to descendants or compulsory heirs. In a sale, cash of
equivalent value replaces the property taken from the estate. 26 There is no
diminution of the estate but merely a substitution in values. Donations and other
dispositions by gratuitous title, on the other hand, must be included in the
computation of legitimes.27

Respondents, however, contend that the sale of the Properties was merely
simulated. As proof, respondents point to the consideration of P1,000 in the Deed
of Sale, which respondents claim is grossly inadequate compared to the actual
value of the Properties.
Simulation of contract and gross inadequacy of price are distinct legal concepts,
with different effects. When the parties to an alleged contract do not really
intend to be bound by it, the contract is simulated and void. 28 A simulated or
fictitious contract has no legal effect whatsoever 29 because there is no real
agreement between the parties.
In contrast, a contract with inadequate consideration may nevertheless embody
a true agreement between the parties. A contract of sale is a consensual
contract, which becomes valid and binding upon the meeting of minds of the
parties on the price and the object of the sale. 30 The concept of a simulated sale
is thus incompatible with inadequacy of price. When the parties agree on a price
as the actual consideration, the sale is not simulated despite the inadequacy of
the price.31
Gross inadequacy of price by itself will not result in a void contract. Gross
inadequacy of price does not even affect the validity of a contract of sale, unless
it signifies a defect in the consent or that the parties actually intended a
donation or some other contract. 32 Inadequacy of cause will not invalidate a
contract unless there has been fraud, mistake or undue influence. 33 In this case,
respondents have not proved any of the instances that would invalidate the Deed
of Sale.
Respondents even failed to establish that the consideration paid by the vendees
for the Properties was grossly inadequate. As the trial court pointed out, the
Deed of Sale stipulates that, in addition to the payment of P1,000, the vendees
should assume the mortgage loans from PNB and DBP. The consideration for the
sale of the Properties was thus P1,000 in cash and the assumption of the P15,000
mortgage.
Respondents argue that P16,000 is still far below the actual value of the
Properties. To bolster their claim, respondents presented the following: (1) Tax
Declarations No. A-001-0090534 and A-001-0090635 for the year 1979, which
placed the assessed value of the Properties at P70,020 and their approximate
market value atP244,290; and (2) a certified copy of the Department of Finances
Department Order No. 62-9736 dated 6 June 1997 and attached
guidelines37 which established the zonal value of the properties along Evangelista
Street atP15,000 per square meter.
The subject Deed of Sale, however, was executed in 1970. The valuation of the
Properties in 1979 or 1997 is of little relevance to the issue of whether P16,000
was a grossly inadequate price to pay for the Properties in 1970. Certainly, there
is nothing surprising in the sharp increase in the value of the Properties nine or
twenty-seven years after the sale, particularly when we consider that the
Properties are located in the City of Makati.

More pertinent are Tax Declarations No. 1581238 and No. 15813,39 both issued in
1967, presented by petitioners. These tax declarations placed the assessed
value of both Properties at P16,160. Compared to this, the price ofP16,000
cannot be considered grossly inadequate, much less so shocking to the
conscience40 as to justify the setting aside of the Deed of Sale.
Respondents next contend that the vendees did not make the mortgage
payments on the Properties. Respondents allege that the rents paid by the
tenants leasing portions of the Properties were sufficient to cover the mortgage
payments to DBP and PNB.
Again, this argument does not help respondents cause. Assuming that the
vendees failed to pay the full price stated in the Deed of Sale, such partial failure
would not render the sale void. In Buenaventura v. Court of Appeals,41 the
Court held:
xxx If there is a meeting of the minds of the parties as to the price, the contract
of sale is valid, despite the manner of payment, or even the breach of that
manner of payment. xxx
It is not the act of payment of price that determines the validity of a contract of
sale. Payment of the price has nothing to do with the perfection of the contract.
Payment of the price goes into the performance of the contract. Failure to pay
the consideration is different from lack of consideration. The former results in a
right to demand the fulfillment or cancellation of the obligation under an existing
valid contract while the latter prevents the existence of a valid contract.
(Emphasis supplied.)
Neither was it shown that the rentals from tenants were sufficient to cover the
mortgage payments. The parties to this case stipulated to only one tenant, a
certain Federico M. Puno, who supposedly leased a room on the Properties
for P300 per month from 1992 to 1994.42 This is hardly significant, when we
consider that the mortgage was fully paid by 1974. Indeed, the fact that the
Properties were mortgaged to DBP and PNB indicates that the conjugal
partnership, or at least Mauricio, was short of funds.
Petitioners point out that they were duly employed and had the financial capacity
to buy the Properties in 1970. Respondents did not refute this. Petitioners
presented 72 receipts43 showing the mortgage payments made to PNB and DBP,
and the Release of the Real Estate Mortgage 44 ("Mortgage Release") dated 5 April
1974. True, these documents all bear Mauricios name. However, this tends to
support, rather than detract from, petitioner-vendees explanation that they
initially gave the mortgage payments directly to Mauricio, and then later directly
to the banks, without formally advising the bank of the sale. The last 3 mortgage
receipts and the Mortgage Release were all issued in Mauricios name even after
his death in 1970. Obviously, Mauricio could not have secured the Mortgage
Release and made these last payments.
Presumption of Regularity and Burden of Proof

The Deed of Sale was notarized and, as certified by the Regional Trial Court of
Manila, entered in the notarial books submitted to that court. As a document
acknowledged before a notary public, the Deed of Sale enjoys the presumption of
regularity45 and due execution.46 Absent evidence that is clear, convincing and
more than merely preponderant, the presumption must be upheld. 47
Respondents evidence in this case is not even preponderant. Respondents
allegations, testimony and bare denials cannot prevail over the documentary
evidence presented by petitioners. These documents the Deed of Sale and the
GPA which are both notarized, the receipts, the Mortgage Release and the 1967
tax declarations over the Properties support petitioners account of the sale.
As the parties challenging the regularity of the Deed of Sale and alleging its
simulation, respondents had the burden of proving these charges. 48 Respondents
failed to discharge this burden. Consequentially, the Deed of Sale stands.
On the Partition of the Property
Nevertheless, this Court finds it proper to grant the partition of the Properties,
subject to modification.
Petitioners have consistently claimed that their father is one of the vendees who
bought the Properties. Vendees Elizabeth and Ofelia both testified that the
"Roland A. Bravo" in the Deed of Sale is their father, 49 although their brother,
Roland Bravo, Jr., made some of the mortgage payments. Petitioners counsel,
Atty. Paggao, made the same clarification before the trial court. 50
As Roland Bravo, Sr. is also the father of respondent Edward Bravo, Edward is
thus a compulsory heir of Roland Bravo, and entitled to a share, along with his
brothers and sisters, in his fathers portion of the Properties. In short, Edward and
petitioners are co-owners of the Properties.
As such, Edward can rightfully ask for the partition of the Properties. Any coowner may demand at any time the partition of the common property unless a
co-owner has repudiated the co-ownership. 51 This action for partition does not
prescribe and is not subject to laches. 52
WHEREFORE, we REVERSE the Decision of 21 December 2001 of the Court of
Appeals in CA-G.R. CV No. 67794. We REINSTATE the Decision of 11 May 2000 of
the Regional Trial Court of Makati, Branch No. 139, in Civil Case No. 97-137,
declaring VALID the Deed of Sale with Assumption of Mortgage dated 28 October
1970, with the following MODIFICATIONS:
1. We GRANT judicial partition of the subject Properties in the following manner:
a. Petitioner LILY ELIZABETH BRAVO-GUERRERO is entitled to one-third (1/3) of
the Properties;
b. Petitioner OFELIA BRAVO-QUIESTAS is entitled to one-third (1/3) of the
Properties; and

c. The remaining one-third (1/3) portion of the Properties should be divided

equally between the children of ROLAND BRAVO.
2. The other heirs of ROLAND BRAVO must reimburse ROLAND BRAVO, JR. for
whatever expenses the latter incurred in paying for and securing the release of
the mortgage on the Properties.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ.,
concur.

Footnotes
1

Also referred to in the records as Benjamin Bravo.

Under Rule 45 of the Rules of Civil Procedure.

Rollo, pp. 370-386. Penned by Associate Justice Bienvenido L. Reyes with

Associate Justices (now Supreme Court Associate Justice) Cancio C. Garcia and
Roberto A. Barrios concurring.
4

Ibid., pp. 322-339-A. Penned by Judge Florentino A. Tuason, Jr.

Appears in the lower courts decisions and in TCT Nos. 58999 and 59000 as
"Semona." However, the lady herself signed her name as "Simona Andaya-de
Bravo" in the GPA. "Simona Andaya" is also the name of the surviving spouse on
Mauricios death certificate.
6

Exhibit "5" to "5-C", Records, pp. 277-278. The relevant portions of the GPA
state:
xxx
That I, SIMONA ANDAYA DE BRAVO, of legal age, married to Mauricio Bravo and a
resident of 2194 Evangelista St., Makati, Rizal, Philippines, do hereby appoint,
name and constitute my husband Mauricio Bravo, of legal age, residing at the
same address, to be my true and lawful attorney to act in, manage, and conduct
all my affairs, and for that purpose in my name and on my behalf to do and
execute all or any of the following acts, deeds and things, to wit:
1. To exercise general control and supervision over my business and property of
every kind in the Philippines, and to act as my general representative and agent,
with full authority to buy, sell, negotiate and contract for me and in my behalf.
xxx
3. To buy or otherwise acquire, to hire or lease, and to pledge, mortgage or
otherwise hypothecate, sell, assign and dispose of any and all of my property,

real, personal or mixed, of any kind whatsoever and wheresoever situated, or

any interest therein, upon such terms and conditions and under such covenants
as my said attorney shall deem fit and proper, and to execute in my name any
and all papers relating thereto, and to sign, execute, acknowledge and deliver
any and all agreements or other writings therefore, or in any way connected
therewith or with my business or property.
xxx
7

Exhibits "7" and "8", ibid., pp. 280-281.

Exhibit "4", ibid., p. 276. The Deed of Sale states in part:

KNOW ALL MEN BY THESE PRESENTS:

That I, MAURICIO BRAVO, of legal age, Filipino, married to SEMONA ANDAYA, and
resident of Makati, Rizal, Philippines, for and in consideration of the amount of
ONE THOUSAND PESOS (P1,000.00), Philippine Currency, and for other valuable
considerations, received from ROLAND A. BRAVO, OFELIA A. BRAVO and
ELIZABETH BRAVO, likewise of legal age, Filipinos, single and residents of Makati,
Rizal, Philippines, to my entire satisfaction, do by these presents CEDE, SELL,
TRANSFER and CONVEY unto said ROLAND A. BRAVO, OFELIA A. BRAVO and
ELIZABETH BRAVO, all my title, rights and interests to two parcels of land, more
particularly described as follows:
T.C.T. No. 58999
xxx
T.C.T. No. 59008 (sic)
xxx
xxx
The condition of this sale is that the vendees ROLAND A. BRAVO, OFELIA A.
BRAVO and ELIZABETH BRAVO will assume the mortage debt pertaoining (sic) to
said parcels of lands with the Philippine National Bank and Development Bank of
the Philippines.
xxx
Note that the Deed of Sale mistakenly refers to T.C.T. No. 59008; the title over
the second lot is actually T.C.T. No. 59000. However, the property description
quoted under "T.C.T. No. 59008" is identical to the description of the property
under T.C.T. No. 59000. No one disputes that "T.C.T. 59008" actually pertains to
T.C.T. No. 59000 and both parties have treated this as a mere typographical
error.
9

Exhibit "6", Records, p. 279.

10

Records, p. 203.

11

Rollo, p. 339-A.

12

Ibid., p. 385.

13

Ibid., p. 443.

14

Ibid., p. 520.

15

Changco v. Court of Appeals, 429 Phil. 336 (2002).

16

Lara, et al. v. Del Rosario, Jr. 94 Phil. 778 (1954).

17

The parties and the lower courts proceeded on the assumption that the
Properties were acquired after 30 August 1950 because TCT Nos. 58999 and
59000 were indeed issued to Mauricio and Simona on 23 May 1958. However,
Mauricio and Simonas conjugal partnership began long before. By World War II,
at least one of their children, Lily Bravo Diaz, was married and with child.
18

See Isabela Colleges, Inc. v. Heirs of Nieves Tolentino-Rivera, 397 Phil. 955
(2000).
19

Vera Cruz v. Calderon, G.R. No. 160748, 14 July 2004, 434 SCRA 534; Heirs of
Ignacia Aguilar-Reyes v. Mijares, G.R. No. 143826, 28 August 2003, 410 SCRA 97;
Heirs of Christina Ayuste v. Court of Appeals, 372 Phil. 370 (1999). Note that
under the more recent Article 124 of the Family Code, the sale of conjugal
partnership property without spousal consent is considered void.
20

Maestrado v. Court of Appeals, 384 Phil. 418 (2000); Loyola v. Court of Appeals,
383 Phil. 171 (2000).
21

TSN, 15 September 1999, pp. 61-62. David Jr. testified as follows:

Atty. Paggao:
Q: Do you know when your grandparent, your grandfather Mauricio died?
Witness:
A: Yes, sir.
Atty. Paggao:
Q: When?
Witness:
A: November 20, 1973, sir.
Atty. Paggao:
Q: And after 1973, was it not a fact that you and your grandmother Semona still
did not go back to Makati and continued to rent in Pasig City?
Witness

A: Yes, sir.
22

Lim Pin v. Liao Tan, et al., 200 Phil. 685 (1982).

23

Ibid.

24

G.R. No. 102737, 21 August 1996, 260 SCRA 593.

25

Exhibit "5" to "5-C", Records, pp. 277-278.

26

Buenaventura v. Court of Appeals, G.R. No. 126376, 20 November 2003, 416

SCRA 263.
27

Civil Code, Article 1061.

28

Ramos v. Heirs of Honorio Ramos, Sr., 431 Phil. 337 (2002).

29

Civil Code, Articles 1352 and 1409.

30

Supra note 26.

31

Loyola v. Court of Appeals, 383 Phil. 171 (2000).

32

Civil Code, Article 1470.

33

Ibid., Article 1355.

34

Exhibit "C", records, p. 230.

35

Exhibit "D", ibid., p. 231.

36

Exhibit "E", ibid., p. 242.

37

Exhibit "F" to "F-8", ibid., pp. 243-251.

38

Exhibit "11", ibid., p. 308.

39

Exhibit "11-a", ibid., p. 309.

40

Rosales v. Court of Appeals, G.R. No. 137566, 28 February 2001, 353 SCRA
179.
41

Supra note 26.

42

Records, p. 340.

43

Exhibits "9" to "9-ppp" and "10" to "10-m", ibid., pp. 283-307.

44

Exhibit "12", ibid., p. 310.

45

Llana v. Court of Appeals, 413 Phil. 329 (2001).

46

Bernardo v. Court of Appeals, 387 Phil. 736 (2000).

47

Llana v. Court of Appeals, supra note 45.

48

Supra, note 28.

49

TSN, 7 December 1999, p. 20. Elizabeth testified that:

Atty. Paggao
Q: What about this Roland A. Bravo, who is that person?
Witness
A: That is our father.
TSN, 8 February 2000, pp. 29-30. Ofelia testified that:
Court:
Ms. Ofelia Bravo, theres [a] Roland Bravo here, in the Deed of Sale in (sic)
assumption of mortgage, who is this Roland Bravo, is he Roland Bravo, Sr., or Jr.?
Witness
A: That is Sr., Your Honor.
xxx
Atty. Cendaa:
So the vendee is your father, and also, two (sic) of your sisters, Lily?
Witness
A: Yes, sir.
50

TSN, 15 September 1999, pp. 49-51.

51

De Guia v. Court of Appeals, G.R. No. 120864, 8 October 2003, 413 SCRA 114.

52

Ibid.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-67889 October 10, 1985
PRIMITIVO SIASAT and MARCELINO SIASAT, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and TERESITA
NACIANCENO, respondents.
Payawal, Jimenez & Associates for petitioners.
Nelson A. Loyola for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review of the decision of the Intermediate Appellate Court
affirming in toto the judgment of the Court of First Instance of Manila, Branch
XXI, which ordered the petitioner to pay respondent the thirty percent (30%)
commission on 15,666 pieces of Philippine flags worth P936,960.00, moral
damages, attorney's fees and the costs of the suit.
Sometime in 1974, respondent Teresita Nacianceno succeeded in convincing
officials of the then Department of Education and Culture, hereinafter called
Department, to purchase without public bidding, one million pesos worth of
national flags for the use of public schools throughout the country. The
respondent was able to expedite the approval of the purchase by hand-carrying
the different indorsements from one office to another, so that by the first week of
September, 1974, all the legal requirements had been complied with, except the
release of the purchase orders. When Nacianceno was informed by the Chief of
the Budget Division of the Department that the purchase orders could not be
released unless a formal offer to deliver the flags in accordance with the required
specifications was first submitted for approval, she contacted the owners of the
United Flag Industry on September 17, 1974. The next day, after the transaction
was discussed, the following document (Exhibit A) was drawn up:
Mrs. Tessie Nacianceno,
This is to formalize our agreement for you to represent United Flag Industry to
deal with any entity or organization, private or government in connection with
the marketing of our products-flags and all its accessories.
For your service, you will be entitled to a commission of thirty
(30%) percent.
Signed
Mr. Primitive Siasat
Owner and Gen. Manager
On October 16, 1974, the first delivery of 7,933 flags was made by the United
Flag Industry. The next day, on October 17, 1974, the respondent's authority to
represent the United Flag Industry was revoked by petitioner Primitivo Siasat.
According to the findings of the courts below, Siasat, after receiving the payment
of P469,980.00 on October 23, 1974 for the first delivery, tendered the amount
of P23,900.00 or five percent (5%) of the amount received, to the respondent as
payment of her commission. The latter allegedly protested. She refused to
accept the said amount insisting on the 30% commission agreed upon. The
respondent was prevailed upon to accept the same, however, because of the
assurance of the petitioners that they would pay the commission in full after they
delivered the other half of the order. The respondent states that she later on

learned that petitioner Siasat had already received payment for the second
delivery of 7,833 flags. When she confronted the petitioners, they vehemently
denied receipt of the payment, at the same time claiming that the respondent
had no participation whatsoever with regard to the second delivery of flags and
that the agency had already been revoked.
The respondent originally filed a complaint with the Complaints and Investigation
Office in Malacaang but when nothing came of the complaint, she filed an
action in the Court of First Instance of Manila to recover the following
commissions: 25%, as balance on the first delivery and 30%, on the second
delivery.
The trial court decided in favor of the respondent. The dispositive portion of the
decision reads as follows:
WHEREFORE, judgment is hereby rendered sentencing Primitivo Siasat to pay to
the plaintiff the sum of P281,988.00, minus the sum P23,900.00, with legal
interest from the date of this decision, and ordering the defendants to pay jointly
and solidarily the sum of P25,000.00 as moral damages, and P25,000.00 as
attorney's fees, also with legal interest from the date of this decision, and the
costs.
The decision was affirmed in toto by the Intermediate Appellate Court. After their
motion for reconsideration was denied, the petitioners went to this Court on a
petition for review on August 6, 1984.
In assailing the appellate court's decision, the petition tenders the following
arguments: first, the authorization making the respondent the petitioner's
representative merely states that she could deal with any entity in connection
with the marketing of their products for a commission of 30%. There was no
specific authorization for the sale of 15,666 Philippine flags to the Department;
second, there were two transactions involved evidenced by the separate
purchase orders and separate delivery receipts, Exhibit 6-C for the purchase and
deliver on October 16, 1974, and Exhibits 7 to 7-C, for the purchase and delivery
on November 6, 1974. The revocation of agency effected by the parties with
mutual consent on October 17, 1974, therefore, forecloses the respondent's
claim of 30% commission on the second transaction; and last, there was no basis
for the granting of attorney's fees and moral damages because there was no
showing of bad faith on the part of the petitioner. It was respondent who showed
bad faith in denying having received her commission on the first delivery. The
petitioner's counterclaim, therefore, should have been granted.
This petition was initially dismissed for lack of merit in a minute resolution.On a
motion for reconsideration, however,this Court give due course to the petition on
November 14, 1984.
After a careful review of the records, we are constrained to sustain with some
modifications the decision of the appellate court.

We find respondent's argument regarding respondent's incapacity to represent

them in the transaction with the Department untenable. There are several kinds
of agents. To quote a commentator on the matter:
An agent may be (1) universal: (2) general, or (3) special. A universal; agent is
one authorized to do all acts for his principal which can lawfully be delegated to
an agent. So far as such a condition is possible, such an agent may be said to
have universal authority. (Mec. Sec. 58).
A general agent is one authorized to do all acts pertaining to a business of a
certain kind or at a particular place, or all acts pertaining to a business of a
particular class or series. He has usually authority either expressly conferred in
general terms or in effect made general by the usages, customs or nature of the
business which he is authorized to transact.
An agent, therefore, who is empowered to transact all the business of his
principal of a particular kind or in a particular place, would, for this reason, be
ordinarily deemed a general agent. (Mec Sec. ,30).
A special agent is one authorized to do some particular act or to act upon some
particular occasion. lie acts usually in accordance with specific instructions or
under limitations necessarily implied from the nature of the act to be done. (Mec.
Sec. 61) (Padilla, Civil Law The Civil Code Annotated, Vol. VI, 1969 Edition, p.
204).
One does not have to undertake a close scrutiny of the document embodying the
agreement between the petitioners and the respondent to deduce that the 'latter
was instituted as a general agent. Indeed, it can easily be seen by the way
general words were employed in the agreement that no restrictions were
intended as to the manner the agency was to be carried out or in the place
where it was to be executed. The power granted to the respondent was so broad
that it practically covers the negotiations leading to, and the execution of, a
contract of sale of petitioners' merchandise with any entity or organization.
There is no merit in petitioners' allegations that the contract of agency between
the parties was entered into under fraudulent representation because
respondent "would not disclose the agency with which she was supposed to
transact and made the petitioner believe that she would be dealing with The
Visayas", and that "the petitioner had known of the transactions and/or project
for the said purchase of the Philippine flags by the Department of Education and
Culture and precisely it was the one being followed up also by the petitioner."
If the circumstances were as claimed by the petitioners, they would have exerted
efforts to protect their interests by limiting the respondent's authority. There was
nothing to prevent the petitioners from stating in the contract of agency that the
respondent could represent them only in the Visayas. Or to state that the
Department of Education and Culture and the Department of National Defense,
which alone would need a million pesos worth of flags, are outside the scope of

the agency. As the trial court opined, it is incredible that they could be so
careless after being in the business for fifteen years.
A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules
of Court states that "when the terms of an agreement have been reduced to
writing, it is to be considered as containing all such terms, and, therefore, there
can be between the parties and their successors-in-interest, no evidence of the
terms of the agreement other than the contents of the writing", except in cases
specifically mentioned in the same rule. Petitioners have failed to show that their
agreement falls under any of these exceptions. The respondent was given ample
authority to transact with the Department in behalf of the petitioners. Equally
without merit is the petitioners' proposition that the transaction involved two
separate contracts because there were two purchase orders and two deliveries.
The petitioners' evidence is overcome by other pieces of evidence proving that
there was only one transaction.
The indorsement of then Assistant Executive Secretary Roberto Reyes to the
Budget Commission on September 3, 1974 (Exhibit "C") attests to the fact that
out of the total budget of the Department for the fiscal year 1975,
"P1,000,000.00 is for the purchase of national flags." This is also reflected in the
Financial and Work Plan Request for Allotment (Exhibit "F") submitted by
Secretary Juan Manuel for fiscal year 1975 which however, divided the allocation
and release of the funds into three, corresponding to the second, third, and
fourth quarters of the said year. Later correspondence between the Department
and the Budget Commission (Exhibits "D" and "E") show that the first allotment
of P500.000.00 was released during the second quarter. However, due to the
necessity of furnishing all of the public schools in the country with the Philippine
flag, Secretary Manuel requested for the immediate release of the programmed
allotments intended for the third and fourth quarters. These circumstances
explain why two purchase orders and two deliveries had to be made on one
transaction.
The petitioners' evidence does not necessarily prove that there were two
separate transactions. Exhibit "6" is a general indorsement made by Secretary
Manuel for the purchase of the national flags for public schools. It contains no
reference to the number of flags to be ordered or the amount of funds to be
released. Exhibit "7" is a letter request for a "similar authority" to purchase flags
from the United Flag Industry. This was, however, written by Dr. Narciso
Albarracin who was appointed Acting Secretary of the Department after
Secretary Manuel's tenure, and who may not have known the real nature of the
transaction.
If the contracts were separate and distinct from one another, the whole or at
least a substantial part of the government's supply procurement process would
have been repeated. In this case, what were issued were mere indorsements for
the release of funds and authorization for the next purchase.
Since only one transaction was involved, we deny the petitioners' contention that
respondent Nacianceno is not entitled to the stipulated commission on the

second delivery because of the revocation of the agency effected after the first
delivery. The revocation of agency could not prevent the respondent from
earning her commission because as the trial court opined, it came too late, the
contract of sale having been already perfected and partly executed.
In Macondray & Co. v. Sellner (33 Phil. 370, 377), a case analogous to this one in
principle, this Court held:
We do not mean to question the general doctrine as to the power of a principal to
revoke the authority of his agent at will, in the absence of a contract fixing the
duration of the agency (subject, however, to some well defined exceptions). Our
ruling is that at the time fixed by the manager of the plaintiff company for the
termination of the negotiations, the defendant real estate agent had already
earned the commissions agreed upon, and could not be deprived thereof by the
arbitrary action of the plaintiff company in declining to execute the contract of
sale for some reason personal to itself.
The principal cannot deprive his agent of the commission agreed upon by
cancelling the agency and, thereafter, dealing directly with the buyer. (Infante v.
Cunanan, 93 Phil. 691).
The appellate courts citation of its previous ruling in Heimbrod et al. v.
Ledesma (C.A. 49 O.G. 1507) is correct:
The appellee is entitled to recovery. No citation is necessary to show that the
general law of contracts the equitable principle of estoppel. and the expense of
another, uphold payment of compensation for services rendered.
There is merit, however, in the petitioners' contention that the agent's
commission on the first delivery was fully paid. The evidence does not sustain
the respondent's claim that the petitioners paid her only 5% and that their right
to collect another 25% commission on the first delivery must be upheld.
When respondent Nacianceno asked the Malacanang Complaints and
Investigation Office to help her collect her commission, her statement under oath
referred exclusively to the 30% commission on the second delivery. The
statement was emphatic that "now" her demand was for the 30% commission on
the (second) release of P469,980.00. The demand letter of the respondent's
lawyer dated November 13, 1984 asked petitioner Siasat only for the 30%
commission due from the second delivery. The fact that the respondent
demanded only the commission on the second delivery without reference to the
alleged unpaid balance which was only slightly less than the amount claimed can
only mean that the commission on the first delivery was already fully paid,
Considering the sizeable sum involved, such an omission is too glaringly remiss
to be regarded as an oversight.
Moreover, the respondent's authorization letter (Exhibit "5") bears her signature
with the handwritten words "Fully Paid", inscribed above it.

The respondent contested her signature as a forgery, Handwriting experts from

two government agencies testified on the matter. The reason given by the trial
court in ruling for the respondent is too flimsy to warrant a finding of forgery.
The court stated that in thirteen documents presented as exhibits, the private
respondent signed her name as "Tessie Nacianceno" while in this particular
instance, she signed as "T. Nacianceno."
The stated basis is inadequate to sustain the respondent's allegation of forgery. A
variance in the manner the respondent signed her name can not be considered
as conclusive proof that the questioned signature is a forgery. The mere fact that
the respondent signed thirteen documents using her full name does not rule out
the possibility of her having signed the notation "Fully Paid", with her initial for
the given came and the surname written in full. What she was signing was a
mere acknowledgment.
This leaves the expert testimony as the sole basis for the verdict of forgery.
In support of their allegation of full payment as evidenced by the signed
authorization letter (Exhibit "5-A"), the petitioners presented as witness Mr.
Francisco Cruz. Jr., a senior document examiner of the Philippine Constabulary
Crime laboratory. In rebuttal, the respondent presented Mr. Arcadio Ramos, a
junior document examiner of the National Bureau of Investigation.
While the experts testified in a civil case, the principles in criminal cases
involving forgery are applicable. Forgery cannot be presumed. It must be proved.
In Borromeo v. Court of Appeals (131 SCRA 318, 326) we held that:
xxx xxx xxx
... Where the evidence, as here, gives rise to two probabilities, one consistent
with the defendant's innocence and another indicative of his guilt, that which is
favorable to the accused should be considered. The constitutional presumption of
innocence continues until overthrown by proof of guilt beyond reasonable doubt,
which requires moral certainty which convinces and satisfies the reason and
conscience of those who are to act upon it. (People v. Clores, et al., 125 SCRA 67;
People v. Bautista, 81 Phil. 78).
We ruled in another case that where the supposed expert's testimony would
constitute the sole ground for conviction and there is equally convincing expert
testimony to the contrary, the constitutional presumption of innocence must
prevail. (Lorenzo Ga. Cesar v. Hon. Sandiganbayan and People of the Philippines,
134 SCRA 105). In the present case, the circumstances earlier mentioned taken
with the testimony of the PC senior document examiner lead us to rule against
forgery.
We also rule against the respondent's allegation that the petitioners acted in bad
faith when they revoked the agency given to the respondent.

Fraud and bad faith are matters not to be presumed but matters to be alleged
with sufficient facts. To support a judgment for damages, facts which justify the
inference of a lack or absence of good faith must be alleged and proven.
(Bacolod-Murcia Milling Co., Inc. vs. First Farmers Milling Co., Inc., Etc., 103 SCRA
436).
There is no evidence on record from which to conclude that the revocation of the
agency was deliberately effected by the petitioners to avoid payment of the
respondent's commission. What appears before us is only the petitioner's use in
court of such a factual allegation as a defense against the respondent's claim.
This alone does not per se make the petitioners guilty of bad faith for that
defense should have been fully litigated.
Moral damages cannot be awarded in the absence of a wrongful act or omission
or of fraud or bad faith. (R & B Surety & Insurance Co., Inc. vs. Intermediate
Appellate Court, 129 SCRA 736).
We therefore, rule that the award of P25,000.00 as moral damages is without
basis.
The additional award of P25,000.00 damages by way of attorney's fees, was
given by the courts below on the basis of Article 2208, Paragraph 2, of the Civil
Code, which provides: "When the defendant's act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to protect his
interests;" attorney's fees may be awarded as damages. (Pirovano et al. v. De la
Rama Steamship Co., 96 Phil. 335).
The underlying circumstances of this case lead us to rule out any award of
attorney's fees. For one thing, the respondent did not come to court with
completely clean hands. For another, the petitioners apparently believed they
could legally revoke the agency in the manner they did and deal directly with
education officials handling the purchase of Philippine flags. They had reason to
sincerely believe they did not have to pay a commission for the second delivery
of flags.
We cannot close this case without commenting adversely on the inexplicably
strange procurement policies of the Department of Education and Culture in its
purchase of Philippine flags. There is no reason why a shocking 30% of the
taxpayers' money should go to an agent or facilitator who had no flags to sell
and whose only work was to secure and handcarry the indorsements of
education and budget officials. There are only a few manufacturers of flags in our
country with the petitioners claiming to have supplied flags for our public schools
on earlier occasions. If public bidding was deemed unnecessary, the Department
should have negotiated directly with flag manufacturers. Considering the sad
plight of underpaid and overworked classroom teachers whose pitiful salaries
and allowances cannot sometimes be paid on time, a P300,000.00 fee for a
P1,000,000.00 purchase of flags is not only clearly unnecessary but a scandalous
waste of public funds as well.

WHEREFORE, the decision of the respondent court is hereby MODIFIED. The

petitioners are ordered to pay the respondent the amount of ONE HUNDRED
FOURTY THOUSAND NINE HUNDRED AND NINETY FOUR PESOS (P140,994.00) as
her commission on the second delivery of flags with legal interest from the date
of the trial court's decision. No pronouncement as to costs.
SO ORDERED.
Relova, De la Fuente and Patajo, JJ., concur.
Melencio-Herrera, J., is on leave.
Plana, J., took no part.
Teehankee, J., Let copy hereof be furnished the Commission on Audit for
appropriate remedial action, as it may take.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-57339 December 29, 1983
AIR FRANCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A.
GANA, RAMON GANA, MANUEL GANA, MARIA TERESA GANA, ROBERTO
GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE AREVALO, and EMILY SAN
JUAN, respondents.
Benjamin S. Valte for petitioner.
Napoleon Garcia for private respondents.

MELENCIO-HERRERA, J.:
In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision
of then respondent Court of Appeals 1 promulgated on 15 December 1980 in CAG.R. No. 58164-R, entitled "Jose G. Gana, et al. vs. Sociedad Nacionale Air
France", which reversed the Trial Court's judgment dismissing the Complaint of
private respondents for damages arising from breach of contract of carriage, and
awarding instead P90,000.00 as moral damages.
Sometime in February, 1970, the late Jose G. Gana and his family, numbering
nine (the GANAS), purchased from AIR FRANCE through Imperial Travels,
Incorporated, a duly authorized travel agent, nine (9) "open-dated" air passage
tickets for the Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of
US$2,528.85 for their economy and first class fares. Said tickets were bought at

the then prevailing exchange rate of P3.90 per US$1.00. The GANAS also paid
travel taxes of P100.00 for each passenger.
On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned
tickets with other tickets for the same route. At this time, the GANAS were
booked for the Manila/Osaka segment on AIR FRANCE Flight 184 for 8 May 1970,
and for the Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22 May 1970.
The aforesaid tickets were valid until 8 May 1971, the date written under the
printed words "Non valuable apres de (meaning, "not valid after the").
The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the assistance of Teresita
Manucdoc, a Secretary of the Sta. Clara Lumber Company where Jose Gana was
the Director and Treasurer, for the extension of the validity of their tickets, which
were due to expire on 8 May 1971. Teresita enlisted the help of Lee Ella Manager
of the Philippine Travel Bureau, who used to handle travel arrangements for the
personnel of the Sta. Clara Lumber Company. Ella sent the tickets to Cesar Rillo,
Office Manager of AIR FRANCE. The tickets were returned to Ella who was
informed that extension was not possible unless the fare differentials resulting
from the increase in fares triggered by an increase of the exchange rate of the
US dollar to the Philippine peso and the increased travel tax were first paid. Ella
then returned the tickets to Teresita and informed her of the impossibility of
extension.
In the meantime, the GANAS had scheduled their departure on 7 May 1971 or
one day before the expiry date. In the morning of the very day of their scheduled
departure on the first leg of their trip, Teresita requested travel agent Ella to
arrange the revalidation of the tickets. Ella gave the same negative answer and
warned her that although the tickets could be used by the GANAS if they left on 7
May 1971, the tickets would no longer be valid for the rest of their trip because
the tickets would then have expired on 8 May 1971. Teresita replied that it will be
up to the GANAS to make the arrangements. With that assurance, Ella on his
own, attached to the tickets validating stickers for the Osaka/Tokyo flight, one a
JAL. sticker and the other an SAS (Scandinavian Airways System) sticker. The SAS
sticker indicates thereon that it was "Reevaluated by: the Philippine Travel
Bureau, Branch No. 2" (as shown by a circular rubber stamp) and signed "Ador",
and the date is handwritten in the center of the circle. Then appear under printed
headings the notations: JL. 108 (Flight), 16 May (Date), 1040 (Time), OK (status).
Apparently, Ella made no more attempt to contact AIR FRANCE as there was no
more time.
Notwithstanding the warnings, the GANAS departed from Manila in the afternoon
of 7 May 1971 on board AIR FRANCE Flight 184 for Osaka, Japan. There is no
question with respect to this leg of the trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to
honor the tickets because of their expiration, and the GANAS had to purchase
new tickets. They encountered the same difficulty with respect to their return trip

to Manila as AIR FRANCE also refused to honor their tickets. They were able to
return only after pre-payment in Manila, through their relatives, of the readjusted
rates. They finally flew back to Manila on separate Air France Frights on 19 May
1971 for Jose Gana and 26 May 1971 for the rest of the family.
On 25 August 1971, the GANAS commenced before the then Court of First
Instance of Manila, Branch III, Civil Case No. 84111 for damages arising from
breach of contract of carriage.
AIR FRANCE traversed the material allegations of the Complaint and alleged that
the GANAS brought upon themselves the predicament they found themselves in
and assumed the consequential risks; that travel agent Ella's affixing of
validating stickers on the tickets without the knowledge and consent of AIR
FRANCE, violated airline tariff rules and regulations and was beyond the scope of
his authority as a travel agent; and that AIR FRANCE was not guilty of any
fraudulent conduct or bad faith.
On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and
Additional Stipulations of Fact as wen as on the documentary and testimonial
evidence.
The GANAS appealed to respondent Appellate Court. During the pendency of the
appeal, Jose Gana, the principal plaintiff, died.
On 15 December 1980, respondent Appellate Court set aside and reversed the
Trial Court's judgment in a Decision, which decreed:
WHEREFORE, the decision appealed from is set aside. Air France is hereby
ordered to pay appellants moral damages in the total sum of NINETY THOUSAND
PESOS (P90,000.00) plus costs.
SO ORDERED.

Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse

before this instance, to which we gave due course.
The crucial issue is whether or not, under the environmental milieu the GANAS
have made out a case for breach of contract of carriage entitling them to an
award of damages.
We are constrained to reverse respondent Appellate Court's affirmative ruling
thereon.
Pursuant to tariff rules and regulations of the International Air Transportation
Association (IATA), included in paragraphs 9, 10, and 11 of the Stipulations of
Fact between the parties in the Trial Court, dated 31 March 1973, an airplane
ticket is valid for one year. "The passenger must undertake the final portion of his
journey by departing from the last point at which he has made a voluntary stop
before the expiry of this limit (parag. 3.1.2. ) ... That is the time allowed a
passenger to begin and to complete his trip (parags. 3.2 and 3.3.). ... A ticket can
no longer be used for travel if its validity has expired before the passenger

completes his trip (parag. 3.5.1.) ... To complete the trip, the passenger must
purchase a new ticket for the remaining portion of the journey" (ibid.) 3
From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach
of contract when it dishonored the tickets of the GANAS after 8 May 1971 since
those tickets expired on said date; nor when it required the GANAS to buy new
tickets or have their tickets re-issued for the Tokyo/Manila segment of their trip.
Neither can it be said that, when upon sale of the new tickets, it imposed
additional charges representing fare differentials, it was motivated by selfinterest or unjust enrichment considering that an increase of fares took effect, as
authorized by the Civil Aeronautics Board (CAB) in April, 1971. This procedure is
well in accord with the IATA tariff rules which provide:
6. TARIFF RULES
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
All journeys must be charged for at the fare (or charge) in effect on the date on
which transportation commences from the point of origin. Any ticket sold prior to
a change of fare or charge (increase or decrease) occurring between the date of
commencement of the journey, is subject to the above general rule and must be
adjusted accordingly. A new ticket must be issued and the difference is to be
collected or refunded as the case may be. No adjustment is necessary if the
increase or decrease in fare (or charge) occurs when the journey is already
commenced. 4
The GANAS cannot defend by contending lack of knowledge of those rules since
the evidence bears out that Teresita, who handled travel arrangements for the
GANAS, was duly informed by travel agent Ella of the advice of Reno, the Office
Manager of Air France, that the tickets in question could not be extended beyond
the period of their validity without paying the fare differentials and additional
travel taxes brought about by the increased fare rate and travel taxes.
ATTY. VALTE
Q What did you tell Mrs. Manucdoc, in turn after being told this by Mr. Rillo?
A I told her, because that is the reason why they accepted again the tickets when
we returned the tickets spin, that they could not be extended. They could be
extended by paying the additional fare, additional tax and additional exchange
during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ...

The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court
of Appeals, 65 SCRA 237 (1975), holding that it would be unfair to charge
respondents therein with automatic knowledge or notice of conditions in

contracts of adhesion, is inapplicable. To all legal intents and purposes, Teresita

was the agent of the GANAS and notice to her of the rejection of the request for
extension of the validity of the tickets was notice to the GANAS, her principals.
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing
reservations for JAL. Flight 108 for 16 May 1971, without clearing the same with
AIR FRANCE allegedly because of the imminent departure of the GANAS on the
same day so that he could not get in touch with Air France 6 was certainly in
contravention of IATA rules although as he had explained, he did so upon
Teresita's assurance that for the onward flight from Osaka and return, the GANAS
would make other arrangements.
Q Referring you to page 33 of the transcript of the last session, I had this
question which reads as follows: 'But did she say anything to you when you said
that the tickets were about to expire?' Your answer was: 'I am the one who asked
her. At that time I told her if the tickets being used ... I was telling her what about
their bookings on the return. What about their travel on the return? She told me
it is up for the Ganas to make the arrangement.' May I know from you what did
you mean by this testimony of yours?
A That was on the day when they were asking me on May 7, 1971 when they
were checking the tickets. I told Mrs. Manucdoc that I was going to get the
tickets. I asked her what about the tickets onward from the return from Tokyo,
and her answer was it is up for the Ganas to make the arrangement, because I
told her that they could leave on the seventh, but they could take care of that
when they arrived in Osaka.
Q What do you mean?
A The Ganas will make the arrangement from Osaka, Tokyo and Manila.
Q What arrangement?
A The arrangement for the airline because the tickets would expire on May 7, and
they insisted on leaving. I asked Mrs. Manucdoc what about the return onward
portion because they would be travelling to Osaka, and her answer was, it is up
to for the Ganas to make the arrangement.
Q Exactly what were the words of Mrs. Manucdoc when you told her that? If you
can remember, what were her exact words?
A Her words only, it is up for the Ganas to make the arrangement.
Q This was in Tagalog or in English?
A I think it was in English. ...

The circumstances that AIR FRANCE personnel at the ticket counter in the airport
allowed the GANAS to leave is not tantamount to an implied ratification of travel
agent Ella's irregular actuations. It should be recalled that the GANAS left in
Manila the day before the expiry date of their tickets and that "other

arrangements" were to be made with respect to the remaining segments.

Besides, the validating stickers that Ella affixed on his own merely reflect the
status of reservations on the specified flight and could not legally serve to
extend the validity of a ticket or revive an expired one.
The conclusion is inevitable that the GANAS brought upon themselves the
predicament they were in for having insisted on using tickets that were due to
expire in an effort, perhaps, to beat the deadline and in the thought that by
commencing the trip the day before the expiry date, they could complete the trip
even thereafter. It should be recalled that AIR FRANCE was even unaware of the
validating SAS and JAL. stickers that Ella had affixed spuriously. Consequently,
Japan Air Lines and AIR FRANCE merely acted within their contractual rights when
they dishonored the tickets on the remaining segments of the trip and when AIR
FRANCE demanded payment of the adjusted fare rates and travel taxes for the
Tokyo/Manila flight.
WHEREFORE, the judgment under review is hereby reversed and set aside, and
the Amended Complaint filed by private respondents hereby dismissed.
No costs.
SO ORDERED.
Teehankee (Chairman), Plana, Relova and Gutierrez, Jr., JJ., concur.

Footnotes
1 Seventh Division composed of J. Guillermo P. Villasor, ponente concurred in by
JJ. Venicio Escolin and Onofre A. Villaluz.
2 p. 62, Rollo.
3 3.1.2 The time allowed a passenger to complete his journey calculated from
the date of comencement of the journey, but exclusive of that date. The
passenger must undertake the final portion of his journey by departing from the
last point at which he has made a voluntary stop before the expiry of this limit,
regardless of whether this last segment is covered by a single or several flight
coupons.
xxx xxx xxx
3.2 Time allowed a passenger to begin his trip.
As a rule, ONE YEAR. It may be modified by periods during which fares or
reductions granted
3.3 Time allowed a passenger to complete his trip.
In principle, ONE YEAR. It may be modified by periods during which fares or
reductions granted are applicable.

xxx xxx xxx

3.5 Extensions of validity.
3.5.1 A ticket can no longer be used for travel if its validity has expired before
the passenger completes his trip. It can only be refunded in Accordance with
normal refund regulations. To complete the trip, the passenger must purchase a
new ticket for the remaining portion of the journey.
4 p. 195, Folder of Exhibits.
5 T.s.n., Disposition of Lee Ella May 15, 1972, p. 7.
6 T.s.n., Ibid., p. 20.
7 T.s.n., Ibid., pp. 28-29.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-29264

August 29, 1969

BARBARA RODRIGUEZ, petitioner,

vs.
HON. COURT OF APPEALS (Second Division, composed of JUSTICES JUAN
P. ENRIQUEZ, HERMOGENES CONCEPCION, JR. and EDILBERTO SORIANO),
ATANACIO VALENZUELA, MAXIMINA VICTORIO, LIBERATA SANTOS,
NIEVES CRUZ, substituted by her heirs, ARSENIO, JAYME, ANDRES, NELO
and AMANDA, all surnamed NERY, and CARMEN and ARSENIA, both
surnamed MENDOZA, respondents.
Fortunato de Leon for petitioner.
Sycip, Salazar, Luna, Manalo and Feliciano for respondent Atanacio Valenzuela.
San Juan, Africa, Gonzales and San Agustin for respondent Nieves Cruz.
CASTRO, J.:
For a clear understanding of the issues posed by the present petition
for mandamus and certiorari with preliminary injunction, we hereunder quote the
statement of the case and the findings of fact made by the Court of Appeals in its
decision dated October 4, 1967 in CA-G.R. 35084-R, as well as the dispositive
portion of the said decision:
On December 31, 1958, in Paraaque, Rizal, by virtue of a document
denominated "Kasunduan" written in the vernacular and ratified before Notary
Public Lazaro C. Ison of that locality, Nieves Cruz, now deceased, authorized the
spouses Atanacio Valenzuela, and Maximina Victorio and Liberate Santos to sell a
certain parcel of land of about 44,634 square meters belonging to her and
situated in Sitio Matatdo, Barrio San Dionisio, Paraaque, Rizal, the identity of

which is not now in dispute. Among, the anent conditions of this authority were
that the price payable to Nieves Cruz for the land would be P1.60 per square
meter and any overprice would pertain to the agents; that Nieves Cruz would
receive from said agents, by way of advance payment on account of the
purchase price to be paid by whomsoever may buy the land, the sum of
P10,000.00 upon the execution of the agreement aforesaid, and another
P10,000.00 on January 5, 1959; that the balance on the total purchase price
would be payable to Nieves Cruz upon the issuance of the Torrens title over the
property, the obtention of which was undertaken by the agents who also were
bound to advance the expense therefor in the sum of P4,000.00 which would be
deductible from the last amount due on the purchase price; and that should the
agent find no buyer by the time that Torrens title is issued, Nieves Cruz reserved
the right to look for a buyer herself although all sums already received from the
agents would be returned to them without interest.
As confirmed by Nieves Cruz in a "recibo", Exhibit 2, bearing the date "...
ng Enero ng 1959," the stipulated "advance payment (paunang bayad)" of
P20,000.00 was duly made to her. Contrary to the agreement that the balance on
the purchase price would be paid upon the issuance of the Torrens title over the
land (September 9, 1960), Nieves Cruz and her children, however, collected from
the agents, either thru Maximina Victorio or thru Salud G. de Leon, daughter of
Liberate Santos, various sums of money during the period from July 3, 1959 up to
September 3, 1961, all of which were duly receipted for by Nieves Cruz and/or
her children and in which receipts it is expressly stated that said amounts were
"bilang karagdagan sa ipinagbili naming lupa sa kanila (additional payments for
the land we sold to them)", Exhibits 12, 12-a to 12-z-1. These totalled P27,198.60
which with the P20,000.00 previously paid amounted to P47,198.60.
Meanwhile, proceedings to place the land under the operation of the
Torrens system were initiated. In due season, the registration court finding a
registrable title in the name of the applicants, Emilio Cruz and Nieves Cruz, but
that
"... the applicant Nieves Cruz has likewise sold her one-half (1/2) undivided
share to the spouses Atanacio Valenzuela and Maxima (Maximina) Victorio and to
Liberata Santos from whom she had received partial payments thereof in the
sum of P22,000.00;" (Exhibit 4-a).
decreed, on July 15, 1960, the registration of the land in the names of the
applicants aforesaid
"Subject ... to the rights of the spouses Atanacio Valenzuela and Maximina
Victorio and to Liberata Santos over the one-half share of Nieves Cruz of the
parcel of land for which the latter was paid P22,000.00 as partial payment
thereof." (Exhibit 4).
The judgment aforesaid having become final, the corresponding Original
Certificate of Title No. 2488 of the Registry of Deeds of Rizal was, on September

9, 1960, duly entered and issued to the applicants aforesaid, subject, amongst
others, to the limitation heretofore stated.
Eventually, pursuant to a partition between Nieves Cruz and her brother,
Emilio Cruz, by virtue of which the entire land was subdivided into two lots of
48,260 square meters each, Original Transfer of Title No. 2488 was cancelled and
superseded by two new transfer certificates respectively covering the two subdivided lots, that which pertained to Nieves Cruz, Lot A (LRC) Psd-13106, being
covered by Transfer Certificate of Title No. 80110 issued on October 3, 1960. Said
title carried over the annotation heretofore mentioned respecting the rights of
Atanacio Valenzuela and Maximina Victorio and Liberata Santos over the portion
covered thereby. (Exhibits 6 and 6-a).
Then, on September 15, 1961, Nieves Cruz sold the property in question to
Barbara Lombos Rodriguez, her "balae" because the latter's son was married to
her daughter, for the sum of P77,216.00 (Exhibit J). In consequence, Transfer
Certificate of Title No. 80110 in the name of Nieves Cruz was cancelled and, in
lieu thereof, Transfer Certificate of Title No. 91135 was issued in the name of
Barbara Lombos Rodriguez (Exhibit I) which likewise carried over the annotation
respecting the rights of Atanacio Valenzuela, Maximina Victorio and Liberata
Santos over the property covered thereby.
Forthwith, on September 16, 1961, Nieves Cruz, through counsel, gave
notice to Atanacio Valenzuela, Maximina Victorio and Liberata Santos of her
decision to rescind the original agreement heretofore adverted to, enclosing with
said notice Bank of America check for P48,338.60, representing sums advanced
by the latter which were tendered to be returned. Atanacio Valenzuela, Maximina
Victorio and Liberata Santos, through counsel, balked at the attempt at
rescission, denying non-compliance with their undertaking inasmuch as, per
agreement, the balance on the purchase price for the land was not due until
after the 1962 harvest. They, accordingly, returned Nieves Cruz' check.
Thus rebuffed, plaintiff Nieves Cruz hailed defendants Atanacio Valenzuela,
Maximina Victorio and Liberate Santos before the Rizal Court in the instant action
for rescission of the "Kasunduan" heretofore adverted to, the cancellation of the
annotation on the title to the land respecting defendant's right thereto, and for
damages and attorney's fees. In their return to the complaint, defendants
traversed the material averments thereof, contending principally that the
agreement sought to be rescinded had since been novated by a subsequent
agreement whereunder they were to buy the property directly. They also
impleaded Barbara Lomboa Rodriguez on account of the sale by the plaintiff to
her of the subject property and interposed a counterclaim against both plaintiff
and Rodriguez for the annulment of the sale of the land to the latter, as well as
the transfer certificate of title issued in her favor consequent thereto and the
reconveyance of the land in their favor, and also for damages and attorney's
fees.
Pending the proceedings below, plaintiff Nieves Cruz died and was,
accordingly, substituted as such by her surviving children, to wit: Arsenio, Nelo,

Jaime, Andres and Amanda, all surnamed Nery, and Carmen and Armenia both
surnamed Mendoza.
In due season, the trial court finding for plaintiff Nieves Cruz and her
buyer, Barbara Lombos Rodriguez, and against defendants rendered judgment
thus
"IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered (1)
Ordering the cancellation at the back of Transfer Certificate of Title No. 91135 of
the Register of Deeds of Rizal, stating that the land covered thereby was sold to
the defendants; (2) Ordering the defendants to pay to the plaintiff, jointly and
severally the sum of P67,564.00 as actual damages and P5,000.00 by way of
attorney's fees; (3) Dismissing the defendants counterclaim; and (4) Ordering the
defendants to pay the costs of this suit jointly and severally."
xxx

xxx

xxx

We find no obstacle to appellants' purchase of the land in the prohibition

against an agent buying the property of his principal entrusted to him for sale.
With the agreement of Nieves Cruz to sell the land directly to said appellants, her
agents originally, it cannot seriously be contended that the purchase of the land
by appellants was, without the express consent of the principal Nieves Cruz.
Accordingly, that purchase is beyond the coverage of the prohibition.
By and large, we are satisfied from a meticulous assay of the evidence at
bar that the contract of sale over the land subsequently made by Nieves Cruz in
favor of appellants was duly and satisfactorily proved. No showing having been
made by appellees to warrant the rescission of that contract, the attempt of such
rescission is legally untenable and necessarily futile. The specific performance of
that contract is under the circumstances, legally compellable.
Considering that the rights of appellants, as such purchasers of the portion
corresponding to Nieves Cruz, is a matter of official record in the latter's
certificate of title over the land the annotation of which was authorized by the
decision of the registration court and which annotation was duly carried over in
the subsequent titles issued therefor, including that issued in the name of
appellee Rodriguez said appellee must be conclusively presumed to have been
aware, as indeed she was, of the prior rights acquired by appellants over the said
portion. Said appellee's acquisition of the land from Nieves Cruz remains subject,
and must yield, to the superior rights of appellants. Appellee Rodriguez cannot
seek refuge behind the protection afforded by the Land Registration Act to
purchasers in good faith and for value. Aware as she was of the existence of the
annotated prior rights of appellants, she cannot now be heard to claim a right
better than that of her grantor, Nieves Cruz. Her obligation to reconvey the land
to the appellants is thus indubitable.
xxx

xxx

xxx

WHEREFORE, the judgment appealed from is hereby REVERSED in toto,

and, in lieu thereof, another is hereby rendered:

(1) Setting aside and annulling the deed of sale, Exhibit J, executed by
plaintiff in favor of Barbara Lombos Rodriguez;
(2) Declaring defendant-appellee Barbara Lombos Rodriguez divested of
title over the property covered by TCT No. 91135 of the Register of Deeds of Rizal
and title thereto vested in defendants-appellants upon payment of the latter to
appellee Rodriguez of the sum of P28,877.40, representing the balance of the
agreed purchase price due on the property minus P13,000.00 awarded under
paragraph (4) within 90 days after this decision shall have become final, and
ordering the Register of Deeds of Rizal to cancel TCT No. 91135 and issue in lieu
thereof a new certificate of title in favor of appellants, upon payment of
corresponding fees;
(3) Ordering plaintiffs and defendant Barbara Lombos Rodriguez to deliver
to the defendants-appellants possession of the property aforementioned; and
(4) Ordering appellees jointly and severally to pay to defendantsappellants the sum of P5,000.00 as temperate damages, P3,000.00 as moral
damages and P5,000.00 as attorney's fees plus costs. These amounts shall be
deducted from the P28,877.40 appellants are required to pay to Rodriguez under
paragraph (2) hereof.
This case is before us for the second time. In L-28462, the heirs of Nieves
Cruz and the present petitioner (Barbara Lombos Rodriguez) filed a joint petition
for certiorari as an original action under Rule 65 and, simultaneously, as an
appeal under Rule 45. As the former, it sought redress against the refuse of the
respondent Court of Appeals to consider a motion for reconsideration filed
beyond the reglementary period. As the latter, it sought a review of the
respondent Court's findings of fact and conclusions of law. On January 3, 1968 we
denied the joint petition; the joint petition was thereafter amended, and this
amended petition we likewise denied on January 26, 1968; on February 20, 1968
we denied the motion for reconsideration filed solely by Rodriguez.
On July 20, 1968, Rodriguez alone filed the present petition for mandamus
and certiorari. She prays for the issuance of a writ of preliminary injunction to
restrain the respondents from enforcing the decision of the Court of Appeals in
CA-G.R. 35084-R and from entering into any negotiation or transaction or
otherwise exercising acts of ownership over the parcel of land covered by
transfer certificate of title 91135 issued by the Register of Deeds of Rizal. She
also prays that preliminary injunction issue to restrain the Register of Deeds of
Rizal from registering any documents affecting the subject parcel of land. No
injunction, however, was issued by us.
The petition in the present case, L-29264, while again assailing the
findings of fact and conclusions of law made by the respondent Court, adds two
new grounds. The first is the allegation that the land involved in CA-G.R. 35084-R
has a value in excess of P200,000. The petitioner complains that the Court of
Appeals should have certified the appeal to us, pursuant to section 3 of Rule 50
in relation to section 17(5) of the Judiciary Act of 1948, 1 as she had asked the

said Court to do in her supplemental motion of June 14, 1968. The second ground
is the claim that the Court of Appeals gravely abused its discretion in denying
her May 14, 1968 motion for new trial, based on alleged newly discovered
evidence.
In their answer, Atanacio Valenzuela, Maximina Victorio and Liberata
Santos allege that the findings of fact made by the Court of Appeals in its
decision of October 4, 1967 are substantiated by the record and the conclusions
of law are supported by applicable laws and jurisprudence, and, moreover, that
these findings are no longer open to review inasmuch as the said decision has
become final and executory, the period of appeal provided in Rule 45 having
expired. Atanacio Valenzuela, et al. also maintain that the land in litigation had a
value of less than P200,000, according to the records of the case, when their
appeal from the decision of the Court of First Instance of Rizal in civil case 6901
was perfected; that the petitioner's motion for new trial in the Court of Appeals
was filed out of time; and that the petitioner is estopped from questioning the
jurisdiction of the Court of Appeals in the matter of the value of the land in
controversy. Two grounds for the defense of estoppel are offered by Atanacio
Valenzuela, et al. One is that the petitioner speculated in obtaining a favorable
judgment in the Court of Appeals by submitting herself to the jurisdiction of the
said Court and she cannot now therefore be allowed to attack its jurisdiction
when the judgment turned out to be unfavorable. The other is that the
petitioner's laches made possible the sale in good faith by Atanacio Valenzuela,
et al., of the land in litigation to Emilio and Isidro Ramos, in whose names the
land is at present registered under transfer certificate of title 229135 issued on
September 25, 1968 by the Register of Deeds of Rizal.
The heirs of Nieves Cruz filed an answer unqualifiedly admitting the basic
allegations of the petition, except as to the value of the land, as to which they
are non-committal.
It is our considered view that the petitioner's claim of grave abuse by the
respondent Court in denying her motion for new trial is devoid of merit. It is not
disputed that, on the assumption that the respondent Court had jurisdiction over
the appeal, the petitioner had already lost her right to appeal from the decision
of October 4, 1967 when the petition in L-28462 was filed in January 1968. It
logically follows that the case had passed the stage for new trial on newly
discovered evidence when the petitioner filed her motion for new trial on May 14,
1968.
Two issues remain, to wit, (1) the value of the land in controversy; and (2)
estoppel.
At the time appeal was taken to the Court of Appeals. section 17(5) of the
Judiciary Act of 1948, as amended, provided:
The Supreme Court shall have exclusive jurisdiction to review, revise,
reverse modify or affirm on appeal, certiorari or writ of error, as the law or rules

of court may provide, final judgments and decrees of inferior courts as herein
provided, in
xxx

xxx

xxx

(5) All civil cases in which the value in controversy exceeds two hundred
thousand pesos, exclusive of interests and costs or in which the title or
possession of real estate exceeding in value the sum of two hundred thousand
pesos to be ascertained by the oath of a party to the cause or by other
competent evidence, is involved or brought in question. The Supreme Court shall
likewise have exclusive jurisdiction over all appeals in civil cases, even though
the value in controversy, exclusive of interests and costs, is two hundred
thousand pesos or less, when the evidence involved in said cases is the same as
the evidence submitted in an appealed civil case within the exclusive jurisdiction
of the Supreme Court as provided herein.
The petitioner would have us believe that, other than a realtor's sworn
statement dated June 14, 1968, which was filed with the respondent Court
together with her supplemental motion, there is nothing in the records that
would indicate the value of the litigated parcel. We disagree. The "Kasunduan"
(annex A to the petition) dated December 31, 1958 executed by and between
Nieves Cruz and Atanacio Valenzuela, et al. fixed the value of the land (of an area
of 44,634 square meters) at P1.60 per square meter. The decision (annex B) of
the Court of First Instance of Rizal dated August 12, 1964 assessed the value of
the land at P3.00 per square meter. The decision (annex D) dated October 4,
1967 of the respondent Court of Appeals pointed out that the consideration
stated in the deed of sale of the land executed by Nieves Cruz in favor of
Rodriguez, the petitioner herein, is P77,216. Moreover, until June 14, 1968, no
party to the cause questioned the valuation of P3.00 per square meter made by
the trial court. The records, therefore, overwhelmingly refute the petitioner's
allegation. They also prove that the value of the entire parcel of land had been
impliedly admitted by the parties as being below P200,000.
Granting arguendo, however, that the value of the land in controversy is in
excess of P200,000, to set aside at this stage all proceedings had before the
Court of Appeals in CA-G.R. 35084-R, and before this Court in L-28462, would
violate all norms of justice and equity and contravene public policy. The appeal
from the decision of the Court of First Instance of Rizal was pending before the
respondent Court during the period from 1964 until October 4, 1967, when on
the latter date it was decided in favor of the appellants and against the petitioner
herein and the heirs of Nieves Cruz. Yet, the appellees therein did not raise the
issue of jurisdiction. The joint petition in L-28462 afforded the petitioner herein
the opportunity to question the jurisdiction of the respondent Court. Again, the
value of the land in controversy, was not questioned by the petitioners, not even
in their amended joint petition. It was not until June 14, 1968 that the petitioner
herein filed with the respondent Court a supplemental motion wherein she raised
for the first time the issue of value and questioned the validity of the final
decision of the respondent Court on the jurisdictional ground that the real estate

involved has a value in excess of P200,000. That the petitioner's present counsel
became her counsel only in May, 1968 provides no excuse for the petitioner's
failure to exercise due diligence for over three years to discover that the land has
a value that would oust the respondent Court of jurisdiction. The fact remains
that the petitioner had allowed an unreasonable period of time to lapse before
she raised the question of value and jurisdiction, and only after and because the
respondent Court had decided the case against her. The doctrine of estoppel by
laches bars her from now questioning the jurisdiction of the Court of Appeals.
The learned disquisition of Mr. Justice Arsenio P. Dizon, speaking for this
Court in Serafin Tijam, et al. vs. Magdaleno Sibonghanoy, et al. (L-21450, April
15, 1968), explained, in unequivocal terms, the reasons why, in a case like the
present, a losing party cannot be permitted to belatedly raise the issue of
jurisdiction.
A party may be estopped or barred from raising a question in different
ways and for different reasons. Thus we speak of estoppel in pais, of estoppel by
deed or by record, and of estoppel by laches.
Laches, in a general sense, is 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.
The doctrine of laches or of "stale demands" is based upon grounds of
public policy which requires, for the peace of society, the discouragement of
stale claims and, unlike the statute of limitation is not a mere question of time
but is principally a question of the inequity or unfairness of permitting a right or
claim to be enforced or asserted.
It has been held that a party cannot invoke the jurisdiction of a court to
secure affirmative relief against his opponent and, after obtaining or failing to
obtain such relief, repudiate or question that same jurisdiction (Dean vs. Dean,
136 Or. 694, 86 A. L. R. 79). In the case just cited, by way of explaining the rule,
it was further said that the question whether the court had jurisdiction either of
the subject matter of the action or of the parties was not important in such cases
because the party is barred from such conduct not because the judgment or
order of the court is valid and conclusive as an adjudication, but for the reason
that such a practice cannot be tolerated obviously for reasons of public policy.
Furthermore, it has also been held that after voluntarily submitting a cause
and encountering an adverse decision on the merits, it is too late for the loser to
question the jurisdiction or power of the court (Pease vs. Rathbun-Jones, etc.,
243 U.S. 273, 61 L. Ed. 715, 37 S. Ct. 283; St. Louis, etc. vs. McBride, 141 U.S.
127, 35 L. Ed. 659). And in Littleton vs. Burgess, 16 Wyo 58, the Court said that it
is not right for a party who has affirmed and invoked the jurisdiction of a court in
a particular matter to secure an affirmative relief, to afterwards deny that same
jurisdiction to escape a penalty.

Upon this same principle is what We said in the three cases mentioned in
the resolution of the Court of Appeals of May 20, 1963 (supra) to the effect
that we frown upon the "undesirable practice" of a party submitting his case for
decision and then accepting the judgment, only if favorable, and attacking it for
lack of jurisdiction, when adverse as well as in Pindagan etc. vs. Dans, et
al., G.R. L-14591, September 26, 1962; Montelibano, et al. vs. Bacolod-Murcia
Milling Co., Inc., G.R. L-15092; Young Men Labor Union, etc. vs. The Court of
Industrial Relations, et al., G.R. No.
L-20307, Feb. 26, 1965; and Mejia vs. Lucas, 100 Phil. p. 277.
We do not here rule that where the pleadings or other documents in the
records of a case state a value of a real estate in controversy, a party to the
cause may not show that the true value thereof is more or is less than that
stated in the records. Section 17(5) of the Judiciary Act of 1948 precisely allows a
party to submit a sworn statement of such higher or lower value. This is not to
say, of course, that the court is bound by a party's sworn statement, for where
more than one party submit materially differing statements of value, or where a
party's sworn statement conflicts with other competent evidence, the true value
is to be determined by the trial court as an issue of fact before it.
The time when the issue of the value of a real estate in controversy is to
be resolved is prior to, or simultaneously with, the approval of the record on
appeal and appeal bond, for it is upon the perfection of the appeal that the
appellate court acquires jurisdiction over the case (Rule 41, section 9). It is at
this time that a party to the cause, be he the intended appellant or the intended
appellee, must raise the issue of value before the trial court, for said court to
allow appeal involving a question of fact either to this Court or to the Court of
Appeals, depending on its finding on the value of the realty. Failure to raise this
issue before the trial court amounts to a submission of the issue solely on the
basis of the pleadings and evidence a quo and is equivalent to a waiver of the
right to present the statement under oath or to adduce the other competent
evidence referred to in section 17(b) of the Judiciary Act of 1948.
A contrary rule would be disastrous. For one thing, to allow a party to
present proof of value before an appellate court would be to convert the said
court to a trial court. For another thing, the value of real estate may change
between the perfection of an appeal and the receipt of the record or the
payment of the appellate court docket fee; hence, it is best, for stability, to have
the value determined at the precise instant when the trial court must decide to
which appellate court the appeal should be made and not at some uncertain time
thereafter. Worse yet, to permit a party to prove before the Court of Appeals or
before us, after a decision on the merits has been rendered, that a real estate in
controversy exceeds, or does not exceed P200,000 in value, would be to
encourage speculation by litigants; for, a losing party can be expected to raise
the issue of value of the realty to show that it is in excess of P200,000 if the
unfavorable judgment is rendered by the Court of Appeals, or to show that it
does not exceed P200,000 if the unfavorable judgment is rendered by this Court,
in an attempt to litigate the merits of the case all over again. 2

In the case at bar, the records as of the perfection of the appeal on

August 12, 1964 show that the litigated real estate had a value not in excess
of P200,000. Conformably with the Judiciary Act of 1948, therefore, the appeal
from the decision of the Court of First Instance of Rizal in civil case 6901 was
within the jurisdiction of the Court of Appeals.
Other issues, both of fact and of law, are raised in the pleadings.
Considering our conclusion that the respondent Court had jurisdiction over the
appeal, it is not necessary to discuss, much less resolve, any of those other
issues. However, because the petitioner and the heirs of Nieves Cruz have
hammered on the twin issues of the existence of an oral contract of sale and of
the efficacy of an oral novatory contract of sale, a brief discussion of these issues
would not be amiss.
The agency agreement of December 31, 1958 is not impugned by any of
the parties. Nieves Cruz, however, asserted that the agency remained in force
until she rescinded it on September 16, 1961 by notice to that effect to Atanacio
Valenzuela, et al., tendering with the said notice the return, in check, of the sum
of P48,338.60 which she had received from Atanacio Valenzuela, et al. The
defendants, upon the other hand, contend that the agency agreement was
novated by a contract of sale in their favor and that the balance of the purchase
price was not due until after the 1962 harvest. Rodriguez, when impleaded by
Atanacio Valenzuela, et al., denied that she was a buyer in bad faith from Nieves
Cruz.
The parties and the lower courts are agreed that Nieves Cruz had received
P20,000 from Atanacio Valenzuela, et al., by January 5, 1959 and that the
payment of this total sum was in accordance with the agency agreement. The
parties and the lower courts, however, are at variance on the basis or reason for
the subsequent payments. The petitioner herein, the heirs of Nieves Cruz and the
Court of First Instance of Rizal take the position that the payments after January
5, 1959 were received by Nieves Cruz as partial or installment payments of the
purchase price on the representations of Atanacio Valenzuela, et al., that they
had a buyer for the property from whom these payments came, all pursuant to
the agency agreement. The respondents Atanacio Valenzuela, et al., on the other
hand, assert that those amounts were paid by them, as disclosed buyers, to
Nieves Cruz and her children, pursuant to a novatory verbal contract of sale
entered into with Nieves Cruz, subsequent to the agency agreement and prior to
the issuance of the decree of registration of July 15, 1960.
It is thus clear that the decisive issues are (a) whether or not Nieves Cruz
did agree to sell to Atanacio Valenzuela, et al., the litigated parcel of land
sometime after January 5, 1959, and (b) whether or not the said agreement is
enforceable or can be proved under the law. The fact that Atanacio Valenzuela, et
al. were agents of Nieves Cruz under the agency agreement of December 31,
1958 is not material, for if it is true that Nieves Cruz did agree to sell to her
agents the real estate subject of the agency, her consent took the transaction
out of the prohibition contained in article 1491(2) of the Civil Code. Neither are

articles 1874 and 1878(5) and (12) of the Civil Code relevant, for they refer to
sales made by an agent for a principal and not to sales made by the owner
personally to another, whether that other be acting personally or through a
representative.
Was there a novatory oral contract to sell entered into by Nieves in favor
of Atanacio Valenzuela, et al.? In resolving this question, the respondent Court
pointed to significant facts and circumstances sustaining an affirmative answer.
Cited by the Court of Appeals is the testimony of Andres Nery, a successorin-interest of Nieves Cruz and a substitute plaintiff upon Nieves Cruz' death, to
the effect that after they had gone to the defendants several times, they were
told that the buyer was Salud de Leon. This witness also said, according to the
transcript cited by the respondent Court, that they were paid little by little and
had been paid a grand total of P48,000. The respondent Court likewise adverted
to the receipts (exhibits L-12 to L-22, exhibit L-24, exhibit L-26, and exhibits 12,
12-a to 12-z-1) signed by Nieves Cruz and/or her children and concluded that on
the faces of these receipts it is clear that the amounts therein stated were in
payment by Atanacio Valenzuela, et al. of the land which the recipients had sold
to them ("ipinagbile naming lupa sa kanila"). Of incalculable significance is the
notation in the original certificate of title and in the transfer certificate of title in
the name of Nieves Cruz which, in unambiguous language, recorded Nieves Cruz'
sale of her interest in the land to Atanacio Valenzuela, et al. If that notation were
inaccurate or false, Nieves Cruz would not have remained unprotesting for over a
year after the entry of the decree of registration in July, 1960, nor would she and
her children have received 13 installment payments totalling P19,963 during the
period from September 9, 1960 to September 3, 1961.
Salud de Leon, it should be borne in mind, is the husband of Rogaciano F.
de Leon and the daughter of the defendant Liberata Santos. It should likewise be
remembered that, as remarked by the trial court, Salud de Leon testified that it
was she who had the oral agreement with Nieves Cruz for the purchase by
Atanacio Valenzuela, et al. of the litigated property and, as found by the
respondent Court, Salud de Leon was the representative of Atanacio Valenzuela,
et al., not of Nieves Cruz.
We conclude, therefore, that there is substantial evidence in the record
sustaining the finding of the respondent Court that the parties to the agency
agreement subsequently entered into a new and different contract by which the
landowner, Nieves Cruz, verbally agreed to sell her interest in the litigated real
estate to Atanacio Valenzuela, et al.
A legion of receipts there are of payments of the purchase price signed by
Nieves Cruz. True, these receipts do not state all the basic elements of a contract
of sale, for they do not expressly identify the object nor fix a price or the manner
of fixing the price. The parties, however, are agreed at least the plaintiff has
not questioned the defendants' claim to this effect that the object of the sale
referred to in the receipts is Nieves Cruz' share in the land she co-owned with her
brother Emilio and that the price therefor is P1.60 per square meter. At all

events, by failing to object to the presentation of oral evidence to prove the sale
and by accepting from the defendants a total of P27,198.60 after January 5,
1959, the plaintiff thereby ratified the oral contract, conformably with article
1405 of the Civil Code, and removed the partly executed agreement from the
operation of the Statute of Frauds. And, finally, the sale was established and
recognized in the land registration proceedings wherein the land court, in its
decision, categorically stated:
[T]he applicant Nieves Cruz has likewise sold her one-half () undivided
share to the spouses Atanacio Valenzuela and Maximina Victorio and Liberata
Santos from whom she had received partial payment thereof in the sum of
P22,000.00.
The pertinent certificates of title bear the annotation of the aforesaid right
of Atanacio Valenzuela, et al. The final decision of the land court to the effect
that Nieves Cruz had sold her undivided share to Atanacio Valenzuela, et al., and
had received a partial payment of P22,000 is now beyond judicial review, and,
because a land registration case is a proceeding in rem, binds even Rodriguez.
Rodriguez nevertheless insist that despite the rescission by the Court of
Appeals of her purchase from Nieves Cruz, the said respondent Court did not
order Nieves Cruz to return the P77,216 which she had received from her. While
mutual constitution follows rescission of a contract (article 1385, Civil Code), the
respondent Court should not be blamed for omitting to order Nieves Cruz to
restore what she had received from the petitioner on account of the rescinded
contract of sale. In the first place, in the pleadings filed before the trial court,
Rodriguez made no claim for restitution against Nieves Cruz or her heirs. In the
second place, Nieves Cruz died in the course of the proceedings below and was
substituted by her heirs who, necessarily, can be held individually liable for
restitution only to the extent that they inherited from her.
Nevertheless, inasmuch as rescission of the contract between Nieves Cruz
and the petitioner herein was decreed by the respondent Court, the latter should
be entitled to restitution as a matter of law. It is of no moment that herein
petitioner did not file any cross-claim for restitution against the plaintiff, for her
answer was directed to the defendants' claim which was in the nature of a thirdparty complaint. She was neither a co-defendant nor a co-third-party defendant
with Nieves Cruz; nor were Nieves Cruz and the herein petitioner opposing
parties a quo, for they joined in maintaining the validity of their contract. Section
4 of Rule 9, therefore, has no application to the petitioner's right to restitution.
We declare, consequently, that the estate of Nieves Cruz is liable to
Barbara Lombos Rodriguez for the return to the latter of the sum of P77,216, less
the amount which Atanacio Valenzuela, et al. had deposited with the trial court in
accordance with the decision of respondent Court. We cannot order the heirs of
Nieves Cruz to make the refund. As we observed above, these heirs are liable for
restitution only to the extent of their individual inheritance from Nieves Cruz.
Other actions or proceedings have to be commenced to determine the liability
accruing to each of the heirs of Nieves Cruz.

ACCORDINGLY, the present petition for mandamus and certiorari is denied,

at petitioner's cost.
1wph1.t
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Capistrano, Teehankee
and Barredo, JJ., concur.
Fernando, J., took no part.
Reyes, J.B.L., J., is on leave.
Footnotes
1

The entire discussion on the issue of value in this decision has as its frame of
reference section 17(5) of the Judiciary Act of 1948, infra, before its total
elimination by Republic Act 5440 which went into effect on September 9, 1968.
As the law stands today, all appeal from decisions in civil cases involving
property or money claims, regardless of the value or amount in controversy,
must now be taken to the Court of Appeals, provided that such appeals do not
pose only errors or questions of law. Whatever pronouncements are made in this
decision in reference to the said section 17(5) of the Judiciary Act of 1948 must
be taken as applicable only to appeals (similar to the case at bar) which were
perfected prior to the date of effectivity of Republic Act 5440.
2

It may be asked: what happens if, contrary to the express or implied finding of a
trial court, the Court of Appeals or this Court finds that the value of real estate in
controversy in an appeal from a trial court on matters of fact and law or fact
alone, exceeds the value of P200,000 or does not exceed such value, as the case
may be? The answer is not difficult. If the appeal is made to the Court of Appeals,
but on the basis of the records a quo, including any sworn statement by a party
to the cause or other evidence submitted before perfection of the appeal, the
realty should appear to have a value in excess of P200,000, the Court of Appeals
shall certify the appeal to the Supreme Court pursuant to section 3 of Rule 50
and we may or may not accede to the certification depending on our finding on
the value. However, a party litigant may raise the issue of value in a preliminary
motion or in his brief on the basis solely of the records a quo, again including
whatever sworn statement or other competent evidence of value may have been
submitted before the perfection of the appeal; and if he does that but the Court
of Appeals rules that it has jurisdiction over the controversy because of its
finding that the realty has a value not in excess of P200,000, the finding of value
is reviewable by us on an original action for mandamus or certiorari, for this
factual matter is indispensably involved in the issue of jurisdiction. If, on the
other hand, the appeal is made to us but, on the same basis as above, the realty
should appear to have a value not in excess of P200,000, we will remand the
appeal to the Court of Appeals, and our finding on value, though one of fact, will
be binding upon the Court of Appeals.
In resume, the value of real estate, the title or possession of which is
involved or brought in question should, for purposes of determining which
appellate court has jurisdiction over the appeal, be based solely on the

pleadings, sworn statement or other competent evidence already in the records

of the case at the time the appeal is perfected.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 157493

February 5, 2007

RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and

FERNANDO, ERNESTO, LEONORA, BIBIANO, JR., LIBRADO and
ENRIQUETA, all surnamed OESMER, Petitioners,
vs.
PARAISO DEVELOPMENT CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure seeking to reverse and set aside the Court of
Appeals Decision1 dated 26 April 2002 in CA-G.R. CV No. 53130 entitled, Rizalino,
Ernesto, Leonora, Bibiano, Jr., Librado, Enriqueta, Adolfo, and Jesus, all surnamed
Oesmer vs. Paraiso Development Corporation, as modified by its
Resolution2 dated 4 March 2003, declaring the Contract to Sell valid and binding
with respect to the undivided proportionate shares of the six signatories of the
said document, herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino,
Bibiano, Jr., and Leonora (all surnamed Oesmer); and ordering them to execute
the Deed of Absolute Sale concerning their 6/8 share over the subject parcels of
land in favor of herein respondent Paraiso Development Corporation, and to pay
the latter the attorneys fees plus costs of the suit. The assailed Decision, as
modified, likewise ordered the respondent to tender payment to the petitioners
in the amount of P3,216,560.00 representing the balance of the purchase price
of the subject parcels of land.
The facts of the case are as follows:
Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, and Enriqueta, all
surnamed Oesmer, together with Adolfo Oesmer (Adolfo) and Jesus Oesmer
(Jesus), are brothers and sisters, and the co-owners of undivided shares of two
parcels of agricultural and tenanted land situated in Barangay Ulong Tubig,
Carmona, Cavite, identified as Lot 720 with an area of 40,507 square meters (sq.
m.) and Lot 834 containing an area of 14,769 sq. m., or a total land area of
55,276 sq. m. Both lots are unregistered and originally owned by their parents,
Bibiano Oesmer and Encarnacion Durumpili, who declared the lots for taxation
purposes under Tax Declaration No. 34383(cancelled by I.D. No. 6064-A) for Lot
720 and Tax Declaration No. 34374 (cancelled by I.D. No. 5629) for Lot 834. When

the spouses Oesmer died, petitioners, together with Adolfo and Jesus, acquired
the lots as heirs of the former by right of succession.
Respondent Paraiso Development Corporation is known to be engaged in the real
estate business.
Sometime in March 1989, Rogelio Paular, a resident and former Municipal
Secretary of Carmona, Cavite, brought along petitioner Ernesto to meet with a
certain Sotero Lee, President of respondent Paraiso Development Corporation, at
Otani Hotel in Manila. The said meeting was for the purpose of brokering the sale
of petitioners properties to respondent corporation.
Pursuant to the said meeting, a Contract to Sell 5 was drafted by the Executive
Assistant of Sotero Lee, Inocencia Almo. On 1 April 1989, petitioners Ernesto and
Enriqueta signed the aforesaid Contract to Sell. A check in the amount
of P100,000.00, payable to Ernesto, was given as option money. Sometime
thereafter, Rizalino, Leonora, Bibiano, Jr., and Librado also signed the said
Contract to Sell. However, two of the brothers, Adolfo and Jesus, did not sign the
document.
On 5 April 1989, a duplicate copy of the instrument was returned to respondent
corporation. On 21 April 1989, respondent brought the same to a notary public
for notarization.
In a letter6 dated 1 November 1989, addressed to respondent corporation,
petitioners informed the former of their intention to rescind the Contract to Sell
and to return the amount of P100,000.00 given by respondent as option money.
Respondent did not respond to the aforesaid letter. On 30 May 1991, herein
petitioners, together with Adolfo and Jesus, filed a Complaint 7 for Declaration of
Nullity or for Annulment of Option Agreement or Contract to Sell with Damages
before the Regional Trial Court (RTC) of Bacoor, Cavite. The said case was
docketed as Civil Case No. BCV-91-49.
During trial, petitioner Rizalino died. Upon motion of petitioners, the trial court
issued an Order,8 dated 16 September 1992, to the effect that the deceased
petitioner be substituted by his surviving spouse, Josefina O. Oesmer, and his
children, Rolando O. Oesmer and Fernando O. Oesmer. However, the name of
Rizalino was retained in the title of the case both in the RTC and the Court of
Appeals.
After trial on the merits, the lower court rendered a Decision 9 dated 27 March
1996 in favor of the respondent, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
herein [respondent] Paraiso Development Corporation. The assailed Contract to
Sell is valid and binding only to the undivided proportionate share of the
signatory of this document and recipient of the check, [herein petitioner] coowner Ernesto Durumpili Oesmer. The latter is hereby ordered to execute the
Contract of Absolute Sale concerning his 1/8 share over the subject two parcels

of land in favor of herein [respondent] corporation, and to pay the latter the
attorneys fees in the sum of Ten Thousand (P10,000.00) Pesos plus costs of suit.
The counterclaim of [respondent] corporation is hereby Dismissed for lack of
merit.10
Unsatisfied, respondent appealed the said Decision before the Court of Appeals.
On 26 April 2002, the appellate court rendered a Decision modifying the Decision
of the court a quo by declaring that the Contract to Sell is valid and binding with
respect to the undivided proportionate shares of the six signatories of the said
document, herein petitioners, namely: Ernesto, Enriqueta, Librado, Rizalino,
Bibiano, Jr., and Leonora (all surnamed Oesmer). The decretal portion of the said
Decision states that:
WHEREFORE, premises considered, the Decision of the court a quo is hereby
MODIFIED. Judgment is hereby rendered in favor of herein [respondent] Paraiso
Development Corporation. The assailed Contract to Sell is valid and binding with
respect to the undivided proportionate share of the six (6) signatories of this
document, [herein petitioners], namely, Ernesto, Enriqueta, Librado, Rizalino,
Bibiano, Jr., and Leonora (all surnamed Oesmer). The said [petitioners] are
hereby ordered to execute the Deed of Absolute Sale concerning their 6/8 share
over the subject two parcels of land and in favor of herein [respondent]
corporation, and to pay the latter the attorneys fees in the sum of Ten Thousand
Pesos (P10,000.00) plus costs of suit. 11
Aggrieved by the above-mentioned Decision, petitioners filed a Motion for
Reconsideration of the same on 2 July 2002. Acting on petitioners Motion for
Reconsideration, the Court of Appeals issued a Resolution dated 4 March 2003,
maintaining its Decision dated 26 April 2002, with the modification that
respondent tender payment to petitioners in the amount of P3,216,560.00,
representing the balance of the purchase price of the subject parcels of land. The
dispositive portion of the said Resolution reads:
WHEREFORE, premises considered, the assailed Decision is hereby
modified.1awphi1.net Judgment is hereby rendered in favor of herein
[respondent] Paraiso Development Corporation. The assailed Contract to Sell is
valid and binding with respect to the undivided proportionate shares of the six
(6) signatories of this document, [herein petitioners], namely, Ernesto, Enriqueta,
Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed Oesmer). The said
[petitioners] are hereby ordered to execute the Deed of Absolute Sale concerning
their 6/8 share over the subject two parcels of land in favor of herein
[respondent] corporation, and to pay the latter attorneys fees in the sum of Ten
Thousand Pesos (P10,000.00) plus costs of suit. Respondent is likewise ordered
to tender payment to the above-named [petitioners] in the amount of Three
Million Two Hundred Sixteen Thousand Five Hundred Sixty Pesos (P3,216,560.00)
representing the balance of the purchase price of the subject two parcels of
land. 12
Hence, this Petition for Review on Certiorari.

Petitioners come before this Court arguing that the Court of Appeals erred:
I. On a question of law in not holding that, the supposed Contract to Sell (Exhibit
D) is not binding upon petitioner Ernesto Oesmers co-owners (herein petitioners
Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora).
II. On a question of law in not holding that, the supposed Contract to Sell (Exhibit
D) is void altogether considering that respondent itself did not sign it as to
indicate its consent to be bound by its terms. Moreover, Exhibit D is really a
unilateral promise to sell without consideration distinct from the price, and
hence, void.
Petitioners assert that the signatures of five of them namely: Enriqueta, Librado,
Rizalino, Bibiano, Jr., and Leonora, on the margins of the supposed Contract to
Sell did not confer authority on petitioner Ernesto as agent to sell their respective
shares in the questioned properties, and hence, for lack of written authority from
the above-named petitioners to sell their respective shares in the subject parcels
of land, the supposed Contract to Sell is void as to them. Neither do their
signatures signify their consent to directly sell their shares in the questioned
properties. Assuming that the signatures indicate consent, such consent was
merely conditional. The effectivity of the alleged Contract to Sell was subject to a
suspensive condition, which is the approval of the sale by all the co-owners.
Petitioners also assert that the supposed Contract to Sell (Exhibit D), contrary to
the findings of the Court of Appeals, is not couched in simple language.
They further claim that the supposed Contract to Sell does not bind the
respondent because the latter did not sign the said contract as to indicate its
consent to be bound by its terms. Furthermore, they maintain that the supposed
Contract to Sell is really a unilateral promise to sell and the option money does
not bind petitioners for lack of cause or consideration distinct from the purchase
price.
The Petition is bereft of merit.
It is true that the signatures of the five petitioners, namely: Enriqueta, Librado,
Rizalino, Bibiano, Jr., and Leonora, on the Contract to Sell did not confer authority
on petitioner Ernesto as agent authorized to sell their respective shares in the
questioned properties because of Article 1874 of the Civil Code, which expressly
provides that:
Art. 1874. When a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing; otherwise, the sale shall be
void.
The law itself explicitly requires a written authority before an agent can sell an
immovable. The conferment of such an authority should be in writing, in as clear
and precise terms as possible. It is worth noting that petitioners signatures are
found in the Contract to Sell. The Contract is absolutely silent on the
establishment of any principal-agent relationship between the five petitioners

and their brother and co-petitioner Ernesto as to the sale of the subject parcels
of land. Thus, the Contract to Sell, although signed on the margin by the five
petitioners, is not sufficient to confer authority on petitioner Ernesto to act as
their agent in selling their shares in the properties in question.
However, despite petitioner Ernestos lack of written authority from the five
petitioners to sell their shares in the subject parcels of land, the supposed
Contract to Sell remains valid and binding upon the latter.
As can be clearly gleaned from the contract itself, it is not only petitioner Ernesto
who signed the said Contract to Sell; the other five petitioners also personally
affixed their signatures thereon. Therefore, a written authority is no longer
necessary in order to sell their shares in the subject parcels of land because, by
affixing their signatures on the Contract to Sell, they were not selling their shares
through an agent but, rather, they were selling the same directly and in their
own right.
The Court also finds untenable the following arguments raised by petitioners to
the effect that the Contract to Sell is not binding upon them, except to Ernesto,
because: (1) the signatures of five of the petitioners do not signify their consent
to sell their shares in the questioned properties since petitioner Enriqueta merely
signed as a witness to the said Contract to Sell, and that the other petitioners,
namely: Librado, Rizalino, Leonora, and Bibiano, Jr., did not understand the
importance and consequences of their action because of their low degree of
education and the contents of the aforesaid contract were not read nor explained
to them; and (2) assuming that the signatures indicate consent, such consent
was merely conditional, thus, the effectivity of the alleged Contract to Sell was
subject to a suspensive condition, which is the approval by all the co-owners of
the sale.
It is well-settled that contracts are perfected by mere consent, upon the
acceptance by the offeree of the offer made by the offeror. From that moment,
the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may
be in keeping with good faith, usage and law. To produce a contract, the
acceptance must not qualify the terms of the offer. However, the acceptance
may be express or implied. For a contract to arise, the acceptance must be made
known to the offeror. Accordingly, the acceptance can be withdrawn or revoked
before it is made known to the offeror. 13
In the case at bar, the Contract to Sell was perfected when the petitioners
consented to the sale to the respondent of their shares in the subject parcels of
land by affixing their signatures on the said contract. Such signatures show their
acceptance of what has been stipulated in the Contract to Sell and such
acceptance was made known to respondent corporation when the duplicate copy
of the Contract to Sell was returned to the latter bearing petitioners signatures.
As to petitioner Enriquetas claim that she merely signed as a witness to the said
contract, the contract itself does not say so. There was no single indication in the

said contract that she signed the same merely as a witness. The fact that her
signature appears on the right-hand margin of the Contract to Sell is
insignificant. The contract indisputably referred to the "Heirs of Bibiano and
Encarnacion Oesmer," and since there is no showing that Enriqueta signed the
document in some other capacity, it can be safely assumed that she did so as
one of the parties to the sale.
Emphasis should also be given to the fact that petitioners Ernesto and Enriqueta
concurrently signed the Contract to Sell. As the Court of Appeals mentioned in its
Decision,14 the records of the case speak of the fact that petitioner Ernesto,
together with petitioner Enriqueta, met with the representatives of the
respondent in order to finalize the terms and conditions of the Contract to Sell.
Enriqueta affixed her signature on the said contract when the same was drafted.
She even admitted that she understood the undertaking that she and petitioner
Ernesto made in connection with the contract. She likewise disclosed that
pursuant to the terms embodied in the Contract to Sell, she updated the
payment of the real property taxes and transferred the Tax Declarations of the
questioned properties in her name.15 Hence, it cannot be gainsaid that she
merely signed the Contract to Sell as a witness because she did not only actively
participate in the negotiation and execution of the same, but her subsequent
actions also reveal an attempt to comply with the conditions in the said contract.
With respect to the other petitioners assertion that they did not understand the
importance and consequences of their action because of their low degree of
education and because the contents of the aforesaid contract were not read nor
explained to them, the same cannot be sustained.
We only have to quote the pertinent portions of the Court of Appeals Decision,
clear and concise, to dispose of this issue. Thus,
First, the Contract to Sell is couched in such a simple language which is
undoubtedly easy to read and understand. The terms of the Contract, specifically
the amount of P100,000.00 representing the option money paid by [respondent]
corporation, the purchase price of P60.00 per square meter or the total amount
ofP3,316,560.00 and a brief description of the subject properties are wellindicated thereon that any prudent and mature man would have known the
nature and extent of the transaction encapsulated in the document that he was
signing.
Second, the following circumstances, as testified by the witnesses and as can be
gleaned from the records of the case clearly indicate the [petitioners] intention
to be bound by the stipulations chronicled in the said Contract to Sell.
As to [petitioner] Ernesto, there is no dispute as to his intention to effect the
alienation of the subject property as he in fact was the one who initiated the
negotiation process and culminated the same by affixing his signature on the
Contract to Sell and by taking receipt of the amount of P100,000.00 which
formed part of the purchase price.

xxxx
As to [petitioner] Librado, the [appellate court] finds it preposterous that he
willingly affixed his signature on a document written in a language (English) that
he purportedly does not understand. He testified that the document was just
brought to him by an 18 year old niece named Baby and he was told that the
document was for a check to be paid to him. He readily signed the Contract to
Sell without consulting his other siblings. Thereafter, he exerted no effort in
communicating with his brothers and sisters regarding the document which he
had signed, did not inquire what the check was for and did not thereafter ask for
the check which is purportedly due to him as a result of his signing the said
Contract to Sell. (TSN, 28 September 1993, pp. 22-23)
The [appellate court] notes that Librado is a 43 year old family man (TSN, 28
September 1993, p. 19). As such, he is expected to act with that ordinary degree
of care and prudence expected of a good father of a family. His unwitting
testimony is just divinely disbelieving.
The other [petitioners] (Rizalino, Leonora and Bibiano Jr.) are likewise bound by
the said Contract to Sell. The theory adopted by the [petitioners] that because of
their low degree of education, they did not understand the contents of the said
Contract to Sell is devoid of merit. The [appellate court] also notes that Adolfo
(one of the co-heirs who did not sign) also possess the same degree of education
as that of the signing co-heirs (TSN, 15 October 1991, p. 19). He, however, is
employed at the Provincial Treasury Office at Trece Martirez, Cavite and has even
accompanied Rogelio Paular to the Assessors Office to locate certain missing
documents which were needed to transfer the titles of the subject properties.
(TSN, 28 January 1994, pp. 26 & 35) Similarly, the other co-heirs [petitioners],
like Adolfo, are far from ignorant, more so, illiterate that they can be extricated
from their obligations under the Contract to Sell which they voluntarily and
knowingly entered into with the [respondent] corporation.
The Supreme Court in the case of Cecilia Mata v. Court of Appeals (207 SCRA 753
[1992]), citing the case of Tan Sua Sia v. Yu Baio Sontua (56 Phil. 711),
instructively ruled as follows:
"The Court does not accept the petitioners claim that she did not understand the
terms and conditions of the transactions because she only reached Grade Three
and was already 63 years of age when she signed the documents. She was
literate, to begin with, and her age did not make her senile or incompetent. x x x.
At any rate, Metrobank had no obligation to explain the documents to the
petitioner as nowhere has it been proven that she is unable to read or that the
contracts were written in a language not known to her. It was her responsibility
to inform herself of the meaning and consequence of the contracts she was
signing and, if she found them difficult to comprehend, to consult other persons,
preferably lawyers, to explain them to her. After all, the transactions involved not
only a few hundred or thousand pesos but, indeed, hundreds of thousands of
pesos.

As the Court has held:

x x x The rule that one who signs a contract is presumed to know its contents
has been applied even to contracts of illiterate persons on the ground that if
such persons are unable to read, they are negligent if they fail to have the
contract read to them. If a person cannot read the instrument, it is as much his
duty to procure some reliable persons to read and explain it to him, before he
signs it, as it would be to read it before he signed it if he were able to do and his
failure to obtain a reading and explanation of it is such gross negligence as will
estop from avoiding it on the ground that he was ignorant of its contents."16
That the petitioners really had the intention to dispose of their shares in the
subject parcels of land, irrespective of whether or not all of the heirs consented
to the said Contract to Sell, was unveiled by Adolfos testimony as follows:
ATTY. GAMO: This alleged agreement between you and your other brothers and
sisters that unless everybody will agree, the properties would not be sold, was
that agreement in writing?
WITNESS: No sir.
ATTY. GAMO: What you are saying is that when your brothers and sisters except
Jesus and you did not sign that agreement which had been marked as [Exhibit]
"D", your brothers and sisters were grossly violating your agreement.
WITNESS: Yes, sir, they violated what we have agreed upon. 17
We also cannot sustain the allegation of the petitioners that assuming the
signatures indicate consent, such consent was merely conditional, and that, the
effectivity of the alleged Contract to Sell was subject to the suspensive condition
that the sale be approved by all the co-owners. The Contract to Sell is clear
enough. It is a cardinal rule in the interpretation of contracts 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. 18 The terms of the
Contract to Sell made no mention of the condition that before it can become
valid and binding, a unanimous consent of all the heirs is necessary. Thus, when
the language of the contract is explicit, as in the present case, leaving no doubt
as to the intention of the parties thereto, the literal meaning of its stipulation is
controlling.
In addition, the petitioners, being owners of their respective undivided shares in
the subject properties, can dispose of their shares even without the consent of all
the co-heirs. Article 493 of the Civil Code expressly provides:
Article 493. Each co-owner shall have the full ownership of his part and of the
fruits and benefits pertaining thereto, and he may therefore alienate, assign or
mortgage it, and even substitute another person in its enjoyment, except when
personal rights are involved. But the effect of the alienation or the mortgage,
with respect to the co-owners, shall be limited to the portion which may be

allotted to him in the division upon the termination of the co-ownership.

[Emphases supplied.]
Consequently, even without the consent of the two co-heirs, Adolfo and Jesus,
the Contract to Sell is still valid and binding with respect to the 6/8 proportionate
shares of the petitioners, as properly held by the appellate court.
Therefore, this Court finds no error in the findings of the Court of Appeals that all
the petitioners who were signatories in the Contract to Sell are bound thereby.
The final arguments of petitioners state that the Contract to Sell is void
altogether considering that respondent itself did not sign it as to indicate its
consent to be bound by its terms; and moreover, the Contract to Sell is really a
unilateral promise to sell without consideration distinct from the price, and
hence, again, void. Said arguments must necessarily fail.
The Contract to Sell is not void merely because it does not bear the signature of
the respondent corporation. Respondent corporations consent to be bound by
the terms of the contract is shown in the uncontroverted facts which established
that there was partial performance by respondent of its obligation in the said
Contract to Sell when it tendered the amount of P100,000.00 to form part of the
purchase price, which was accepted and acknowledged expressly by petitioners.
Therefore, by force of law, respondent is required to complete the payment to
enforce the terms of the contract. Accordingly, despite the absence of
respondents signature in the Contract to Sell, the former cannot evade its
obligation to pay the balance of the purchase price.
As a final point, the Contract to Sell entered into by the parties is not a unilateral
promise to sell merely because it used the word option money when it referred to
the amount of P100,000.00, which also form part of the purchase price.
Settled is the rule that in the interpretation of contracts, the ascertainment of the
intention of the contracting parties is to be discharged by looking to the words
they used to project that intention in their contract, all the words, not just a
particular word or two, and words in context, not words standing alone. 19
In the instant case, the consideration of P100,000.00 paid by respondent to
petitioners was referred to as "option money." However, a careful examination of
the words used in the contract indicates that the money is not option money
but earnest money. "Earnest money" and "option money" are not the same but
distinguished thus: (a) earnest money is part of the purchase price, while option
money is the money given as a distinct consideration for an option contract; (b)
earnest money is given only where there is already a sale, while option money
applies to a sale not yet perfected; and, (c) when earnest money is given, the
buyer is bound to pay the balance, while when the would-be buyer gives option
money, he is not required to buy, but may even forfeit it depending on the terms
of the option.20
The sum of P100,000.00 was part of the purchase price. Although the same was
denominated as "option money," it is actually in the nature of earnest money or

down payment when considered with the other terms of the contract. Doubtless,
the agreement is not a mere unilateral promise to sell, but, indeed, it is a
Contract to Sell as both the trial court and the appellate court declared in their
Decisions.
WHEREFORE, premises considered, the Petition is DENIED, and the Decision and
Resolution of the Court of Appeals dated 26 April 2002 and 4 March 2003,
respectively, are AFFIRMED, thus, (a) the Contract to Sell isDECLARED valid
and binding with respect to the undivided proportionate shares in the subject
parcels of land of the six signatories of the said document, herein petitioners
Ernesto, Enriqueta, Librado, Rizalino, Bibiano, Jr., and Leonora (all surnamed
Oesmer); (b) respondent is ORDERED to tender payment to petitioners in the
amount ofP3,216,560.00 representing the balance of the purchase price for the
latters shares in the subject parcels of land; and (c) petitioners are
further ORDERED to execute in favor of respondent the Deed of Absolute Sale
covering their shares in the subject parcels of land after receipt of the balance of
the purchase price, and to pay respondent attorneys fees plus costs of the suit.
Costs against petitioners.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
CONSUELO YNARESSANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA MARTINEZ
Associate Justice

ROMEO J. CALLEJO, SR.

Asscociate Justice

ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1

Penned by Associate Justice Andres B. Reyes, Jr. with Associate Justices Conrado
M. Vasquez, Jr., and Mario L. Guaria III, concurring, rollo, pp. 31-44.
2

Id. at 46-49.

Rollo, p. 58.

Id. at 59.

Id. at 235.

Records, p. 44.

Rollo, pp. 53-57.

Id. at 68.

Penned by Judge Edelwina C. Pastoral; rollo, pp. 69-73.

10

Id. at 73.

11

Id. at 43-44.

12

Id. at 48-49.

13

Jardine Davies, Inc. v. Court of Appeals, 389 Phil. 204, 212 (2000).

14

Rollo, pp. 31-44.

15

TSN, 15 October 1991, pp. 13-14.

16

Rollo, pp. 36-40.

17

TSN, 28 September 1993, pp. 17-18.

18

German Marine Agencies, Inc. v. National Labor Relations Commission, 403

Phil. 572, 588-589 (2001).
19

Limson v. Court of Appeals, G.R. No. 135929, 20 April 2001, 357 SCRA 209,
216.
20

Id. at 217.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 111448

January 16, 2002

AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners,

vs.
DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS
DEVELOPMENT CORPORATION,respondents.
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari assailing the Decision dated December 10, 1992
and the Resolution (Amending Decision) dated August 5, 1993 of the Court of
Appeals in CA-G.R. CV No. 30133.
Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation
and a registered owner of a parcel of commercial lot consisting of 2,094 square
meters, located at 104 E. Rodriguez Avenue, Barrio Ugong, Pasig City, Metro
Manila. The property is covered by Transfer Certificate of Title No. 39849 issued
by the Registry of Deeds of the Province of Rizal. 1
On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of
Dieselman, issued a letter denominated as "Authority To Sell Real Estate" 2 to
Cristeta N. Polintan, a real estate broker of the CNP Real Estate Brokerage. Cruz,
Jr. authorized Polintan "to look for a buyer/buyers and negotiate the sale" of the
lot at P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr. has no
written authority from Dieselman to sell the lot.
In turn, Cristeta Polintan, through a letter3 dated May 19, 1988, authorized
Felicisima ("Mimi") Noble4 to sell the same lot.
Felicisima Noble then offered for sale the property to AF Realty & Development,
Inc. (AF Realty) at P2,500.00 per square meter. 5 Zenaida Ranullo, board member
and vice-president of AF Realty, accepted the offer and issued a check in the
amount of P300,000.00 payable to the order of Dieselman. Polintan received the
check and signed an "Acknowledgement Receipt" 6 indicating that the amount of
P300,000.00 represents the partial payment of the property but refundable
within two weeks should AF Realty disapprove Ranullo's action on the matter.
On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo
asked Polintan for the board resolution of Dieselman authorizing the sale of the
property. However, Polintan could only give Ranullo the original copy of TCT No.
39849, the tax declaration and tax receipt for the lot, and a photocopy of the
Articles of Incorporation of Dieselman.7
On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged
receipt of the said P300,000.00 as "earnest money" but required AF Realty to
finalize the sale at P4,000.00 per square meter.8 AF Realty replied that it has
paid an initial down payment of P300,000.00 and is willing to pay the balance. 9
However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded
from AF Realty the return of the title of the lot earlier delivered by Polintan. 10

Claiming that there was a perfected contract of sale between them, AF Realty
filed with the Regional Trial Court, Branch 160, Pasig City a complaint for specific
performance (Civil Case No. 56278) against Dieselman and Cruz, Jr.. The
complaint prays that Dieselman be ordered to execute and deliver a final deed of
sale in favor of AF Realty.11 In its amended complaint,12 AF Realty asked for
payment of P1,500,000.00 as compensatory damages; P400,000.00 as attorney's
fees; and P500,000.00 as exemplary damages.
In its answer, Dieselman alleged that there was no meeting of the minds
between the parties in the sale of the property and that it did not authorize any
person to enter into such transaction on its behalf.
Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation
(Midas) executed a Deed of Absolute Sale 13 of the same property. The agreed
price was P2,800.00 per square meter. Midas delivered to Dieselman
P500,000.00 as down payment and deposited the balance of P5,300,000.00 in
escrow account with the PCIBank.
Constrained to protect its interest in the property, Midas filed on April 3, 1989 a
Motion for Leave to Intervene in Civil Case No. 56278. Midas alleged that it has
purchased the property and took possession thereof, hence Dieselman cannot be
compelled to sell and convey it to AF Realty. The trial court granted Midas'
motion.
After trial, the lower court rendered the challenged Decision holding that the acts
of Cruz, Jr. bound Dieselman in the sale of the lot to AF Realty. 14 Consequently,
the perfected contract of sale between Dieselman and AF Realty bars Midas'
intervention. The trial court also held that Midas acted in bad faith when it
initially paid Dieselman P500,000.00 even without seeing the latter's title to the
property. Moreover, the notarial report of the sale was not submitted to the Clerk
of Court of the Quezon City RTC and the balance of P5,300,000.00 purportedly
deposited in escrow by Midas with a bank was not established.1wphi1.nt
The dispositive portion of the trial court's Decision reads:
"WHEREFORE, foregoing considered, judgment is hereby rendered ordering
defendant to execute and deliver to plaintiffs the final deed of sale of the
property covered by the Transfer Certificate of Title No. 39849 of the Registry of
Deed of Rizal, Metro Manila District II, including the improvements thereon, and
ordering defendants to pay plaintiffs attorney's fees in the amount of P50,000.00
and to pay the costs.
"The counterclaim of defendants is necessarily dismissed.
"The counterclaim and/or the complaint in intervention are likewise dismissed
"SO ORDERED."15
Dissatisfied, all the parties appealed to the Court of Appeals.

AF Realty alleged that the trial court erred in not holding Dieselman liable for
moral, compensatory and exemplary damages, and in dismissing its
counterclaim against Midas.
Upon the other hand, Dieselman and Midas claimed that the trial court erred in
finding that a contract of sale between Dieselman and AF Realty was perfected.
Midas further averred that there was no bad faith on its part when it purchased
the lot from Dieselman.
In its Decision dated December 10, 1992, the Court of Appeals reversed the
judgment of the trial court holding that since Cruz, Jr. was not authorized in
writing by Dieselman to sell the subject property to AF Realty, the sale was not
perfected; and that the Deed of Absolute Sale between Dieselman and Midas is
valid, there being no bad faith on the part of the latter. The Court of Appeals then
declared Dieselman and Cruz, Jr. jointly and severally liable to AF Realty for
P100,000.00 as moral damages; P100,000.00 as exemplary damages; and
P100,000.00 as attorney's fees.16
On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed
by the parties, promulgated an Amending Decision, the dispositive portion of
which reads:
"WHEREFORE, The Decision promulgated on October 10, 1992, is hereby
AMENDED in the sense that only defendant Mr. Manuel Cruz, Jr. should be made
liable to pay the plaintiffs the damages and attorney's fees awarded therein, plus
the amount of P300,000.00 unless, in the case of the said P300,000.00, the same
is still deposited with the Court which should be restituted to plaintiffs.
"SO ORDERED."17
AF Realty now comes to this Court via the instant petition alleging that the Court
of Appeals committed errors of law.
The focal issue for consideration by this Court is who between petitioner AF
Realty and respondent Midas has a right over the subject lot.
The Court of Appeals, in reversing the judgment of the trial court, made the
following ratiocination:
"From the foregoing scenario, the fact that the board of directors of Dieselman
never authorized, verbally and in writing, Cruz, Jr. to sell the property in question
or to look for buyers and negotiate the sale of the subject property is undeniable.
"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers
and negotiate the sale of the subject property, it should be noted that Cruz, Jr.
could not confer on Polintan any authority which he himself did not have. Nemo
dat quod non habet. In the same manner, Felicisima Noble could not have
possessed authority broader in scope, being a mere extension of Polintan's
purported authority, for it is a legal truism in our jurisdiction that a spring cannot
rise higher than its source. Succinctly stated, the alleged sale of the subject

property was effected through persons who were absolutely without any
authority whatsoever from Dieselman.
"The argument that Dieselman ratified the contract by accepting the
P300,000.00 as partial payment of the purchase price of the subject property is
equally untenable. The sale of land through an agent without any written
authority is void.
xxx

xxx

xxx

"On the contrary, anent the sale of the subject property by Dieselman to
intervenor Midas, the records bear out that Midas purchased the same from
Dieselman on 30 July 1988. The notice of lis pendens was subsequently
annotated on the title of the property by plaintiffs on 15 August 1988. However,
this subsequent annotation of the notice of lis pendens certainly operated
prospectively and did not retroact to make the previous sale of the property to
Midas a conveyance in bad faith. A subsequently registered notice of lis
pendens surely is not proof of bad faith. It must therefore be borne in mind that
the 30 July 1988 deed of sale between Midas and Dieselman is a document duly
certified by notary public under his hand and seal. x x x. Such a deed of sale
being public document acknowledged before a notary public is admissible as to
the date and fact of its execution without further proof of its due execution and
delivery (Bael vs. Intermediate Appellate Court, 169 SCRA617; Joson vs. Baltazar,
194 SCRA 114) and to prove the defects and lack of consent in the execution
thereof, the evidence must be strong and not merely preponderant x x x." 18
We agree with the Court of Appeals.
Section 23 of the Corporation Code expressly provides that the corporate powers
of all corporations shall be exercised by the board of directors. Just as a natural
person may authorize another to do certain acts in his behalf, so may the board
of directors of a corporation validly delegate some of its functions to individual
officers or agents appointed by it.19 Thus, contracts or acts of a corporation must
be made either by the board of directors or by a corporate agent duly authorized
by the board.20 Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but
not in the course of, or connected with, the performance of authorized duties of
such director, are held not binding on the corporation. 21
In the instant case, it is undisputed that respondent Cruz, Jr. has no written
authority from the board of directors of respondent Dieselman to sell or to
negotiate the sale of the lot, much less to appoint other persons for the same
purpose. Respondent Cruz, Jr.'s lack of such authority precludes him from
conferring any authority to Polintan involving the subject realty. Necessarily,
neither could Polintan authorize Felicisima Noble. Clearly, the collective acts of
respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in the purported
contract of sale.

Petitioner AF Realty maintains that the sale of land by an unauthorized agent

may be ratified where, as here, there is acceptance of the benefits involved. In
this case the receipt by respondent Cruz, Jr. from AF Realty of the P300,000.00 as
partial payment of the lot effectively binds respondent Dieselman. 22
We are not persuaded.
Involved in this case is a sale of land through an agent. Thus, the law on
agency under the Civil Code takes precedence. This is well stressed in Yao Ka
Sin Trading vs. Court of Appeals:23
"Since a corporation, such as the private respondent, can act only through its
officers and agents, all acts within the powers of said corporation may be
performed by agents of its selection; and, except so far as limitations or
restrictions may be imposed by special charter, by-law, or statutory
provisions, the same general principles of law which govern the relation
of agency for a natural person govern the officer or agent of a
corporation, of whatever status or rank, in respect to his power to act
for the corporation; and agents when once appointed, or members
acting in their stead, are subject to the same rules, liabilities, and
incapacities as are agents of individuals and private persons." (Emphasis
supplied)
Pertinently, Article 1874 of the same Code provides:
"ART. 1874. When a sale of piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing; otherwise, the sale
shall be void." (Emphasis supplied)
Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo
were not authorized by respondent Dieselman to sell its lot, the supposed
contract is void. Being a void contract, it is not susceptible of ratification by clear
mandate of Article 1409 of the Civil Code, thus:
"ART. 1409. The following contracts are inexistent and void from the very
beginning:
xxx
(7) Those expressly prohibited or declared void by law.
"These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived." (Emphasis supplied)
Upon the other hand, the validity of the sale of the subject lot to respondent
Midas is unquestionable. As aptly noted by the Court of Appeals, 24 the sale was
authorized by a board resolution of respondent Dieselman dated May 27,
1988.1wphi1.nt
The Court of Appeals awarded attorney's fees and moral and exemplary
damages in favor of petitioner AF Realty and against respondent Cruz, Jr.. The

award was made by reason of a breach of contract imputable to respondent

Cruz, Jr. for having acted in bad faith. We are no persuaded. It bears stressing
that petitioner Zenaida Ranullo, board member and vice-president of petitioner
AF Realty who accepted the offer to sell the property, admitted in her
testimony25that a board resolution from respondent Dieselman authorizing the
sale is necessary to bind the latter in the transaction; and that respondent Cruz,
Jr. has no such written authority. In fact, despite demand, such written authority
was not presented to her.26 This notwithstanding, petitioner Ranullo tendered a
partial payment for the unauthorized transaction. Clearly, respondent Cruz, Jr.
should not be held liable for damages and attorney's fees.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby AFFIRMED withMODIFICATION in the sense that the award of damages
and attorney's fees is deleted. Respondent Dieselman is ordered to return to
petitioner AF Realty its partial payment of P300,000.00. Costs against
petitioners.
SO ORDERED.
Melo, Vitug, Panganiban, and Carpio, JJ., concur.

Footnote
1

Rollo, p. 129.

Exhibit "J," Records of RTC, p. 112.

Exhibit "I," ibid, p. 111.

A real estate broker of Noblehaus Realty and Marketing.

Exhibit "A", ibid., p. 102.

Exhibit "C", ibid., p. 104.

Transcript of Stenographic Notes (TSN), December 7, 1988, p. 18.

Exhibit "F", Records of RTC, p. 107.

Exhibit "G", ibid., p.108.

10

Exhibit "4", ibid., p. 242.

11

Records of RTC, p. 6.

12

Ibid., pp. 11-17.

13

Exhibit "M", ibid., p. 193.

14

Rollo, pp. 13-15.

15

Ibid, pp. 17-18.

16

Rollo, pp. 51-71.

17

Ibid., pp.15-16.

18

Ibid. pp. 12-13.

19

Citibank, N.A. vs. Chua, 220 SCRA 75 (1993).

20

Baretto vs. La Previsora Filipina, 57 Phil. 649 (1932).

21

Mendezona vs. Philippine Sugar Estates Development Co., 41 Phil. 475 (1921).

22

Rollo, pp. 22 and 24.

23

209 SCRA 763 (1992).

24

See assailed Resolution (Amending Decision) dated August 5, 1993, p. 12;

Rollo, p. 84.
25

TSN, December 7, 1988, pp. 18-20; pp. 53-54.

26

Ibid.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 160346

August 25, 2009

PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA (represented

by Mother and Attorney-in-Fact VIRGINIA CASTILLA), Petitioners,
vs.
COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA
OCAMPO, EUFEMIA SAN AGUSTIN-MAGSINO, ZENAIDA SAN AGUSTINMcCRAE, MILAGROS SAN AGUSTIN-FORTMAN, MINERVA SAN AGUSTINATKINSON, FERDINAND SAN AGUSTIN, RAUL SAN AGUSTIN, ISABELITA
SAN AGUSTIN-LUSTENBERGER and VIRGILIO SAN AGUSTIN, Respondents.
DECISION
NACHURA, J.:
For our resolution is a petition for review on certiorari assailing the April 23, 2003
Decision1 and October 8, 2003 Resolution 2 of the Court of Appeals (CA) in CA-G.R.
CV No. 59426. The appellate court, in the said decision and resolution, reversed
and set aside the January 14, 1998 Decision 3 of the Regional Trial Court (RTC),
which ruled in favor of petitioners.
The dispute stemmed from the following facts.

During their lifetime, spouses Pedro San Agustin and Agatona Genil were able to
acquire a 246-square meter parcel of land situated in Barangay Anos, Los Baos,
Laguna and covered by Original Certificate of Title (OCT) No. O-(1655) 015.4 Agatona Genil died on September 13, 1990 while Pedro San Agustin died on
September 14, 1991. Both died intestate, survived by their eight (8) children:
respondents Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita and
Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of Absolute
Sale of Undivided Shares5conveying in favor of petitioners (the Pahuds, for
brevity) their respective shares from the lot they inherited from their deceased
parents for P525,000.00.6 Eufemia also signed the deed on behalf of her four (4)
other co-heirs, namely: Isabelita on the basis of a special power of attorney
executed on September 28, 1991,7 and also for Milagros, Minerva, and Zenaida
but without their apparent written authority. 8 The deed of sale was also not
notarized.9
On July 21, 1992, the Pahuds paid P35,792.31 to the Los Baos Rural Bank where
the subject property was mortgaged. 10 The bank issued a release of mortgage
and turned over the owners copy of the OCT to the Pahuds. 11 Over the following
months, the Pahuds made more payments to Eufemia and her siblings totaling
toP350,000.00.12 They agreed to use the remaining P87,500.0013 to defray the
payment for taxes and the expenses in transferring the title of the
property.14 When Eufemia and her co-heirs drafted an extra-judicial settlement of
estate to facilitate the transfer of the title to the Pahuds, Virgilio refused to sign
it.15
On July 8, 1993, Virgilios co-heirs filed a complaint 16 for judicial partition of the
subject property before the RTC of Calamba, Laguna. On November 28, 1994, in
the course of the proceedings for judicial partition, a Compromise
Agreement17 was signed with seven (7) of the co-heirs agreeing to sell their
undivided shares to Virgilio forP700,000.00. The compromise agreement was,
however, not approved by the trial court because Atty. Dimetrio Hilbero, lawyer
for Eufemia and her six (6) co-heirs, refused to sign the agreement because he
knew of the previous sale made to the Pahuds. 18lawphil.net
On December 1, 1994, Eufemia acknowledged having received P700,000.00 from
Virgilio.19 Virgilio then sold the entire property to spouses Isagani Belarmino and
Leticia Ocampo (Belarminos) sometime in 1994. The Belarminos immediately
constructed a building on the subject property.
Alarmed and bewildered by the ongoing construction on the lot they purchased,
the Pahuds immediately confronted Eufemia who confirmed to them that Virgilio
had sold the property to the Belarminos. 20 Aggrieved, the Pahuds filed a
complaint in intervention21 in the pending case for judicial partition.1avvphil
After trial, the RTC upheld the validity of the sale to petitioners. The dispositive
portion of the decision reads:

WHEREFORE, the foregoing considered, the Court orders:

1. the sale of the 7/8 portion of the property covered by OCT No. O (1655) O-15
by the plaintiffs as heirs of deceased Sps. Pedro San Agustin and Agatona Genil
in favor of the Intervenors-Third Party plaintiffs as valid and enforceable, but
obligating the Intervenors-Third Party plaintiffs to complete the payment of the
purchase price of P437,500.00 by paying the balance of P87,500.00 to defendant
Fe (sic) San Agustin Magsino. Upon receipt of the balance, the plaintiff shall
formalize the sale of the 7/8 portion in favor of the Intervenor[s]-Third Party
plaintiffs;
2. declaring the document entitled "Salaysay sa Pagsang-ayon sa Bilihan" (Exh.
"2-a") signed by plaintiff Eufemia San Agustin attached to the unapproved
Compromise Agreement (Exh. "2") as not a valid sale in favor of defendant
Virgilio San Agustin;
3. declaring the sale (Exh. "4") made by defendant Virgilio San Agustin of the
property covered by OCT No. O (1655)-O-15 registered in the names of Spouses
Pedro San Agustin and Agatona Genil in favor of Third-party defendant Spouses
Isagani and Leticia Belarmino as not a valid sale and as inexistent;
4. declaring the defendant Virgilio San Agustin and the Third-Party defendants
spouses Isagani and Leticia Belarmino as in bad faith in buying the portion of the
property already sold by the plaintiffs in favor of the Intervenors-Third Party
Plaintiffs and the Third-Party Defendant Sps. Isagani and Leticia Belarmino in
constructing the two-[storey] building in (sic) the property subject of this case;
and
5. declaring the parties as not entitled to any damages, with the parties
shouldering their respective responsibilities regarding the payment of
attorney[]s fees to their respective lawyers.
No pronouncement as to costs.
SO ORDERED.22
Not satisfied, respondents appealed the decision to the CA arguing, in the main,
that the sale made by Eufemia for and on behalf of her other co-heirs to the
Pahuds should have been declared void and inexistent for want of a written
authority from her co-heirs. The CA yielded and set aside the findings of the trial
court. In disposing the issue, the CA ruled:
WHEREFORE, in view of the foregoing, the Decision dated January 14, 1998,
rendered by the Regional Trial Court of Calamba, Laguna, Branch 92 in Civil Case
No. 2011-93-C for Judicial Partition is hereby REVERSED and SET ASIDE, and a
new one entered, as follows:
(1) The case for partition among the plaintiffs-appellees and appellant Virgilio is
now considered closed and terminated;

(2) Ordering plaintiffs-appellees to return to intervenors-appellees the total

amount they received from the latter, plus an interest of 12% per annum from
the time the complaint [in] intervention was filed on April 12, 1995 until actual
payment of the same;
(3) Declaring the sale of appellant Virgilio San Agustin to appellants spouses,
Isagani and Leticia Belarmino[,] as valid and binding;
(4) Declaring appellants-spouses as buyers in good faith and for value and are
the owners of the subject property.
No pronouncement as to costs.
SO ORDERED.23
Petitioners now come to this Court raising the following arguments:
I. The Court of Appeals committed grave and reversible error when it did not
apply the second paragraph of Article 1317 of the New Civil Code insofar as
ratification is concerned to the sale of the 4/8 portion of the subject property
executed by respondents San Agustin in favor of petitioners;
II. The Court of Appeals committed grave and reversible error in holding that
respondents spouses Belarminos are in good faith when they bought the subject
property from respondent Virgilio San Agustin despite the findings of fact by the
court a quo that they were in bad faith which clearly contravenes the presence of
long line of case laws upholding the task of giving utmost weight and value to
the factual findings of the trial court during appeals; [and]
III. The Court of Appeals committed grave and reversible error in holding that
respondents spouses Belarminos have superior rights over the property in
question than petitioners despite the fact that the latter were prior in possession
thereby misapplying the provisions of Article 1544 of the New Civil Code. 24
The focal issue to be resolved is the status of the sale of the subject property by
Eufemia and her co-heirs to the Pahuds. We find the transaction to be valid and
enforceable.
Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing; otherwise, the sale shall be
void.
Also, under Article 1878,25 a special power of attorney is necessary for an agent
to enter into a contract by which the ownership of an immovable property is
transmitted or acquired, either gratuitously or for a valuable consideration. Such
stringent statutory requirement has been explained in Cosmic Lumber
Corporation v. Court of Appeals:26

[T]he authority of an agent to execute a contract [of] sale of real estate must be
conferred in writing and must give him specific authority, either to conduct the
general business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute. A special power of
attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable
consideration. The express mandate required by law to enable an appointee of
an agency (couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of the act
mentioned. For the principal to confer the right upon an agent to sell real estate,
a power of attorney must so express the powers of the agent in clear and
unmistakable language. When there is any reasonable doubt that the language
so used conveys such power, no such construction shall be given the
document.27
In several cases, we have repeatedly held that the absence of a written authority
to sell a piece of land is, ipso jure, void, 28 precisely to protect the interest of an
unsuspecting owner from being prejudiced by the unwarranted act of another.
Based on the foregoing, it is not difficult to conclude, in principle, that the sale
made by Eufemia, Isabelita and her two brothers to the Pahuds sometime in
1992 should be valid only with respect to the 4/8 portion of the subject property.
The sale with respect to the 3/8 portion, representing the shares of Zenaida,
Milagros, and Minerva, is void because Eufemia could not dispose of the interest
of her co-heirs in the said lot absent any written authority from the latter, as
explicitly required by law. This was, in fact, the ruling of the CA.
Still, in their petition, the Pahuds argue that the sale with respect to the 3/8
portion of the land should have been deemed ratified when the three co-heirs,
namely: Milagros, Minerva, and Zenaida, executed their respective special power
of attorneys29 authorizing Eufemia to represent them in the sale of their shares in
the subject property.30
While the sale with respect to the 3/8 portion is void by express provision of law
and not susceptible to ratification, 31 we nevertheless uphold its validity on the
basis of the common law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through 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.
True, at the time of the sale to the Pahuds, Eufemia was not armed with the
requisite special power of attorney to dispose of the 3/8 portion of the property.
Initially, in their answer to the complaint in intervention, 32 Eufemia and her other
co-heirs denied having sold their shares to the Pahuds. During the pre-trial
conference, however, they admitted that they had indeed sold 7/8 of the
property to the Pahuds sometime in 1992.33 Thus, the previous denial was

superseded, if not accordingly amended, by their subsequent

admission.34 Moreover, in their Comment,35 the said co-heirs again admitted the
sale made to petitioners.36
Interestingly, in no instance did the three (3) heirs concerned assail the validity
of the transaction made by Eufemia to the Pahuds on the basis of want of written
authority to sell. They could have easily filed a case for annulment of the sale of
their respective shares against Eufemia and the Pahuds. Instead, they opted to
remain silent and left the task of raising the validity of the sale as an issue to
their co-heir, Virgilio, who is not privy to the said transaction. They cannot be
allowed to rely on Eufemia, their attorney-in-fact, to impugn the validity of the
first transaction because to allow them to do so would be tantamount to giving
premium to their sisters dishonest and fraudulent deed. Undeniably, therefore,
the silence and passivity of the three co-heirs on the issue bar them from making
a contrary claim.
It is a basic rule in the law of agency that a principal is subject to liability for loss
caused to another by the latters reliance upon a deceitful representation by an
agent in the course of his employment (1) if the representation is authorized; (2)
if it is within the implied authority of the agent to make for the principal; or (3) if
it is apparently authorized, regardless of whether the agent was authorized by
him or not to make the representation. 37
By their continued silence, Zenaida, Milagros and Minerva have caused the
Pahuds to believe that they have indeed clothed Eufemia with the authority to
transact on their behalf. Clearly, the three co-heirs are now estopped from
impugning the validity of the sale from assailing the authority of Eufemia to
enter into such transaction.
Accordingly, the subsequent sale made by the seven co-heirs to Virgilio was void
because they no longer had any interest over the subject property which they
could alienate at the time of the second transaction. 38 Nemo dat quod non habet.
Virgilio, however, could still alienate his 1/8 undivided share to the Belarminos.
The Belarminos, for their part, cannot argue that they purchased the property
from Virgilio in good faith. As a general rule, a purchaser of a real property is not
required to make any further inquiry beyond what the certificate of title indicates
on its face.39 But the rule excludes those who purchase with knowledge of the
defect in the title of the vendor or of facts sufficient to induce a reasonable and
prudent person to inquire into the status of the property. 40 Such purchaser cannot
close his eyes to facts which should put a reasonable man on guard, and later
claim that he acted in good faith on the belief that there was no defect in the
title of the vendor. His mere refusal to believe that such defect exists, or his
obvious neglect by closing his eyes to the possibility of the existence of a defect
in the vendors title, will not make him an innocent purchaser for value, if
afterwards it turns out that the title was, in fact, defective. In such a case, he is
deemed to have bought the property at his own risk, and any injury or prejudice
occasioned by such transaction must be borne by him. 41

In the case at bar, the Belarminos were fully aware that the property was
registered not in the name of the immediate transferor, Virgilio, but remained in
the name of Pedro San Agustin and Agatona Genil. 42 This fact alone is sufficient
impetus to make further inquiry and, thus, negate their claim that they are
purchasers for value in good faith.43 They knew that the property was still subject
of partition proceedings before the trial court, and that the compromise
agreement signed by the heirs was not approved by the RTC following the
opposition of the counsel for Eufemia and her six other co-heirs. 44 The
Belarminos, being transferees pendente lite, are deemed buyers in mala fide,
and they stand exactly in the shoes of the transferor and are bound by any
judgment or decree which may be rendered for or against the
transferor.45 Furthermore, had they verified the status of the property by asking
the neighboring residents, they would have been able to talk to the Pahuds who
occupy an adjoining business establishment 46 and would have known that a
portion of the property had already been sold. All these existing and readily
verifiable facts are sufficient to suggest that the Belarminos knew that they were
buying the property at their own risk.
WHEREFORE, premises considered, the April 23, 2003 Decision of the Court of
Appeals as well as its October 8, 2003 Resolution in CA-G.R. CV No. 59426, are
REVERSED and SET ASIDE. Accordingly, the January 14, 1998 Decision of Branch
92 of the Regional Trial Court of Calamba, Laguna is REINSTATED with the
MODIFICATION that the sale made by respondent Virgilio San Agustin to
respondent spouses Isagani Belarmino and Leticia Ocampo is valid only with
respect to the 1/8 portion of the subject property. The trial court is ordered to
proceed with the partition of the property with dispatch.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
CONCHITA CARPIO MORALES*
Associate Justice
MINITA V. CHICO-NAZARIO
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

MINITA V. CHICO-NAZARIO**
Associate Justice
Acting Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Acting
Chairperson's Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
*

Additional member in lieu of Associate Justice Consuelo Ynares-Santiago per

Special Order No. 679 dated August 3, 2009.
**

In lieu of Associate Justice Consuelo-Ynares-Santiago per Special Order No. 678

dated August 3, 2009.
1

Penned by Associate Justice Juan Q. Enriquez, Jr., with Associate Justices

Mercedes Gozo-Dadole and Hakim S. Abdulwahid, concurring; rollo, pp. 35-45.
2

Id. at 47-48.

Rollo, pp. 121-146.

Id. at 85-86.

Id. at 49-50.

Id. at 37-38.

Id. at 61.

Id. at 37.

Id. at 50, 140.

10

Id. at 13.

11

Id. at 38.

12

Id. at 89-96.

13

Id. at 97.

14

Id. at 13, 140.

15

Id. at 38.

16

Id. at 51-54. The complaint was docketed as Civil Case No. 2011-93-C.

17

Id. at 69-71.

18

Id. at 136, 139.

19

Id. at 106.

20

Id. at 135-136.

21

Id. at 72-84.

22

Id. at 145-146.

23

Id. at 44-45.

24

Id. at 19.

25

Article 1878(5) provides:

Art. 1878. Special powers of attorney are necessary in the following cases:
xxxx
(5) To enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration.
26

332 Phil. 948 (1996).

27

Id. at 957-958. (Emphasis supplied, citations omitted.)

28

Estate of Lino Olaguer, etc. v. Hon. CA and Emiliano M. Ongjoco, G.R. No.
173312, August 26, 2008; Dizon v. Court of Appeals, G.R. Nos. 122544 and
124741, January 28, 2003, 396 SCRA 151, 155; AF Realty & Development, Inc. v.
Dieselman Freight Services, Co., 424 Phil. 446, 455 (2002); San Juan Structural
and Steel Fabricators, Inc. v. Court of Appeals, G.R. No. 129459, September 29,
1998, 296 SCRA 631, 648.
29

Special Power of Attorney of Isabelita San Agustin-Lustenberger was executed

on September 28, 1991, rollo, p. 61 (Annex "E"); Special Power of Attorney of
Milagros San Agustin-Fortman was executed in December 1992, id. at 62 (Annex
"F"); Special Power of Attorney of Minerva San Agustin-Atkinson was executed,
undated, but was witnessed by G.R. Stephenson, Commissioner for Oaths, on
February 12, 1993, id. at 63 (Annex "G"); and Special Power of Attorney of
Zenaida San Agustin-McCrae was executed on May 10, 1993, id. at 64 (Annex
"H").
30

Rollo, p. 20.

31

CIVIL CODE, Art. 1409 provides in part:

Art. 1409. The following contracts are inexistent and void from the beginning:

xxxx
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.
32

I Records, p. 26; Exh. "I-A," entitled Answer to Counterclaim dated December

14, 1993.
33

II Records, pp. 262-264.

34

RULES OF COURT, Rule 10, Sec. 5 provides in full:

SEC. 5. Amendment to conform to or authorize presentation of evidence. When

issues not raised by the pleadings are tried with the express or implied consent
of the parties, they shall be treated in all respects 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. If evidence is objected to at the
trial on the ground that it is not within the issues made by the pleadings, the
court may allow the pleadings to be amended and shall do so with liberality if the
presentation of the merits of the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance to enable the amendment
to be made.
35

Rollo, pp. 200-204.

36

Id. at 200.

37

See De Leon, Comments and Cases on Partnership, Agency and Trusts, 2005
edition, p. 538, citing Mechem, Cases on the Law of Agency, p. 230.
38

CIVIL CODE, Art. 1409 provides in part:

Art. 1409. The following contracts are inexistent and void from the beginning:
xxxx
(3) Those whose cause or object did not exist at the time of the transaction;
xxxx
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.
39

Lu v. Intermediate Appellate Court, G.R. No. 70149, January 30, 1989, 169
SCRA 595, 604; Lopez v. Court of Appeals, G.R. No. 49739, January 20, 1989, 169
SCRA 271, 275-276.
40

Abad v. Guimba, G.R. No. 157002, July 29, 2005, 465 SCRA 356, 367.

41

Bailon-Casilao v. Court of Appeals, G.R. No. L-78178, April 15, 1988, 160 SCRA
738, 750.
42

I Records, pp. 5-6.

43

Guaranteed Homes, Inc. v. Heirs of Maria P. Valdez, et al., G.R. No. 171531,
January 30, 2009.
44

I Records, pp. at 60-61.

45

Voluntad v. Dizon, G.R. No. 132294, August 26, 1999, 313 SCRA 209.

46

Rollo, p. 16.

The Lawphil Project - Arellano Law Foundation

CONCURRING AND DISSENTING OPINION

CARPIO MORALES, J.:
The ponencia reinstates the trial courts Decision of January 14, 1998 with the
modification that "the sale made by respondent Virgilio San Agustin to
respondent spouses Isagani Belarmino and Leticia Ocampo is valid only with
respect to the 1/8 portion of the subject property."1
I submit that the validity of the sale to spouses Belarmino extends to 4/8 or onehalf of the property, inclusive of the combined 3/8 share of respondents-sisters
Zenaida, Milagros and Minerva, all bearing the maiden surname of San Agustin,
thus leaving only one-half of the property to petitioners Purita Pahud, et al. who
earlier purchased from Eufemia San Agustin (Eufemia) the property including the
3/8 portion over which no written authority from the three sisters was secured.
The ponente, Justice Nachura, in fact, agrees to this proposition "in principle." 2
The ponencia even rejects petitioners contention that the special power of
attorney subsequently executed by Zenaida, Milagros and Minerva in favor of
Eufemia effectively ratified their earlier purchase of the property insofar as the
3/8 portion is concerned, for the established reason that void contracts or the
illegal terms thereof3 are not susceptible to ratification. The subsequent
execution by the three sisters of the respective special powers of attorney only
means that they considered the previous sale null and recognized the salability
of their 3/8 portion, thus paving the way for its transfer to Virgilio San Agustin
and its eventual sale to the spouses Belarmino.
Indeed, as the ponencia elucidates, Articles 1874 and 1878 of the Civil Code
clearly provide that a special power of attorney is necessary for an agent to
"enter into any contract by which the ownership of an immovable is transmitted

or acquired either gratuitously or for a valuable consideration" and that

specifically in cases of sale of a piece of land or any interest therein through an
agent, "the authority of the latter shall be in writing; otherwise the sale shall
be void."
The ponencia takes one step further, however, in upholding the validity of the
sale of the 3/8 portion belonging to the 3 sisters to petitioner notwithstanding
the want of a written authority to sell, by applying the principle of estoppel. It
ratiocinates:
While the sale with respect to the 3/8 portion is void by express provision of law
and not susceptible to ratification, we nevertheless uphold its validity on the
basis of the common law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through 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
True, at the time of the sale to the Pahuds, Eufemia was not armed with the
requisite special power of attorney to dispose of the 3/8 portion of the property.
Initially, in their answer to the complaint in intervention, Eufemia and her other
co-heirs denied having sold their shares to the Pahuds. During the pre-trial
conference, however, they admitted that they had indeed sold 7/8 of the
property to the Pahuds sometime in 1992. Thus, the previous denial was
superseded, if not accordingly amended, by their subsequent admission.
Moreover, in their Comment, the said co-heirs again admitted the sale made to
petitioners.
Interestingly, in no instance did the three (3) heirs concerned assail the validity
of the transaction made by Eufemia to the Pahuds on the basis of want of written
authority to sell. They could have easily filed a case for annulment of the sale of
their respective shares against Eufemia and the Pahuds. Instead, they opted to
remain silent and left the task of raising the validity of the sale as an issue to
their co-heir, Virgilio, who is not privy to the said transaction. They cannot be
allowed to rely on Eufemia, their attorney-in-fact, to impugn the validity of the
first transaction because to allow them to do so would be tantamount to giving
premium to their sisters dishonest and fraudulent deed. Undeniably,
therefore, the silence and passivity of the three co-heirs on the issue bar them
from making a contrary claim.
It is a basic rule in the law of agency that a principal is subject to liability for loss
caused to another by the lattersreliance upon a deceitful representation by an
agent in the course of his employment (1) if the representation is authorized;
(2) if it is within the implied authority of the agent to make for the principal; or
(3) if it is apparently authorized, regardless of whether the agent was authorized
by him or not to make the representation.

By their continued silence, Zenaida, Milagros and Minerva have caused the
Pahuds to believe that they have indeed clothed Eufemia with the authority to
transact on their behalf. Clearly, the three co-heirs are now estopped from
impugning the validity of the sale from assailing the authority of Eufemia to
enter such transaction.4(Emphasis and underscoring supplied)
It is from this aspect of the ponencia that I respectfully dissent.
Equity cannot supplant or contravene the law. 5
Article 1432 of the Civil Code expressly states that the principles of estoppel are
adopted "insofar as they are not in conflict with the provisions of this Code,"
among other laws.
Indeed, estoppel, being a principle in equity, cannot be applied in the presence
of a law clearly applicable to the case. The Court is first and foremost a court of
law. While equity might tilt on the side of one party, the same cannot be
enforced so as to overrule positive provisions of law in favor of the other. 6
Moreover, the evident purpose of the legal requirement of such written authority
is not only to safeguard the interest of an unsuspecting owner from being
prejudiced by the unauthorized act of another, but also to caution the buyer to
assure himself of the specific authorization of the putative agent. In other words,
the drafters of the law already saw the risky predicament of selling lands through
agents which, in the absence of a specific law, would otherwise ultimately
depend on equity to resolve disputes such as the present case. The law
undoubtedly seeks to prevent the following confusion:
Case law tells us that the elements of estoppel are: "first, the actor who usually
must have knowledge, notice or suspicion of the true facts, communicates
something to another in a misleading way, either by words, conduct or silence;
second, the other in fact relies, and relies reasonably or justifiably, upon that
communication; third, the other would be harmed materially if the actor is later
permitted to assert any claim inconsistent with his earlier conduct; and fourth,
the actor knows, expects or foresees that the other would act upon the
information given or that a reasonable person in the actor's position would
expect or foresee such action." 7
The depicted scenario is precisely the misunderstanding between parties to such
type of sale which the lawmakers sought to avoid in prescribing the conditions
for the validity of such sale of land. The present case is a classic example of a
tedious litigation which had ensued as a result of such misunderstanding. This is
what the law endeavors to avert.8 It is not for the Court to suspend the
application of the law and revert to equitable grounds in resolving the present
dispute.
Assuming arguendo that estoppel can contradict positive law, I submit
that Article 1431 of the Civil Code does not apply since it speaks of ones prior
admission or representation, without which the other person could not have
relied on it before acting accordingly.

The ponencia cites acts or omissions on the part of the three sisters which came
after the fact such as their "admission" and "continued silence" which, however,
could not retroact to the time of the previous sale as to consider petitioners to
have accordingly relied on such admission or representation before buying the
property from Eufemia. The application of the principle of estoppel is proper and
timely in heading off shrewd efforts at renouncing ones previous acts to the
prejudice of another who had dealt honestly and in good faith. 9 It is thus
erroneous to conclude that Zenaida, Milagros and Minerva have caused
petitioners to believe that they have clothed Eufemia with the authority to
transact on their behalf.
Could the three sisters ratify the previous sale through their subsequent acts or
omissions? I opine they cannot. The ponencia concedes that "the sale with
respect to the 3/8 portion is void by express provision of law and not susceptible
to ratification."
The previous sale being violative of an express mandate of law, such cannot be
ratified by estoppel. Estoppel cannot give validity to an act that is prohibited by
law or one that is against public policy. Neither can the defense of illegality be
waived.10 An action or defense for the declaration of the inexistence of a
contract does not prescribe.11 Amid the confusion from
the double dealing made by their sibling Eufemia, the three sisters expectedly
kept mum about it. Succinctly, their "continued silence" cannot be taken against
them. Bargaining away a provision of law should not be countenanced.
Neither can their "admission" to a question of law bind them.
The ponencia highlights the admission made by Eufemia and her co-heirs during
the pre-trial conference before the trial court and in their Comment on the
present petition that they had earlier sold 7/8 of the property to petitioners.
These statements could not mean, however, as an admission in petitioners favor
that Zenaida, Milagros and Minerva validly sold their respective shares to
petitioners. They could only admit to the statement of fact 12 that the sale took
place, but not to the conclusion of law that the sale was valid, precisely because
the validity of the sales transaction is at issue as it was contested by the parties.
Further, the textbook citation of the rule involving a principals responsibility for
an agents misrepresentation within the scope of an agents authority as
annotated by the cited author under Article 1900 of the Civil Code is
inapplicable. The qualifying phrase "in the course of his
employment" presupposes that an agency relationship is existing. The quoted
rule clearly recites that a principal is held liable if the "deceitful representation"
(not the agency relationship) is authorized either expressly, impliedly, or
apparently. In this case, there was no agency relationship to speak of.
I, therefore, vote to reinstate the trial courts January 14, 1998 Decision with
modification that the sale made by respondent Virgilio San Agustin to respondent
spouses Isagani Belarmino and Leticia Ocampo is valid with respect to the 4/8
portion of the subject property.

CONCHITA CARPIO MORALES

Associate Justice

Footnotes
1

Ponencia, p. 12 (underscoring supplied).

Ponencia, p. 7.

Civil Code, Art. 1420 in relation to Art. 493.

Ponencia, pp. 8-10.

Valdevieso v. Damalerio, 492 Phil. 51, 59 (2005).

Vide id. A waiver will be inoperative and void if it infringes on the rights of
others (Ouano v. Court of Appeals, infra at 704).
7

Phil. Bank of Communications v. CA, 352 Phil. 1, 9 (1998).

Cf. Powton Conglomerate, Inc. v. Agcolicol, 448 Phil. 643, 653 (2003) for
analogy respecting the vital preconditions to the validity of a contract for
additional works under Article 1724 of the Civil Code.
9

Vide Pureza v. CA, 352 Phil. 717, 722 (1998).

10

Vide Ouano v. Court of Appeals, 446 Phil. 690, 708 (2003).

11

Civil Code, Art. 1410.

12

Rules of Court, Rule 18, Sec. 2 (d). Pre-trial allows the parties to obtain
stipulations or admissions of factand of documents.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 144805 June 8, 2006
EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,
vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES
CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK & TRUST
COMPANY, Respondents.
DECISION
CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision 1 of the Court of
Appeals (CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the
Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well
as the Resolution2 of the CA denying the motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized and registered under
Philippine laws. Since 1950, it had been engaged in the manufacture of roofing
materials and pipe products. Its manufacturing operations were conducted on
eight parcels of land with a total area of 47,233 square meters. The properties,
located in Mandaluyong City, Metro Manila, were covered by Transfer Certificates
of Title Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124 and
451125 under the name of Far East Bank & Trust Company, as trustee. Ninety
(90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A.
Corporation (ESAC), a corporation organized and registered under the laws of
Belgium.3 Jack Glanville, an Australian citizen, was the General Manager and
President of EC, while Claude Frederick Delsaux was the Regional Director for
Asia of ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in
the Philippines and wanted to stop its operations in the country. The Committee
for Asia of ESAC instructed Michael Adams, a member of ECs Board of Directors,
to dispose of the eight parcels of land. Adams engaged the services of
realtor/broker Lauro G. Marquez so that the properties could be offered for sale to
prospective buyers. Glanville later showed the properties to Marquez.
Marquez thereafter offered the parcels of land and the improvements thereon to
Eduardo B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated
September 12, 1986, Marquez declared that he was authorized to sell the
properties for P27,000,000.00 and that the terms of the sale were subject to
negotiation.4
Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to
Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua siblings
offered to buy the property for P20,000,000.00 cash. Marquez apprised Glanville
of the Litonjua siblings offer and relayed the same to Delsaux in Belgium, but
the latter did not respond. On October 28, 1986, Glanville telexed Delsaux in
Belgium, inquiring on his position/ counterproposal to the offer of the Litonjua
siblings. It was only on February 12, 1987 that Delsaux sent a telex to Glanville
stating that, based on the "Belgian/Swiss decision," the final offer was
"US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to
final liquidation."5
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux.
Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with
Glanville, and in a Letter dated February 26, 1987, confirmed that the Litonjua
siblings had accepted the counter-proposal of Delsaux. He also stated that the
Litonjua siblings would confirm full payment within 90 days after execution and
preparation of all documents of sale, together with the necessary governmental
clearances.6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the

Security Bank & Trust Company, Ermita Branch, and drafted an Escrow
Agreement to expedite the sale.7
Sometime later, Marquez and the Litonjua brothers inquired from Glanville when
the sale would be implemented. In a telex dated April 22, 1987, Glanville
informed Delsaux that he had met with the buyer, which had given him the
impression that "he is prepared to press for a satisfactory conclusion to the
sale."8 He also emphasized to Delsaux that the buyers were concerned because
they would incur expenses in bank commitment fees as a consequence of
prolonged period of inaction. 9
Meanwhile, with the assumption of Corazon C. Aquino as President of the
Republic of the Philippines, the political situation in the Philippines had improved.
Marquez received a telephone call from Glanville, advising that the sale would no
longer proceed. Glanville followed it up with a Letter dated May 7, 1987,
confirming that he had been instructed by his principal to inform Marquez that
"the decision has been taken at a Board Meeting not to sell the properties on
which Eternit Corporation is situated."10
Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC
Regional Office had decided not to proceed with the sale of the subject land, to
wit:
May 22, 1987
Mr. L.G. Marquez
L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with
the sale of the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months)
and examined the position as far as the Philippines are (sic)
concerned. Considering [the] new political situation since the departure of MR.
MARCOS and a certain stabilization in the Philippines, the Committee has
decided not to stop our operations in Manila. In fact, production has started
again last week, and (sic) to recognize the participation in the Corporation.
We regret that we could not make a deal with you this time, but in case the
policy would change at a later state, we would consult you again.
xxx

Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)11
When apprised of this development, the Litonjuas, through counsel, wrote EC,
demanding payment for damages they had suffered on account of the aborted
sale. EC, however, rejected their demand.
The Litonjuas then filed a complaint for specific performance and damages
against EC (now the Eterton Multi-Resources Corporation) and the Far East Bank
& Trust Company, and ESAC in the RTC of Pasig City. An amended complaint was
filed, in which defendant EC was substituted by Eterton Multi-Resources
Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G.
Eufemio were impleaded as additional defendants on account of their purchase
of ESAC shares of stocks and were the controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that since Eteroutremer
was not doing business in the Philippines, it cannot be subject to the jurisdiction
of Philippine courts; the Board and stockholders of EC never approved any
resolution to sell subject properties nor authorized Marquez to sell the same; and
the telex dated October 28, 1986 of Jack Glanville was his own personal making
which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of defendants and
dismissed the amended complaint.12The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton MultiResources Corporation and Eteroutremer, S.A. is dismissed on the ground that
there is no valid and binding sale between the plaintiffs and said defendants.
The complaint as against Far East Bank and Trust Company is likewise dismissed
for lack of cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation
and Eteroutremer, S.A. is also dismissed for lack of merit. 13
The trial court declared that since the authority of the agents/realtors was not in
writing, the sale is void and not merely unenforceable, and as such, could not
have been ratified by the principal. In any event, such ratification cannot be
given any retroactive effect. Plaintiffs could not assume that defendants had
agreed to sell the property without a clear authorization from the corporation
concerned, that is, through resolutions of the Board of Directors and
stockholders. The trial court also pointed out that the supposed sale involves
substantially all the assets of defendant EC which would result in the eventual
total cessation of its operation.14
The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court
erred in concluding that the real estate broker in the instant case needed a

written authority from appellee corporation and/or that said broker had no such
written authority; and (2) the lower court committed grave error of law in holding
that appellee corporation is not legally bound for specific performance and/or
damages in the absence of an enabling resolution of the board of
directors."15 They averred that Marquez acted merely as a broker or go-between
and not as agent of the corporation; hence, it was not necessary for him to be
empowered as such by any written authority. They further claimed that an
agency by estoppel was created when the corporation clothed Marquez with
apparent authority to negotiate for the sale of the properties. However, since it
was a bilateral contract to buy and sell, it was equivalent to a perfected contract
of sale, which the corporation was obliged to consummate.
In reply, EC alleged that Marquez had no written authority from the Board of
Directors to bind it; neither were Glanville and Delsaux authorized by its board of
directors to offer the property for sale. Since the sale involved substantially all of
the corporations assets, it would necessarily need the authority from the
stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the
RTC. 16 The Litonjuas filed a motion for reconsideration, which was also denied by
the appellate court.
The CA ruled that Marquez, who was a real estate broker, was a special agent
within the purview of Article 1874 of the New Civil Code. Under Section 23 of the
Corporation Code, he needed a special authority from ECs board of directors to
bind such corporation to the sale of its properties. Delsaux, who was merely the
representative of ESAC (the majority stockholder of EC) had no authority to bind
the latter. The CA pointed out that Delsaux was not even a member of the board
of directors of EC. Moreover, the Litonjuas failed to prove that an agency by
estoppel had been created between the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED
CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT
MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE
THE SALE CAN BE PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX
HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT
THE VERY LEAST, WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO
DO ACTS WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD

THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID

PROPERTIES.17
Petitioners maintain that, based on the facts of the case, there was a perfected
contract of sale of the parcels of land and the improvements thereon for
"US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final
liquidation." Petitioners insist that they had accepted the counter-offer of
respondent EC and that before the counter-offer was withdrawn by respondents,
the acceptance was made known to them through real estate broker Marquez.
Petitioners assert that there was no need for a written authority from the Board
of Directors of EC for Marquez to validly act as broker/middleman/intermediary.
As broker, Marquez was not an ordinary agent because his authority was of a
special and limited character in most respects. His only job as a broker was to
look for a buyer and to bring together the parties to the transaction. He was not
authorized to sell the properties or to make a binding contract to respondent EC;
hence, petitioners argue, Article 1874 of the New Civil Code does not apply.
In any event, petitioners aver, what is important and decisive was that Marquez
was able to communicate both the offer and counter-offer and their acceptance
of respondent ECs counter-offer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply
shows that Glanville, who was the President and General Manager of respondent
EC, and Delsaux, who was the Managing Director for ESAC Asia, had the
necessary authority to sell the subject property or, at least, had been allowed by
respondent EC to hold themselves out in the public as having the power to sell
the subject properties. Petitioners identified such evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the then
President and General Manager of Eternit, to sell the properties of said
corporation to any interested party, which authority, as hereinabove discussed,
need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties
spanned SEVERAL MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties
to the Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties
as evidenced by the Petitioners ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the
Security Bank and that an ESCROW agreement was drafted over the subject
properties;
6. Glanvilles telex to Delsaux inquiring "WHEN WE (Respondents) WILL
IMPLEMENT ACTION TO BUY AND SELL";

7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced
the fact that Petitioners offer was allegedly REJECTED by both Glanville and
Delsaux.18
Petitioners insist that it is incongruous for Glanville and Delsaux to make a
counter-offer to petitioners offer and thereafter reject such offer unless they
were authorized to do so by respondent EC. Petitioners insist that Delsaux
confirmed his authority to sell the properties in his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with
the sale of the land which was proposed to you.
The Committee for Asia of our Group met recently (meeting every six months)
and examined the position as far as the Philippines are (sic) concerned.
Considering the new political situation since the departure of MR. MARCOS and a
certain stabilization in the Philippines, the Committee has decided not to stop our
operations in Manila[.] [I]n fact production started again last week, and (sic) to
reorganize the participation in the Corporation.
We regret that we could not make a deal with you this time, but in case the
policy would change at a later stage we would consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX19
Petitioners further emphasize that they acted in good faith when Glanville and
Delsaux were knowingly permitted by respondent EC to sell the properties within
the scope of an apparent authority. Petitioners insist that respondents held
themselves to the public as possessing power to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners
are factual, hence, are proscribed by Rule 45 of the Rules of Court. On the merits
of the petition, respondents EC (now EMC) and ESAC reiterate their submissions
in the CA. They maintain that Glanville, Delsaux and Marquez had no authority
from the stockholders of respondent EC and its Board of Directors to offer the
properties for sale to the petitioners, or to any other person or entity for that
matter. They assert that the decision and resolution of the CA are in accord with
law and the evidence on record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through
Glanville and Delsaux, conformed to the written authority of Marquez to sell the
properties. The authority of Glanville and Delsaux to bind respondent EC is
evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90%
of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given the significance

of their positions and their duties in respondent EC at the time of the transaction,
and the fact that respondent ESAC owns 90% of the shares of stock of
respondent EC, a formal resolution of the Board of Directors would be a mere
ceremonial formality. What is important, petitioners maintain, is that Marquez
was able to communicate the offer of respondent EC and the petitioners
acceptance thereof. There was no time that they acted without the knowledge of
respondents. In fact, respondent EC never repudiated the acts of Glanville,
Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues
raised by petitioner in this case are factual. Whether or not Marquez, Glanville,
and Delsaux were authorized by respondent EC to act as its agents relative to
the sale of the properties of respondent EC, and if so, the boundaries of their
authority as agents, is a question of fact. In the absence of express written terms
creating the relationship of an agency, the existence of an agency is a fact
question.20 Whether an agency by estoppel was created or whether a person
acted within the bounds of his apparent authority, and whether the principal is
estopped to deny the apparent authority of its agent are, likewise, questions of
fact to be resolved on the basis of the evidence on record. 21 The findings of the
trial court on such issues, as affirmed by the CA, are conclusive on the Court,
absent evidence that the trial and appellate courts ignored, misconstrued, or
misapplied facts and circumstances of substance which, if considered, would
warrant a modification or reversal of the outcome of the case. 22
It must be stressed that issues of facts may not be raised in the Court under Rule
45 of the Rules of Court because the Court is not a trier of facts. It is not to reexamine and assess the evidence on record, whether testimonial and
documentary. There are, however, recognized exceptions where the Court may
delve into and resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises,
or conjectures; (2) when the inference made is manifestly mistaken, absurd, or
impossible; (3) when there is 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 of the Court of Appeals 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 Court
of Appeals manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different conclusion; and
(10) when the findings of fact of the Court of Appeals are premised on the
absence of evidence and are contradicted by the evidence on record. 23
We have reviewed the records thoroughly and find that the petitioners failed to
establish that the instant case falls under any of the foregoing exceptions.

Indeed, the assailed decision of the Court of Appeals is supported by the

evidence on record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell
its properties and that it had empowered Adams, Glanville and Delsaux or
Marquez to offer the properties for sale to prospective buyers and to accept any
counter-offer. Petitioners likewise failed to prove that their counter-offer had been
accepted by respondent EC, through Glanville and Delsaux. It must be stressed
that when specific performance is sought of a contract made with an agent, the
agency must be established by clear, certain and specific proof. 24
Section 23 of Batas Pambansa Bilang 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.
Indeed, a corporation is a juridical person separate and distinct from its members
or stockholders and is not affected by the personal rights,
obligations and transactions of the latter. 25 It 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.26
Under Section 36 of the Corporation Code, a corporation may sell or convey its
real properties, subject to the limitations prescribed by law and the Constitution,
as follows:
SEC. 36. Corporate powers and capacity. Every corporation incorporated under
this Code has the power and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage
and otherwise deal with such real and personal property, including securities and
bonds of other corporations, as the transaction of a lawful business of the
corporation may reasonably and necessarily require, subject to the limitations
prescribed by the law and the Constitution.
The property of a corporation, however, is not the property of the stockholders or
members, and as such, may not be sold without express authority from the
board of directors.27 Physical acts, like the offering of the properties of the

corporation for sale, or the acceptance of a counter-offer of prospective buyers of

such properties and the execution of the deed of sale covering such property,
can be performed by the corporation only by officers or agents duly authorized
for the purpose by corporate by-laws or by specific acts of the board of
directors.28 Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but
not in the course of, or connected with, the performance of authorized duties of
such director, are not binding on the corporation. 29
While a corporation may appoint agents to negotiate for the sale of its real
properties, the final say will have to be with the board of directors through its
officers and agents as authorized by a board resolution or by its by-laws. 30An
unauthorized act of an officer of the corporation is not binding on it unless the
latter ratifies the same expressly or impliedly by its board of directors. Any sale
of real property of a corporation by a person purporting to be an agent thereof
but without written authority from the corporation is null and void. The
declarations of the agent alone are generally insufficient to establish the fact or
extent of his/her authority.31
By the contract of agency, a person binds himself to render some service or to
do something in representation on behalf of another, with the consent or
authority of the latter. 32 Consent of both principal and agent is necessary to
create an agency. The principal must intend that the agent shall act for him; the
agent must intend to accept the authority and act on it, and the intention of the
parties must find expression either in words or conduct between them. 33
An agency may be expressed or implied from the act of the principal, from his
silence or lack of action, or his failure to repudiate the agency knowing that
another person is acting on his behalf without authority. Acceptance by the agent
may be expressed, or implied from his acts which carry out the agency, or from
his silence or inaction according to the circumstances. 34 Agency may be oral
unless the law requires a specific form.35 However, to create or convey real rights
over immovable property, a special power of attorney is necessary. 36 Thus, when
a sale of a piece of land or any portion thereof is through an agent, the authority
of the latter shall be in writing, otherwise, the sale shall be void. 37
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any
resolution of the Board of Directors of respondent EC empowering Marquez,
Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in its
behalf, the eight parcels of land owned by respondent EC including the
improvements thereon. The bare fact that Delsaux may have been authorized to
sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997,
cannot be used as basis for petitioners claim that he had likewise been
authorized by respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on
the authority of Delsaux, who, in turn, acted on the authority of respondent
ESAC, through its Committee for Asia, 38 the Board of Directors of respondent
ESAC,39 and the Belgian/Swiss component of the management of respondent

ESAC.40 As such, Adams and Glanville engaged the services of Marquez to offer
to sell the properties to prospective buyers. Thus, on September 12, 1986,
Marquez wrote the petitioner that he was authorized to offer for sale the property
forP27,000,000.00 and the other terms of the sale subject to negotiations. When
petitioners offered to purchase the property for P20,000,000.00, through
Marquez, the latter relayed petitioners offer to Glanville; Glanville had to send a
telex to Delsaux to inquire the position of respondent ESAC to petitioners offer.
However, as admitted by petitioners in their Memorandum, Delsaux was unable
to reply immediately to the telex of Glanville because Delsaux had to wait for
confirmation from respondent ESAC.41 When Delsaux finally responded to
Glanville on February 12, 1987, he made it clear that, based on the
"Belgian/Swiss decision" the final offer of respondent ESAC was US$1,000,000.00
plus P2,500,000.00 to cover all existing obligations prior to final liquidation. 42 The
offer of Delsaux emanated only from the "Belgian/Swiss decision," and not the
entire management or Board of Directors of respondent ESAC. While it is true
that petitioners accepted the counter-offer of respondent ESAC, respondent EC
was not a party to the transaction between them; hence, EC was not bound by
such acceptance.
While Glanville was the President and General Manager of respondent EC, and
Adams and Delsaux were members of its Board of Directors, the three acted for
and in behalf of respondent ESAC, and not as duly authorized agents of
respondent EC; a board resolution evincing the grant of such authority is needed
to bind EC to any agreement regarding the sale of the subject properties. Such
board resolution is not a mere formality but is a condition sine qua non to bind
respondent EC. Admittedly, respondent ESAC owned 90% of the shares of stocks
of respondent EC; however, the mere fact that a corporation owns a majority of
the shares of stocks of another, or even all of such shares of stocks, taken alone,
will not justify their being treated as one corporation. 43
It bears stressing that 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.44
The petitioners cannot feign ignorance of the absence of any regular and valid
authority of respondent EC empowering Adams, Glanville or Delsaux to offer the
properties for sale and to sell the said properties to the petitioners. A person
dealing with a known agent is not authorized, under any circumstances, blindly
to trust the agents; statements as to the extent of his powers; such person must
not act negligently but must use reasonable diligence and prudence to ascertain
whether the agent acts within the scope of his authority. 45 The settled rule is
that, persons dealing with an assumed agent are bound at their peril, and 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 prove it.46 In this case, the petitioners failed to discharge
their burden; hence, petitioners are not entitled to damages from respondent EC.
It appears that Marquez acted not only as real estate broker for the petitioners
but also as their agent. As gleaned from the letter of Marquez to Glanville, on
February 26, 1987, he confirmed, for and in behalf of the petitioners, that the
latter had accepted such offer to sell the land and the improvements thereon.
However, we agree with the ruling of the appellate court that Marquez had no
authority to bind respondent EC to sell the subject properties. A real estate
broker is one who negotiates the sale of real properties. His business, generally
speaking, is only to find a purchaser who is willing to buy the land upon terms
fixed by the owner. He has no authority to bind the principal by signing a
contract of sale. Indeed, an authority to find a purchaser of real property does
not include an authority to sell.47
Equally barren of merit is petitioners contention that respondent EC is estopped
to deny the existence of a principal-agency relationship between it and Glanville
or Delsaux. For an agency by estoppel to exist, the following must be
established: (1) the principal manifested a representation of the agents
authority or knowlingly allowed the agent to assume such authority; (2) the third
person, in good faith, relied upon such representation; (3) relying upon such
representation, such third person has changed his position to his detriment. 48 An
agency by estoppel, which is similar to the doctrine of apparent authority,
requires proof of reliance upon the representations, and that, in turn, needs proof
that the representations predated the action taken in reliance. 49 Such proof is
lacking in this case. In their communications to the petitioners, Glanville and
Delsaux positively and unequivocally declared that they were acting for and in
behalf of respondent ESAC.
Neither may respondent EC be deemed to have ratified the transactions between
the petitioners and respondent ESAC, through Glanville, Delsaux and Marquez.
The transactions and the various communications inter se were never submitted
to the Board of Directors of respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
against the petitioners.
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson
(On leave)
CONSUELO YNARES-SANTIAGO

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

Asscociate Justice

MINITA V. CHICO-NAZARIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that
the conclusions in the above decision were reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes
1

Penned by Associate Justice Remedios A. Salazar-Fernando, with Associate

Justices Fermin A. Martin, Jr. and Salvador J. Valdez, Jr. (retired), concurring; rollo,
pp. 40-53.
2

Rollo, pp. 54-55.

Id. at 11, 61.

Id. at 394-395.

Id. at 396.

Id. at 397-398.

Id. at 240.

Id. at 241.

Id.

10

Id. at 399.

11

Id. at 349-400.

12

Id. at 163-175.

13

Id. at 174-175.

14

Id. at 173-174.

15

Id. at 47-48.

16

Id. at 40-53.

17

Id. at 15.

18

Id. at 29-30.

19

Id. at 30-31.

20

Weathersby v. Gore, 556 F.2d 1247 (1977).

21

Cavic v. Grand Bahama Development Co., Ltd., 701 F.2d 879 (1983).

22

Culaba v. Court of Appeals, G.R. No. 125862, April 15, 2004, 427 SCRA 721,
729; Litonjua v. Fernandez, G.R. No. 148116, April 14, 2004, 427 SCRA 478, 489.
23

Nokom v. National Labor Relations Commission, 390 Phil. 1228, 1242-1243

(2000). (citations omitted)
24

Blair v. Sheridan, 10 S.E. 414 (1889).

26

San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 357 Phil.
631, 644 (1998).
27

Traders Royal Bank v. Court of Appeals, G.R. No. 78412, September 26, 1989,
177 SCRA 788, 792.
28

BPI Leasing Corporation v. Court of Appeals, G.R. No. 127624, November 18,
2003, 416 SCRA 4, 11.
29

AF Realty & Development, Inc. v. Dieselman Freight Services, Co., 424 Phil.
446, 454 (2002).
30

De Liano v. Court of Appeals, 421 Phil. 1033, 1052 (2001).

31

Litonjua v. Fernandez, supra note 22, at 493.

32

Article 1868, new civil code.

33

Ellison v. Hunsinger, 75 S.E. 2d. 884 (1953); Dominion Insurance Corporation v.

Court of Appeals, 426 Phil. 620, 626 (2002).
34

civil code, Art. 1870.

35

civil code, Art. 1869, paragraph 2.

36

civil code, Art. 1878(12).

37

civil code, Art. 1874.

38

Exhibits "H" and "H-1," rollo, p. 166.

39

Exhibits "G" and "G-1," id.

40

Exhibits "C" and "C-1," id. at 165.

41

Rollo, p. 396.

42

Exhibits "C" and "C-1," rollo, p. 165.

43

Philippine National Bank v. Ritratto Group, Inc., supra note 25, at 503.

44

Orient Air Services and Hotel Representatives v. Court of Appeals, 274 Phil.
927, 939 (1991).
45

Hill v. Delta Loan and Finance Company, 277 S.W. 2d 63, 65.

46

Litonjua v. Fernandez, supra note 22, at 494; Culaba v. Court of Appeals, supra
note 22, at 730; BA Finance Corporation v. Court of Appeals, G.R. No. 94566, July
3, 1992, 211 SCRA 112, 116.
47

Donnan v. Adams, 71 S.W. 580.

48

Carolina-Georgia Carpet and Textiles, Inc. v. Pelloni, 370 So. 2d 450 (1979).

49

Id.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 95909 August 16, 1991

UNILAND RESOURCES, petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES,* respondent.
Romeo G. Roxas for petitioner.

GANCAYCO, J.:p
In the law on agency, it is elementary that when the main transaction between
the principal parties does not materialize, the claim for commission of the duly
authorized broker is disallowed. 1 How about the instance when the sale was
eventually consummated between parties introduced by a middleman who, in
the first place, had no authority, express or implied, from the seller to broker the
transaction? Should the interloper be allowed a commission? On these simplified
terms rests the nature of the controversy on which this case turns.
As stated by the respondent Court of Appeals,
this case are as follows:

the ambient circumstances of

(1) [Petitioner] Uniland Resources is a private corporation engaged in real estate

brokerage and licensed as such (p. 2, Rec.), while [respondent] DBP, as we all
know [sic], is a government corporation engaged in finance and banking in a
proprietary capacity.

(2) Long before this case arose, Marinduque Mining Corporation obtained a loan
from the DBP and as security therefor, mortgaged certain real properties to the
latter, among them two lots located in Makati, M.M., described as follows:
(a) Corner lot, covered by TCT No. 114138, located at Pasong Tamo, Makati with
an area of 3,330 sq. mts. on which is constructed a [four]-story concrete
building, etc., which, for brevity, shall be called the office building lot; and
(b) Lot covered by TCT No. 16279 with 12,355 sq. mts located at Pasong Tamo,
Makati, on which is constructed a concrete/steel warehouse, etc., which, for
brevity, shall be called the warehouse lot.
The aforesaid lots had, however, been previously mortgaged by Marinduque
Mining Corp., to Caltex, and the mortgage in favor of DBP was entered on their
titles as a second mortgage (Pre-Trial Order, p. 37, Rec.).
The account of the Marinduque Mining Corp., with the DBP was later transferred
to the Assets Privatization Trust (APT) pursuant to Proclamation No. 50.
(3) For failure of the Marinduque Mining Corp. to pay its obligations to Caltex, the
latter foreclosed its mortgage on the aforesaid two lots (pp. 37-38, Rec.). APT on
the other hand, to recover its investment on the Marinduque Account, offered for
sale to the public through DBP its right of redemption on said two lots by public
bidding (Exhs. "1" and "2").
(4) Considering, however, that Caltex had required that both lots be redeemed,
the bidding guidelines set by DBP provided that any bid to purchase either of the
two lots would be considered only should there be two bids or a bid for the two
items which, when combined, would fully cover the sale of the two lots in
question (Exh. "1").
(5) The aforesaid bidding was held on May 5, 1987 with only one bidder, the
Counsel Realty Corp. [an affiliate of Glaxo, Philippines, the client of petitioner],
which offered a bid only for the warehouse lot in the amount of P23,900,000.00.
Said bid was thus rejected by DBP.
(6) Seeing, however, that it would make a profit if it redeemed the two lots and
then offer them for sale, and as its right to redeem said lots from Caltex would
expire on May 8, 1987, DBP retrieved the account from APT and, on the last day
for the exercise of its right of redemption, May 8, 1987, redeemed said lots from
Caltex for P33,096,321.62 (Exh. "5"), thus acquiring them as its physical assets.
(7) In preparation for the sale of the two lots in question, DBP called a prebidding conference wherein a new set of bidding guidelines were formulated
(Exh. "3"). Then, on July 30,1987, the public bidding for the sale of the two lots
was held and again, there was only one bidder, the Charges Realty Corp.
[another affiliate of Glaxo, Philippines], for only the warehouse lot and for the
amount of P24,070,000.00, which is slightly higher than the amount previously
offered by Counsel Realty Corp., therefor at the May 5, 1987 bidding (see Exh.
"5," p. 1 00, Rec.). No bid was submitted for the office building lot (id.).

(8) Notwithstanding that there was no bidder for the office building lot, the DBP
approved the sale of the warehouse lot to Charges Realty Corp., and on
November 23, 1987, the proper documentation of the sale was made (Exh. "D").
As for the office building lot, it was later sold by DBP in a negotiated sale to the
Bank of P.I. as trustee for the "Perpetual Care Fund of the Manila Memorial Park"
for P17,460,000.00, and proper documentation of the sale was made on
November 17, 1987 (Exh. "E" and submarkings). The DBP admittedly paid the
(five percent) broker's fee on this sale to the DBP Management Corporation,
which acted as broker for said negotiated sale (p. 15, Appellant DBP's brief).
(9) After the aforesaid sale, [petitioner], through its President, wrote two letters
to [respondent DBP], the first through its Senior Vice President (Exh. "C"), and,
the second through its Vice Chairman (Exh. "4" [sic], asking for the payment of
its broker's fee in instrumenting the sale of its (DBP's) warehouse lot to Charges
Realty Corp. The claim was referred to the Bidding Committee chaired by
Amanda S. Guiam which met on November 9, 1987, and which, on November 18,
1987, issued a decision denying [petitioner's] claim (Exh. "5"). Hence, the instant
case filed by [petitioner] to recover from [respondent] DBP the aforesaid broker's
fee.
After trial, the lower court, on October 25, 1988, rendered judgment
ORDERING [respondent DBP] to pay [petitioner] the sum of P1,203,500,00 which
is the equivalent of [five percent] broker's fee plus legal interest thereto (sic)
from the filing of the complaint on February 18, 1988 until fully paid and the sum
of P50,000.00 as and for attorney's fees. Costs against [respondent DBP]. (p.
122, Rec.). 3
On appeal, the Court of Appeals reversed the judgment of the lower court 4 and
dismissed the complaint. The motion for reconsideration filed by petitioner was
also subsequently denied. 5
Petitioner is now before this Court alleging that the petition "RAISES A QUESTION
OF LAW IN THE SENSE THAT THE RESPONDENT COURT OF APPEALS BASED ITS
DECISION ONLY ON THE CONTROVERSIAL FACTS FAVORABLE TO THE PRIVATE
RESPONDENT DBP, 6 primarily making capital of the disparity between the
factual conclusions of the trial court and of the appellate court. Petitioner asserts
that the respondent Court of Appeals disregarded evidence in its favor consisting
of its letters to respondent DBP's higher officers sent prior to the bidding and
sale, wherein petitioner requested accreditation as a broker and, in the process
of informing that it had offered the DBP properties for sale, also volunteered the
name of its client, Glaxo, Philippines, as an interested prospective buyer. 7
The rule is that in petitions for certiorari as a mode of appeal, only questions of
law distinctly set forth may be raised. 8 Such questions have been defined as
those that do not call for any examination of the probative value of the evidence
presented by the parties. 9 Petitioner's singular assignment of error would,
however, have this Court go over the facts of this case because it necessarily

involves the examination of the evidence and its subsequent reevaluation. Under
the present proceeding, the same, therefore, cannot be done.
It bears emphasizing that mere disagreement between the Court of Appeals and
the trial court as to the facts of a case does not of itself warrant this Court's
review of the same. It has been held that the doctrine that the findings of fact
made by the Court of Appeals, being conclusive in nature, are binding on this
Court, applies even if the Court of Appeals was in disagreement with the lower
court as to the weight of evidence with a consequent reversal of its findings of
fact, so long as the findings of the Court of Appeals are borne out by the record
or based on substantial evidence. 10 while the foregoing doctrine is not absolute,
petitioner has not sufficiently proved that his case falls under the known
exceptions. 11
Be that as it may, the Court has perused the assailed decision of the Court of
Appeals and still finds the primary assertion of petitioner to be unfounded. The
Court of Appeals has addressed all the factual contentions of petitioner and
chose not to give credence to petitioner's version. Moreover, the findings of the
Court of Appeals are consistent with, and sufficiently supported by, the records of
this case.
It is obvious that petitioner was never able to secure the required accreditation
from respondent DBP to transact business on behalf of the latter. The letters sent
by petitioner to the higher officers of the DBP and the APT are merely indicative
of petitioner's desire to secure such accreditation. At best these missives are selfserving; the most that they prove is that they were sent by petitioner and
received by respondent DBP, which clearly never agreed to be bound thereto. As
declared by the trial court even when it found in favor of petitioner, there was no
express reply from the DBP or the APT as to the accreditation sought by
petitioner. 12 From the very beginning, therefore, petitioner was aware that it had
no express authority from DBP to find buyers of its properties.
In its reply submitted pursuant to the resolution requiring the same 13 petitioner
also invokes Article 1869 of the new Civil Code 14 in contending that an implied
agency existed. Petitioner argues that it "should have been stopped,
disauthorized and outrightly prevented from dealing the 12,355 sq. m (with
warehouse) [sic] by the DBP from the inception." 15 On the contrary, these steps
were never necessary. In the course of petitioner's dealings with the DBP, it was
always made clear to petitioner that only accredited brokers may look for buyers
on behalf of respondent DBP. This is not a situation wherein a third party was
prejudiced by the refusal of respondent DBP to recognize petitioner as its broker.
The controversy is only between the DBP and petitioner, to whom it was
emphasized in no uncertain terms that the arrangement sought did not exist.
Article 1869, therefore, has no room for operation in this case.
Petitioner would also disparage the formality of accreditation as merely a
mechanical act, which requires not much discretion, as long as a person or entity
looks for a buyer [and] initiate or promote [sic] the interests of the seller.16 Being
engaged in business, petitioner should do better to adopt the opposite attitude

and appreciate that formalities, such as the need for accreditation, result from
the evolution of sound business practices for the protection and benefit of all
parties concerned. They are designed and adopted specifically to prevent the
occurrence of situations similar to that obtaining in this case.
More importantly, petitioner's stance goes against the basic axiom in Civil Law
that no one may contract in the name of another without being authorized by the
latter, unless the former has by law a right to represent him. 17From this
principle, among others, springs the relationship of agency which, as with other
contracts, is one founded on mutual consent: the principal agrees to be bound by
the acts of the agent and the latter in turn consents to render service on behalf
or in representation of the principal. 18
Petitioner, however, also invokes equity considerations, and in equity, the Court
recognizes the efforts of petitioner in bringing together respondent DBP and an
interested and financially-able buyer. While not actively involved in the actual
bidding and transfer of ownership of the warehouse property, petitioner may be
said to have initiated, albeit without proper authority, the transaction that
eventually took place. The Court is also aware that respondent DBP was able to
realize a substantial profit from the sale of its two properties. While purely
circumstantial, there is sufficient reason to believe that the DBP became more
confident to venture and redeem the properties from the APT due to the
presence of a ready and willing buyer, as communicated and assured by
petitioner.
In Prats v. Court of Appeals, 19 there was a finding that the petitioner therein as
the agent was no longer the efficient procuring cause in bringing about the sale
proceeding from the fact of expiration of his exclusive authority. There was
therefore no basis in law to grant the relief sought. Nevertheless, this Court in
equity granted the sum of P100,000.00, out of the P1,380,000.00 claimed as
commission, by way of compensation for the efforts and assistance rendered by
the agent in the transaction prior to the expiration of his authority. These consist
in offering the lot for sale to the eventual buyer, sending follow-up letters,
inviting the buyer to dinner and luncheon meetings, etc.
Parallel circumstances obtain in the case at bar. It was petitioner who advised
Glaxo, Philippines of the availability of the warehouse property and aroused its
interest over the same. Through petitioner, respondent DBP was directly
informed of the existence of an interested buyer. Petitioner's persistence in
communicating with respondent DBP reinforced the seriousness of the offer. This
piece of information no doubt had a bearing on the subsequent decisions made
by respondent DBP as regards the disposition of its properties.
Petitioner claims the amount of P1,203,500.00 awarded by the trial court as
commission computed at five percent of the sale price of the warehouse
property. Under the foregoing disquisition and following the precedent, as well as
roughly the proportion, set in Prats, the Court in equity grants petitioner the sum
of One Hundred Thousand Pesos (Pl00,000.00) for the role it played in the
transaction between respondent DBP and buyer Glaxo, Philippines. It is

emphasized, however, that the circumstances that came into play in this case do
not meet the minimum legal standards required for the existence of an agency
relationship and that the award is based purely on equity considerations.
Accordingly, petitioner's other arguments need not now be discussed.
WHEREFORE, the decision appealed from is hereby AFFIRMED, with the
MODIFICATION that in equity respondent DBP is ordered to pay petitioner the
amount of One Hundred Thousand Pesos (P100,000.00). No pronouncement as to
costs.
SO ORDERED.
Narvasa (Chairman), Cruz, Grio-Aquino and Medialdea, JJ., concur.

Footnotes
* Pursuant to the clarification made in Metropolitan Waterworks and Sewerage
Systems v. Court of Appeals [G.R. No. L-54526, 25 August 1986, 143 SCRA 6231,
citing Elks Club v. Rovira [G.R. No. 48411, 24 February 1948, 80 Phil. 272], the
name of the Court of Appeals, which has been included by petitioner as party
respondent in the title of this case, has been deleted.
1 Danon v. Antonio A. Brimo and Company, G.R. No. 15823,12 September 1921,
citing Sibbald v. Bethlehem Iron Company, 83 N.Y., 378; 38 Am. Rep., 441
[18801; reiterated in Rocha v. Prats and Company, G.R. No. 16716, 31 May 1922,
43 Phil. 397.
2 Ninth Division composed of Justices Fidel P. Purisima, as Chairman, Venancio D.
Aldecoa Jr., and Alicia V. Sempio Diy with the latter as the ponente.
3 Rollo, pp. 25-28.
4 Regional Trial Court, Branch 105, Quezon City, with the Honorable Tomas V.
Tadeo, Jr., presiding; Rollo, pp. 18-22.
5 Rollo, p. 45.
6 Rollo, p. 13.
7 Exhibits "A" and "B."
8 Rules of Court, Rule 45, sec. 2, par. 2.
9 Goduco v. Court of Appeals, et al., G.R. No. L-17647, 28 February 1964, 119
Phil. 531. See also Hernandez v. Court of Appeals, G.R. No. L-39767, 31 March
1987,149 SCRA 67.
10 Alsua-Betts v. Court of Appeals, G.R. Nos. L-46430-31, 30 July 1979, 92 SCRA
332.

11 See Sacay v. Sandiganbayan, G.R. Nos. 66497-98, 10 July 1986, 142 SCRA
593, and the cases cited therein.
12 Rollo p. 20.
13 Rollo, p. 64. .
14 Art. 1869. Agency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency, knowing
that another person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
15 Reply, p. 8.
16 Reply, p. 11.
17 Art. 1317, Civil Code.
18 See Rallos v. Felix Go Chan and Sons Realty Corporation, G.R. No. L-24332, 31
January 1978, 81 SCRA 251.
19 G.R. No. L-39822, 31 January 19-18, 81 SCRA 360.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 142625

December 19, 2006

ROGELIO P. NOGALES, for himself and on behalf of the minors, ROGER

ANTHONY, ANGELICA, NANCY, and MICHAEL CHRISTOPHER, all surnamed
NOGALES, petitioners,
vs.
CAPITOL MEDICAL CENTER, DR. OSCAR ESTRADA, DR. ELY VILLAFLOR,
DR. ROSA UY, DR. JOEL ENRIQUEZ, DR. PERPETUA LACSON, DR. NOE
ESPINOLA, and NURSE J. DUMLAO, respondents.

DECISION

CARPIO, J.:
The Case

This petition for review1 assails the 6 February 1998 Decision2 and 21 March
2000 Resolution3 of the Court of Appeals in CA-G.R. CV No. 45641. The Court of
Appeals affirmed in toto the 22 November 1993 Decision4 of the Regional Trial
Court of Manila, Branch 33, finding Dr. Oscar Estrada solely liable for damages
for the death of his patient, Corazon Nogales, while absolving the remaining
respondents of any liability. The Court of Appeals denied petitioners' motion for
reconsideration.
The Facts
Pregnant with her fourth child, Corazon Nogales ("Corazon"), who was then 37
years old, was under the exclusive prenatal care of Dr. Oscar Estrada ("Dr.
Estrada") beginning on her fourth month of pregnancy or as early as December
1975. While Corazon was on her last trimester of pregnancy, Dr. Estrada noted
an increase in her blood pressure and development of leg edema 5 indicating
preeclampsia,6 which is a dangerous complication of pregnancy. 7
Around midnight of 25 May 1976, Corazon started to experience mild labor pains
prompting Corazon and Rogelio Nogales ("Spouses Nogales") to see Dr. Estrada
at his home. After examining Corazon, Dr. Estrada advised her immediate
admission to the Capitol Medical Center ("CMC").
On 26 May 1976, Corazon was admitted at 2:30 a.m. at the CMC after the staff
nurse noted the written admission request 8 of Dr. Estrada. Upon Corazon's
admission at the CMC, Rogelio Nogales ("Rogelio") executed and signed the
"Consent on Admission and Agreement"9 and "Admission Agreement."10 Corazon
was then brought to the labor room of the CMC.
Dr. Rosa Uy ("Dr. Uy"), who was then a resident physician of CMC, conducted an
internal examination of Corazon. Dr. Uy then called up Dr. Estrada to notify him
of her findings.
Based on the Doctor's Order Sheet,11 around 3:00 a.m., Dr. Estrada ordered for
10 mg. of valium to be administered immediately by intramuscular injection. Dr.
Estrada later ordered the start of intravenous administration of syntocinon
admixed with dextrose, 5%, in lactated Ringers' solution, at the rate of eight to
ten micro-drops per minute.
According to the Nurse's Observation Notes, 12 Dr. Joel Enriquez ("Dr. Enriquez"),
an anesthesiologist at CMC, was notified at 4:15 a.m. of Corazon's admission.
Subsequently, when asked if he needed the services of an anesthesiologist, Dr.
Estrada refused. Despite Dr. Estrada's refusal, Dr. Enriquez stayed to observe
Corazon's condition.
At 6:00 a.m., Corazon was transferred to Delivery Room No. 1 of the CMC. At
6:10 a.m., Corazon's bag of water ruptured spontaneously. At 6:12 a.m.,
Corazon's cervix was fully dilated. At 6:13 a.m., Corazon started to experience
convulsions.

At 6:15 a.m., Dr. Estrada ordered the injection of ten grams of magnesium
sulfate. However, Dr. Ely Villaflor ("Dr. Villaflor"), who was assisting Dr. Estrada,
administered only 2.5 grams of magnesium sulfate.
At 6:22 a.m., Dr. Estrada, assisted by Dr. Villaflor, applied low forceps to extract
Corazon's baby. In the process, a 1.0 x 2.5 cm. piece of cervical tissue was
allegedly torn. The baby came out in an apnic, cyanotic, weak and injured
condition. Consequently, the baby had to be intubated and resuscitated by Dr.
Enriquez and Dr. Payumo.
At 6:27 a.m., Corazon began to manifest moderate vaginal bleeding which
rapidly became profuse. Corazon's blood pressure dropped from 130/80 to 60/40
within five minutes. There was continuous profuse vaginal bleeding. The
assisting nurse administered hemacel through a gauge 19 needle as a side drip
to the ongoing intravenous injection of dextrose.
At 7:45 a.m., Dr. Estrada ordered blood typing and cross matching with bottled
blood. It took approximately 30 minutes for the CMC laboratory, headed by Dr.
Perpetua Lacson ("Dr. Lacson"), to comply with Dr. Estrada's order and deliver
the blood.
At 8:00 a.m., Dr. Noe Espinola ("Dr. Espinola"), head of the ObstetricsGynecology Department of the CMC, was apprised of Corazon's condition by
telephone. Upon being informed that Corazon was bleeding profusely, Dr.
Espinola ordered immediate hysterectomy. Rogelio was made to sign a "Consent
to Operation."13
Due to the inclement weather then, Dr. Espinola, who was fetched from his
residence by an ambulance, arrived at the CMC about an hour later or at 9:00
a.m. He examined the patient and ordered some resuscitative measures to be
administered. Despite Dr. Espinola's efforts, Corazon died at 9:15 a.m. The cause
of death was "hemorrhage, post partum."14
On 14 May 1980, petitioners filed a complaint for damages 15 with the Regional
Trial Court16 of Manila against CMC, Dr. Estrada, Dr. Villaflor, Dr. Uy, Dr. Enriquez,
Dr. Lacson, Dr. Espinola, and a certain Nurse J. Dumlao for the death of Corazon.
Petitioners mainly contended that defendant physicians and CMC personnel were
negligent in the treatment and management of Corazon's condition. Petitioners
charged CMC with negligence in the selection and supervision of defendant
physicians and hospital staff.
For failing to file their answer to the complaint despite service of summons, the
trial court declared Dr. Estrada, Dr. Enriquez, and Nurse Dumlao in
default.17 CMC, Dr. Villaflor, Dr. Uy, Dr. Espinola, and Dr. Lacson filed their
respective answers denying and opposing the allegations in the complaint.
Subsequently, trial ensued.
After more than 11 years of trial, the trial court rendered judgment on 22
November 1993 finding Dr. Estrada solely liable for damages. The trial court
ruled as follows:

The victim was under his pre-natal care, apparently, his fault began from his
incorrect and inadequate management and lack of treatment of the preeclamptic condition of his patient. It is not disputed that he misapplied the
forceps in causing the delivery because it resulted in a large cervical tear which
had caused the profuse bleeding which he also failed to control with the
application of inadequate injection of magnesium sulfate by his assistant Dra. Ely
Villaflor. Dr. Estrada even failed to notice the erroneous administration by nurse
Dumlao of hemacel by way of side drip, instead of direct intravenous injection,
and his failure to consult a senior obstetrician at an early stage of the problem.
On the part however of Dra. Ely Villaflor, Dra. Rosa Uy, Dr. Joel Enriquez, Dr.
Lacson, Dr. Espinola, nurse J. Dumlao and CMC, the Court finds no legal
justification to find them civilly liable.
On the part of Dra. Ely Villaflor, she was only taking orders from Dr. Estrada, the
principal physician of Corazon Nogales. She can only make suggestions in the
manner the patient maybe treated but she cannot impose her will as to do so
would be to substitute her good judgment to that of Dr. Estrada. If she failed to
correctly diagnose the true cause of the bleeding which in this case appears to
be a cervical laceration, it cannot be safely concluded by the Court that Dra.
Villaflor had the correct diagnosis and she failed to inform Dr. Estrada. No
evidence was introduced to show that indeed Dra. Villaflor had discovered that
there was laceration at the cervical area of the patient's internal organ.
On the part of nurse Dumlao, there is no showing that when she administered
the hemacel as a side drip, she did it on her own. If the correct procedure was
directly thru the veins, it could only be because this was what was probably the
orders of Dr. Estrada.
While the evidence of the plaintiffs shows that Dr. Noe Espinola, who was the
Chief of the Department of Obstetrics and Gynecology who attended to the
patient Mrs. Nogales, it was only at 9:00 a.m. That he was able to reach the
hospital because of typhoon Didang (Exhibit 2). While he was able to give
prescription in the manner Corazon Nogales may be treated, the prescription was
based on the information given to him by phone and he acted on the basis of
facts as presented to him, believing in good faith that such is the correct remedy.
He was not with Dr. Estrada when the patient was brought to the hospital at 2:30
o'clock a.m. So, whatever errors that Dr. Estrada committed on the patient
before 9:00 o'clock a.m. are certainly the errors of Dr. Estrada and cannot be the
mistake of Dr. Noe Espinola. His failure to come to the hospital on time was due
to fortuitous event.
On the part of Dr. Joel Enriquez, while he was present in the delivery room, it is
not incumbent upon him to call the attention of Dr. Estrada, Dra. Villaflor and
also of Nurse Dumlao on the alleged errors committed by them. Besides, as
anesthesiologist, he has no authority to control the actuations of Dr. Estrada and
Dra. Villaflor. For the Court to assume that there were errors being committed in
the presence of Dr. Enriquez would be to dwell on conjectures and speculations.

On the civil liability of Dr. Perpetua Lacson, [s]he is a hematologist and in-charge
of the blood bank of the CMC. The Court cannot accept the theory of the plaintiffs
that there was delay in delivering the blood needed by the patient. It was
testified, that in order that this blood will be made available, a laboratory test
has to be conducted to determine the type of blood, cross matching and other
matters consistent with medical science so, the lapse of 30 minutes maybe
considered a reasonable time to do all of these things, and not a delay as the
plaintiffs would want the Court to believe.
Admittedly, Dra. Rosa Uy is a resident physician of the Capitol Medical Center.
She was sued because of her alleged failure to notice the incompetence and
negligence of Dr. Estrada. However, there is no evidence to support such theory.
No evidence was adduced to show that Dra. Rosa Uy as a resident physician of
Capitol Medical Center, had knowledge of the mismanagement of the patient
Corazon Nogales, and that notwithstanding such knowledge, she tolerated the
same to happen.
In the pre-trial order, plaintiffs and CMC agreed that defendant CMC did not have
any hand or participation in the selection or hiring of Dr. Estrada or his assistant
Dra. Ely Villaflor as attending physician[s] of the deceased. In other words, the
two (2) doctors were not employees of the hospital and therefore the hospital did
not have control over their professional conduct. When Mrs. Nogales was brought
to the hospital, it was an emergency case and defendant CMC had no choice but
to admit her. Such being the case, there is therefore no legal ground to apply the
provisions of Article 2176 and 2180 of the New Civil Code referring to the
vicarious liability of an employer for the negligence of its employees. If ever in
this case there is fault or negligence in the treatment of the deceased on the
part of the attending physicians who were employed by the family of the
deceased, such civil liability should be borne by the attending physicians under
the principle of "respondeat superior".
WHEREFORE, premises considered, judgment is hereby rendered finding
defendant Dr. Estrada of Number 13 Pitimini St. San Francisco del Monte, Quezon
City civilly liable to pay plaintiffs: 1) By way of actual damages in the amount
of P105,000.00; 2) By way of moral damages in the amount of P700,000.00; 3)
Attorney's fees in the amount of P100,000.00 and to pay the costs of suit.
For failure of the plaintiffs to adduce evidence to support its [sic] allegations
against the other defendants, the complaint is hereby ordered dismissed. While
the Court looks with disfavor the filing of the present complaint against the other
defendants by the herein plaintiffs, as in a way it has caused them personal
inconvenience and slight damage on their name and reputation, the Court
cannot accepts [sic] however, the theory of the remaining defendants that
plaintiffs were motivated in bad faith in the filing of this complaint. For this
reason defendants' counterclaims are hereby ordered dismissed.
SO ORDERED.18

Petitioners appealed the trial court's decision. Petitioners claimed that aside from
Dr. Estrada, the remaining respondents should be held equally liable for
negligence. Petitioners pointed out the extent of each respondent's alleged
liability.
On 6 February 1998, the Court of Appeals affirmed the decision of the trial
court.19 Petitioners filed a motion for reconsideration which the Court of Appeals
denied in its Resolution of 21 March 2000.20
Hence, this petition.
Meanwhile, petitioners filed a Manifestation dated 12 April 2002 21 stating that
respondents Dr. Estrada, Dr. Enriquez, Dr. Villaflor, and Nurse Dumlao "need no
longer be notified of the petition because they are absolutely not involved in the
issue raised before the [Court], regarding the liability of [CMC]." 22 Petitioners
stressed that the subject matter of this petition is the liability of CMC for the
negligence of Dr. Estrada.23
The Court issued a Resolution dated 9 September 2002 24 dispensing with the
requirement to submit the correct and present addresses of respondents Dr.
Estrada, Dr. Enriquez, Dr. Villaflor, and Nurse Dumlao. The Court stated that with
the filing of petitioners' Manifestation, it should be understood that they are
claiming only against respondents CMC, Dr. Espinola, Dr. Lacson, and Dr. Uy who
have filed their respective comments. Petitioners are foregoing further claims
against respondents Dr. Estrada, Dr. Enriquez, Dr. Villaflor, and Nurse Dumlao.
The Court noted that Dr. Estrada did not appeal the decision of the Court of
Appeals affirming the decision of the Regional Trial Court. Accordingly, the
decision of the Court of Appeals, affirming the trial court's judgment, is already
final as against Dr. Oscar Estrada.
Petitioners filed a motion for reconsideration 25 of the Court's 9 September 2002
Resolution claiming that Dr. Enriquez, Dr. Villaflor and Nurse Dumlao were
notified of the petition at their counsels' last known addresses. Petitioners
reiterated their imputation of negligence on these respondents. The Court denied
petitioners' Motion for Reconsideration in its 18 February 2004 Resolution. 26
The Court of Appeals' Ruling
In its Decision of 6 February 1998, the Court of Appeals upheld the trial court's
ruling. The Court of Appeals rejected petitioners' view that the doctrine
in Darling v. Charleston Community Memorial Hospital 27 applies to this case.
According to the Court of Appeals, the present case differs from the Darling case
since Dr. Estrada is an independent contractor-physician whereas
the Darling case involved a physician and a nurse who were employees of the
hospital.
Citing other American cases, the Court of Appeals further held that the mere fact
that a hospital permitted a physician to practice medicine and use its facilities is
not sufficient to render the hospital liable for the physician's negligence. 28 A

hospital is not responsible for the negligence of a physician who is an

independent contractor.29
The Court of Appeals found the cases of Davidson v. Conole30 and Campbell v.
Emma Laing Stevens Hospital31applicable to this case. Quoting Campbell, the
Court of Appeals stated that where there is no proof that defendant physician
was an employee of defendant hospital or that defendant hospital had reason to
know that any acts of malpractice would take place, defendant hospital could not
be held liable for its failure to intervene in the relationship of physician-patient
between defendant physician and plaintiff.
On the liability of the other respondents, the Court of Appeals applied the
"borrowed servant" doctrine considering that Dr. Estrada was an independent
contractor who was merely exercising hospital privileges. This doctrine provides
that once the surgeon enters the operating room and takes charge of the
proceedings, the acts or omissions of operating room personnel, and any
negligence associated with such acts or omissions, are imputable to the
surgeon.32 While the assisting physicians and nurses may be employed by the
hospital, or engaged by the patient, they normally become the temporary
servants or agents of the surgeon in charge while the operation is in progress,
and liability may be imposed upon the surgeon for their negligent acts under the
doctrine of respondeat superior.33
The Court of Appeals concluded that since Rogelio engaged Dr. Estrada as the
attending physician of his wife, any liability for malpractice must be Dr. Estrada's
sole responsibility.
While it found the amount of damages fair and reasonable, the Court of Appeals
held that no interest could be imposed on unliquidated claims or damages.
The Issue
Basically, the issue in this case is whether CMC is vicariously liable for the
negligence of Dr. Estrada. The resolution of this issue rests, on the other hand,
on the ascertainment of the relationship between Dr. Estrada and CMC. The
Court also believes that a determination of the extent of liability of the other
respondents is inevitable to finally and completely dispose of the present
controversy.
The Ruling of the Court
The petition is partly meritorious.
On the Liability of CMC
Dr. Estrada's negligence in handling the treatment and management of
Corazon's condition which ultimately resulted in Corazon's death is no longer in
issue. Dr. Estrada did not appeal the decision of the Court of Appeals which
affirmed the ruling of the trial court finding Dr. Estrada solely liable for damages.

Accordingly, the finding of the trial court on Dr. Estrada's negligence is already
final.
Petitioners maintain that CMC is vicariously liable for Dr. Estrada's negligence
based on Article 2180 in relation to Article 2176 of the Civil Code. These
provisions pertinently state:
Art. 2180. The obligation imposed by article 2176 is demandable not only for
one's own acts or omissions, but also for those of persons for whom one is
responsible.
xxxx
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though
the former are not engaged in any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family
to prevent damage.
Art. 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this Chapter.
Similarly, in the United States, a hospital which is the employer, master, or
principal of a physician employee, servant, or agent, may be held liable for the
physician's negligence under the doctrine of respondeat superior.34
In the present case, petitioners maintain that CMC, in allowing Dr. Estrada to
practice and admit patients at CMC, should be liable for Dr. Estrada's
malpractice. Rogelio claims that he knew Dr. Estrada as an accredited physician
of CMC, though he discovered later that Dr. Estrada was not a salaried employee
of the CMC.35 Rogelio further claims that he was dealing with CMC, whose
primary concern was the treatment and management of his wife's condition. Dr.
Estrada just happened to be the specific person he talked to representing
CMC.36 Moreover, the fact that CMC made Rogelio sign a Consent on Admission
and Admission Agreement37 and a Consent to Operation printed on the
letterhead of CMC indicates that CMC considered Dr. Estrada as a member of its
medical staff.
On the other hand, CMC disclaims liability by asserting that Dr. Estrada was a
mere visiting physician and that it admitted Corazon because her physical
condition then was classified an emergency obstetrics case. 38
CMC alleges that Dr. Estrada is an independent contractor "for whose actuations
CMC would be a total stranger." CMC maintains that it had no control or
supervision over Dr. Estrada in the exercise of his medical profession.

The Court had the occasion to determine the relationship between a hospital and
a consultant or visiting physician and the liability of such hospital for that
physician's negligence in Ramos v. Court of Appeals,39 to wit:
In the first place, hospitals exercise significant control in the hiring and firing of
consultants and in the conduct of their work within the hospital premises.
Doctors who apply for "consultant" slots, visiting or attending, are required to
submit proof of completion of residency, their educational qualifications;
generally, evidence of accreditation by the appropriate board (diplomate),
evidence of fellowship in most cases, and references. These requirements are
carefully scrutinized by members of the hospital administration or by a review
committee set up by the hospital who either accept or reject the application. This
is particularly true with respondent hospital.
After a physician is accepted, either as a visiting or attending consultant, he is
normally required to attend clinico-pathological conferences, conduct bedside
rounds for clerks, interns and residents, moderate grand rounds and patient
audits and perform other tasks and responsibilities, for the privilege of being able
to maintain a clinic in the hospital, and/or for the privilege of admitting patients
into the hospital. In addition to these, the physician's performance as a specialist
is generally evaluated by a peer review committee on the basis of mortality and
morbidity statistics, and feedback from patients, nurses, interns and residents. A
consultant remiss in his duties, or a consultant who regularly falls short of the
minimum standards acceptable to the hospital or its peer review committee, is
normally politely terminated.
In other words, private hospitals, hire, fire and exercise real control over their
attending and visiting "consultant" staff. While "consultants" are not,
technically employees, a point which respondent hospital asserts in
denying all responsibility for the patient's condition, the control
exercised, the hiring, and the right to terminate consultants all fulfill
the important hallmarks of an employer-employee relationship, with the
exception of the payment of wages. In assessing whether such a
relationship in fact exists, the control test is determining. Accordingly,
on the basis of the foregoing, we rule that for the purpose of allocating
responsibility in medical negligence cases, an employer-employee
relationship in effect exists between hospitals and their attending and
visiting physicians. This being the case, the question now arises as to whether
or not respondent hospital is solidarily liable with respondent doctors for
petitioner's condition.
The basis for holding an employer solidarily responsible for the negligence of its
employee is found in Article 2180 of the Civil Code which considers a person
accountable not only for his own acts but also for those of others based on the
former's responsibility under a relationship of patria potestas. x x x 40 (Emphasis
supplied)
While the Court in Ramos did not expound on the control test, such test
essentially determines whether an employment relationship exists between a

physician and a hospital based on the exercise of control over the physician as to
details. Specifically, the employer (or the hospital) must have the right to control
both the means and the details of the process by which the employee (or the
physician) is to accomplish his task. 41
After a thorough examination of the voluminous records of this case, the Court
finds no single evidence pointing to CMC's exercise of control over Dr. Estrada's
treatment and management of Corazon's condition. It is undisputed that
throughout Corazon's pregnancy, she was under the exclusive prenatal care of
Dr. Estrada. At the time of Corazon's admission at CMC and during her delivery, it
was Dr. Estrada, assisted by Dr. Villaflor, who attended to Corazon. There was no
showing that CMC had a part in diagnosing Corazon's condition. While Dr.
Estrada enjoyed staff privileges at CMC, such fact alone did not make him an
employee of CMC.42 CMC merely allowed Dr. Estrada to use its facilities 43 when
Corazon was about to give birth, which CMC considered an emergency.
Considering these circumstances, Dr. Estrada is not an employee of CMC, but an
independent contractor.
The question now is whether CMC is automatically exempt from liability
considering that Dr. Estrada is an independent contractor-physician.
In general, a hospital is not liable for the negligence of an independent
contractor-physician. There is, however, an exception to this principle. The
hospital may be liable if the physician is the "ostensible" agent of the
hospital.44This exception is also known as the "doctrine of apparent
authority."45 In Gilbert v. Sycamore Municipal Hospital,46the Illinois Supreme Court
explained the doctrine of apparent authority in this wise:
[U]nder the doctrine of apparent authority a hospital can be held vicariously
liable for the negligent acts of a physician providing care at the hospital,
regardless of whether the physician is an independent contractor, unless the
patient knows, or should have known, that the physician is an independent
contractor. The elements of the action have been set out as follows:
"For a hospital to be liable under the doctrine of apparent authority, a plaintiff
must show that: (1) the hospital, or its agent, acted in a manner that would lead
a reasonable person to conclude that the individual who was alleged to be
negligent was an employee or agent of the hospital; (2) where the acts of the
agent create the appearance of authority, the plaintiff must also prove that the
hospital had knowledge of and acquiesced in them; and (3) the plaintiff acted in
reliance upon the conduct of the hospital or its agent, consistent with ordinary
care and prudence."
The element of "holding out" on the part of the hospital does not require an
express representation by the hospital that the person alleged to be negligent is
an employee. Rather, the element is satisfied if the hospital holds itself out as a
provider of emergency room care without informing the patient that the care is
provided by independent contractors.

The element of justifiable reliance on the part of the plaintiff is satisfied if the
plaintiff relies upon the hospital to provide complete emergency room care,
rather than upon a specific physician.
The doctrine of apparent authority essentially involves two factors to determine
the liability of an independent-contractor physician.
The first factor focuses on the hospital's manifestations and is sometimes
described as an inquiry whether the hospital acted in a manner which would lead
a reasonable person to conclude that the individual who was alleged to be
negligent was an employee or agent of the hospital. 47 In this regard, the
hospital need not make express representations to the patient that the
treating physician is an employee of the hospital; rather a
representation may be general and implied.48
The doctrine of apparent authority is a species of the doctrine of estoppel. Article
1431 of the Civil Code provides that "[t]hrough 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." Estoppel rests on this
rule: "Whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing true, and
to act upon such belief, he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it." 49
In the instant case, CMC impliedly held out Dr. Estrada as a member of its
medical staff. Through CMC's acts, CMC clothed Dr. Estrada with apparent
authority thereby leading the Spouses Nogales to believe that Dr. Estrada was an
employee or agent of CMC. CMC cannot now repudiate such authority.
First, CMC granted staff privileges to Dr. Estrada. CMC extended its medical staff
and facilities to Dr. Estrada. Upon Dr. Estrada's request for Corazon's admission,
CMC, through its personnel, readily accommodated Corazon and updated Dr.
Estrada of her condition.
Second, CMC made Rogelio sign consent forms printed on CMC letterhead. Prior
to Corazon's admission and supposed hysterectomy, CMC asked Rogelio to sign
release forms, the contents of which reinforced Rogelio's belief that Dr. Estrada
was a member of CMC's medical staff. 50 The Consent on Admission and
Agreement explicitly provides:
KNOW ALL MEN BY THESE PRESENTS:
I, Rogelio Nogales, of legal age, a resident of 1974 M. H. Del Pilar St., Malate Mla.,
being the father/mother/brother/sister/spouse/relative/ guardian/or person in
custody of Ma. Corazon, and representing his/her family, of my own volition and
free will, do consent and submit said Ma. Corazon to Dr. Oscar Estrada
(hereinafter referred to as Physician) for cure, treatment, retreatment, or
emergency measures, that the Physician, personally or by and through
the Capitol Medical Center and/or its staff, may use, adapt, or employ
such means, forms or methods of cure, treatment, retreatment, or

emergency measures as he may see best and most expedient; that Ma.
Corazon and I will comply with any and all rules, regulations, directions,
and instructions of the Physician, the Capitol Medical Center and/or its
staff; and, that I will not hold liable or responsible and hereby waive and forever
discharge and hold free the Physician, the Capitol Medical Center and/or its staff,
from any and all claims of whatever kind of nature, arising from directly or
indirectly, or by reason of said cure, treatment, or retreatment, or emergency
measures or intervention of said physician, the Capitol Medical Center and/or its
staff.
x x x x51 (Emphasis supplied)
While the Consent to Operation pertinently reads, thus:
I, ROGELIO NOGALES, x x x, of my own volition and free will, do consent and
submit said CORAZON NOGALES to Hysterectomy, by the Surgical Staff and
Anesthesiologists of Capitol Medical Centerand/or whatever succeeding
operations, treatment, or emergency measures as may be necessary and most
expedient; and, that I will not hold liable or responsible and hereby waive and
forever discharge and hold free the Surgeon, his assistants, anesthesiologists,
the Capitol Medical Center and/or its staff, from any and all claims of whatever
kind of nature, arising from directly or indirectly, or by reason of said operation or
operations, treatment, or emergency measures, or intervention of the Surgeon,
his assistants, anesthesiologists, the Capitol Medical Center and/or its
staff.52 (Emphasis supplied)
Without any indication in these consent forms that Dr. Estrada was an
independent contractor-physician, the Spouses Nogales could not have known
that Dr. Estrada was an independent contractor. Significantly, no one from CMC
informed the Spouses Nogales that Dr. Estrada was an independent contractor.
On the contrary, Dr. Atencio, who was then a member of CMC Board of Directors,
testified that Dr. Estrada was part of CMC's surgical staff. 53
Third, Dr. Estrada's referral of Corazon's profuse vaginal bleeding to Dr. Espinola,
who was then the Head of the Obstetrics and Gynecology Department of CMC,
gave the impression that Dr. Estrada as a member of CMC's medical staff was
collaborating with other CMC-employed specialists in treating Corazon.
The second factor focuses on the patient's reliance. It is sometimes
characterized as an inquiry on whether the plaintiff acted in reliance upon the
conduct of the hospital or its agent, consistent with ordinary care and
prudence.54
The records show that the Spouses Nogales relied upon a perceived employment
relationship with CMC in accepting Dr. Estrada's services. Rogelio testified that
he and his wife specifically chose Dr. Estrada to handle Corazon's delivery not
only because of their friend's recommendation, but more importantly because of
Dr. Estrada's "connection with a reputable hospital, the [CMC]." 55 In other words,
Dr. Estrada's relationship with CMC played a significant role in the Spouses

Nogales' decision in accepting Dr. Estrada's services as the obstetriciangynecologist for Corazon's delivery. Moreover, as earlier stated, there is no
showing that before and during Corazon's confinement at CMC, the Spouses
Nogales knew or should have known that Dr. Estrada was not an employee of
CMC.
Further, the Spouses Nogales looked to CMC to provide the best medical care and
support services for Corazon's delivery. The Court notes that prior to Corazon's
fourth pregnancy, she used to give birth inside a clinic. Considering Corazon's
age then, the Spouses Nogales decided to have their fourth child delivered at
CMC, which Rogelio regarded one of the best hospitals at the time. 56 This is
precisely because the Spouses Nogales feared that Corazon might experience
complications during her delivery which would be better addressed and treated
in a modern and big hospital such as CMC. Moreover, Rogelio's consent in
Corazon's hysterectomy to be performed by a different physician, namely Dr.
Espinola, is a clear indication of Rogelio's confidence in CMC's surgical staff.
CMC's defense that all it did was "to extend to [Corazon] its facilities" is
untenable. The Court cannot close its eyes to the reality that hospitals, such as
CMC, are in the business of treatment. In this regard, the Court agrees with the
observation made by the Court of Appeals of North Carolina in Diggs v. Novant
Health, Inc.,57 to wit:
"The conception that the hospital does not undertake to treat the patient, does
not undertake to act through its doctors and nurses, but undertakes instead
simply to procure them to act upon their own responsibility, no longer reflects
the fact. Present day hospitals, as their manner of operation plainly
demonstrates, do far more than furnish facilities for treatment. They
regularly employ on a salary basis a large staff of physicians, nurses
and internes [sic], as well as administrative and manual workers, and
they charge patients for medical care and treatment, collecting for such
services, if necessary, by legal action. Certainly, the person who avails
himself of 'hospital facilities' expects that the hospital will attempt to
cure him, not that its nurses or other employees will act on their own
responsibility." x x x (Emphasis supplied)
Likewise unconvincing is CMC's argument that petitioners are estopped from
claiming damages based on the Consent on Admission and Consent to Operation.
Both release forms consist of two parts. The first part gave CMC permission to
administer to Corazon any form of recognized medical treatment which the CMC
medical staff deemed advisable. The second part of the documents, which may
properly be described as the releasing part, releases CMC and its employees
"from any and all claims" arising from or by reason of the treatment and
operation.
The documents do not expressly release CMC from liability for injury to Corazon
due to negligence during her treatment or operation. Neither do the consent
forms expressly exempt CMC from liability for Corazon's death due to negligence
during such treatment or operation. Such release forms, being in the nature of

contracts of adhesion, are construed strictly against hospitals. Besides, a blanket

release in favor of hospitals "from any and all claims," which includes claims due
to bad faith or gross negligence, would be contrary to public policy and thus void.
Even simple negligence is not subject to blanket release in favor of
establishments like hospitals but may only mitigate liability depending on the
circumstances.58 When a person needing urgent medical attention rushes to a
hospital, he cannot bargain on equal footing with the hospital on the terms of
admission and operation. Such a person is literally at the mercy of the hospital.
There can be no clearer example of a contract of adhesion than one arising from
such a dire situation. Thus, the release forms of CMC cannot relieve CMC from
liability for the negligent medical treatment of Corazon.
On the Liability of the Other Respondents
Despite this Court's pronouncement in its 9 September 2002 59 Resolution that
the filing of petitioners' Manifestation confined petitioners' claim only against
CMC, Dr. Espinola, Dr. Lacson, and Dr. Uy, who have filed their comments, the
Court deems it proper to resolve the individual liability of the remaining
respondents to put an end finally to this more than two-decade old controversy.
a) Dr. Ely Villaflor
Petitioners blame Dr. Ely Villaflor for failing to diagnose the cause of Corazon's
bleeding and to suggest the correct remedy to Dr. Estrada. 60 Petitioners assert
that it was Dr. Villaflor's duty to correct the error of Nurse Dumlao in the
administration of hemacel.
The Court is not persuaded. Dr. Villaflor admitted administering a lower dosage
of magnesium sulfate. However, this was after informing Dr. Estrada that
Corazon was no longer in convulsion and that her blood pressure went down to a
dangerous level.61 At that moment, Dr. Estrada instructed Dr. Villaflor to reduce
the dosage of magnesium sulfate from 10 to 2.5 grams. Since petitioners did not
dispute Dr. Villaflor's allegation, Dr. Villaflor's defense remains uncontroverted.
Dr. Villaflor's act of administering a lower dosage of magnesium sulfate was not
out of her own volition or was in contravention of Dr. Estrada's order.
b) Dr. Rosa Uy
Dr. Rosa Uy's alleged negligence consisted of her failure (1) to call the attention
of Dr. Estrada on the incorrect dosage of magnesium sulfate administered by Dr.
Villaflor; (2) to take corrective measures; and (3) to correct Nurse Dumlao's
wrong method of hemacel administration.
The Court believes Dr. Uy's claim that as a second year resident physician then
at CMC, she was merely authorized to take the clinical history and physical
examination of Corazon.62 However, that routine internal examination did
not ipso facto make Dr. Uy liable for the errors committed by Dr. Estrada. Further,
petitioners' imputation of negligence rests on their baseless assumption that Dr.
Uy was present at the delivery room. Nothing shows that Dr. Uy participated in

delivering Corazon's baby. Further, it is unexpected from Dr. Uy, a mere resident
physician at that time, to call the attention of a more experienced specialist, if
ever she was present at the delivery room.
c) Dr. Joel Enriquez
Petitioners fault Dr. Joel Enriquez also for not calling the attention of Dr. Estrada,
Dr. Villaflor, and Nurse Dumlao about their errors. 63 Petitioners insist that Dr.
Enriquez should have taken, or at least suggested, corrective measures to rectify
such errors.
The Court is not convinced. Dr. Enriquez is an anesthesiologist whose field of
expertise is definitely not obstetrics and gynecology. As such, Dr. Enriquez was
not expected to correct Dr. Estrada's errors. Besides, there was no evidence of
Dr. Enriquez's knowledge of any error committed by Dr. Estrada and his failure to
act upon such observation.
d) Dr. Perpetua Lacson
Petitioners fault Dr. Perpetua Lacson for her purported delay in the delivery of
blood Corazon needed.64Petitioners claim that Dr. Lacson was remiss in her duty
of supervising the blood bank staff.
As found by the trial court, there was no unreasonable delay in the delivery of
blood from the time of the request until the transfusion to Corazon. Dr. Lacson
competently explained the procedure before blood could be given to the
patient.65 Taking into account the bleeding time, clotting time and crossmatching, Dr. Lacson stated that it would take approximately 45-60 minutes
before blood could be ready for transfusion. 66 Further, no evidence exists that Dr.
Lacson neglected her duties as head of the blood bank.
e) Dr. Noe Espinola
Petitioners argue that Dr. Espinola should not have ordered immediate
hysterectomy without determining the underlying cause of Corazon's bleeding.
Dr. Espinola should have first considered the possibility of cervical injury, and
advised a thorough examination of the cervix, instead of believing outright Dr.
Estrada's diagnosis that the cause of bleeding was uterine atony.
Dr. Espinola's order to do hysterectomy which was based on the information he
received by phone is not negligence. The Court agrees with the trial court's
observation that Dr. Espinola, upon hearing such information about Corazon's
condition, believed in good faith that hysterectomy was the correct remedy. At
any rate, the hysterectomy did not push through because upon Dr. Espinola's
arrival, it was already too late. At the time, Corazon was practically dead.
f) Nurse J. Dumlao
In Moore v. Guthrie Hospital Inc.,67 the US Court of Appeals, Fourth Circuit, held
that to recover, a patient complaining of injuries allegedly resulting when the
nurse negligently injected medicine to him intravenously instead of

intramuscularly had to show that (1) an intravenous injection constituted a lack

of reasonable and ordinary care; (2) the nurse injected medicine intravenously;
and (3) such injection was the proximate cause of his injury.
In the present case, there is no evidence of Nurse Dumlao's alleged failure to
follow Dr. Estrada's specific instructions. Even assuming Nurse Dumlao defied Dr.
Estrada's order, there is no showing that side-drip administration of hemacel
proximately caused Corazon's death. No evidence linking Corazon's death and
the alleged wrongful hemacel administration was introduced. Therefore, there is
no basis to hold Nurse Dumlao liable for negligence.
On the Award of Interest on Damages
The award of interest on damages is proper and allowed under Article 2211 of
the Civil Code, which states that in crimes and quasi-delicts, interest as a part of
the damages may, in a proper case, be adjudicated in the discretion of the
court.68
WHEREFORE, the Court PARTLY GRANTS the petition. The Court finds
respondent Capitol Medical Center vicariously liable for the negligence of Dr.
Oscar Estrada. The amounts of P105,000 as actual damages andP700,000 as
moral damages should each earn legal interest at the rate of six percent (6%)
per annum computed from the date of the judgment of the trial court. The Court
affirms the rest of the Decision dated 6 February 1998 and Resolution dated 21
March 2000 of the Court of Appeals in CA-G.R. CV No. 45641.
SO ORDERED.
Quisumbing, J., Chairperson, Carpio Morales, Tinga, and Velasco, Jr., JJ., concur.

Footnotes
1

Under Rule 45 of the Rules of Court.

Penned by Associate Justice Artemio G. Tuquero, with Associate Justices Jorge S.

Imperial and Eubulo G. Verzola, concurring. Rollo, pp. 42-48.
3

Penned by Associate Justice Eubulo G. Verzola, with Associate Justices Roberto

A. Barrios and Eriberto U. Rosario, Jr., concurring. Id. at 49.
4

Penned by Judge Rodolfo G. Palattao.

Edema is the accumulation of excess fluid. It is manifested by the swelling of

the extremities. (http://www.preeclampsia.org/symptoms.asp)
6

A syndrome occurring in late pregnancy marked by an increase in blood

pressure, swelling of the ankles by fluid, and the appearance of albumin in the
urine, associated with reduced blood flow to the placenta, therefore putting the
fetus at risk of death, or stillbirth, and putting the mother at risk of complications

from high blood pressure, convulsions (eclampsia), kidney failure, liver failure
and death. Treated with drugs to lower the blood pressure and to prevent
convulsions, while expediting the delivery of the baby.
(http://www.jansen.com.au/Dictionary_PR.html)
7

Rollo, p. 42.

Exh. "A-4," Folder of Exhibits.

Exh. "A-1," Folder of Exhibits.

10

Exh. "A-2," Folder of Exhibits.

11

Exh. "A-5," Folder of Exhibits.

12

Exh. "A-8," Folder of Exhibits.

13

Exh. "A-20," Folder of Exhibits.

14

Rollo, p. 43.

15

Docketed as Civil Case No. 131873.

16

Then Court of First Instance.

17

Records, pp. 92, 93.

18

Records, pp. 639-644.

19

Rollo, pp. 42-48.

20

Id. at 49.

21

Id. at 237-240.

22

Id. at 238.

23

Id. at 207.

24

Id. at 258.

25

Id. at 283-285.

26

Id. at 312.

27

33 Ill.2d 326, 211 N.E.2d 253 (1965).

28

Citing Clary v. Hospital Authority of City of Marietta, 106 Ga.App. 134, 126
S.E.2d 470 (1962).
29

Citing Cramer v. Hoffman, 390 F.2d 19, 23 (1968); Holzberg v. Flower and Fifth
Ave. Hospitals, 39 A.D.2d 526, 330 N.Y.S.2d 682, 684 (1972); Snelson v.
Margaretville Hospital, 49 A.D.2d 991, 374 N.Y.S.2d 579, 581 (1975).
30

79 A.D.2d 43, 436 N.Y.S.2d 109 (1981).

31

118 A.D.2d 988, 499 N.Y.S.2d 993 (1986).

32

Citing Davis v. Glaze, 182 Ga.App. 18, 354 S.E.2d 845, 849 (1987).

33

Citing Ybarra v. Spangard, 25 Cal.2d 486, 154 P.2d 687 (1944).

34

40A Am.Jur.2d Hospitals and Asylums 46, 40A Am.Jur.2d Hospitals and
Asylums 44.
35

TSN, 26 July 1984, pp. 31-32 (Rogelio Nogales).

36

Id. at 43-44.

37

TSN, 4 April 1983, pp. 48-49 (Rogelio Nogales).

38

Records, pp. 43-44.

39

378 Phil. 1198 (1999).

40

Id. at 1240-1241.

41

See Diggs v. Novant Health, Inc., 628 S.E.2d 851 (2006) citing Hylton v.
Koontz, 138 N.C.App. 629 (2000).
42

See Jones v. Tallahassee Memorial Regional Healthcare, Inc., 923 So.2d 1245
(2006).
43

See Hale v. Sheikholeslam, 724 F.2d 1205 (1984) where the US Court of
Appeals, Fifth Circuit, found the physician an independent contractor since there
is no evidence or pleading that the doctor received compensation from the
hospital or that the hospital exercised any control over his treatment of patients.
The doctor was merely allowed to use the facilities of the hospital when, in the
doctor's judgment, hospital care was necessary.
44

Jones v. Philpott, 702 F.Supp. 1210 (1988).

45

Sometimes referred to as the apparent, or ostensible, agency theory. (King v.

Mitchell, 31 A.D.3d 958, 819 N.Y.S.2d 169 [2006]).
46

156 Ill.2d 511, 622 N.E.2d 788 (1993).

47

Diggs v. Novant Health, Inc., supra note 41.

48

Id.

49

De Castro v. Ginete, 137 Phil. 453 (1969), citing Sec. 3, par. a, Rule 131 of the
Rules of Court. See alsoKing v. Mitchell, 31 A.D.3d 958, 819 N.Y.S.2d 169 (2006)
where the New York Supreme Court, Appellate Division, Third Department, stated
as follows:
As a general proposition, "[a] hospital may not be held for the acts of an
anesthetist who was not an employee of the hospital, but one of a group of

independent contractors." Vicarious liability for medical malpractice may

be imposed, however, under an apparent, or ostensible,
agency theory, "or, as it is sometimes called, agency by estoppel or by
holding out." "Essential to the creation of apparent authority are words or
conduct of the principal, communicated to a third party, that give rise to the
appearance and belief that the agent possesses authority to act on behalf of the
principal." Also, the third party must reasonably rely upon the appearance of
authority created by the principal. Finally, the third party must accept the
services of the agent in reliance upon the perceived relationship between the
agent and the principal. (emphasis supplied and internal citations omitted)
50

In Gilbert v. Sycamore Municipal Hospital, supra note 46, cited in York v. RushPresbyterian-St. Luke's Medical Center (222 Ill.2d 147, 854 N.E.2d 635 [2006]),
the Illinois Supreme Court made a similar observation, thus:
x x x the language employed in the hospital's treatment consent form could have
led plaintiff to reasonably believe that he would be treated by physicians and
employees of the hospital. We concluded that, upon the record before us, the
plaintiff adduced sufficient evidence to create a genuine issue of material fact
with respect to the reliance element of the plaintiffs apparent agency claim
against the hospital.
51

Exh. "A-1," Folder of Exhibits.

52

Exh. "A-20," Folder of Exhibits.

53

TSN, 17 February 1992, p. 69 (Dr. Franklin Atencio).

54

Diggs v. Novant Health, Inc., supra note 41.

55

TSN, 26 July 1984, pp. 12-13 (Rogelio Nogales).

56

Id. at 37.

57

Supra note 41, citing Rabon v. Rowan Memorial Hospital, Inc., 269 N.C.1, 152
S.E.2d 485 (1967).
58

Article 1172 of the Civil Code provides:

"Responsibility arising from negligence in the performance of every kind of

obligation is also demandable, but such liability may be regulated by the courts,
according to the circumstances."
59

Rollo, p. 258.

60

CA rollo, pp. 78-79.

61

Records, p. 76.

62

Id. at 59.

63

CA rollo, p. 89.

64

Id. at 90.

65

TSN, 11 November 1991, pp. 9-12.

66

Id. at 14.

67

403 F.2d 366 (1968).

68

People v. Ocampo, G.R. No. 171731, 11 August 2006, citing People v.

Torellos, 448 Phil. 287, 301 (2003). See also People v. Duban, G.R. No. 141217,
26 September 2003, 412 SCRA 131 and People v. De Vera, 371 Phil. 563 (1999).
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 118375

October 3, 2003

CELESTINA T. NAGUIAT, petitioner,

vs.
COURT OF APPEALS and AURORA QUEAO, respondents.
DECISION
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45, assailing the
decision of the Sixteenth Division of the respondent Court of Appeals
promulgated on 21 December 19941, which affirmed in toto the decision handed
down by the Regional Trial Court (RTC) of Pasay City. 2
The case arose when on 11 August 1981, private respondent Aurora Queao
(Queao) filed a complaint before the Pasay City RTC for cancellation of a Real
Estate Mortgage she had entered into with petitioner Celestina Naguiat
(Naguiat). The RTC rendered a decision, declaring the questioned Real Estate
Mortgage void, which Naguiat appealed to the Court of Appeals. After the Court
of Appeals upheld the RTC decision, Naguiat instituted the present
petition.1vvphi1.nt
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand
Pesos (P200,000.00), which Naguiat granted. On 11 August 1980, Naguiat
indorsed to Queao Associated Bank Check No. 090990 (dated 11 August 1980)
for the amount of Ninety Five Thousand Pesos (P95,000.00), which was earlier
issued to Naguiat by the Corporate Resources Financing Corporation. She also
issued her own Filmanbank Check No. 065314, to the order of Queao, also
dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos
(P95,000.00). The proceeds of these checks were to constitute the loan granted
by Naguiat to Queao.3

To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11
August 1980 in favor of Naguiat, and surrendered to the latter the owners
duplicates of the titles covering the mortgaged properties. 4 On the same day, the
mortgage deed was notarized, and Queao issued to Naguiat a promissory note
for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00), with interest
at 12% per annum, payable on 11 September 1980. 5Queao also issued a
Security Bank and Trust Company check, postdated 11 September 1980, for the
amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) and payable to the
order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was dishonored
for insufficiency of funds. On the following day, 12 September 1980, Queao
requested Security Bank to stop payment of her postdated check, but the bank
rejected the request pursuant to its policy not to honor such requests if the check
is drawn against insufficient funds.6
On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding
settlement of the loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt
(Ruebenfeldt) met with Naguiat. At the meeting, Queao told Naguiat that she
did not receive the proceeds of the loan, adding that the checks were retained by
Ruebenfeldt, who purportedly was Naguiats agent. 7
Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff
of Rizal Province, who then scheduled the foreclosure sale on 14 August 1981.
Three days before the scheduled sale, Queao filed the case before the Pasay
City RTC,8 seeking the annulment of the mortgage deed. The trial court
eventually stopped the auction sale.9
On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate
Mortgage null and void, and ordering Naguiat to return to Queao the owners
duplicates of her titles to the mortgaged lots. 10 Naguiat appealed the decision
before the Court of Appeals, making no less than eleven assignments of error.
The Court of Appeals promulgated the decision now assailed before us that
affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially
on the issue of whether Queao had actually received the loan proceeds which
were supposed to be covered by the two checks Naguiat had issued or indorsed.
Naguiat claims that being a notarial instrument or public document, the
mortgage deed enjoys the presumption that the recitals therein are true. Naguiat
also questions the admissibility of various representations and pronouncements
of Ruebenfeldt, invoking the rule on the non-binding effect of the admissions of
third persons.11
The resolution of the issues presented before this Court by Naguiat involves the
determination of facts, a function which this Court does not exercise in an appeal
by certiorari. Under Rule 45 which governs appeal by certiorari, only questions of
law may be raised12 as the Supreme Court is not a trier of facts. 13 The resolution
of factual issues is the function of lower courts, whose findings on these matters

are received with respect and are in fact generally binding on the Supreme
Court.14 A question of law which the Court may pass upon must not involve an
examination of the probative value of the evidence presented by the
litigants.15 There is a question of law in a given case when the doubt or difference
arises as to what the law is on a certain state of facts; there is a question of fact
when the doubt or difference arises as to the truth or the falsehood of alleged
facts.16
Surely, there are established exceptions to the rule on the conclusiveness of the
findings of facts of the lower courts. 17 But Naguiats case does not fall under any
of the exceptions. In any event, both the decisions of the appellate and trial
courts are supported by the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat vigorously insists that
Queao received the loan proceeds. Capitalizing on the status of the mortgage
deed as a public document, she cites the rule that a public document enjoys the
presumption of validity and truthfulness of its contents. The Court of Appeals,
however, is correct in ruling that the presumption of truthfulness of the recitals in
a public document was defeated by the clear and convincing evidence in this
case that pointed to the absence of consideration. 18 This Court has held that the
presumption of truthfulness engendered by notarized documents is rebuttable,
yielding as it does to clear and convincing evidence to the contrary, as in this
case.19
On the other hand, absolutely no evidence was submitted by Naguiat that the
checks she issued or endorsed were actually encashed or deposited. The mere
issuance of the checks did not result in the perfection of the contract of loan. For
the Civil Code provides that the delivery of bills of exchange and mercantile
documents such as checks shall produce the effect of payment only when they
have been cashed.20 It is only after the checks have produced the effect of
payment that the contract of loan may be deemed perfected. Art. 1934 of the
Civil Code provides:
"An accepted promise to deliver something by way of commodatum or simple
loan is binding upon the parties, but the commodatum or simple loan itself shall
not be perfected until the delivery of the object of the contract."
A loan contract is a real contract, not consensual, and, as such, is perfected only
upon the delivery of the object of the contract. 21 In this case, the objects of the
contract are the loan proceeds which Queao would enjoy only upon the
encashment of the checks signed or indorsed by Naguiat. If indeed the checks
were encashed or deposited, Naguiat would have certainly presented the
corresponding documentary evidence, such as the returned checks and the
pertinent bank records. Since Naguiat presented no such proof, it follows that the
checks were not encashed or credited to Queaos account.1awphi1.nt
Naguiat questions the admissibility of the various written representations made
by Ruebenfeldt on the ground that they could not bind her following the res inter
alia acta alteri nocere non debet rule. The Court of Appeals rejected the

argument, holding that since Ruebenfeldt was an authorized representative or

agent of Naguiat the situation falls under a recognized exception to the
rule.22 Still, Naguiat insists that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship between Naguiat
and Ruebenfeldt is supported by ample evidence. As correctly pointed out by the
Court of Appeals, Ruebenfeldt was not a stranger or an unauthorized person.
Naguiat instructed Ruebenfeldt to withhold from Queao the checks she issued
or indorsed to Queao, pending delivery by the latter of additional collateral.
Ruebenfeldt served as agent of Naguiat on the loan application of Queaos
friend, Marilou Farralese, and it was in connection with that transaction that
Queao came to know Naguiat.23 It was also Ruebenfeldt who accompanied
Queao in her meeting with Naguiat and on that occasion, on her own and
without Queao asking for it, Reubenfeldt actually drew a check for the sum
ofP220,000.00 payable to Naguiat, to cover for Queaos alleged liability to
Naguiat under the loan agreement.24
The Court of Appeals recognized the existence of an "agency by estoppel 25 citing
Article 1873 of the Civil Code.26Apparently, it considered that at the very least, as
a consequence of the interaction between Naguiat and Ruebenfeldt, Queao got
the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did
nothing to correct Queaos impression. In that situation, the rule is clear. 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.27 The Court of Appeals is correct in invoking the said rule on agency by
estoppel.1awphi1.nt
More fundamentally, whatever was the true relationship between Naguiat and
Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed
to Queao were never encashed or deposited to her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a quo
that the lender did not remit and the borrower did not receive the proceeds of
the loan. That being the case, it follows that the mortgage which is supposed to
secure the loan is null and void. The consideration of the mortgage contract is
the same as that of the principal contract from which it receives life, and without
which it cannot exist as an independent contract. 28 A mortgage contract being a
mere accessory contract, its validity would depend on the validity of the loan
secured by it.29
WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs
against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

Footnotes
1

Justice Corona Ibay-Somera wrote the ponencia, with Justices Asaali S. Isnani
and Celia Lipana-Reyes, concurring.
2

Promulgated on 8 March 1991 by Judge Manuel P. Dumatol.

According to Naguiat, she further delivered to Queao the amount of Ten

Thousand Pesos (P10,000.00), thus rounding off the amount she allegedly gave
to Queao to Two Hundred Thousand Pesos (See Petition for Certiorari, p. 3).
Queao, however, claims that the amount of Ten Thousand (P10,000.00) was
deducted as the stipulated 5% interest. Records, p. 342.
4

Transfer Certificates of Title Nos. 28631 and 28632, issued by the Register of
Deeds for District IV (Pasay City) of Metro Manila, with a total area of Six Hundred
Thirty One (631) Square Meters. Rollo, p. 97.
5

Rollo, p. 98. According to Queao, the true agreement between the parties was
an interest rate of 5% per month.
6

Id., p. 99. Queao alleged that she made the "stop payment" request because
she was withdrawing her loan application as she failed to receive the loan
proceeds which were supposed to be covered by Naguiats checks that were
turned not to her but to Ruby Ruebenfeldt, who purportedly was an agent of
Naguiat. Queao claimed further that Naguiat demanded additional collaterals
and instructed Ruebenfeldt to surrender the checks to Queao only upon receipt
of the additional security.
7

Id., p. 99. Queao claimed further that Naguiat demanded additional collaterals
and instructed Ruebenfeldt to surrender the checks to Queao only upon receipt
of the additional security.
8

Docketed as Civil Case No. 9330-P.

Rollo, p. 5.

10

Id., p. 37.

11

Sec. 28, Rule 130. See Rule 130, Sec. 28. "Section 28. Admission by third party.
The rights of a party cannot be prejudiced by an act, declaration, or omission
of another, except as hereinafter provided."
12

Sec. 1, Rule 45 states: "A party desiring to appeal by certiorari from a

judgment or final order or resolution of the Court of Appeals, the Sandiganbayan,
the Regional Trial Court or other courts whenever authorized by law, may file
with the Supreme Court a verified petition for review on certiorari. The petition
shall raise only questions of law which must be distinctly set forth." See
also Metro Transit Organization Inc. v. CA, G.R. No. 142133, 19 November 2002.

13

W-Red Construction v. CA, G.R. No. 122648, 17 August 2000.

14

Engreso v. De La Cruz, G.R. No. 148727, 9 April 2003.

15

Western Shipyard Services, Inc. v. CA, G.R. No. 110340, 28 May 2001.

16

Bagunu v. Piedad, G.R. No. 140975, 8 December 2000.

17

Exceptional circumstances that would compel the Supreme Court to review the
findings of fact of the lower courts are: (1) when the conclusion is a finding
grounded entirely on speculations, surmises or conjectures; (2) when the
inference made is manifestly absurd, mistaken or impossible; (3) when there is
grave abuse of discretion in the appreciation of facts; (4) when the judgment is
premised 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 Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; and (8) when the findings of fact
of the Court of Appeals are contrary to those of the trial court, or are mere
conclusions without citation of specific evidence, or where the facts set forth by
the petitioner are not disputed by the respondent, or where the findings of fact of
the Court of Appeals are premised on absence of evidence but are contradicted
by the evidence of record. See Sacay v. Sandiganbayan, 226 Phil. 496, 510
(1986).
18

Rollo, p. 43.

19

See Gerales v. Court of Appeals, G.R. No. 85909, 218 SCRA 638, 648, 9
February 1993, and Agdeppa vs. Ibe, G.R. No. 96770, 220 SCRA 584, 594, 30
March 1993.
20

Art. 1249, New Civil Code. ". . . The delivery of promissory notes payable to
order, or bills of exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when through the fault
of the creditor they have been impaired."
21

BPI Investment Corporation v. Court of Appeals, G.R. No. 133632, 377 SCRA
117, 124, 15 February 2002. The Court therein clarified the previous ruling in
Bonnevie v. Court of Appeals, 210 Phil. 104, 108 (1983) which apparently
suggested that a contract of loan was a consensual contract, by noting that the
contract in Bonnevie fell under the first clause of Art. 1934 of the Civil Code, it
being an accepted promise to deliver something by way of simple loan.
22

See Sec. 29, Rule 130. "Section 29. Admission by co-partner or agent. The act
or declaration of a partner or agent of the party within the scope of his authority
and during the existence of the partnership or agency, may be given in evidence
against such party after the partnership or agency is shown by evidence other
than such act or declaration. The same rule applies to the act or declaration of a
joint owner, joint debtor or other person jointly interested with the party."

23

Rollo, p. 49.

24

Security Bank & Trust Company Check No. 017399, drawn by Ruebenfeldt
payable to Naguiat, and postdated to November 15, 1980. Naguiat accepted the
check, allegedly because she wanted to be assured of repayment. However,
when Naguiat deposited this new check on 15 November 1980, the same was
dishonored for being drawn against a closed account. On account of the dishonor
of Ruebenfeldts check, Naguiat filed a criminal complaint for violation of B.P. Blg.
22 with the City Prosecutorss Office of Caloocan. However, the City Prosecutor
dismissed the said action on the ground that Ruebenfeldts liability was civil and
not criminal. See Rollo, p. 5 to 6.
25

Rollo, p. 50.

26

Art. 1873. "If a person specifically informs another or states by public

advertisement that he has given a power of attorney to a third person, the latter
thereby becomes a duly authorized agent, in the former case with respect to the
person who received the special information, and in the latter case with regard to
any person."
27

Cuison v. Court of Appeals, G.R. No. 88531, 26 October 1993.

28

China Banking Corporation v. Lichauco, 46 Phil. 460 (1926).

29

Filipinas Marble Corp. v. Intermediate Appellate Court, 226 Phil. 109, 119
(1986).
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 140667

August 12, 2004

WOODCHILD HOLDINGS, INC., petitioner,

vs.
ROXAS ELECTRIC AND CONSTRUCTION COMPANY, INC., respondent.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision 1 of the Court of Appeals
in CA-G.R. CV No. 56125 reversing the Decision 2 of the Regional Trial Court of
Makati, Branch 57, which ruled in favor of the petitioner.

The Antecedents
The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly
the Roxas Electric and Construction Company, was the
owner of two parcels of land, identified as Lot No. 491-A-3-B-1 covered by
Transfer Certificate of Title (TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by
TCT No. 78086. A portion of Lot No. 491-A-3-B-1 which abutted Lot No. 491-A-3-B2 was a dirt road accessing to the Sumulong Highway, Antipolo, Rizal.
At a special meeting on May 17, 1991, the respondent's Board of Directors
approved a resolution authorizing the corporation, through its president, Roberto
B. Roxas, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an area of
7,213 square meters, at a price and under such terms and conditions which he
deemed most reasonable and advantageous to the corporation; and to execute,
sign and deliver the pertinent sales documents and receive the proceeds of the
sale for and on behalf of the company. 3
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2
covered by TCT No. 78086 on which it planned to construct its warehouse
building, and a portion of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45foot container van would be able to readily enter or leave the property. In a
Letter to Roxas dated June 21, 1991, WHI President Jonathan Y. Dy offered to buy
Lot No. 491-A-3-B-2 under stated terms and conditions for P1,000 per square
meter or at the price of P7,213,000.4 One of the terms incorporated in Dy's offer
was the following provision:
5. This Offer to Purchase is made on the representation and warranty of the
OWNER/SELLER, that he holds a good and registrable title to the property, which
shall be conveyed CLEAR and FREE of all liens and encumbrances, and that the
area of 7,213 square meters of the subject property already includes the area on
which the right of way traverses from the main lot (area) towards the exit to the
Sumulong Highway as shown in the location plan furnished by the Owner/Seller
to the buyer. Furthermore, in the event that the right of way is insufficient for the
buyer's purposes (example: entry of a 45-foot container), the seller agrees to sell
additional square meter from his current adjacent property to allow the buyer to
full access and full use of the property. 5
Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a
month later or on July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy,
as President of WHI, as vendee, executed a contract to sell in which RECCI bound
and obliged itself to sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086 for
P7,213,000.6 On September 5, 1991, a Deed of Absolute Sale 7 in favor of WHI
was issued, under which Lot No. 491-A-3-B-2 covered by TCT No. 78086 was sold
for P5,000,000, receipt of which was acknowledged by Roxas under the following
terms and conditions:
The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the
beneficial use of and a right of way from Sumulong Highway to the property

herein conveyed consists of 25 square meters wide to be used as the latter's

egress from and ingress to and an additional 25 square meters in the corner of
Lot No. 491-A-3-B-1, as turning and/or maneuvering area for Vendee's vehicles.
The Vendor agrees that in the event that the right of way is insufficient for the
Vendee's use (ex entry of a 45-foot container) the Vendor agrees to sell
additional square meters from its current adjacent property to allow the Vendee
full access and full use of the property.

The Vendor hereby undertakes and agrees, at its account, to defend the title of
the Vendee to the parcel of land and improvements herein conveyed, against all
claims of any and all persons or entities, and that the Vendor hereby warrants
the right of the Vendee to possess and own the said parcel of land and
improvements thereon and will defend the Vendee against all present and future
claims and/or action in relation thereto, judicial and/or administrative. In
particular, the Vendor shall eject all existing squatters and occupants of the
premises within two (2) weeks from the signing hereof. In case of failure on the
part of the Vendor to eject all occupants and squatters within the two-week
period or breach of any of the stipulations, covenants and terms and conditions
herein provided and that of contract to sell dated 1 July 1991, the Vendee shall
have the right to cancel the sale and demand reimbursement for all payments
made to the Vendor with interest thereon at 36% per annum. 8
On September 10, 1991, the Wimbeco Builder's, Inc. (WBI) submitted its
quotation for P8,649,000 to WHI for the construction of the warehouse building
on a portion of the property with an area of 5,088 square meters. 9 WBI proposed
to start the project on October 1, 1991 and to turn over the building to WHI on
February 29, 1992.10
In a Letter dated September 16, 1991, Ponderosa Leather Goods Company, Inc.
confirmed its lease agreement with WHI of a 5,000-square-meter portion of the
warehouse yet to be constructed at the rental rate of P65 per square meter.
Ponderosa emphasized the need for the warehouse to be ready for occupancy
before April 1, 1992.11 WHI accepted the offer. However, WBI failed to commence
the construction of the warehouse in October 1, 1991 as planned because of the
presence of squatters in the property and suggested a renegotiation of the
contract after the squatters shall have been evicted. 12 Subsequently, the
squatters were evicted from the property.
On March 31, 1992, WHI and WBI executed a Letter-Contract for the construction
of the warehouse building for P11,804,160.13 The contractor started construction
in April 1992 even before the building officials of Antipolo City issued a building
permit on May 28, 1992. After the warehouse was finished, WHI issued on March
21, 1993 a certificate of occupancy by the building official. Earlier, or on March
18, 1993, WHI, as 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. N78085 the agreement under Annex "A" with respect to the beneficial use and
right of way, however, Roxas Electric unjustifiably ignored and disregarded the
same.
Copy of the letter request dated 29 May 1992 is hereto attached as Annex "C"
and made an integral part hereof.
12. By reason of Roxas Electric's continuous refusal and failure to comply with
Woodchild Holdings' valid demand for compliance under Annex "A," the latter
was constrained to litigate, thereby incurring damages as and by way of
attorney's fees in the amount of P100,000.00 plus costs of suit and expenses of
litigation.15
The WHI prayed that, after due proceedings, judgment be rendered in its favor,
thus:
WHEREFORE, it is respectfully prayed that judgment be rendered in favor of
Woodchild Holdings and ordering Roxas Electric the following:
a) to deliver to Woodchild Holdings the beneficial use of the stipulated 25 square
meters and 55 square meters;
b) to sell to Woodchild Holdings additional 25 and 100 square meters to allow it
full access and use of the purchased property pursuant to para. 5 of the Deed of
Absolute Sale;
c) to cause annotation on Transfer Certificate of Title No. N-78085 the beneficial
use and right of way granted to Woodchild Holdings under the Deed of Absolute
Sale;
d) to pay Woodchild Holdings the amount of P5,660,000.00, representing actual
damages and unrealized income;
e) to pay attorney's fees in the amount of P100,000.00; and
f) to pay the costs of suit.
Other reliefs just and equitable are prayed for. 16

In its answer to the complaint, the RECCI alleged that it never authorized its
former president, Roberto Roxas, to grant the beneficial use of any portion of Lot
No. 491-A-3-B-1, nor agreed to sell any portion thereof or create a lien or burden
thereon. It alleged that, under the Resolution approved on May 17, 1991, it
merely authorized Roxas to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086.
As such, the grant of a right of way and the agreement to sell a portion of Lot No.
491-A-3-B-1 covered by TCT No. 78085 in the said deed are ultra vires. The RECCI
further alleged that the provision therein that it would sell a portion of Lot No.
491-A-3-B-1 to the WHI lacked the essential elements of a binding contract. 17
In its amended answer to the complaint, the RECCI alleged that the delay in the
construction of its warehouse building was due to the failure of the WHI's
contractor to secure a building permit thereon. 18
During the trial, Dy testified that he told Roxas that the petitioner was buying a
portion of Lot No. 491-A-3-B-1 consisting of an area of 500 square meters, for the
price of P1,000 per square meter.
On November 11, 1996, the trial court rendered judgment in favor of the WHI,
the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered directing defendant:
(1) To allow plaintiff the beneficial use of the existing right of way plus the
stipulated 25 sq. m. and 55 sq. m.;
(2) To sell to plaintiff an additional area of 500 sq. m. priced at P1,000 per sq. m.
to allow said plaintiff full access and use of the purchased property pursuant to
Par. 5 of their Deed of Absolute Sale;
(3) To cause annotation on TCT No. N-78085 the beneficial use and right of way
granted by their Deed of Absolute Sale;
(4) To pay plaintiff the amount of P5,568,000 representing actual damages and
plaintiff's unrealized income;
(5) To pay plaintiff P100,000 representing attorney's fees; and
To pay the costs of suit.
SO ORDERED.19
The trial court ruled that the RECCI was estopped from disowning the apparent
authority of Roxas under the May 17, 1991 Resolution of its Board of Directors.
The court reasoned that to do so would prejudice the WHI which transacted with
Roxas in good faith, believing that he had the authority to bind the WHI relating
to the easement of right of way, as well as the right to purchase a portion of Lot
No. 491-A-3-B-1 covered by TCT No. 78085.
The RECCI appealed the decision to the CA, which rendered a decision on
November 9, 1999 reversing that of the trial court, and ordering the dismissal of

the complaint. The CA ruled that, under the resolution of the Board of Directors
of the RECCI, Roxas was merely authorized to sell Lot No. 491-A-3-B-2 covered by
TCT No. 78086, but not to grant right of way in favor of the WHI over a portion of
Lot No. 491-A-3-B-1, or to grant an option to the petitioner to buy a portion
thereof. The appellate court also ruled that the grant of a right of way and an
option to the respondent were so lopsided in favor of the respondent because the
latter was authorized to fix the location as well as the price of the portion of its
property to be sold to the respondent. Hence, such provisions contained in the
deed of absolute sale were not binding on the RECCI. The appellate court ruled
that the delay in the construction of WHI's warehouse was due to its fault.
The Present Petition
The petitioner now comes to this Court asserting that:
I.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ABSOLUTE SALE
(EXH. "C") IS ULTRA VIRES.
II.
THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE
COURT A QUO ALLOWING THE PLAINTIFF-APPELLEE THE BENEFICIAL USE OF THE
EXISTING RIGHT OF WAY PLUS THE STIPULATED 25 SQUARE METERS AND 55
SQUARE METERS BECAUSE THESE ARE VALID STIPULATIONS AGREED BY BOTH
PARTIES TO THE DEED OF ABSOLUTE SALE (EXH. "C").
III.
THERE IS NO FACTUAL PROOF OR EVIDENCE FOR THE COURT OF APPEALS TO
RULE THAT THE STIPULATIONS OF THE DEED OF ABSOLUTE SALE (EXH. "C")
WERE DISADVANTAGEOUS TO THE APPELLEE, NOR WAS APPELLEE DEPRIVED OF
ITS PROPERTY WITHOUT DUE PROCESS.
IV.
IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY WITHOUT DUE
PROCESS BY THE ASSAILED DECISION.
V.
THE DELAY IN THE CONSTRUCTION WAS DUE TO THE FAILURE OF THE APPELLANT
TO EVICT THE SQUATTERS ON THE LAND AS AGREED IN THE DEED OF ABSOLUTE
SALE (EXH. "C").
VI.
THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF THE
COURT A QUO DIRECTING THE DEFENDANT TO PAY THE PLAINTIFF THE AMOUNT
OF P5,568,000.00 REPRESENTING ACTUAL DAMAGES AND PLAINTIFF'S
UNREALIZED INCOME AS WELL AS ATTORNEY'S FEES.20

The threshold issues for resolution are the following: (a) whether the respondent
is bound by the provisions in the deed of absolute sale granting to the petitioner
beneficial use and a right of way over a portion of Lot
No. 491-A-3-B-1 accessing to the Sumulong Highway and granting the option to
the petitioner to buy a portion thereof, and, if so, whether such agreement is
enforceable against the respondent; (b) whether the respondent failed to eject
the squatters on its property within two weeks from the execution of the deed of
absolute sale; and, (c) whether the respondent is liable to the petitioner for
damages.
On the first issue, the petitioner avers that, under its Resolution of May 17, 1991,
the respondent authorized Roxas, then its president, to grant a right of way over
a portion of Lot No. 491-A-3-B-1 in favor of the petitioner, and an option for the
respondent to buy a portion of the said property. The petitioner contends that
when the respondent sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it
(respondent) was well aware of its obligation to provide the petitioner with a
means of ingress to or egress from the property to the Sumulong Highway, since
the latter had no adequate outlet to the public highway. The petitioner asserts
that it agreed to buy the property covered by TCT No. 78085 because of the
grant by the respondent of a right of way and an option in its favor to buy a
portion of the property covered by TCT No. 78085. It contends that the
respondent never objected to Roxas' acceptance of its offer to purchase the
property and the terms and conditions therein; the respondent even allowed
Roxas to execute the deed of absolute sale in its behalf. The petitioner asserts
that the respondent even received the purchase price of the property without
any objection to the terms and conditions of the said deed of sale. The petitioner
claims that it acted in good faith, and contends that after having been benefited
by the said sale, the respondent is estopped from assailing its terms and
conditions. The petitioner notes that the respondent's Board of Directors never
approved any resolution rejecting the deed of absolute sale executed by Roxas
for and in its behalf. As such, the respondent is obliged to sell a portion of Lot No.
491-A-3-B-1 covered by TCT No. 78085 with an area of 500 square meters at the
price of P1,000 per square meter, based on its evidence and Articles 649 and
651 of the New Civil Code.
For its part, the respondent posits that Roxas was not so authorized under the
May 17, 1991 Resolution of its Board of Directors to impose a burden or to grant
a right of way in favor of the petitioner on Lot No. 491-A-3-B-1, much less convey
a portion thereof to the petitioner. Hence, the respondent was not bound by such
provisions contained in the deed of absolute sale. Besides, the respondent
contends, the petitioner cannot enforce its right to buy a portion of the said
property since there was no agreement in the deed of absolute sale on the price
thereof as well as the specific portion and area to be purchased by the petitioner.
We agree with the respondent.
In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,21 we held
that:

A corporation is a juridical person separate and distinct from its stockholders or

members. Accordingly, the property of the corporation is not the property of its
stockholders or members and may not be sold by the stockholders or members
without express authorization from the corporation's board of directors. Section
23 of BP 68, otherwise known as the Corporation Code of the Philippines,
provides:
"SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled
and held by the board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year and until their successors are
elected and qualified."
Indubitably, a corporation may act only through its board of directors or, when
authorized either by its by-laws or by its board resolution, through its officers or
agents in the normal course of business. The general principles of agency govern
the relation between the corporation and its officers or agents, subject to the
articles of incorporation, by-laws, or relevant provisions of law. 22
Generally, the acts of the corporate officers within the scope of their authority
are binding on the corporation. However, under Article 1910 of the New Civil
Code, acts done by such officers beyond the scope of their authority cannot bind
the corporation unless it has ratified such acts expressly or tacitly, or is estopped
from denying them:
Art. 1910. The principal must comply with all the obligations which the agent
may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is
not bound except when he ratifies it expressly or tacitly.
Thus, contracts entered into by corporate officers beyond the scope of authority
are unenforceable against the corporation unless ratified by the corporation. 23
In BA Finance Corporation v. Court of Appeals,24 we also ruled that persons
dealing with an assumed agency, whether the assumed agency be a general or
special one, are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority,
and in case either is controverted, the burden of proof is upon them to establish
it.
In this case, the respondent denied authorizing its then president Roberto B.
Roxas to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to
create a lien or burden thereon. The petitioner was thus burdened to prove that
the respondent so authorized Roxas to sell the same and to create a lien thereon.
Central to the issue at hand is the May 17, 1991 Resolution of the Board of
Directors of the respondent, which is worded as follows:

RESOLVED, as it is hereby resolved, that the corporation, thru the President, sell
to any interested buyer, its 7,213-sq.-meter property at the Sumulong Highway,
Antipolo, Rizal, covered by Transfer Certificate of Title No. N-78086, at a price
and on terms and conditions which he deems most reasonable and
advantageous to the corporation;
FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of the corporation,
be, as he is hereby authorized to execute, sign and deliver the pertinent sales
documents and receive the proceeds of sale for and on behalf of the company. 25
Evidently, Roxas was not specifically authorized under the said resolution to
grant a right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1
or to agree to sell to the petitioner a portion thereof. The authority of Roxas,
under the resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did
not include the authority to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1,
or to create or convey real rights thereon. Neither may such authority be implied
from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner
"on such terms and conditions which he deems most reasonable and
advantageous." Under paragraph 12, Article 1878 of the New Civil Code, a
special power of attorney is required to convey real rights over immovable
property.26 Article 1358 of the New Civil Code requires that contracts which have
for their object the creation of real rights over immovable property must appear
in a public document.27 The petitioner cannot feign ignorance of the need for
Roxas to have been specifically authorized in writing by the Board of Directors to
be able to validly grant a right of way and agree to sell a portion of Lot No. 491A-3-B-1. The rule is that if the act of the agent is one which requires authority in
writing, those dealing with him are charged with notice of that fact. 28
Powers of attorney are generally construed strictly and courts will not infer or
presume broad powers from deeds which do not sufficiently include property or
subject under which the agent is to deal. 29 The general rule is that the power of
attorney must be pursued within legal strictures, and the agent can neither go
beyond it; nor beside it. The act done must be legally identical with that
authorized to be done.30 In sum, then, the consent of the respondent to the
assailed provisions in the deed of absolute sale was not obtained; hence, the
assailed provisions are not binding on it.
We reject the petitioner's submission that, in allowing Roxas to execute the
contract to sell and the deed of absolute sale and failing to reject or disapprove
the same, the respondent thereby gave him apparent authority to grant a right
of way over Lot No. 491-A-3-B-1 and to grant an option for the respondent to sell
a portion thereof to the petitioner. Absent estoppel or ratification, apparent
authority cannot remedy the lack of the written power required under the
statement of frauds.31 In addition, the petitioner's fallacy is its wrong assumption
of the unproved premise that the respondent had full knowledge of all the terms
and conditions contained in the deed of absolute sale when Roxas executed it.
It bears stressing that apparent authority is based on estoppel and can arise
from two instances: first, the principal may knowingly permit the agent to so hold

himself out as having such authority, and in this way, the principal becomes
estopped to claim that the agent does not have such authority; second, the
principal may so clothe the agent with the indicia of authority as to lead a
reasonably prudent person to believe that he actually has such authority. 32 There
can be no apparent authority of an agent without acts or conduct on the part of
the principal and such acts or conduct of the principal must have been known
and relied upon in good faith and as a result of the exercise of reasonable
prudence by a third person as claimant and such must have produced a change
of position to its detriment. The apparent power of an agent is to be determined
by the acts of the principal and not by the acts of the agent. 33
For the principle of apparent authority to apply, the petitioner was burdened to
prove the following: (a) the acts of the respondent justifying belief in the agency
by the petitioner; (b) knowledge thereof by the respondent which is sought to be
held; and, (c) reliance thereon by the petitioner consistent with ordinary care and
prudence.34 In this case, there is no evidence on record of specific acts made by
the respondent35 showing or indicating that it had full knowledge of any
representations made by Roxas to the petitioner that the respondent had
authorized him to grant to the respondent an option to buy a portion of Lot No.
491-A-3-B-1 covered by TCT No. 78085, or to create a burden or lien thereon, or
that the respondent allowed him to do so.
The petitioner's contention that by receiving and retaining the P5,000,000
purchase price of Lot No. 491-A-3-B-2, the respondent effectively and impliedly
ratified the grant of a right of way on the adjacent lot, Lot No. 491-A-3-B-1, and
to grant to the petitioner an option to sell a portion thereof, is barren of merit. It
bears stressing that the respondent sold Lot No. 491-A-3-B-2 to the petitioner,
and the latter had taken possession of the property. As such, the respondent had
the right to retain the P5,000,000, the purchase price of the property it had sold
to the petitioner. For an act of the principal to be considered as an implied
ratification of an unauthorized act of an agent, such act must be inconsistent
with any other hypothesis than that he approved and intended to adopt what
had been done in his name.36 Ratification is based on waiver the intentional
relinquishment of a known right. Ratification cannot be inferred from acts that a
principal has a right to do independently of the unauthorized act of the agent.
Moreover, if a writing is required to grant an authority to do a particular act,
ratification of that act must also be in writing. 37 Since the respondent had not
ratified the unauthorized acts of Roxas, the same are unenforceable. 38 Hence, by
the respondent's retention of the amount, it cannot thereby be implied that it
had ratified the unauthorized acts of its agent, Roberto Roxas.
On the last issue, the petitioner contends that the CA erred in dismissing its
complaint for damages against the respondent on its finding that the delay in the
construction of its warehouse was due to its (petitioner's) fault. The petitioner
asserts that the CA should have affirmed the ruling of the trial court that the
respondent failed to cause the eviction of the squatters from the property on or
before September 29, 1991; hence, was liable for P5,660,000. The respondent,
for its part, asserts that the delay in the construction of the petitioner's

warehouse was due to its late filing of an application for a building permit, only
on May 28, 1992.
The petitioner's contention is meritorious. The respondent does not deny that it
failed to cause the eviction of the squatters on or before September 29, 1991.
Indeed, the respondent does not deny the fact that when the petitioner wrote the
respondent demanding that the latter cause the eviction of the squatters on April
15, 1992, the latter were still in the premises. It was only after receiving the said
letter in April 1992 that the respondent caused the eviction of the squatters,
which thus cleared the way for the petitioner's contractor to commence the
construction of its warehouse and secure the appropriate building permit
therefor.
The petitioner could not be expected to file its application for a building permit
before April 1992 because the squatters were still occupying the property.
Because of the respondent's failure to cause their eviction as agreed upon, the
petitioner's contractor failed to commence the construction of the warehouse in
October 1991 for the agreed price of P8,649,000. In the meantime, costs of
construction materials spiraled. Under the construction contract entered into
between the petitioner and the contractor, the petitioner was obliged to pay
P11,804,160,39including the additional work costing P1,441,500, or a net increase
of P1,712,980.40 The respondent is liable for the difference between the original
cost of construction and the increase thereon, conformably to Article 1170 of the
New Civil Code, which reads:
Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay and those who in any manner contravene the tenor thereof,
are liable for damages.
The petitioner, likewise, lost the amount of P3,900,000 by way of unearned
income from the lease of the property to the Ponderosa Leather Goods Company.
The respondent is, thus, liable to the petitioner for the said amount, under
Articles 2200 and 2201 of the New Civil Code:
Art. 2200. Indemnification for damages shall comprehend not only the value of
the loss suffered, but also that of the profits which the obligee failed to obtain.
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor
who acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was
constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the nonperformance 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.
Puno, J., Chairman, Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

Footnotes
1

Penned by Associate Justice Salome A. Montoya, with Associate Justices

Conrado M. Vasquez, Jr. and Teodoro P. Regino, concurring.
2

Penned by Judge Francisco X. Velez.

Exhibit "L," Records, p. 213.

Exhibit "M," Id. at 214.

Ibid.

Exhibit "N," Id. at 216.

Exhibit "C," Id. at 192-195.

Id. at 193-194.

Exhibit "D," Id. at 196.

10

Exhibit "D-1," Id. at 197.

11

Exhibit "G," Id. at 201.

12

Exhibit "E," Id. at 198.

13

Exhibit "F," Id. at 199.

14

Exhibit "H," Id. at 202-206.

15

Records, pp. 2-4.

16

Id. at 4-5.

17

Id. at 24-25.

18

Id. at 247.

19

Id. at 482.

20

Rollo, pp. 22-23.

21

296 SCRA 631 (1998).

22

Id. at 644-645.

23

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers.
24

211 SCRA 112 (1992).

25

Records, p. 213.

26

Art. 1878. Special powers of attorney are necessary in the following cases:

(5) To enter into any contract by which the ownership of an immovable is

transmitted or acquired either gratuitously or for a valuable consideration;

(12) To create or convey real rights over immovable property;

(14) To ratify or recognize obligations contracted before the agency;

(15) Any other act of strict dominion.
27

Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of
real property or of an interest therein are governed by articles 1403, No. 2, and
1405;

(3) The power to administer property, or any other power which has for its object
an act appearing or which should appear in a public document, or should
prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a public
document.
28

State v. Sellers and Resolute Insurance Company, 258 N.W.2d 292 (1977).

29

Prior v. Hager, 440 S.W.2d 167 (1969).

30

Lang v. Bair, 36 Mo. 85, id.

31

Union Camp Corporation v. Dyal, Jr., 460 F.2d 678 (1972).

32

Banker's Protective Life Insurance Co. v. Addison, 273 S.W.2d 694 (1951).

33

Id. at 696.

34

Residon v. Miller Distributors Co., Inc., 139 N.W.2d 12 (1966).

35

See Wells Fargo Business v. Kozoff, 695 F.2d 940 (1983).

36

The Board of Supervisors v. Schack, 18 L.E.2d 556 (1897); American Food

Corporation v. Central Carolina Bank & Trust Company, 291 S.W.2d 892.
37

Reuschlin and Gregory, The Law of Agency and Partnership, 2nd ed., p. 75.

38

Article 1403, New Civil Code (infra).

39

Exhibit "F," Records, p. 199.

40

TSN, 30 September 1993, p. 13.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 163553

December 11, 2009

YUN KWAN BYUNG, Petitioner,

vs.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Respondent.
DECISION
CARPIO, J.:
The Case
Yun Kwan Byung (petitioner) filed this Petition for Review 1 assailing the Court of
Appeals Decision2 dated 27 May 2003 in CA-G.R. CV No. 65699 as well as the
Resolution3 dated 7 May 2004 denying the Motion for Reconsideration. In the
assailed decision, the Court of Appeals (CA) affirmed the Regional Trial Courts
Decision4dated 6 May 1999. The Regional Trial Court of Manila, Branch 13 (trial
court), dismissed petitioners demand against respondent Philippine Amusement
and Gaming Corporation (PAGCOR) for the redemption of gambling chips.
The Facts
PAGCOR is a government-owned and controlled corporation tasked to establish
and operate gambling clubs and casinos as a means to promote tourism and
generate sources of revenue for the government. To achieve these objectives,
PAGCOR is vested with the power to enter into contracts of every kind and for
any lawful purpose that pertains to its business. Pursuant to this authority,
PAGCOR launched its Foreign Highroller Marketing Program (Program). The

Program aims to invite patrons from foreign countries to play at the dollar pit of
designated PAGCOR-operated casinos under specified terms and conditions and
in accordance with industry practice. 5
The Korean-based ABS Corporation was one of the international groups that
availed of the Program. In a letter-agreement dated 25 April 1996 (Junket
Agreement), ABS Corporation agreed to bring in foreign players to play at the
five designated gaming tables of the Casino Filipino Silahis at the Grand
Boulevard Hotel in Manila (Casino Filipino). The relevant stipulations of the Junket
Agreement state:
1. PAGCOR will provide ABS Corporation with separate junket chips. The junket
chips will be distinguished from the chips being used by other players in the
gaming tables.
ABS Corporation will distribute these junket chips to its players and at the end of
the playing period, ABS Corporation will collect the junket chips from its players
and make an accounting to the casino treasury.
2. ABS Corporation will assume sole responsibility to pay the winnings of its
foreign players and settle the collectibles from losing players.
3. ABS Corporation shall hold PAGCOR absolutely free and harmless from any
damage, claim or liability which may arise from any cause in connection with the
Junket Agreement.
5. In providing the gaming facilities and services to these foreign players,
PAGCOR is entitled to receive from ABS Corporation a 12.5% share in the gross
winnings of ABS Corporation or 1.5 million US dollars, whichever is higher, over a
playing period of 6 months. PAGCOR has the option to extend the period. 6
Petitioner, a Korean national, alleges that from November 1996 to March 1997,
he came to the Philippines four times to play for high stakes at the Casino
Filipino.7 Petitioner claims that in the course of the games, he was able to
accumulate gambling chips worth US$2.1 million. Petitioner presented as
evidence during the trial gambling chips with a face value of US$1.1 million.
Petitioner contends that when he presented the gambling chips for encashment
with PAGCORs employees or agents, PAGCOR refused to redeem them. 8
Petitioner brought an action against PAGCOR seeking the redemption of gambling
chips valued at US$2.1 million. Petitioner claims that he won the gambling chips
at the Casino Filipino, playing continuously day and night. Petitioner alleges that
every time he would come to Manila, PAGCOR would extend to him amenities
deserving of a high roller. A PAGCOR official who meets him at the airport would
bring him to Casino Filipino, a casino managed and operated by PAGCOR. The
card dealers were all PAGCOR employees, the gambling chips, equipment and
furnitures belonged to PAGCOR, and PAGCOR enforced all the regulations dealing
with the operation of foreign exchange gambling pits. Petitioner states that he
was able to redeem his gambling chips with the cashier during his first few
winning trips. But later on, the casino cashier refused to encash his gambling

chips so he had no recourse but to deposit his gambling chips at the Grand
Boulevard Hotels deposit box, every time he departed from Manila. 9
PAGCOR claims that petitioner, who was brought into the Philippines by ABS
Corporation, is a junket player who played in the dollar pit exclusively leased by
ABS Corporation for its junket players. PAGCOR alleges that it provided ABS
Corporation with distinct junket chips. ABS Corporation distributed these chips to
its junket players. At the end of each playing period, the junket players would
surrender the chips to ABS Corporation. Only ABS Corporation would make an
accounting of these chips to PAGCORs casino treasury. 10
As additional information for the junket players playing in the gaming room
leased to ABS Corporation, PAGCOR posted a notice written in English and Korean
languages which reads:
NOTICE
This GAMING ROOM is exclusively operated by ABS under arrangement with
PAGCOR, the former is solely accountable for all PLAYING CHIPS wagered on the
tables. Any financial ARRANGEMENT/TRANSACTION between PLAYERS and ABS
shall only be binding upon said PLAYERS and ABS. 11
PAGCOR claims that this notice is a standard precautionary measure 12 to avoid
confusion between junket players of ABS Corporation and PAGCORs players.
PAGCOR argues that petitioner is not a PAGCOR player because under PAGCORs
gaming rules, gambling chips cannot be brought outside the casino. The
gambling chips must be converted to cash at the end of every gaming period as
they are inventoried every shift. Under PAGCORs rules, it is impossible for
PAGCOR players to accumulate two million dollars worth of gambling chips and to
bring the chips out of the casino premises. 13
Since PAGCOR disclaimed liability for the winnings of players recruited by ABS
Corporation and refused to encash the gambling chips, petitioner filed a
complaint for a sum of money before the trial court. 14 PAGCOR filed a
counterclaim against petitioner. Then, trial ensued.
On 6 May 1999, the trial court dismissed the complaint and counterclaim.
Petitioner appealed the trial courts decision to the CA. On 27 May 2003, the CA
affirmed the appealed decision. On 27 June 2003, petitioner moved for
reconsideration which was denied on 7 May 2004.
Aggrieved by the CAs decision and resolution, petitioner elevated the case
before this Court.
The Ruling of the Trial Court
The trial court ruled that based on PAGCORs charter, 15 PAGCOR has no authority
to lease any portion of the gambling tables to a private party like ABS
Corporation. Section 13 of Presidential Decree No. 1869 or the PAGCORs charter
states:

Sec. 13. Exemptions xxx

(4) Utilization of Foreign Currencies The Corporation shall have the right and
authority, solely and exclusively in connection with the operations of the
casino(s), to purchase, receive, exchange and disburse foreign exchange, subject
to the following terms and conditions:
(a) A specific area in the casino(s) or gaming pit shall be put up solely and
exclusively for players and patrons utilizing foreign currencies;
(b) The Corporation shall appoint and designate a duly accredited commercial
bank agent of the Central Bank, to handle, administer and manage the use of
foreign currencies in the casino(s);
(c) The Corporation shall provide an office at casino(s) exclusively for the
employees of the designated bank, agent of the Central Bank, where the
Corporation shall maintain a dollar account which will be utilized exclusively for
the above purpose and the casino dollar treasury employees;
(d) Only persons with foreign passports or certificates of identity (for Hong Kong
patron only) duly issued by the government or country of their residence will be
allowed to play in the foreign exchange gaming pit;
(e) Only foreign exchange prescribed to form part of the Philippine International
Reserve and the following foreign exchange currencies: Australian Dollar,
Singapore Dollar, Hong Kong Dollar, shall be used in this gaming pit;
(f) The disbursement, administration, management and recording of foreign
exchange currencies used in the casino(s) shall be carried out in accordance with
existing foreign exchange regulations, and periodical reports of the transactions
in such foreign exchange currencies by the Corporation shall be duly recorded
and reported to the Central Bank thru the designated Agent Bank; and
(g) The Corporation shall issue the necessary rules and regulations for the
guidance and information of players qualified to participate in the foreign
exchange gaming pit, in order to make certain that the terms and conditions as
above set forth are strictly complied with.
The trial court held that only PAGCOR could use foreign currency in its gaming
tables. When PAGCOR accepted only a fixed portion of the dollar earnings of ABS
Corporation in the concept of a lease of facilities, PAGCOR shared its franchise
with ABS Corporation in violation of the PAGCORs charter. Hence, the Junket
Agreement is void. Since the Junket Agreement is not permitted by PAGCORs
charter, the mutual rights and obligations of the parties to this case would be
resolved based on agency and estoppel.16
The trial court found that the petitioner wanted to redeem gambling chips that
were specifically used by ABS Corporation at its gaming tables. The gambling
chips come in distinctive orange or yellow colors with stickers bearing

denominations of 10,000 or 1,000. The 1,000 gambling chips are smaller in size
and the words "no cash value" marked on them. The 10,000 gambling chips do
not reflect the "no cash value" sign. The senior treasury head of PAGCOR testified
that these were the gambling chips used by the previous junket operators and
PAGCOR merely continued using them. However, the gambling chips used in the
regular casino games were of a different quality. 17
The trial court pointed out that PAGCOR had taken steps to warn players brought
in by all junket operators, including ABS Corporation, that they were playing
under special rules. Apart from the different kinds of gambling chips used, the
junket players were confined to certain gaming rooms. In these rooms, notices
were posted that gambling chips could only be encashed there and nowhere
else. A photograph of one such notice, printed in Korean and English, stated that
the gaming room was exclusively operated by ABS Corporation and that ABS
Corporation was solely accountable for all the chips wagered on the gaming
tables. Although petitioner denied seeing this notice, this disclaimer has the
effect of a negative evidence that can hardly prevail against the positive
assertions of PAGCOR officials whose credibility is also not open to doubt. The
trial court concluded that petitioner had been alerted to the existence of these
special gambling rules, and the mere fact that he continued to play under the
same restrictions over a period of several months confirms his acquiescence to
them. Otherwise, petitioner could have simply chose to stop gambling. 18
In dismissing petitioners complaint, the trial court concluded that petitioners
demand against PAGCOR for the redemption of the gambling chips could not
stand. The trial court stated that petitioner, a stranger to the agreement
between PAGCOR and ABS Corporation, could not under principles of equity be
charged with notice other than of the apparent authority with which PAGCOR had
clothed its employees and agents in dealing with petitioner. Since petitioner was
made aware of the special rules by which he was playing at the Casino Filipino,
petitioner could not now claim that he was not bound by them. The trial court
explained that in an unlawful transaction, the courts will extend equitable relief
only to a party who was unaware of all its dimensions and whose ignorance of
them exposed him to the risk of being exploited by the other. Where the parties
enter into such a relationship with the opportunity to know all of its ramifications,
as in this case, there is no room for equitable considerations to come to the
rescue of any party. The trial court ruled that it would leave the parties where
they are.19
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed the four errors assigned
by petitioner.
First, petitioner maintains that he was never a junket player of ABS Corporation.
Petitioner also denies seeing a notice that certain gaming rooms were exclusively
operated by entities under special agreement. 20

The CA ruled that the records do not support petitioners theory. Petitioners own
testimony reveals that he enjoyed special accommodations at the Grand
Boulevard Hotel. This similar accommodation was extended to players brought in
by ABS Corporation and other junket operators. Petitioner cannot disassociate
himself from ABS Corporation for it is unlikely that an unknown high roller would
be accorded choice accommodations by the hotel unless the accommodation
was facilitated by a junket operator who enjoyed such privilege. 21
The CA added that the testimonies of PAGCORs employees affirming that notices
were posted in English and Korean in the gaming areas are credible in the
absence of any convincing proof of ill motive. Further, the specified gaming areas
used only special chips that could be bought and exchanged at certain cashier
booths in that area.22
Second, petitioner attacks the validity of the contents of the notice. Since the
Junket Agreement is void, the notice, which was issued pursuant to the Junket
Agreement, is also void and cannot affect petitioner. 23
The CA reasoned that the trial court never declared the notice valid and neither
did it enforce the contents thereof. The CA emphasized that it was the act of
cautioning and alerting the players that was upheld. The trial court ruled that
signs and warnings were in place to inform the public, petitioner included, that
special rules applied to certain gaming areas even if the very agreement giving
rise to these rules is void.24
Third, petitioner takes the position that an implied agency existed between
PAGCOR and ABS Corporation. 25
The CA disagreed with petitioners view. A void contract has no force and effect
from the very beginning. It produces no effect either against or in favor of
anyone. Neither can it create, modify or extinguish the juridical relation to which
it refers. Necessarily, the Junket Agreement, being void from the beginning,
cannot give rise to an implied agency. The CA explained that it cannot see how
the principle of implied agency can be applied to this case. Article 1883 26 of the
Civil Code applies only to a situation where the agent is authorized by the
principal to enter into a particular transaction, but instead of contracting on
behalf of the principal, the agent acts in his own name. 27
The CA concluded that no such legal fiction existed between PAGCOR and ABS
Corporation. PAGCOR entered into a Junket Agreement to lease to ABS
Corporation certain gaming areas. It was never PAGCORs intention to deal with
the junket players. Neither did PAGCOR intend ABS Corporation to represent
PAGCOR in dealing with the junket players. Representation is the basis of agency
but unfortunately for petitioner none is found in this case. 28
The CA added that the special gaming chips, while belonging to PAGCOR, are
mere accessories in the void Junket Agreement with ABS Corporation. In Article
1883, the phrase "things belonging to the principal" refers only to those things or
properties subject of a particular transaction authorized by the principal to be

entered into by its purported agent. Necessarily, the gambling chips being mere
incidents to the void lease agreement cannot fall under this category. 29
The CA ruled that Article 215230 of the Civil Code is also not applicable. The
circumstances relating to negotiorum gestio are non-existent to warrant an
officious manager to take over the management and administration of PAGCOR. 31
Fourth, petitioner asks for equitable relief.32
The CA explained that although petitioner was never a party to the void Junket
Agreement, petitioner cannot deny or feign blindness to the signs and warnings
all around him. The notices, the special gambling chips, and the separate gaming
areas were more than enough to alert him that he was playing under different
terms. Petitioner persisted and continued to play in the casino. Petitioner also
enjoyed the perks extended to junket players of ABS Corporation. For failing to
heed these signs and warnings, petitioner can no longer be permitted to claim
equitable relief. When parties do not come to court with clean hands, they cannot
be allowed to profit from their own wrong doing. 33
The Issues
Petitioners raise three issues in this petition:
1. Whether the CA erred in holding that PAGCOR is not liable to petitioner,
disregarding the doctrine of implied agency, or agency by estoppel;
2. Whether the CA erred in using intent of the contracting parties as the test for
creation of agency, when such is not relevant since the instant case involves
liability of the presumed principal in implied agency to a third party; and
3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least
adopted, the acts of the agent, ABS Corporation. 34
The Ruling of the Court
The petition lacks merit.
Courts will not enforce debts arising from illegal gambling
Gambling is prohibited by the laws of the Philippines as specifically provided in
Articles 195 to 199 of the Revised Penal Code, as amended. Gambling is an act
beyond the pale of good morals, 35 and is thus prohibited and punished to repress
an evil that undermines the social, moral, and economic growth of the
nation.36 Presidential Decree No. 1602 (PD 1602),37 which modified Articles 195199 of the Revised Penal Code and repealed inconsistent provisions, 38 prescribed
stiffer penalties on illegal gambling.39
As a rule, all forms of gambling are illegal. The only form of gambling allowed by
law is that stipulated under Presidential Decree No. 1869, which gave PAGCOR its
franchise to maintain and operate gambling casinos. The issue then turns on

whether PAGCOR can validly share its franchise with junket operators to operate
gambling casinos in the country. Section 3(h) of PAGCORs charter states:
Section 3. Corporate Powers. - The Corporation shall have the following powers
and functions, among others:
xxx
h) to enter into, make, perform, and carry out contracts of every kind and for any
lawful purpose pertaining to the business of the Corporation, or in any manner
incident thereto, as principal, agent or otherwise, with any person, firm,
association, or corporation.
xxx
The Junket Agreement would be valid if under Section 3(h) of PAGCORs charter,
PAGCOR could share its gambling franchise with another entity. In Senator
Jaworski v. Phil. Amusement and Gaming Corp., 40 the Court discussed the extent
of the grant of the legislative franchise to PAGCOR on its authority to operate
gambling casinos:
A legislative franchise is a special privilege granted by the state to corporations.
It is a privilege of public concern which cannot be exercised at will and pleasure,
but should be reserved for public control and administration, either by the
government directly, or by public agents, under such conditions and regulations
as the government may impose on them in the interest of the public. It is
Congress that prescribes the conditions on which the grant of the franchise may
be made. Thus the manner of granting the franchise, to whom it may be granted,
the mode of conducting the business, the charter and the quality of the service
to be rendered and the duty of the grantee to the public in exercising the
franchise are almost always defined in clear and unequivocal language.
After a circumspect consideration of the foregoing discussion and the contending
positions of the parties, we hold that PAGCOR has acted beyond the limits of its
authority when it passed on or shared its franchise to SAGE.
In the Del Mar case where a similar issue was raised when PAGCOR entered into
a joint venture agreement with two other entities in the operation and
management of jai alai games, the Court, in an En Banc Resolution dated 24
August 2001, partially granted the motions for clarification filed by respondents
therein insofar as it prayed that PAGCOR has a valid franchise, but only by itself
(i.e. not in association with any other person or entity), to operate, maintain
and/or manage the game of jai-alai.
In the case at bar, PAGCOR executed an agreement with SAGE whereby the
former grants the latter the authority to operate and maintain sports betting
stations and Internet gaming operations. In essence, the grant of authority gives
SAGE the privilege to actively participate, partake and share PAGCORs franchise
to operate a gambling activity. The grant of franchise is a special privilege that
constitutes a right and a duty to be performed by the grantee. The grantee must

not perform its activities arbitrarily and whimsically but must abide by the limits
set by its franchise and strictly adhere to its terms and conditionalities. A
corporation as a creature of the State is presumed to exist for the common good.
Hence, the special privileges and franchises it receives are subject to the laws of
the State and the limitations of its charter. There is therefore a reserved right of
the State to inquire how these privileges had been employed, and whether they
have been abused. (Emphasis supplied)
Thus, PAGCOR has the sole and exclusive authority to operate a gambling
activity. While PAGCOR is allowed under its charter to enter into operators or
management contracts, PAGCOR is not allowed under the same charter to
relinquish or share its franchise. PAGCOR cannot delegate its power in view of
the legal principle of delegata potestas delegare non potest, inasmuch as there
is nothing in the charter to show that it has been expressly authorized to do so. 41
Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of
ABS Corporation from its foreign currency collection, allowed ABS Corporation to
operate gaming tables in the dollar pit. The Junket Agreement is in direct
violation of PAGCORs charter and is therefore void.
Since the Junket Agreement violates PAGCORs charter, gambling between the
junket player and the junket operator under such agreement is illegal and may
not be enforced by the courts. Article 201442 of the Civil Code, which refers to
illegal gambling, states that no action can be maintained by the winner for the
collection of what he has won in a game of chance.
Although not raised as an issue by petitioner, we deem it necessary to discuss
the applicability of Republic Act No. 948743 (RA 9487) to the present case.
RA 9487 amended the PAGCOR charter, granting PAGCOR the power to enter into
special agreement with third parties to share the privileges under its franchise
for the operation of gambling casinos:
Section 1. The Philippine Amusement and Gaming Corporation (PAGCOR)
franchise granted under Presidential Decree No. 1869 otherwise known as the
PAGCOR Charter, is hereby further amended to read as follows:
xxx
(2) Section 3(h) is hereby amended to read as follows:
"SEC. 3. Corporate Powers. "x x x
"(h) to enter into, make, conclude, perform, and carry out contracts of every kind
and nature and for any lawful purpose which are necessary, appropriate, proper
or incidental to any business or purpose of the PAGCOR, including but not limited
to investment agreements, joint venture agreements, management agreements,
agency agreements, whether as principal or as an agent, manpower supply

agreements, or any other similar agreements or arrangements with any person,

firm, association or corporation." (Boldfacing supplied)
PAGCOR sought the amendment of its charter precisely to address and remedy
the legal impediment raised in Senator Jaworski v. Phil. Amusement and Gaming
Corp.
Unfortunately for petitioner, RA 9487 cannot be applied to the present case. The
Junket Agreement was entered into between PAGCOR and ABS Corporation on 25
April 1996 when the PAGCOR charter then prevailing (PD 1869) prohibited
PAGCOR from entering into any arrangement with a third party that would allow
such party to actively participate in the casino operations.
It is a basic principle that laws should only be applied prospectively unless the
legislative intent to give them retroactive effect is expressly declared or is
necessarily implied from the language used. 44 RA 9487 does not provide for any
retroactivity of its provisions. All laws operate prospectively absent a clear
contrary language in the text,45 and that in every case of doubt, the doubt will be
resolved against the retroactive operation of laws. 46
Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the law
when the acts giving rise to the claimed liabilities took place. This makes the
gambling activity participated in by petitioner illegal. Petitioner cannot sue
PAGCOR to redeem the cash value of the gambling chips or recover damages
arising from an illegal activity for two reasons. First, petitioner engaged in
gambling with ABS Corporation and not with PAGCOR. Second, the court cannot
assist petitioner in enforcing an illegal act. Moreover, for a court to grant
petitioners prayer would mean enforcing the Junket Agreement, which is void.
Now, to address the issues raised by petitioner in his petition, petitioner claims
that he is a third party proceeding against the liability of a presumed principal
and claims relief, alternatively, on the basis of implied agency or agency by
estoppel.
Article 1869 of the Civil Code states that implied agency is derived from the acts
of the principal, from his silence or lack of action, or his failure to repudiate the
agency, knowing that another person is acting on his behalf without authority.
Implied agency, being an actual agency, is a fact to be proved by deductions or
inferences from other facts.47
On the other hand, apparent authority is based on estoppel and can arise from
two instances. First, the principal may knowingly permit the agent to hold himself
out as having such authority, and the principal becomes estopped to claim that
the agent does not have such authority. Second, the principal may clothe the
agent with the indicia of authority as to lead a reasonably prudent person to
believe that the agent actually has such authority. 48 In an agency by estoppel,
there is no agency at all, but the one assuming to act as agent has apparent or
ostensible, although not real, authority to represent another. 49

The law makes no presumption of agency and proving its existence, nature and
extent is incumbent upon the person alleging it. 50 Whether or not an agency has
been created is a question to be determined by the fact that one represents and
is acting for another. 51
Acts and conduct of PAGCOR negates the existence of an implied agency or an
agency by estoppel
Petitioner alleges that there is an implied agency. Alternatively, petitioner claims
that even assuming that no actual agency existed between PAGCOR and ABS
Corporation, there is still an agency by estoppel based on the acts and conduct
of PAGCOR showing apparent authority in favor of ABS Corporation. Petitioner
states that one factor which distinguishes agency from other legal precepts is
control and the following undisputed facts show a relationship of implied agency:
1. Three floors of the Grand Boulevard Hotel 52 were leased to PAGCOR for
conducting gambling operations; 53
2. Of the three floors, PAGCOR allowed ABS Corporation to use one whole floor
for foreign exchange gambling, conducted by PAGCOR dealers using PAGCOR
facilities, operated by PAGCOR employees and using PAGCOR chips bearing the
PAGCOR logo;54
3. PAGCOR controlled the release, withdrawal and return of all the gambling
chips given to ABS Corporation in that part of the casino and at the end of the
day, PAGCOR conducted an inventory of the gambling chips; 55
4. ABS Corporation accounted for all gambling chips with the Commission on
Audit (COA), the official auditor of PAGCOR; 56
5. PAGCOR enforced, through its own manager, all the rules and regulations on
the operation of the gambling pit used by ABS Corporation. 57
Petitioners argument is clearly misplaced. The basis for agency is
representation,58 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. 59 On the part of the
principal, there must be an actual intention to appoint or an intention naturally
inferable from his words or actions, while on the part of the agent, there must be
an intention to accept the appointment and act on it. 60 Absent such mutual
intent, there is generally no agency. 61
There is no implied agency in this case because PAGCOR did not hold out to the
public as the principal of ABS Corporation. PAGCORs actions did not mislead the
public into believing that an agency can be implied from the arrangement with
the junket operators, nor did it hold out ABS Corporation with any apparent
authority to represent it in any capacity. The Junket Agreement was merely a
contract of lease of facilities and services.

The players brought in by ABS Corporation were covered by a different set of

rules in acquiring and encashing chips. The players used a different kind of chip
than what was used in the regular gaming areas of PAGCOR, and that such junket
players played specifically only in the third floor area and did not mingle with the
regular patrons of PAGCOR. Furthermore, PAGCOR, in posting notices stating that
the players are playing under special rules, exercised the necessary precaution
to warn the gaming public that no agency relationship exists.1avvphi1
For the second assigned error, petitioner claims that the intention of the parties
cannot apply to him as he is not a party to the contract.
We disagree. The Court of Appeals correctly used the intent of the contracting
parties in determining whether an agency by estoppel existed in this case. An
agency by estoppel, which is similar to the doctrine of apparent authority
requires proof of reliance upon the representations, and that, in turn, needs proof
that the representations predated the action taken in reliance. 62
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.63 Such proof is lacking in this case.
In the entire duration that petitioner played in Casino Filipino, he was dealing
only with ABS Corporation, and availing of the privileges extended only to
players brought in by ABS Corporation. The facts that he enjoyed special
treatment upon his arrival in Manila and special accommodations in Grand
Boulevard Hotel, and that he was playing in special gaming rooms are all
indications that petitioner cannot claim good faith that he believed he was
dealing with PAGCOR. Petitioner cannot be considered as an innocent third party
and he cannot claim entitlement to equitable relief as well.
For his third and final assigned error, petitioner asserts that PAGCOR ratified the
acts of ABS Corporation.
The trial court has declared, and we affirm, that the Junket Agreement is void. A
void or inexistent contract is one which has no force and effect from the very
beginning. Hence, it is as if it has never been entered into and cannot be
validated either by the passage of time or by ratification. 64 Article 1409 of the
Civil Code provides that contracts expressly prohibited or declared void by law,
such as gambling contracts, "cannot be ratified." 65
WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals Decision
dated 27 May 2003 as well as the Resolution dated 7 May 2004 as modified by
this Decision.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice

WE CONCUR:
CONCHITA CARPIO MORALES*
Associate Justice
TERESITA J. LEONARDO-DE
CASTRO**
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
*

**

Designated additional member per Special Order No. 807.

Designated additional member per Special Order No. 776.
Under Rule 45 of the Rules of Court.

Rollo , pp. 30-38. Penned by Associate Justice Rosmari D. Carandang, with

Associate Justices Conrado M. Vasquez, Jr. and Mercedes Gozo-Dadole,
concurring.
3

Id. at 57. Penned by Associate Justice Rosmari D. Carandang with Associate

Justices Conrado M. Vasquez, Jr. and Mercedes Gozo-Dadole, concurring.
4

Id. at 58-62. Penned by RTC Judge Mario Guaria III.

Id. at 5-6.

Records, pp. 23-24.

Rollo, p. 8.

Id. at 6-7.

Id. at 8-9.

10

Id. at 69.

11

Id. at 70.

12

Id. Petitioner showed a similar notice posted with regard to another junket
operator GIT.
13

Id.

14

Id. at 121.

15

Presidential Decree No. 1869, Consolidating and Amending Presidential Decree

Nos. 1067-A, 1067-B, 1067-C, 1399 and 1632 Relative to the Franchise and
Powers of the Philippine Amusement and Gaming Corporation (PAGCOR). Took
effect on 11 July 1983.
16

Rollo, pp. 60-61.

17

Id.

18

Id.

19

Id. at 61-62.

20

Id. at 33.

21

Id.

22

Id. at 34.

23

Id.

24

Id. at 34-35.

25

Id.

26

Art. 1883. If an agent acts in his own name, the principal has no right of action
against the persons with whom the agent has contracted, neither have such
persons against the principal.
In such case, the agent is the one directly bound in favor of the person with
whom he has contracted, as if the transaction were his own, except when the
contract involves things belonging to the principal.
The provisions of this article shall be understood to be without prejudice to the
actions between the principal and agent.

27

Rollo, p. 35.

28

Id.

29

Id. at 36.

30

Art. 2152. The officious manager is personally liable for contracts which he has
entered into with third persons, even though he acted in the name of the owner,
and there shall be no right of action between the owner and third persons. These
provisions shall not apply:
(1) If the owner has expressly or tacitly ratified the management, or
(2) When the contract refers to things pertaining to the owner of the business.
31

Rollo, p. 36.

32

Id.

33

Id. at 36, 38.

34

Id. at 12.

35

United States v. Salaveria, 39 Phil. 102, 112 (1918).

36

People v. Punto, 68 Phil. 481, 482 (1939).

37

Prescribing Stiffer Penalties on Illegal Gambling. Took effect on 11 June 1978.

38

Gambling and Illegal Lottery are crimes covered by Chapter One, Title VI
(Crimes against Public Morals) of the Revised Penal Code.
39

Section 1. Penalties. The following penalties are hereby imposed:

(a) The penalty of prision correccional in its medium period or a fine ranging from
one thousand to six thousand pesos, and in case of recidivism, the penalty of
prision mayor in its medium period or a fine ranging from five thousand to ten
thousand pesos shall be imposed upon:
1. Any person other than those referred to in the succeeding sub-sections who in
any manner, shall directly or indirectly take part in any illegal or unauthorized
activities or games of cockfighting, jueteng, jai alai or horse racing to include
bookie operations and game fixing, numbers, bingo and other forms of lotteries;
cara y cruz, pompiang and the like; 7-11 and any game using dice; black jack,
lucky nine, poker and its derivatives, monte, baccarat, cuajo, pangguingue and
other card games; piak que, high and low, mahjong, domino and other games
using plastic tiles and the likes; slot machines, roulette, pinball and other
mechanical contraptions and devices; dog racing, boat racing, car racing and
other forms of races, basketball, boxing, volleyball, bowling, pingpong and other
forms of individual or team contests to include game fixing, point shaving and
other machinations; banking or percentage game, or any other game scheme,

whether upon chance or skill, wherein wagers consisting of money, articles of

value or representative of value are at stake or made;
40

464 Phil. 375, 385-386 (2004).

41

Id.

42

Art. 2014. No action can be maintained by the winner for the collection of what
he has won in a game of chance. But any loser in a game of chance may recover
his loss from the winner, with legal interest from the time he paid the amount
lost, and subsidiarily from the operator or manager of the gambling house.
43

An Act Further Amending Presidential Decree No. 1869, Otherwise Known as

PAGCOR Charter. Took effect on 20 June 2007.
Prior to the amendment, Section 3(h) of the PAGCOR Charter (PD 1869) reads as
follows:
SEC. 3. Corporate Powers. - The Corporation shall have the following powers and
functions, among others:
xxx
h) to enter into, make, perform, and carry out contracts of every kind and for any
lawful purpose pertaining to the business of the Corporation, or in any manner
incident thereto, as principal, agent or otherwise, with any person, firm,
association or corporation.
44

Erectors, Inc. v. National Labor Relations Commission, 326 Phil. 640, 646
(1996).
45

Agpalo, Ruben, Statutory Construction (5th ed., 2003), p. 355.

46

Cebu Portland Cement Co. v. Collector of Internal Revenue, 134 Phil. 735, 740
(1968).
47

De Leon, Hector S., Comments and Cases on Partnership, Agency and Trusts,
5th edition, 1999, p. 411.
48

Woodchild Holdings, Inc. v. Roxas Electric and Construction Company, Inc., 479
Phil. 896, 914 (2004).
49

Supra note 47 at 410.

50

Tuazon v. Heirs of Bartolome Ramos, G.R. No. 156262, 14 July 2005, 463 SCRA
408, 415.
51

Angeles v. Philippine National Railways, G.R. No. 150128, 31 August 2006, 500
SCRA 444, 452.
52

Formerly known as Silahis Hotel.

53

Rollo, p. 124.

54

Id.

55

Id. at 125.

56

Id.

57

Id.

58

Bordador v. Luz, 347 Phil. 654, 662 (1997).

59

Eurotech Industrial Technologies, Inc. v. Cuizon, G.R. No. 167552, 23 April

2007, 521 SCRA 584, 593.
60

Victorias Milling Co., Inc. v. Court of Appeals, 389 Phil. 184, 196 (2000).

61

Supra note 50 at 415.

62

Litonjua, Jr. v. Eternit Corporation, G.R. No. 144805, 8 June 2006, 490 SCRA
204, 225.
63

Supra note 48 at 914.

64

Francisco v. Herrera, 440 Phil. 841, 849 (2002).

65

Art. 1409. The following contracts are inexistent and void from the beginning:

xxx
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 126297

January 31, 2007

PROFESSIONAL SERVICES, INC., Petitioner,

vs.
NATIVIDAD and ENRIQUE AGANA, Respondents.
x-----------------------x
G.R. No. 126467

January 31, 2007

NATIVIDAD (Substituted by her children MARCELINO AGANA III, ENRIQUE

AGANA, JR., EMMA AGANA ANDAYA, JESUS AGANA, and RAYMUND
AGANA) and ENRIQUE AGANA, Petitioners,
vs.
JUAN FUENTES, Respondent.

x- - - - - - - - - - - - - - - - - - - -- - - - x
G.R. No. 127590

January 31, 2007

MIGUEL AMPIL, Petitioner,

vs.
NATIVIDAD AGANA and ENRIQUE AGANA, Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Hospitals, having undertaken one of mankinds most important and delicate
endeavors, must assume the grave responsibility of pursuing it with appropriate
care. The care and service dispensed through this high trust, however technical,
complex and esoteric its character may be, must meet standards of
responsibility commensurate with the undertaking to preserve and protect the
health, and indeed, the very lives of those placed in the hospitals keeping. 1
Assailed in these three consolidated petitions for review on certiorari is the Court
of Appeals Decision2 dated September 6, 1996 in CA-G.R. CV No. 42062 and CAG.R. SP No. 32198 affirming with modification the Decision 3dated March 17, 1993
of the Regional Trial Court (RTC), Branch 96, Quezon City in Civil Case No. Q43322 and nullifying its Order dated September 21, 1993.
The facts, as culled from the records, are:
On April 4, 1984, Natividad Agana was rushed to the Medical City General
Hospital (Medical City Hospital) because of difficulty of bowel movement and
bloody anal discharge. After a series of medical examinations, Dr. Miguel Ampil,
petitioner in G.R. No. 127590, diagnosed her to be suffering from "cancer of the
sigmoid."
On April 11, 1984, Dr. Ampil, assisted by the medical staff 4 of the Medical City
Hospital, performed an anterior resection surgery on Natividad. He found that the
malignancy in her sigmoid area had spread on her left ovary, necessitating the
removal of certain portions of it. Thus, Dr. Ampil obtained the consent of
Natividads husband, Enrique Agana, to permit Dr. Juan Fuentes, respondent in
G.R. No. 126467, to perform hysterectomy on her.
After Dr. Fuentes had completed the hysterectomy, Dr. Ampil took over,
completed the operation and closed the incision.
However, the operation appeared to be flawed. In the corresponding Record of
Operation dated April 11, 1984, the attending nurses entered these remarks:
"sponge count lacking 2
"announced to surgeon searched (sic) done but to no avail continue for closure."
On April 24, 1984, Natividad was released from the hospital. Her hospital and
medical bills, including the doctors fees, amounted to P60,000.00.

After a couple of days, Natividad complained of excruciating pain in her anal

region. She consulted both Dr. Ampil and Dr. Fuentes about it. They told her that
the pain was the natural consequence of the surgery. Dr. Ampil then
recommended that she consult an oncologist to examine the cancerous nodes
which were not removed during the operation.
On May 9, 1984, Natividad, accompanied by her husband, went to the United
States to seek further treatment. After four months of consultations and
laboratory examinations, Natividad was told she was free of cancer. Hence, she
was advised to return to the Philippines.
On August 31, 1984, Natividad flew back to the Philippines, still suffering from
pains. Two weeks thereafter, her daughter found a piece of gauze protruding
from her vagina. Upon being informed about it, Dr. Ampil proceeded to her house
where he managed to extract by hand a piece of gauze measuring 1.5 inches in
width. He then assured her that the pains would soon vanish.
Dr. Ampils assurance did not come true. Instead, the pains intensified,
prompting Natividad to seek treatment at the Polymedic General Hospital. While
confined there, Dr. Ramon Gutierrez detected the presence of another foreign
object in her vagina -- a foul-smelling gauze measuring 1.5 inches in width which
badly infected her vaginal vault. A recto-vaginal fistula had formed in her
reproductive organs which forced stool to excrete through the vagina. Another
surgical operation was needed to remedy the damage. Thus, in October 1984,
Natividad underwent another surgery.
On November 12, 1984, Natividad and her husband filed with the RTC, Branch
96, Quezon City a complaint for damages against the Professional Services, Inc.
(PSI), owner of the Medical City Hospital, Dr. Ampil, and Dr. Fuentes, docketed as
Civil Case No. Q-43322. They alleged that the latter are liable for negligence for
leaving two pieces of gauze inside Natividads body and malpractice for
concealing their acts of negligence.
Meanwhile, Enrique Agana also filed with the Professional Regulation Commission
(PRC) an administrative complaint for gross negligence and malpractice against
Dr. Ampil and Dr. Fuentes, docketed as Administrative Case No. 1690. The PRC
Board of Medicine heard the case only with respect to Dr. Fuentes because it
failed to acquire jurisdiction over Dr. Ampil who was then in the United States.
On February 16, 1986, pending the outcome of the above cases, Natividad died
and was duly substituted by her above-named children (the Aganas).
On March 17, 1993, the RTC rendered its Decision in favor of the Aganas, finding
PSI, Dr. Ampil and Dr. Fuentes liable for negligence and malpractice, the decretal
part of which reads:
WHEREFORE, judgment is hereby rendered for the plaintiffs ordering the
defendants PROFESSIONAL SERVICES, INC., DR. MIGUEL AMPIL and DR. JUAN
FUENTES to pay to the plaintiffs, jointly and severally, except in respect of the

award for exemplary damages and the interest thereon which are the liabilities of
defendants Dr. Ampil and Dr. Fuentes only, as follows:
1. As actual damages, the following amounts:
a. The equivalent in Philippine Currency of the total of US$19,900.00 at the rate
of P21.60-US$1.00, as reimbursement of actual expenses incurred in the United
States of America;
b. The sum of P4,800.00 as travel taxes of plaintiffs and their physician daughter;
c. The total sum of P45,802.50, representing the cost of hospitalization at
Polymedic Hospital, medical fees, and cost of the saline solution;
2. As moral damages, the sum of P2,000,000.00;
3. As exemplary damages, the sum of P300,000.00;
4. As attorneys fees, the sum of P250,000.00;
5. Legal interest on items 1 (a), (b), and (c); 2; and 3 hereinabove, from date of
filing of the complaint until full payment; and
6. Costs of suit.
SO ORDERED.
Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an appeal to the Court of
Appeals, docketed as CA-G.R. CV No. 42062.
Incidentally, on April 3, 1993, the Aganas filed with the RTC a motion for a partial
execution of its Decision, which was granted in an Order dated May 11, 1993.
Thereafter, the sheriff levied upon certain properties of Dr. Ampil and sold them
for P451,275.00 and delivered the amount to the Aganas.
Following their receipt of the money, the Aganas entered into an agreement with
PSI and Dr. Fuentes to indefinitely suspend any further execution of the RTC
Decision. However, not long thereafter, the Aganas again filed a motion for an
alias writ of execution against the properties of PSI and Dr. Fuentes. On
September 21, 1993, the RTC granted the motion and issued the corresponding
writ, prompting Dr. Fuentes to file with the Court of Appeals a petition for
certiorari and prohibition, with prayer for preliminary injunction, docketed as CAG.R. SP No. 32198. During its pendency, the Court of Appeals issued a
Resolution5 dated October 29, 1993 granting Dr. Fuentes prayer for injunctive
relief.
On January 24, 1994, CA-G.R. SP No. 32198 was consolidated with CA-G.R. CV
No. 42062.
Meanwhile, on January 23, 1995, the PRC Board of Medicine rendered its
Decision6 in Administrative Case No. 1690 dismissing the case against Dr.
Fuentes. The Board held that the prosecution failed to show that Dr. Fuentes was

the one who left the two pieces of gauze inside Natividads body; and that he
concealed such fact from Natividad.
On September 6, 1996, the Court of Appeals rendered its Decision jointly
disposing of CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198, thus:
WHEREFORE, except for the modification that the case against defendantappellant Dr. Juan Fuentes is hereby DISMISSED, and with the pronouncement
that defendant-appellant Dr. Miguel Ampil is liable to reimburse defendantappellant Professional Services, Inc., whatever amount the latter will pay or had
paid to the plaintiffs-appellees, the decision appealed from is hereby AFFIRMED
and the instant appeal DISMISSED.
Concomitant with the above, the petition for certiorari and prohibition filed by
herein defendant-appellant Dr. Juan Fuentes in CA-G.R. SP No. 32198 is hereby
GRANTED and the challenged order of the respondent judge dated September
21, 1993, as well as the alias writ of execution issued pursuant thereto are
hereby NULLIFIED and SET ASIDE. The bond posted by the petitioner in
connection with the writ of preliminary injunction issued by this Court on
November 29, 1993 is hereby cancelled.
Costs against defendants-appellants Dr. Miguel Ampil and Professional Services,
Inc.
SO ORDERED.
Only Dr. Ampil filed a motion for reconsideration, but it was denied in a
Resolution7 dated December 19, 1996.
Hence, the instant consolidated petitions.
In G.R. No. 126297, PSI alleged in its petition that the Court of Appeals erred in
holding that: (1) it is estopped from raising the defense that Dr. Ampil is not its
employee; (2) it is solidarily liable with Dr. Ampil; and (3) it is not entitled to its
counterclaim against the Aganas. PSI contends that Dr. Ampil is not its employee,
but a mere consultant or independent contractor. As such, he alone should
answer for his negligence.
In G.R. No. 126467, the Aganas maintain that the Court of Appeals erred in
finding that Dr. Fuentes is not guilty of negligence or medical malpractice,
invoking the doctrine of res ipsa loquitur. They contend that the pieces of gauze
are prima facie proofs that the operating surgeons have been negligent.
Finally, in G.R. No. 127590, Dr. Ampil asserts that the Court of Appeals erred in
finding him liable for negligence and malpractice sans evidence that he left the
two pieces of gauze in Natividads vagina. He pointed to other probable causes,
such as: (1) it was Dr. Fuentes who used gauzes in performing the hysterectomy;
(2) the attending nurses failure to properly count the gauzes used during
surgery; and (3) the medical intervention of the American doctors who examined
Natividad in the United States of America.

For our resolution are these three vital issues: first, whether the Court of Appeals
erred in holding Dr. Ampil liable for negligence and malpractice; second, whether
the Court of Appeals erred in absolving Dr. Fuentes of any liability; and third,
whether PSI may be held solidarily liable for the negligence of Dr. Ampil.
I - G.R. No. 127590
Whether the Court of Appeals Erred in Holding Dr. Ampil
Liable for Negligence and Malpractice.
Dr. Ampil, in an attempt to absolve himself, gears the Courts attention to other
possible causes of Natividads detriment. He argues that the Court should not
discount either of the following possibilities: first, Dr. Fuentes left the gauzes in
Natividads body after performing hysterectomy; second, the attending nurses
erred in counting the gauzes; and third, the American doctors were the ones who
placed the gauzes in Natividads body.
Dr. Ampils arguments are purely conjectural and without basis. Records show
that he did not present any evidence to prove that the American doctors were
the ones who put or left the gauzes in Natividads body. Neither did he submit
evidence to rebut the correctness of the record of operation, particularly the
number of gauzes used. As to the alleged negligence of Dr. Fuentes, we are
mindful that Dr. Ampil examined his (Dr. Fuentes) work and found it in order.
The glaring truth is that all the major circumstances, taken together, as specified
by the Court of Appeals, directly point to Dr. Ampil as the negligent party, thus:
First, it is not disputed that the surgeons used gauzes as sponges to control the
bleeding of the patient during the surgical operation.
Second, immediately after the operation, the nurses who assisted in the surgery
noted in their report that the sponge count (was) lacking 2; that such anomaly
was announced to surgeon and that a search was done but to no avail
prompting Dr. Ampil to continue for closure x x x.
Third, after the operation, two (2) gauzes were extracted from the same spot of
the body of Mrs. Agana where the surgery was performed.
An operation requiring the placing of sponges in the incision is not complete until
the sponges are properly removed, and it is settled that the leaving of sponges
or other foreign substances in the wound after the incision has been closed is at
least prima facie negligence by the operating surgeon. 8 To put it simply, such act
is considered so inconsistent with due care as to raise an inference of
negligence. There are even legions of authorities to the effect that such act is
negligence per se.9
Of course, the Court is not blind to the reality that there are times when danger
to a patients life precludes a surgeon from further searching missing sponges or
foreign objects left in the body. But this does not leave him free from any
obligation. Even if it has been shown that a surgeon was required by the urgent

necessities of the case to leave a sponge in his patients abdomen, because of

the dangers attendant upon delay, still, it is his legal duty to so inform his patient
within a reasonable time thereafter by advising her of what he had been
compelled to do. This is in order that she might seek relief from the effects of the
foreign object left in her body as her condition might permit. The ruling in Smith
v. Zeagler10 is explicit, thus:
The removal of all sponges used is part of a surgical operation, and when a
physician or surgeon fails to remove a sponge he has placed in his patients body
that should be removed as part of the operation, he thereby leaves his operation
uncompleted and creates a new condition which imposes upon him the legal
duty of calling the new condition to his patients attention, and endeavoring with
the means he has at hand to minimize and avoid untoward results likely to ensue
therefrom.
Here, Dr. Ampil did not inform Natividad about the missing two pieces of gauze.
Worse, he even misled her that the pain she was experiencing was the ordinary
consequence of her operation. Had he been more candid, Natividad could have
taken the immediate and appropriate medical remedy to remove the gauzes
from her body. To our mind, what was initially an act of negligence by Dr. Ampil
has ripened into a deliberate wrongful act of deceiving his patient.
This is a clear case of medical malpractice or more appropriately, medical
negligence. To successfully pursue this kind of case, a patient must only prove
that a health care provider either failed to do something which a reasonably
prudent health care provider would have done, or that he did something that a
reasonably prudent provider would not have done; and that failure or action
caused injury to the patient.11 Simply put, the elements are duty, breach, injury
and proximate causation. Dr, Ampil, as the lead surgeon, had the duty to remove
all foreign objects, such as gauzes, from Natividads body before closure of the
incision. When he failed to do so, it was his duty to inform Natividad about it. Dr.
Ampil breached both duties. Such breach caused injury to Natividad,
necessitating her further examination by American doctors and another surgery.
That Dr. Ampils negligence is the proximate cause 12 of Natividads injury could
be traced from his act of closing the incision despite the information given by the
attending nurses that two pieces of gauze were still missing. That they were later
on extracted from Natividads vagina established the causal link between Dr.
Ampils negligence and the injury. And what further aggravated such injury was
his deliberate concealment of the missing gauzes from the knowledge of
Natividad and her family.
II - G.R. No. 126467
Whether the Court of Appeals Erred in Absolving
Dr. Fuentes of any Liability
The Aganas assailed the dismissal by the trial court of the case against Dr.
Fuentes on the ground that it is contrary to the doctrine of res ipsa loquitur.

According to them, the fact that the two pieces of gauze were left inside
Natividads body is a prima facie evidence of Dr. Fuentes negligence.
We are not convinced.
Literally, res ipsa loquitur means "the thing speaks for itself." It is the rule that
the fact of the occurrence of an injury, taken with the surrounding circumstances,
may permit an inference or raise a presumption of negligence, or make out a
plaintiffs prima facie case, and present a question of fact for defendant to meet
with an explanation.13Stated differently, where the thing which caused the injury,
without the fault of the injured, is under the exclusive control of the defendant
and the injury is such that it should not have occurred if he, having such control
used proper care, it affords reasonable evidence, in the absence of explanation
that the injury arose from the defendants want of care, and the burden of proof
is shifted to him to establish that he has observed due care and diligence. 14
From the foregoing statements of the rule, the requisites for the applicability of
the doctrine of res ipsa loquitur are: (1) the occurrence of an injury; (2) the thing
which caused the injury was under the control and management of the
defendant; (3) the occurrence was such that in the ordinary course of things,
would not have happened if those who had control or management used proper
care; and (4) the absence of explanation by the defendant. Of the foregoing
requisites, the most instrumental is the "control and management of the thing
which caused the injury."15
We find the element of "control and management of the thing which caused the
injury" to be wanting. Hence, the doctrine of res ipsa loquitur will not lie.
It was duly established that Dr. Ampil was the lead surgeon during the operation
of Natividad. He requested the assistance of Dr. Fuentes only to perform
hysterectomy when he (Dr. Ampil) found that the malignancy in her sigmoid area
had spread to her left ovary. Dr. Fuentes performed the surgery and thereafter
reported and showed his work to Dr. Ampil. The latter examined it and finding
everything to be in order, allowed Dr. Fuentes to leave the operating room. Dr.
Ampil then resumed operating on Natividad. He was about to finish the
procedure when the attending nurses informed him that two pieces of gauze
were missing. A "diligent search" was conducted, but the misplaced gauzes were
not found. Dr. Ampil then directed that the incision be closed. During this entire
period, Dr. Fuentes was no longer in the operating room and had, in fact, left the
hospital.
Under the "Captain of the Ship" rule, the operating surgeon is the person in
complete charge of the surgery room and all personnel connected with the
operation. Their duty is to obey his orders. 16 As stated before, Dr. Ampil was the
lead surgeon. In other words, he was the "Captain of the Ship." That he
discharged such role is evident from his following conduct: (1) calling Dr. Fuentes
to perform a hysterectomy; (2) examining the work of Dr. Fuentes and finding it
in order; (3) granting Dr. Fuentes permission to leave; and (4) ordering the
closure of the incision. To our mind, it was this act of ordering the closure of the

incision notwithstanding that two pieces of gauze remained unaccounted for,

that caused injury to Natividads body. Clearly, the control and management of
the thing which caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes.
In this jurisdiction, res ipsa loquitur is not a rule of substantive law, hence, does
not per se create or constitute an independent or separate ground of liability,
being a mere evidentiary rule.17 In other words, mere invocation and application
of the doctrine does not dispense with the requirement of proof of negligence.
Here, the negligence was proven to have been committed by Dr. Ampil and not
by Dr. Fuentes.
III - G.R. No. 126297
Whether PSI Is Liable for the Negligence of Dr. Ampil
The third issue necessitates a glimpse at the historical development of hospitals
and the resulting theories concerning their liability for the negligence of
physicians.
Until the mid-nineteenth century, hospitals were generally charitable institutions,
providing medical services to the lowest classes of society, without regard for a
patients ability to pay.18 Those who could afford medical treatment were usually
treated at home by their doctors. 19 However, the days of house calls and
philanthropic health care are over. The modern health care industry continues to
distance itself from its charitable past and has experienced a significant
conversion from a not-for-profit health care to for-profit hospital businesses.
Consequently, significant changes in health law have accompanied the businessrelated changes in the hospital industry. One important legal change is an
increase in hospital liability for medical malpractice. Many courts now allow
claims for hospital vicarious liability under the theories of respondeat superior,
apparent authority, ostensible authority, or agency by estoppel. 20
In this jurisdiction, the statute governing liability for negligent acts is Article 2176
of the Civil Code, which reads:
Art. 2176. Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this Chapter.
A derivative of this provision is Article 2180, the rule governing vicarious liability
under the doctrine of respondeat superior, thus:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for
ones own acts or omissions, but also for those of persons for whom one is
responsible.
x x x

x x x

The owners and managers of an establishment or enterprise are likewise

responsible for damages caused by their employees in the service of the
branches in which the latter are employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks even though
the former are not engaged in any business or industry.
x x x

The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family
to prevent damage.
A prominent civilist commented that professionals engaged by an employer,
such as physicians, dentists, and pharmacists, are not "employees" under this
article because the manner in which they perform their work is not within the
control of the latter (employer). In other words, professionals are considered
personally liable for the fault or negligence they commit in the discharge of their
duties, and their employer cannot be held liable for such fault or negligence. In
the context of the present case, "a hospital cannot be held liable for the fault or
negligence of a physician or surgeon in the treatment or operation of patients." 21
The foregoing view is grounded on the traditional notion that the professional
status and the very nature of the physicians calling preclude him from being
classed as an agent or employee of a hospital, whenever he acts in a
professional capacity. 22 It has been said that medical practice strictly involves
highly developed and specialized knowledge, 23 such that physicians are generally
free to exercise their own skill and judgment in rendering medical services sans
interference.24 Hence, when a doctor practices medicine in a hospital setting, the
hospital and its employees are deemed to subserve him in his ministrations to
the patient and his actions are of his own responsibility. 25
The case of Schloendorff v. Society of New York Hospital 26 was then considered
an authority for this view. The "Schloendorff doctrine" regards a physician, even
if employed by a hospital, as an independent contractor because of the skill he
exercises and the lack of control exerted over his work. Under this doctrine,
hospitals are exempt from the application of the respondeat superior principle for
fault or negligence committed by physicians in the discharge of their profession.
However, the efficacy of the foregoing doctrine has weakened with the
significant developments in medical care. Courts came to realize that modern
hospitals are increasingly taking active role in supplying and regulating medical
care to patients. No longer were a hospitals functions limited to furnishing room,
food, facilities for treatment and operation, and attendants for its patients. Thus,
in Bing v. Thunig,27 the New York Court of Appeals deviated from the Schloendorff
doctrine, noting that modern hospitals actually do far more than provide facilities
for treatment. Rather, they regularly employ, on a salaried basis, a large staff of
physicians, interns, nurses, administrative and manual workers. They charge

patients for medical care and treatment, even collecting for such services
through legal action, if necessary. The court then concluded that there is no
reason to exempt hospitals from the universal rule of respondeat superior.
In our shores, the nature of the relationship between the hospital and the
physicians is rendered inconsequential in view of our categorical pronouncement
in Ramos v. Court of Appeals28 that for purposes of apportioning responsibility in
medical negligence cases, an employer-employee relationship in effect exists
between hospitals and their attending and visiting physicians. This Court held:
"We now discuss the responsibility of the hospital in this particular incident. The
unique practice (among private hospitals) of filling up specialist staff with
attending and visiting "consultants," who are allegedly not hospital employees,
presents problems in apportioning responsibility for negligence in medical
malpractice cases. However, the difficulty is more apparent than real.
In the first place, hospitals exercise significant control in the hiring and firing of
consultants and in the conduct of their work within the hospital premises.
Doctors who apply for consultant slots, visiting or attending, are required to
submit proof of completion of residency, their educational qualifications,
generally, evidence of accreditation by the appropriate board (diplomate),
evidence of fellowship in most cases, and references. These requirements are
carefully scrutinized by members of the hospital administration or by a review
committee set up by the hospital who either accept or reject the application. x x
x.
After a physician is accepted, either as a visiting or attending consultant, he is
normally required to attend clinico-pathological conferences, conduct bedside
rounds for clerks, interns and residents, moderate grand rounds and patient
audits and perform other tasks and responsibilities, for the privilege of being able
to maintain a clinic in the hospital, and/or for the privilege of admitting patients
into the hospital. In addition to these, the physicians performance as a specialist
is generally evaluated by a peer review committee on the basis of mortality and
morbidity statistics, and feedback from patients, nurses, interns and residents. A
consultant remiss in his duties, or a consultant who regularly falls short of the
minimum standards acceptable to the hospital or its peer review committee, is
normally politely terminated.
In other words, private hospitals, hire, fire and exercise real control over their
attending and visiting consultant staff. While consultants are not, technically
employees, x x x, the control exercised, the hiring, and the right to terminate
consultants all fulfill the important hallmarks of an employer-employee
relationship, with the exception of the payment of wages. In assessing whether
such a relationship in fact exists, the control test is determining. Accordingly, on
the basis of the foregoing, we rule that for the purpose of allocating responsibility
in medical negligence cases, an employer-employee relationship in effect exists
between hospitals and their attending and visiting physicians. "

But the Ramos pronouncement is not our only basis in sustaining PSIs liability. Its
liability is also anchored upon the agency principle of apparent authority or
agency by estoppel and the doctrine of corporate negligence which have gained
acceptance in the determination of a hospitals liability for negligent acts of
health professionals. The present case serves as a perfect platform to test the
applicability of these doctrines, thus, enriching our jurisprudence.
Apparent authority, or what is sometimes referred to as the "holding
out" theory, or doctrine of ostensible agency or agency by estoppel, 29 has its
origin from the law of agency. It imposes liability, not as the result of the reality
of a contractual relationship, but rather because of the actions of a principal or
an employer in somehow misleading the public into believing that the
relationship or the authority exists. 30 The concept is essentially one of estoppel
and has been explained in this manner:
"The principal is bound by the acts of his agent with the apparent authority
which he knowingly permits the agent to assume, or which he holds the agent
out to the public as possessing. The question in every case is whether the
principal has by his voluntary act placed the agent in such a situation that a
person of ordinary prudence, conversant with business usages and the nature of
the particular business, is justified in presuming that such agent has authority to
perform the particular act in question.31
The applicability of apparent authority in the field of hospital liability was upheld
long time ago in Irving v. Doctor Hospital of Lake Worth, Inc. 32 There, it was
explicitly stated that "there does not appear to be any rational basis for
excluding the concept of apparent authority from the field of hospital liability."
Thus, in cases where it can be shown that a hospital, by its actions, has held out
a particular physician as its agent and/or employee and that a patient has
accepted treatment from that physician in the reasonable belief that it is being
rendered in behalf of the hospital, then the hospital will be liable for the
physicians negligence.
Our jurisdiction recognizes the concept of an agency by implication or estoppel.
Article 1869 of the Civil Code reads:
ART. 1869. Agency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency, knowing
that another person is acting on his behalf without authority.
In this case, PSI publicly displays in the lobby of the Medical City Hospital the
names and specializations of the physicians associated or accredited by it,
including those of Dr. Ampil and Dr. Fuentes. We concur with the Court of
Appeals conclusion that it "is now estopped from passing all the blame to the
physicians whose names it proudly paraded in the public directory leading the
public to believe that it vouched for their skill and competence." Indeed, PSIs act
is tantamount to holding out to the public that Medical City Hospital, through its
accredited physicians, offers quality health care services. By accrediting Dr.

Ampil and Dr. Fuentes and publicly advertising their qualifications, the hospital
created the impression that they were its agents, authorized to perform medical
or surgical services for its patients. As expected, these patients, Natividad being
one of them, accepted the services on the reasonable belief that such were
being rendered by the hospital or its employees, agents, or servants. The trial
court correctly pointed out:
x x x regardless of the education and status in life of the patient, he ought not be
burdened with the defense of absence of employer-employee relationship
between the hospital and the independent physician whose name and
competence are certainly certified to the general public by the hospitals act of
listing him and his specialty in its lobby directory, as in the case herein. The high
costs of todays medical and health care should at least exact on the hospital
greater, if not broader, legal responsibility for the conduct of treatment and
surgery within its facility by its accredited physician or surgeon, regardless of
whether he is independent or employed." 33
The wisdom of the foregoing ratiocination is easy to discern. Corporate entities,
like PSI, are capable of acting only through other individuals, such as physicians.
If these accredited physicians do their job well, the hospital succeeds in its
mission of offering quality medical services and thus profits financially. Logically,
where negligence mars the quality of its services, the hospital should not be
allowed to escape liability for the acts of its ostensible agents.
We now proceed to the doctrine of corporate negligence or corporate
responsibility.
One allegation in the complaint in Civil Case No. Q-43332 for negligence and
malpractice is that PSI as owner, operator and manager of Medical City Hospital,
"did not perform the necessary supervision nor exercise diligent efforts in the
supervision of Drs. Ampil and Fuentes and its nursing staff, resident doctors, and
medical interns who assisted Drs. Ampil and Fuentes in the performance of their
duties as surgeons."34 Premised on the doctrine of corporate negligence, the trial
court held that PSI is directly liable for such breach of duty.
We agree with the trial court.
Recent years have seen the doctrine of corporate negligence as the judicial
answer to the problem of allocating hospitals liability for the negligent acts of
health practitioners, absent facts to support the application of respondeat
superior or apparent authority. Its formulation proceeds from the judiciarys
acknowledgment that in these modern times, the duty of providing quality
medical service is no longer the sole prerogative and responsibility of the
physician. The modern hospitals have changed structure. Hospitals now tend to
organize a highly professional medical staff whose competence and performance
need to be monitored by the hospitals commensurate with their inherent
responsibility to provide quality medical care. 35

The doctrine has its genesis in Darling v. Charleston Community

Hospital.36 There, the Supreme Court of Illinois held that "the jury could have
found a hospital negligent, inter alia, in failing to have a sufficient number of
trained nurses attending the patient; failing to require a consultation with or
examination by members of the hospital staff; and failing to review the
treatment rendered to the patient." On the basis of Darling, other jurisdictions
held that a hospitals corporate negligence extends to permitting a physician
known to be incompetent to practice at the hospital. 37 With the passage of time,
more duties were expected from hospitals, among them: (1) the use of
reasonable care in the maintenance of safe and adequate facilities and
equipment; (2) the selection and retention of competent physicians; (3) the
overseeing or supervision of all persons who practice medicine within its walls;
and (4) the formulation, adoption and enforcement of adequate rules and
policies that ensure quality care for its patients. 38 Thus, in Tucson Medical Center,
Inc. v. Misevich,39 it was held that a hospital, following the doctrine of corporate
responsibility, has the duty to see that it meets the standards of responsibilities
for the care of patients. Such duty includes the proper supervision of the
members of its medical staff. And in Bost v. Riley, 40 the court concluded that a
patient who enters a hospital does so with the reasonable expectation that it will
attempt to cure him. The hospital accordingly has the duty to make a reasonable
effort to monitor and oversee the treatment prescribed and administered by the
physicians practicing in its premises.
In the present case, it was duly established that PSI operates the Medical City
Hospital for the purpose and under the concept of providing comprehensive
medical services to the public. Accordingly, it has the duty to exercise reasonable
care to protect from harm all patients admitted into its facility for medical
treatment. Unfortunately, PSI failed to perform such duty. The findings of the trial
court are convincing, thus:
x x x PSIs liability is traceable to its failure to conduct an investigation of the
matter reported in the nota bene of the count nurse. Such failure established
PSIs part in the dark conspiracy of silence and concealment about the gauzes.
Ethical considerations, if not also legal, dictated the holding of an immediate
inquiry into the events, if not for the benefit of the patient to whom the duty is
primarily owed, then in the interest of arriving at the truth. The Court cannot
accept that the medical and the healing professions, through their members like
defendant surgeons, and their institutions like PSIs hospital facility, can callously
turn their backs on and disregard even a mere probability of mistake or
negligence by refusing or failing to investigate a report of such seriousness as
the one in Natividads case.
It is worthy to note that Dr. Ampil and Dr. Fuentes operated on Natividad with the
assistance of the Medical City Hospitals staff, composed of resident doctors,
nurses, and interns. As such, it is reasonable to conclude that PSI, as the
operator of the hospital, has actual or constructive knowledge of the procedures
carried out, particularly the report of the attending nurses that the two pieces of
gauze were missing. In Fridena v. Evans, 41 it was held that a corporation is bound

by the knowledge acquired by or notice given to its agents or officers within the
scope of their authority and in reference to a matter to which their authority
extends. This means that the knowledge of any of the staff of Medical City
Hospital constitutes knowledge of PSI. Now, the failure of PSI, despite the
attending nurses report, to investigate and inform Natividad regarding the
missing gauzes amounts to callous negligence. Not only did PSI breach its duties
to oversee or supervise all persons who practice medicine within its walls, it also
failed to take an active step in fixing the negligence committed. This renders PSI,
not only vicariously liable for the negligence of Dr. Ampil under Article 2180 of
the Civil Code, but also directly liable for its own negligence under Article 2176.
In Fridena, the Supreme Court of Arizona held:
x x x In recent years, however, the duty of care owed to the patient by the
hospital has expanded. The emerging trend is to hold the hospital responsible
where the hospital has failed to monitor and review medical services being
provided within its walls. See Kahn Hospital Malpractice Prevention, 27 De Paul .
Rev. 23 (1977).
Among the cases indicative of the emerging trend is Purcell v. Zimbelman, 18
Ariz. App. 75,500 P. 2d 335 (1972). In Purcell, the hospital argued that it could
not be held liable for the malpractice of a medical practitioner because he was
an independent contractor within the hospital. The Court of Appeals pointed out
that the hospital had created a professional staff whose competence and
performance was to be monitored and reviewed by the governing body of the
hospital, and the court held that a hospital would be negligent where it had
knowledge or reason to believe that a doctor using the facilities was employing a
method of treatment or care which fell below the recognized standard of care.
Subsequent to the Purcell decision, the Arizona Court of Appeals held that a
hospital has certain inherent responsibilities regarding the quality of medical
care furnished to patients within its walls and it must meet the standards of
responsibility commensurate with this undertaking. Beeck v. Tucson General
Hospital, 18 Ariz. App. 165, 500 P. 2d 1153 (1972). This court has confirmed the
rulings of the Court of Appeals that a hospital has the duty of supervising the
competence of the doctors on its staff. x x x.
x

In the amended complaint, the plaintiffs did plead that the operation was
performed at the hospital with its knowledge, aid, and assistance, and that the
negligence of the defendants was the proximate cause of the patients injuries.
We find that such general allegations of negligence, along with the evidence
produced at the trial of this case, are sufficient to support the hospitals liability
based on the theory of negligent supervision."
Anent the corollary issue of whether PSI is solidarily liable with Dr. Ampil for
damages, let it be emphasized that PSI, apart from a general denial of its
responsibility, failed to adduce evidence showing that it exercised the diligence
of a good father of a family in the accreditation and supervision of the latter. In

neglecting to offer such proof, PSI failed to discharge its burden under the last
paragraph of Article 2180 cited earlier, and, therefore, must be adjudged
solidarily liable with Dr. Ampil. Moreover, as we have discussed, PSI is also
directly liable to the Aganas.
One final word. Once a physician undertakes the treatment and care of a patient,
the law imposes on him certain obligations. In order to escape liability, he must
possess that reasonable degree of learning, skill and experience required by his
profession. At the same time, he must apply reasonable care and diligence in the
exercise of his skill and the application of his knowledge, and exert his best
judgment.
WHEREFORE, we DENY all the petitions and AFFIRM the challenged Decision of
the Court of Appeals in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198.
Costs against petitioners PSI and Dr. Miguel Ampil.
SO ORDERED.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
RENATO C. CORONA
Associate Justice

ADOLFO S. AZCUNA
Asscociate Justice

(No Part)
CANCIO C. GARCIA
Associate Justice
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that
the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
*

No part. Ponente of the assailed Decision in the Court of Appeals.

Beeck v. Tucson General Hospital, 500 P. 2d 1153 (1972), citing Darling v.

Charleston Community Memorial Hospital, 33 Ill. 2d 326, 211 N.E. 2d 253.
2

Penned by Associate Justice Cancio C. Garcia (now a member of the Supreme

Court) and concurred in by Associate Justices Eugenio S. Labitoria and Artemio G.
Tuquero (both retired), Rollo, G.R. Nos. 126297, pp. 36-51; 126467, pp. 27-42;
127590, pp. 23-38.
3

Penned by Judge Lucas P. Bersamin (now Justice of the Court of Appeals), Rollo,
G.R. No. 126647, pp. 69-83.
4

The medical staff was composed of physicians, both residents and interns, as
well as nurses.
5

The dispositive portion reads:

"WHEREFORE, let a writ of preliminary injunction be issued upon petitioners

posting of bond in the amount of P20,000.00, ENJOINING public respondents from
implementing the questioned order dated September 21, 1993 and from further
taking any action in Civil Case No. Q-43322 entitled Natividad G. Agana, et al.,
plaintiffs, versus Professional Services, Inc., et al., defendants pending resolution
of the instant petition.
SO ORDERED." See Rollo, G.R. No. 126297, p. 42.
6

Rollo of G.R. No. 126467, pp. 84-89.

Rollo of G.R. No. 127590, p. 40.

Rule v. Cheeseman, 317 P. 2d 472 (1957), citing Russel v. Newman, 116 Kan.
268 P. 752; Bernsden v. Johnson, 174 Kan. 230, 255 P. 2d 1033.
9

Smith v. Zeagler, 157 So. 328 Fla. (1934), citing Ruth v. Johnson, (C.C.A.) 172 F.
191; Reeves v. Lutz, 179 Mo. App. 61, 162 S.W. 280; Rayburn v. Day, 126 Or.
135,268 P. 1002, 59 A.L.R. 1062; Wynne v. Harvey, 96 Wash. 379, 165 P. 67;
Harris v. Fall (C.C.A.) 177 F. 79, 27 L.R.A. (N.S.) 1174; Moore v. Ivey, (Tex. Civ.
App.) 264 S.W. 283; 21 R.C. L. 388.
10

157 So. 328 Fla. (1934)

11

Garcia-Rueda v. Pascasio, G.R. No. 118141, September 5, 1997, 278 SCRA 769.

12

In the leading case of Vda. de Bataclan v. Medina, (102 Phil. 181 [1957]), this
Court laid down the following definition of proximate cause in this jurisdiction as
follows:
[T]hat cause, which, in natural and continuous sequence unbroken by any
efficient intervening cause, produces the injury and without which the result
would not have occurred. And more comprehensively, the proximate cause is
that acting first and producing the injury, either immediately or by setting other
events in motion, all constituting a natural and continuous chain of events, each
having a close causal connection with the immediate predecessor, the final event

in the chain immediately effecting the injury as a natural and probable result of
the cause which first acted, under which circumstances that the person
responsible for the first event should, as an ordinarily prudent and intelligent
person, have reasonable ground to expect at the moment of his act or default
that an injury to some person might probably result therefrom.
13

Ramos v. Court of Appeals, G.R. No. 124354, December 29, 1999, 321 SCRA
584.
14

Africa v. Caltex (Phils.) Inc., 123 Phil. 280 (1966).

15

Ranos v. Court of Appeals, supra. In Ramos, the phrase used is "control of the
instrumentality which caused the damage," citing St. Johns Hospital and School
of Nursing v. Chapman, 434 P2d 160 (1967).
16

Rural Educational Assn v. Bush, 42 Tenn. App. 34, 298 S.W. 2d 761 (1956).

17

Ramos v. Court of Appeals, supra at footnote 13.

18

Levin, Hospital Vicarious Liability for Negligence by Independent Contractor

Physicians: A New Rule for New Times, October 17, 2005.
19

Id.

20

Id.

21

Tolentino, The Civil Code of the Philippines, Volume V, 1992 Ed., p. 616.

22

Arkansas M.R. Co. v. Pearson, 98 Ark. 442, 153 SW 595 (1911); Runyan v.
Goodrum, 147 Ark. 281, 228 SW 397, 13 ALR 1403 (1921); Rosane v. Senger, 112
Colo. 363, 149 P. 2d 372 (superseded by statute on other grounds); Moon v.
Mercy Hosp., 150 Col. 430, 373 P. 2d 944 (1962); Austin v. Litvak, 682 P. 2d 41,
50 ALR 4th 225 (1984); Western Ins. Co. v. Brochner, 682 P. 2d 1213 (1983);
Rodriguez v. Denver, 702 P. 2d 1349 (1984).
23

Arkansas M.R. Co. v. Pearson, id.; Nieto v. State, 952 P. 2d 834 (1997). But see
Beeck v. Tucson General Hosp., 18 Ariz. App. 165, 500 P. 2d 1153 (1972);
Paintsville Hosp. Co., 683 SW 2d 255 (1985); Kelley v. Rossi, 395 Mass. 659, 481
NE 2d 1340 (1985) which held that a physicians professional status does not
prevent him or her from being a servant or agent of the hospital.
24

Fridena v. Evans, 127 Ariz. 516, 522 P. 2d 463 (1980).

25

Kitto v. Gilbert, 39 Colo App 374, 570 P. 2d 544 (1977).

26

211 N.Y. 125, 105 N.E. 92, 52 L.R.A., N.S., 505 (1914). The court in Schloendorff
opined that a hospital does not act through physicians but merely procures them
to act on their own initiative and responsibility. For subsequent application of the
doctrine, see for instance, Hendrickson v. Hodkin, 250 App. Div 649, 294 NYS
982, revd on other grounds, 276 NY 252, 11 NE 2d 899 (1937); Necolayff v.
Genesee Hosp., 270 App. Div. 648, 61 NYS 2d 832, affd 296 NY 936, 73 NE2d 117
(1946); Davie v. Lenox Hill Hosp., Inc., 81 NYS 2d 583 (1948); Roth v. Beth El

Hosp., Inc., 279 App. Div 917, 110 NYS 2d 583 (1952); Rufino v. US, 126 F. Supp.
132 (1954); Mrachek v. Sunshine Biscuit, Inc., 308 NY 116, 123 N.E. 2d 801
(1954).
27

2 NY 2d 656, 163 NYS 2d 3, 143 N.E. 2d 3 (1957).

28

Supra at footnote 13.

29

Blacks Law Dictionary (6th Ed. 1990) 1100. The terms "ostensible agency,"
"agency by estoppel," "apparent authority," and "holding out" tend to be used
interchangeably by the courts to refer to this theory of liability. See for instance,
Baker v. Werner, 654 P2d 263 (1982) and Adamski v. Tacoma Gen. Hosp., 20
Wash App. 98, 579 P2d 970 (1978). Agency by estoppel is defined as "one
created by operation of law and established by proof of such acts of the principal
as reasonably lead third persons to the conclusion of its existence. Arises where
principal by negligence in failing to supervise agents affairs, allows agent to
exercise powers not granted to him, thus justifying others in believing the agent
possesses requisite authority." Blacks, supra, p. 62. An ostensible agency is "an
implied or presumptive agency which exists where one, either intentionally or
from want of ordinary care, induces another to believe that a third person is his
agent, though he never in fact, employed him. It is, strictly speaking, no agency
at all, but is in reality based entirely upon estoppel." Apparent authority refers to
"the power to affect the legal relations of another person by transactions with
third persons, professedly as agent for the other, arising from and in accordance
with the others manifestations to such third persons." Supra, p. 96.
30

Irving v. Doctors Hospital of Lake Worth, Inc., 415 So. 2d 55 (1982), quoting
Arthur v. St. Peters Hospital, 169 N.J. 575, 405 A. 2d 443 (1979).
31

Id., citing Hudson v. C., Loan Assn., Inc. v. Horowytz, 116 N.J.L. 605, 608, 186 A
437 (Sup. Ct. 1936).
32

Supra.

33

RTC Decision, p. 9, Rollo of G.R. No. 126467, p. 127.

34

RTC Decision, p. 2, Rollo of G.R. No. 126467, p. 120.

35

Purcell v. Zimbelman, 18 Ariz. App. 75, 500 P2d 335 (1972).

36

Supra at footnote 1.

37

Corleto v. Hospital, 138 N.J. Super. 302, 350 A. 2d 534 (Super. Ct. Law
Div.1975); Purcell v. Zimbelman, 18 Ariz. App. 75,500 P. 2d 335 (1972); Hospital
Authority v. Joiner, 229 Ga. 140,189 S.E. 2d 412 (1972).
38

Welsh v. Bulger, 548 Pa. 504, 698 A.2d 581 (1997).

39

115 Ariz. 34, 545 P2d 958 (1976).

40

262 S.E. 2d 391, cert denied 300 NC 194, 269 S.E. 2d 621 (1980).

41

127 Ariz. 516, 622 P. 2d 463 (1980).

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 126297

February 11, 2008

PROFESSIONAL SERVICES, INC., petitioner,

vs.
THE COURT OF APPEALS and NATIVIDAD and ENRIQUE
AGANA, respondents,
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 126467

February 11, 2008

NATIVIDAD (Substituted by her children MARCELINO AGANA III, ENRIQUE

AGANA, JR., EMMA AGANA ANDAYA, JESUS AGANA, and RAYMUND
AGANA) and ENRIQUE AGANA, petitioners,
vs.
THE COURT OF APPEALS and JUAN FUENTES, respondents,
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 127590

February 11, 2008

MIGUEL AMPIL, petitioner,

vs.
THE COURT OF APPEALS and NATIVIDAD AGANA and ENRIQUE
AGANA, respondents.
RESOLUTION
SANDOVAL-GUTIERREZ, J.:
As the hospital industry changes, so must the laws and jurisprudence governing
hospital liability. The immunity from medical malpractice traditionally accorded
to hospitals has to be eroded if we are to balance the interest of the patients and
hospitals under the present setting.
Before this Court is a motion for reconsideration filed by Professional Services,
Inc. (PSI), petitioner in G.R. No. 126297, assailing the Courts First Division
Decision dated January 31, 2007, finding PSI and Dr. Miguel Ampil, petitioner in
G.R. No. 127590, jointly and severally liable for medical negligence.
A brief revisit of the antecedent facts is imperative.
On April 4, 1984, Natividad Agana was admitted at the Medical City General
Hospital (Medical City) because of difficulty of bowel movement and bloody anal

discharge. Dr. Ampil diagnosed her to be suffering from "cancer of the sigmoid."
Thus, on April 11, 1984, Dr. Ampil, assisted by the medical staff 1 of Medical City,
performed an anterior resection surgery upon her. During the surgery, he found
that the malignancy in her sigmoid area had spread to her left ovary,
necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained the
consent of Atty. Enrique Agana, Natividads husband, to permit Dr. Juan Fuentes,
respondent in G.R. No. 126467, to perform hysterectomy upon Natividad.
Dr. Fuentes performed and completed the hysterectomy. Afterwards, Dr. Ampil
took over, completed the operation and closed the incision. However, the
operation appeared to be flawed. In the corresponding Record of Operation dated
April 11, 1984, the attending nurses entered these remarks:
sponge count lacking 2
announced to surgeon searched done (sic) but to no avail continue for closure.
After a couple of days, Natividad complained of excruciating pain in her anal
region. She consulted both Dr. Ampil and Dr. Fuentes about it. They told her that
the pain was the natural consequence of the surgical operation performed upon
her. Dr. Ampil recommended that Natividad consult an oncologist to treat the
cancerous nodes which were not removed during the operation.
On May 9, 1984, Natividad, accompanied by her husband, went to the United
States to seek further treatment. After four (4) months of consultations and
laboratory examinations, Natividad was told that she was free of cancer. Hence,
she was advised to return to the Philippines.
On August 31, 1984, Natividad flew back to the Philippines, still suffering from
pains. Two (2) weeks thereafter, her daughter found a piece of gauze protruding
from her vagina. Dr. Ampil was immediately informed. He proceeded to
Natividads house where he managed to extract by hand a piece of gauze
measuring 1.5 inches in width. Dr. Ampil then assured Natividad that the pains
would soon vanish.
Despite Dr. Ampils assurance, the pains intensified, prompting Natividad to seek
treatment at the Polymedic General Hospital. While confined thereat, Dr. Ramon
Gutierrez detected the presence of a foreign object in her vagina -- a foulsmelling gauze measuring 1.5 inches in width. The gauze had badly infected her
vaginal vault. A recto-vaginal fistula had formed in her reproductive organ which
forced stool to excrete through the vagina. Another surgical operation was
needed to remedy the situation. Thus, in October 1984, Natividad underwent
another surgery.
On November 12, 1984, Natividad and her husband filed with the Regional Trial
Court, Branch 96, Quezon City a complaint for damages against PSI (owner of
Medical City), Dr. Ampil and Dr. Fuentes.
On February 16, 1986, pending the outcome of the above case, Natividad died.
She was duly substituted by her above-named children (the Aganas).

On March 17, 1993, the trial court rendered judgment in favor of spouses Agana
finding PSI, Dr. Ampil and Dr. Fuentes jointly and severally liable. On appeal, the
Court of Appeals, in its Decision dated September 6, 1996, affirmed the assailed
judgment with modification in the sense that the complaint against Dr. Fuentes
was dismissed.
PSI, Dr. Ampil and the Aganas filed with this Court separate petitions for review
on certiorari. On January 31, 2007, the Court, through its First Division, rendered
a Decision holding that PSI is jointly and severally liable with Dr. Ampil for the
following reasons: first, there is an employer-employee relationship between
Medical City and Dr. Ampil. The Court relied on Ramos v. Court of
Appeals,2 holding that for the purpose of apportioning responsibility in medical
negligence cases, an employer-employee relationship in effect exists between
hospitals and their attending and visiting physicians; second, PSIs act of publicly
displaying in the lobby of the Medical City the names and specializations of its
accredited physicians, including Dr. Ampil, estopped it from denying the
existence of an employer-employee relationship between them under
the doctrine of ostensible agency or agency by estoppel; and third, PSIs
failure to supervise Dr. Ampil and its resident physicians and nurses and to take
an active step in order to remedy their negligence rendered it directly liable
under the doctrine of corporate negligence.
In its motion for reconsideration, PSI contends that the Court erred in finding it
liable under Article 2180 of the Civil Code, there being no employer-employee
relationship between it and its consultant, Dr. Ampil. PSI stressed that the Courts
Decision in Ramos holding that "an employer-employee relationship in
effect exists between hospitals and their attending and visiting physicians for
the purpose of apportioning responsibility" had been reversed in a subsequent
Resolution.3 Further, PSI argues that the doctrine of ostensible agency or
agency by estoppelcannot apply because spouses Agana failed to establish
one requisite of the doctrine, i.e., that Natividad relied on the representation of
the hospital in engaging the services of Dr. Ampil. And lastly, PSI maintains that
thedoctrine of corporate negligence is misplaced because the proximate
cause of Natividads injury was Dr. Ampils negligence.
The motion lacks merit.
As earlier mentioned, the First Division, in its assailed Decision, ruled that an
employer-employee relationship "in effect" exists between the Medical City and
Dr. Ampil. Consequently, both are jointly and severally liable to the Aganas. This
ruling proceeds from the following ratiocination in Ramos:
We now discuss the responsibility of the hospital in this particular incident. The
unique practice (among private hospitals) of filling up specialist staff with
attending and visiting "consultants," who are allegedly not hospital employees,
presents problems in apportioning responsibility for negligence in medical
malpractice cases. However, the difficulty is only more apparent than real.

In the first place, hospitals exercise significant control in the hiring and
firing of consultants and in the conduct of their work within the hospital
premises. Doctors who apply for "consultant" slots, visiting or attending, are
required to submit proof of completion of residency, their educational
qualifications; generally, evidence of accreditation by the appropriate board
(diplomate), evidence of fellowship in most cases, and references. These
requirements are carefully scrutinized by members of the hospital administration
or by a review committee set up by the hospital who either accept or reject the
application. This is particularly true with respondent hospital.
After a physician is accepted, either as a visiting or attending
consultant, he is normally required to attend clinico-pathological
conferences, conduct bedside rounds for clerks, interns and residents,
moderate grand rounds and patient audits and perform other tasks and
responsibilities, for the privilege of being able to maintain a clinic in the
hospital, and/or for the privilege of admitting patients into the
hospital. In addition to these, the physicians performance as a specialist
is generally evaluated by a peer review committee on the basis of
mortality and morbidity statistics, and feedback from patients, nurses,
interns and residents. A consultant remiss in his duties, or a consultant
who regularly falls short of the minimum standards acceptable to the
hospital or its peer review committee, is normally politely terminated.
In other words, private hospitals hire, fire and exercise real control over their
attending and visiting "consultant" staff. While "consultants" are not,
technically employees, a point which respondent hospital asserts in
denying all responsibility for the patients condition, the control
exercised, the hiring, and the right to terminate consultants all fulfill
the important hallmarks of an employer-employee relationship, with the
exception of the payment of wages. In assessing whether such a
relationship in fact exists, the control test is determining. Accordingly,
on the basis of the foregoing, we rule that for the purpose of allocating
responsibility in medical negligence cases, an employer-employee
relationship in effect exists between hospitals and their attending and
visiting physicians. This being the case, the question now arises as to whether
or not respondent hospital is solidarily liable with respondent doctors for
petitioners condition.
The basis for holding an employer solidarily responsible for the negligence of its
employee is found in Article 2180 of the Civil Code which considers a person
accountable not only for his own acts but also for those of others based on the
formers responsibility under a relationship of partia ptetas.
Clearly, in Ramos, the Court considered the peculiar relationship between a
hospital and its consultants on the bases of certain factors. One such factor is
the "control test" wherein the hospital exercises control in the hiring and firing of
consultants, like Dr. Ampil, and in the conduct of their work.

Actually, contrary to PSIs contention, the Court did not reverse its ruling
in Ramos. What it clarified was that the De Los Santos Medical Clinic did not
exercise control over its consultant, hence, there is no employer-employee
relationship between them. Thus, despite the granting of the said hospitals
motion for reconsideration, the doctrine in Ramos stays, i.e., for the purpose of
allocating responsibility in medical negligence cases, an employer-employee
relationship exists between hospitals and their consultants.
In the instant cases, PSI merely offered a general denial of responsibility,
maintaining that consultants, like Dr. Ampil, are "independent contractors," not
employees of the hospital. Even assuming that Dr. Ampil is not an employee of
Medical City, but an independent contractor, still the said hospital is liable to the
Aganas.
In Nograles, et al. v. Capitol Medical Center, et al.,4 through Mr. Justice Antonio T.
Carpio, the Court held:
The question now is whether CMC is automatically exempt from liability
considering that Dr. Estrada is an independent contractor-physician.
In general, a hospital is not liable for the negligence of an independent
contractor-physician. There is, however, an exception to this principle. The
hospital may be liable if the physician is the "ostensible" agent of the hospital.
(Jones v. Philpott, 702 F. Supp. 1210 [1988]) This exception is also known as the
"doctrine of apparent authority." (Sometimes referred to as the apparent or
ostensible agency theory. [King v. Mitchell, 31 A.D.3rd 958, 819 N.Y. S.2d 169
(2006)].
xxx
The doctrine of apparent authority essentially involves two factors to determine
the liability of an independent contractor-physician.
The first factor focuses on the hospitals manifestations and is sometimes
described as an inquiry whether the hospital acted in a manner which would lead
a reasonable person to conclude that the individual who was alleged to be
negligent was an employee or agent of the hospital. (Diggs v. Novant Health,
Inc., 628 S.E.2d 851 (2006) citing Hylton v. Koontz, 138 N.C. App. 629 (2000). In
this regard, the hospital need not make express representations to the
patient that the treating physician is an employee of the hospital;
rather a representation may be general and implied. (Id.)
The doctrine of apparent authority is a specie of the doctrine of estoppel. Article
1431 of the Civil Code provides that "[t]hrough 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." Estoppel rests on this
rule: "Whether a party has, by his own declaration, act, or omission, intentionally
and deliberately led another to believe a particular thing true, and to act upon
such belief, he cannot, in any litigation arising out of such declaration, act or
omission, be permitted to falsify it. (De Castro v. Ginete, 137 Phil. 453 [1969],

citing Sec. 3, par. A, Rule 131 of the Rules of Court. See also King v. Mitchell, 31
A.D.3rd 958, 819 N.Y.S.2d 169 [2006]).
xxx
The second factor focuses on the patients reliance. It is sometimes
characterized as an inquiry on whether the plaintiff acted in reliance upon the
conduct of the hospital or its agent, consistent with ordinary care and prudence.
(Diggs v. Novant Health, Inc.)
PSI argues that the doctrine of apparent authority cannot apply to these
cases because spouses Agana failed to establish proof of their reliance on the
representation of Medical City that Dr. Ampil is its employee.
The argument lacks merit.
Atty. Agana categorically testified that one of the reasons why he chose Dr. Ampil
was that he knew him to be a staff member of Medical City, a prominent
and known hospital.
Q

Will you tell us what transpired in your visit to Dr. Ampil?

A
Well, I saw Dr. Ampil at the Medical City, I know him to be a staff
member there, and I told him about the case of my wife and he asked me to
bring my wife over so she could be examined. Prior to that, I have known Dr.
Ampil, first, he was staying in front of our house, he was a neighbor, second, my
daughter was his student in the University of the East School of Medicine at
Ramon Magsaysay; and when my daughter opted to establish a hospital or a
clinic, Dr. Ampil was one of our consultants on how to establish that hospital. And
from there, I have known that he was a specialist when it comes to that illness.
Atty. Agcaoili
On that particular occasion, April 2, 1984, what was your reason for choosing to
contact Dr. Ampil in connection with your wifes illness?
A First, before that, I have known him to be a specialist on that part of the body
as a surgeon; second, I have known him to be a staff member of the
Medical City which is a prominent and known hospital. And third, because
he is a neighbor, I expect more than the usual medical service to be given to us,
than his ordinary patients.5
Clearly, PSI is estopped from passing the blame solely to Dr. Ampil. Its act of
displaying his name and those of the other physicians in the public directory at
the lobby of the hospital amounts to holding out to the public that it offers
quality medical service through the listed physicians. This justifies Atty. Aganas
belief that Dr. Ampil was a member of the hospitals staff. It must be stressed
that under the doctrine of apparent authority, the question in every
case is whether the principal has by his voluntary act placed the agent
in such a situation that a person of ordinary prudence, conversant with
business usages and the nature of the particular business, is justified in

presuming that such agent has authority to perform the particular act
in question.6 In these cases, the circumstances yield a positive answer to the
question.
The challenged Decision also anchors its ruling on the doctrine of corporate
responsibility.7 The duty of providing quality medical service is no longer the
sole prerogative and responsibility of the physician. This is because the modern
hospital now tends to organize a highly-professional medical staff whose
competence and performance need also to be monitored by the hospital
commensurate with its inherent responsibility to provide quality medical
care.8 Such responsibility includes the proper supervision of the
members of its medical staff. Accordingly, the hospital has the duty to
make a reasonable effort to monitor and oversee the treatment
prescribed and administered by the physicians practicing in its
premises.
Unfortunately, PSI had been remiss in its duty. It did not conduct an immediate
investigation on the reported missing gauzes to the great prejudice and agony
of its patient. Dr. Jocson, a member of PSIs medical staff, who testified on
whether the hospital conducted an investigation, was evasive, thus:
Q
We go back to the operative technique, this was signed by Dr.
Puruganan, was this submitted to the hospital?
A
Yes, sir, this was submitted to the hospital with the record of the
patient.
Q

Was the hospital immediately informed about the missing sponges?

That is the duty of the surgeon, sir.

Q
As a witness to an untoward incident in the operating room, was it
not your obligation, Dr., to also report to the hospital because you are
under the control and direction of the hospital?
A

The hospital already had the record of the two OS missing, sir.

Q
If you place yourself in the position of the hospital, how will you
recover.
A

You do not answer my question with another question.

Did the hospital do anything about the missing gauzes?

A
The hospital left it up to the surgeon who was doing the operation,
sir.
Q

Did the hospital investigate the surgeon who did the operation?

I am not in the position to answer that, sir.

Q
You never did hear the hospital investigating the doctors involved
in this case of those missing sponges, or did you hear something?
xxxxxx
A
I think we already made a report by just saying that two sponges
were missing, it is up to the hospital to make the move.
Atty. Agana
Precisely, I am asking you if the hospital did a move, if the hospital did
a move.
A

I cannot answer that.

Court
By that answer, would you mean to tell the Court that you were aware if
there was such a move done by the hospital?
A
I cannot answer that, your honor, because I did not have any more
follow-up of the case that happened until now. 9
The above testimony obviously shows Dr. Jocsons lack of concern for the
patients. Such conduct is reflective of the hospitals manner of
supervision. Not only did PSI breach its duty to oversee or supervise all
persons who practice medicine within its walls, it also failed to take an
active step in fixing the negligence committed. This renders PSI, not only
vicariously liable for the negligence of Dr. Ampil under Article 2180 of the Civil
Code, but also directly liable for its own negligence under Article 2176.
Moreover, there is merit in the trial courts finding that the failure of PSI to
conduct an investigation "established PSIs part in the dark conspiracy of
silence and concealment about the gauzes." The following testimony of Atty.
Agana supports such findings, thus:
Q
You said you relied on the promise of Dr. Ampil and despite the promise you
were not able to obtain the said record. Did you go back to the record custodian?
A

I did not because I was talking to Dr. Ampil. He promised me.

After your talk to Dr. Ampil, you went to the record custodian?

A
I went to the record custodian to get the clinical record of my wife,
and I was given a portion of the records consisting of the findings,
among them, the entries of the dates, but not the operating procedure
and operative report.10
In sum, we find no merit in the motion for reconsideration.
WHEREFORE, we DENY PSIs motion for reconsideration with finality.
SO ORDERED.

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

WE CONCUR:
REYNATO S. PUNO
Chief Justice
RENATO C. CORONA
Associate Justice

ADOLFO S. AZCUNA
Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that
the conclusions in the above Resolution were reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1

The medical staff was composed of physicians, both residents and interns, as
well as nurses.
2

G.R. No. 124354, December 29, 1999, 321 SCRA 584.

Promulgated on April 11, 2002.

G.R. No. 142625, December 19, 2006, 511 SCRA 204.

TSN, April 12, 1985, pp. 25-26.

Id., citing Hudson V.C., Loan Assn., Inc. v. Horowytz, 116 N.J.L. 605, 608, 186 A
437 (Sup. Ct. 1936).
7

The corporate negligence doctrine imposes several duties on a hospital: (1) to

use reasonable care in the maintenance of safe and adequate facilities and
equipment; (2) to select and retain only competent physicians; (3) to oversee as
to patient care all persons who practice medicine within its walls; and (4) to

formulate, adopt, and enforce adequate rules and policies to ensure quality care
for its patients. These special tort duties arise from the special relationship
existing between a hospital or nursing home and its patients, which are based on
the vulnerability of the physically or mentally ill persons and their inability to
provide care for themselves. 40 A Am Jur 2d 28 citing Funkhouser v. Wilson, 89
Wash. App. 644, 950 P 2d 501 (Div.1 1998), review granted, 135 Wash. 2d
1001,959 P 2d 126 (1998).
8

Purcell v. Zimbelman, 18 Ariz. App. 75, 500 P2d 335 (1972).

TSN, February 26, 1987, pp. 26-28.

10

TSN, November 22, 1985, pp. 52-53.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 126297

February 2, 2010

PROFESSIONAL SERVICES, INC., Petitioner,

vs.
THE COURT OF APPEALS and NATIVIDAD and ENRIQUE
AGANA, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 126467
NATIVIDAD [substituted by her children Marcelino Agana III, Enrique
Agana, Jr., Emma Agana-Andaya, Jesus Agana and Raymund Agana] and
ENRIQUE AGANA, Petitioners,
vs.
THE COURT OF APPEALS and JUAN FUENTES, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 127590
MIGUEL AMPIL, Petitioner,
vs.
NATIVIDAD and ENRIQUE AGANA, Respondents.
RESOLUTION
CORONA, J.:
With prior leave of court,1 petitioner Professional Services, Inc. (PSI) filed a
second motion for reconsideration 2urging referral thereof to the Court en banc
and seeking modification of the decision dated January 31, 2007 and resolution

dated February 11, 2008 which affirmed its vicarious and direct liability for
damages to respondents Enrique Agana and the heirs of Natividad Agana
(Aganas).
Manila Medical Services, Inc. (MMSI),3 Asian Hospital, Inc. (AHI),4 and Private
Hospital Association of the Philippines (PHAP) 5 all sought to intervene in these
cases invoking the common ground that, unless modified, the assailed decision
and resolution will jeopardize the financial viability of private hospitals and jack
up the cost of health care.
The Special First Division of the Court granted the motions for intervention of
MMSI, AHI and PHAP (hereafter intervenors), 6 and referred en consulta to the
Court en banc the motion for prior leave of court and the second motion for
reconsideration of PSI.7
Due to paramount public interest, the Court en banc accepted the referral8 and
heard the parties on oral arguments on one particular issue: whether a hospital
may be held liable for the negligence of physicians-consultants allowed to
practice in its premises.9
To recall the salient facts, PSI, together with Dr. Miguel Ampil (Dr. Ampil) and Dr.
Juan Fuentes (Dr. Fuentes), was impleaded by Enrique Agana and Natividad
Agana (later substituted by her heirs), in a complaint 10 for damages filed in the
Regional Trial Court (RTC) of Quezon City, Branch 96, for the injuries suffered by
Natividad when Dr. Ampil and Dr. Fuentes neglected to remove from her body
two gauzes11 which were used in the surgery they performed on her on April 11,
1984 at the Medical City General Hospital. PSI was impleaded as owner, operator
and manager of the hospital.
In a decision12 dated March 17, 1993, the RTC held PSI solidarily liable with Dr.
Ampil and Dr. Fuentes for damages. 13 On appeal, the Court of Appeals (CA),
absolved Dr. Fuentes but affirmed the liability of Dr. Ampil and PSI, subject to the
right of PSI to claim reimbursement from Dr. Ampil. 141avvphi1
On petition for review, this Court, in its January 31, 2007 decision, affirmed the
CA decision.15 PSI filed a motion for reconsideration 16 but the Court denied it in a
resolution dated February 11, 2008.17
The Court premised the direct liability of PSI to the Aganas on the following facts
and law:
First, there existed between PSI and Dr. Ampil an employer-employee relationship
as contemplated in the December 29, 1999 decision in Ramos v. Court of
Appeals18 that "for purposes of allocating responsibility in medical negligence
cases, an employer-employee relationship exists between hospitals and their
consultants."19Although the Court in Ramos later issued a Resolution dated April
11, 200220 reversing its earlier finding on the existence of an employment
relationship between hospital and doctor, a similar reversal was not warranted in
the present case because the defense raised by PSI consisted of a mere general
denial of control or responsibility over the actions of Dr. Ampil. 21

Second, by accrediting Dr. Ampil and advertising his qualifications, PSI created
the public impression that he was its agent. 22 Enrique testified that it was on
account of Dr. Ampil's accreditation with PSI that he conferred with said doctor
about his wife's (Natividad's) condition.23 After his meeting with Dr. Ampil,
Enrique asked Natividad to personally consult Dr. Ampil. 24 In effect, when Enrigue
and Natividad engaged the services of Dr. Ampil, at the back of their minds was
that the latter was a staff member of a prestigious hospital. Thus, under the
doctrine of apparent authority applied in Nogales, et al. v. Capitol Medical Center,
et al.,25 PSI was liable for the negligence of Dr. Ampil.
Finally, as owner and operator of Medical City General Hospital, PSI was bound by
its duty to provide comprehensive medical services to Natividad Agana, to
exercise reasonable care to protect her from harm, 26 to oversee or supervise all
persons who practiced medicine within its walls, and to take active steps in fixing
any form of negligence committed within its premises. 27 PSI committed a serious
breach of its corporate duty when it failed to conduct an immediate investigation
into the reported missing gauzes. 28
PSI is now asking this Court to reconsider the foregoing rulings for these reasons:
I
The declaration in the 31 January 2007 Decision vis-a-vis the 11 February 2009
Resolution that the ruling in Ramos vs. Court of Appeals (G.R. No. 134354,
December 29, 1999) that "an employer-employee relations exists between
hospital and their consultants" stays should be set aside for being inconsistent
with or contrary to the import of the resolution granting the hospital's motion for
reconsideration in Ramos vs. Court of Appeals (G.R. No. 134354, April 11, 2002),
which is applicable to PSI since the Aganas failed to prove an employer-employee
relationship between PSI and Dr. Ampil and PSI proved that it has no control over
Dr. Ampil. In fact, the trial court has found that there is no employer-employee
relationship in this case and that the doctor's are independent contractors.
II
Respondents Aganas engaged Dr. Miguel Ampil as their doctor and did not
primarily and specifically look to the Medical City Hospital (PSI) for medical care
and support; otherwise stated, respondents Aganas did not select Medical City
Hospital (PSI) to provide medical care because of any apparent authority of Dr.
Miguel Ampil as its agent since the latter was chosen primarily and specifically
based on his qualifications and being friend and neighbor.
III
PSI cannot be liable under doctrine of corporate negligence since the proximate
cause of Mrs. Agana's injury was the negligence of Dr. Ampil, which is an element
of the principle of corporate negligence. 29
In their respective memoranda, intervenors raise parallel arguments that the
Court's ruling on the existence of an employer-employee relationship between

private hospitals and consultants will force a drastic and complex alteration in
the long-established and currently prevailing relationships among patient,
physician and hospital, with burdensome operational and financial consequences
and adverse effects on all three parties. 30
The Aganas comment that the arguments of PSI need no longer be entertained
for they have all been traversed in the assailed decision and resolution. 31
After gathering its thoughts on the issues, this Court holds that PSI is liable to the
Aganas, not under the principle of respondeat superior for lack of evidence of an
employment relationship with Dr. Ampil but under the principle of ostensible
agency for the negligence of Dr. Ampil and, pro hac vice, under the principle of
corporate negligence for its failure to perform its duties as a hospital.
While in theory a hospital as a juridical entity cannot practice medicine, 32 in
reality it utilizes doctors, surgeons and medical practitioners in the conduct of its
business of facilitating medical and surgical treatment. 33 Within that reality, three
legal relationships crisscross: (1) between the hospital and the doctor practicing
within its premises; (2) between the hospital and the patient being treated or
examined within its premises and (3) between the patient and the doctor. The
exact nature of each relationship determines the basis and extent of the liability
of the hospital for the negligence of the doctor.
Where an employment relationship exists, the hospital may be held vicariously
liable under Article 217634 in relation to Article 218035 of the Civil Code or the
principle of respondeat superior. Even when no employment relationship exists
but it is shown that the hospital holds out to the patient that the doctor is its
agent, the hospital may still be vicariously liable under Article 2176 in relation to
Article 143136 and Article 186937 of the Civil Code or the principle of apparent
authority.38 Moreover, regardless of its relationship with the doctor, the hospital
may be held directly liable to the patient for its own negligence or failure to
follow established standard of conduct to which it should conform as a
corporation.39
This Court still employs the "control test" to determine the existence of an
employer-employee relationship between hospital and doctor. In Calamba
Medical Center, Inc. v. National Labor Relations Commission, et al. 40 it held:
Under the "control test", an employment relationship exists between a physician
and a hospital if the hospital controls both the means and the details of the
process by which the physician is to accomplish his task.
xxx

xxx

xxx

As priorly stated, private respondents maintained specific work-schedules, as

determined by petitioner through its medical director, which consisted of 24-hour
shifts totaling forty-eight hours each week and which were strictly to be observed
under pain of administrative sanctions.

That petitioner exercised control over respondents gains light from the
undisputed fact that in the emergency room, the operating room, or
any department or ward for that matter, respondents' work is
monitored through its nursing supervisors, charge nurses and orderlies.
Without the approval or consent of petitioner or its medical director, no
operations can be undertaken in those areas. For control test to apply,
it is not essential for the employer to actually supervise the
performance of duties of the employee, it being enough that it has the
right to wield the power. (emphasis supplied)
Even in its December 29, 1999 decision41 and April 11, 2002
resolution42 in Ramos, the Court found the control test decisive.
In the present case, it appears to have escaped the Court's attention that both
the RTC and the CA found no employment relationship between PSI and Dr.
Ampil, and that the Aganas did not question such finding. In its March 17,
1993 decision, the RTC found "that defendant doctors were not employees of PSI
in its hospital, they being merely consultants without any employer-employee
relationship and in the capacity of independent contractors." 43 The Aganas never
questioned such finding.
PSI, Dr. Ampil and Dr. Fuentes appealed 44 from the RTC decision but only on the
issues of negligence, agency and corporate liability. In its September 6, 1996
decision, the CA mistakenly referred to PSI and Dr. Ampil as employer-employee,
but it was clear in its discussion on the matter that it viewed their relationship as
one of mere apparent agency. 45
The Aganas appealed from the CA decision, but only to question the exoneration
of Dr. Fuentes.46 PSI also appealed from the CA decision, and it was then that the
issue of employment, though long settled, was unwittingly resurrected.
In fine, as there was no dispute over the RTC finding that PSI and Dr. Ampil had
no employer-employee relationship, such finding became final and conclusive
even to this Court.47 There was no reason for PSI to have raised it as an issue in
its petition. Thus, whatever discussion on the matter that may have ensued was
purely academic.
Nonetheless, to allay the anxiety of the intervenors, the Court holds that, in this
particular instance, the concurrent finding of the RTC and the CA that PSI was not
the employer of Dr. Ampil is correct. Control as a determinative factor in testing
the employer-employee relationship between doctor and hospital under which
the hospital could be held vicariously liable to a patient in medical negligence
cases is a requisite fact to be established by preponderance of evidence. Here,
there was insufficient evidence that PSI exercised the power of control or wielded
such power over the means and the details of the specific process by which Dr.
Ampil applied his skills in the treatment of Natividad. Consequently, PSI cannot
be held vicariously liable for the negligence of Dr. Ampil under the principle
of respondeat superior.

There is, however, ample evidence that the hospital (PSI) held out to the patient
(Natividad)48 that the doctor (Dr. Ampil) was its agent. Present are the two factors
that determine apparent authority: first, the hospital's implied manifestation to
the patient which led the latter to conclude that the doctor was the hospital's
agent; and second, the patients reliance upon the conduct of the hospital and
the doctor, consistent with ordinary care and prudence. 49
Enrique testified that on April 2, 1984, he consulted Dr. Ampil regarding the
condition of his wife; that after the meeting and as advised by Dr. Ampil, he
"asked [his] wife to go to Medical City to be examined by [Dr. Ampil]"; and that
the next day, April 3, he told his daughter to take her mother to Dr. Ampil. 50 This
timeline indicates that it was Enrique who actually made the decision on whom
Natividad should consult and where, and that the latter merely acceded to it. It
explains the testimony of Natividad that she consulted Dr. Ampil at the
instigation of her daughter.51
Moreover, when asked what impelled him to choose Dr. Ampil, Enrique testified:
Atty. Agcaoili
On that particular occasion, April 2, 1984, what was your reason for choosing Dr.
Ampil to contact with in connection with your wife's illness?
A. First, before that, I have known him to be a specialist on that part of the body
as a surgeon, second, I have known him to be a staff member of the Medical
City which is a prominent and known hospital. And third, because he is a
neighbor, I expect more than the usual medical service to be given to us, than
his ordinary patients.52 (emphasis supplied)
Clearly, the decision made by Enrique for Natividad to consult Dr. Ampil was
significantly influenced by the impression that Dr. Ampil was a staff member of
Medical City General Hospital, and that said hospital was well known and
prominent. Enrique looked upon Dr. Ampil not as independent of but as integrally
related to Medical City.
PSI's acts tended to confirm and reinforce, rather than negate, Enrique's view. It
is of record that PSI required a "consent for hospital care" 53 to be signed
preparatory to the surgery of Natividad. The form reads:
Permission is hereby given to the medical, nursing and laboratory staff of the
Medical City General Hospital to perform such diagnostic procedures and to
administer such medications and treatments as may be deemed necessary or
advisable by the physicians of this hospital for and during the confinement
of xxx. (emphasis supplied)
By such statement, PSI virtually reinforced the public impression that Dr. Ampil
was a physician of its hospital, rather than one independently practicing in it;
that the medications and treatments he prescribed were necessary and
desirable; and that the hospital staff was prepared to carry them out.1avvphi1

PSI pointed out in its memorandum that Dr. Ampil's hospital affiliation was not
the exclusive basis of the Aganas decision to have Natividad treated in Medical
City General Hospital, meaning that, had Dr. Ampil been affiliated with another
hospital, he would still have been chosen by the Aganas as Natividad's surgeon. 54
The Court cannot speculate on what could have been behind the Aganas
decision but would rather adhere strictly to the fact that, under the
circumstances at that time, Enrique decided to consult Dr. Ampil for he believed
him to be a staff member of a prominent and known hospital. After his meeting
with Dr. Ampil, Enrique advised his wife Natividad to go to the Medical City
General Hospital to be examined by said doctor, and the hospital acted in a way
that fortified Enrique's belief.
This Court must therefore maintain the ruling that PSI is vicariously liable for the
negligence of Dr. Ampil as its ostensible agent.
Moving on to the next issue, the Court notes that PSI made the following
admission in its Motion for Reconsideration:
51. Clearly, not being an agent or employee of petitioner PSI, PSI [sic] is not
liable for Dr. Ampil's acts during the operation. Considering further that Dr. Ampil
was personally engaged as a doctor by Mrs. Agana, it is incumbent upon Dr.
Ampil, as "Captain of the Ship", and as the Agana's doctor to advise her on what
to do with her situation vis-a-vis the two missing gauzes. In addition to noting
the missing gauzes, regular check-ups were made and no signs of
complications were exhibited during her stay at the hospital, which
could have alerted petitioner PSI's hospital to render and provide postoperation services to and tread on Dr. Ampil's role as the doctor of Mrs.
Agana. The absence of negligence of PSI from the patient's admission
up to her discharge is borne by the finding of facts in this case.
Likewise evident therefrom is the absence of any complaint from Mrs.
Agana after her discharge from the hospital which had she brought to
the hospital's attention, could have alerted petitioner PSI to act
accordingly and bring the matter to Dr. Ampil's attention. But this was
not the case. Ms. Agana complained ONLY to Drs. Ampil and Fuentes,
not the hospital. How then could PSI possibly do something to fix the
negligence committed by Dr. Ampil when it was not informed about it at
all.55 (emphasis supplied)
PSI reiterated its admission when it stated that had Natividad Agana "informed
the hospital of her discomfort and pain, the hospital would have been obliged to
act on it."56
The significance of the foregoing statements is critical.
First, they constitute judicial admission by PSI that while it had no power to
control the means or method by which Dr. Ampil conducted the surgery on
Natividad Agana, it had the power to review or cause the review of what
may have irregularly transpired within its walls strictly for the purpose of

determining whether some form of negligence may have attended any procedure
done inside its premises, with the ultimate end of protecting its patients.
Second, it is a judicial admission that, by virtue of the nature of its business as
well as its prominence57 in the hospital industry, it assumed a duty to "tread on"
the "captain of the ship" role of any doctor rendering services within its premises
for the purpose of ensuring the safety of the patients availing themselves of its
services and facilities.
Third, by such admission, PSI defined the standards of its corporate conduct
under the circumstances of this case, specifically: (a) that it had a corporate duty
to Natividad even after her operation to ensure her safety as a patient; (b) that
its corporate duty was not limited to having its nursing staff note or record the
two missing gauzes and (c) that its corporate duty extended to determining Dr.
Ampil's role in it, bringing the matter to his attention, and correcting his
negligence.
And finally, by such admission, PSI barred itself from arguing in its second motion
for reconsideration that the concept of corporate responsibility was not yet in
existence at the time Natividad underwent treatment; 58 and that if it had any
corporate responsibility, the same was limited to reporting the missing gauzes
and did not include "taking an active step in fixing the negligence
committed."59 An admission made in the pleading cannot be controverted by the
party making such admission and is conclusive as to him, and all proofs
submitted by him contrary thereto or inconsistent therewith should be ignored,
whether or not objection is interposed by a party. 60
Given the standard of conduct that PSI defined for itself, the next relevant inquiry
is whether the hospital measured up to it.
PSI excuses itself from fulfilling its corporate duty on the ground that Dr. Ampil
assumed the personal responsibility of informing Natividad about the two
missing gauzes.61 Dr. Ricardo Jocson, who was part of the group of doctors that
attended to Natividad, testified that toward the end of the surgery, their group
talked about the missing gauzes but Dr. Ampil assured them that he would
personally notify the patient about it.62 Furthermore, PSI claimed that there was
no reason for it to act on the report on the two missing gauzes because Natividad
Agana showed no signs of complications. She did not even inform the hospital
about her discomfort. 63
The excuses proffered by PSI are totally unacceptable.
To begin with, PSI could not simply wave off the problem and nonchalantly
delegate to Dr. Ampil the duty to review what transpired during the operation.
The purpose of such review would have been to pinpoint when, how and by
whom two surgical gauzes were mislaid so that necessary remedial measures
could be taken to avert any jeopardy to Natividads recovery. Certainly, PSI could
not have expected that purpose to be achieved by merely hoping that the person
likely to have mislaid the gauzes might be able to retrace his own steps. By its

own standard of corporate conduct, PSI's duty to initiate the review was nondelegable.
While Dr. Ampil may have had the primary responsibility of notifying Natividad
about the missing gauzes, PSI imposed upon itself the separate and independent
responsibility of initiating the inquiry into the missing gauzes. The purpose of the
first would have been to apprise Natividad of what transpired during her surgery,
while the purpose of the second would have been to pinpoint any lapse in
procedure that led to the gauze count discrepancy, so as to prevent a recurrence
thereof and to determine corrective measures that would ensure the safety of
Natividad. That Dr. Ampil negligently failed to notify Natividad did not release PSI
from its self-imposed separate responsibility.
Corollary to its non-delegable undertaking to review potential incidents of
negligence committed within its premises, PSI had the duty to take notice of
medical records prepared by its own staff and submitted to its custody,
especially when these bear earmarks of a surgery gone awry. Thus, the record
taken during the operation of Natividad which reported a gauze count
discrepancy should have given PSI sufficient reason to initiate a review. It should
not have waited for Natividad to complain.
As it happened, PSI took no heed of the record of operation and consequently did
not initiate a review of what transpired during Natividads operation. Rather, it
shirked its responsibility and passed it on to others to Dr. Ampil whom it
expected to inform Natividad, and to Natividad herself to complain before it took
any meaningful step. By its inaction, therefore, PSI failed its own standard of
hospital care. It committed corporate negligence.
It should be borne in mind that the corporate negligence ascribed to PSI is
different from the medical negligence attributed to Dr. Ampil. The duties of the
hospital are distinct from those of the doctor-consultant practicing within its
premises in relation to the patient; hence, the failure of PSI to fulfill its duties as
a hospital corporation gave rise to a direct liability to the Aganas distinct from
that of Dr. Ampil.
All this notwithstanding, we make it clear that PSIs hospital liability based on
ostensible agency and corporate negligence applies only to this case, pro hac
vice. It is not intended to set a precedent and should not serve as a basis to hold
hospitals liable for every form of negligence of their doctors-consultants under
any and all circumstances. The ruling is unique to this case, for the liability of PSI
arose from an implied agency with Dr. Ampil and an admitted corporate duty to
Natividad.64
Other circumstances peculiar to this case warrant this ruling, 65 not the least of
which being that the agony wrought upon the Aganas has gone on for 26 long
years, with Natividad coming to the end of her days racked in pain and agony.
Such wretchedness could have been avoided had PSI simply done what was
logical: heed the report of a guaze count discrepancy, initiate a review of what
went wrong and take corrective measures to ensure the safety of Nativad.

Rather, for 26 years, PSI hemmed and hawed at every turn, disowning any such
responsibility to its patient. Meanwhile, the options left to the Aganas have all
but dwindled, for the status of Dr. Ampil can no longer be ascertained. 66
Therefore, taking all the equities of this case into consideration, this Court
believes P15 million would be a fair and reasonable liability of PSI, subject to 12%
p.a. interest from the finality of this resolution to full satisfaction.
WHEREFORE, the second motion for reconsideration is DENIED and the motions
for intervention are NOTED.
Professional Services, Inc. is ORDERED pro hac vice to pay Natividad
(substituted by her children Marcelino Agana III, Enrique Agana, Jr., Emma AganaAndaya, Jesus Agana and Raymund Agana) and Enrique Agana the total amount
of P15 million, subject to 12% p.a. interest from the finality of this resolution to
full satisfaction.
No further pleadings by any party shall be entertained in this case.
Let the long-delayed entry of judgment be made in this case upon receipt by all
concerned parties of this resolution.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
ANTONIO T. CARPIO
Associate Justice

CONCHITA CARPIO MORALES

Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ANTONIO EDUARDO B.
NACHURA
Associate Justice

TERESITA J. LEONARDO-DE
CASTRO
Associate Justice

ARTURO D. BRION
Associate Justice

DIOSDADO M. PERALTA
Associate Justice

(No Part)
LUCAS P. BERSAMIN*
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

(On Official Leave)

ROBERTO A. ABAD
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

JOSE P. PEREZ
Associate Justice

(On leave)
JOSE C. MENDOZA
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above Resolution had been reached in consultation before the
case was assigned to the writer of the opinion of the Court.
REYNATO S. PUNO
Chief Justice

Footnotes
*

**

No part.
On leave.

Rollo (G.R. No. 126297), p. 468.

Id., p. 489.

Filed a motion for leave of court to intervene (by way of attached

memorandum), id., p. 512.
4

Filed a motion to intervene and for leave to file memorandum-in-intervention,

id., p. 534. AHI did not file any memorandum.
5

Filed a motion for intervention (by way of attached brief/memorandum), id., p.

602.
6

Resolution dated June 16, 2008, id., p. 647.

Resolution dated June 12, 2008, id., p. 645.

Resolution dated August 12, 2008, id., p. 649.

As per Advisory dated March 4, 2009. It should be borne in mind that the issues
in G.R. No. 126467 on the exculpation of Dr. Juan Fuentes from liability, and in
G.R. No. 127590 on the culpability of Dr. Miguel Ampil for negligence and medical

malpractice, are deemed finally decided, no motion for reconsideration having

been filed by the Heirs of Agana in G.R. No. 126467 nor by Dr. Miguel Ampil in
G.R. No. 127467 from the January 31, 2007 Decision of the First Division of the
Court.
10

Docketed as Civil Case No. Q-43322, record, p. 6.

11

Also referred to in the records as "sponges."

12

Penned by then Presiding Judge and now Associate Justice of the Supreme
Court Lucas Bersamin.
13

RTC Decision, record, p. 133.

14

CA decision dated September 6, 1996, penned by then Court of Appeals

Associate Justice and later Supreme Court Associate Justice Cancio Garcia (Ret.);
CA rollo, pp. 136-137.
15

G.R. Nos. 126297/126467/127590, 31 January 2007, 513 SCRA 478.

16

Rollo, p. 403.

17

G.R. Nos. 126297/126467/127590, 11 February 2008, 544 SCRA 170.

18

G.R. No. 124354, 29 December 1999, 321 SCRA 548.

19

Supra at 15, p. 499.

20

G.R. No. 124354, 11 April 2002, 380 SCRA 467.

21

Supra at 17, p. 179.

22

Supra at 15, p. 502.

23

Supra at 17, p. 181, citing TSN, April 12, 1985, pp. 25-26.

24

Id.

25

G.R. No. 142625, 19 December 2006, 511 SCRA 204.

26

Supra at 15, p. 505.

27

Supra at 17, p. 182.

28

Id.

29

Rollo (G.R. No. 126297), pp. 489-490.

30

Id., pp. 518-527, 605-613.

31

Id., p. 659.

32

Section 8, Republic Act No. 2382 (RA 2382) or The Medical Act of 1959.

33

See Acebedo Optical Co. Inc. v. CA, G.R. No. 100152, 31 March 2000, 314 SCRA
315.
34

Article 2176. Whoever by act or omission causes damage to another, there

being fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties is
called a quasi-delict and is governed by the provisions of this Chapter.
35

Art. 2180. The obligation imposed by article 2176 is demandable not only for
one's own acts or omissions, but also for those of persons for whom one is
responsible.
The father and, in case of his death or incapacity, the mother, are responsible for
the damages caused by the minor children who live in their company.
Guardians are liable for damages caused by the minors or incapacitated persons
who are under their authority and live in their company.
The owners and managers of an establishment or enterprise are likewise
responsible for damages caused by their employees in the service of the
branches in which the latter are employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even though
the former are not engaged in any business or industry.
The State is responsible in like manner when it acts through a special agent; but
not when the damage has been caused by the official to whom the task done
properly pertains, in which case what is provided in article 2176 shall be
applicable.
Lastly, teachers or heads of establishments of arts and trades shall be liable for
damages caused by their pupils and students or apprentices, so long as they
remain in their custody.
The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family
to prevent damage.
36

Article 1431. Through 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.
37

Art. 1869. Agency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency, knowing
that another person is acting on his behalf without authority.
38

39

Nogales v. Capitol Medical Center, et al., supra at 25.

Pedro Solis, Medical Jurisprudence (The Practice of Medicine and the Law),
Quezon City: R.P. Garcia Publishing Co., 1988, p. 321, citing U.S. district and

appellate cases. See also Darling v. Charleston Community Memorial Hospital, 14

A.L.R. 3D 860 (Ill. September 29, 1965).
40

G.R. No. 176484, 25 November 2008, 571 SCRA 585.

41

Supra at 18.

42

Supra at 20.

43

Supra at 13, p. 126.

44

Dr. Fuentes filed with the CA a petition for certiorari docketed as CA-G.R. SP No.
32198 (CA rollo, p. 1) while Dr. Ampil and PSI jointly filed an appeal docketed as
CA-G.R. CV No. 42062 (CA rollo, pp. 40 and 152).
45

Supra at 14, p. 135.

46

Rollo (G.R. No. 126467), p. 8.

47

Elsie Ang v. Dr. Erniefel Grageda, G.R. No. 166239, 8 June 2006, 490 SCRA 424.

48

Through the patient's husband Enrique.

49

Nogales v. Capitol Medical Center, et al., supra at 25.

50

TSN, April 12, 1985, pp. 26-27.

51

Second Motion for Reconsideration, rollo, pp. 495-496.

52

Supra at 50, pp. 25-26.

53

Exh. "D-1," Exhibit Folder for Plaintiffs, p. 92.

54

Petitioner's Memorandum with Compliance, pp. 57-58.

55

Motion for Reconsideration, rollo, pp. 429-430.

56

Id., p. 434.

57

PSI has not denied its prominent place in the hospital industry but has in fact
asserted such role in its 1967 brochure (Annex "K" to its Manifestation filed on
May 14, 2009).
58

Rollo, p. 505-506.

59

Id., pp. 506-507.

60

Luciano Tan v. Rodil Enterprises, G. R. No. 168071, 18 December 2006, 511

SCRA 162; Heirs of Pedro Clemena Y Zurbano v. Heirs of Irene B. Bien, G.R. No.
155508, 11 September 2006, 501 SCRA 405.
61

Second Motion for Reconsideration, rollo, pp. 502-503.

62

Id., p. 503, citing TSN, February 26, 1987, p. 36.

63

Supra at 55.

64

In Partido ng Manggagawa (PM) and Butil Farmers Party (Butil) v. Comelec (G.R.
No. 164702, March 15, 2006, 484 SCRA 671), a ruling expressly qualified as pro
hac vice is limited in application to one particular case only; it cannot be relied
upon as a precedent to govern other cases.
65

See Sps. Chua v. Hon. Jacinto Ang, et al., G.R. No. 156164, 4 September 2009.

66

His last pleading was filed on May 13, 2001, rollo (G.R. No. 127590), p. 217.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 15823

September 12, 1921

JULIO DANON, plaintiff-appellee,

vs.
ANTONIO A. BRIMO & CO., defendant-appellant.
Claro M. Recto for appellant.
Canillas & Cardenas for appellee.
JOHNSON, J.:
This action was brought to recover the sum of P60,000, alleged to be the value of
services rendered to the defendant by the plaintiff as a broker. The plaintiff
alleges that in the month of August, 1918, the defendant company, through its
manager, Antonio A. Brimo, employed him to look for a purchaser of its factory
known as "Holland American Oil Co.," for the sum of P1,200,000, payable in cash;
that the defendant promised to pay the plaintiff, as compensation for his
services, a commission of five per cent on the said sum of P1,200,000, if the sale
was consummated, or if the plaintiff should find a purchaser ready, able and
willing to buy said factory for the said sum of P1,200,000; that subsequently the
plaintiff found such a purchaser, but that the defendant refused to sell the said
factory without any justifiable motive or reason therefor and without having
previously notified the plaintiff of its desistance or variation in the price and
terms of the sale.
To that complaint the defendant interposed a general denial. Upon the issue thus
presented, the Honorable Simplicio del Rosario, judge, after hearing and
considering the evidence adduced during the trial of the cause, rendered a
judgment in favor of the plaintiff and against the defendant for the sum of
P60,000, with costs. From that judgment the defendant appealed to this court.
The proof with regard to the authority of the plaintiff to sell the factory in
question for the defendant, on commission, is extremely unsatisfactory. It
consists solely of the testimony of the plaintiff, on the one hand, and of the

manager of the defendant company, Antonio A. Brimo, on the other. From a

reading of their testimony we believe that neither of them has been entirely free
from prevarications. However, after giving due weight to the finding of the trial
court in this regard and after carefully considering the inherent probability or
improbability of the testimony of each of said witnesses, we believe we are
approximating the truth in finding: (1) That Antonio A. Brimo, in a conversation
with the plaintiff, Julio Danon, about the middle of August, 1918, informed the
latter that he (Brimo) desired to sell his factory, the Holland American Oil Co., for
the sum of P1,200,000; (2) that he agreed and promised to pay to the plaintiff a
commission of 5 per cent provided the latter could sell said factory for that
amount; and (3) that no definite period of time was fixed within which the
plaintiff should effect the sale. It seems that another broker, Sellner, was also
negotiating the sale, or trying to find a purchaser for the same property and that
the plaintiff was informed of the fact either by Brimo himself or by someone else;
at least, it is probable that the plaintiff was aware that he was not alone in the
field, and his whole effort was to forestall his competitor by being the first to find
a purchaser and effect the sale. Such, we believe. was the contract between the
plaintiff and the defendant, upon which the present action is based.
The next question to determine is whether the plaintiff had performed all that
was required of him under that contract to entitle him to recover the commission
agreed upon. The proof in this regard is no less unsatisfactory. It seems that
immediately after having an interview with Mr. Brimo, as above stated, the
plaintiff went to see Mr. Mauro Prieto, president of the Santa Ana Oil Mill, a
corporation, and offered to sell to him the defendant's property at P1,200,000.
The said corporation was at that time in need of such a factory as the plaintiff
was offering for sale, and Mr. Prieto, its president, instructed the manager,
Samuel E. Kane, to see Mr. Brimo and ascertain whether he really wanted to sell
said factory, and, if so, to get permission from him to inspect the premises. Mr.
Kane inspected the factory and, presumably, made a favorable report to Mr.
Prieto. The latter asked for an appointment with Mr. Brimo to perfect the
negotiation. In the meantime Sellner, the other broker referred to, had found a
purchaser for the same property, who ultimately bought it for P1,300,000. For
that reason Mr. Prieto, the would be purchaser found by the plaintiff, never came
to see Mr. Brimo to perfect the proposed negotiation.
Under the proofs in this case, the most that can be said as to what the plaintiff
had accomplished is, that he had found a person who might have bought the
defendant's factory if the defendant had not sold it to someone else. The
evidence does not show that the Santa Ana Oil Mill had definitely decided to buy
the property in question at the fixed price of P1,200,000. The board of directors
of said corporation had not resolved to purchase said property; and even if its
president could legally make the purchase without previous formal authorization
of the board of directors, yet said president does not pretend that he had
definitely and formally agreed to buy the factory in question on behalf of his
corporation at the price stated. On direct examination he testified for the plaintiff
as follows:

Q.
You say that we were going to accept or that it was beneficial for us;
will you say to whom your refer, when you say "we?"
A.

Our company, the Santa Ana Oil Mill.

Q.

And is that company able to pay the sum of P1,200,000?

A.

Yes, sir.

Q.

And you accepted it at that price of P1,200.000?

A.
Surely, because as I already said before, we were in the difficult
position of not being able to operate our factory, because of the obstacle placed
by the Government.
Q.

And did you inform Mr. Danon of this acceptance?

A.

I did not explain to Mr. Danon.

On cross-examination the same witness testified:

Q.
What actions did the board of directors of the Santa Ana Oil Mill take in
order to acquire or to make an offer to Mr. Brimo of the Holland American Oil
Company?
A.
But nothing was effected, because Mr. Danon stated that the property
had been sold when I was going to deal with him.
Q.

But do you not say that you made an offer of P1,200,000?

A.
No; it was Mr. Danon who made the offer and we were sure to put the
deal through because we have bound ourselves.
The plaintiff claims that the reasons why the sale to the Santa Ana Mill was not
consummated was because Mr. Brimo refused to sell to a Filipino firm and
preferred an American buyer; that upon learning such attitude of the defendant
the plaintiff endeavored to procure another purchaser and found a Mr. Leas, who
delivered to the plaintiff a letter addressed to Mr. Brimo, offering to buy the
factory in question at P1,200,000. the offer being good for twenty-four; that said
offer was not accepted by Brimo because while he was reading the letter of Leas,
Sellner came in, drew Brimo into another room, and then and there closed the
deal at P1,300,000. The last statement is admitted by the defendant.
Such are the facts in this case, as nearly accurate as we can gather them from
the conflicting evidence before us. Under those facts, is the plaintiff entitled to
recover the sum of P60,000, claimed by him as compensation for his services? It
will be noted that, according to the plaintiff's own testimony, the defendant
agreed and promised to pay him a commission of 5 per cent provided he (the
plaintiff) could sell the factory at P1,200.000 ("con tal que V. me venda la fabrica
en P1,200.000"). It will also be noted that all that the plaintiff had accomplished
by way of performance of his contract was, that he had found a person who

might have bought the factory in question had not the defendant sold it to
someone else. (Beaumont vs. Prieto, 41 Phil., 670; 249 U.S., 554.)
Under these circumstances it is difficult to see how the plaintiff can recover
anything in the premises. The plaintiff's action is not one for damages for breach
of contract; it is an action to recover "the reasonable value" of services rendered.
this is unmistakable both from the plaintiff's complaint and his testimony as a
witness during the trial.
Q.
And what is the reasonable value of the services you rendered to Mr.
Brimo?
A.

Five per cent of the price at which it was sold.

Q.
Upon what do you base your qualification that those services were
reasonable?
A.
First, because that is the common rate in the city, and, secondly,
because of the big gain that he obtained from the sale.
What benefit did the plaintiff, by his "services," bestow upon the defendant to
entitle him to recover from the latter the sum of P60,000? It is perfectly clear and
undisputed that his "services" did not any way contribute towards bringing about
the sale of the factory in question. He was not "the efficient agent or the
procuring cause of the sale."
The broker must be the efficient agent or the procuring cause of sale. The means
employed by him and his efforts must result in the sale. He must find the
purchaser, and the sale must proceed from his efforts acting as broker.
(Wylie vs. Marine National Bank, 61 N. Y., 414; 416; citing: McClure vs. Paine, 49
N. Y., 561; Lloyd vs. Mathews, 51 id., 124; Lyon vs. Mitchell, 36 id., 235;
Briggs vs. Rowe, 4 Keyes, 424; Murray vs.Currie, 7 Carr. and Payne, 584;
Wilkinson vs. Martin, 8 id., 5.)
A leading case on the subject is that of Sibbald vs. Bethlehem Iron Co. (83 N. Y.,
378; 38 Am. Rep., 441). In the case, after an exhaustive review of various cases,
the Court of Appeals of New York stated the rule as follows:
In all the cases, under all and varying forms of expression, the fundamental and
correct doctrine, is, that the duty assumed by the broker is to bring the minds of
the buyer and seller to an agreement for a sale, and the price and terms on
which it is to be made, and until that is done his right to commissions does not
accrue. (McGavock vs. Woodlief, 20 How., 221; Barnes vs. Roberts, 5 Bosw., 73;
Holly vs. Gosling, 2 E. D., Smith, 262; Jacobs vs. Kolff, 2 Hilt., 133;
Kock vs. Emmerling, 22 How., 72; Corning vs. Calvert, 2 Hilt., 56; Trundy vs. N.Y.
and Hartf. Steamboat Co., 6 Robt., 312; Van Lien vs. Burns, 1 Hilt., 134.)
xxx

xxx

xxx

It follows, as a necessary deduction from the established rule, that a broker is

never entitled to commissions for unsuccessful efforts. The risk of a failure is

wholly his. The reward comes only with his success. That is the plain contract
and contemplation of the parties. The broker may devote his time and labor, and
expend his money with ever so much of devotion to the interest of his employer,
and yet if he fails, if without effecting an agreement or accomplishing a bargain,
he abandons the effort, or his authority is fairly and in good faith terminated, he
gains no right to commissions. He loses the labor and effort which was staked
upon success. And in such event it matters not that after his failure, and the
termination of his agency, what he has done proves of use and benefit to the
principal. In a multitude of cases that must necessarily result. He may have
introduced to each other parties who otherwise would have never met; he may
have created impressions, which under later and more favorable circumstances
naturally lead to and materially assist in the consummation of a sale; he may
have planted the very seed from which others reap the harvest; but all that gives
him no claim. It was part of his risk that failing himself, not successful in fulfilling
his obligation, others might be left to some extent to avail themselves of the fruit
of his labors. As we said in Wylie vs.Marine National Bank (61 N.Y., 416), in such a
case the principal violates no right of the broker by selling to the first party who
offers the price asked, and it matters not that sale is to the very party with whom
the broker had been negotiating. He failed to find or produce a purchaser upon
the terms prescribed in his employment, and the principal was under no
obligation to wait longer that he might make further efforts. The failure therefore
and its consequences were the risk of the broker only. This however must be
taken with one important and necessary limitation. If the efforts of the broker are
rendered a failure by the fault of the employer; if capriciously he changes his
mind after the purchaser, ready and willing, and consenting to the prescribed
terms, is produced; or if the latter declines to complete the contract because of
some defect of title in the ownership of the seller, some unremoved
incumbrance, some defect which is the fault of the latter, then the broker does
not lose his commissions. And that upon the familiar principle that no one can
avail himself of the nonperformance of a condition precedent, who has himself
occasioned its nonperformance. But this limitation is not even an exception to
the general rule affecting the broker's right for it goes on the ground that the
broker has done his duty, that he has brought buyer and seller to an agreement,
but that the contract is not consummated and fails though the after-fault of the
seller. The cases are uniform in this respect. (Moses vs. Burling, 31 N.Y., 462;
Glentworth vs. Luther, 21 Barb., 147; Van Lienvs. Burns, 1 Hilt., 134.)
One other principle applicable to such a contract as existed in the present case
needs to be kept in view.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. Usually the broker is entitled to a fair
and reasonable opportunity to perform his obligation, subject of course to the
right of the seller to sell independently. But having been granted him, the right of
the principal to terminate his authority is absoluteand unrestricted, except only
that he may not do it in bad faith, and as a mere device to escape the payment
of the broker's commissions. Thus, if in the midst of negotiations instituted by
the broker, and which were plainly and evidently approaching success, the seller

should revoke the authority of the broker,with the view of concluding the bargain
without his aid, and avoiding the payment of commission about to be earned, it
might be well said that the due performance his obligation by the broker was
purposely prevented by the principal. But if the latter acts in good faith, not
seeking to escape the payment of commissions, butmoved fairly by a view of his
own interest, he has the absolute right before a bargain is made while
negotiations remain unsuccessful, before commissions are earned, to revoke the
broker's authority, and the latter cannot thereafter claim compensation for a sale
made by the principal, even though it be to a customer with whom the broker
unsuccessfully negotiated, and even though, to some extent, the seller might
justly be said to have availed himself of the fruits of the broker's labor. (Ibid. pp.
444, 445 and 446.)
The rule laid down in the foregoing case was adopted and followed in the cases
of Zeimer vs. Antisell (75 Cal. 509), and Ayres vs. Thomas (116 Cal., 140).
The undertaking to procure a purchaser requires of the party so undertaking, not
simply to name or introduce a person who may be willing to make any sort of
contract in reference to the property, but to produce a party capable, and who
ultimately becomes the purchaser. (Kimberly vs. Henderson and Lupton, 29 Md.,
512, 515, citing: Keener vs. Harrod and Brooke, 2 Md. 63; McGavock vs. Woodlief,
20 How., 221. See also Richards, Executor, vs. Jackson, 31 Md., 250.)
The defendant sent a proposal to a broker in these words: If you send or cause to
be sent to me, by advertisement or otherwise, any party with whom I may see fit
and proper to effect a sale or exchange of my real estate, above described I will
pay you the sum of $200. The broker found a person who proposed to purchase
the property, but the sale was not affected. Held: That the broker was not
entitled to compensation. (Walker vs. Tirrel, 3 Am. Rep., 352.)
It is clear from the foregoing authorities that, although the present plaintiff could
probably have effected the sale of the defendant's factory had not the defendant
sold it to someone else, he is not entitled to the commissions agreed upon
because he had no intervention whatever in, and much sale in question. It must
be borne in mind that no definite period was fixed by the defendant within which
the plaintiff might effect the sale of its factory. Nor was the plaintiff given by the
defendant the exclusive agency of such sale. Therefore, the plaintiff cannot
complaint of the defendant's conduct in selling the property through another
agent before the plaintiff's efforts were crowned with success. "One who has
employed a broker can himself sell the property to a purchaser whom he has
procured, without any aid from the broker." (Hungerford vs. Hicks, 39 Conn., 259;
Wylie vs. Marine National Bank, 61 N.Y., 415, 416.)
For the foregoing reasons the judgment appealed from is hereby revoked and the
defendant is hereby absolved from all liability under the plaintiff's complaint,
with costs in both instances against the plaintiff. So ordered.
Araullo, Street, Avancea and Villamor, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 113074 January 22, 1997

ALFRED HAHN, petitioner,
vs.
COURT OF APPEALS and BAYERSCHE MOTOREN WERKE
AKTIENGSELLSCHAFT (BMW), respondents.

MENDOZA, J.:
This is a petition for review of the decision 1 of the Court of Appeals dismissing a
complaint for specific performance which petitioner had filed against private
respondent on the ground that the Regional Trial Court of Quezon City did not
acquire jurisdiction over private respondent, a nonresident foreign corporation,
and of the appellate court's order denying petitioner's motion for
reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and
style "Hahn-Manila." On the other hand, private respondent Bayerische Motoren
Werke Aktiengesellschaft (BMW) is a nonresident foreign corporation existing
under the laws of the former Federal Republic of Germany, with principal office at
Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a "Deed of
Assignment with Special Power of Attorney," which reads in full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark
and device in the Philippines which ASSIGNOR uses and has been using on the
products manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized
exclusive Dealer of the ASSIGNEE in the Philippines, the same being evidenced
by certificate of registration issued by the Director of Patents on 12 December
1963 and is referred to as Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said
transfer of the said BMW trademark and device in favor of the ASSIGNEE herein
with the Philippines Patent Office;
NOW THEREFORE, in view of the foregoing and in consideration of the
stipulations hereunder stated, the ASSIGNOR hereby affirms the said assignment
and transfer in favor of the ASSIGNEE under the following terms and conditions:

1. The ASSIGNEE shall take appropriate steps against any user other than
ASSIGNOR or infringer of the BMW trademark in the Philippines; for such
purpose, the ASSIGNOR shall inform the ASSIGNEE immediately of any such use
or infringement of the said trademark which comes to his knowledge and upon
such information the ASSIGNOR shall automatically act as Attorney-In-Fact of the
ASSIGNEE for such case, with full power, authority and responsibility to prosecute
unilaterally or in concert with ASSIGNEE, any such infringer of the subject mark
and for purposes hereof the ASSIGNOR is hereby named and constituted as
ASSIGNEE's Attorney-In-Fact, but any such suit without ASSIGNEE's consent will
exclusively be the responsibility and for the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has
been usual in the past without a formal contract, and for that purpose, the
dealership of ASSIGNOR shall cover the ASSIGNEE's complete production
program with the only limitation that, for the present, in view of ASSIGNEE's
limited production, the latter shall not be able to supply automobiles to
ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has been usual
in the past without a formal contract." But on February 16, 1993, in a meeting
with a BMW representative and the president of Columbia Motors Corporation
(CMC), Jose Alvarez, petitioner was informed that BMW was arranging to grant
the exclusive dealership of BMW cars and products to CMC, which had expressed
interest in acquiring the same. On February 24, 1993, petitioner received
confirmation of the information from BMW which, in a letter, expressed
dissatisfaction with various aspects of petitioner's business, mentioning among
other things, decline in sales, deteriorating services, and inadequate showroom
and warehouse facilities, and petitioner's alleged failure to comply with the
standards for an exclusive BMW dealer. 2 Nonetheless, BMW expressed
willingness to continue business relations with the petitioner on the basis of a
"standard BMW importer" contract, otherwise, it said, if this was not acceptable
to petitioner, BMW would have no alternative but to terminate petitioner's
exclusive dealership effective June 30, 1993.
Petitioner protested, claiming that the termination of his exclusive dealership
would be a breach of the Deed of Assignment. 3 Hahn insisted that as long as the
assignment of its trademark and device subsisted, he remained BMW's exclusive
dealer in the Philippines because the assignment was made in consideration of
the exclusive dealership. In the same letter petitioner explained that the decline
in sales was due to lower prices offered for BMW cars in the United States and
the fact that few customers returned for repairs and servicing because of the
durability of BMW parts and the efficiency of petitioner's service.
Because of Hahn's insistence on the former business relation, BMW withdrew on
March 26, 1993 its offer of a "standard importer contract" and terminated the
exclusive dealer relationship effective June 30, 1993. 4 At a conference of BMW
Regional Importers held on April 26, 1993 in Singapore, Hahn was surprised to

find Alvarez among those invited from the Asian region. On April 29, 1993, BMW
proposed that Hahn and CMC jointly import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for
specific performance and damages against BMW to compel it to continue the
exclusive dealership. Later he filed an amended complaint to include an
application for temporary restraining order and for writs of preliminary,
mandatory and prohibitory injunction to enjoin BMW from terminating his
exclusive dealership. Hahn's amended complaint alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the Philippines
with principal offices at Munich, Germany. It may be served with summons and
other court processes through the Secretary of the Department of Trade and
Industry of the Philippines. . . .
xxx xxx xxx
5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of
Assignment with Special Power of Attorney covering the trademark and in
consideration thereof, under its first whereas clause, Plaintiff was duly
acknowledged as the "exclusive Dealer of the Assignee in the Philippines. . . .
xxx xxx xxx
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in
the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA"
and without any monetary contribution from defendant BMW, established BMW's
goodwill and market presence in the Philippines. Pursuant thereto, Plaintiff has
invested a lot of money and resources in order to single-handedly compete
against other motorcycle and car companies. . . . Moreover, Plaintiff has built
buildings and other infrastructures such as service centers and showrooms to
maintain and promote the car and products of defendant BMW.
xxx xxx xxx
10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it
was willing to maintain with Plaintiff a relationship but only "on the basis of a
standard BMW importer contract as adjusted to reflect the particular situation in
the Philippines" subject to certain conditions, otherwise, defendant BMW would
terminate Plaintiffs exclusive dealership and any relationship for cause effective
June 30, 1993. . . .
xxx xxx xxx
15. The actuations of defendant BMW are in breach of the assignment agreement
between itself and plaintiff since the consideration for the assignment of the
BMW trademark is the continuance of the exclusive dealership agreement. It
thus, follows that the exclusive dealership should continue for so long as
defendant BMW enjoys the use and ownership of the trademark assigned to it by
Plaintiff.

The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104
of the Quezon City Regional Trial Court, which on June 14, 1993 issued a
temporary restraining order. Summons and copies of the complaint and amended
complaint were thereafter served on the private respondent through the
Department of Trade and Industry, pursuant to Rule 14, 14 of the Rules of Court.
The order, summons and copies of the complaint and amended complaint were
later sent by the DTI to BMW via registered mail on June 15, 1993 5 and received
by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the
application for the writ of preliminary injunction proceeded ex parte, with
petitioner Hahn testifying. On June 30, 1993, the trial court issued an order
granting the writ of preliminary injunction upon the filing of a bond of
P100,000.00. On July 13, 1993, following the posting of the required bond, a writ
of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial court
did not acquire jurisdiction over it through the service of summons on the
Department of Trade and Industry, because it (BMW) was a foreign corporation
and it was not doing business in the Philippines. It contended that the execution
of the Deed of Assignment was an isolated transaction; that Hahn was not its
agent because the latter undertook to assemble and sell BMW cars and products
without the participation of BMW and sold other products; and that Hahn was an
indentor or middleman transacting business in his own name and for his own
account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing
business in the Philippines through him as its agent, as shown by the fact that
BMW invoices and order forms were used to document his transactions; that he
gave warranties as exclusive BMW dealer; that BMW officials periodically
inspected standards of service rendered by him; and that he was described in
service booklets and international publications of BMW as a "BMW Importer" or
"BMW Trading Company" in the Philippines.
The trial court 6 deferred resolution of the motion to dismiss until after trial on the
merits for the reason that the grounds advanced by BMW in its motion did not
seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed a
petition for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE
INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE WRIT
OF PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE TERMS FOR THE
ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING RESOLUTION OF THE
MOTION TO DISMISS ON THE GROUND OF LACK OF JURISDICTION, AND THEREBY
FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.

BMW asked for the immediate issuance of a temporary restraining order and,
after hearing, for a writ of preliminary injunction, to enjoin the trial court from
proceeding further in Civil Case No. Q-93-15933. Private respondent pointed out
that, unless the trial court's order was set aside, it would be forced to submit to
the jurisdiction of the court by filing its answer or to accept judgment in default,
when the very question was whether the court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's complaint.
On December 20, 1993, it rendered judgment finding the trial court guilty of
grave abuse of discretion in deferring resolution of the motion to dismiss. It
stated:
Going by the pleadings already filed with the respondent court before it came out
with its questioned order of July 26, 1993, we rule and so hold that petitioner's
(BMW) motion to dismiss could be resolved then and there, and that the
respondent judge's deferment of his action thereon until after trial on the merit
constitutes, to our mind, grave abuse of discretion.
xxx xxx xxx
. . . [T]here is not much appreciable disagreement as regards the factual matters
relating to the motion to dismiss. What truly divide (sic) the parties and to which
they greatly differ is the legal conclusions they respectively draw from such
facts, (sic) with Hahn maintaining that on the basis thereof, BMW is doing
business in the Philippines while the latter asserts that it is not.
Then, after stating that any ruling which the trial court might make on the motion
to dismiss would anyway be elevated to it on appeal, the Court of Appeals itself
resolved the motion. It ruled that BMW was not doing business in the country
and, therefore, jurisdiction over it could not be acquired through service of
summons on the DTI pursuant to Rule 14, 14. 'The court upheld private
respondent's contention that Hahn acted in his own name and for his own
account and independently of BMW, based on Alfred Hahn's allegations that he
had invested his own money and resources in establishing BMW's goodwill in the
Philippines and on BMW's claim that Hahn sold products other than those of
BMW. It held that petitioner was a mere indentor or broker and not an agent
through whom private respondent BMW transacted business in the Philippines.
Consequently, the Court of Appeals dismissed petitioner's complaint against
BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in
finding that the trial court gravely abused its discretion in deferring action on the
motion to dismiss and (2) in finding that private respondent BMW is not doing
business in the Philippines and, for this reason, dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon private foreign corporations. If the defendant is a foreign
corporation, or a nonresident joint stock company or association, doing business
in the Philippines, service may be made on its resident agent designated in

accordance with law for that purpose, or, if there be no such agent, on the
government official designated by law to that effect, or on any of its officers or
agents within the Philippines. (Emphasis added).
What acts are considered "doing business in the Philippines" are enumerated in
3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042) as follows: 7
d) the phrase "doing business" shall include soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totalling one hundred
eighty (180) days or more; participating in the management, supervision or
control of any domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally incident to, and
in progressive prosecution of, commercial gain or of the purpose and object of
the business organization: Provided, however, That the phrase "doing business"
shall not be deemed to include mere investment as a shareholder by a foreign
entity in domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or officer to
represent its interests in such corporation; nor appointing a representative or
distributor domiciled in the Philippines which transacts business in its own name
and for its own account. (Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors in the
Philippines" but not when the representative or distributor "transacts business in
its name and for its own account." In addition, 1(f)(1) of the Rules and
Regulations implementing (IRR) the Omnibus Investment Code of 1987 (E.O. No.
226) provided:
(f) "Doing business" shall be any act or combination of acts, enumerated in
Article 44 of the Code. In particular, "doing business" includes:
(1) . . . A foreign firm which does business through middlemen acting in their own
names, such as indentors, commercial brokers or commission merchants, shall
not be deemed doing business in the Philippines. But such indentors, commercial
brokers or commission merchants shall be the ones deemed to be doing business
in the Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor in the
Philippines of private respondent BMW. If he is, BMW may be considered doing
business in the Philippines and the trial court acquired jurisdiction over it (BMW)
by virtue of the service of summons on the Department of Trade and Industry.
Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of
BMW cars and products, BMW, a foreign corporation, is not considered doing
business in the Philippines within the meaning of the Foreign Investments Act of
1991 and the IRR, and the trial court did not acquire jurisdiction over it (BMW).

The Court of Appeals held that petitioner Alfred Hahn acted in his own name and
for his own account and not as agent or distributor in the Philippines of BMW on
the ground that "he alone had contacts with individuals or entities interested in
acquiring BMW vehicles. Independence characterizes Hahn's undertakings, for
which reason he is to be considered, under governing statutes, as doing
business." (p. 13) In support of this conclusion, the appellate court cited the
following allegations in Hahn's amended complaint:
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in
the Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA"
and without any monetary contributions from defendant BMW, established
BMW's goodwill and market presence in the Philippines. Pursuant thereto,
Plaintiff invested a lot of money and resources in order to single-handedly
compete against other motorcycle and car companies. . . . Moreover, Plaintiff has
built buildings and other infrastructures such as service centers and showrooms
to maintain and promote the car and products of defendant BMW.
As the above quoted allegations of the amended complaint show, however, there
is nothing to support the appellate court's finding that Hahn solicited orders
alone and for his own account and without "interference from, let alone direction
of, BMW." (p. 13) To the contrary, Hahn claimed he took orders for BMW cars and
transmitted them to BMW. Upon receipt of the orders, BMW fixed the
downpayment and pricing charges, notified Hahn of the scheduled production
month for the orders, and reconfirmed the orders by signing and returning to
Hahn the acceptance sheets. Payment was made by the buyer directly to BMW.
Title to cars purchased passed directly to the buyer and Hahn never paid for the
purchase price of BMW cars sold in the Philippines. Hahn was credited with a
commission equal to 14% of the purchase price upon the invoicing of a vehicle
order by BMW. Upon confirmation in writing that the vehicles had been registered
in the Philippines and serviced by him, Hahn received an additional 3% of the full
purchase price. Hahn performed after-sale services, including warranty services,
for which he received reimbursement from BMW. All orders were on invoices and
forms of BMW. 8
These allegations were substantially admitted by BMW which, in its petition
for certiorari before the Court of Appeals, stated: 9
9.4. As soon as the vehicles are fully manufactured and full payment of the
purchase prices are made, the vehicles are shipped to the Philippines. (The
payments may be made by the purchasers or third-persons or even by Hahn.)
The bills of lading are made up in the name of the purchasers, but Hahn-Manila is
therein indicated as the person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes
of conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the
purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a
commission of fourteen percent (14%) of the full purchase price thereof, and as

soon as he confirms in writing that the vehicles have been registered in the
Philippines and have been serviced by him, he will receive an additional three
percent (3%) of the full purchase prices as commission.
Contrary to the appellate court's conclusion, this arrangement shows an agency.
An agent receives a commission upon the successful conclusion of a sale. On the
other hand, a broker earns his pay merely by bringing the buyer and the seller
together, even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at his own
expense, Hahn said that he had to follow BMW specifications as exclusive dealer
of BMW in the Philippines. According to Hahn, BMW periodically inspected the
service centers to see to it that BMW standards were maintained. Indeed, it
would seem from BMW's letter to Hahn that it was for Hahn's alleged failure to
maintain BMW standards that BMW was terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service centers and
showrooms does not necessarily prove that he is not an agent of BMW. For as
already noted, there are facts in the record which suggest that BMW exercised
control over Hahn's activities as a dealer and made regular inspections of Hahn's
premises to enforce compliance with BMW standards and specifications. 10 For
example, in its letter to Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions and letters
that we have to tackle the Philippine market more professionally and that we are
through your present activities not adequately prepared to cope with the
forthcoming challenges. 11
In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of
Appeals, 12 in which the foreign corporation entered into a "Representative
Agreement" and a "Licensing Agreement" with a domestic corporation, by virtue
of which the latter was appointed "exclusive representative" in the Philippines for
a stipulated commission. Pursuant to these contracts, the domestic corporation
sold products exported by the foreign corporation and put up a service center for
the products sold locally. This Court held that these acts constituted doing
business in the Philippines. The arrangement showed that the foreign
corporation's purpose was to penetrate the Philippine market and establish its
presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive distributor in
the Philippines, even as it announced in the Asian region that Hahn was the
"official BMW agent" in the Philippines. 13
The Court of Appeals also found that petitioner Alfred Hahn dealt in other
products, and not exclusively in BMW products, and, on this basis, ruled that
Hahn was not an agent of BMW. (p. 14) This finding is based entirely on
allegations of BMW in its motion to dismiss filed in the trial court and in its
petition for certiorari before the Court of Appeals. 14 But this allegation was

denied by Hahn 15 and therefore the Court of Appeals should not have cited it as
if it were the fact.
Indeed this is not the only factual issue raised, which should have indicated to
the Court of Appeals the necessity of affirming the trial court's order deferring
resolution of BMW's motion to dismiss. Petitioner alleged that whether or not he
is considered an agent of BMW, the fact is that BMW did business in the
Philippines because it sold cars directly to Philippine buyers. 16 This was denied
by BMW, which claimed that Hahn was not its agent and that, while it was true
that it had sold cars to Philippine buyers, this was done without solicitation on its
part. 17
It is not true then that the question whether BMW is doing business could have
been resolved simply by considering the parties' pleadings. There are genuine
issues of facts which can only be determined on the basis of evidence duly
presented. BMW cannot short circuit the process on the plea that to compel it to
go to trial would be to deny its right not to submit to the jurisdiction of the trial
court which precisely it denies. Rule 16, 3 authorizes courts to defer the
resolution of a motion to dismiss until after the trial if the ground on which the
motion is based does not appear to be indubitable. Here the record of the case
bristles with factual issues and it is not at all clear whether some allegations
correspond to the proof.
Anyway, private respondent need not apprehend that by responding to the
summons it would be waiving its objection to the trial court's jurisdiction. It is
now settled that, for purposes of having summons served on a foreign
corporation in accordance with Rule 14, 14, it is sufficient that it be alleged in
the complaint that the foreign corporation is doing business in the Philippines.
The court need not go beyond the allegations of the complaint in order to
determine whether it has Jurisdiction. 18 A determination that the foreign
corporation is doing business is only tentative and is made only for the purpose
of enabling the local court to acquire jurisdiction over the foreign corporation
through service of summons pursuant to Rule 14, 14. Such determination does
not foreclose a contrary finding should evidence later show that it is not
transacting business in the country. As this Court has explained:
This is not to say, however, that the petitioner's right to question the jurisdiction
of the court over its person is now to be deemed a foreclosed matter. If it is true,
as Signetics claims, that its only involvement in the Philippines was through a
passive investment in Sigfil, which it even later disposed of, and that TEAM
Pacific is not its agent, then it cannot really be said to be doing business in the
Philippines. It is a defense, however, that requires the contravention of the
allegations of the complaint, as well as a full ventilation, in effect, of the main
merits of the case, which should not thus be within the province of a mere
motion to dismiss. So, also, the issue posed by the petitioner as to whether a
foreign corporation which has done business in the country, but which has
ceased to do business at the time of the filing of a complaint, can still be made
to answer for a cause of action which accrued while it was doing business, is

another matter that would yet have to await the reception and admission of
evidence. Since these points have seasonably been raised by the petitioner,
there should be no real cause for what may understandably be its
apprehension, i.e., that by its participation during the trial on the merits, it may,
absent an invocation of separate or independent reliefs of its own, be considered
to have voluntarily submitted itself to the court's jurisdiction. 19
Far from committing an abuse of discretion, the trial court properly deferred
resolution of the motion to dismiss and thus avoided prematurely deciding a
question which requires a factual basis, with the same result if it had denied the
motion and conditionally assumed jurisdiction. It is the Court of Appeals which,
by ruling that BMW is not doing business on the basis merely of uncertain
allegations in the pleadings, disposed of the whole case with finality and thereby
deprived petitioner of his right to be heard on his cause of action. Nor was there
justification for nullifying the writ of preliminary injunction issued by the trial
court. Although the injunction was issued ex parte, the fact is that BMW was
subsequently heard on its defense by filing a motion to dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is
REMANDED to the trial court for further proceedings.
SO ORDERED.
Regalado, Romero, Puno and Torres, Jr., JJ., concur.
Footnotes
1 Per Justice Cancio C. Garcia and concurred in by Justice Ramon U. Mabutas and
Antonio M. Martinez, chairman.
2 Rollo, pp. 75-78.
3 Rollo, pp. 79-82.
4 Rollo, pp. 83-84.
5 Rollo, p. 593.
6 Per Judge Maximiano Asuncion.
7 The Foreign Investments Act of 1991 superseded Arts. 44-56 of the Omnibus
Investments Code.
8 Rollo, pp. 96, 140-141.
9 Id., p. 141.
10 Wang Laboratories, Inc. v. Mendoza, 156 SCRA 44 (1987).
11 Rollo, p. 75.
12 G.R. No. 102223, Aug. 22, 1996.

13 Rollo, p. 213.
14 Rollo, pp. 91, 163.
15 Rollo, p. 124.
16 Rollo, pp. 245; 292.
17 Rollo, pp. 177, 284, 600.
18 Litton Mills, Inc. v. Court of Appeals, G.R. No. 94980, May 15, 1996; Signetics
Corp. v. Court of Appeals, 225 SCRA 737 (1993).
19 Signetics Corp. v. Court of Appeals, 225 SCRA at 746.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 143978

December 3, 2002

MANUEL B. TAN, GREGG M. TECSON and ALEXANDER

SALDAA, petitioners,
vs.
EDUARDO R. GULLAS and NORMA S. GULLAS, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review seeking to set aside the decision 1 of the Court of
Appeals2 in CA-G.R. CV No. 46539, which reversed and set aside the decision 3 of
the Regional Trial Court of Cebu City, Branch 22 in Civil Case No. CEB-12740.
The records show that private respondents, Spouses Eduardo R. Gullas and
Norma S. Gullas, were the registered owners of a parcel of land in the
Municipality of Minglanilla, Province of Cebu, measuring 104,114 sq. m., with
Transfer Certificate of Title No. 31465.4 On June 29, 1992, they executed a special
power of attorney5 authorizing petitioners Manuel B. Tan, a licensed real estate
broker,6 and his associates Gregg M. Tecson and Alexander Saldaa, to negotiate
for the sale of the land at Five Hundred Fifty Pesos (P550.00) per square meter,
at a commission of 3% of the gross price. The power of attorney was nonexclusive and effective for one month from June 29, 1992. 7
On the same date, petitioner Tan contacted Engineer Edsel Ledesma,
construction manager of the Sisters of Mary of Banneaux, Inc. (hereafter, Sisters
of Mary), a religious organization interested in acquiring a property in the
Minglanilla area.

In the morning of July 1, 1992, petitioner Tan visited the property with Engineer
Ledesma. Thereafter, the two men accompanied Sisters Michaela Kim and
Azucena Gaviola, representing the Sisters of Mary, to see private respondent
Eduardo Gullas in his office at the University of Visayas. The Sisters, who had
already seen and inspected the land, found the same suitable for their purpose
and expressed their desire to buy it.8 However, they requested that the selling
price be reduced to Five Hundred Thirty Pesos (P530.00) per square meter
instead of Five Hundred Fifty Pesos (P550.00) per square meter. Private
respondent Eduardo Gullas referred the prospective buyers to his wife.
It was the first time that the buyers came to know that private respondent
Eduardo Gullas was the owner of the property. On July 3, 1992, private
respondents agreed to sell the property to the Sisters of Mary, and subsequently
executed a special power of attorney 9 in favor of Eufemia Caete, giving her the
special authority to sell, transfer and convey the land at a fixed price of Two
Hundred Pesos (P200.00) per square meter.
On July 17, 1992, attorney-in-fact Eufemia Caete executed a deed of sale in
favor of the Sisters of Mary for the price of Twenty Million Eight Hundred Twenty
Two Thousand Eight Hundred Pesos (P20,822.800.00), or at the rate of Two
Hundred Pesos (P200.00) per square meter. 10 The buyers subsequently paid the
corresponding taxes.11 Thereafter, the Register of Deeds of Cebu Province issued
TCT No. 75981 in the name of the Sisters of Mary of Banneaux, Inc. 12
Earlier, on July 3, 1992, in the afternoon, petitioners went to see private
respondent Eduardo Gullas to claim their commission, but the latter told them
that he and his wife have already agreed to sell the property to the Sisters of
Mary. Private respondents refused to pay the brokers fee and alleged that
another group of agents was responsible for the sale of land to the Sisters of
Mary.
On August 28, 1992, petitioners filed a complaint 13 against the defendants for
recovery of their brokers fee in the sum of One Million Six Hundred Fifty Five
Thousand Four Hundred Twelve and 60/100 Pesos (P1,655,412.60), as well as
moral and exemplary damages and attorneys fees. They alleged that they were
the efficient procuring cause in bringing about the sale of the property to the
Sisters of Mary, but that their efforts in consummating the sale were frustrated
by the private respondents who, in evident bad faith, malice and in order to
evade payment of brokers fee, dealt directly with the buyer whom petitioners
introduced to them. They further pointed out that the deed of sale was
undervalued obviously to evade payment of the correct amount of capital gains
tax, documentary stamps and other internal revenue taxes.
In their answer, private respondents countered that, contrary to petitioners
claim, they were not the efficient procuring cause in bringing about the
consummation of the sale because another broker, Roberto Pacana, introduced
the property to the Sisters of Mary ahead of the petitioners. 14 Private
respondents maintained that when petitioners introduced the buyers to private
respondent Eduardo Gullas, the former were already decided in buying the

property through Pacana, who had been paid his commission. Private respondent
Eduardo Gullas admitted that petitioners were in his office on July 3, 1992, but
only to ask for the reimbursement of their cellular phone expenses.
In their reply and answer to counterclaim, 15 petitioners alleged that although the
Sisters of Mary knew that the subject land was for sale through various agents, it
was petitioners who introduced them to the owners thereof.
After trial, the lower court rendered judgment in favor of petitioners, the
dispositive portion of which reads:
WHEREFORE, UPON THE AEGIS OF THE FOREGOING, judgment is hereby
rendered for the plaintiffs and against the defendants. By virtue hereof,
defendants Eduardo and Norma Gullas are hereby ordered to pay jointly and
severally plaintiffs Manuel Tan, Gregg Tecson and Alexander Saldaa;
1) The sum of SIX HUNDRED TWENTY FOUR THOUSAND AND SIX HUNDRED
EIGHTY FOUR PESOS (P624,684.00) as brokers fee with legal interest at the rate
of 6% per annum from the date of filing of the complaint; and
2) The sum of FIFTY THOUSAND PESOS (P50,000.00) as attorneys fees and costs
of litigation.
For lack of merit, defendants counterclaim is hereby DISMISSED.
IT IS SO ORDERED.16
Both parties appealed to the Court of Appeals. Private respondents argued that
the lower court committed errors of fact and law in holding that it was
petitioners efforts which brought about the sale of the property and disregarding
the previous negotiations between private respondent Norma Gullas and the
Sisters of Mary and Pacana. They further alleged that the lower court had no
basis for awarding brokers fee, attorneys fees and the costs of litigation to
petitioners.17
Petitioners, for their part, assailed the lower courts basis of the award of brokers
fee given to them. They contended that their 3% commission for the sale of the
property should be based on the price of P55,180.420.00, or at P530.00 per
square meter as agreed upon and not on the alleged actual selling price of
P20,822,800.00 or at P200.00 per square meter, since the actual purchase price
was undervalued for taxation purposes. They also claimed that the lower court
erred in not awarding moral and exemplary damages in spite of its finding of bad
faith; and that the amount of P50,000.00 as attorneys fees awarded to them is
insufficient. Finally, petitioners argued that the legal interest imposed on their
claim should have been pegged at 12% per annum instead of the 6% fixed by
the court.18
The Court of Appeals reversed and set aside the lower courts decision and
rendered another judgment dismissing the complaint. 19
Hence, this appeal.

Petitioners raise following issues for resolution:

I.
THE APPELLATE COURT GROSSLY ERRED IN THEIR FINDING THAT THE
PETITIONERS ARE NOT ENTITLED TO THE BROKERAGE COMMISSION.
II.
IN DISMISSING THE COMPLAINT, THE APPELLATE COURT HAS DEPRIVED THE
PETITIONERS OF MORAL AND EXEMPLARY DAMAGES, ATTORNEYS FEES AND
INTEREST IN THE FOREBEARANCE OF MONEY.
The petition is impressed with merit.
The records show that petitioner Manuel B. Tan is a licensed real estate broker,
and petitioners Gregg M. Tecson and Alexander Saldaa are his associates. In
Schmid and Oberly v. RJL Martinez Fishing Corporation, 20 we defined a "broker" as
"one who is engaged, for others, on a commission, negotiating contracts relative
to property with the custody of which he has no concern; the negotiator between
other parties, never acting in his own name but in the name of those who
employed him. x x x a broker is one whose occupation is to bring the parties
together, in matters of trade, commerce or navigation." (Emphasis supplied)
During the trial, it was established that petitioners, as brokers, were authorized
by private respondents to negotiate for the sale of their land within a period of
one month reckoned from June 29, 1992. The authority given to petitioners was
non-exclusive, which meant that private respondents were not precluded from
granting the same authority to other agents with respect to the sale of the same
property. In fact, private respondent authorized another agent in the person of
Mr. Bobby Pacana to sell the same property. There was nothing illegal or amiss in
this arrangement, per se, considering the non-exclusivity of petitioners authority
to sell. The problem arose when it eventually turned out that these agents were
entertaining one and the same buyer, the Sisters of Mary.
As correctly observed by the trial court, the argument of the private respondents
that Pacana was the one entitled to the stipulated 3% commission is untenable,
considering that it was the petitioners who were responsible for the introduction
of the representatives of the Sisters of Mary to private respondent Eduardo
Gullas. Private respondents, however, maintain that they were not aware that
their respective agents were negotiating to sell said property to the same buyer.
Private respondents failed to prove their contention that Pacana began
negotiations with private respondent Norma Gullas way ahead of petitioners.
They failed to present witnesses to substantiate this claim. It is curious that Mrs.
Gullas herself was not presented in court to testify about her dealings with
Pacana. Neither was Atty. Nachura who was supposedly the one actively
negotiating on behalf of the Sisters of Mary, ever presented in court.

Private respondents contention that Pacana was the one responsible for the sale
of the land is also unsubstantiated. There was nothing on record which
established the existence of a previous negotiation among Pacana, Mrs. Gullas
and the Sisters of Mary. The only piece of evidence that the private respondents
were able to present is an undated and unnotarized Special Power of Attorney in
favor of Pacana. While the lack of a date and an oath do not necessarily render
said Special Power of Attorney invalid, it should be borne in mind that the
contract involves a considerable amount of money. Hence, it is inconsistent with
sound business practice that the authority to sell is contained in an undated and
unnotarized Special Power of Attorney. Petitioners, on the other hand, were given
the written authority to sell by the private respondents.
The trial courts evaluation of the witnesses is accorded great respect and finality
in the absence of any indication that it overlooked certain facts or circumstances
of weight and influence, which if reconsidered, would alter the result of the
case.21
Indeed, it is readily apparent that private respondents are trying to evade
payment of the commission which rightfully belong to petitioners as brokers with
respect to the sale. There was no dispute as to the role that petitioners played in
the transaction. At the very least, petitioners set the sale in motion. They were
not able to participate in its consummation only because they were prevented
from doing so by the acts of the private respondents. In the case of Alfred Hahn
v. Court of Appeals and Bayerische Motoren Werke Aktiengesellschaft (BMW) 22 we
ruled that, "An agent receives a commission upon the successful conclusion of a
sale. On the other hand, a broker earns his pay merely by bringing the buyer and
the seller together, even if no sale is eventually made." (Underscoring ours).
Clearly, therefore, petitioners, as brokers, should be entitled to the commission
whether or not the sale of the property subject matter of the contract was
concluded through their efforts.
Having ruled that petitioners are entitled to the brokers commission, we should
now resolve how much commission are petitioners entitled to?
Following the stipulation in the Special Power of Attorney, petitioners are entitled
to 3% commission for the sale of the land in question. Petitioners maintain that
their commission should be based on the price at which the land was offered for
sale, i.e., P530.00 per square meter. However, the actual purchase price for
which the land was sold was only P200.00 per square meter. Therefore, equity
considerations dictate that petitioners commission must be based on this price.
To rule otherwise would constitute unjust enrichment on the part of petitioners as
brokers.
In the matter of attorneys fees and expenses of litigation, we affirm the amount
of P50,000.00 awarded by the trial court to the petitioners.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The May 29,
2000 decision of the Court of Appeals is REVERSED and SET ASIDE. The decision
of the Regional Trial Court of Cebu City, Branch 22, in Civil Case No. CEB-12740

ordering private respondents Eduardo Gullas and Norma S. Gullas to pay jointly
and severally petitioners Manuel B. Tan, Gregg Tecson and Alexander Saldaa the
sum of Six Hundred Twenty-Four Thousand and Six Hundred Eighty-Four Pesos
(P624,684.00) as brokers fee with legal interest at the rate of 6% per annum
from the filing of the complaint; and the sum of Fifty Thousand Pesos
(P50,000.00) as attorneys fees and costs of litigation, is REINSTATED.
SO ORDERED.
Vitug, and Carpio, JJ., concur.
Davide, Jr., C.J., (Chairman), no part due to close relationship to a party.
Azcuna, J., on official leave.

Footnotes

Dated May 29, 2000, Rollo, p. 16.

Penned by Associate Justice Mariano M. Umali and concurred in by Associate

Justices
Conrado M. Vazquez, Jr. and Eriberto U. Rosario, Jr.
3

Penned by Judge Pampio A. Abarintos, promulgated on March 11, 1994, Rollo, p.

8.
4

Annex "F", Record, p. 16.

Annex "A", Record, pp. 8-9.

Folder of Exhibits, Exhibit "I".

Ibid., Exhibits "A" and "A-3".

Record, p. 131.

Folder of Exhibits, Exhibit "C", dated July 4, 1992.

10

Ibid., Exhibit "D".

11

Id., Exhibit "E".

12

Id., Exhibit "F".

13

Record, pp. 1-7.

14

Record, pp. 28-34.

15

Id., at 35-38.

16

Record, p. 206.

17

Rollo, p. 21.

18

Id., at 21-22.

19

Rollo, pp. 32-33.

20

166 SCRA 493 (1988).

21

People v. Realm, 301 SCRA 495 (1999); Yam v. Court of Appeals, 303 SCRA 1
(1999); People v. Maglatay, 304 SCRA 272 (1999).
22

266 SCRA 537 (1997).

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 171052

January 28, 2008

PHILIPPINE HEALTH-CARE PROVIDERS, INC. (MAXICARE), petitioner,

vs.
CARMELA ESTRADA/CARA HEALTH SERVICES, respondent.
DECISION
NACHURA, J.:
This petition for review on certiorari assails the Decision1 dated June 16, 2005 of
the Court of Appeals (CA) in CA-G.R. CV No. 66040 which affirmed in toto the
Decision2 dated October 8, 1999 of the Regional Trial Court (RTC), Branch 135, of
Makati City in an action for breach of contract and damages filed by respondent
Carmela Estrada, sole proprietor of Cara Health Services, against Philippine
Health-Care Providers, Inc. (Maxicare).
The facts, as found by the CA and adopted by Maxicare in its petition, follow:
[Maxicare] is a domestic corporation engaged in selling health insurance
plans whose Chairman Dr. Roberto K. Macasaet, Chief Operating Officer
Virgilio del Valle, and Sales/Marketing Manager Josephine Cabrera were
impleaded as defendants-appellants.
On September 15, 1990, [Maxicare] allegedly engaged the services of
Carmela Estrada who was doing business under the name of CARA HEALTH
[SERVICES] to promote and sell the prepaid group practice health care
delivery program called MAXICARE Plan with the position of Independent
Account Executive. [Maxicare] formally appointed [Estrada] as its "General
Agent," evidenced by a letter-agreement dated February 16, 1991. The
letter agreement provided for plaintiff-appellees [Estradas] compensation
in the form of commission, viz.:

Commission
In consideration of the performance of your functions and duties as
specified in this letter-agreement, [Maxicare] shall pay you a
commission equivalent to 15 to 18% from individual, family, group
accounts; 2.5 to 10% on tailored fit plans; and 10% on standard
plans of commissionable amount on corporate accounts from all
membership dues collected and remitted by you to [Maxicare].
[Maxicare] alleged that it followed a "franchising system" in dealing with
its agents whereby an agent had to first secure permission from
[Maxicare] to list a prospective company as client. [Estrada] alleged that it
did apply with [Maxicare] for the MERALCO account and other accounts,
and in fact, its franchise to solicit corporate accounts, MERALCO account
included, was renewed on February 11, 1991.
Plaintiff-appellee [Estrada] submitted proposals and made representations
to the officers of MERALCO regarding the MAXICARE Plan but when
MERALCO decided to subscribe to the MAXICARE Plan, [Maxicare] directly
negotiated with MERALCO regarding the terms and conditions of the
agreement and left plaintiff-appellee [Estrada] out of the discussions on
the terms and conditions.
On November 28, 1991, MERALCO eventually subscribed to the MAXICARE
Plan and signed a Service Agreement directly with [Maxicare] for medical
coverage of its qualified members, i.e.: 1) the enrolled dependent/s of
regular MERALCO executives; 2) retired executives and their dependents
who have opted to enroll and/or continue their MAXICARE membership up
to age 65; and 3) regular MERALCO female executives (exclusively for
maternity benefits). Its duration was for one (1) year from December 1,
1991 to November 30, 1992. The contract was renewed twice for a term of
three (3) years each, the first started on December 1, 1992 while the
second took effect on December 1, 1995.
The premium amounts paid by MERALCO to [Maxicare] were alleged to be
the following: a) P215,788.00 in December 1991; b) P3,450,564.00 in
1992; c) P4,223,710.00 in 1993; d) P4,782,873.00 in 1994;
e)P5,102,108.00 in 1995; and P2,394,292.00 in May 1996. As of May 1996,
the total amount of premium paid by MERALCO to [Maxicare]
was P20,169,335.00.
On March 24, 1992, plaintiff-appellee [Estrada], through counsel,
demanded from [Maxicare] that it be paid commissions for the MERALCO
account and nine (9) other accounts. In reply, [Maxicare], through counsel,
denied [Estradas] claims for commission for the MERALCO and other
accounts because [Maxicare] directly negotiated with MERALCO and the
other accounts(,) and that no agent was given the go signal to intervene in
the negotiations for the terms and conditions and the signing of the
service agreement with MERALCO and the other accounts so that if ever
[Maxicare] was indebted to [Estrada], it was only for P1,555.00 andP43.l2
as commissions on the accounts of Overseas Freighters Co. and Mr.
Enrique Acosta, respectively.

[Estrada] filed a complaint on March 18, 1993 against [Maxicare] and its
officers with the Regional Trial Court (RTC) of Makati City, docketed as Civil
Case No. 93-935, raffled to Branch 135.
Defendants-appellants [Maxicare] and its officers filed their Answer with
Counterclaim on September 13, 1993 and their Amended Answer with
Counterclaim on September 28, 1993, alleging that: plaintiff-appellee
[Estrada] had no cause of action; the cause of action, if any, should be is
against [Maxicare] only and not against its officers; CARA HEALTHs
appointment as agent under the February 16, 1991 letter-agreement to
promote the MAXICARE Plan was for a period of one (1) year only; said
agency was not renewed after the expiration of the one (1) year period;
[Estrada] did not intervene in the negotiations of the contract with
MERALCO which was directly negotiated by MERALCO with [Maxicare]; and
[Estradas] alleged other clients/accounts were not accredited with
[Maxicare] as required, since the agency contract on the MAXICARE health
plans were not renewed. By way of counterclaim, defendants-appellants
[Maxicare] and its officers claimed P100,000.00 in moral damages for each
of the officers of [Maxicare] impleaded as defendant, P100,000.00 in
exemplary damages, P100,000.00 in attorneys fees, and P10,000.00 in
litigation expenses.3
After trial, the RTC found Maxicare liable for breach of contract and ordered it to
pay Estrada actual damages in the amount equivalent to 10% of P20,169,335.00,
representing her commission for the total premiums paid by Meralco to Maxicare
from the year 1991 to 1996, plus legal interest computed from the filing of the
complaint on March 18, 1993, and attorneys fees in the amount of P100,000.00.
On appeal, the CA affirmed in toto the RTCs decision. In ruling for Estrada, both
the trial and appellate courts held that Estrada was the "efficient procuring
cause" in the execution of the service agreement between Meralco and Maxicare
consistent with our ruling in Manotok Brothers, Inc. v. Court of Appeals.4
Undaunted, Maxicare comes to this Court and insists on the reversal of the RTC
Decision as affirmed by the CA, raising the following issues, to wit:
1. Whether the Court of Appeals committed serious error in affirming
Estradas entitlement to commissions for the execution of the service
agreement between Meralco and Maxicare.
2. Corollarily, whether Estrada is entitled to commissions for the two (2)
consecutive renewals of the service agreement effective on December 1,
19925 and December 1, 1995.6
We are in complete accord with the trial and appellate courts ruling. Estrada is
entitled to commissions for the premiums paid under the service agreement
between Meralco and Maxicare from 1991 to 1996.
Well-entrenched in jurisprudence is the rule that factual findings of the trial
court, especially when affirmed by the appellate court, are accorded the highest
degree of respect and are considered conclusive between the parties. 7A review of
such findings by this Court is not warranted except upon a showing of highly
meritorious circumstances, such as: (1) when the findings of a trial court are

grounded entirely on speculation, surmises or conjectures; (2) when a lower

courts inference from its factual findings is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion in the appreciation of
facts; (4) when the findings of the appellate court go beyond the issues of the
case, or fail to notice certain relevant facts which, if properly considered, will
justify a different conclusion; (5) when there is a misappreciation of facts; (6)
when the findings of fact are conclusions without mention of the specific
evidence on which they are based, are premised on the absence of evidence, or
are contradicted by evidence on record. 8 None of the foregoing exceptions which
would warrant a reversal of the assailed decision obtains in this instance.
Maxicare urges us that both the RTC and CA failed to take into account the
stipulations contained in the February 19, 1991 letter agreement authorizing the
payment of commissions only upon satisfaction of twin conditions, i.e., collection
and contemporaneous remittance of premium dues by Estrada to Maxicare.
Allegedly, the lower courts disregarded Estradas admission that the negotiations
with Meralco failed. Thus, the flawed application of the "efficient procuring
cause" doctrine enunciated in Manotok Brothers, Inc. v. Court of Appeals,9 and
the erroneous conclusion upholding Estradas entitlement to commissions on
contracts completed without her participation.
We are not persuaded.
Contrary to Maxicares assertion, the trial and the appellate courts carefully
considered the factual backdrop of the case as borne out by the records. Both
courts were one in the conclusion that Maxicare successfully landed the Meralco
account for the sale of healthcare plans only by virtue of Estradas involvement
and participation in the negotiations. The assailed Decision aptly states:
There is no dispute as to the role that plaintiff-appellee [Estrada] played in
selling [Maxicares] health insurance plan to Meralco. Plaintiff-appellee
[Estradas] efforts consisted in being the first to offer the Maxicare plan to
Meralco, using her connections with some of Meralco Executives, inviting
said executives to dinner meetings, making submissions and
representations regarding the health plan, sending follow-up letters, etc.
These efforts were recognized by Meralco as shown by the certification
issued by its Manpower Planning and Research Staff Head Ruben A.
Sapitula on September 5, 1991, to wit:
"This is to certify that Ms. Carmela Estrada has initiated talks with
us since November 1990 with regards (sic) to the HMO requirements
of both our rank and file employees, managers and executives, and
that it was favorably recommended and the same be approved by
the Meralco Management Committee."
xxxx
This Court finds that plaintiff-appellee [Estradas] efforts were instrumental
in introducing the Meralco account to [Maxicare] in regard to the latters
Maxicare health insurance plans. Plaintiff-appellee [Estrada] was the
efficient "intervening cause" in bringing about the service agreement with

Meralco. As pointed out by the trial court in its October 8, 1999 Decision,
to wit:
"xxx Had not [Estrada] introduced Maxicare Plans to her bosom
friends, Messrs. Lopez and Guingona of Meralco, PHPI would still be
an anonymity. xxx"10
Under the foregoing circumstances, we are hard pressed to disturb the findings
of the RTC, which the CA affirmed.
We cannot overemphasize the principle that in petitions for review
on certiorari under Rules 45 of the Rules of Court, only questions of law may be
put into issue. Questions of fact are not cognizable by this Court. The finding of
"efficient procuring cause" by the CA is a question of fact which we desist from
passing upon as it would entail delving into factual matters on which such finding
was based. To reiterate, the rule is that factual findings of the trial court,
especially those affirmed by the CA, are conclusive on this Court when supported
by the evidence on record.11
The jettisoning of the petition is inevitable even upon a close perusal of the
merits of the case.
First. Maxicares contention that Estrada may only claim commissions from
membership dues which she has collected and remitted to Maxicare as expressly
provided for in the letter-agreement does not convince us. It is readily apparent
that Maxicare is attempting to evade payment of the commission which rightfully
belongs to Estrada as the broker who brought the parties together. In fact,
Maxicares former Chairman Roberto K. Macasaet testified that Maxicare had
been trying to land the Meralco account for two (2) years prior to Estradas entry
in 1990.12 Even without that admission, we note that Meralcos Assistant VicePresident, Donatila San Juan, in a letter13 dated January 21, 1992 to then
Maxicare President Pedro R. Sen, categorically acknowledged Estradas efforts
relative to the sale of Maxicare health plans to Meralco, thus:
Sometime in 1989, Meralco received a proposal from Philippine HealthCare Providers, Inc. (Maxicare) through the initiative and efforts of Ms.
Carmela Estrada, who introduced Maxicare to Meralco. Prior to this time,
we did not know that Maxicare is a major health care provider in the
country. We have since negotiated and signed up with Maxicare to provide
a health maintenance plan for dependents of Meralco executives, effective
December 1, 1991 to November 30, 1992.
At the very least, Estrada penetrated the Meralco market, initially closed to
Maxicare, and laid the groundwork for a business relationship. The only reason
Estrada was not able to participate in the collection and remittance of premium
dues to Maxicare was because she was prevented from doing so by the acts of
Maxicare, its officers, and employees.
In Tan v. Gullas,14 we had occasion to define a broker and distinguish it from an
agent, thus:
[O]ne who is engaged, for others, on a commission, negotiating contracts
relative to property with the custody of which he has no concern; the

negotiator between the other parties, never acting in his own name but in
the name of those who employed him. [A] broker is one whose occupation
is to bring the parties together, in matter of trade, commerce or
navigation.15
An agent receives a commission upon the successful conclusion of a sale.
On the other hand, a broker earns his pay merely by bringing the buyer
and the seller together, even if no sale is eventually made.16
In relation thereto, we have held that the term "procuring cause" in describing a
brokers activity, refers to a causeoriginating a series of events which, without
break in their continuity, result in the accomplishment of the prime objective of
the employment of the brokerproducing a purchaser ready, willing and able to
buy on the owners terms.17 To be regarded as the "procuring cause" of a sale as
to be entitled to a commission, a brokers efforts must have been the foundation
on which the negotiations resulting in a sale began. 18 Verily, Estrada was
instrumental in the sale of the Maxicare health plans to Meralco. Without her
intervention, no sale could have been consummated.
Second. Maxicare next contends that Estrada herself admitted that her
negotiations with Meralco failed as shown in Annex "F" of the Complaint.
The chicanery and disingenuousness of Maxicares counsel is not lost on this
Court. We observe that this Annex "F" is, in fact, Maxicares counsels letter
dated April 10, 1992 addressed to Estrada. The letter contains a unilateral
declaration by Maxicare that the efforts initiated and negotiations undertaken by
Estrada failed, such that the service agreement with Meralco was supposedly
directly negotiated by Maxicare. Thus, the latter effectively declares that Estrada
is not the "efficient procuring cause" of the sale, and as such, is not entitled to
commissions.
Our holding in Atillo III v. Court of Appeals,19 ironically the case cited by Maxicare
to bolster its position that the statement in Annex "F" amounted to an admission,
provides a contrary answer to Maxicares ridiculous contention. We intoned
therein that in spite of the presence of judicial admissions in a partys pleading,
the trial court is still given leeway to consider other evidence presented. 20 We
ruled, thus:
As provided for in Section 4 of Rule 129 of the Rules of Court, the general
rule that a judicial admission is conclusive upon the party making it and
does not require proof admits of two exceptions: 1) when it is shown that
the admission was made through palpable mistake, and 2) when it is
shown that no such admission was in fact made. The latter exception
allows one to contradict an admission by denying that he made such an
admission.
For instance, if a party invokes an "admission" by an adverse party,
but cites the admission "out of context," then the one making the
admission may show that he made no "such" admission, or that his
admission was taken out of context.

This may be interpreted as to mean "not in the sense in which the

admission is made to appear." That is the reason for the modifier
"such."21
In this case, the letter, although part of Estradas Complaint, is not, ipso facto, an
admission of the statements contained therein, especially since the bone of
contention relates to Estradas entitlement to commissions for the sale of health
plans she claims to have brokered. It is more than obvious from the entirety of
the records that Estrada has unequivocally and consistently declared that her
involvement as broker is the proximate cause which consummated the sale
between Meralco and Maxicare.
Moreover, Section 34,22 Rule 132 of the Rules of Court requires the purpose for
which the evidence is offered to be specified. Undeniably, the letter was attached
to the Complaint, and offered in evidence, to demonstrate Maxicares bad faith
and ill will towards Estrada.23
Even a cursory reading of the Complaint and all the pleadings filed thereafter
before the RTC, CA, and this Court, readily show that Estrada does not concede,
at any point, that her negotiations with Meralco failed. Clearly, Maxicares
assertion that Estrada herself does not pretend to be the "efficient procuring
cause" in the execution of the service agreement between Meralco and Maxicare
is baseless and an outright falsehood.
After muddling the issues and representing that Estrada made an admission that
her negotiations with Meralco failed, Maxicares counsel then proceeds to cite a
case which does not, by any stretch of the imagination, bolster the flawed
contention.
We, therefore, ADMONISH Maxicares counsel, and, in turn, remind every
member of the Bar that the practice of law carries with it responsibilities which
are not to be trifled with. Maxicares counsel ought to be reacquainted with
Canon 1024 of the Code of Professional Responsibility, specifically, Rule 10.02, to
wit:
Rule 10.02 A lawyer shall not knowingly misquote or misrepresent the
contents of a paper, the language or the argument of opposing counsel, or
the text of a decision or authority, or knowingly cite as law a provision
already rendered inoperative by repeal or amendment, or assert as a fact
that which has not been proved.
Third. Finally, we likewise affirm the uniform ruling of the RTC and CA that
Estrada is entitled to 10% of the total amount of premiums paid 25 by Meralco to
Maxicare as of May 1996. Maxicares argument that assuming Estrada is entitled
to commissions, such entitlement only covers the initial year of the service
agreement and should not include the premiums paid for the succeeding
renewals thereof, fails to impress. Considering that we have sustained the lower
courts factual finding of Estradas close, proximate and causal connection to the
sale of health plans, we are not wont to disturb Estradas complete entitlement
to commission for the total premiums paid until May 1996 in the amount
of P20,169,335.00.

WHEREFORE, premises considered and finding no reversible error committed by

the Court of Appeals, the petition is hereby DENIED. Costs against the petitioner.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice

RENATO C. CORONA
Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
*

In lieu of Associate Justice Minita V. Chico-Nazario per Special Order No.

484 dated January 11, 2008.
1

Penned by Associate Justice Vicente Q. Roxas, with Associate Justices

Portia Alio- Hormachuelos and Juan Q. Enriquez, Jr., concurring; rollo, pp.
37-46.
2

Penned by Judge Francisco B. Ibay; id. at 137-147.

Rollo, pp. 38-41.

G.R. No. 94753, April 7, 1993, 221 SCRA 224.

The renewed service agreement was for a period of three (3) years and
expired on November 30, 1995.
6

A subsequent renewal of the service agreement which commenced on

December 1, 1995, was likewise for a period of three (3) years.
7

Titan Construction Corporation v. Uni-Field Enterprises, Inc., G.R. No.

153874, March 1, 2007, 517 SCRA 180, 186, Sigaya v. Mayuga, G.R. No.
143254, August 18, 2005, 467 SCRA 341, 353.
8

Ilao-Quianay v. Mapile, G.R. No. 154087, October 25, 2005, 474 SCRA
246, 253; see Child Learning Center, Inc. v. Tagorio, G.R. No. 150920,
November 25, 2005, 476 SCRA 236, 241-242.
9

Supra note 4.

10

Rollo, pp. 43-44.

11

Lambert v. Heirs of Ray Castillon, G.R. No. 160709, February 23, 2005,
452 SCRA 285, 290, citing Imperial v. Jaucian, 427 SCRA 517 (2004).
12

Rollo, p. 10.

13

Id. at 83.

14

441 Phil. 622 (2002).

15

Tan v. Gullas, 441 Phil. 622, 631 (2002), citing Schmid and Oberly v. RJL
Martinez Fishing Corporation, 166 SCRA 493 (1988).
16

17

Id. at 633, citing Alfred Hahn v. Court of Appeals, 266 SCRA 537 (1997).

Medrano v. Court of Appeals, G.R. No. 150678, February 18, 2005, 452
SCRA 77, 88, citing Clark v. Ellsworth, 66 Ariz. 119, 184 P. 2d 821 (1947).

18

Id.

19

334 Phil. 546 (1997).

20

Id. at 554.

21

Id. at 552.

22

Sec. 34. Offer of Evidence. The court shall consider no evidence which
has not been formally offered. The purpose for which the evidence is
offered must be specified.
23

Rollo, p. 72.

24

CANON 10 A LAWYER OWES CANDOR, FAIRNESS AND GOOD FAITH TO

THE COURT.
25

P20,169,335.00.

Republic of the Philippines

SUPREME COURT
THIRD DIVISION
G.R. No. 141525 September 2, 2005
CARLOS SANCHEZ, Petitioners,
vs.
MEDICARD PHILIPPINES, INC., DR. NICANOR MONTOYA and CARLOS
EJERCITO, Respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
This petition for review on certiorari seeks to reverse the Decision1 of the Court
of Appeals dated February 24, 1999 and its Resolution dated January 12, 2000 in
CA-G.R. CV No. 47681.
The facts, as established by the trial court and affirmed by the Court of Appeals,
follow:
Sometime in 1987, Medicard Philippines, Inc. (Medicard), respondent, appointed
petitioner as its special corporate agent. As such agent, Medicard gave him a
commission based on the "cash brought in."
In September, 1988, through petitioners efforts, Medicard and United
Laboratories Group of Companies (Unilab) executed a Health Care Program
Contract. Under this contract, Unilab shall pay Medicard a fixed monthly
premium for the health insurance of its personnel. Unilab paid
Medicard P4,148,005.00 representing the premium for one (1) year. Medicard

then handed petitioner 18% of said amount or P746,640.90 representing his

commission.
Again, through petitioners initiative, the agency contract between Medicard and
Unilab was renewed for another year, or from October 1, 1989 to September 30,
1990, incorporating therein the increase of premium fromP4,148,005.00
to P7,456,896.00. Medicard paid petitioner P1,342,241.00 as his commission.
Prior to the expiration of the renewed contract, Medicard proposed to Unilab,
through petitioner, an increase of the premium for the next year. Unilab rejected
the proposal "for the reason that it was too high," prompting Dr. Nicanor Montoya
(Medicards president and general manager), also a respondent, to request
petitioner to reduce his commission, but the latter refused.
In a letter dated October 3, 1990, Unilab, through Carlos Ejercito, another
respondent, confirmed its decision not to renew the health program contract with
Medicard.
Meanwhile, in order not to prejudice its personnel by the termination of their
health insurance, Unilab, through respondent Ejercito, negotiated with Dr.
Montoya and other officers of Medicard, to discuss ways in order to continue the
insurance coverage of those personnel.
Under the new scheme, Unilab shall pay Medicard only the amount
corresponding to the actual hospitalization expenses incurred by each personnel
plus 15% service fee for using Medicard facilities, which amount shall not be less
than P780,000.00.
Medicard did not give petitioner any commission under the new scheme.
In a letter dated March 15, 1991, petitioner demanded from Medicard payment
of P338,000.00 as his commission plus damages, but the latter refused to heed
his demand.
Thus, petitioner filed with the Regional Trial Court (RTC), Branch 66, Makati City,
a complaint for sum of money against Medicard, Dr. Nicanor Montoya and Carlos
Ejercito, herein respondents.
After hearing, the RTC rendered its Decision dismissing petitioners complaint
and respondents counterclaim.
On appeal, the Court of Appeals affirmed the trial courts assailed Decision. The
Appellate Court held that there is no proof that the execution of the new contract
between the parties under the "cost plus" system is a strategy to deprive
petitioner of his commission; that Medicard did not commit any fraudulent act in
revoking its agency contract with Sanchez; that when Unilab rejected Medicards
proposal for an increase of premium, their Health Care Program Contract on its
third year was effectively revoked; and that where the contract is ineffectual,
then the agent is not entitled to a commission.

Petitioner filed a motion for reconsideration, but this was denied by the Court of
Appeals on January 12, 2000.
Hence, the instant petition for review on certiorari.
The basic issue for our resolution is whether the Court of Appeals erred in holding
that the contract of agency has been revoked by Medicard, hence, petitioner is
not entitled to a commission.
It is dictum that in order for an agent to be entitled to a commission, he must be
the procuring cause of the sale, which simply means that the measures
employed by him and the efforts he exerted must result in a sale. 2 In other
words, an agent receives his commission only upon the successful conclusion of
a sale.3 Conversely, it follows that where his efforts are unsuccessful, or there
was no effort on his part, he is not entitled to a commission.
In Prats vs. Court of Appeals,4 this Court held that for the purpose of equity, an
agent who is not the efficient procuring cause is nonetheless entitled to his
commission, where said agent, notwithstanding the expiration of his authority,
nonetheless, took diligent steps to bring back together the parties, such
that a sale was finalized and consummated between them. In Manotok
Borthers vs. Court of Appeals,5 where the Deed of Sale was only executed after
the agents extended authority had expired, this Court, applying its ruling
in Prats, held that the agent (in Manotok) is entitled to a commission since he
was the efficient procuring cause of the sale, notwithstanding that the sale took
place after his authority had lapsed. The proximate, close, and causal connection
between the agents efforts and the principals sale of his property can not be
ignored.
It may be recalled that through petitioners efforts, Medicard was able to enter
into a one-year Health Care Program Contract with Unilab. As a result, Medicard
paid petitioner his commission. Again, through his efforts, the contract was
renewed and once more, he received his commission. Before the 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.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman
RENATO C. CORONA

CONCHITA CARPIO MORALES

Associate Justice

Associate Justice

CANCIO C. GARCIA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division

Chairman's Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Court.
HILARIO G. DAVIDE, JR.
Chief Justice

Footnotes
1

Per Associate Justice Mariano M. Umali (retired) and concurred in by

Associate Justice Fermin A. Martin, Jr. (retired) and Associate Justice Romeo J.
Callejo, Sr., (now a member of this Court).
2

Damon vs. Antonio A. Brimo & Co., 42 Phil. 134, 139 (1921). See also Ramos
vs. Court of Appeals, G.R. No. 25463, April 4, 1975, 63 SCRA 331.
3

Hanh vs. Court of Appeals, G.R. No. 113074, January 22, 1997, 266 SCRA 537,
549.
4

G.R. No. 39822, January 31, 1978, 81 SCRA 360.

G.R. No. 94753, April 7, 1993, 221 SCRA 224.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-5180

August 31, 1953

CONSEJO INFANTE, petitioner,

vs.
JOSE CUNANAN, JUAN MIJARES and THE COURT OF APPEALS, SECOND
DIVISION, respondents.
Yuseco, Abdon & Yuseco for petitioner.
Jose E. Erfe and Maria Luisa Gomez for respondents.
BAUTISTA ANGELO, J.:
This is a petition for review of a decision of the Court of appeals affirming the
judgement of the court of origin which orders the defendant to pay the plaintiffs
the sum of P2,500 with legal interest thereon from February 2,1949 and the costs
of action.
Consejo Infante, defendant herein, was the owner of two parcels of land,
together with a house built thereon, situated in the City of Manila and covered by

Transfer Certificate of Title No. 61786. On or before November 30, 1948, she
contracted the services of Jose Cunanan and Juan Mijares, plaintiff herein, to sell
the above-mentioned property for a price of P30,000 subject to the condition
that the purchaser would assume the mortgage existing thereon in the favor of
the Rehabilitation Finance Corporation. She agreed to pay them a commission of
5 per cent on the purchase price plus whatever overprice they may obtain for the
property. Plaintiffs found one Pio S. Noche who was willing to buy the property
under the terms agreed upon with defendant, but when they introduced him to
defendant, the latter informed them that she was no longer interested in selling
the property and succeeded in making them sign a document stating therein that
the written authority she had given them was already can-celled. However, on
December 20, 1948, defendant dealt directly with Pio S. Noche selling to him the
property for P31,000. Upon learning this transaction, plaintiffs demanded from
defendant the payment of their commission, but she refused and so they brought
the present action.
Defendant admitted having contracted the services of the plaintiffs to sell her
property as set forth in the complaint, but stated that she agreed to pay them a
commission of P1,200 only on condition that they buy her a property somewhere
in Taft Avenue to where she might transfer after selling her property. Defendant
avers that while plaintiffs took steps to sell her property as agreed upon, they
sold the property at Taft Avenue to another party and because of this failure it
was agreed that the authority she had given them be cancelled.
The lower court found that the preponderance of evidence was in favor of the
plaintiffs and rendered judgement sentensing the defendant to pay the plaintiff
the sum of P2,500 with legal interest thereon from February 2,1949 plus the
costs of action. This decision was affirmed in toto by the Court of Appeals.
There is no dispute that respondents were authorized by petitioner to sell her
property for the sum of P30,000 with the understanding that they will be given a
commission of 5 percent plus whatever overprice they may obtain for the
property. Petitioner, however, contends that authority has already been
withdrawn on November 30, 1948 when, by the voluntary act of respondents,
they executed a document stating that said authority shall be considered
cancelled and without any effect, so that when petitioner sold the property to Pio
S. Noche on December 20, 1948, she was already free from her commitment
with respondents and, therefore, was not in duty bound to pay them any
commission for the transaction..
If the facts were as claimed by petitioner, there is in-deed no doubt that she
would have no obligation to pay respondents the commission which was
promised them under the original authority because, under the old Civil Code,
her right to withdraw such authority is recognized. A principal may withdraw the
authority given to an agent at will. (Article 1733.) But this fact is disputed. Thus,
respondents claim that while they agreed to cancel the written authority given to
them, they did so merely upon the verbal assurance given by petitioner that,
should the property be sold to their own buyer, Pio S. Noche, they would be given

the commission agreed upon. True, this verbal assurance does not appear in the
written cancellation, Exhibit 1, and, on the other hand, it is disputed by
petitioner, but respondents were allowed to present oral evidence to prove it,
and this is now assigned as error in this petition for review.
The plea that oral evidence should not have been allowed to prove the alleged
verbal assurance is well taken it appearing that the written authority given to
respondents has been cancelled in a written statement. The rule on this matter is
that "When the terms of an agreement have been reduced to writing, it is to be
considered as containing all those terms, and, therefore, there can be, between
parties and their successors in interest, no evidence of the terms of the
agreement other than the contents of the writing." (Section 22, Rule 123, Rules
of Court.) The only exceptions to this rule are: "(a)Where a mistake or
imperfection of the writing, or its failure to express the true intent and
agreement of the parties, or the validity of the agreement is put in issue by the
pleadings"; and "(b) Where there is an intrinsic ambiguity in the writing."
(Ibid.) There is no doubt that the point raised does not come under any of the
cases excepted, for there is nothing therein that has been put in issue by
respondents in their complaint. The terms of the document, Exhibit 1, seem to be
clear and they do not contain any reservation which may in any way run counter
to the clear intention of the parties.
But even disregarding the oral evidence adduced by respondents in
contravention of the parole evidence rule, we are, however, of the opinion that
there is enough justification for the conclusion reached by the lower court as well
as by the Court of Appeals to the effect that respondents are entitled to the
commission originally agreed upon. It is a fact found by the Court of Appeals that
after petitioner had given the written authority to respondents to sell her land for
the sum of P30,000, respondents found a buyer in the person of one Pio S. Noche
who was willing to buy the property under the terms agreed upon, and this
matter was immediately brought to the knowledge of petitioner. But the latter,
perhaps by way of strategem, advised respondents that she was no longer
interested in the deal and was able to prevail upon them to sign a document
agreeing to the cancellation of the written authority.
That petitioner had changed her mind even if respondents had found a buyer
who was willing to close the deal, is a matter that would not give rise to a legal
consequence if respondents agree to call off the transaction in deference to the
request of the petitioner. 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 ac-cording to the party prejudiced the
reward which is due him. This is the situation in which respondents were placed
by petitioner. Petitioner took advantage of the services rendered by respondents,
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 Exhibit 1. This act of
subversion cannot be sanctioned and cannot serve as basis for petitioner to
escape payment of the commission agreed upon.

Wherefore, the decision appealed from is hereby affirmed, with costs against
petitioner.
Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Monte-mayor, Reyes, and Jugo,
JJ., concur.

Separate Opinions
LABRADOR, J., concurring and dissenting:
I concur in the result. I can not agree, however, to the ruling made in the
majority decision that the petitioners can not introduce evidence of the
circumstances under which the document was signed, i.e. upon promise by
respondent that should the property be sold to petitioner's buyer they would
nevertheless be entitled to the commission agreed upon. Such evidence is not
excluded by the parole evidence rule, because it does not tend to alter or vary
the terms of the document. This document was merely a withdrawal of the
authority granted the petitioner to sell the property, not an agreement that they
shall not be paid their commission.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 163720

December 16, 2004

GENEVIEVE LIM, petitioner,

vs.
FLORENCIO SABAN, respondents.

DECISION

TINGA, J.:
Before the Court is a Petition for Review on Certiorari assailing
the Decision1 dated October 27, 2003 of the Court of Appeals, Seventh Division,
in CA-G.R. V No. 60392.2
The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in
Cebu City (the "lot"), entered into anAgreement and Authority to Negotiate and
Sell (Agency Agreement) with respondent Florencio Saban (Saban) on February

8, 1994. Under the Agency Agreement, Ybaez authorized Saban to look for a
buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up
the selling price to include the amounts needed for payment of taxes, transfer of
title and other expenses incident to the sale, as well as Sabans commission for
the sale.3
Through Sabans efforts, Ybaez and his wife were able to sell the lot to the
petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim (the
Spouses Lim) on March 10, 1994. The price of the lot as indicated in the Deed of
Absolute Sale is Two Hundred Thousand Pesos (P200,000.00). 4 It appears,
however, that the vendees agreed to purchase the lot at the price of Six Hundred
Thousand Pesos (P600,000.00), inclusive of taxes and other incidental expenses
of the sale. After the sale, Lim remitted to Saban the amounts of One Hundred
Thirteen Thousand Two Hundred Fifty Seven Pesos (P113,257.00) for payment of
taxes due on the transaction as well as Fifty Thousand Pesos (P50,000.00) as
brokers commission.5 Lim also issued in the name of Saban four postdated
checks in the aggregate amount of Two Hundred Thirty Six Thousand Seven
Hundred Forty Three Pesos (P236,743.00). These checks were Bank of the
Philippine Islands (BPI) Check No. 1112645 dated June 12, 1994 for P25,000.00;
BPI Check No. 1112647 dated June 19, 1994 for P18,743.00; BPI Check No.
1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI Bank Check No.
021491B dated June 20, 1994 for P168,000.00.
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 non-negotiable, and
absolving Lim from any liability towards Saban.
Saban appealed the trial courts Decision to the Court of Appeals.
On October 27, 2003, the appellate court promulgated its Decision12 reversing
the trial courts ruling. It held that Saban was entitled to his commission
amounting to P236,743.00.13
The Court of Appeals ruled that Ybaezs revocation of his contract of agency
with Saban was invalid because the agency was coupled with an interest and
Ybaez effected the revocation in bad faith in order to deprive Saban of his
commission and to keep the profits for himself.14
The appellate court found that Ybaez and Lim connived to deprive Saban of his
commission. It declared that Lim is liable to pay Saban the amount of the
purchase price of the lot corresponding to his commission because she issued
the four checks knowing that the total amount thereof corresponded to Sabans
commission for the sale, as the agent of Ybaez. The appellate court further
ruled that, in issuing the checks in payment of Sabans commission, Lim acted as
an accommodation party. She signed the checks as drawer, without receiving
value therefor, for the purpose of lending her name to a third person. As such,
she is liable to pay Saban as the holder for value of the checks. 15
Lim filed a Motion for Reconsideration of the appellate courts Decision, but
her Motion was denied by the Court of Appeals in a Resolution dated May 6,
2004.16
Not satisfied with the decision of the Court of Appeals, Lim filed the present
petition.
Lim argues that the appellate court ignored the fact that after paying her agent
and remitting to Saban the amounts due for taxes and transfer of title, she paid
the balance of the purchase price directly to Ybaez. 17

She further contends that she is not liable for Ybaezs debt to Saban under the
Agency Agreement as she is not privy thereto, and that Saban has no one but
himself to blame for consenting to the dismissal of the case against Ybaez and
not moving for his substitution by his heirs. 18
Lim also assails the findings of the appellate court that she issued the checks as
an accommodation party for Ybaez and that she connived with the latter to
deprive Saban of his commission. 19
Lim prays that should she be found liable to pay Saban the amount of his
commission, she should only be held liable to the extent of one-third (1/3) of the
amount, since she had two co-vendees (the Spouses Lim) who should share such
liability.20
In his Comment, Saban maintains that Lim agreed to purchase the lot
for P600,000.00, which consisted of theP200,000.00 which would be paid to
Ybaez, the P50,000.00 due to her broker, the P113,257.00 earmarked for taxes
and other expenses incidental to the sale and Sabans commission as broker for
Ybaez. According to Saban, Lim assumed the obligation to pay him his
commission. He insists that Lim and Ybaez connived to unjustly deprive him of
his commission from the negotiation of the sale. 21
The issues for the Courts resolution are whether Saban is entitled to receive his
commission from the sale; and, assuming that Saban is entitled thereto, whether
it is Lim who is liable to pay Saban his sales commission.
The Court gives due course to the petition, but agrees with the result reached by
the Court of Appeals.
The Court affirms the appellate courts finding that the agency was not revoked
since Ybaez requested that Lim make stop payment orders for the checks
payable to Saban only after the consummation of the sale on March 10, 1994. At
that time, Saban had already performed his obligation as Ybaezs agent when,
through his (Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the
lot with Lim and the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which was
consummated through his efforts would be a breach of his contract of agency
with Ybaez which expressly states that Saban would be entitled to any excess in
the purchase price after deducting the P200,000.00 due to Ybaez and the
transfer taxes and other incidental expenses of the sale. 22
In Macondray & Co. v. Sellner,23 the Court recognized the right of a broker to his
commission for finding a suitable buyer for the sellers property even though the
seller himself consummated the sale with the buyer. 24 The 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 P600,000.00the price agreed
upon by her and Sabanwas more than the amount set by Ybaez because it
included the amount for payment of taxes and for Sabans commission as broker
for Ybaez.
According to the trial court, Lim made the following payments for the
lot: P113,257.00 for taxes, P50,000.00 for her broker, and P400.000.00 directly
to Ybaez, or a total of Five Hundred Sixty Three Thousand Two Hundred Fifty
Seven Pesos (P563,257.00).27 Lim, on the other hand, claims that on March 10,

1994, the date of execution of the Deed of Absolute Sale, she paid directly to
Ybaez the amount of One Hundred Thousand Pesos (P100,000.00) only, and
gave to Saban P113,257.00 for payment of taxes 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 the P113,257.00 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 wasP393,257.00, 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 covendees. 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.
Puno, J., Chairman, Austria-Martinez, Chico-Nazario, JJ. concur.
Callejo, Sr., on leave.

Footnotes
1

Penned by Associate Justice Edgardo P. Cruz and concurred in by Associate

Justices Ruben T. Reyes and Noel G. Tijam.
2

Florencio Saban, Plaintiff-Appellant v. Eduardo Ybanez and Genevieve Lim,

Defendants; Genevieve Lim, Defendant-Appellee.
3

The agency agreement between Ybaez and Saban provides:

That I[,] Engr. Eduardo Ybaez have agreed and allowed to (sic) Mr. Florencio
Saban, Sr. and his associate to look for a buyer, and further agreed to sell and
dispose the above-mention (sic) lot, at the price of P200.00 per square meters
[sic] (equivalent to P200,000.00) net, and any amount over and above for the
stated price resulting from the sale shall belong to Mr. Florencio Saban, Sr. and
his associate. Furthermore it is agreed and covenanted that the total expenses
covering the sale and transfer of the title such as, capital gain (sic) tax,
documentary stamp, transfer tax and other relative expenses, for the said sale
shall be borne to the agent, and or to the buyer, except the payment of realty
taxes. (RTC Records, p. 5)
4

RTC Records, p. 6.

Lim on direct examination, TSN, March 3, 1997, p. 8; Rose Villarosa (Lims

broker) on direct examination, TSN, October 22, 1996, p. 7.
6

RTC Records, p. 25.

Id. at 1.

Annexes "B" to "E," RTC Records, pp. 32-35.

Id. at 2.

10

Order dated March 6, 1995, RTC Records, p. 48.

11

Rollo, pp. 29-39.

12

Rollo, pp. 22-28.

13

The amount of the purchase price less the P200,000.00 payable to Ybaez and
the incidental expenses of the sale.
14

Rollo, pp. 25-26.

15

Id. at 27.

16

Rollo, p. 46.

17

Petition, Id. at 17.

18

Id. at 14 and 16.

19

Id. at 18.

20

Id. at 17.

21

Id. at 114-115.

22

Supra note 3.

23

33 Phil 370 (1916).

24

Id. at 377.

25

93 Phil. 691 (1953).

26

See I Restatement of the Law In Agency 2d 340 (1957).

27

RTC Decision, Rollo, p. 33.

28

TSN, March 3, 1997, p. 8.

29

Id., see also, Acknolwedgement Receipt issued by Ybaez in favor of Lim, RTC
Records, p. 114.
30

See Acknowledgement Receipt dated June 28, 1994, Id., and Ybaezs Affidavit
dated June 28, 1994, Id.at 115.
31

Supra note 25, at pp. 695-96.

32

Rule 86 (Claims Against Estate), Revised Rules of Court.

33

Order of the RTC dated March 6, 1995, RTC Records, p. 48.

34

Agro Conglomerates, Inc. v. Court of Appeals, G.R. No. 117660, December 18,
2000, 348 SCRA 450; Bank of the Philippine Islands v. Court of Appeals, 383 Phil.
538 (2000).
35

See Arts. 1350 and 1458, Civil Code.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-39822 January 31, 1978
ANTONIO E. PRATS, doing business under the name of Philippine Real
Estate Exchange, petitioner,
vs.
HON. COURT OF APPEALS, ALFONSO DORONILA and PHILIPPINE
NATIONAL BANK, respondents.

FERNANDEZ, J.:
This is a petition for certiorari to review the decision of the Court of Appeals in
CA-G.R. No. 45974-R entitled"Antonio E. Prats, doing business under the name of
Philippine Real Estate Exchange, vs. Alfonso Doronila and the Philippine
National Bank", the dispositive part of which reads:
In view of all the foregoing, it is our considered opinion and so hold that the
decision of the lower court be, as it is hereby reversed, and the complaint,
dismissed. On appellant's counterclaim, judgment is hereby rendered directing
appellee to pay attorney's fees in the sum of P10,000 to appellant, no moral
damages as therein claimed being awarded for lack of evidence to justify the
same. The injunction issued by the lower court on the P2,000,000.00 cash
deposit of the appellant is hereby lifted. No special pronouncement as to costs.
SO ORDERED.

On September 23, 1968 Antonio E. Prats, doing business under the name of
"Philippine Real Estate Exchange" instituted against Alfonso Doronila and
Philippine National Bank Civil Case No. Q-12412 in the Court of First Instance of
Rizal at Quezon City to recover a sum of money and damages.
The complaint stated that defendant Alfonso Doronila was the registered owner
of 300 hectares of land situated in Montalban, Rizal, covered by Transfer
Certificates of Title Nos. 77011, 77013, 216747 and 216750; that defendant
Doronila had for sometime tried to sell his aforesaid 300 hectares of land and for
that purpose had designated several agents; that at one time, he had offered the
same property to the Social Security System but failed to consummate any sale;
that his offer to sell to the Social Security System having failed, defendant
Doronila on February 14, 1968 gave the plaintiff an exclusive option and
authority in writing to negotiate the sale of his aforementioned property, which
exclusive option and authority the plaintiff caused to be published in the Manila
Times on February 22, 1968; that it was the agreement between plaintiff and
defendant Doronila that the basic price shall be P3.00 per square meter, that

plaintiff shall be entitled to a commission of 10% based on P2.10 per square

meter or at any price finally agreed upon and if the property be sold over and
above P3.00 per square meter, the excess shall be created and paid to the
plaintiff in addition to his 10% commission based on P2.10 per square meter;
that as a result of the grant of the exclusive option and authority to negotiate the
sale of his 300 hectares of land situated in Montalban, Rizal in favor of the
plaintiff, the defendant Doronila, on February 20, 1968, wrote a letter to the
Social Security System withdrawing his previous offer to sell the same land and
requesting the return to him of all papers concerning his offered property that
the Social Security System, complying with said request of defendant Doronila,
returned all the papers thereon and defendant Doronila, in turn gave them to the
plaintiff as his duly authorized real estate broker; that by virtue of the exclusive
written option and authority granted him and relying upon the announced policy
of the President of the Philippines to promote low housing program the plaintiff
immediately worked to negotiate the sale of defendant Doronila's 300 hectares
of land to the Social Security System, making the necessary contacts and
representations to bring the parties together, namely, the owner and the buyer,
and bring about the ultimate sale of the land by defendant Doronila to the Social
Security System; that on February 27, 1968, after plaintiff had already contacted
the Social Security System, its Deputy Administrator, Reynaldo J. Gregorio, wrote
a letter to defendant Doronila inviting the latter to a conference regarding the
property in question with Administrator Teodoro, Chairman Gaviola and said
Reynaldo J. Gregorio on March 4, 1968 at 10:00 o'clock in the morning, stating
that the SSS would like to take up the offer of the lot; that having granted
plaintiff the exclusive written option and authority to negotiate the sale of his
300 hectares of land, defendant Doronila in a letter dated February 28, 1968
declined the invitation extended by the Social Security System to meet with its
Administrator and Chairman and requested them instead "to deal directly" with
the plaintiff, that on March 16, 1968, at the suggestion of defendant Doronila,
the plaintiff wrote a letter to the Social Security System to the effect that plaintiff
would be glad to sit with the officials of the Social Security System to discuss the
sale of the property of the defendant Doronila; that on March 18, 1968, the Social
Security System sent a telegram to defendant Doronila to submit certain
documents regarding the property offered; that on May 6, 1968, a written offer to
sell the 300 hectares of land belonging to defendant Doronila was formally made
by the plaintiff to the Social Security System and accordingly, on May 7, 1968,
the Social Security System Administrator dispatched the following telegram to
defendant Doronila: "SSS considering purchase your property for its housing
project Administrator Teodoro"; that a few days thereafter, the plaintiff
accompanied the defendant Doronila to the China Banking Corporation to
arrange the matter of clearing payment by chock and delivery of the titles over
the property to the Society Security System; that having been brought together
by the plaintiff, the defendant Doronila and the offices of the Society Security
System, on May 29, 1968 and on June 4, 1968, met at the office of the SSS
Administrator wherein the price for the purchase of the defendant Doronila's 300
hectares of land was, among others, taken up; that on June 20, 1968, the Social
Security Commission passed Resolution No. 636 making a counter-offer of P3.25

per square meter subject to an appraise report; that on June 27, 1968, Resolution
No. 662 was adopted by the Social Security Commission authorizing the Toples &
Harding (Far East) Inc. to conduct an appraisal of the property and to submit a
report thereon; that pursuant thereto, the said company submitted its appraisal
report specifying that the present value of the property is P3.34 per square
meter and that a housing program development would represent the highest and
best use thereof, that on July 18, 1968, the Social Security Commission, at its
regular meeting, taking note of the favorable appraisal report of the Toples'&
Harding (Far East) Inc., passed Resolution No. 738, approving the purchase of
defendant Doronila's 300 hectares of land in Montalban, Rizal at a price of P3.25
per square meter or for a total purchase price of Nine Million Seven Hundred Fifty
Thousand Pesos (P9,750,000.00), appropriating the said amount for the purpose
and authorizing the SSS Administrator to sign the necessary documents to
implement the said resolution; that on July 30, 1968, defendant Doronila and the
Social Security System executed the corresponding deed of absolute sale over
the 300 hectares of land in Montalban, Rizal covered by Transfer Certificate of
Title Nos. 77011, 77013, 216747 and 216750 under the terms of which the total
price of P9,750,000.00 shall be payable as follows: (a) 60% of the agreed
purchase price, or Five Million Eight Hundred Fifty Thousand Pesos
(P5,860,000.00) immediately after signing the deed of sale. and (b) the balance
of 40% of the agreed price, or Three Million Nine Hundred Thousand Pesos
(P3,900,000.00) thirty days after the signing of the deed of absolute sale; that on
August 21, 1968, after payment of the purchase price, the deed absolute sale
executed by defendant Doronila in favor of the Social Security System was
presented for registration in the Office of the Register of Deeds of Rizal, and
Transfer Certificates of Title Nos. 926574, 226575, 226576 and 226577 in the
name of the Social Security System were issued; that defendant Doronila has
received the full purchase price for his 300 hectares of land in the total amount
of P9,750,000.00, which amount he deposited in his bank Account No. 0012-443
with the defendant Philippine National Bank; that on September 17, 1968, the
plaintiff presented his statement to, and demanded of defendant Doronila the
payment of his processional fee as real estate broker as computed under the
agreement of February 14, 1968 in the total amount of P1,380,000.00; that
notwithstanding such demand, the defendant Doronila, in gross and evident bad
faith after having availed of the services of plaintiff as real estate broker, refused
to pay the professional fees due him; that as a result of defendant Doronila's
gross and evident bad faith and unjustified refusal to pay plaintiff the
professional fees due him under the agreement, the latter has suffered and
continues to suffer mental anguish, serious anxiety, and social humiliation for
which defendant Doronila shall be held liable to pay moral damages; and, that by
reason likewise of the aforesaid act of defendant Doronila, the plaintiff has been
compelled to file this action and to engage the services of counsel at a stipulated
professional fee of P250,000.00.
In his answer filed on November 18, 1968, the defendant Doronila alleged that
when the plaintiff offered the answering defendant's property to the Social
Security System on May 6, 1968, said defendant had already offered his property

to, and had a closed transaction or contract of sale of, said property with the
Social Security System; that the letter agreement had become null and void
because defendant Doronila had not received any written offer from any
prospective buyers of the plaintiff during the agreed period of 60 days until the
last day of the authorization which was April 13, 1968 counting from February 14,
1968; that it is not true that plaintiff brought together defendant Doronila and
the officials of the Social Security System to take up the purchase price of
defendant Doronila's property for the simple reason that the plaintiff's offer was
P6.00 per square meter and later on reduced to P4.50 per square meter because
the SSS Chairman had already a closed transaction with the defendant Doronila
at the price of P3.25 per square meter and that the offer of the plaintiff was
refused by the officials of the Social Security System; and that defendant
Doronila did not answer the statement of collection of the plaintiff because the
latter had not right to demand the payment for services not rendered according
to the agreement of the parties. The answering defendant interposed a
counterclaim for damages and attorney's fees.
On January 18, 1969, the plaintiff and defendant Alfonso Doronila submitted the
following stipulation of facts:
STIPULATION OF FACTS
COME NOW the plaintiff and defendant DORONILA, through their respective
undersigned counsel, and to this Honorable Court by way of abbreviating the
proceeding i the case at bar, without prejudice to presentation of explanatory
evidence, respectfully submit the following STIPULATION OF FACTS.
1.
The defendant Doronila was the registered owner of 300 hectares of land,
situated in Montalban, Rizal, covered by Transfer Certificates of Title Nos. 77011,
77013, 216747 (formerly TCT No. 116631) and 216750 (formerly TCT No. 77012).
2.
That on July 3, 1967, defendant DORONILA under his letter (marked Annex "1" of
the answer) addressed to the SSS Chairman, offered his said property to the
Social Security System (SSS) at P4.00 per square meter.
That on July 17, 1967 (Annex "2" of the Answer) the SSS Chairman, Mr. Ramon C.
Gaviola, Jr., replied to defendant DORONILA, as follows:
This will acknowledge your letter of July 3rd, 1967 relative to your offer for sale of
your real estate property.
In this regard, may I please be informed as to how many hectares, out of the
total 300 hectares offered, are located in Quezon City and how many hectares
are located in Montalban, Rizal. Likewise, as regards your offer of P4.00 per
square meter, would there be any possibility that the same be reduced to P3.25
per square meter Finally and before I submit your proposal for process it is

requested that the NAWASA certify to the effect that they have no objection to
having this parcel of land subdivided for residential house purposes.
Thank you for your offer and may I hear from you at the earliest possible time.
2-a
That on July 19, 1967, defendant DORONILA wrote a letter (a xerox copy,
attached hereto marked as Annex "2-a" for DORONILA) to NAWASA, and that in
reply thereto, on July 25, 1967, the NAWASA wrote the following letter (Xerox
copy attached hereto to be marked as Annex "2-b" for DORONILA) to defendant
DORONILA.
In connection with your proposed subdivision plan of your properties adjacent to
our Novaliches Watershed, this Office would like to impose the following
conditions:
1. Since your property is an immediate boundary of our Novaliches Watershed, a
20-meter road should be constructed along our common boundary.
2. That no waste or drainage water from the subdivision should flow towards the
watershed.
3. That the liquid from the septic tanks or similar waste water should be treated
before it is drained to the Alat River above our Alat Dam.
The above conditions are all safeguards to the drinking water of the people of
Manila and Suburbs. It is therefore expected that we all cooperate to make our
drinking water safer from any pollution.
3.
That on July 19, 1967, defendant DORONILA wrote another letter (marked as
Annex '3' on his Answer) addressed to the SSS Chairman, Mr. Ramon Gaviola Jr.,
stating, among others, the following:
In this connection, I have your counter-offer of P3.25 per square meter against
my offer of P4.00 per square meter, although your counter-offer is lower
comparing to the prices of adjacent properties, I have to consider the difference
as my privilege and opportunity to contribute or support the Presidential policy to
promote low cost housing in this country particularly to the SSS members by
accepting gladly your counter-offer of P3.25 per square meter with the condition
that it should be paid in cash and such payment shall be made within a period of
30 days from the above stated date (2nd paragraph of letter dated July 18, 1967,
Annex "3" of the Answer).
3.a
That on August 10, 1967, the SSS Chairman, Mr. Ramon Gaviola Jr., wrote the
following (Xerox copy attached hereto and marked as Annex '2-c' for DORONILA:
addressed to defendant DORONILA:

With reference to your letter, dated July 1967, please be informed that the same
is now with the Administrator for study and comment. The Commission will act
on receipt of information re such studies.
With the assurance that you will be periodically informed of developments, we
remain.
3-b
That on October 30, 1967, Mr. Pastor B. Sajorda, 'By authority of Atty. Alfonso
Doronila, property owner', wrote the following request (Xerox copy attached
hereto and marked as Annex '2-d' for DORONILA) addressed to Realtor Vicente L.
Narciso for a certification regarding the actual prices of DORONILA's property,
quoted as follows:
May I have the honor to request for your certification as a member of the Board
of Realtor regarding the actual prices of my real estate raw-land properties
described as Lots 3-B-7, 26B, 6 and 4-C-3 all adjacent to each other, containing a
total area of 3,000,000 square meters, all registered in the name of Alfonso
Doronila, covered by T.C.T. Nos. 116631, 77013, 77011, and 77012, located at
Montalban, Rizal, all adjacent to the Northern portion of the NAWASA properties
in Quezon City including those other surrounding adjacent properties and even
those properties located before reaching my own properties coming from Manila.
This request is purposely made for my references in case I decided to sell my
said properties mentioned above.
3-c
That on November 3, 1967, Realtor Vicente Narciso wrote the following reply
(Xerox copy attached hereto and marked as Annex 2 for DORONILA) to Mr. Pastor
B. Sajorda:
As per your request dated October 30, 1967, regarding prices of raw land, it is
my finding that the fair market value of raw land in the vicinity of the NAWASA
properties at Quezon City and Montalban, Rizal. including the properties of Atty.
Alfonso Doronila. more particularly known as lots 3-B-7, 26-B, and 4-C-3
containing approximately 3,000,000 square meters is P3.00 to P3.50 per square
meter.
Current prices before reaching Doronila's property range from P6.00 to P7.00 per
square meter.
4.
That on February 14, 1968, defendant DORONILA granted plaintiff an exclusive
option and authority (Annex 'A' of the complaint), under the following terms and
conditions:
1. The price of the property is THREE (P3.00) PESOS per square meter.

2. A commission of TEN (10%) PERCENT will be paid to us based on P2.10 per

square meter, or at any price that you DORONILA finally agree upon, and all
expenses shall be for our account, including preparation of the corresponding
deed of conveyance, documentary stamps and registration fee, whether the sale
is causes directly or indirectly by us within the time of this option. If the property
is sold over and above P3.00 per square meter, the excess amount shall be
credited and paid to the herein workers. In addition to the 10% commission
based on P2.10 per square meter, provided the brokers shall pay the
corresponding taxes to the owner of the excess amount over P3.00 per square
meter, unless paid by check which would then be deductible as additional
expenses.
3. This exclusive option and authority is good for a period of sixty (60) days from
the date of your conformity; provided, however, that should negotiations have
been started with a buyer, said period is automatically extended until said
negotiations is terminated, but not more than fifteen (15) days;
4. The written offers must be made by the prospective buyers, unless they prefer
to have us take the offer for and in their behalf some buyers do not want to be
known in the early stages of the negotiations:
5. If no written offer is made to you until the last day of this authorization, this
option and authority shall expire and become null and void;
6. It is clearly understood that prospective buyers and all parties interested in
this property shall be referred to us, and that you will not even quote a price
directly to any agent or buyer. You agree to refer all agents or brokers to us
DURING the time this option is in force; and
7. There are some squatters occupying small portions of the property, which fact
will be reported to the prospective buyers, and said squatters will be removed at
our expense. (Annex "A" of the complaint)
Very truly yours,
PHILIPPINE REAL ESTATE EXCHANCE
(Sgd) ANTONIO E. PRATS
General manager
CONFORME:
(Sgt.) ALFONSO DORONILA
Date: February 14, 1968
5.
That on February 19, 1968, plaintiff wrote the following letter to defendant
DORONILA (Annex "4" of the Answer), quoted as follows:

February 19, 1968

Don Alfonso Doronila
Plaza Ferguzon
Ermita, Manila
Dear Don Alfonso:
In view of the exclusive option extended to us for the sale of your property
consisting 300 hectares located at Montalban, Rizal, we earnestly request that
you take immediate steps to withdraw any and all papers pertaining to this
property offered to the SOCIAL SECURITY SYSTEM
Very truly yours,
PHILIPPINE REAL
ESTATE EXCHANGE
(Sgd) ANTONIO E. PRATS
General Manager
AEP/acc
RECEIVED ORIGINAL
By: (Sgd.) ROGELIO DAPITAN
6.
That on February 20, 1968, pursuant to the letter dated February 19, 1968 of
plaintiff, defendant DORONILA wrote a letter (Annex 'B' of the complaint) to the
SSS Administrator stating:
In as much as the SSS has not acted on my offer to sell a 300 hectare lot located
in Montalban, Rizal, for the last five (5) months I respectfully requested for the
return of all my papers concerning this offered property.
7.
That on February 27, 1968, defendant DORONILA received the following letter
(Annex "C" of the complaint) from the SSS Deputy Administrator, Mr. Reynaldo J.
Gregorio, to wit:
May I take this opportunity of inviting you in behalf of Administrator Teodoro, to
meet with him, Chairman Gaviola and myself on Friday, March 4, 10:00 A.M. lot
offer.
Thanks and regards.
8.

That on February 28, 1968, defendant DORONILA wrote the following letter
(Annex "D" of the complaint) to the SSS Deputy Administrator:
Thank you for your invitation to meet Administrator Teodoro, Chairman Gaviola
and your goodself, to take up my former offer to sell my property to the Social
Security System.
Since the SSS had not acted on my offer dated July 19, 1967, more than seven
(7) months ago, I have asked for the return of my papers, as per my letter of
February 20, 1968, and which you have kindly returned to me.
As of February 20, 1968, I gave the Philippine Real Estate Exchange an exclusive
option and authority to negotiate the sale of this 300 hectare land, and I am no
longer at liberty to negotiate its sale personally; I shall therefore request you
communicate directly with the Philippine Real Estate Exchange, P. O. Box 84,
Quezon City, and deal with them directly if you are still interested in my property.
With my kind personal regards, I am
9.
That on March 16, 1968, plaintiff, acting upon the letter of defendant DORONILA
dated February 28, 1968 (Annex 'D' for plaintiff), wrote the following letter to SSS
Administrator:
Don Alfonso Doronila, owner of the 300 hectare land located at Montalban, Rizal,
adjoining the Quezon City boundary, has informed us that the Administrator of
the SOCIAL SECURITY' SYSTEM, through Mr. Reynaldo J. Gregorio, has invited him
to meet with the Administrator and Chairman Gaviola to take up the former offer
to sell his property to the SSS.
In his letter to the Administrator dated February 20, 1968 (which has been
received by the SSS on the same day), Mr. Doronila advised you that as of
February 20,1968, he gave the PHILIPPINE REAL ESTATE EXCHANGE (PHILREX)
the exclusive option and authority to negotiate the sale of his 300 hectare land in
Montalban, and that he is no longer at liberty to negotiate its sale personally,
and that, if you are still interested in the property, the SSS should communicate
directly with the PHILIPPINE REAL ESTATE EXCHANGE.
It is by virtue of this arrangement that Mr. Doronila now refers to us invitation
and his reply to the SSS and has requested us to get in touch with you.
While, at present we have several prospective buyers interested in this property,
we shall, in compliance with the request of Mr. Doronila, be happy to sit down
with you and Chairman Ramon Gaviola, Jr.
Please let us know when it will be convenient to hold the conference.
10.

That on April 18, 1968, defendant DORONILA extended the plaintiff exclusive
option and authority to expire May 18, 1968.(annex 'B' Reply letter of Doronila
to SSS Deputy Administrator dated May 8, 1968).
11.
That on May 6,1968, plaintiff made a formal written offer to the Social Security
System to sell the 300 hectares land of defendant DORONILA at the price of
P6.00 per square meter, Xerox copy of which bearing the stamp or receipt of
Social Security System is attached hereof as Annex "D" plaintiff.
12.
That on May 16, 1968 the defendant DORONILA received the following telegram
(Annex 'E' of the complaint) form the SSS Administrative, reading:
SSS CONSIDERING PURCHASE YOUR PROPERTY FOR ITS HOUSING PROJECT
13.
That on May 18, 1968, after plaintiff exclusive option and authority had been
extended, plaintiff wrote the following letter (Annex "A" Reply' of plaintiff's
REPLY TO ANSWER) to defendant DORONILA, to wit:
CONFIDENTIAL
In our conference last Monday, May 13, 1968, you have been definitely advised
by responsible parties that the SOCIAL SECURITY SYSTEM is acquiring your 300hectare land at Montalban, Rizal, adjoining the Quezon City Boundary and that
said property will be acquired in accordance with the exclusive option and
authority you gave the PHILIPPINE REAL ESTATE EXCHANCE. You were assured in
that conference that the property will be acquired definitely, but, as it has been
mentioned during the conference, it may take from 30 to 60 days to have all the
papers prepared and to effect the corresponding payment. The telegram from
the SSS confirming these negotiations has already been received by you, a copy
of which you yourself have kindly furnished us.
Pursuant to paragraph 3 of the terms of the option that you have kindly
extended, we still have fifteen days more from today, May 18, 1968, within which
to finish the negotiations for the sale of your property to the SSS. For your
convenience, we quote the pertinent portion of paragraph 3 of the option:
... provided, however, that should negotiation have been started with a buyer,
said period is automatically extended until said negotiation is terminated, but no
more than fifteen (15) days.
Please be assured that we will do our very best to complete these negotiations
for the sale of your property within this fifteen-day period. In the meantime' we
hope you will also observe the provisions of paragraph 6 of the exclusive option
you have extended to us.

14.
That on May 18, 1968, plaintiff wrote the following letter (Xerox copy attached
and marked hereof as Annex 'H' for plaintiff) addressed defendant DORONILA, to
wit:
By virtue of the exclusive option and authority you have granted the PHILIPPINE
REAL ESTATE EXCHANGE to negotiate the sale of your 300-hectare land located
at Montalban, Rizal, adjoining the Quezon City boundary, which properties are
covered by Transfer Certificate of Titles Nos. 116631, 77011, 77012 and 77013,
of the Registry of Deeds for the Province of Rizal, we hereby make a firm offer,
for and in behalf of our buyer, to purchase said property at the price of FOUR
PESOS AND FIFTY CENTAVOS (P4.50) per square meter, or the total amount of
THIRTEEN MILLION FIVE HUNDRED THOUSAND (P13,500,000.00) PESOS,
Philippine Currency, payable in Cash and D.B.P. Progress Bonds, on a ratio to be
decided between you and our principal.
To expedite the negotiations, we suggest that we sit down sometime early next
week with our principal to take up the final arrangement and other details in
connection with the purchase of the subject property.
To give you further assurance of the validity of this offer, we refer you to the
CHINA BANKING CORPORATION (Trust Department) who has already been
apprised of these negotiations, to which ]sank we strongly recommend that this
transaction be coursed through, for your own security and protection.
15.
That on May 30, 1968, plaintiff wrote the following letter (Xerox copy attached
hereto, and marked as Annex 'I' for plaintiff) to defendant DORONILA, quoted as
follows:
This is to advise you that the SOCIAL SECURITY SYSTEM agreed to purchase your
300-hectare land located at Montalban, Rizal, which purchase can be conformed
by the Chairman of the SOCIAL SECURITY COMMISSION. The details will have to
be taken up between you and the Chairman, and we suggest that you
communicate with the Chairman at your earliest convenience.
This negotiation was made by virtue of the exclusive option and authority you
have granted the PHILIPPINE REAL ESTATE EXCHANGE, which option is in full
force and effect, and covers the transaction referred above.
16.
That on June 6,1968, defendant DORONILA wrote the following letter (Annex" 7"
for DORONILA), to the plaintiff, to wit:
I have to inform you officially, that I have not received any written offer from the
SSS or others, to purchase my Montalban property of which you were given an
option and exclusive authority as appearing in your letter- contract dated
February 14, 1968, during the 60 days of your exclusive authority which expired

on April 14, 1968, nor during the extension which was properly a new exclusive
authority of 30 days from April 18, which expired on May 18, 1968, nor during
the provided 15 days grace, in case that you have closed any transaction to
terminate it during that period, which also expired on June 3, 1968.
As stated in said letter, we have the following condition:
5. If no written offer is made to you until the last day of this authorization, this
option and authority shall expire and becomes null and void.
As I have informed you, that on April 16, 1968 or two days after your option
expired I have signed an agreement to sell my property to a group of buyers to
whom I asked later that the effectivity of said agreement will be after your new
authority has expired will be on June 2, 1968, and they have accepted; As your
option has expired, and they know that there was no written offer made by the
SSS for any price of my property, aside of their previous letter announcing me
that they are ready to pay, I was notified on June 4, 1968 by their representative,
calling my attention but our agreement; that is why I am writing you, that having
expired your option and exclusive authority to offer for sale my said property, I
notified only this afternoon said to comply our agreement.
Hoping for your consideration on the matter, as we have to be guided by
contracts that we have to comply, I hereby express to you my sincere
sentiments.
17.
That on June 19, 1968, defendant DORONILA wrote the following letter (Annex
"5" of the Answer) to the SSS Administrator, renewing his offer to sell his 300
hectare land to the SSS at P4.00 per square meter, to wit:
This is to renew my offer to sell my properties located at Montalban, Rizal
Identified as Lot Nos. 3-B-7, 26-8, 6, and 4-C-3 registered in my name in the
office of the Registry of Deeds of Rizal under T.C.T. Nos. 116631, 77013, 77011
and 216750, containing a total area of 300 hectares or 3,000,000 square meters.
You will recall that last year, I offered to the Social Security System the same
properties at the price of Four (P4.00) pesos per square meter. After 3 ocular
inspection of Chairman Gaviola one of said inspections accompanied by
Commissioner Arroyo and after receiving the written apprisal report of Manila
realtor Vicente L. Narciso, the System then made a counter-offer of Three pesos
and twenty-five (P3.25) per square meter which I accepted under the condition
that the total amount be paid within a period of thirty (30) days from the date of
my acceptance (July 19, 1967). My acceptance was motivated by the fact that
within said period of time I had hoped to purchase my sugarcane hacienda in
Iloilo with the proceeds I expected from the sale. No action was however taken
by the System thereon.
Recently the same properties were offered by Antonio E. Prats of the Philippine
Real Estate Exchange to the Presidential Assistant on Housing, at the price of six

pesos (p6.00) per square meter, who referred it to the System, but against no
action had been taken by the System.
Considering the lapse of time since our original offer during which prices of real
estate have increased considerably, on the one hand and in cooperation with the
System's implementation of our government's policy to provide low cost houses
to its members, on the other hand, I am renewing my offer to sell my properties
to the system only at the same price of P4.00 per square meter, or for a total
amount of twelve million pesos (P12,000,000.00), provided the total amount is
paid in cash within a period of fifteen (15) days from this date.
18.
That on June 20, 1968, the Social Security Commission passed Resolution No.
636 by which the SSS formalized its counter-offer of P3.25 per square meter.
(See Annex 'F' of the complaint)
19.
That on June 25, 1968, the SSS Administrator, Mr. Gilberto Teodoro, wrote the
following reply letter (Annex '6' of the Answer) to defendant DORONILA, to wit:
This has reference to your letter dated June 19, 1966 renewing your offer to sell
your property located at Montalban, Rizal containing an area of 300 hectares at
P4.00 per square meter. Please be informed that the said letter was submitted
for the consideration of the Social Security Commission at its last meeting on
June 20, 1968 and pursuant to its Resolution No. 636, current series, it decided
that the System reiterate its counter-offer for P3.25 per square meter subject to
a favorable appraisal report by a reputable appraisal entity as regards
particularly to price and housing project feasibility. Should this counter-offer be
acceptable to you, kindly so indicate by signing hereunder your conformity
thereon.
Trusting that the foregoing sufficiently advises you on the matter, I remain
Very truly yours,
GILBERTO TEODORO
Administrator
CONFORME: With condition that the sale will be consummated within Twenty (20)
days from this date.
ALFONSO DORONILA
Returned and received the original by
June 25/68
Admtr's Office

20.
That on June 27, 1968, the Social Security Commission passed Resolution No.
662 authorizing the Toples & Harding (Far East) to conduct an appraisal of the
property of defendant DORONILA and to submit a report thereon. (See Annex 'F'
of the complaint)
21.
That on July 17, 1968, the Social Security Commission taking note of the report
of Toples & Harding (Far East), passed Resolution No. 736, approving the
purchase of the 300 hectare land of defendant DORONILA, at the price of P3.25
per square meter, for a total purchase price of NINE MILLION SEVEN HUNDRED
FIFTY THOUSAND PESOS (P9,750,000.00), and appropriating the said amount of
money for the purpose. (See Annex 'F' of the complaint).
22.
That on July 30, 1968, defendant DORONILA executed the deed of absolute sale
(Annex "C" of the complaint) over his 300-hectare land, situated in Montalban,
Rizal, covered by TCT Nos. 77011, 77013, 216747 (formerly TCT No. 116631) and
216750 (formerly TCT No. 77012), in favor of the Social Security System, for the
total purchase price of NINE MILLION SEVEN HUNDRED FIFTY THOUSAND PESOS
(P9,750,000.00), Philippine currency, which deed of sale was presented for
registration in the Office of the Register of Deeds of Fiscal on August 21, 1968.
23.
That defendant DORONILA had received the full purchase price of NINE MILLION
SEVEN HUNDRED FIFTY THOUSAND PESOS (P9,750,000.00), Philippine Currency,
in two installments.
24.
That on September 17, 1968, plaintiff presented his STATEMENT OF ACCOUNT,
dated September 16, 1968 (Xerox copy of which is attached hereto and marked
as Annex plaintiff' to defendant DORONILA for the payment of his professional
services as real estate broker in the amount of P1,380,000.00, as computed on
the basis of the letter-agreement, Annex "A" of the complaint, which defendant
failed to pay. Manila, for Quezon City, January 18,1968.
Respectfully submitted:
CRISPIN D. BAIZAS & ASSOCIATES
and A.N. BOLINAO, JR.
By: (Sgd.)
Counsel for the plaintiff
Suite 305, ShurdutBldg.

Intramuros, Manila
(Sgd.) E. V. Obon
Atty. EUGENIO V. OBON
Counsel for the defendant
9 West Point Street
Quezon City
ALFONSO DORONILA
Counsel for the defendant
428 Plaza de Ferguson
Ermita, Manila

The trial court rendered its decision dated December 12, 1969, the initiative part
of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff, ordering
defendant Alfonso Doronila, under the first cause of action, to pay to plaintiff the
sum of P1,380,000.00 with interest thereon at the rate of 6% per annum from
September 23, 1968 until fully paid; and under the second Cause of Action, to
pay plaintiff the sum of P200,000.00 as moral damages; the sum of P100,000.00
as exemplary damages; the sum of P150,000.00 as attorney's fees, including the
expenses of. litigation and costs of this suit.
The writ of preliminary injunction issued in this case is hereby made permanent;
and the defendant Philippine National Bank is hereby ordered to pay to the
plaintiff the amount of P1,380,000.00 and interest on the P1,380,000.00 to be
computed separately out of the P2,000,000.00 which it presently holds under a
fixed time deposit.
SO ORDERED.
December 12, 1969, Quezon City, Philippines.
(SGD.) LOURDES P. SAN DIEGO
Judge

The defendant appealed to the Court of Appeals where the appeal was docketed
as CA-G.R. No. 45974-R.
In a decision promulgated on September 19, 1974, the Court of Appeals reversed
the derision of the trial court and dismissed the complaint because:
In any event, since it has been found that the authority of appellee expired on
June 2, 1968, rather than June 12, 1968 as the lower court opined, the inquiry

would be whether up to that time, a written offer was made by appellee in behalf
of the SSS. The stipulation is clear on this point. There should be a written offer
by the prospective buyer or by appellee for or in their behalf, and that if no such
written offer is made until the last day of the authorization, the option and
authority shall expire and become null and void. Note that the emphasis is
placed on the need of a written offer to save the authority from an automatic
termination on the last day of the authorization. We note such emphasis with
special significance in receive of the condition relative to automatic extension of
not more than 15 days if negotiations have been started. The question then is
when are negotiations deemed started In the light of the provisions just cited, it
should be when a response is given by the prospective buyer showing fits
interest to buy the property when an offer is made by the seller or broker and
make an offer of the price. Strictly, therefore, prior to May 29, 1968, there were
no negotiations yet started within contemplation of the letter-agreement of
brokerage (Exh. A). Nevertheless appellant extended appellee's exclusive
authority to on May 18, 1968 (par. 10, Stipulation of Facts; R.A. p. 89), which was
automatically extended by 15 days under their agreement, to expire on June 2,
1968, if the period extended up to May 18, 1968 a necessary authority. For, it
may even be considered as taking the of the 15-days automatic extension, since
appellee's pretension is that negotiations have been started within the original
period of 60 days. Appellant in fixing the expiry date on June 2, 1968, has thus
made a liberal concession in favor of appellee, when he chose not to the
extension up to May 18, 1968 as the automatic extension which ougth to have
been no more than 15 days, but which he stretched twice as long. 4
The petitioner assigned the following errors:
I
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER
WAS NOT THE EFFICIENT PROCURING CAUSE IN BRING ABOUT THE SALE OF
PRIVATE RESPONDENT DORONILA'S LAND TO THE SSS.
II
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THERE WAS
FAILURE ON THE PART OF HEREIN PETITIONER TO COMPLY WITH THE TERMS AND
CONDITIONS OF HIS CONTRACT WITH PRIVATE RESPONDENT.
III
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER
IS NOT ENTITLED TO HIS COMMISSION.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN AWARDING ATTORNEY'S FEES
TO PRIVATE RESPONDENT DORONILA INSTEAD OF AFFIRMING THE AWARD OF
MORAL AND EXEMPLARY DAMAGES AS WELL As ATTORNEY FEES TO
PETITIONER. 5

The Court in its Resolution of May 23, 1975 originally denied the petition for lack
of merit but upon petitioner's motion for reconsideration and supplemental
petition invoking equity, resolved in its Resolution of August 20, 1975 to give due
course thereto.
From the stipulation of facts and the evidence of record, it is clear that the offer
of defendant Doronila to sell the 300 hectares of land in question to the Social
Security System was formally accepted by the System only on June 20, 1968
after the exclusive authority, Exhibit A, in favor of the plaintiff, petitioner herein,
had expired. The respondent court's factual findings that petitioner was not the
efficient procuring cause in bringing about the sale proceeding from the fact of
expiration of his exclusive authority) which are admittedly final for purposes of
the present petition, provide no basis law to grant relief to petitioner. The
following pertinent excerpts from respondent court's extensive decision amply
demonstrate this:
It is noted, however, that even in his brief, when he said
According to the testimony of the plaintiff-appellee a few days before May 29,
1968, he arranged with Mr. Gilberto Teodoro, SSS Administrator, a meeting with
the defendant Manila. He talked with Mr. Teodoro over the telephone and fixed
the date of the meeting with defendant-appellant Doronila for May 29, 1968, and
that he was specifically requested by Mr. Teodoro not to be present at the
meeting, as he, Teodoro, wanted to deal directly with the defendant-appellant
alone. (Tsn., pp. 4446, March 1, 1969). Finding nothing wrong with such a
request, as the sale could be caused directly or indirectly (Exh. 'A'), and believing
that as a broker all that he needed to do to be entitled to his commission was to
bring about a meeting between the buyer and the seller as to ripen into a sale,
plaintiff-appellee readily acceded to the request.
appellee is not categorical that it was through his efforts that the meeting took
place on inlay 29, 1968. He refers to a telephone call he made "a few days
before May 29, 1968," but in the conversation he had with Mr. Teodoro, the latter
requested him not to be present in the meeting. From these facts, it is manifest
that the SSS officials never wanted to be in any way guided by, or otherwise
subject to, the mediation or intervention of, appellee relative to the negotiation
for the purchase of the property. It is thus more reasonable to conclude that if a
meeting was held on May 29, 1968, it was done independently, and not by virtue
of, appellee's wish or efforts to hold such meeting. 6
xxx xxx xxx
... It is even doubtful if he tried to make any arrangement for meeting at all,
because on May 18, 1968, he told appellant:
... we hereby make a firm offer, for and in behalf of our buyer, to purchase said
property at the price of Four Pesos and Fifty Centavos (P4.50) per square
meter ....

As this offer is evidently made in behalf of buyer other than the SSS which had
never offered the price of P4.50 per square meter, appellee could not have at the
same time arranged a meeting between the SSS officials and appellant with a
view to consummating the sale in favor of the SSS which had made an offer of
only PS.25 per sq. m. and thus lose the much bigger profit he would realize with
a higher price of P4.50 per sq. meter. This 'firm offer' of P4.50 per sq. m. made
by appellee betrayed his lack of any efficient intervention in the negotiations
with the SSS for the purchase by it of appellant's property ... 7
xxx xxx xxx
... This becomes more evident when it is considered that on May 6, 1968 he was
making his first offer to sell the property at P6.00 per sq. m. to the SSS to which
offer he received no answer. It is this cold indifference of the SSS to him that
must have prompted him to look for other buyers, resulting in his making the
firm offer of 714.50 per sq. m. on May 18, 1968, a fact which only goes to show
that for being ignored by the SSS, he gave up all effort to deal with the SSS. ... 8
xxx xxx xxx
... For him to claim that it was he who aroused the interest of the SSS in buying
appellant's property is to ignore the fact that as early as June, (July) 1967, the
SSS had directly dealt with appellant to such an extent that the price of P3.25 as
offered by the SSS was accepted by appellant, the latter imposing only the
condition that the price should be paid in cash, and within 30 days from the date
of the acceptance. It can truly be said then that the interest of SSS to acquire the
property had been sufficiently aroused for there to be any need for appellee to
stimulate it further. Appellee should know this fact for according to him, the 10day grace period was agreed upon to give the SSS a chance to pay the price of
the land at P3.25 per sq. m., as a "compromise" to appellant's insistence that the
SSS be excluded from appellee's option or authority to sell the land. 9
... There should be a written offer by the prospective buyer or by appellee for or
in their behalf, and that if no such written offer is made until the last day of the
authorization, the option and authority shall expired and become null and
void. ... Yet, no such written offer was made. ... 10
In equity, however, the Court notes that petitioner had Monthly taken steps to
bring back together respondent Doronila and the SSS, among which may be
mentioned the following:
In July, 1967, prior to February 14, 1968, respondent Doronila had offered to sell
the land in question to the Social Security System Direct negotiations were made
by Doronila with the SSS. The SSS did not then accept the offer of Doronila.
Thereafter, Doronila executed the exclusive authority in favor of petitioner Prats
on February 14, 1968.
Prats communicated with the Office of the Presidential Housing Commission on
February 23, 1968 offering the Doronila property. Prats wrote a follow-up letter
on April is, 1968 which was answered by the Commission with the suggestion

that the property be offered directly to the SSS. Prats wrote the SSS on March 16,
1968, inviting Chairman Ramon Gaviola, Jr. to discuss the offer of the sale of the
property in question to the SSS. On May 6, 1968, Prats made a formal written
offer to the Social Security System to self the 300 hectare land of Doronila at the
price of P6.00 per square meter. Doronila received on May 17, 1968 from the SSS
Administrator a telegram that the SSS was considering the purchase of Doronilas
property for its housing project. Prats and his witness Raagas testified that Prats
had several dinner and lunch meetings with Doronila and/or his nephew, Atty.
Manuel D. Asencio, regarding the progress of the negotiations with the SSS.
Atty. Asencio had declared that he and his uncle, Alfonso Doronila, were invited
several times by Prats, sometimes to luncheons and sometimes to dinner. On a
Sunday, June 2, 1968, Prats and Raagas had luncheon in Sulu Hotel in Quezon
City and they were joined later by Chairman Gaviola of the SSS.
The Court has noted on the other hand that Doronila finally sold the property to
the Social Security System at P3.25 per square meter which was the very same
price counter-offered by the Social Security System and accepted by him in July,
1967 when he alone was dealing exclusively with the said buyer long before
Prats came into the picture but that on the other hand Prats' efforts somehow
were instrumental in bringing them together again and finally consummating the
transaction at the same price of P3.25 square meter, although such finalization
was after the expiration of Prats' extended exclusive authority. Still such price
was higher than that stipulated in the exclusive authority granted by Doronila to
Prats.
Under the circumstances, the Court grants in equity the sum of One Hundred
Thousand Pesos (P100,000.00) by way of compensation for his efforts and
assistance in the transaction, which however was finalized and consummated
after the expiration of his exclusive authority and sets aside the P10,000.00
attorneys' fees award adjudged against him by respondent court.
WHEREFORE, the derision appealed from is hereby affirmed, with the
modification that private respondent Alfonso Doronila in equity is ordered to pay
petitioner or his heirs the amount of One Hundred Thousand Pesos (P100,000.00)
and that the portion of the said decision sell petitioner Prats to pay respondent
Doronila attorneys' fees in the sum of P10,000.00 is set aside.
The lifting of the injunction issued by the lower court on the P2,000,000.00 cash
deposit of respondent Doronila as ordered by respondent court is hereby with the
exception of the sum of One Hundred Thousand Pesos (P100,000.00) which is
ordered segregated therefrom to satisfy the award herein given to petitioner, the
lifting of said injunction, as herein ordered, is immediately executory upon
promulgation hereof.
No pronouncement as to costs.
Teehankee (Chairman), Makasiar, Muoz Palma and Guerrero JJ., concur.

Footnotes
1 Rollo pp. 110-111, The decision was written by justice Pacifico P. de Castro and
concurred in by Justice Guillermo S. Santos and Justice Jose C. Bautista.
2 Record on Appeal, pp. 76-102, Rollo, p. 57.
3 Record on Appeal, pp. 183-184, Rollo, p. 57.
4 Rollo, pp. 148-100.
5 Brief for Petitioner. pp. 28-99, Rollo, p. 352.
6 Pp. 35-36, Court of Appeals decision.
7 Pp. 36-37, Ibid.
8 Pp. 37, Ibid.
9 Pp. 39, Ibid.
10 Pp. 40-41, Ibid,
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 94753. April 7, 1993.

MANOTOK BROTHERS, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE HONORABLE JUDGE OF THE REGIONAL
TRIAL COURT OF MANILA (Branch VI), and SALVADOR SALIGUMBA, respondents.
Antonio C. Ravelo for petitioner.
Remigio M. Trinidad for private respondent.
SYLLABUS
1. CIVIL LAW; AGENCY; AGENT'S COMMISSION; WHEN ENTITLED' RULE;
APPLICATION IN CASE AT BAR. In an earlier case, this Court ruled that when
there is a close, proximate and causal connection between the agent's efforts
and labor and the principal's sale of his property, the agent is entitled to a
commission. We agree with respondent Court that the City of Manila ultimately
became the purchaser of petitioner's property mainly through the efforts of
private respondent. Without discounting the fact that when Municipal Ordinance

No. 6603 was signed by the City Mayor on May 17, 1968, private respondent's
authority had already expired, it is to be noted that the ordinance was approved
on April 26, 1968 when private respondent's authorization was still in force.
Moreover, the approval by the City Mayor came only three days after the
expiration of private respondent's authority. It is also worth emphasizing that
from the records, the only party given a written authority by petitioner to
negotiate the sale from July 5, 1966 to May 14, 1968 was private respondent.
DECISION
CAMPOS, JR., J p:
Petitioner Manotok Brothers., Inc., by way of the instant Petition docketed as G.R.
No. 94753 sought relief from this Court's Resolution dated May 3, 1989, which
reads:
"G.R. No. 78898 (Manotok Brothers, Inc. vs. Salvador Saligumba and Court of
Appeals). Considering the manifestation of compliance by counsel for
petitioner dated April 14, 1989 with the resolution of March 13, 1989 which
required the petitioner to locate private respondent and to inform this Court of
the present address of said private respondent, the Court Resolved to DISMISS
this case, as the issues cannot be joined as private respondent's and counsel's
addresses cannot be furnished by the petitioner to this court." 1
In addition, petitioner prayed for the issuance of a preliminary injunction to
prevent irreparable injury to itself pending resolution by this Court of its cause.
Petitioner likewise urged this Court to hold in contempt private respondent for
allegedly adopting sinister ploy to deprive petitioner of its constitutional right to
due process.
Acting on said Petition, this Court in a Resolution 2 dated October 1, 1990 set
aside the entry of judgment made on May 3, 1989 in case G.R. No. 78898;
admitted the amended petition; and issued a temporary restraining order to
restrain the execution of the judgment appealed from.
The amended petition 3 admitted, by this Court sought relief from this Court's
Resolution abovequoted. In the alternative, petitioner begged leave of court to
re-file its Petition for Certiorari 4 (G.R. No. 78898) grounded on the allegation
that petitioner was deprived of its opportunity to be heard.
The facts as found by the appellate court, revealed that petitioner herein (then
defendant-appellant) is the owner of a certain parcel of land and building which
were formerly leased by the City of Manila and used by the Claro M. Recto High
School, at M.F. Jhocson Street, Sampaloc Manila.
By means of a letter 5 dated July 5, 1966, petitioner authorized herein private
respondent Salvador Saligumba to negotiate with the City of Manila the sale of
the aforementioned property for not less than P425,000.00. In the same writing,
petitioner agreed to pay private respondent a five percent (5%) commission in
the event the sale is finally consummated and paid.

Petitioner, on March 4, 1967, executed another letter 6 extending the authority

of private respondent for 120 days. Thereafter, another extension was granted to
him for 120 more days, as evidenced by another letter 7 dated June 26, 1967.
Finally, through another letter 8 dated November 16, 1967, the corporation with
Rufino Manotok, its President, as signatory, authorized private respondent to
finalize and consummate the sale of the property to the City of Manila for not
less than P410,000.00. With this letter came another extension of 180 days.
The Municipal Board of the City of Manila eventually, on April 26, 1968, passed
Ordinance No. 6603, appropriating the sum of P410,816.00 for the purchase of
the property which private respondent was authorized to sell. Said ordinance
however, was signed by the City Mayor only on May 17, 1968, one hundred
eighty three (183) days after the last letter of authorization.
On January 14, 1969, the parties signed the deed of sale of the subject property.
The initial payment of P200,000.00 having been made, the purchase price was
fully satisfied with a second payment on April 8, 1969 by a check in the amount
of P210,816.00.
Notwithstanding the realization of the sale, private respondent never received
any commission, which should have amounted to P20,554.50. This was due to
the refusal of petitioner to pay private respondent said amount as the former
does not recognize the latter's role as agent in the transaction.
Consequently, on June 29, 1969, private respondent filed a complaint against
petitioner, alleging that he had successfully negotiated the sale of the property.
He claimed that it was because of his efforts that the Municipal Board of Manila
passed Ordinance No. 6603 which appropriated the sum for the payment of the
property subject of the sale.
Petitioner claimed otherwise. It denied the claim of private respondent on the
following grounds: (1) private respondent would be entitled to a commission only
if the sale was consummated and the price paid within the period given in the
respective letters of authority; and (2) private respondent was not the person
responsible for the negotiation and consummation of the sale, instead it was
Filomeno E. Huelgas, the PTA president for 1967-1968 of the Claro M. Recto High
School. As a counterclaim, petitioner (then defendant-appellant) demanded the
sum of P4,000.00 as attorney's fees and for moral damages.
Thereafter, trial ensued. Private respondent, then plaintiff, testified as to the
efforts undertaken by him to ensure the consummation of the sale. He recounted
that it first began at a meeting with Rufino Manotok at the office of Fructuoso
Ancheta, principal of C.M. Recto High School. Atty. Dominador Bisbal, then
president of the PTA, was also present. The meeting was set precisely to ask
private respondent to negotiate the sale of the school lot and building to the City
of Manila. Private respondent then went to Councilor Mariano Magsalin, the
author of the Ordinance which appropriated the money for the purchase of said
property, to present the project. He also went to the Assessor's Office for

appraisal of the value of the property. While these transpired and his letters of
authority expired, Rufino Manotok always renewed the former's authorization
until the last was given, which was to remain in force until May 14, 1968. After
securing the report of the appraisal committee, he went to the City Mayor's
Office, which indorsed the matter to the Superintendent of City Schools of
Manila. The latter office approved the report and so private respondent went
back to the City Mayor's Office, which thereafter indorsed the same to the
Municipal Board for appropriation. Subsequently, on April 26, 1968, Ordinance
No. 6603 was passed by the Municipal Board for the appropriation of the sum
corresponding to the purchase price. Petitioner received the full payment of the
purchase price, but private respondent did not receive a single centavo as
commission.
Fructuoso Ancheta and Atty. Dominador Bisbal both testified acknowledging the
authority of private respondent regarding the transaction.
Petitioner presented as its witnesses Filomeno Huelgas and the petitioner's
President, Rufino Manotok.
Huelgas testified to the effect that after being inducted as PTA president in
August, 1967 he followed up the sale from the start with Councilor Magsalin until
after it was approved by the Mayor on May 17, 1968. He. also said that he came
to know Rufino Manotok only in August, 1968, at which meeting the latter told
him that he would be given a "gratification" in the amount of P20,000.00 if the
sale was expedited.
Rufino Manotok confirmed that he knew Huelgas and that there was an
agreement between the two of them regarding the "gratification".
On rebuttal, Atty. Bisbal said that Huelgas was present in the PTA meetings from
1965 to 1967 but he never offered to help in the acquisition of said property.
Moreover, he testified that Huelgas was aware of the fact that it was private
respondent who was negotiating the sale of the subject property.
Thereafter, the then Court of First Instance (now, Regional Trial Court) rendered
judgment sentencing petitioner and/or Rufino Manotok to pay unto private
respondent the sum of P20,540.00 by way of his commission fees with legal
interest thereon from the date of the filing of the complaint until payment. The
lower court also ordered petitioner to pay private respondent the amount of
P4,000.00 as and for attorney's fees. 9
Petitioner appealed said decision, but to no avail. Respondent Court of Appeals
affirmed the said ruling of the trial court. 10
Its Motion for Reconsideration having been denied by respondent appellate court
in a Resolution dated June 22, 1987, petitioner seasonably elevated its case on
Petition for Review on Certiorari on August 10, 1987 before this Court, docketed
as G.R. No. 78898.

Acting on said Petition, this Court issued a Minute Resolution 11 dated August 31,
1987 ordering private respondent to comment on said Petition.
It appearing that the abovementioned Resolution was returned unserved with the
postmaster's notation "unclaimed", this Court in another Resolution 12 dated
March 13, 1989, required petitioner to locate private respondent and to inform
this Court of the present address of private respondent within ten (10) days from
notice. As petitioner was unsuccessful in its efforts to locate private respondent,
it opted to manifest that private respondent's last address was the same as that
address to which this. Court's Resolution was forwarded.
Subsequently, this Court issued a Resolution dated May 3, 1989 dismissing
petitioner's case on the ground that the issues raised in the case at bar cannot
be joined. Thus, the above-entitled case became final and executory by the entry
of judgment on May 3, 1989.
Thereafter, on January 9, 1990 private respondent filed a Motion to Execute the
said judgment before the court of origin. Upon discovery of said development,
petitioner verified with the court of origin the circumstances by which private
respondent obtained knowledge of the resolution of this Court. Sensing a
fraudulent scheme employed by private respondent, petitioner then instituted
this instant Petition for Relief, on August 30, 1990. On September 13, 1990, said
petition was amended to include, in the alternative, its petition to re-file its
Petition for Certiorari (G.R. No. 78898).
The sole issue to be addressed in this petition is whether or not private
respondent is entitled to the five percent (5%) agent's commission.
It is petitioner's contention that as a broker, private respondent's job is to bring
together the parties to a transaction. Accordingly, if the broker does not succeed
in bringing the minds of the purchaser and the vendor to an agreement with
respect to the sale, he is not entitled to a commission.
Private respondent, on the other hand, opposes petitioner's position maintaining
that it was because of his efforts that a purchase actually materialized between
the parties.
We rule in favor of private respondent.
At first sight, it would seem that private respondent is not entitled to any
commission as he was not successful in consummating the sale between the
parties, for the sole reason that when the Deed of Sale was finally executed, his
extended authority had already expired. By this alone, one might be misled to
believe that this case squarely falls within the ambit of the established principle
that a broker or agent is not entitled to any commission until he has successfully
done the job given to him. 13
Going deeper however into the case would reveal that it is within the coverage of
the exception rather than of the general rule, the exception being that
enunciated in the case of Prats vs. Court of Appeals. 14 In the said case, this

Court ruled in favor of claimant-agent, despite the expiration of his authority,

when a sale was finally consummated.
In its decision in the abovecited case, this Court said, that while it was
respondent court's (referring to the Court of Appeals) factual findings that
petitioner Prats (claimant-agent) was not the efficient procuring cause in bringing
about the sale (prescinding from the fact of expiration of his exclusive authority),
still petitioner was awarded compensation for his services. And We quote:
"In equity, however, the Court notes that petitioner had diligently taken steps to
bring back together respondent Doronila and the SSS,.
xxx xxx xxx
The court has noted on the other hand that Doronila finally sold the property to
the Social Security System at P3.25 per square meter which was the very same
price counter-offered by the Social Security System and accepted by him in July,
1967 when he alone was dealing exclusively with the said buyer long before
Prats came into the picture but that on the other hand Prats' efforts somehow
were instrumental in bringing them together again and finally consummating the
transaction at the same price of P3.25 per square meter, although such
finalization was after the expiration of Prats' extended exclusive authority.
xxx xxx xxx
Under the circumstances, the Court grants in equity the sum of One hundred
Thousand Pesos (P100,000.00) by way of compensation for his efforts and
assistance in the transaction, which however was finalized and consummated
after the expiration of his exclusive authority . . ." 15 (Emphasis supplied.).
From the foregoing, it follows then that private respondent herein, with more
reason, should be paid his commission, While in Prats vs. Court of Appeals, the
agent was not even the efficient procuring cause in bringing about the sale,
unlike in the case at bar, it was still held therein that the agent was entitled to
compensation. In the case at bar, private respondent is the efficient procuring
cause for without his efforts, the municipality would not have anything to pass
and the Mayor would not have anything to approve.
In an earlier case, 16 this Court ruled that when there is a close, proximate and
causal connection between the agent's efforts and labor and the principal's sale
of his property, the agent is entitled to a commission.
We agree with respondent Court that the City of Manila ultimately became the
purchaser of petitioner's property mainly through the efforts of private
respondent. Without discounting the fact that when Municipal Ordinance No.
6603 was signed by the City Mayor on May 17, 1968, private respondent's
authority had already expired, it is to be noted that the ordinance was approved
on April 26, 1968 when private respondent's authorization was still in force.
Moreover, the approval by the City Mayor came only three days after the
expiration of private respondent's authority. It is also worth emphasizing that

from the records, the only party given a written authority by petitioner to
negotiate the sale from July 5, 1966 to May 14, 1968 was private respondent.
Contrary to what petitioner advances, the case of Danon vs. Brimo, 17 on which
it heavily anchors its justification for the denial of private respondent's claim,
does not apply squarely to the instant petition. Claimant-agent in said case fully
comprehended the possibility that he may not realize the agent's commission as
he was informed that another agent was also negotiating the sale and thus,
compensation will pertain to the one who finds a purchaser and eventually
effects the sale. Such is not the case herein. On the contrary, private respondent
pursued with his goal of seeing that the parties reach an agreement, on the
belief that he alone was transacting the business with the City Government as
this was what petitioner made it to appear.
While it may be true that Filomeno Huelgas followed up the matter with Councilor
Magsalin, the author of Municipal Ordinance No. 6603 and Mayor Villegas, his
intervention regarding the purchase came only after the ordinance had already
been passed when the buyer has already agreed to the purchase and to the
price for which said property is to be paid. Without the efforts of private
respondent then, Mayor Villegas would have nothing to approve in the first place.
It was actually private respondent's labor that had set in motion the intervention
of the third party that produced the sale, hence he should be amply
compensated.
WHEREFORE, in the light of the foregoing and finding no reversible error
committed by respondent Court, the decision of the Court of Appeals is hereby
AFFIRMED. The temporary restraining order issued by this Court in its Resolution
dated October 1, 1990 is hereby lifted.
SO ORDERED.
Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.
Footnotes
1. Rollo of G.R. No. 94753, p. 12.
2. Ibid., p. 77.
3. Ibid., p. 47.
4. Rollo of G.R. No. 78898, p. 12.
5. Supra, note 1 at p. 156.
6. Ibid., p. 160.
7. Ibid., p. 161.
8. Ibid., p. 162.

9. Decision rendered by then Court of Instance, Branch VI, Manila in Civil Case
No. 76997, Rollo, pp. 13-18.
10. Penned by Associate Justice Vicente V. Mendoza and concurred in by
Associate Justices Manuel C. Herrera and Jorge S. Imperial. Rollo, pp. 19-28.
11. Supra, note 4 at p. 67.
12. Ibid., p. 69.
13. Ramos vs. Court of Appeals, 63 SCRA 331 (1975).
14. 81 SCRA 360 (1978).
15. Ibid., pp. 383-385.
16. Reyes vs. Manaoat, et al., 8 C.A. Rep. 2d 368 (1965).
17. 42 Phil. 133 (1921).
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-30573 October 29, 1971

VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO
VDA. DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR,
IRENE and JOSELITO, all surnamed DOMINGO, petitioners-appellants,
vs.
GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P.
PURISIMA, intervenor-respondent.
Teofilo Leonin for petitioners-appellants.
Osorio, Osorio & Osorio for respondent-appellee.
Teofilo P. Purisima in his own behalf as intervenor-respondent.

MAKASIAR, J.:
Petitioner-appellant Vicente M. Domingo, now deceased and represented by his
heirs, Antonina Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr.,
Salvacion, Irene and Joselito, all surnamed Domingo, sought the reversal of the
majority decision dated, March 12, 1969 of the Special Division of Five of the
Court of Appeals affirming the judgment of the trial court, which sentenced the
said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the

intervenor Teofilo P. Purisima P2,607.50 with interest on both amounts from the
date of the filing of the complaint, to pay Gregorio Domingo P1,000.00 as moral
and exemplary damages and P500.00 as attorney's fees plus costs.
The following facts were found to be established by the majority of the Special
Division of Five of the Court of Appeals:
In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted
Gregorio Domingo, a real estate broker, the exclusive agency to sell his lot No.
883 of Piedad Estate with an area of about 88,477 square meters at the rate of
P2.00 per square meter (or for P176,954.00) with a commission of 5% on the
total price, if the property is sold by Vicente or by anyone else during the 30-day
duration of the agency or if the property is sold by Vicente within three months
from the termination of the agency to apurchaser to whom it was submitted by
Gregorio during the continuance of the agency with notice to Vicente. The said
agency contract was in triplicate, one copy was given to Vicente, while the
original and another copy were retained by Gregorio.
On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for
a buyer, promising him one-half of the 5% commission.
Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a
prospective buyer.
Oscar de Leon submitted a written offer which was very much lower than the
price of P2.00 per square meter (Exhibit "B"). Vicente directed Gregorio to tell
Oscar de Leon to raise his offer. After several conferences between Gregorio and
Oscar de Leon, the latter raised his offer to P109,000.00 on June 20, 1956 as
evidenced by Exhibit "C", to which Vicente agreed by signing Exhibit "C". Upon
demand of Vicente, Oscar de Leon issued to him a check in the amount of
P1,000.00 as earnest money, after which Vicente advanced to Gregorio the sum
of P300.00. Oscar de Leon confirmed his former offer to pay for the property at
P1.20 per square meter in another letter, Exhibit "D". Subsequently, Vicente
asked for an additional amount of P1,000.00 as earnest money, which Oscar de
Leon promised to deliver to him. Thereafter, Exhibit "C" was amended to the
effect that Oscar de Leon will vacate on or about September 15, 1956 his house
and lot at Denver Street, Quezon City which is part of the purchase price. It was
again amended to the effect that Oscar will vacate his house and lot on
December 1, 1956, because his wife was on the family way and Vicente could
stay in lot No. 883 of Piedad Estate until June 1, 1957, in a document dated June
30, 1956 (the year 1957 therein is a mere typographical error) and marked
Exhibit "D". Pursuant to his promise to Gregorio, Oscar gave him as a gift or
propina the sum of One Thousand Pesos (P1,000.00) for succeeding in
persuading Vicente to sell his lot at P1.20 per square meter or a total in round
figure of One Hundred Nine Thousand Pesos (P109,000.00). This gift of One
Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente. Neither
did Oscar pay Vicente the additional amount of One Thousand Pesos (P1,000.00)
by way of earnest money. In the deed of sale was not executed on August 1,
1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended by Vicente,

Oscar told Gregorio that he did not receive his money from his brother in the
United States, for which reason he was giving up the negotiation including the
amount of One Thousand Pesos (P1,000.00) given as earnest money to Vicente
and the One Thousand Pesos (P1,000.00) given to Gregorio as propina or gift.
When Oscar did not see him after several weeks, Gregorio sensed something
fishy. So, he went to Vicente and read a portion of Exhibit "A" marked habit "A-1"
to the effect that Vicente was still committed to pay him 5% commission, if the
sale is consummated within three months after the expiration of the 30-day
period of the exclusive agency in his favor from the execution of the agency
contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente during
the said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to
pieces. Gregorio held his peace, not wanting to antagonize Vicente further,
because he had still duplicate of Exhibit "A". From his meeting with Vicente,
Gregorio proceeded to the office of the Register of Deeds of Quezon City, where
he discovered Exhibit "G' deed of sale executed on September 17, 1956 by
Amparo Diaz, wife of Oscar de Leon, over their house and lot No. 40 Denver
Street, Cubao, Quezon City, in favor Vicente as down payment by Oscar de Leon
on the purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus
learning that Vicente sold his property to the same buyer, Oscar de Leon and his
wife, he demanded in writting payment of his commission on the sale price of
One Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". He also conferred
with Oscar de Leon, who told him that Vicente went to him and asked him to
eliminate Gregorio in the transaction and that he would sell his property to him
for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to
Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the
5% commission because he sold the property not to Gregorio's buyer, Oscar de
Leon, but to another buyer, Amparo Diaz, wife of Oscar de Leon.
The Court of Appeals found from the evidence that Exhibit "A", the exclusive
agency contract, is genuine; that Amparo Diaz, the vendee, being the wife of
Oscar de Leon the sale by Vicente of his property is practically a sale to Oscar de
Leon since husband and wife have common or identical interests; that Gregorio
and intervenor Teofilo Purisima were the efficient cause in the consummation of
the sale in favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de
Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as "propina" or
gift and not as additional earnest money to be given to the plaintiff, because
Exhibit "66", Vicente's letter addressed to Oscar de Leon with respect to the
additional earnest money, does not appear to have been answered by Oscar de
Leon and therefore there is no writing or document supporting Oscar de Leon's
testimony that he paid an additional earnest money of One Thousand Pesos
(P1,000.00) to Gregorio for delivery to Vicente, unlike the first amount of One
Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente as earnest money,
evidenced by the letter Exhibit "4"; and that Vicente did not even mention such
additional earnest money in his two replies Exhibits "I" and "J" to Gregorio's letter
of demand of the 5% commission.
The three issues in this appeal are (1) whether the failure on the part of Gregorio
to disclose to Vicente the payment to him by Oscar de Leon of the amount of

One Thousand Pesos (P1,000.00) as gift or "propina" for having persuaded

Vicente to reduce the purchase price from P2.00 to P1.20 per square meter, so
constitutes fraud as to cause a forfeiture of his commission on the sale price; (2)
whether Vicente or Gregorio should be liable directly to the intervenor Teofilo
Purisima for the latter's share in the expected commission of Gregorio by reason
of the sale; and (3) whether the award of legal interest, moral and exemplary
damages, attorney's fees and costs, was proper.
Unfortunately, the majority opinion penned by Justice Edilberto Soriano and
concurred in by Justice Juan Enriquez did not touch on these issues which were
extensively discussed by Justice Magno Gatmaitan in his dissenting opinion.
However, Justice Esguerra, in his concurring opinion, affirmed that it does not
constitute breach of trust or fraud on the part of the broker and regarded same
as merely part of the whole process of bringing about the meeting of the minds
of the seller and the purchaser and that the commitment from the prospect
buyer that he would give a reward to Gregorio if he could effect better terms for
him from the seller, independent of his legitimate commission, is not fraudulent,
because the principal can reject the terms offered by the prospective buyer if he
believes that such terms are onerous disadvantageous to him. On the other
hand, Justice Gatmaitan, with whom Justice Antonio Cafizares corner held the
view that such an act on the part of Gregorio was fraudulent and constituted a
breach of trust, which should deprive him of his right to the commission.
The duties and liabilities of a broker to his employer are essentially those which
an agent owes to his principal. 1
Consequently, the decisive legal provisions are in found Articles 1891 and 1909
of the New Civil Code.
Art. 1891. Every agent is bound to render an account of his transactions and to
deliver to the principal whatever he may have received by virtue of the agency,
even though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an account
shall be void.
xxx xxx xxx
Art. 1909. The agent is responsible not only for fraud but also for negligence,
which shall be judged with more less rigor by the courts, according to whether
the agency was or was not for a compensation.
Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil
Code which provides that:
Art. 1720. Every agent is bound to give an account of his transaction and to pay
to the principal whatever he may have received by virtue of the agency, even
though what he has received is not due to the principal.

The modification contained in the first paragraph Article 1891 consists in

changing the phrase "to pay" to "to deliver", which latter term is more
comprehensive than the former.
Paragraph 2 of Article 1891 is a new addition designed to stress the highest
loyalty that is required to an agent condemning as void any stipulation
exempting the agent from the duty and liability imposed on him in paragraph
one thereof.
Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726
of the old Spanish Civil Code which reads thus:
Art. 1726. The agent is liable not only for fraud, but also for negligence, which
shall be judged with more or less severity by the courts, according to whether
the agency was gratuitous or for a price or reward.
The aforecited provisions demand the utmost good faith, fidelity, honesty,
candor and fairness on the part of the agent, the real estate broker in this case,
to his principal, the vendor. The law imposes upon the agent the absolute
obligation to make a full disclosure or complete account to his principal of all his
transactions and other material facts relevant to the agency, so much so that the
law as amended does not countenance any stipulation exempting the agent from
such an obligation and considers such an exemption as void. The duty of an
agent is likened to that of a trustee. This is not a technical or arbitrary rule but a
rule founded on the highest and truest principle of morality as well as of the
strictest justice. 2
Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or
personal benefit from the vendee, without revealing the same to his principal,
the vendor, is guilty of a breach of his loyalty to the principal and forfeits his
right to collect the commission from his principal, even if the principal does not
suffer any injury by reason of such breach of fidelity, or that he obtained better
results or that the agency is a gratuitous one, or that usage or custom allows it;
because the rule is to prevent the possibility of any wrong, not to remedy or
repair an actual damage. 3 By taking such profit or bonus or gift or propina from
the vendee, the agent thereby assumes a position wholly inconsistent with that
of being an agent for hisprincipal, who has a right to treat him, insofar as his
commission is concerned, as if no agency had existed. The fact that the principal
may have been benefited by the valuable services of the said agent does not
exculpate the agent who has only himself to blame for such a result by reason of
his treachery or perfidy.
This Court has been consistent in the rigorous application of Article 1720 of the
old Spanish Civil Code. Thus, for failure to deliver sums of money paid to him as
an insurance agent for the account of his employer as required by said Article
1720, said insurance agent was convicted estafa. 4 An administrator of an estate
was likewise under the same Article 1720 for failure to render an account of his
administration to the heirs unless the heirs consented thereto or are estopped by
having accepted the correctness of his account previously rendered. 5

Because of his responsibility under the aforecited article 1720, an agent is

likewise liable for estafa for failure to deliver to his principal the total amount
collected by him in behalf of his principal and cannot retain the commission
pertaining to him by subtracting the same from his collections. 6
A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his
client all the money and property received by him for his client despite his
attorney's lien. 7 The duty of a commission agent to render a full account his
operations to his principal was reiterated in Duhart, etc. vs. Macias. 8
The American jurisprudence on this score is well-nigh unanimous.
Where a principal has paid an agent or broker a commission while ignorant of the
fact that the latter has been unfaithful, the principal may recover back the
commission paid, since an agent or broker who has been unfaithful is not entitled
to any compensation.
xxx xxx xxx
In discussing the right of the principal to recover commissions retained by an
unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94 NE 260,
34 LRA (NS) 1046, said: "It is well settled that the agent is bound to exercise the
utmost good faith in his dealings with his principal. As Lord Cairns said, this rule
"is not a technical or arbitrary rule. It is a rule founded on the highest and truest
principles, of morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the
agent does not conduct himself with entire fidelity towards his principal, but is
guilty of taking a secret profit or commission in regard the matter in which he is
employed, he loses his right to compensation on the ground that he has taken a
position wholly inconsistent with that of agent for his employer, and which gives
his employer, upon discovering it, the right to treat him so far as compensation,
at least, is concerned as if no agency had existed. This may operate to give to
the principal the benefit of valuable services rendered by the agent, but the
agent has only himself to blame for that result."
xxx xxx xxx
The intent with which the agent took a secret profit has been held immaterial
where the agent has in fact entered into a relationship inconsistent with his
agency, since the law condemns the corrupting tendency of the inconsistent
relationship. Little vs. Phipps (1911) 94 NE 260. 9
As a general rule, it is a breach of good faith and loyalty to his principal for an
agent, while the agency exists, so to deal with the subject matter thereof, or with
information acquired during the course of the agency, as to make a profit out of
it for himself in excess of his lawful compensation; and if he does so he may be
held as a trustee and may be compelled to account to his principal for all profits,
advantages, rights, or privileges acquired by him in such dealings, whether in
performance or in violation of his duties, and be required to transfer them to his
principal upon being reimbursed for his expenditures for the same, unless the
principal has consented to or ratified the transaction knowing that benefit or

profit would accrue or had accrued, to the agent, or unless with such knowledge
he has allowed the agent so as to change his condition that he cannot be put in
status quo. The application of this rule is not affected by the fact that the
principal did not suffer any injury by reason of the agent's dealings or that he in
fact obtained better results; nor is it affected by the fact that there is a usage or
custom to the contrary or that the agency is a gratuitous one. (Emphasis
applied.) 10
In the case at bar, defendant-appellee Gregorio Domingo as the broker, received
a gift or propina in the amount of One Thousand Pesos (P1,000.00) from the
prospective buyer Oscar de Leon, without the knowledge and consent of his
principal, herein petitioner-appellant Vicente Domingo. His acceptance of said
substantial monetary gift corrupted his duty to serve the interests only of his
principal and undermined his loyalty to his principal, who gave him partial
advance of Three Hundred Pesos (P300.00) on his commission. As a
consequence, instead of exerting his best to persuade his prospective buyer to
purchase the property on the most advantageous terms desired by his principal,
the broker, herein defendant-appellee Gregorio Domingo, succeeded in
persuading his principal to accept the counter-offer of the prospective buyer to
purchase the property at P1.20 per square meter or One Hundred Nine Thousand
Pesos (P109,000.00) in round figure for the lot of 88,477 square meters, which is
very much lower the the price of P2.00 per square meter or One Hundred
Seventy-Six Thousand Nine Hundred Fifty-Four Pesos (P176,954.00) for said lot
originally offered by his principal.
The duty embodied in Article 1891 of the New Civil Code will not apply if the
agent or broker acted only as a middleman with the task of merely bringing
together the vendor and vendee, who themselves thereafter will negotiate on the
terms and conditions of the transaction. Neither would the rule apply if the agent
or broker had informed the principal of the gift or bonus or profit he received
from the purchaser and his principal did not object therto. 11 Herein defendantappellee Gregorio Domingo was not merely a middleman of the petitionerappellant Vicente Domingo and the buyer Oscar de Leon. He was the broker and
agent of said petitioner-appellant only. And therein petitioner-appellant was not
aware of the gift of One Thousand Pesos (P1,000.00) received by Gregorio
Domingo from the prospective buyer; much less did he consent to his agent's
accepting such a gift.
The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of
Oscar de Leon, does not materially alter the situation; because the transaction,
to be valid, must necessarily be with the consent of the husband Oscar de Leon,
who is the administrator of their conjugal assets including their house and lot at
No. 40 Denver Street, Cubao, Quezon City, which were given as part of and
constituted the down payment on, the purchase price of herein petitionerappellant's lot No. 883 of Piedad Estate. Hence, both in law and in fact, it was still
Oscar de Leon who was the buyer.

As a necessary consequence of such breach of trust, defendant-appellee

Gregorio Domingo must forfeit his right to the commission and must return the
part of the commission he received from his principal.
Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from
Gregorio Domingo his one-half share of whatever amounts Gregorio Domingo
received by virtue of the transaction as his sub-agency contract was with
Gregorio Domingo alone and not with Vicente Domingo, who was not even aware
of such sub-agency. Since Gregorio Domingo received from Vicente Domingo and
Oscar de Leon respectively the amounts of Three Hundred Pesos (P300.00) and
One Thousand Pesos (P1,000.00) or a total of One Thousand Three Hundred
Pesos (P1,300.00), one-half of the same, which is Six Hundred Fifty Pesos
(P650.00), should be paid by Gregorio Domingo to Teofilo Purisima.
Because Gregorio Domingo's clearly unfounded complaint caused Vicente
Domingo mental anguish and serious anxiety as well as wounded feelings,
petitioner-appellant Vicente Domingo should be awarded moral damages in the
reasonable amount of One Thousand Pesos (P1,000.00) attorney's fees in the
reasonable amount of One Thousand Pesos (P1,000.00), considering that this
case has been pending for the last fifteen (15) years from its filing on October 3,
1956.
WHEREFORE, the judgment is hereby rendered, reversing the decision of the
Court of Appeals and directing defendant-appellee Gregorio Domingo: (1) to pay
to the heirs of Vicente Domingo the sum of One Thousand Pesos (P1,000.00) as
moral damages and One Thousand Pesos (P1,000.00) as attorney's fees; (2) to
pay Teofilo Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay
the costs.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee,
Barredo and Villamor, JJ., concur.

Footnotes
1 12 Am. Jur. 2d 835; 134 ALR 1346; 1 ALR 2d 987; Brown vs. Coates, 67 ALR 2d
943; Haymes vs. Rogers 17 ALR 2d 896; Moore vs. Turner, 32 ALR 2d 713.
2 See also Manresa, Vol. 2, p. 461, 4th ed.
3 12 Am. Jur. 2d Sec. 171, 811-12.
4 U.S. vs. Kiene 7 Phil. 736.
5 Ojinaga vs. Estate of Perez, 9 Phil. 185
6 U.S. vs. Reyes, 36 Phil. 791.
7 In Re: Bamberger 49 Phil. 962.
8 54 Phil. 513.

9 134 ALR Ann. pp. 1346, 1347-1348; see also 1 ALR 2d, 987.
10 3 CJS 53-54; see also 12 Am. Jur. 2d 835-841, 908-912.
11 12 Am. Jur. 2d, 835-841, 908-912; Raymond vs. Davis, Jan. 3, 1936, 199 NE
321, 102 ALR 1112-1115, 1116-1121.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
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.

DECISION

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 Order 3 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 Memorandum 5 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 Resolution 7 and October 3,
1996 Order8 of the Ombudsman which found probable cause that they granted
unwarranted benefits, advantage, and preference to respondent Salenga in
violation of Section 3 (e) of RA 3019.9
The Facts

Paciencia Regala owns a seven (7)-hectare fishpond located at Sasmuan,

Pampanga. Her Attorney-in-Fact Faustino R. Mercado leased the fishpond for PhP
230,000.00 to Eduardo Lapid for a three (3)-year period, that is, from August 7,
1990 to August 7, 1993.10 Lessee Eduardo Lapid in turn sub-leased the fishpond
to Rafael Lopez for PhP 50,000.00 during the last seven (7) months of the original
lease, that is, from January 10, 1993 to August 7, 1993. 11 Respondent Ernesto
Salenga was hired by Eduardo Lapid as fishpond watchman (bante-encargado).
In the sub-lease, Rafael Lopez rehired respondent Salenga.
Meanwhile, on March 11, 1993, respondent Salenga, through a certain Francis
Lagman, sent his January 28, 1993 demand letter12 to Rafael Lopez and Lourdes
Lapid for unpaid salaries and non-payment of the 10% share in the harvest.
On June 5, 1993, sub-lessee Rafael Lopez wrote a letter to respondent Salenga
informing the latter that for the last two (2) months of the sub-lease, he had
given the rights over the fishpond to Mario Palad and Ambit Perez for PhP
20,000.00.13 This prompted respondent Salenga to file a Complaint 14 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 Order 16 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 Complaint-Affidavit18 against private respondents before the
Office of the Ombudsman which was docketed as OMB-1-94-3425
entitled Antonio B. Baltazar v. Eulogio Mariano, Jose Jimenez, Jr., Toribio Ilao, Jr.
and Ernesto Salenga for violation of RA 3019. Petitioner charged private
respondents of conspiracy through the issuance of the TRO in allowing
respondent Salenga to retain possession of the fishpond, operate it, harvest the
produce, and keep the sales under the safekeeping of other private respondents.
Moreover, petitioner maintains that respondent Ilao, Jr. had no jurisdiction to hear
and act on DARAB Case No. 552-P93 filed by respondent Salenga as there was
no tenancy relation between respondent Salenga and Rafael L. Lopez, and thus,
the complaint was dismissible on its face.
Through the December 14, 1994 Order,19 the Ombudsman required private
respondents to file their counter-affidavits, affidavits of their witnesses, and other
controverting evidence. While the other respondents submitted their counteraffidavits, respondent Ilao, Jr. instead filed his February 9, 1995 motion to
dismiss, February 21, 1995 Reply, and March 24, 1995 Rejoinder.
Ombudsmans Determination of Probable Cause
On May 10, 1996, the Ombudsman issued a Resolution 20 finding cause to bring
respondents to court, denying the motion to dismiss of respondent Ilao, Jr., and
recommending the filing of an Information for violation of Section 3 (e) of RA
3019. Subsequently, respondent Ilao, Jr. filed his September 16, 1996 Motion for
Reconsideration and/or Re-investigation 21 which was denied through the October
3, 1996 Order.22 Consequently, the March 17, 1997 Information 23 was filed
against all the private respondents before the Sandiganbayan which was
docketed as Criminal Case No. 23661.
Before the graft court, respondent Ilao, Jr. filed his May 19, 1997 Motion for
Reconsideration and/or Re-investigation which was granted through the August
29, 1997 Order.24 On September 8, 1997, respondent Ilao, Jr. subsequently filed
his Counter-Affidavit25 with attachments while petitioner did not file any replyaffidavit despite notice to him. The OSP of the Ombudsman conducted the reinvestigation; and the result of the re-investigation was embodied in the assailed
November 26, 1997 Order26 which recommended the dismissal of the complaint
in OMB-1-94-3425 against all private respondents. Upon review, the Ombudsman
approved the OSPs recommendation on August 21, 1998.
Petitioners Motion for Reconsideration27 was likewise denied by the OSP through
the October 30, 1998 Memorandum28 which was approved by the Ombudsman
on November 27, 1998. Consequently, the trial prosecutor moved orally before

the Sandiganbayan for the dismissal of Criminal Case No. 23661 which was
granted through the December 11, 1998 Order. 29
Thus, the instant petition is before us.
The Issues
Petitioner raises two assignments of errors, to wit:
THE HONORABLE OMBUDSMAN ERRED IN GIVING DUE COURSE A MISPLACED
COUNTER-AFFIDAVIT FILED AFTER THE TERMINATION OF THE PRELIMINARY
INVESTIGATION AND/OR THE CASE WAS ALREADY FILED BEFORE THE
SANDIGANBAYAN.
ASSUMING OTHERWISE, THE HONORABLE OMBUDSMAN LIKEWISE ERRED IN
REVERSING HIS OWN RESOLUTION WHERE IT WAS RESOLVED THAT ACCUSED AS
PROVINCIAL AGRARIAN ADJUDICATOR HAS NO JURISDICTION OVER A COMPLAINT
WHERE THERE EXIST [sic] NO TENANCY RELATIONSHIP CONSIDERING [sic]
COMPLAINANT IS NOT A TENANT BUT A "BANTE-ENCARGADO" OR 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 "real-party-in interest" is "the party
who stands to be benefited or injured by the judgment in the suit or the party
entitled to the avails of the suit."32 Succinctly put, the plaintiffs standing is based
on their own right to the relief sought.
The records show that petitioner is a non-lawyer appearing for himself and
conducting litigation in person. Petitioner instituted the instant case before the
Ombudsman in his own name. In so far as the Complaint-Affidavit filed before the
Office of the Ombudsman is concerned, there is no question on his authority and
legal standing. Indeed, the Office of the Ombudsman is mandated to "investigate
and prosecute on its own or on complaint by any person, any act or omission of
any public officer or employee, office or agency, when such act or omission
appears to be illegal, unjust, improper or inefficient (emphasis supplied)." 33 The
Ombudsman can act on anonymous complaints and motu proprio inquire into
alleged improper official acts or omissions from whatever source, e.g., a
newspaper.34 Thus, any complainant may be entertained by the Ombudsman for
the latter to initiate an inquiry and investigation for alleged irregularities.

However, filing the petition in person before this Court is another matter. The
Rules allow a non-lawyer to conduct litigation in person and appear for oneself
only when he is a party to a legal controversy. Section 34 of Rule 138 pertinently
provides, thus:
SEC. 34. By whom litigation conducted. In the court of a justice of the peace a
party may conduct his litigation in person, with the aid of an agent or friend
appointed by him for that purpose, or with the aid of an attorney. In any other
court, a party may conduct his litigation personally or by aid of an attorney,
and hisappearance must be either personal or by a duly authorized member of
the bar (emphases supplied).
Petitioner has no legal standing
Is petitioner a party or a real party in interest to have the locus standi to pursue
the instant petition? We answer in the negative.
While petitioner may be the complainant in OMB-1-94-3425, he is not a real party
in interest. Section 2, Rule 3 of the 1997 Rules of Civil Procedure stipulates, thus:
SEC. 2. Parties in interest. A real party in interest is the party who stands to be
benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit. Unless otherwise authorized by law or these Rules, every action
must be prosecuted or defended in the name of the real party in interest.
The same concept is applied in criminal and administrative cases.
In the case at bar which involves a criminal proceeding stemming from a civil
(agrarian) case, it is clear that petitioner is not a real party in interest. Except
being the complainant, the records show that petitioner is a stranger to the
agrarian case. It must be recalled that the undisputed owner of the fishpond is
Paciencia Regala, who intervened in DARAB Case No. 552-P93 through her
Attorney-in-Fact Faustino Mercado in order to protect her interest. The motion for
intervention filed by Faustino Mercado, as agent of Paciencia Regala, was granted
by respondent Provincial Adjudicator Ilao, Jr. through the November 15, 1993
Order in DARAB Case No. 552-P93.
Agency cannot be further delegated
Petitioner asserts that he is duly authorized by Faustino Mercado to institute the
suit and 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 redelegation 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 1892 37 allows the agent to appoint a
substitute, such is not the situation in the instant case. The SPA clearly delegates
the agency to petitioner to pursue the case and not merely as a substitute.
Besides, it is clear in the aforecited Article that what is allowed is a substitute
and not a delegation of the agency.
Clearly, petitioner is neither a real party in interest with regard to the agrarian
case, nor is he a real party in interest in the criminal proceedings conducted by
the Ombudsman as elevated to the Sandiganbayan. He is not a party who will be
benefited or injured by the results of both cases.
Petitioner: a stranger and not an injured private complainant
Petitioner only surfaced in November 1994 as complainant before the
Ombudsman. Aside from that, not being an agent of the parties in the agrarian
case, he has no locus standi to pursue this petition. He cannot be likened to an
injured private complainant in a criminal complaint who has direct interest in the
outcome of the criminal case.
More so, we note that the petition is not pursued as a public suit with petitioner
asserting a "public right" in assailing an allegedly illegal official action, and doing
so as a representative of the general public. He is pursuing the instant case as an
agent of an ineffective agency.
Petitioner has not shown entitlement to judicial protection
Even if we consider the instant petition as a public suit, where we may consider
petitioner suing as a "stranger," or in the category of a "citizen," or "taxpayer,"
still petitioner has not adequately shown that he is entitled to seek judicial
protection. In other words, petitioner has not made out a sufficient interest in the
vindication of the public order and the securing of relief as a "citizen" or
"taxpayer"; more so when there is no showing that he was injured by the
dismissal of the criminal complaint before the Sandiganbayan.
Based on the foregoing discussion, petitioner indubitably does not have locus
standi to pursue this action and the instant petition must be forthwith dismissed
on that score. Even granting arguendo that he has locus standi, nonetheless,
petitioner fails to show grave abuse of discretion of respondent Ombudsman to
warrant a reversal of the assailed November 26, 1997 Order and the October 30,
1998 Memorandum.
First Issue: Submission of Counter-Affidavit
The Sandiganbayan, not the Ombudsman, ordered re-investigation
On the substantive aspect, in the first assignment of error, petitioner imputes
grave abuse of discretion on public respondent Ombudsman for allowing
respondent Ilao, Jr. to submit his Counter-Affidavit when the preliminary

investigation was already concluded and an Information filed with the

Sandiganbayan which assumed jurisdiction over the criminal case. This
contention is utterly erroneous.
The facts clearly show that it was not the Ombudsman through the OSP who
allowed respondent Ilao, Jr. to submit his Counter-Affidavit. It was the
Sandiganbayan who granted the prayed for re-investigation and ordered the OSP
to conduct the re-investigation through its August 29, 1997 Order, as follows:
Considering the manifestation of Prosecutor Cicero Jurado, Jr. that accused Toribio
E. Ilao, Jr. was not able to file his counter-affidavit in the preliminary
investigation, there appears to be some basis for granting the motion of said
accused for reinvestigation.
WHEREFORE, accused Toribio E. Ilao, Jr. may file his counter-affidavit, with
documentary evidence attached, if any, with the Office of the Special Prosecutor
within then (10) days from today. Theprosecution is ordered to conduct a
reinvestigation within a period of thirty (30) days. 38 (Emphases supplied.)
As it is, public respondent Ombudsman through the OSP did not exercise any
discretion in allowing respondent Ilao, Jr. to submit his Counter-Affidavit. The OSP
simply followed the graft courts directive to conduct the re-investigation after
the Counter-Affidavit of respondent Ilao, Jr. was filed. Indeed, petitioner did not
contest nor question the August 29, 1997 Order of the graft court. Moreover,
petitioner did not file any reply-affidavit in the re-investigation despite notice.
Re-investigation upon sound discretion of graft court
Furthermore, neither can we fault the graft court in granting the prayed for reinvestigation 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 prosecutors determination of probable cause
Finally, we will not delve into the merits of the Ombudsmans reversal of its initial
finding of probable cause or cause to bring respondents to trial. Firstly, petitioner
has not shown that the Ombudsman committed grave abuse of discretion in
rendering such reversal. Secondly, it is clear from the records that the initial
finding embodied in the May 10, 1996 Resolution was arrived at before the filing

of respondent Ilao, Jr.s Counter-Affidavit. Thirdly, it is the responsibility of the

public prosecutor, in this case the Ombudsman, to uphold the law, to prosecute
the guilty, and to protect the innocent. Lastly, the function of determining the
existence of probable cause is proper for the Ombudsman in this case and we
will not tread on the realm of this executive function to examine and assess
evidence supplied by the parties, which is supposed to be exercised at the start
of criminal proceedings. In Perez v. Hagonoy Rural Bank, Inc.,46 as cited
in Longos Rural Waterworks and Sanitation Association, Inc. v. Hon.
Desierto,47 we had occasion to rule that we cannot pass upon the sufficiency or
insufficiency of evidence to determine the existence of probable cause. 48
WHEREFORE, the instant petition is DENIED for lack of merit, and the November
26, 1997 Order and the October 30, 1998 Memorandum of the Office of the
Special Prosecutor in Criminal Case No. 23661 (OMB-1-94-3425) are
hereby AFFIRMED IN TOTO, with costs against petitioner.
SO ORDERED.
Quisumbing, J., Chairperson, Carpio, Carpio Morales, and Tinga, JJ., concur.

Footnotes
1

Rollo, pp. 7-24.

An Act Providing for the Functional and Structural Organization of the Office of
the Ombudsman and for Other Purposes.
3

Rollo, pp. 59-64. Prepared by Special Prosecution Officer II Cicero D. Jurado, Jr.,
recommended by Deputy Special Prosecutor Robert E. Kallos, concurred in by the
Special Prosecutor Leonardo P. Tamayo, and approved by Ombudsman Aniano A.
Desierto on August 21, 1998.
4

Id. at 47-48.

Id. at 71-76. Prepared by Special Prosecution Officer I Lolita S. Rodas,

recommended by Deputy Special Prosecutor Robert E. Kallos, concurred in by the
Special Prosecutor Leonardo P. Tamayo, and approved by Ombudsman Aniano A.
Desierto on November 27, 1998.
6

Id. at 65-67.

Id. at 36-43.

Id. at 44-46.

Anti-Graft and Corrupt Practices Act was approved on August 17, 1960. Section
3 (e) of this Act provides:
SEC. 3. Corrupt practices of public officers. x x x

(e) Causing any undue injury to any party, including the Government, or giving
any private party any unwarranted benefits, advantage or preference in the
discharge of his official, administrative or judicial functions through manifest
partiality, evident bad faith or gross inexcusable negligence. This provision shall
apply to officers and employees of offices or government corporations charged
with the grant of licenses or permits or other concessions.
10

Acknowledgement Receipt dated April 2, 1991, rollo, p. 28.

11

Acknowledgement Receipt dated January 10, 1993, id. at 29.

12

Id. at 33.

13

Id. at 209.

14

Id. at 30-32.

15

Id. at 200-203.

16

Id. at 204-206.

17

Id. at 34-35.

18

Id. at 25-27.

19

Id. at 147.

20

Supra note 7.

21

Rollo, pp. 148-164.

22

Supra note 8.

23

Supra note 4.

24

Rollo, p. 211.

25

Id. at 49-58.

26

Supra note 3.

27

Supra note 6.

28

Supra note 5.

29

Rollo, pp. 118-119.

30

Id. at 12.

31

H. Black, et al., Blacks Law Dictionary 941 (6th ed., 1991).

32

Salonga v. Warner Barnes & Co., G.R. No. L-2246, January 31, 1951, 88 Phil.
125.
33

RA 6770, supra note 2, at Sec. 15 (1).

34

Id. at Sec. 26.

35

Dated September 2, 1998, rollo, pp. 69-70.

36

See People v. Vera, G.R. No. 45685, November 16, 1937, 65 Phil. 56. The origin
of the legal maxim, its development and application, was sufficiently discussed.
37

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;
(2) When he was given such power, but without designating the person, and the
person appointed was notoriously incompetent or insolvent.
All acts of the substitute appointed against the prohibition of the principal shall
be void.
38

Supra note 24.

39

G.R. No. 134744, January 16, 2001, 349 SCRA 194, 201.

40

Sta. Clara Homeowners Association v. Gaston, G.R. No. 141961, January 23,
2002, 374 SCRA 396, 409.
41

Sarne v. Maquiling, G.R. No. 138839, May 9, 2002, 382 SCRA 85, 92; Alemars
(Sibal & Sons), Inc. v. CA, G.R. No. 94996, January 26, 2001, 350 SCRA 333,
339; Saura v. Saura, Jr., G.R. No. 136159, September 1, 1999, 313 SCRA 465,
472; Salva v. CA, G.R. No. 132250, March 11, 1999, 304 SCRA 632, 652; Unilongo
v. CA, G.R. No. 123910, April 5, 1999, 305 SCRA 561, 569; and Spouses Abrin v.
Campos, G.R. No. 52740, November 12, 1991, 203 SCRA 420, 423.
42

Gochan v. Young, G.R. No. 131889, March 12, 2001, 354 SCRA 207, 211 &
216; Saura v. Saura, Jr., supra note 41; and Spouses Abrin v. Campos, supra note
41.
43

Supra note 16.

44

Rollo, p. 207.

45

Id. at 208.

46

G.R. No. 126210, March 9, 2000, 327 SCRA 588, 604.

47

G.R. No. 135496, July 30, 2002, 385 SCRA 392, 397-398.

48

See also Roberts v. Court of Appeals, G.R. No. 113930, March 5, 1996, 254
SCRA 307. The Supreme Court refrained from passing over the propriety of
finding probable cause against petitioners as this function is proper to the public
prosecutor. Moreover, as to the question whether the public prosecutor has
discharged this executive function correctly, the trial court may not be compelled

to pass upon such query as there is no provision of law authorizing an aggrieved

party to petition for such determination.

Substitute Agent: Alternate Not Delegate

3 Am. Jur. 2d Agency Section 7
7. Subagency
West's Key Number Digest
West's Key Number Digest, Principal and Agent 17
A subagent is a person employed by the agent to assist him or her in conducting
the principal's affairs.[FN1]
Once a third party is validly appointed a subagent, the principal is liable for the
subagent's actions.[FN2] The agent's authority to appoint a subagent[FN3] may
be inferred from those powers, customs, and usages positively established, but if
the agent has no authority, express or implied, to make the person so appointed
the agent of the principal, that person is simply the agent of the agent, and not
of the principal.[FN4] Also, if an agent, who has undertaken to do the business of
the principal, employs another person on the agent's own account to assist in the
agent's undertakings, the person so appointed is an agent of the agent.[FN5]
CUMULATIVE SUPPLEMENT
Statutes:
Restatement Third, Agency 3.15 provides that (1) a subagent is a person
appointed by an agent to perform functions that the agent has consented to
perform on behalf of the agent's principal and for whose conduct the appointing
agent is responsible to the principal, and that the relationships between a
subagent and the appointing agent and between the subagent and the
appointing agent's principal are relationships of agency; (2) an agent may
appoint a subagent only if the agent has actual or apparent authority to do so.
[END OF SUPPLEMENT]
[FN1] McKnight v. Peoples-Pittsburgh Trust Co., 360 Pa. 290, 61 A.2d 820 (1948);
Fanset v. Garden City State Bank, 24 S.D. 248, 123 N.W. 686 (1909).
[FN2] Booker v. United American Ins. Co., 700 So. 2d 1333 (Ala. 1997).
[FN3] 154 to 156.
[FN4] Gulf Refining Co. v. Shirley, 99 S.W.2d 613 (Tex. Civ. App. Eastland 1936),
writ dismissed.

[FN5] Cowan v. Eastern Racing Ass'n, 330 Mass. 135, 111 N.E.2d 752 (1953).

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
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 demand 2 to
petitioner for failure to settle her obligation. Quilatan executed a complaint
affidavit3 against petitioner before the Office of the Assistant Provincial
Prosecutor. Thereafter, an information for estafa under Article 315, paragraph
1(b)4 of the Revised Penal Code was filed against petitioner, which was raffled to
Branch 255 of the Regional Trial Court of Las Pinas. The information alleged:

That on or about and sometime during the period from July 1992 up to
September 1992, in the Municipality of Las Pinas, Metro Manila, Philippines, and
within the jurisdiction of this Honorable Court, the said accused received in trust
from the complainant Leonida E. Quilatan various pieces of jewelry in the total
value of P567,750.00 to be sold on commission basis under the express duty and
obligation of remitting the proceeds thereof to the said complainant if sold or
returning the same to the latter if unsold but the said accused once in possession
of said various pieces of jewelry, with unfaithfulness and abuse of confidence
and with intent to defraud, did then and there willfully, unlawfully and feloniously
misappropriate and convert the same for her own personal use and benefit and
despite oral and written demands, she failed and refused to account for said
jewelry or the proceeds of sale thereof, to the damage and prejudice of
complainant Leonida E. Quilatan in the aforestated total amount of P567,750.00.
CONTRARY TO LAW.5
Petitioner pleaded not guilty to the charge upon arraignment. 6 Trial on the merits
thereafter ensued.
Quilatan testified that petitioner was able to remit P100,000.00 and returned
P43,000.00 worth of jewelriy;7 that at the start, petitioner was prompt in settling
her obligation; however, subsequently the payments were remitted late; 8that
petitioner still owed her in the amount of P424,750.00. 9
On the other hand, petitioner admitted that she received several pieces of
jewelry from Quilatan and that she indeed failed to pay for the same. She
claimed that she entrusted the pieces of jewelry to Marichu Labrador who failed
to pay for the same, thereby causing her to default in paying Quilatan. 10 She
presented handwritten receipts (Exhibits 1 & 2) 11 evidencing payments made to
Quilatan prior to the filing of the criminal case.
Marichu Labrador confirmed that she received pieces of jewelry from petitioner
worth P441,035.00. She identified an acknowledgment receipt (Exhibit
3)12 signed by her dated July 5, 1992 and testified that she sold the jewelry to a
person who absconded without paying her. Labrador also explained that in the
past, she too had directly transacted with Quilatan for the sale of jewelry on
commission basis; however, due to her outstanding account with the latter, she
got jewelry from petitioner instead.13
On November 17, 1994, the trial court rendered a decision finding petitioner
guilty of estafa, the dispositive portion of which reads:
WHEREFORE, in the light of the foregoing, the court finds the accused Virgie
Serona guilty beyond reasonable doubt, and as the amount misappropriated is
P424,750.00 the penalty provided under the first paragraph of Article 315 of the
Revised Penal Code has to be imposed which shall be in the maximum period
plus one (1) year for every additional P10,000.00.
Applying the Indeterminate Sentence Law, the said accused is hereby sentenced
to suffer the penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1)

DAY of prision correccional as minimum to TEN (10) YEARS and ONE (1) DAY of
prision mayor as maximum; to pay the sum of P424,750.00 as cost for the
unreturned jewelries; to suffer the accessory penalties provided by law; and to
pay the costs.
SO ORDERED.14
Petitioner appealed to the Court of Appeals, which affirmed the judgment of
conviction but modified the penalty as follows:
WHEREFORE, the appealed decision finding the accused-appellant guilty beyond
reasonable doubt of the crime of estafa is hereby AFFIRMED with the following
MODIFICATION:
Considering that the amount involved is P424,750.00, the penalty should be
imposed in its maximum period adding one (1) year for each additional
P10,000.00 albeit the total penalty should not exceed Twenty (20) Years (Art.
315). Hence, accused-appellant is hereby SENTENCED to suffer the penalty of
imprisonment ranging from Four (4) Years and One (1) Day of Prision Correccional
as minimum to Twenty (20) Years of Reclusion Temporal.
SO ORDERED.15
Upon denial of her motion for reconsideration, 16 petitioner filed the instant
petition under Rule 45, alleging that:
I
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT
THERE WAS AN ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN
ENTRUSTING THE SUBJECT JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON
COMMISSION TO PROSPECTIVE BUYERS.
II
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT
THERE WAS MISAPPROPRIATION OR CONVERSION ON THE PART OF PETITIONER
WHEN SHE FAILED TO RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE
COMPLAINANT.17
Petitioner argues that the prosecution failed to establish the elements of estafa
as penalized under Article 315, par. 1(b) of the Revised Penal Code. In particular,
she submits that she neither abused the confidence reposed upon her by
Quilatan nor converted or misappropriated the subject jewelry; that her giving
the pieces of jewelry to a sub-agent for sale on commission basis did not violate
her undertaking with Quilatan. Moreover, petitioner delivered the jewelry to
Labrador under the same terms upon which it was originally entrusted to her. It
was established that petitioner had not derived any personal benefit from the
loss of the jewelry. Consequently, it cannot be said that she misappropriated or
converted the same.

We find merit in the petition.

The elements of estafa through misappropriation or conversion as defined in
Article 315, par. 1(b) of the Revised Penal Code are: (1) that the money, good or
other personal property is received by the offender in trust, or on commission, or
for administration, or under any other obligation involving the duty to make
delivery of, or to return, the same; (2) that there be misappropriation or
conversion of such money or property by the offender or denial on his part of
such receipt; (3) that such misappropriation or conversion or denial is to the
prejudice of another; and (4) that there is a demand made by the offended party
on the offender.18 While the first, third and fourth elements are concededly
present, we find the second element of misappropriation or conversion to be
lacking in the case at bar.
Petitioner did not ipso facto commit the crime of estafa through conversion or
misappropriation by delivering the jewelry to a sub-agent for sale on commission
basis. We are unable to agree with the lower courts conclusion that this fact
alone is sufficient ground for holding that petitioner disposed of the jewelry "as if
it were hers, thereby committing conversion and a clear breach of trust." 19
It must be pointed out that the law on agency in our jurisdiction allows the
appointment by an agent of a substitute or sub-agent in the absence of an
express agreement to the contrary between the agent and the principal. 20 In the
case at bar, the appointment of Labrador as petitioners sub-agent was not
expressly prohibited by Quilatan, as the acknowledgment receipt, Exhibit B, does
not contain any such limitation. Neither does it appear that petitioner was
verbally forbidden by Quilatan from passing on the jewelry to another person
before the acknowledgment receipt was executed or at any other time. Thus, it
cannot be said that petitioners act of entrusting the jewelry to Labrador is
characterized by abuse of confidence because such an act was not proscribed
and is, in fact, legally sanctioned.
The essence of estafa under Article 315, par. 1(b) is the appropriation or
conversion of money or property received to the prejudice of the owner. The
words "convert" and "misappropriated" connote an act of using or disposing of
anothers property as if it were ones own, or of devoting it to a purpose or use
different from that agreed upon. To misappropriate for ones own use includes
not only conversion to ones personal advantage, but also every attempt to
dispose of the property of another without right. 21
In the case at bar, it was established that the inability of petitioner as agent to
comply with her duty to return either the pieces of jewelry or the proceeds of its
sale to her principal Quilatan was due, in turn, to the failure of Labrador to abide
by her agreement with petitioner. Notably, Labrador testified that she obligated
herself to sell the jewelry in behalf of petitioner also on commission basis or to
return the same if not sold. In other words, the pieces of jewelry were given by
petitioner to Labrador to achieve the very same end for which they were
delivered to her in the first place. Consequently, there is no conversion since the

pieces of jewelry were not devoted to a purpose or use different from that agreed
upon.
Similarly, it cannot be said that petitioner misappropriated the jewelry or
delivered them to Labrador "without right." Aside from the fact that no condition
or limitation was imposed on the mode or manner by which petitioner was to
effect the sale, it is also consistent with usual practice for the seller to
necessarily part with the valuables in order to find a buyer and allow inspection
of the items for sale.
In People v. Nepomuceno,22 the accused-appellant was acquitted of estafa on
facts similar to the instant case. Accused-appellant therein undertook to sell two
diamond rings in behalf of the complainant on commission basis, with the
obligation to return the same in a few days if not sold. However, by reason of the
fact that the rings were delivered also for sale on commission to sub-agents who
failed to account for the rings or the proceeds of its sale, accused-appellant
likewise failed to make good his obligation to the complainant thereby giving rise
to the charge of estafa. In absolving the accused-appellant of the crime charged,
we held:
Where, as in the present case, the agents to whom personal property was
entrusted for sale, conclusively proves the inability to return the same is solely
due to malfeasance of a subagent to whom the first agent had actually entrusted
the property in good faith, and for the same purpose for which it was received;
there being no prohibition to do so and the chattel being delivered to the
subagent before the owner demands its return or before such return becomes
due, we hold that the first agent can not be held guilty of estafa by either
misappropriation or conversion. The abuse of confidence that is characteristic of
this offense is missing under the circumstances. 23
Accordingly, petitioner herein must be acquitted. The lower courts reliance on
People v. Flores24 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 co-conspirators. If there is no such evidence, direct
or circumstantial, and if the proof is clear that the accused herself was the
innocent victim of her sub-agents faithlessness, her acquittal is in order. 28 (Italics
copied)
Labrador admitted that she received the jewelry from petitioner and sold the
same to a third person. She further acknowledged that she owed petitioner
P441,035.00, thereby negating any criminal intent on the part of petitioner.
There is no showing that petitioner derived personal benefit from or conspired
with Labrador to deprive Quilatan of the jewelry or its value. Consequently, there
is no estafa within contemplation of the law.
Notwithstanding the above, however, petitioner is not entirely free from any
liability towards Quilatan. The rule is that an accused acquitted of estafa may
nevertheless be held civilly liable where the facts established by the evidence so
warrant. Then too, an agent who is not prohibited from appointing a sub-agent
but does so without express authority is responsible for the acts of the 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.
Davide, Jr., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.

Footnotes

Rollo, p. 42.

RTC Records, p. 8.

Ibid., at 6.

ART. 315. Swindling (estafa). Any person who shall defraud another by any of
the means mentioned hereinbelow shall be punished by:
xxxxxxxxx

1. With unfaithfulness or abuse of confidence, namely:

xxxxxxxxx
(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;
x x x x x x x x x.
5

Op. cit., note 1 at 46.

Op. cit., note 2 at 25.

TSN, July 26, 1993, pp. 15-16.

TSN, September 13, 1993, p. 8.

Op. cit., note 7 at 17.

10

TSN, November 8, 1993, p. 19.

11

Op. cit., note 2 at 49-50.

12

Ibid., at 51.

13

TSN, January 27, 1994, pp. 5-9 & 16-18.

14

Op. cit., note 1 at 51-52.

15

Ibid., at 40.

16

Id., at 41.

17

Op. cit., note 1 at 13-14.

18

Barrameda v. Court of Appeals, 313 SCRA 477, 484 (1999), citing Fontanilla v.
People, 258 SCRA 460 (1996) and Manahan, Jr. v. Court of Appeals, 255 SCRA 202
(1996).
19

Op. cit., note 1 at 51.

20

Civil Code of the Philippines, Article 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 x x x x x x.

21

Amorsolo v. People, 154 SCRA 556, 563 (1987), citing U.S. v. Ramirez, 9 Phil.
67 and U.S. v. Panes, 37 Phil. 116 (1917).
22

CA 46 O. G. 6128 (1949).

23

Ibid., at 6135.

24

47 O.G. 6210 (1949).

25

37 Phil. 116 (1917).

26

271 SCRA 12 (1997).

27

CA 53 O.G. 731 (1956).

28

Op. cit., note 26 at 20.

29

Op. cit., note 20.

30

Revised Rules of Criminal Procedure, Rule 111, Section 1(a).

Republic of the Philippines

SUPREME COURT
SECOND DIVISION
G.R. No. 162822 August 25, 2005
JAIME GUINHAWA, Petitioners,
vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
CALLEJO, SR., J.:
Jaime Guinhawa was engaged in the business of selling brand new motor
vehicles, including Mitsubishi vans, under the business name of Guinrox Motor
Sales. His office and display room for cars were located along Panganiban
Avenue, Naga City. He employed Gil Azotea as his sales manager.
On March 17, 1995, Guinhawa purchased a brand new Mitsubishi L-300 Versa
Van with Motor No. 4D56A-C8929 and Serial No. L069WQZJL-07970 from the
Union Motors Corporation (UMC) in Paco, Manila. The van bore Plate No. DLK 406.
Guinhawas driver, Leopoldo Olayan, drove the van from Manila to Naga City.
However, while the van was traveling along the highway in Labo, Daet,
Camarines Norte, Olayan suffered a heart attack. The van went out of control,
traversed the highway onto the opposite lane, and was ditched into the canal
parallel to the highway.1 The van was damaged, and the left front tire had to be
replaced.

The incident was reported to the local police authorities and was recorded in the
police blotter.2 The van was repaired and later offered for sale in Guinhawas
showroom.3
Sometime in October 1995, the spouses Ralph and Josephine Silo wanted to buy
a new van for their garment business; they purchased items in Manila and sold
them in Naga City.4 They went to Guinhawas office, and were shown the L-300
Versa Van which was on display. The couple inspected its interior portion and
found it beautiful. They no longer inspected the under chassis since they
presumed that the vehicle was brand new. 5 Unaware that the van had been
damaged and repaired on account of the accident in Daet, the couple decided to
purchase the van for P591,000.00. Azotea suggested that the couple make a
downpayment of P118,200.00, and pay the balance of the purchase price by
installments via a loan from the United Coconut Planters Bank (UCPB), Naga
Branch, with the L-300 Versa Van as collateral. Azotea offered to make the
necessary arrangements with the UCPB for the consummation of the loan
transaction. The couple agreed. On November 10, 1995, the spouses executed a
Promissory Note6 for the amount of P692,676.00 as payment of the balance on
the purchase price, and as evidence of the chattel mortgage over the van in
favor of UCPB.
On October 11, 1995, the couple arrived in Guinhawas office to take delivery of
the van. Guinhawa executed the deed of sale, and the couple paid
the P161,470.00 downpayment, for which they were issued Receipt No.
0309.7They were furnished a Service Manual 8 which contained the warranty
terms and conditions. Azotea instructed the couple on how to start the van and
to operate its radio. Ralph Silo no longer conducted a test drive; he and his wife
assumed that there were no defects in the van as it was brand new. 9
On October 12, 1995, Josephine Silo, accompanied by Glenda Pingol, went to
Manila on board the L-300 Versa Van, with Glendas husband, Bayani Pingol III, as
the driver. Their trip to Manila was uneventful. However, on the return trip to
Naga from Manila on October 15 or 16, 1995, Bayani Pingol heard a squeaking
sound which seemed to be coming from underneath the van. They were in
Calauag, Quezon, where there were no humps along the road. 10 Pingol stopped
the van in Daet, Camarines Norte, and examined the van underneath, but found
no abnormalities or defects.11 But as he drove the van to Naga City, the
squeaking sound persisted.
Believing that the van merely needed grease, Pingol stopped at a Shell gasoline
station where it was examined. The mechanic discovered that some parts
underneath the van had been welded. When Pingol complained to Guinhawa, the
latter told him that the defects were mere factory defects. As the defects
persisted, the spouses Silo requested that Guinhawa change the van with two
Charade-Daihatsu vehicles within a week or two, with the additional costs to be
taken from their downpayment. Meanwhile, the couple stopped paying the
monthly amortization on their loan, pending the replacement of the van.
Guinhawa initially agreed to the couples proposal, but later changed his mind
and told them that he had to sell the van first. The spouses then brought the

vehicle to the Rx Auto Clinic in Naga City for examination. Jesus Rex Raquitico,
Jr., the mechanic, examined the van and discovered that it was the left front
stabilizer that was producing the annoying sound, and that it had been
repaired.12 Raquitico prepared a Job Order containing the following notations and
recommendations:
1. CHECK UP SUSPENSION (FRONT)
2. REPLACE THE ROD END
3. REPLACE BUSHING
NOTE: FRONT STEP BOARD HAS BEEN ALREADY DAMAGED AND REPAIRED.
NOTE: FRONT LEFT SUSPENSION MOUNTING IS NOT ON SPECIFIED
ALIGNMENT/MEASUREMENT13
Josephine Silo filed a complaint for the rescission of the sale and the refund of
their money before the Department of Trade and Industry (DTI). During the
confrontation between her and Guinhawa, Josephine learned that Guinhawa had
bought the van from UMC before it was sold to them, and after it was damaged
in Daet. Subsequently, the spouses Silo withdrew their complaint from the DTI.
On February 14, 1996, Josephine Silo filed a criminal complaint for violation of
paragraph 1, Article 318 of the Revised Penal Code against Guinhawa in the
Office of the City Prosecutor of Naga City. After the requisite investigation, an
Information was filed against Guinhawa in the Municipal Trial Court (MTC) of Naga
City. The inculpatory portion reads:
The undersigned Assistant Prosecutor of Naga City accuses Jaime Guinhawa of
the crime of OTHER DECEITS defined and penalized under Art. 318, par. 1 of the
Revised Penal Code, committed as follows:
"That on or about October 11, 1995, in the City of Naga, Philippines, and within
the jurisdiction of this Honorable Court, the said accused, being a motor vehicle
dealer using the trade name of Guinhawa Motor Sales at Panganiban Avenue,
Naga City, and a dealer of brand new cars, by means of false pretenses and
fraudulent acts, did then and there willfully, unlawfully and feloniously defraud
private complainant, JOSEPHINE P. SILO, as follows: said accused by means of
false manifestations and fraudulent representations, sold to said private
complainant, as brand new, an automobile with trade name L-300 Versa Van
colored beige and the latter paid for the same in the amount of P591,000.00,
when, in truth and in fact, the same was not brand new because it was
discovered less than a month after it was sold to said Josephine P. Silo that said
L-300 Versa Van had defects in the underchassis and stepboard and repairs had
already been done thereat even before said sale, as was found upon check-up by
an auto mechanic; that private complainant returned said L-300 Versa Van to the
accused and demanded its replacement with a new one or the return of its
purchase price from said accused but despite follow-up demands no replacement
was made nor was the purchase price returned to private complainant up to the

present to her damage and prejudice in the amount of P591,000.00, Philippine

Currency, plus other damages that may be proven in court." 14
Guinhawa testified that he was a dealer of brand new Toyota, Mazda, Honda and
Mitsubishi cars, under the business name Guinrox Motor Sales. He purchased
Toyota cars from Toyota Philippines, and Mitsubishi cars from UMC in Paco,
Manila.15 He bought the van from the UMC in March 1995, but did not use it; he
merely had it displayed in his showroom in Naga City. 16 He insisted that the van
was a brand new unit when he sold it to the couple. 17 The spouses Silo bought
the van and took delivery only after inspecting and taking it for a road tests. 18His
sales manager, Azotea, informed him sometime in November 1995 that the
spouses Silo had complained about the defects under the left front portion of the
van. By then, the van had a kilometer reading of 4,000 kilometers. 19He insisted
that he did not make any false statement or fraudulent misrepresentation to the
couple about the van, either before or simultaneous with its purchase. He posited
that the defects noticed by the couple were not major ones, and could be
repaired. However, the couple refused to have the van repaired and insisted on a
refund of their payment for the van which he could not allow. He then had the
defects repaired by the UMC.20 He claimed that the van was never involved in
any accident, and denied that his driver, Olayan, met an accident and sustained
physical injuries when he drove the van from Manila to Naga City. 21 He even
denied meeting Bayani Pingol.
The accused claimed that the couple filed a Complaint 22 against him with the DTI
on January 25, 1996, only to withdraw it later. 23 The couple then failed to pay the
amortizations for the van, which caused the UCPB to file a petition for the
foreclosure of the chattel mortgage and the sale of the van at public auction. 24
Azotea testified that he had been a car salesman for 16 years and that he sold
brand new vans.25 Before the couple took delivery of the vehicle, Pingol
inspected its exterior, interior, and underside, and even drove it for the
couple.26 He was present when the van was brought to the Rx Auto Clinic, where
he noticed the dent on its front side. 27 He claimed that the van never figured in
any vehicular accident in Labo, Daet, Camarines Norte on March 17, 1995. 28 In
fact, he declared, he found no police record of a vehicular accident involving the
van on the said date.29 He admitted that Olayan was their driver, and was in
charge of taking delivery of cars purchased from the manufacturer in Manila. 30
On November 6, 2001, the trial court rendered judgment convicting Guinhawa.
The fallo of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered declaring the
accused, JAIME GUINHAWA, guilty of the crime of Other Deceits defined and
penalized under Art. 318(1) of the Revised Penal Code, the prosecution having
proven the guilt of the accused beyond reasonable doubt and hereby imposes
upon him the penalty of imprisonment from 2 months and 1 day to 4 months
of Arresto Mayor and a fine of One Hundred Eighty Thousand Seven Hundred and
Eleven Pesos (P180,711.00) the total amount of the actual damages caused to
private complainant.

As to the civil aspect of this case which have been deemed instituted with this
criminal case, Articles 2201 and 2202 of the Civil Code provides:
"Art. 2201. In contracts and quasi-contracts, the damages for which the obligor
who acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was
constituted.
"In case of fraud, malice or wanton attitude, the obligor shall be responsible for
all damages which may be reasonably attributed to the non-performance of the
obligation."
"Art. 2202. In crimes and quasi-delicts, the defendant shall be liable for all
damages which are the natural and probable consequences of the act or
omission complained of. It is not necessary that such damages have been
foreseen or could have reasonably been foreseen by the defendant."
Thus, accused is condemned to pay actual damages in the amount of One
Hundred Eighty Thousand Seven Hundred and Eleven Pesos (Php180,711.00),
which represents the 20% downpayment and other miscellaneous expenses paid
by the complainant plus the amount of Nineteen Thousand Two Hundred FortyOne (Php19,241.00) Pesos, representing the 1st installment payment made by
the private complainant to the bank. Accused is, likewise, ordered to pay moral
damages in the amount of One Hundred Thousand Pesos (Php100,000.00) in
view of the moral pain suffered by the complainant; for exemplary damages in
the amount of Two Hundred Thousand Pesos (Php200,000.00) to serve as
deterrent for those businessmen similarly inclined to take undue advantage over
the publics innocence. As for attorneys fees, the reasonable amount of One
Hundred Thousand Pesos (Php100,000.00) is hereby awarded.
SO ORDERED.31
The trial court declared that the accused made false pretenses or
misrepresentations that the van was a brand new one when, in fact, it had
figured in an accident in Labo, Daet, Camarines Norte, and sustained serious
damages before it was sold to the private complainant.
Guinhawa appealed the decision to the Regional Trial Court (RTC) of Naga City,
Branch 19, in which he alleged that:
1. The lower court erred in its finding that the repair works on the left front
portion and underchassis of the van was the result of the accident in Labo,
Camarines Norte, where its driver suffered an attack of hypertension.
2. The lower court erred in its four (4) findings of fact that accused-appellant
made misrepresentation or false pretenses "that the van was a brand new car,"
which constituted deceit as defined in Article 318, paragraph 1 of the Revised
Penal Code.

3. The lower court erred in finding accused-appellant civilly liable to complainant

Josephine Silo. But, even if there be such liability, the action therefor has already
prescribed and the amount awarded was exhorbitant, excessive and
unconscionable.32
Guinhawa insisted that he never talked to the couple about the sale of the van;
hence, could not have made any false pretense or misrepresentation.
On August 1, 2002, the RTC affirmed the appealed judgment. 33
Guinhawa filed a petition for review with the Court of Appeals (CA), where he
averred that:
I
THE COURT A QUO ERRED IN CONVICTING PETITIONER OF THE CRIME OF OTHER
DECEITS AND SENTENCING HIM TO SUFFER IMPRISONMENT OF TWO MONTHS
AND ONE DAY TO FOUR MONTHS OFARRESTO MAYOR AND TO PAY FINE IN THE
AMOUNT OF P180,711.00.
II
THE COURT A QUO ERRED IN ORDERING PETITIONER TO PAY PRIVATE
COMPLAINANT P180,711.00 AS DOWNPAYMENT, P19,241.00 AS FIRST
INSTALLMENT WITH UCPB NAGA, P100,000.00 AS MORAL DAMAGES,P200,000.00
AS EXEMPLARY DAMAGES AND P100,000.00 AS ATTORNEYS FEES.34
On January 5, 2004, the CA rendered judgment affirming with modification the
decision of the RTC. The fallo of the decision reads:
WHEREFORE, premises considered, the instant petition is hereby partially
granted insofar as the following are concerned: a) the award of moral damages is
hereby REDUCED to P10,000.00 and b) the award of attorneys fees and
exemplary damages are hereby DELETED for lack of factual basis. In all other
respects, We affirm the decision under review.
Costs against petitioner.
SO ORDERED.35
The CA ruled that the private complainant had the right to assume that the van
was brand new because Guinhawa held himself out as a dealer of brand new
vans. According to the appellate court, the act of displaying the van in the
showroom without notice to any would-be buyer that it was not a brand new unit
was tantamount to deceit. Thus, in concealing the vans true condition from the
buyer, Guinhawa committed deceit.
The appellate court denied Guinhawas motion for reconsideration, prompting
him to file the present petition for review on certiorari, where he contends:
I

THE COURT A QUO ERRED IN NOT HOLDING THAT THE INFORMATION CHARGED
AGAINST PETITIONER DID NOT INFORM HIM OF A CHARGE OF OTHER DECEITS.
II
THE COURT A QUO ERRED IN HOLDING THAT PETITIONER EMPLOYED FRAUD OR
DECEIT AS DEFINED UNDER ARTICLE 318, REVISED PENAL CODE.
III
THE COURT A QUO ERRED IN NOT CONSIDERING THE CIRCUMSTANCES POINTING
TO THE INNOCENCE OF THE PETITIONER. 36
The issues for resolution are (1) whether, under the Information, the petitioner
was charged of other deceits under paragraph 1, Article 318 of the Revised Penal
Code; and (2) whether the respondent adduced proof beyond reasonable doubt
of the petitioners guilt for the crime charged.
The petitioner asserts that based on the allegations in the Information, he was
charged with estafa through false pretenses under paragraph 2, Article 315 of
the Revised Penal Code. Considering the allegation that the private complainant
was defrauded of P591,000.00, it is the RTC, not the MTC, which has exclusive
jurisdiction over the case. The petitioner maintains that he is not estopped from
assailing this matter because the trial courts lack of jurisdiction can be assailed
at any time, even on appeal, which defect cannot even be cured by the evidence
adduced during the trial. The petitioner further avers that he was convicted of
other deceits under paragraph 1, Article 318 of the Revised Penal Code, a crime
for which he was not charged; hence, he was deprived of his constitutional right
to be informed of the nature of the charge against him. And in any case, even if
he had been charged of other deceits under paragraph 1 of Article 318, the CA
erred in finding him guilty. He insists that the private complainant merely
assumed that the van was brand new, and that he did not make any
misrepresentation to that effect. He avers that deceit cannot be committed by
concealment, the absence of any notice to the public that the van was not brand
new does not amount to deceit. He posits that based on the principle of caveat
emptor, if the private complainant purchased the van without first inspecting it,
she must suffer the consequences. Moreover, he did not attend to the private
complainant when they examined the van; thus, he could not have deceived
them.
The petitioner maintains that, absent evidence of conspiracy, he is not criminally
liable for any representation Azotea may have made to the private complainant,
that the van was brand new. He insists that the respondent was estopped from
adducing evidence that the vehicle was involved in an accident in Daet,
Camarines Norte on March 17, 1995, because such fact was not alleged in the
Information.
In its comment on the petition, the Office of the Solicitor General avers that, as
gleaned from the material averments of the Information, the petitioner was
charged with other deceits under paragraph 1, Article 318 of the Revised Penal

Code, a felony within the exclusive jurisdiction of the MTC. The petitioner was
correctly charged and convicted, since he falsely claimed that the vehicle was
brand new when he sold the same to the private complainant. The petitioners
concealment of the fact that the van sustained serious damages as an aftermath
of the accident in Daet, Camarines Norte constituted deceit within the meaning
of paragraph 1 of Article 318.
The Information filed against the petitioner reads:
That on or about October 11, 1995, in the City of Naga, Philippines, and within
the jurisdiction of this Honorable Court, the said accused, being a motor vehicle
dealer using the trade name of Guinhawa Motor Sales at Panganiban Avenue,
Naga City, and dealer of brand new cars, by means of false pretenses and
fraudulent acts, did then and there, willfully, unlawfully and feloniously defraud
private complainant, JOSEPHINE P. SILO, as follows: said accused by means of
false manifestations and fraudulent representations, sold to said private
complainant, as brand new, an automobile with trade name L-300 Versa Van
colored beige and the latter paid for the same in the amount of P591,000.00,
when, in truth and in fact, the same was not brand new because it was
discovered less than a month after it was sold to said Josephine P. Silo that said
L-300 Versa Van had defects in the underchassis and stepboard and repairs have
already been done thereat even before said sale, as was found upon check-up by
an auto mechanic; that private complainant returned said L-300 Versa Van to the
accused and demanded its replacement with a new one or the return of its
purchase price from said accused but despite follow-up demands no replacement
was made nor was the purchase price returned to private complainant up to the
present to her damage and prejudice in the amount of P591,000.00, Philippine
Currency, plus other damages that may be proven in court.
CONTRARY TO LAW.37
Section 6, Rule 110 of the Rules of Criminal Procedure requires that the
Information must allege the acts or omissions complained of as constituting the
offense:
SEC. 6. Sufficiency of complaint or information. A complaint or information is
sufficient if it states the name of the accused; the designation of the offense
given by the statute; the acts or omissions complained of as constituting the
offense; the name of the offended party; the approximate date of the
commission of the offense; and the place where the offense was committed.
When an offense is committed by more than one person, all of them shall be
included in the complaint or information.
The real nature of the offense charged is to be ascertained by the facts alleged in
the body of the Information and the punishment provided by law, not by the
designation or title or caption given by the Prosecutor in the Information. 38 The
Information must allege clearly and accurately the elements of the crime
charged.39

As can be gleaned from its averments, the Information alleged the essential
elements of the crime under paragraph 1, Article 318 of the Revised Penal Code.
The false or fraudulent representation by a seller that what he offers for sale is
brand new (when, in fact, it is not) is one of those deceitful acts envisaged in
paragraph 1, Article 318 of the Revised Penal Code. The provision reads:
Art. 318. Other deceits. The penalty of arresto mayor and a fine of not less than
the amount of the damage caused and not more than twice such amount shall be
imposed upon any person who shall defraud or damage another by any other
deceit not mentioned in the preceding articles of this chapter.
This provision was taken from Article 554 of the Spanish Penal Code which
provides:
El que defraudare o perjudicare a otro, usando de cualquier engao que no se
halle expresado en los artculos anteriores de esta seccin, ser castigado con
una multa del tanto al duplo del perjuicio que irrogare; y en caso de reincidencia,
con la del duplo y arresto mayor en su grado medio al mximo.
For one to be liable for "other deceits" under the law, it is required that the
prosecution must prove the following essential elements: (a) false pretense,
fraudulent act or pretense other than those in the preceding articles;
(b) such false pretense, fraudulent act or pretense must be made or executed
prior to or simultaneously with the commission of the fraud; and (c) as a result,
the offended party suffered damage or prejudice. 40 It is essential that such false
statement or fraudulent representation constitutes the very cause or the only
motive for the private complainant to part with her property.
The provision includes any kind of conceivable deceit other than those
enumerated in Articles 315 to 317 of the Revised Penal Code. 41 It is intended as
the catchall provision for that purpose with its broad scope and intendment. 42
Thus, the petitioners reliance on paragraph 2(a), Article 315 of the Revised Penal
Code is misplaced. The said provision reads:
2. By means of any of the following false pretenses or fraudulent acts executed
prior to or simultaneously with the commission of the fraud:
(a) By using fictitious name, or falsely pretending to possess power, influence,
qualifications, property, credit, agency, business or imaginary transactions; or by
means of other similar deceits.
The fraudulent representation of the seller, in this case, that the van to be sold is
brand new, is not the deceit contemplated in the law. Under the principle
of ejusdem generis, where a statement ascribes things of a particular class or
kind accompanied by words of a generic character, the generic words will usually
be limited to things of a similar nature with those particularly enumerated unless
there be something in the context to the contrary. 43

Jurisdiction is conferred by the Constitution or by law. It cannot be conferred by

the will of the parties, nor diminished or waived by them. The jurisdiction of the
court is determined by the averments of the complaint or Information, in relation
to the law prevailing at the time of the filing of the criminal complaint or
Information, and the penalty provided by law for the crime charged at the time of
its commission.
Section 32 of Batas Pambansa Blg. 129, as amended by Republic Act No. 7691,
provides that the MTC has exclusive jurisdiction over offenses punishable with
imprisonment not exceeding six years, irrespective of the amount of the fine:
Sec. 32. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in Criminal Cases. Except in cases falling within
the exclusive original jurisdiction of Regional Trial Courts and of the
Sandiganbayan, the Metropolitan Trial Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts shall exercise:
(1) Exclusive original jurisdiction over all violations of city or municipal
ordinances committed within their respective territorial jurisdiction; and
(2) Exclusive original jurisdiction over all offenses punishable with imprisonment
not exceeding six (6) years irrespective of the amount of fine, and regardless of
other imposable accessory or other penalties, including the civil liability arising
from such offenses or predicated thereon, irrespective of kind, nature, value or
amount thereof:Provided, however, That in offenses involving damage to
property through criminal negligence, they shall have exclusive original
jurisdiction thereof.
Since the felony of other deceits is punishable by arresto mayor, the MTC had
exclusive jurisdiction over the offense lodged against the petitioner.
On the merits of the petition, the Court agrees with the petitioners contention
that there is no evidence on record that he made direct and positive
representations or assertions to the private complainant that the van was brand
new. The record shows that the private complainant and her husband Ralph Silo
were, in fact, attended to by Azotea. However, it bears stressing that the
representation may be in the form of words, or conduct resorted to by an
individual to serve as an advantage over another. Indeed, as declared by the CA
based on the evidence on record:
Petitioner cannot barefacedly claim that he made no personal representation
that the herein subject van was brand new for the simple reason that nowhere in
the records did he ever refute the allegation in the complaint, which held him out
as a dealer of brand new cars. It has thus become admitted that the petitioner
was dealing with brand new vehicles a fact which, up to now, petitioner has not
categorically denied. Therefore, when private complainant went to petitioners
showroom, the former had every right to assume that she was being sold brand
new vehicles there being nothing to indicate otherwise. But as it turned out, not
only did private complainant get a defective and used van, the vehicle had also

earlier figured in a road accident when driven by no less than petitioners own
driver.44
Indeed, the petitioner and Azotea obdurately insisted in the trial court that the
van was brand new, and that it had never figured in vehicular accident. This
representation was accentuated by the fact that the petitioner gave the Service
Manual to the private complainant, which manual
contained the warranty terms and conditions, signifying that the van was "brand
new." Believing this good faith, the private complainant decided to purchase the
van for her buy-and-sell and garment business, and even made a downpayment
of the purchase price.
As supported by the evidence on record, the van was defective when the
petitioner sold it to the private complainant. It had ditched onto the shoulder of
the highway in Daet, Camarines Norte on its way from Manila to Naga City. The
van was damaged and had to be repaired; the rod end and bushing had to be
replaced, while the left front stabilizer which gave out a persistent annoying
sound was repaired. Some parts underneath the van were even welded together.
Azotea and the petitioner deliberately concealed these facts from the private
complainant when she bought the van, obviously so as not to derail the sale and
the profit from the transaction.
The CA is correct in ruling that fraud or deceit may be committed by omission. As
the Court held in People v. Balasa:45
Fraud, in its general sense, is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach of
legal or equitable duty, trust, or confidence justly reposed, resulting in damage
to another, or by which an undue and unconscientious advantage is taken of
another. It is a generic term embracing all multifarious means which human
ingenuity can device, and which are resorted to by one individual to secure an
advantage over another by false suggestions or by suppression of truth and
includes all surprise, trick, cunning, dissembling and any unfair way by which
another is cheated. On the other hand, deceit is the false representation of a
matter of fact whether by words or conduct, by false or misleading allegations,
or by concealment of that which should have been disclosed which deceives or is
intended to deceive another so that he shall act upon it to his legal injury.46
It is true that mere silence is not in itself concealment. Concealment which the
law denounces as fraudulent implies a purpose or design to hide facts which the
other party sought to know.47 Failure to reveal a fact which the seller is, in good
faith, bound to disclose may generally be classified as a deceptive act due to its
inherent capacity to deceive.48 Suppression of a material fact which a party is
bound in good faith to disclose is equivalent to a false
representation.49 Moreover, a representation is not confined to words or positive
assertions; it may consist as well of deeds, acts or artifacts of a nature calculated
to mislead another and thus allow the fraud-feasor to obtain an undue
advantage.50

Fraudulent nondisclosure and fraudulent concealment are of the same genre.

Fraudulent concealment presupposes a duty to disclose the truth and that
disclosure was not made when opportunity to speak and inform was presented,
and that the party to whom the duty of disclosure, as to a material fact was due,
was induced thereby to act to his injury. 51
Article 1389 of the New Civil Code provides that failure to disclose facts when
there is a duty to reveal them constitutes fraud. In a contract of sale, a buyer and
seller do not deal from equal bargaining positions when the latter has
knowledge, a material fact which, if communicated to the buyer, would render
the grounds unacceptable or, at least, substantially less desirable. 52 If, in a
contract of sale, the vendor knowingly allowed the vendee to be deceived as to
the thing sold in a material matter by failing to disclose an intrinsic circumstance
that is vital to the contract, knowing that the vendee is acting upon the
presumption that no such fact exists, deceit is accomplished by the suppression
of the truth.53
In the present case, the petitioner and Azotea knew that the van had figured in
an accident, was damaged and had to be repaired. Nevertheless, the van was
placed in the showroom, thus making it appear to the public that it was a brand
new unit. The petitioner was mandated to reveal the foregoing facts to the
private complainant. But the petitioner and Azotea even obdurately declared
when they testified in the court a quo that the vehicle did not figure in an
accident, nor had it been repaired; they maintained that the van was brand new,
knowing that the private complainant was going to use it for her garment
business. Thus, the private complainant bought the van, believing it was brand
new.
Significantly, even when the petitioner was apprised that the private
complainant had discovered the vans defects, the petitioner agreed to replace
the van, but changed his mind and insisted that it must be first sold.
The petitioner is not relieved of his criminal liability for deceitful concealment of
material facts, even if the private complainant made a visual inspection of the
vans interior and exterior before she agreed to buy it and
failed to inspect its under chassis. Case law has it that where the vendee made
only a partial investigation and relies, in part, upon the representation of the
vendee, and is deceived by such representation to his injury, he may maintain an
action for such deceit.54 The seller cannot be heard to say that the vendee should
not have relied upon the fraudulent concealment; that negligence, on the part of
the vendee, should not be a defense in order to prevent the vendor from
unjustifiably escaping with the fruits of the fraud.
In one case,55 the defendant who repainted an automobile, worked it over to
resemble a new one and delivered it to the plaintiff was found to have warranted
and represented that the automobile being sold was new. This was found to be "a
false representation of an existing fact; and, if it was material and induced the
plaintiff to accept something entirely different from that which he had contracted
for, it clearly was a fraud which, upon its discovery and a tender of the property

back to the seller, [it] entitled the plaintiff to rescind the trade and recover the
purchase money."56
On the petitioners insistence that the private complainant was proscribed from
charging him with estafa based on the principle of caveat emptor, case law has it
that this rule only requires the purchaser to exercise such care and attention as
is usually exercised by ordinarily prudent men in like business affairs, and only
applies to defects which are open and patent to the service of one exercising
such care.57 In an avuncular case, it was held that:
The rule of caveat emptor, like the rule of sweet charity, has often been
invoked to cover a multitude of sins; but we think its protecting mantle has never
been stretched to this extent. It can only be applied where it is shown or
conceded that the parties to the contract stand on equal footing and have equal
knowledge or equal means of knowledge and there is no relation of trust or
confidence between them. But, where one party undertakes to sell to another
property situated at a distance and of which he has or claims to have personal
knowledge and of which the buyer knows nothing except as he is informed by
the seller, the buyer may rightfully rely on the truth of the sellers
representations as to its kind, quality, and value made in the course of
negotiation for the purpose of inducing the purchase. If, in such case, the
representations prove to be false, neither law nor equity will permit the seller to
escape responsibility by the plea that the buyer ought not to have believed him
or ought to have applied to other sources to ascertain the facts. 58
It bears stressing that Azotea and the petitioner had every opportunity to reveal
to the private complainant that the van was defective. They resolved to maintain
their silence, to the prejudice of the private complainant, who was a garment
merchant and who had no special knowledge of parts of motor vehicles. Based
on the surrounding circumstances, she relied on her belief that the van was
brand new. In fine, she was the innocent victim of the petitioners fraudulent
nondisclosure or concealment.
The petitioner cannot pin criminal liability for his fraudulent omission on his
general manager, Azotea. The two are equally liable for their collective
fraudulent silence. Case law has it that wherever the doing of a
certain act or the transaction of a given affair, or the performance of certain
business is confided to an agent, the authority to so act will, in accordance with a
general rule often referred to, carry with it by implication the authority to do all
of the collateral acts which are the natural and ordinary incidents of the main act
or business authorized.59
The MTC sentenced the petitioner to suffer imprisonment of from two months
and one day, as minimum, to four months of arresto mayor, as maximum. The
CA affirmed the penalty imposed by the trial court. This is erroneous. Section 2 of
Act 4103, as amended, otherwise known as the Indeterminate Sentence Law,
provides that the law will not apply if the maximum term of imprisonment does
not exceed one year:

SEC. 2. This Act shall not apply to persons convicted of offenses punished with
death penalty or life-imprisonment; to those convicted of treason, conspiracy or
proposal to commit treason; to those convicted of misprision of treason,
rebellion, sedition or espionage; to those convicted of piracy; to those who are
habitual delinquents; to those who shall have escaped from confinement or
evaded sentence; to those who having been granted conditional pardon by the
Chief Executive shall have violated the terms thereof; to those whose maximum
term of imprisonment does not exceed one year, not to those already sentenced
by final judgment at the time of approval of this Act, except as provided in
Section 5 hereof. (As amended by Act No. 4225.)
In this case, the maximum term of imprisonment imposed on the petitioner was
four months and one day of arresto mayor. Hence, the MTC was proscribed from
imposing an indeterminate penalty on the petitioner. An indeterminate penalty
may be imposed if the minimum of the penalty is
one year or less, and the maximum exceeds one year. For example, the trial
court may impose an indeterminate penalty of six months of arresto mayor, as
minimum, to two years and four months of prision correccional, as maximum,
since the maximum term of imprisonment it imposed exceeds one year. If the
trial court opts to impose a penalty of imprisonment of one year or less, it should
not impose an indeterminate penalty, but a straight penalty of one year or less
instead. Thus, the petitioner may be sentenced to a straight penalty of one year,
or a straight penalty of less than one year, i.e., ten months or eleven months. We
believe that considering the attendant circumstances, a straight penalty of
imprisonment of six months is reasonable.
Conformably with Article 39 in relation to paragraph 3, Article 38 of the Revised
Penal Code, the petitioner shall suffer subsidiary imprisonment if he has no
property with which to pay the penalty of fine.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed
Decision and Resolution areAFFIRMED WITH MODIFICATION. Considering the
surrounding circumstances of the case, the petitioner is hereby sentenced to
suffer a straight penalty of six (6) months imprisonment. The petitioner shall
suffer subsidiary imprisonment in case of insolvency.
Costs against the petitioner.
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Associate Justice
Chairman

MA. ALICIA AUSTRIA-MARTINEZ DANTE O. TINGA

Associate Justice Associate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Associate Justice
Chairman, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairmans Attestation, it is hereby certified that the conclusions in the above
decision were reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
HILARIO G. DAVIDE, JR.
Chief Justice

Footnotes
1

Exhibit "B."

Exhibit "D."

TSN, 1 June 2000, pp. 16-17.

TSN, 3 August 2000, p. 5.

TSN, 6 October 1999, p. 18.

Exhibit "DD-1."

Exhibit "FF."

Exhibit "J."

TSN, 6 October 1999, p. 18.

10

TSN, 29 January 1998, pp. 5-7.

11

Exhibit "F."

12

Exhibits "K" to "K-1."

13

Exhibit "AA."

14

Records, p. 1.

15

TSN, 1 June 2000, p. 6.

16

Exhibit "4-A."

17

TSN, 1 June 2000, p. 19.

18

Id. at 7.

19

Exhibit "4-A."

20

TSN, 1 June 2000, p. 19; Exhibits "4" to "4-C."

21

Exhibit "4."

22

Exhibit "8."

23

Exhibit "11."

24

Exhibits "DD" and "EE."

25

TSN, 23 November 2000, p. 11.

26

TSN, 3 August 2000, pp. 6-7.

27

Id. at 10.

28

Id. at 14.

29

Id. at 13.

30

Id. at 13-14.

31

Records, pp. 641-642.

32

Records, p. 575.

33

Id. at 588-592.

34

Id. at 606.

35

Penned by Associate Justice Andres B. Reyes, Jr., with Associate Justices

Buenaventura J. Guerrero and Regalado E. Maambong, concurring; CA Rollo, p.
100.
36

Rollo, p. 9.

37

Records, p. 1.

38

Buhat v. Court of Appeals, G.R. No. 119601, 17 December 1996, 265 SCRA
701; People v. Escosio, G.R. No. 101742, 25 March 1993, 220 SCRA 475; Buaya v.
Polo, G.R. No. 75079, 26 January 1989, 169 SCRA 471.
39

Serapio v. Sandiganbayan, G.R. No. 148769, 28 January 2003, 396 SCRA 443.

40

1. que exista realmente una defraudacion, un perjuicio ejectivo; (2) que este
se haya causado mediante engao, esto es, con el empleo de medios
fraudulentos puestos en juego por el estafador para conseguir su mal proposito.
(Viada, Codigo Penal, 6th ed., Vol. 6, p. 570)
41

Reyes, The Revised Penal Code, 2001 ed., Vol. II, p. 815.

42

Regalado, Criminal Law Conspectus, 1st ed., p. 592.

43

Philippine Bank of Communications v. Court of Appeals, G.R. No. 118552, 5

February 1996, 253 SCRA 241.
44

Rollo, p. 34.

45

G.R. No. 106357, 3 September 1998, 295 SCRA 49. (Emphasis supplied)

46

Id. at 71-72.

47

Phillips Petroleum Co. v. Daniel Motors Co., 149 S.W.2d 979 (1941).

48

Testo v. Russ Dunmire Oldsmobile, Inc., 83 A.L.R., 3rd ed., p. 680 (1976); 554
P.2d 349.
49

Tyler v. Savage, 143 U.S. 79, 12 S.Ct. 340, 36 L.Ed. 82.

50

Lindberg Cadillac Company v. Leonard Aron, 371 S.W.2d 651 (1963).

51

Lovell v. Smith, 169 So. 280 (1936).

52

Supra, at note 47.

53

Lindbergh Cadillac Company v. Aron, 371 S.W.2d 651 (1963).

54

Burnett v. Boyer, 285 S.W. 670; Madton v. Norton, 238 N.W. 686.

55

Kraus v. National Bank of Commerce of Mankato, 167 N.W. 353.

56

Snellgrove v. Dingelhoef, 103 S.E. 418 (1920).

57

Judd v. Walker, 89 S.W. 558.

58

Nolan v. Fitzpatrick, et al., 173 N.W. 255 (1919).

59

Park v. Moorman Manufacturing Company, 40 A.L.R. 2d 273 (1952).

Republic of the Philippines

SUPREME COURT
Manila

EN BANC
G.R. No. L-18805

August 14, 1967

THE BOARD OF LIQUIDATORS1 representing THE GOVERNMENT OF THE

REPUBLIC OF THE PHILIPPINES,plaintiff-appellant,
vs.
HEIRS OF MAXIMO M. KALAW,2 JUAN BOCAR, ESTATE OF THE DECEASED
CASIMIRO GARCIA,3 and LEONOR MOLL, defendants-appellees.
Simeon M. Gopengco and Solicitor General for plaintiff-appellant.
L. H. Hernandez, Emma Quisumbing, Fernando and Quisumbing, Jr.; Ponce Enrile,
Siguion Reyna, Montecillo and Belo for defendants-appellees.
SANCHEZ, J.:
The National Coconut Corporation (NACOCO, for short) was chartered as a nonprofit governmental organization on May 7, 1940 by Commonwealth Act 518
avowedly for the protection, preservation and development of the coconut
industry in the Philippines. On August 1, 1946, NACOCO's charter was amended
[Republic Act 5] to grant that corporation the express power "to buy, sell, barter,
export, and in any other manner deal in, coconut, copra, and dessicated coconut,
as well as their by-products, and to act as agent, broker or commission merchant
of the producers, dealers or merchants" thereof. The charter amendment was
enacted to stabilize copra prices, to serve coconut producers by securing
advantageous prices for them, to cut down to a minimum, if not altogether
eliminate, the margin of middlemen, mostly aliens. 4
General manager and board chairman was Maximo M. Kalaw; defendants Juan
Bocar and Casimiro Garcia were members of the Board; defendant Leonor Moll
became director only on December 22, 1947.
NACOCO, after the passage of Republic Act 5, embarked on copra trading
activities. Amongst the scores of contracts executed by general manager Kalaw
are the disputed contracts, for the delivery of copra, viz:
(a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons, $167.00: per
ton, f. o. b., delivery: August and September, 1947. This contract was later
assigned to Louis Dreyfus & Co. (Overseas) Ltd.
(b) August 14, 1947: Alexander Adamson & Co., for 2,000 long tons $145.00 per
long ton, f.o.b., Philippine ports, to be shipped: September-October, 1947. This
contract was also assigned to Louis Dreyfus & Co. (Overseas) Ltd.
(c) August 22, 1947: Pacific Vegetable Co., for 3,000 tons, $137.50 per ton,
delivery: September, 1947.
(d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long tons, $160.00 per
ton, c.i.f., Los Angeles, California, delivery: November, 1947.

(e) September 9, 1947: Franklin Baker Division of General Foods Corporation, for
1,500 long tons, $164,00 per ton, c.i.f., New York, to be shipped in November,
1947.
(f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for 3,000 long tons,
$154.00 per ton, f.o.b., 3 Philippine ports, delivery: November, 1947.
(g) September 13, 1947: Juan Cojuangco, for 2,000 tons, $175.00 per ton,
delivery: November and December, 1947. This contract was assigned to Pacific
Vegetable Co.
(h) October 27, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f.,
Pacific ports, delivery: December, 1947 and January, 1948. This contract was
assigned to Pacific Vegetable Co.
(i) October 28, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f.,
Pacific ports, delivery: January, 1948. This contract was assigned to Pacific
Vegetable Co.
An unhappy chain of events conspired to deter NACOCO from fulfilling these
contracts. Nature supervened. Four devastating typhoons visited the Philippines:
the first in October, the second and third in November, and the fourth in
December, 1947. Coconut trees throughout the country suffered extensive
damage. Copra production decreased. Prices spiralled. Warehouses were
destroyed. Cash requirements doubled. Deprivation of export facilities increased
the time necessary to accumulate shiploads of copra. Quick turnovers became
impossible, financing a problem.
When it became clear that the contracts would be unprofitable, Kalaw submitted
them to the board for approval. It was not until December 22, 1947 when the
membership was completed. Defendant Moll took her oath on that date. A
meeting was then held. Kalaw made a full disclosure of the situation, apprised
the board of the impending heavy losses. No action was taken on the contracts.
Neither did the board vote thereon at the meeting of January 7, 1948 following.
Then, on January 11, 1948, President Roxas made a statement that the NACOCO
head did his best to avert the losses, emphasized that government concerns
faced the same risks that confronted private companies, that NACOCO was
recouping its losses, and that Kalaw was to remain in his post. Not long
thereafter, that is, on January 30, 1948, the board met again with Kalaw, Bocar,
Garcia and Moll in attendance. They unanimously approved the contracts
hereinbefore enumerated.
As was to be expected, NACOCO but partially performed the contracts, as
follows:
Buyers

Tons
Delivered

Undeliver
ed

Pacific Vegetable Oil

2,386.45

4,613.55

Spencer Kellog

None

1,000

Franklin Baker

1,000

500

Louis Dreyfus

800

2,200

Louis Dreyfus (Adamson contract of July

30, 1947)

1,150

850

Louis Dreyfus (Adamson Contract of August

1,755
14, 1947)

245

TOTALS

9,408.55

7,091.45

The buyers threatened damage suits. Some of the claims were settled, viz:
Pacific Vegetable Oil Co., in copra delivered by NACOCO, P539,000.00; Franklin
Baker Corporation, P78,210.00; Spencer Kellog & Sons, P159,040.00.
But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the
Court of First Instance of Manila, upon claims as follows: For the undelivered
copra under the July 30 contract (Civil Case 4459); P287,028.00; for the balance
on the August 14 contract (Civil Case 4398), P75,098.63; for that per the
September 12 contract reduced to judgment (Civil Case 4322, appealed to this
Court in L-2829), P447,908.40. These cases culminated in an out-of-court
amicable settlement when the Kalaw management was already out. The
corporation thereunder paid Dreyfus P567,024.52 representing 70% of the total
claims. With particular reference to the Dreyfus claims, NACOCO put up the
defenses that: (1) the contracts were void because Louis Dreyfus & Co.
(Overseas) Ltd. did not have license to do business here; and (2) failure to
deliver was due to force majeure, the typhoons. To project the utter
unreasonableness of this compromise, we reproduce in haec verba this finding
below:
x x x However, in similar cases brought by the same claimant [Louis Dreyfus &
Co. (Overseas) Ltd.] against Santiago Syjuco for non-delivery of copra also
involving a claim of P345,654.68 wherein defendant set upsame defenses as
above, plaintiff accepted a promise of P5,000.00 only (Exhs. 31 & 32 Heirs.)
Following the same proportion, the claim of Dreyfus against NACOCO should
have been compromised for only P10,000.00, if at all. Now, why should
defendants be held liable for the large sum paid as compromise by the Board of
Liquidators? This is just a sample to show how unjust it would be to hold
defendants liable for the readiness with which the Board of Liquidators disposed
of the NACOCO funds, although there was much possibility of successfully

resisting the claims, or at least settlement for nominal sums like what happened
in the Syjuco case.5
All the settlements sum up to P1,343,274.52.
In this suit started in February, 1949, NACOCO seeks to recover the above sum of
P1,343,274.52 from general manager and board chairman Maximo M. Kalaw, and
directors Juan Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with
negligence under Article 1902 of the old Civil Code (now Article 2176, new Civil
Code); and defendant board members, including Kalaw, with bad faith and/or
breach of trust for having approved the contracts. The fifth amended complaint,
on which this case was tried, was filed on July 2, 1959. Defendants resisted the
action upon defenses hereinafter in this opinion to be discussed.
The lower court came out with a judgment dismissing the complaint without
costs as well as defendants' counterclaims, except that plaintiff was ordered to
pay the heirs of Maximo Kalaw the sum of P2,601.94 for unpaid salaries and cash
deposit due the deceased Kalaw from NACOCO.
Plaintiff appealed direct to this Court.
Plaintiff's brief did not, question the judgment on Kalaw's counterclaim for the
sum of P2,601.94.
Right at the outset, two preliminary questions raised before, but adversely
decided by, the court below, arrest our attention. On appeal, defendants renew
their bid. And this, upon established jurisprudence that an appellate court may
base its decision of affirmance of the judgment below on a point or points
ignored by the trial court or in which said court was in error. 6
1. First of the threshold questions is that advanced by defendants that plaintiff
Board of Liquidators has lost its legal personality to continue with this suit.
Accepted in this jurisdiction are three methods by which a corporation may wind
up its affairs: (1) under Section 3, Rule 104, of the Rules of Court [which
superseded Section 66 of the Corporation Law] 7 whereby, upon voluntary
dissolution of a corporation, the court may direct "such disposition of its assets
as justice requires, and may appoint a receiver to collect such assets and pay the
debts of the corporation;" (2) under Section 77 of the Corporation Law, whereby
a corporation whose corporate existence is terminated, "shall nevertheless be
continued as a body corporate for three years after the time when it would have
been so dissolved, for the purpose of prosecuting and defending suits by or
against it and of enabling it gradually to settle and close its affairs, to dispose of
and convey its property and to divide its capital stock, but not for the purpose of
continuing the business for which it was established;" and (3) under Section 78
of the Corporation Law, by virtue of which the corporation, within the three year
period just mentioned, "is authorized and empowered to convey all of its
property to trustees for the benefit of members, stockholders, creditors, and
others interested."8

It is defendants' pose that their case comes within the coverage of the second
method. They reason out that suit was commenced in February, 1949; that by
Executive Order 372, dated November 24, 1950, NACOCO, together with other
government-owned corporations, was abolished, and the Board of Liquidators
was entrusted with the function of settling and closing its affairs; and that, since
the three year period has elapsed, the Board of Liquidators may not now
continue with, and prosecute, the present case to its conclusion, because
Executive Order 372 provides in Section 1 thereof that
Sec.1. The National Abaca and Other Fibers Corporation, the National Coconut
Corporation, the National Tobacco Corporation, the National Food Producer
Corporation and the former enemy-owned or controlled corporations or
associations, . . . are hereby abolished. The said corporations shall be liquidated
in accordance with law, the provisions of this Order, and/or in such manner as
the President of the Philippines may direct; Provided, however, That each of the
said corporations shall nevertheless be continued as a body corporate for a
period of three (3) years from the effective date of this Executive Order for the
purpose of prosecuting and defending suits by or against it and of enabling the
Board of Liquidators gradually to settle and close its affairs, to dispose of and,
convey its property in the manner hereinafter provided.
Citing Mr. Justice Fisher, defendants proceed to argue that even where it may be
found impossible within the 3 year period to reduce disputed claims to judgment,
nonetheless, "suits by or against a corporation abate when it ceases to be an
entity capable of suing or being sued" (Fisher, The Philippine Law of Stock
Corporations, pp. 390-391). Corpus Juris Secundum likewise is authority for the
statement that "[t]he dissolution of a corporation ends its existence so that there
must be statutory authority for prolongation of its life even for purposes of
pending litigation"9 and that suit "cannot be continued or revived; nor can a valid
judgment be rendered therein, and a judgment, if rendered, is not only
erroneous, but void and subject to collateral attack." 10 So it is, that abatement of
pending actions follows as a matter of course upon the expiration of the legal
period for liquidation, 11 unless the statute merely requires a commencement of
suit within the added time. 12 For, the court cannot extend the time alloted by
statute. 13
We, however, express the view that the executive order abolishing NACOCO and
creating the Board of Liquidators should be examined in context. The proviso in
Section 1 of Executive Order 372, whereby the corporate existence of NACOCO
was continued for a period of three years from the effectivity of the order for "the
purpose of prosecuting and defending suits by or against it and of enabling the
Board of Liquidators gradually to settle and close its affairs, to dispose of and
convey its property in the manner hereinafter provided", is to be read not as an
isolated provision but in conjunction with the whole. So reading, it will be readily
observed that no time limit has been tacked to the existence of the Board of
Liquidators and its function of closing the affairs of the various government
owned corporations, including NACOCO.

By Section 2 of the executive order, while the boards of directors of the various
corporations were abolished, their powers and functions and duties under
existing laws were to be assumed and exercised by the Board of Liquidators. The
President thought it best to do away with the boards of directors of the defunct
corporations; at the same time, however, the President had chosen to see to it
that the Board of Liquidators step into the vacuum. And nowhere in the executive
order was there any mention of the lifespan of the Board of Liquidators. A glance
at the other provisions of the executive order buttresses our conclusion. Thus,
liquidation by the Board of Liquidators may, under section 1, proceed in
accordance with law, the provisions of the executive order, "and/or in such
manner as the President of the Philippines may direct." By Section 4, when any
property, fund, or project is transferred to any governmental instrumentality "for
administration or continuance of any project," the necessary funds therefor shall
be taken from the corresponding special fund created in Section 5. Section 5, in
turn, talks of special funds established from the "net proceeds of the liquidation"
of the various corporations abolished. And by Section, 7, fifty per centum of the
fees collected from the copra standardization and inspection service shall accrue
"to the special fund created in section 5 hereof for the rehabilitation and
development of the coconut industry." Implicit in all these, is that the term of life
of the Board of Liquidators is without time limit. Contemporary history gives us
the fact that the Board of Liquidators still exists as an office with officials and
numerous employees continuing the job of liquidation and prosecution of several
court actions.
Not that our views on the power of the Board of Liquidators to proceed to the
final determination of the present case is without jurisprudential support. The
first judicial test before this Court is National Abaca and Other Fibers Corporation
vs. Pore, L-16779, August 16, 1961. In that case, the corporation, already
dissolved, commenced suit within the three-year extended period for liquidation.
That suit was for recovery of money advanced to defendant for the purchase of
hemp in behalf of the corporation. She failed to account for that money.
Defendant moved to dismiss, questioned the corporation's capacity to sue. The
lower court ordered plaintiff to include as co-party plaintiff, The Board of
Liquidators, to which the corporation's liquidation was entrusted by Executive
Order 372. Plaintiff failed to effect inclusion. The lower court dismissed the suit.
Plaintiff moved to reconsider. Ground: excusable negligence, in that its counsel
prepared the amended complaint, as directed, and instructed the board's
incoming and outgoing correspondence clerk, Mrs. Receda Vda. de Ocampo, to
mail the original thereof to the court and a copy of the same to defendant's
counsel. She mailed the copy to the latter but failed to send the original to the
court. This motion was rejected below. Plaintiff came to this Court on appeal. We
there said that "the rule appears to be well settled that, in the absence of
statutory provision to the contrary, pending actions by or against a corporation
are abated upon expiration of the period allowed by law for the liquidation of its
affairs." We there said that "[o]ur Corporation Law contains no provision
authorizing a corporation, after three (3) years from the expiration of its lifetime,
to continue in its corporate name actions instituted by it within said period of

three (3) years." 14 However, these precepts notwithstanding, we, in effect, held
in that case that the Board of Liquidators escapes from the operation thereof for
the reason that "[o]bviously, the complete loss of plaintiff's corporate existence
after the expiration of the period of three (3) years for the settlement of its
affairs is what impelled the President to create a Board of Liquidators, to
continue the management of such matters as may then be pending."15 We
accordingly directed the record of said case to be returned to the lower court,
with instructions to admit plaintiff's amended complaint to include, as party
plaintiff, the Board of Liquidators.
Defendants' position is vulnerable to attack from another direction.
By Executive Order 372, the government, the sole stockholder, abolished
NACOCO, and placed its assets in the hands of the Board of Liquidators. The
Board of Liquidators thus became the trustee on behalf of the government. It
was an express trust. The legal interest became vested in the trustee the
Board of Liquidators. The beneficial interest remained with the sole stockholder
the government. At no time had the government withdrawn the property, or
the authority to continue the present suit, from the Board of Liquidators. If for
this reason alone, we cannot stay the hand of the Board of Liquidators from
prosecuting this case to its final conclusion. 16 The provisions of Section 78 of the
Corporation Law the third method of winding up corporate affairs find
application.
We, accordingly, rule that the Board of Liquidators has personality to proceed as:
party-plaintiff in this case.
2. Defendants' second poser is that the action is unenforceable against the heirs
of Kalaw.
Appellee heirs of Kalaw raised in their motion to dismiss, 17 which was overruled,
and in their nineteenth special defense, that plaintiff's action is personal to the
deceased Maximo M. Kalaw, and may not be deemed to have survived after his
death.18 They say that the controlling statute is Section 5, Rule 87, of the 1940
Rules of Court.19 which provides that "[a]ll claims for money against the
decedent, arising from contract, express or implied", must be filed in the estate
proceedings of the deceased. We disagree.
The suit here revolves around the alleged negligent acts of Kalaw for having
entered into the questioned contracts without prior approval of the board of
directors, to the damage and prejudice of plaintiff; and is against Kalaw and the
other directors for having subsequently approved the said contracts in bad faith
and/or breach of trust." Clearly then, the present case is not a mere action for
the recovery of money nor a claim for money arising from contract. The suit
involves alleged tortious acts. And the action is embraced in suits filed "to
recover damages for an injury to person or property, real or personal", which
survive. 20

The leading expositor of the law on this point is Aguas vs. Llemos, L-18107,
August 30, 1962. There, plaintiffs sought to recover damages from defendant
Llemos. The complaint averred that Llemos had served plaintiff by registered
mail with a copy of a petition for a writ of possession in Civil Case 4824 of the
Court of First Instance at Catbalogan, Samar, with notice that the same would be
submitted to the Samar court on February 23, 1960 at 8:00 a.m.; that in view of
the copy and notice served, plaintiffs proceeded to the said court of Samar from
their residence in Manila accompanied by their lawyers, only to discover that no
such petition had been filed; and that defendant Llemos maliciously failed to
appear in court, so that plaintiffs' expenditure and trouble turned out to be in
vain, causing them mental anguish and undue embarrassment. Defendant died
before he could answer the complaint. Upon leave of court, plaintiffs amended
their complaint to include the heirs of the deceased. The heirs moved to dismiss.
The court dismissed the complaint on the ground that the legal representative,
and not the heirs, should have been made the party defendant; and that,
anyway, the action being for recovery of money, testate or intestate proceedings
should be initiated and the claim filed therein. This Court, thru Mr. Justice Jose B.
L. Reyes, there declared:
Plaintiffs argue with considerable cogency that contrasting the correlated
provisions of the Rules of Court, those concerning claims that are barred if not
filed in the estate settlement proceedings (Rule 87, sec. 5) and those defining
actions that survive and may be prosecuted against the executor or
administrator (Rule 88, sec. 1), it is apparent that actions for damages caused by
tortious conduct of a defendant (as in the case at bar) survive the death of the
latter. Under Rule 87, section 5, the actions that are abated by death are: (1)
claims for funeral expenses and those for the last sickness of the decedent; (2)
judgments for money; and (3) "all claims for money against the decedent, arising
from contract express or implied." None of these includes that of the plaintiffsappellants; for it is not enough that the claim against the deceased party be for
money, but it must arise from "contract express or implied", and these words
(also used by the Rules in connection with attachments and derived from the
common law) were construed in Leung Ben vs. O'Brien, 38 Phil. 182, 189-194,
"to include all purely personal obligations other than those which have their
source in delict or tort."
Upon the other hand, Rule 88, section 1, enumerates actions that survive against
a decedent's executors or administrators, and they are: (1) actions to recover
real and personal property from the estate; (2) actions to enforce a lien thereon;
and (3) actions to recover damages for an injury to person or property. The
present suit is one for damages under the last class, it having been held that
"injury to property" is not limited to injuries to specific property, but extends to
other wrongs by which personal estate is injured or diminished (Baker vs.
Crandall, 47 Am. Rep. 126; also 171 A.L.R., 1395). To maliciously cause a party to
incur unnecessary expenses, as charged in this case, is certainly injury to that
party's property (Javier vs. Araneta, L-4369, Aug. 31, 1953).

The ruling in the preceding case was hammered out of facts comparable to those
of the present. No cogent reason exists why we should break away from the
views just expressed. And, the conclusion remains: Action against the Kalaw
heirs and, for the matter, against the Estate of Casimiro Garcia survives.
The preliminaries out of the way, we now go to the core of the controversy.
3. Plaintiff levelled a major attack on the lower court's holding that Kalaw
justifiedly entered into the controverted contracts without the prior approval of
the corporation's directorate. Plaintiff leans heavily on NACOCO's corporate bylaws. Article IV (b), Chapter III thereof, recites, as amongst the duties of the
general manager, the obligation: "(b) To perform or execute on behalf of the
Corporation upon prior approval of the Board, all contracts necessary and
essential to the proper accomplishment for which the Corporation was
organized."
Not of de minimis importance in a proper approach to the problem at hand, is the
nature of a general manager's position in the corporate structure. A rule that has
gained acceptance through the years is that a corporate officer "intrusted with
the general management and control of its business, has implied authority to
make any contract or do any other act which is necessary or appropriate to the
conduct of the ordinary business of the corporation. 21As such officer, "he may,
without any special authority from the Board of Directors perform all acts of an
ordinary nature, which by usage or necessity are incident to his office, and may
bind the corporation by contracts in matters arising in the usual course of
business. 22
The problem, therefore, is whether the case at bar is to be taken out of the
general concept of the powers of a general manager, given the cited provision of
the NACOCO by-laws requiring prior directorate approval of NACOCO contracts.
The peculiar nature of copra trading, at this point, deserves express articulation.
Ordinary in this enterprise are copra sales for future delivery. The movement of
the market requires that sales agreements be entered into, even though the
goods are not yet in the hands of the seller. Known in business parlance
as forward sales, it is concededly the practice of the trade. A certain amount of
speculation is inherent in the undertaking. NACOCO was much more conservative
than the exporters with big capital. This short-selling was inevitable at the time
in the light of other factors such as availability of vessels, the quantity required
before being accepted for loading, the labor needed to prepare and sack the
copra for market. To NACOCO, forward sales were a necessity. Copra could not
stay long in its hands; it would lose weight, its value decrease. Above all,
NACOCO's limited funds necessitated a quick turnover. Copra contracts then had
to be executed on short notice at times within twenty-four hours. To be
appreciated then is the difficulty of calling a formal meeting of the board.
Such were the environmental circumstances when Kalaw went into copra trading.

Long before the disputed contracts came into being, Kalaw contracted by
himself alone as general manager for forward sales of copra. For the fiscal
year ending June 30, 1947, Kalaw signed some 60 such contracts for the sale of
copra to divers parties. During that period, from those copra sales, NACOCO
reaped a gross profit of P3,631,181.48. So pleased was NACOCO's board of
directors that, on December 5, 1946, in Kalaw's absence, it voted to grant him
a special bonus "in recognition of the signal achievement rendered by him in
putting the Corporation's business on a self-sufficient basis within a few months
after assuming office, despite numerous handicaps and difficulties."
These previous contract it should be stressed, were signed by Kalaw without
prior authority from the board. Said contracts were known all along to the board
members. Nothing was said by them. The aforesaid contracts stand to prove one
thing: Obviously, NACOCO board met the difficulties attendant to forward sales
by leaving the adoption of means to end, to the sound discretion of NACOCO's
general manager Maximo M. Kalaw.
Liberally spread on the record are instances of contracts executed by NACOCO's
general manager and submitted to the board after their consummation, not
before. These agreements were not Kalaw's alone. One at least was executed by
a predecessor way back in 1940, soon after NACOCO was chartered. It was a
contract of lease executed on November 16, 1940 by the then general manager
and board chairman, Maximo Rodriguez, and A. Soriano y Cia., for the lease of a
space in Soriano Building On November 14, 1946, NACOCO, thru its general
manager Kalaw, sold 3,000 tons of copra to the Food Ministry, London, thru
Sebastian Palanca. On December 22, 1947, when the controversy over the
present contract cropped up, the board voted to approve a lease contract
previously executed between Kalaw and Fidel Isberto and Ulpiana Isberto
covering a warehouse of the latter. On the same date, the board gave its nod to
a contract for renewal of the services of Dr. Manuel L. Roxas. In fact, also on that
date, the board requested Kalaw to report for action all copra contracts signed by
him "at the meeting immediately following the signing of the contracts." This
practice was observed in a later instance when, on January 7, 1948, the board
approved two previous contracts for the sale of 1,000 tons of copra each to a
certain "SCAP" and a certain "GNAPO".
And more. On December 19, 1946, the board resolved to ratify the brokerage
commission of 2% of Smith, Bell and Co., Ltd., in the sale of 4,300 long tons of
copra to the French Government. Such ratification was necessary because, as
stated by Kalaw in that same meeting, "under an existing resolution he is
authorized to give a brokerage fee of only 1% on sales of copra made through
brokers." On January 15, 1947, the brokerage fee agreements of 1-1/2% on three
export contracts, and 2% on three others, for the sale of copra were approved by
the board with a proviso authorizing the general manager to pay a commission
up to the amount of 1-1/2% "without further action by the Board." On February 5,
1947, the brokerage fee of 2% of J. Cojuangco & Co. on the sale of 2,000 tons of
copra was favorably acted upon by the board. On March 19, 1947, a 2%

brokerage commission was similarly approved by the board for Pacific Trading
Corporation on the sale of 2,000 tons of copra.
It is to be noted in the foregoing cases that only the brokerage fee agreements
were passed upon by the board,not the sales contracts themselves. And even
those fee agreements were submitted only when the commission exceeded the
ceiling fixed by the board.
Knowledge by the board is also discernible from other recorded
instances.1wph1.t
When the board met on May 10, 1947, the directors discussed the copra
situation: There was a slow downward trend but belief was entertained that the
nadir might have already been reached and an improvement in prices was
expected. In view thereof, Kalaw informed the board that "he intends to wait
until he has signed contracts to sell before starting to buy copra."23
In the board meeting of July 29, 1947, Kalaw reported on the copra price
conditions then current: The copra market appeared to have become fairly
steady; it was not expected that copra prices would again rise very high as in the
unprecedented boom during January-April, 1947; the prices seemed to oscillate
between $140 to $150 per ton; a radical rise or decrease was not indicated by
the trends. Kalaw continued to say that "the Corporation has been closing
contracts for the sale of copra generally with a margin of P5.00 to P7.00 per
hundred kilos." 24
We now lift the following excerpts from the minutes of that same board meeting
of July 29, 1947:
521. In connection with the buying and selling of copra the Board
inquired whether it is the practice of the management to close contracts of sale
first before buying. The General Manager replied that this practice is generally
followed but that it is not always possible to do so for two reasons:
(1) The role of the Nacoco to stabilize the prices of copra requires that it should
not cease buying even when it does not have actual contracts of sale since the
suspension of buying by the Nacoco will result in middlemen taking advantage of
the temporary inactivity of the Corporation to lower the prices to the detriment
of the producers.
(2) The movement of the market is such that it may not be practical always to
wait for the consummation of contracts of sale before beginning to buy copra.
The General Manager explained that in this connection a certain amount of
speculation is unavoidable. However, he said that the Nacoco is much more
conservative than the other big exporters in this respect. 25
Settled jurisprudence has it that where similar acts have been approved by the
directors as a matter of general practice, custom, and policy, the general
manager may bind the company without formal authorization of the board of

directors. 26 In varying language, existence of such authority is established, by

proof of the course of business, the usage and practices of the company and by
the knowledge which the board of directors has, or must bepresumed to have, of
acts and doings of its subordinates in and about the affairs of the
corporation. 27 So also,
x x x authority to act for and bind a corporation may be presumed from acts of
recognition in other instances where the power was in fact exercised. 28
x x x Thus, when, in the usual course of business of a corporation, an officer has
been allowed in his official capacity to manage its affairs, his authority to
represent the corporation may be implied from the manner in which he has been
permitted by the directors to manage its business. 29
In the case at bar, the practice of the corporation has been to allow its general
manager to negotiate and execute contracts in its copra trading activities for and
in NACOCO's behalf without prior board approval. If the by-laws were to be
literally followed, the board should give its stamp of prior approval on all
corporate contracts. But that board itself, by its acts and through acquiescence,
practically laid aside the by-law requirement of prior approval.
Under the given circumstances, the Kalaw contracts are valid corporate acts.
4. But if more were required, we need but turn to the board's ratification of the
contracts in dispute on January 30, 1948, though it is our (and the lower court's)
belief that ratification here is nothing more than a mere formality.
Authorities, great in number, are one in the idea that "ratification by a
corporation of an unauthorized act or contract by its officers or others relates
back to the time of the act or contract ratified, and is equivalent to original
authority;" and that " [t]he corporation and the other party to the transaction are
in precisely the same position as if the act or contract had been authorized at the
time." 30 The language of one case is expressive: "The adoption or ratification of
a contract by a corporation is nothing more or less than the making of an original
contract. The theory of corporate ratification is predicated on the right of a
corporation to contract, and any ratification or adoption is equivalent to a grant
of prior authority." 31
Indeed, our law pronounces that "[r]atification cleanses the contract from all its
defects from the moment it was constituted." 32 By corporate confirmation, the
contracts executed by Kalaw are thus purged of whatever vice or defect they
may have. 33
In sum, a case is here presented whereunder, even in the face of an express bylaw requirement of prior approval, the law on corporations is not to be held so
rigid and inflexible as to fail to recognize equitable considerations. And, the
conclusion inevitably is that the embattled contracts remain valid.
5. It would be difficult, even with hostile eyes, to read the record in terms of "bad
faith and/or breach of trust" in the board's ratification of the contracts without

prior approval of the board. For, in reality, all that we have on the government's
side of the scale is that the board knew that the contracts so confirmed would
cause heavy losses.
As we have earlier expressed, Kalaw had authority to execute the contracts
without need of prior approval. Everybody, including Kalaw himself, thought so,
and for a long time. Doubts were first thrown on the way only when the contracts
turned out to be unprofitable for NACOCO.
Rightfully had it been said that bad faith does not simply connote bad judgment
or negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a known duty thru some motive or
interest or ill will; it partakes of the nature of fraud. 34 Applying this precept to the
given facts herein, we find that there was no "dishonest purpose," or "some
moral obliquity," or "conscious doing of wrong," or "breach of a known duty," or
"Some motive or interest or ill will" that "partakes of the nature of fraud."
Nor was it even intimated here that the NACOCO directors acted for personal
reasons, or to serve their own private interests, or to pocket money at the
expense of the corporation. 35 We have had occasion to affirm that bad faith
contemplates a "state of mind affirmatively operating with furtive design or with
some motive of self-interest or ill will or for ulterior purposes." 36 Briggs vs.
Spaulding, 141 U.S. 132, 148-149, 35 L. ed. 662, 669, quotes with approval from
Judge Sharswood (in Spering's App., 71 Pa. 11), the following: "Upon a close
examination of all the reported cases, although there are many dicta not easily
reconcilable, yet I have found no judgment or decree which has held directors to
account, except when they have themselves been personally guilty of some
fraud on the corporation, or have known and connived at some fraud in others,
or where such fraud might have been prevented had they given ordinary
attention to their duties. . . ." Plaintiff did not even dare charge its defendantdirectors with any of these malevolent acts.
Obviously, the board thought that to jettison Kalaw's contracts would contravene
basic dictates of fairness. They did not think of raising their voice in protest
against past contracts which brought in enormous profits to the corporation. By
the same token, fair dealing disagrees with the idea that similar contracts, when
unprofitable, should not merit the same treatment. Profit or loss resulting from
business ventures is no justification for turning one's back on contracts entered
into. The truth, then, of the matter is that in the words of the trial court the
ratification of the contracts was "an act of simple justice and fairness to the
general manager and the best interest of the corporation whose prestige would
have been seriously impaired by a rejection by the board of those contracts
which proved disadvantageous." 37
The directors are not liable."

38

6. To what then may we trace the damage suffered by NACOCO.

The facts yield the answer. Four typhoons wreaked havoc then on our copraproducing regions. Result: Copra production was impaired, prices spiralled,
warehouses destroyed. Quick turnovers could not be expected. NACOCO was not
alone in this misfortune. The record discloses that private traders, old,
experienced, with bigger facilities, were not spared; also suffered tremendous
losses. Roughly estimated, eleven principal trading concerns did run losses to
about P10,300,000.00. Plaintiff's witness Sisenando Barretto, head of the copra
marketing department of NACOCO, observed that from late 1947 to early 1948
"there were many who lost money in the trade." 39 NACOCO was not immune
from such usual business risk.
The typhoons were known to plaintiff. In fact, NACOCO resisted the suits filed by
Louis Dreyfus & Co. by pleading in its answers force majeure as an affirmative
defense and there vehemently asserted that "as a result of the said typhoons,
extensive damage was caused to the coconut trees in the copra producing
regions of the Philippines and according to estimates of competent authorities, it
will take about one year until the coconut producing regions will be able to
produce their normal coconut yield and it will take some time until the price of
copra will reach normal levels;" and that "it had never been the intention of the
contracting parties in entering into the contract in question that, in the event of a
sharp rise in the price of copra in the Philippine market produce by force
majeureor by caused beyond defendant's control, the defendant should buy the
copra contracted for at exorbitant prices far beyond the buying price of the
plaintiff under the contract." 40
A high regard for formal judicial admissions made in court pleadings would
suffice to deter us from permitting plaintiff to stray away therefrom, to charge
now that the damage suffered was because of Kalaw's negligence, or for that
matter, by reason of the board's ratification of the contracts. 41
Indeed, were it not for the typhoons, 42 NACOCO could have, with ease, met its
contractual obligations. Stock accessibility was no problem. NACOCO had 90
buying agencies spread throughout the islands. It could purchase 2,000 tons of
copra a day. The various contracts involved delivery of but 16,500 tons over a
five-month period. Despite the typhoons, NACOCO was still able to deliver a little
short of 50% of the tonnage required under the contracts.
As the trial court correctly observed, this is a case of damnum absque injuria.
Conjunction of damage and wrong is here absent. There cannot be an actionable
wrong if either one or the other is wanting. 43
7. On top of all these, is that no assertion is made and no proof is presented
which would link Kalaw's acts ratified by the board to a matrix for
defraudation of the government. Kalaw is clear of the stigma of bad faith.
Plaintiff's corporate counsel 44 concedes that Kalaw all along thought that he had
authority to enter into the contracts, that he did so in the best interests of the
corporation; that he entered into the contracts in pursuance of an overall policy
to stabilize prices, to free the producers from the clutches of the middlemen. The
prices for which NACOCO contracted in the disputed agreements, were at a level

calculated to produce profits and higher than those prevailing in the local
market. Plaintiff's witness, Barretto, categorically stated that "it would be foolish
to think that one would sign (a) contract when you are going to lose money" and
that no contract was executed "at a price unsafe for the Nacoco." 45 Really, on
the basis of prices then prevailing, NACOCO envisioned a profit of around
P752,440.00. 46
Kalaw's acts were not the result of haphazard decisions either. Kalaw invariably
consulted with NACOCO's Chief Buyer, Sisenando Barretto, or the Assistant
General Manager. The dailies and quotations from abroad were guideposts to
him.
Of course, Kalaw could not have been an insurer of profits. He could not be
expected to predict the coming of unpredictable typhoons. And even as typhoons
supervened Kalaw was not remissed in his duty. He exerted efforts to stave off
losses. He asked the Philippine National Bank to implement its commitment to
extend a P400,000.00 loan. The bank did not release the loan, not even the sum
of P200,000.00, which, in October, 1947, was approved by the bank's board of
directors. In frustration, on December 12, 1947, Kalaw turned to the President,
complained about the bank's short-sighted policy. In the end, nothing came out
of the negotiations with the bank. NACOCO eventually faltered in its contractual
obligations.
That Kalaw cannot be tagged with crassa negligentia or as much as simple
negligence, would seem to be supported by the fact that even as the contracts
were being questioned in Congress and in the NACOCO board itself, President
Roxas defended the actuations of Kalaw. On December 27, 1947, President Roxas
expressed his desire "that the Board of Directors should reelect Hon. Maximo M.
Kalaw as General Manager of the National Coconut Corporation." 47 And, on
January 7, 1948, at a time when the contracts had already been openly disputed,
the board, at its regular meeting, appointed Maximo M. Kalaw as acting general
manager of the corporation.
Well may we profit from the following passage from Montelibano vs. BacolodMurcia Milling Co., Inc., L-15092, May 18, 1962:
"They (the directors) hold such office charged with the duty to act for the
corporation according to their best judgment, and in so doing they cannot be
controlled in the reasonable exercise and performance of such duty. Whether the
business of a corporation should be operated at a loss during a business
depression, or closed down at a smaller loss, is a purely business and economic
problem to be determined by the directors of the corporation, and not by the
court. It is a well known rule of law that questions of policy of management are
left solely to the honest decision of officers and directors of a corporation, and
the court is without authority to substitute its judgment for the judgment of the
board of directors; the board is the business manager of the corporation,
and solong as it acts in good faith its orders are not reviewable by the courts."
(Fletcher on Corporations, Vol. 2, p. 390.) 48

Kalaw's good faith, and that of the other directors, clinch the case for
defendants. 49
Viewed in the light of the entire record, the judgment under review must be, as it
is hereby, affirmed.
Without costs. So ordered.
Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Castro and Angeles, JJ., concur.
Fernando, J., took no part.
Concepcion, C.J. and Dizon, J., are on leave.
Footnotes
1

Original plaintiff, National Coconut Corporation, was dissolved on November 24,

1950 by the President's Executive Order 372, which created the Board of
Liquidators. Hence, the substitution of party plaintiff.
2

Defendant Maximo M. Kalaw died in March of 1955 before trial.

Substituted for defendant Casimiro Garcia, deceased.

Explanatory Note of House Bill 295, 1st Session, 2nd Congress, later Republic
Act 5; Congressional Record, House of Representatives, July 22, 1946; Minutes of
the NACOCO Directors' Meeting of July 2, 1946, Exh. 4-Heirs.
5

R.A., p. 238; Emphasis supplied.

Garcia Valdez vs. Tuason, 40 Phil. 943, 951-952; Lucero vs. Guzman, 45 Phil.
852, 879; Relative vs. Castro, 76 Phil. 563, 567-568.
7

III Agbayani, Corporation Law, 1964 ed., p. 1679.

Government vs. Wise & Co., Ltd. (C.A.), 37 O.G. No. 26, pp. 545, 546.

10 C.J.S., p. 1503; emphasis supplied.

10

1 C.J.S., p. 141.

11

Id., p. 143; 16 Fletcher, p. 901.

12

16 Fletcher, p. 902.

13

Service & Wright Lumber Co. vs. Sumpter Valley Ry. Co., 152 P. 262, 265.

14

Citing Sumera vs. Valencia, 67 Phil. 721, 726-727.

15

Emphasis ours.

16

See: Section 3, Rule 3, Rules of Court.

17

Record on Appeal, pp. 21-25.

18

Id., p. 154.

19

Now Section 5, Rule 86.

20

Section 1, Rule 88 of the 1940 Rules of Court; now Section 1 Rule 87, Revised
Rules of Court.
21

2 Fletcher Cyclopedia Corporations, p. 607. See: Yu Chuck vs. Kong Li Po, 46

Phil. 608, 614.
22

Sparks vs. Dispatch Transfer Co., 15 S.W. 417, 419; Pacific Concrete Products
Corporation vs. Dimmick, 289 P. 2d 501, 504; Massachusetts Bonding & Ins. Co.
vs. Transamerican Freight Lines, 281 N.W. 584, 588-589; Sealy Oil Mill & Mfg. Co.
vs. Bishop Mfg. Co., 235 S.W. 850, 852.
23

Emphasis supplied.

24

Emphasis supplied.

25

Emphasis supplied.

26

Harris vs. H. C. Talton Wholesale Grocery Co., 123 So. 480.

27

Van Denburgh vs. Tungsten Reef Mines Co., 67 P. (2d) 360, 361, citing First
National Fin. Corp. vs. Five-O Drilling Co., 289 P. 844, 845.
28

McIntosh vs. Dakota Trust Co., 204 N.W. 818. 824.

29

Murphy vs. W. H. & F. W. Cane, 82 Atl. 854, 856. See Martin vs. Webb, 110 U.S.
7, 14-15, 28 L. ed. 49, 52. See also Victory Investment Corporation vs. Muskogee
Electric T. CO., 150 F. 2d. 889, 893.
30

2 Fletcher, p. 858, citing cases.

31

Kridelbaugh vs. Aldrehn Theatres Co., 191 N.W. 803, 804, citing cases;
emphasis supplied.
32

Article 1313, old Civil Code; now Article 1396, new Civil Code.

33

Tagaytay Development Co. vs. Osorio, 69 Phil. 180, 184.

34

Spiegel vs. Beacon Participations, 8 N.E. (2d) 895, 907, citing cases.

35

See: 3 Fletcher, Sec. 850, pp. 162-165.

36

Air France vs. Carrascoso, L-21438, September 28, 1966.

37

R.A., pp. 234-235.

38

3 Fletcher, pp. 450-452, citing cases. Cf. Angeles vs. Santos, 64 Phil. 697, 707.

39

Tr., p. 30, August 29, 1960.

40

See Exhibit 29-Heirs, NACOCO's Second Amended Answer in Civil Case 4322,
Court of First instance of Manila, entitled "Louis Dreyfus & Co. (Overseas)
Limited, plaintiff vs. National Coconut Corporation, defendant."

41

Section 2, Rule 129, Rules of Court; 20 Am. Jur., pp. 469-470.

42

The time for delivery of copra under the July 30, 1947 contract was extended.
Fifth Amended Complaint, R.A., P. 15. See also Exhibit 26- Heirs.
43

Churchill and Tait vs. Rafferty 32 Phil. 580, 605; Ladrera vs Secretary of
Agriculture and Natural Resources, L-13385, April 28, 1960.
44

Memorandum of Government Corporate Counsel Marcial P. Lichauco dated

February 9, 1949, addressed to the Secretary of Justice, 8 days after the original
complaint herein was filed in court. R.A., pp. 69, 90-112.
45

Tr., pp. 18, 29, August 29, 1960.

46

See Exhibit 20-Heirs.

47

Exhibit 25-Heirs.

48

Emphasis supplied.

49

3 Fletcher, pp. 450-452, supra.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 129459 September 29, 1998

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

PANGANIBAN, J.:
May corporate treasurer, by herself and without any authorization from he board
of directors, validly sell a parcel of land owned by the corporation?. May the veil
of corporate fiction be pierced on the mere ground that almost all of the shares
of stock of the corporation are owned by said treasurer and her husband?
The Case
These questions are answered in the negative by this Court in resolving the
Petition for Review on Certiorari before us, assailing the March 18, 1997
Decision 1 of the Court of Appeals 2 in CA GR CV No. 46801 which, in turn,
modified the July 18, 1994 Decision of the Regional Trial Court of Makati, Metro

Manila, Branch 63 3 in Civil Case No. 89-3511. The RTC dismissed both the
Complaint and the Counterclaim filed by the parties. On the other hand, the
Court of Appeals ruled:
WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH
MODIFICATION ordering defendant-appellee Nenita Lee Gruenberg to REFUND or
return to plaintiff-appellant the downpayment of P100,000.00 which she received
from plaintiff-appellant. There is no pronouncement as to costs. 4
The petition also challenges the June 10, 1997 CA Resolution denying
reconsideration. 5
The Facts
The facts as found by the Court of Appeals are as follows:
Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended
complaint alleged that on 14 February 1989, plaintiff-appellant entered into an
agreement with defendant-appellee Motorich Sales Corporation for the transfer
to it of a parcel of land identified as Lot 30, Block 1 of the Acropolis Greens
Subdivision located in the District of Murphy, Quezon City. Metro Manila,
containing an area of Four Hundred Fourteen (414) square meters, covered by
TCT No. (362909) 2876: that as stipulated in the Agreement of 14 February 1989,
plaintiff-appellant paid the downpayment in the sum of One Hundred Thousand
(P100,000.00) Pesos, the balance to be paid on or before March 2, 1989; that on
March 1, 1989. Mr. Andres T. Co, president of plaintiff-appellant corporation,
wrote a letter to defendant-appellee Motorich Sales Corporation requesting for a
computation of the balance to be paid: that said letter was coursed through
defendant-appellee's broker. Linda Aduca, who wrote the computation of the
balance: that on March 2, 1989, plaintiff-appellant was ready with the amount
corresponding to the balance, covered by Metrobank Cashier's Check No.
004223, payable to defendant-appellee Motorich Sales Corporation; that plaintiffappellant and defendant-appellee Motorich Sales Corporation were supposed to
meet in the office of plaintiff-appellant but defendant-appellee's treasurer, Nenita
Lee Gruenberg, did not appear; that defendant-appellee Motorich Sales
Corporation despite repeated demands and in utter disregard of its commitments
had refused to execute the Transfer of Rights/Deed of Assignment which is
necessary to transfer the certificate of title; that defendant ACL Development
Corp. is impleaded as a necessary party since Transfer Certificate of Title No.
(362909) 2876 is still in the name of said defendant; while defendant JNM Realty
& Development Corp. is likewise impleaded as a necessary party in view of the
fact that it is the transferor of right in favor of defendant-appellee Motorich Sales
Corporation: that on April 6, 1989, defendant ACL Development Corporation and
Motorich Sales Corporation entered into a Deed of Absolute Sale whereby the
former transferred to the latter the subject property; that by reason of said
transfer, the Registry of Deeds of Quezon City issued a new title in the name of
Motorich Sales Corporation, represented by defendant-appellee Nenita Lee
Gruenberg and Reynaldo L. Gruenberg, under Transfer Certificate of Title No.
3571; that as a result of defendants-appellees Nenita Lee Gruenberg and

Motorich Sales Corporation's bad faith in refusing to execute a formal Transfer of

Rights/Deed of Assignment, plaintiff-appellant suffered moral and nominal
damages which may be assessed against defendants-appellees in the sum of
Five Hundred Thousand (500,000.00) Pesos; that as a result of defendantsappellees Nenita Lee Gruenberg and Motorich Sales Corporation's unjustified and
unwarranted failure to execute the required Transfer of Rights/Deed of
Assignment or formal deed of sale in favor of plaintiff-appellant, defendantsappellees should be assessed exemplary damages in the sum of One Hundred
Thousand (P100,000.00) Pesos; that by reason of defendants-appellees' bad faith
in refusing to execute a Transfer of Rights/Deed of Assignment in favor of
plaintiff-appellant, the latter lost the opportunity to construct a residential
building in the sum of One Hundred Thousand (P100,000.00) Pesos; and that as a
consequence of defendants-appellees Nenita Lee Gruenberg and Motorich Sales
Corporation's bad faith in refusing to execute a deed of sale in favor of plaintiffappellant, it has been constrained to obtain the services of counsel at an agreed
fee of One Hundred Thousand (P100,000.00) Pesos plus appearance fee for every
appearance in court hearings.
In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee
Gruenberg interposed as affirmative defense that the President and Chairman of
Motorich did not sign the agreement adverted to in par. 3 of the amended
complaint; that Mrs. Gruenberg's signature on the agreement (ref: par. 3 of
Amended Complaint) is inadequate to bind Motorich. The other signature, that of
Mr. Reynaldo Gruenberg, President and Chairman of Motorich, is required: that
plaintiff knew this from the very beginning as it was presented a copy of the
Transfer of Rights (Annex B of amended complaint) at the time the Agreement
(Annex B of amended complaint) was signed; that plaintiff-appellant itself drafted
the Agreement and insisted that Mrs. Gruenberg accept the P100,000.00 as
earnest money; that granting, without admitting, the enforceability of the
agreement, plaintiff-appellant nonetheless failed to pay in legal tender within the
stipulated period (up to March 2, 1989); that it was the understanding between
Mrs. Gruenberg and plaintiff-appellant that the Transfer of Rights/Deed of
Assignment will be signed only upon receipt of cash payment; thus they agreed
that if the payment be in check, they will meet at a bank designated by plaintiffappellant where they will encash the check and sign the Transfer of Rights/Deed.
However, plaintiff-appellant informed Mrs. Gruenberg of the alleged availability
of the check, by phone, only after banking hours.
On the basis of the evidence, the court a quo rendered the judgment appealed
from[,] dismissing plaintiff-appellant's complaint, ruling that:
The issue to be resolved is: whether plaintiff had the right to compel defendants
to execute a deed of absolute sale in accordance with the agreement of February
14, 1989: and if so, whether plaintiff is entitled to damage.
As to the first question, there is no evidence to show that defendant Nenita Lee
Gruenberg was indeed authorized by defendant corporation. Motorich Sales, to
dispose of that property covered by T.C.T. No. (362909) 2876. Since the property

is clearly owned by the corporation. Motorich Sales, then its disposition should be
governed by the requirement laid down in Sec. 40. of the Corporation Code of
the Philippines, to wit:
Sec. 40, Sale or other disposition of assets. Subject to the provisions of existing
laws on illegal combination and monopolies, a corporation may by a majority
vote of its board of directors . . . sell, lease, exchange, mortgage, pledge or
otherwise dispose of all or substantially all of its property and assets including its
goodwill . . . when authorized by the vote of the stockholders representing at
least two third (2/3) of the outstanding capital stock . . .
No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed
sale[;] neither was there evidence to show that the supposed transaction was
ratified by the corporation. Plaintiff should have been on the look out under these
circumstances. More so, plaintiff himself [owns] several corporations (tsn dated
August 16, 1993, p. 3) which makes him knowledgeable on corporation matters.
Regarding the question of damages, the Court likewise, does not find substantial
evidence to hold defendant Nenita Lee Gruenberg liable considering that she did
not in anyway misrepresent herself to be authorized by the corporation to sell
the property to plaintiff (tsn dated September 27, 1991, p. 8).
In the light of the foregoing, the Court hereby renders judgment DISMISSING the
complaint at instance for lack of merit.
"Defendants" counterclaim is also DISMISSED for lack of basis. (Decision, pp. 78; Rollo, pp. 34-35)
For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and between:
MOTORICH SALES CORPORATION, a corporation duly organized and existing
under and by virtue of Philippine Laws, with principal office address at 5510
South Super Hi-way cor. Balderama St., Pio del Pilar. Makati, Metro Manila,
represented herein by its Treasurer, NENITA LEE GRUENBERG, hereinafter
referred to as the TRANSFEROR;
and
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and
existing under and by virtue of the laws of the Philippines, with principal office
address at Sumulong Highway, Barrio Mambungan, Antipolo, Rizal, represented
herein by its President, ANDRES T. CO, hereinafter referred to as the
TRANSFEREE.
WITNESSETH, That:

WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30

Block 1 of the ACROPOLIS GREENS SUBDIVISION located at the District of
Murphy, Quezon City, Metro Manila, containing an area of FOUR HUNDRED
FOURTEEN (414) SQUARE METERS, covered by a TRANSFER OF RIGHTS between
JNM Realty & Dev. Corp. as the Transferor and Motorich Sales Corp. as the
Transferee;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties
have agreed as follows:
1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS
(P5,200.00) per square meter; subject to the following terms:
a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS
(P100,000.00), will be paid upon the execution of this agreement and shall form
part of the total purchase price;
b. Balance shall be payable on or before March 2, 1989;
2. That the monthly amortization for the month of February 1989 shall be for the
account of the Transferor; and that the monthly amortization starting March 21,
1989 shall be for the account of the Transferee;
The transferor warrants that he [sic] is the lawful owner of the above-described
property and that there [are] no existing liens and/or encumbrances of
whatsoever nature;
In case of failure by the Transferee to pay the balance on the date specified on 1,
(b), the earnest money shall be forfeited in favor of the Transferor.
That upon full payment of the balance, the TRANSFEROR agrees to execute a
TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of
February, 1989 at Greenhills, San Juan, Metro Manila, Philippines.
MOTORICH SALES CORPORATION SAN JUAN STRUCTURAL & STEEL FABRICATORS
TRANSFEROR TRANSFEREE
[SGD.] [SGD.]
By. NENITA LEE GRUENBERG By: ANDRES T. CO
Treasurer President
Signed In the presence of:
[SGD.] [SGD.]
6
In its recourse before the Court of Appeals, petitioner insisted:

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

Sale in accordance with the Agreement of February 14, 1989,
2. Plaintiff is entitled to damages.

As stated earlier, the Court of Appeals debunked petitioner's arguments and

affirmed the Decision of the RTC with the modification that Respondent Nenita
Lee Gruenberg was ordered to refund P100,000 to petitioner, the amount
remitted as "downpayment" or "earnest money." Hence, this petition before us. 8
The Issues
Before this Court, petitioner raises the following issues:
I. Whether or not the doctrine of piercing the veil of corporate fiction is applicable
in the instant case
II. Whether or not the appellate court may consider matters which the parties
failed to raise in the lower court
III. Whether or not there is a valid and enforceable contract between the
petitioner and the respondent corporation
IV. Whether or not the Court of Appeals erred in holding that there is a valid
correction/substitution of answer in the transcript of stenographic note[s].
V. Whether or not respondents are liable for damages and attorney's fees

The Court synthesized the foregoing and will thus discuss them seriatim as
follows:
1. Was there a valid contract of sale between petitioner and Motorich?
2. May the doctrine of piercing the veil of corporate fiction be applied to
Motorich?
3. Is the alleged alteration of Gruenberg's testimony as recorded in the transcript
of stenographic notes material to the disposition of this case?
4. Are respondents liable for damages and attorney's fees?
The Court's Ruling
The petition is devoid of merit.
First Issue: Validity of Agreement
Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February
14, 1989, it entered through its president, Andres Co, into the disputed
Agreement with Respondent Motorich Sales Corporation, which was in turn
allegedly represented by its treasurer, Nenita Lee Gruenberg. Petitioner insists
that "[w]hen Gruenberg and Co affixed their signatures on the contract they both

consented to be bound by the terms thereof." Ergo, petitioner contends that the
contract is binding on the two corporations. We do not agree.
True, Gruenberg and Co signed on February 14, 1989, the Agreement, according
to which a lot owned by Motorich Sales Corporation was purportedly sold. Such
contract, however, cannot bind Motorich, because it never authorized or ratified
such sale.
A corporation is a juridical person separate and distinct from its stockholders or
members. Accordingly, the property of the corporation is not the property of its
stockholders or members and may not be sold by the stockholders or members
without express authorization from the corporation's board of
directors. 10 Section 23 of BP 68, otherwise known as the Corporation Code of the
Philippines, provides;
Sec. 23. The Board of Directors or Trustees. Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled
and held by the board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year and until their successors are
elected and qualified.
Indubitably, a corporation may act only through its board of directors or, when
authorized either by its bylaws or by its board resolution, through its officers or
agents in the normal course of business. The general principles of agency govern
the relation between the corporation and its officers or agents, subject to the
articles of incorporation, bylaws, or relevant provisions of law. 11 Thus, this Court
has held that "a corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent that the authority to
do so has been conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual course of the
particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually
pertaining to the particular officer or agent, and such apparent powers as the
corporation has caused persons dealing with the officer or agent to believe that
it has conferred." 12
Furthermore, the Court has also recognized the rule that "persons dealing with
an assumed agent, whether the assumed agency be a general or special one
bound at their peril, if they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of authority, and in case either
is controverted, the burden of proof is upon them to establish it (Harry Keeler v.
Rodriguez, 4 Phil. 19)." 13 Unless duly authorized, a treasurer, whose powers are
limited, cannot bind the corporation in a sale of its assets. 14
In the case at bar, Respondent Motorich categorically denies that it ever
authorized Nenita Gruenberg, its treasurer, to sell the subject parcel of
land. 15 Consequently, petitioner had the burden of proving that Nenita

Gruenberg was in fact authorized to represent and bind Motorich in the

transaction. Petitioner failed to discharge this burden. Its offer of evidence before
the trial court contained no proof of such authority. 16 It has not shown any
provision of said respondent's articles of incorporation, bylaws or board
resolution to prove that Nenita Gruenberg possessed such power.
That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from
the responsibility of ascertaining the extent of her authority to represent the
corporation. Petitioner cannot assume that she, by virtue of her position, was
authorized to sell the property of the corporation. Selling is obviously foreign to a
corporate treasurer's function, which generally has been described as "to receive
and keep the funds of the corporation, and to disburse them in accordance with
the authority given him by the board or the properly authorized officers." 17
Neither was such real estate sale shown to be a normal business activity of
Motorich. The primary purpose of Motorich is marketing, distribution, export and
import in relation to a general merchandising business. 18 Unmistakably, its
treasurer is not cloaked with actual or apparent authority to buy or sell real
property, an activity which falls way beyond the scope of her general authority.
Art. 1874 and 1878 of the Civil Code of the Philippines provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an
agent, the authority of the latter shall be in writing: otherwise, the sale shall be
void.
Art. 1878. Special powers of attorney are necessary in the following case:
xxx xxx xxx
(5) To enter any contract by which the ownership of an immovable is transmitted
or acquired either gratuitously or for a valuable consideration;
xxx xxx xxx.
Petitioner further contends that Respondent Motorich has ratified said contract of
sale because of its "acceptance of benefits," as evidenced by the receipt issued
by Respondent Gruenberg. 19 Petitioner is clutching at straws.
As a general rule, the acts of corporate officers within the scope of their authority
are binding on the corporation. But when these officers exceed their authority,
their actions "cannot bind the corporation, unless it has ratified such acts or is
estopped from disclaiming them." 20
In this case, there is a clear absence of proof that Motorich ever authorized
Nenita Gruenberg, or made it appear to any third person that she had the
authority, to sell its land or to receive the earnest money. Neither was there any
proof that Motorich ratified, expressly or impliedly, the contract. Petitioner rests
its argument on the receipt which, however, does not prove the fact of
ratification. The document is a hand-written one, not a corporate receipt, and it

bears only Nenita Gruenberg's signature. Certainly, this document alone does not
prove that her acts were authorized or ratified by Motorich.
Art. 1318 of the Civil Code lists the requisites of a valid and perfected contract:
"(1) consent of the contracting parties; (2) object certain which is the subject
matter of the contract; (3) cause of the obligation which is established." As found
by the trial court 21 and affirmed by the Court of Appeals, 22 there is no evidence
that Gruenberg was authorized to enter into the contract of sale, or that the said
contract was ratified by Motorich. This factual finding of the two courts is binding
on this Court. 23 As the consent of the seller was not obtained, no contract to
bind the obligor was perfected. Therefore, there can be no valid contract of sale
between petitioner and Motorich.
Because Motorich had never given a written authorization to Respondent
Gruenberg to sell its parcel of land, we hold that the February 14, 1989
Agreement entered into by the latter with petitioner is void under Article 1874 of
the Civil Code. Being inexistent and void from the beginning, said contract
cannot be ratified. 24
Second Issue:
Piercing the Corporate Veil Not Justified
Petitioner also argues that the veil of corporate fiction of Motorich should be
pierced, because the latter is a close corporation. Since "Spouses Reynaldo L.
Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866% to be
accurate, of the subscribed capital stock" 25 of Motorich, petitioner argues that
Gruenberg needed no authorization from the board to enter into the subject
contract. 26 It adds that, being solely owned by the Spouses Gruenberg, the
company can treated as a close corporation which can be bound by the acts of
its principal stockholder who needs no specific authority. The Court is not
persuaded.
First, petitioner itself concedes having raised the issue belatedly, 27 not having
done so during the trial, but only when it filed its sur-rejoinder before the Court of
Appeals. 28 Thus, this Court cannot entertain said issue at this late stage of the
proceedings. It is well-settled the points of law, theories and arguments not
brought to the attention of the trial court need not be, and ordinarily will not be,
considered by a reviewing court, as they cannot be raised for the first time on
appeal. 29Allowing petitioner to change horses in midstream, as it were, is to run
roughshod over the basic principles of fair play, justice and due process.
Second, even if the above mentioned argument were to be addressed at this
time, the Court still finds no reason to uphold it. True, one of the advantages of a
corporate form of business organization is the limitation of an investor's liability
to the amount of the investment. 30 This feature flows from the legal theory that
a corporate entity is separate and distinct from its stockholders. However, the
statutorily granted privilege of a corporate veil may be used only for legitimate
purposes. 31 On equitable considerations, the veil can be disregarded when it is
utilized as a shield to commit fraud, illegality or inequity; defeat public

convenience; confuse legitimate issues; or serve as a mere alter ego or business

conduit of a person or an instrumentality, agency or adjunct of another
corporation. 32
Thus, the Court has consistently ruled that "[w]hen the fiction is used as a means
of perpetrating a fraud or an illegal act or as vehicle for the evasion of an
existing obligation, the circumvention of statutes, the achievement or perfection
of a monopoly or generally the perpetration of knavery or crime, the veil with
which the law covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its consideration merely as
an aggregation of individuals."33
We stress that the corporate fiction should be set aside when it becomes a shield
against liability for fraud, illegality or inequity committed on third persons. The
question of piercing the veil of corporate fiction is essentially, then, a matter of
proof. In the present case, however, the Court finds no reason to pierce the
corporate veil of Respondent Motorich. Petitioner utterly failed to establish that
said corporation was formed, or that it is operated, for the purpose of shielding
any alleged fraudulent or illegal activities of its officers or stockholders; or that
the said veil was used to conceal fraud, illegality or inequity at the expense of
third persons like petitioner.
Petitioner claims that Motorich is a close corporation. We rule that it is not.
Section 96 of the Corporation Code defines a close corporation as follows:
Sec. 96. Definition and Applicability of Title. A close corporation, within the
meaning of this Code, is one whose articles of incorporation provide that: (1) All
of the corporation's issued stock of all classes, exclusive of treasury shares, shall
be held of record by not more than a specified number of persons, not exceeding
twenty (20); (2) All of the issued stock of all classes shall be subject to one or
more specified restrictions on transfer permitted by this Title; and (3) The
corporation shall not list in any stock exchange or make any public offering of
any of its stock of any class. Notwithstanding the foregoing, a corporation shall
be deemed not a close corporation when at least two-thirds (2/3) of its voting
stock or voting rights is owned or controlled by another corporation which is not
a close corporation within the meaning of this Code. . . . .
The articles of incorporation 34 of Motorich Sales Corporation does not contain
any provision stating that (1) the number of stockholders shall not exceed 20, or
(2) a preemption of shares is restricted in favor of any stockholder or of the
corporation, or (3) listing its stocks in any stock exchange or making a public
offering of such stocks is prohibited. From its articles, it is clear that Respondent
Motorich is not a close corporation. 35 Motorich does not become one either, just
because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its
subscribed capital stock. The "[m]ere ownership by a single stockholder or by
another corporation of all or capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personalities." 36 So,
too, a narrow distribution of ownership does not, by itself, make a close
corporation.

Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals 37 wherein

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

45

Petitioner claims that the answer "Yes" was crossed out, and, in its place was
written a "No" with an initial scribbled above it. 46 This, however, is insufficient to
prove that Nenita Gruenberg was authorized to represent Respondent Motorich in
the sale of its immovable property. Said excerpt be understood in the context of
her whole testimony. During her cross-examination. Respondent Gruenberg
testified:
Q So, you signed in your capacity as the treasurer?
[A] Yes, sir.
Q Even then you kn[e]w all along that you [were] not authorized?
A Yes, sir.
Q You stated on direct examination that you did not represent that you were
authorized to sell the property?
A Yes, sir.
Q But you also did not say that you were not authorized to sell the property, you
did not tell that to Mr. Co, is that correct?
A That was not asked of me.
Q Yes, just answer it.
A I just told them that I was the treasurer of the corporation and it [was] also the
president who [was] also authorized to sign on behalf of the corporation.
Q You did not say that you were not authorized nor did you say that you were
authorized?
A Mr. Co was very interested to purchase the property and he offered to put up a
P100,000.00 earnest money at that time. That was our first meeting. 47
Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her
to sell its property. On the other hand, her testimony demonstrates that the
president of Petitioner Corporation, in his great desire to buy the property, threw
caution to the wind by offering and paying the earnest money without first
verifying Gruenberg's authority to sell the lot.
Fourth Issue:
Damages and Attorney's Fees
Finally, petitioner prays for damages and attorney's fees, alleging that "[i]n an
utter display of malice and bad faith, respondents attempted and succeeded in
impressing on the trial court and [the] Court of Appeals that Gruenberg did not
represent herself as authorized by Respondent Motorich despite the receipt
issued by the former specifically indicating that she was signing on behalf of
Motorich Sales Corporation. Respondent Motorich likewise acted in bad faith
when it claimed it did not authorize Respondent Gruenberg and that the contract

[was] not binding, [insofar] as it [was] concerned, despite receipt and enjoyment
of the proceeds of Gruenberg's act." 48 Assuming that Respondent Motorich was
not a party to the alleged fraud, petitioner maintains that Respondent Gruenberg
should be held liable because she "acted fraudulently and in bad faith [in]
representing herself as duly authorized by [R]espondent [C]orporation." 49
As already stated, we sustain the findings of both the trial and the appellate
courts that the foregoing allegations lack factual bases. Hence, an award of
damages or attorney's fees cannot be justified. The amount paid as "earnest
money" was not proven to have redounded to the benefit of Respondent
Motorich. Petitioner claims that said amount was deposited to the account of
Respondent Motorich, because "it was deposited with the account of Aren
Commercial c/o Motorich Sales Corporation." 50 Respondent Gruenberg, however,
disputes the allegations of petitioner. She testified as follows:
Q You voluntarily accepted the P100,000.00, as a matter of fact, that was
encashed, the check was encashed.
A Yes. sir, the check was paid in my name and I deposit[ed] it.
Q In your account?
A Yes, sir.

51

In any event, Gruenberg offered to return the amount to petitioner ". . . since the
sale did not push through." 52
Moreover, we note that Andres Co is not a neophyte in the world of corporate
business. He has been the president of Petitioner Corporation for more than ten
years and has also served as chief executive of two other corporate
entities. 53 Co cannot feign ignorance of the scope of the authority of a corporate
treasurer such as Gruenberg. Neither can he be oblivious to his duty to ascertain
the scope of Gruenberg's authorization to enter into a contract to sell a parcel of
land belonging to Motorich.
Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to
persuade the Court. Indubitably, petitioner appears to be the victim of its own
officer's negligence in entering into a contract with and paying an unauthorized
officer of another corporation.
As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be
ordered to return to petitioner the amount she received as earnest money, as "no
one shall enrich himself at the expense of another." 54 a principle embodied in
Article 2154 of Civil Code. 55 Although there was no binding relation between
them, petitioner paid Gruenberg on the mistaken belief that she had the
authority to sell the property of Motorich. 56 Article 2155 of Civil Code provides
that "[p]ayment by reason of a mistake in the contruction or application of a
difficult question of law may come within the scope of the preceding article."

WHEREFORE, the petition is hereby DENIED and the assailed Decision is

AFFIRMED.
SO ORDERED.
Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur.
Footnotes
1 Rollo, pp. 54 to 65-A.
2 Sixth Division, composed of J. Eduardo G. Montenegro, ponente, and JJ. Antonio
M. Martinez, chairman (non a member of this Court); and Celia Lipana-Reyes,
member; both concurring.
3 Penned by Judge Julio R. Logarta.
4 CA Decision, p. 14; rollo, p. 65-A.
5 Rollo, p. 73.
6 Record, pp. 226-227.
7 Petitioner's Brief before the Court of Appeals, p. 4; CA rollo, p. 21.
8 This case was deemed submitted for resolution on May 15, 1998 upon receipt
by this Court of the Memorandum for the Respondents. Petitioner's Memorandum
was received earlier, on May 7, 1998.
9 Petitioner's Memorandum, pp. 3-4; rollo, pp. 212-213.
10 Traders Royal Banks v. Court of Appeals, 177 SCRA 788, 792, September 26,
1989.
11 Yao Ka Sin Trading v. Court of Appeals, 209 SCRA 763, 781, June 15,
1992; citing 19 CJS 455.
12 Ibid., pp. 781-782; citing 19 CJS 456, per Davide Jr., J.
13 BA Finance Corporation v. Court of Appeals, 211 SCRA 112, 116, July 3, 1992,
per Medialdea, J.
14 Justice Jose C. Campos, Jr. and Maria Clara Lopez-Campos, The Corporation
Code Comments, Notes and Selected Cases, Vol. I (1990), p. 386.
15 Petitioner's Memorandum, pp. 16-17; rollo, pp. 242-243.
16 See petitioner's Offer of Evidence before the RTC; Record, pp. 265-266.
17 Campos and Campos, supra, p. 386.
18 Art. of Incorporation of Motorich, pp. 1-2; CA rollo, pp. 86-87.
19 Petitioner's Memorandum, p. 11; rollo, p. 220.

20 Art. 1910, Civil Code; Campos and Campos, supra, p. 385.

21 RTC Decision, p. 7; CA rollo, p. 34.
22 CA Decision, p. 9; rollo, p. 62.
23 Fuentes v. Court of Appeals, 268 SCRA 703, 710, February 26, 1997.
24 Art. 1409, Civil Code.
25 CA Decision, pp. 4-5; rollo, pp. 213-214.
26 Ibid., p. 6; rollo, p. 215.
27 Ibid., p. 9; rollo, p. 218.
28 CA rollo, pp. 78-79.
29 First Philippine International Bank v. Court of Appeals, 252 SCRA 259, January
24, 1996; Sanchez v. Court of Appeals, GR No. 108947, p. 28, September 29,
1997; citing Medida v. Court of Appeals, 208 SCRA 887, 893, May 8, 1992 and
Caltex (Philippines), Inc. v. Court of Appeals, 212 SCRA 448, 461, August 10,
1992.
30 Campos and Campos, supra, p.1.
31 Ibid., p. 149; Justice Jose C. Vitug, Pandect of Commercial Law and
Jurisprudence (revised ed., 1990), p. 286.
32 Umali v. Court of Appeals, 189 SCRA 529, 542, September 13,
1990; citing Koppel (Philippines), Inc. v. Yatco, 77 Phil 496 (1946) and Telephone
Engineering & Service Co, Inc. v. Workmen's Compensation Commission et al.,
104 SCRA 354, May 13, 1981. See also First Philippine International Bank v. Court
of Appeals, supra, 287-288 and Boyer-Roxas v. Court of Appeals, 211 SCRA 470,
484-487, July 14, 1992.
33 First Philippine International Bank v. Court of Appeals, supra, pp. 287-288, per
Panganiban, J.;citing Villa-Rey Transit, Inc. v. Ferrer, 25 SCRA 845, 857-858,
October 29, 1968.
34 CA rollo, pp. 85-94.
35 See Abejo v. De la Cruz, 149 SCRA 654, 667, May 19, 1987.
36 Santos v. National Labor Relations Commission, 254 SCRA 673, March 13,
1996, per Vitug J.;citing Sunio v. National Labor Commission, 127 SCRA 390, 397398, January 31, 1984. See alsoVitug, supra, p. 286; citing Bumet v. Clarke, 287
US 410, L. ed. 397.
37 225 SCRA 678, August 27, 1993; cited in Memorandum for Petitioner, pp. 67; rollo, pp. 215-216.
38 Ibid., p. 684, per Nocon, J.

39 Ibid., pp. 684-686.

40 Vitug, supra, p. 355.
41 Petitioner's Memorandum, p. 5; rollo, p. 214. See also Articles of Incorporation
of Motorich, p. 7; CA rollo, p. 92.
42 Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines, Vol. I (1990), p. 408.
43 Ibid., p. 412.
44 Justice Jose C. Vitug, Compendium of Civil Law and Jurisprudence, (revised
ed., 1993), p. 177.
45 TSN, September 27, 1993, p. 8; Record, p. 360. Cited in Petitioner's
Memorandum, p. 12; rollo, p. 221.
46 Petitioner's Memorandum, p. 12; rollo, p. 221.
47 TSN, September 27, 1993, p. 16.
48 Petitioner's Memorandum, p. 14, rollo, p. 223.
49 Ibid., p. 15; rollo, p. 224.
50 Ibid., p. 11; rollo, p. 220.
51 TSN, September 27, 1993, pp. 16-17; Record, pp. 368-369.
52 Ibid., p. 17; Record, p. 369.
53 TSN, August 16, 1993, p. 3; Record, p. 341. Cited in Memorandum for
Respondents, p. 19; rollo, p. 245.
54 Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines, Vol. V (1990), p. 581.
55 "Art. 2154. If something is received when there is no right to demand it, and it
was unduly delivered through mistake, the obligation to return it arises."
56 See Tolentino, supra, Vol. V, p. 581.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 121824 January 29, 1998

BRITISH AIRWAYS, petitioner,

vs.
COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE
AIRLINES, respondents.

ROMERO, J.:
In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the
decision of respondent Court of Appeals 1 promulgated on September 7, 1995,
which affirmed the award of damages and attorney's fees made by the Regional
Trial Court of Cebu, 7th Judicial Region, Branch 17, in favor of private respondent
GOP Mahtani as well as the dismissal of its third-party complaint against
Philippine Airlines (PAL). 2
The material and relevant facts are as follows:
On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In
anticipation of his visit, he obtained the services of a certain Mr. Gumar to
prepare his travel plans. The latter, in turn, purchased a ticket from BA where the
following itinerary was indicated: 3
CARRIER

FLIGHT

DATE

TIME

STATUS

MANILA

MNL

PR 310 Y

16 APR.

1730

OK

HONGKON
G

HKG

BA 20 M

16 APR.

2100

OK

BOMBAY

BOM

BA 19 M

23 APR.

0840

OK

HONGKON
G

HKG

PR 311 Y

MANILA

MNL

Since BA had no direct flights from Manila to Bombay, Mahtani had to take a
flight to Hongkong via PAL, and upon arrival in Hongkong he had to take a
connecting flight to Bombay on board BA.
Prior to his departure, Mahtani checked in at the PAL counter in Manila his two
pieces of luggage containing his clothings and personal effects, confident that
upon reaching Hongkong, the same would be transferred to the BA flight bound
for Bombay.
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage
was missing and that upon inquiry from the BA representatives, he was told that

the same might have been diverted to London. After patiently waiting for his
luggage for one week, BA finally advised him to file a claim by accomplishing the
"Property Irregularity Report." 4
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint
for damages and attorney's fees5 against BA and Mr. Gumar before the trial
court, docketed as Civil Case No. CEB-9076.
On September 4, 1990, BA filed its answer with counter claim 6 to the complaint
raising, as special and affirmative defenses, that Mahtani did not have a cause of
action against it. Likewise, on November 9, 1990, BA filed a third-party
complaint 7 against PAL alleging that the reason for the non-transfer of the
luggage was due to the latter's late arrival in Hongkong, thus leaving hardly any
time for the proper transfer of Mahtani's luggage to the BA aircraft bound for
Bombay.
On February 25, 1991, PAL filed its answer to the third-party complaint, wherein
it disclaimed any liability, arguing that there was, in fact, adequate time to
transfer the luggage to BA facilities in Hongkong. Furthermore, the transfer of the
luggage to Hongkong authorities should be considered as transfer to BA. 8
After appropriate proceedings and trial, on March 4, 1993, the trial court
rendered its decision in favor of Mahtani, 9 the dispositive portion of which reads
as follows:
WHEREFORE, premises considered, judgment is rendered for the plaintiff and
against the defendant for which defendant is ordered to pay plaintiff the sum of
Seven Thousand (P7,000.00) Pesos for the value of the two (2) suit cases; Four
Hundred U.S. ($400.00) Dollars representing the value of the contents of
plaintiff's luggage; Fifty Thousand (P50,000.00) Pesos for moral and actual
damages and twenty percent (20%) of the total amount imposed against the
defendant for attorney's fees and costs of this action.
The Third-Party Complaint against third-party defendant Philippine Airlines is
DISMISSED for lack of cause of action.
SO ORDERED.
Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the
trial court's findings. Thus:
WHEREFORE, in view of all the foregoing considerations, finding the Decision
appealed from to be in accordance with law and evidence, the same is hereby
AFFIRMED in toto, with costs against defendant-appellant.
SO ORDERED.

10

BA is now before us seeking the reversal of the Court of Appeals' decision.

In essence, BA assails the award of compensatory damages and attorney's fees,
as well as the dismissal of its third-party complaint against PAL. 11

Regarding the first assigned issue, BA asserts that the award of compensatory
damages in the separate sum of P7,000.00 for the loss of Mahtani's two pieces of
luggage was without basis since Mahtani in his complaint 12stated the following
as the value of his personal belongings:
8. On the said travel, plaintiff took with him the following items and its
corresponding value, to wit:
1. personal belonging P10,000.00
2. gifts for his parents and relatives $5,000.00
Moreover, he failed to declare a higher valuation with respect to his luggage, a
condition provided for in the ticket, which reads: 13
Liability for loss, delay, or damage to baggage is limited unless a higher value is
declared in advance and additional charges are paid:
1. For most international travel (including domestic corporations of international
journeys) the liability limit is approximately U.S. $9.07 per pound (U.S. $20.000)
per kilo for checked baggage and U.S. $400 per passenger for unchecked
baggage.
Before we resolve the issues raised by BA, it is needful to state that the nature of
an airline's contract of carriage partakes of two types, namely: a contract to
deliver a cargo or merchandise to its destination and a contract to transport
passengers to their destination. A business intended to serve the traveling public
primarily, it is imbued with public interest, hence, the law governing common
carriers imposes an exacting standard. 14 Neglect or malfeasance by the carrier's
employees could predictably furnish bases for an action for damages. 15
In the instant case, it is apparent that the contract of carriage was between
Mahtani and BA. Moreover, it is indubitable that his luggage never arrived in
Bombay on time. Therefore, as in a number of cases 16 we have assessed the
airlines' culpability in the form of damages for breach of contract involving
misplaced luggage.
In determining the amount of compensatory damages in this kind of cases, it is
vital that the claimant satisfactorily prove during the trial the existence of the
factual basis of the damages and its causal connection to defendant's acts. 17
In this regard, the trial court granted the following award as compensatory
damages:
Since plaintiff did not declare the value of the contents in his luggage and even
failed to show receipts of the alleged gifts for the members of his family in
Bombay, the most that can be expected for compensation of his lost luggage (2
suit cases) is Twenty U.S. Dollars ($20.00) per kilo, or combined value of Four
Hundred ($400.00) U.S. Dollars for Twenty kilos representing the contents plus
Seven Thousand (P7,000.00) Pesos representing the purchase price of the two
(2) suit cases.

However, as earlier stated, it is the position of BA that there should have been no
separate award for the luggage and the contents thereof since Mahtani failed to
declare a separate higher valuation for the luggage, 18 and therefore, its liability
is limited, at most, only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a
higher value is needed to recover a greater amount. Article 22(1) of the Warsaw
Convention, 19 provides as follows:
xxx xxx xxx
(2) In the transportation of checked baggage and goods, the liability of the
carrier shall be limited to a sum of 250 francs per kilogram, unless the consignor
has made, at time the package was handed over to the carrier, a special
declaration of the value at delivery and has paid a supplementary sum if the
case so requires. In that case the carrier will be liable to pay a sum not
exceeding the declared sum, unless he proves that the sum is greater than the
actual value to the consignor at delivery.
American jurisprudence provides that an air carrier is not liable for the loss of
baggage in an amount in excess of the limits specified in the tariff which was
filed with the proper authorities, such tariff being binding, on the passenger
regardless of the passenger's lack of knowledge thereof or assent thereto. 20 This
doctrine is recognized in this jurisdiction. 21
Notwithstanding the foregoing, we have, nevertheless, ruled against blind
reliance on adhesion contracts where the facts and circumstances justify that
they should be disregarded. 22
In addition, we have held that benefits of limited liability are subject to waiver
such as when the air carrier failed to raise timely objections during the trial when
questions and answers regarding the actual claims and damages sustained by
the passenger were asked. 23
Given the foregoing postulates, the inescapable conclusion is that BA had waived
the defense of limited liability when it allowed Mahtani to testify as to the actual
damages he incurred due to the misplacement of his luggage, without any
objection. In this regard, we quote the pertinent transcript of stenographic notes
of Mahtani's direct testimony: 24
Q How much are you going to ask from this court?
A P100,000.00.
Q What else?
A Exemplary damages.
Q How much?

A P100,000.00.
Q What else?
A The things I lost, $5,000.00 for the gifts I lost and my personal belongings,
P10,000.00.
Q What about the filing of this case?
A The court expenses and attorney's fees is 30%.
Indeed, it is a well-settled doctrine that where the proponent offers evidence
deemed by counsel of the adverse party to be inadmissible for any reason, the
latter has the right to object. However, such right is a mere privilege which can
be waived. Necessarily, the objection must be made at the earliest opportunity,
lest silence when there is opportunity to speak may operate as a waiver of
objections. 25 BA has precisely failed in this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely
objection, but even conducted his own cross-examination as well. 26 In the early
case of Abrenica v. Gonda, 27 we ruled that:
. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or
objection against the admission of any evidence must be made at the proper
time, and that if not so made it will be understood to have been waived. The
proper time to make a protest or objection is when, from the question addressed
to the witness, or from the answer thereto, or from the presentation of proof, the
inadmissibility of evidence is, or may be inferred.
Needless to say, factual findings of the trial court, as affirmed by the Court of
Appeals, are entitled to great respect. 28 Since the actual value of the luggage
involved appreciation of evidence, a task within the competence of the Court of
Appeals, its ruling regarding the amount is assuredly a question of fact, thus, a
finding not reviewable by this Court. 29
As to the issue of the dismissal of BA's third-party complaint against PAL, the
Court of Appeals justified its ruling in this wise, and we quote: 30
Lastly, we sustain the trial court's ruling dismissing appellant's third-party
complaint against PAL.
The contract of air transportation in this case pursuant to the ticket issued by
appellant to plaintiff-appellee was exclusively between the plaintiff Mahtani and
defendant-appellant BA. When plaintiff boarded the PAL plane from Manila to
Hongkong, PAL was merely acting as a subcontractor or agent of BA. This is
shown by the fact that in the ticket issued by appellant to plaintiff-appellee, it is
specifically provided on the "Conditions of Contract," paragraph 4 thereof that:
4. . . . carriage to be performed hereunder by several successive carriers is
regarded as a single operation.

The rule that carriage by plane although performed by successive carriers is

regarded as a single operation and that the carrier issuing the passenger's ticket
is considered the principal party and the other carrier merely subcontractors or
agent, is a settled issue.
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the Philippines v. Tempengko, 31 we
expounded on the nature of a third-party complaint thus:
The third-party complaint is, therefore, a procedural device whereby a "third
party" who is neither a party nor privy to the act or deed complained of by the
plaintiff, may be brought into the case with leave of court, by the defendant, who
acts, as third-party plaintiff to enforce against such third-party defendant a right
for contribution, indemnity, subrogation or any other relief, in respect of the
plaintiff's claim. The third-party complaint is actually independent of and
separate and distinct from the plaintiff's complaint. Were it not for this provision
of the Rules of Court, it would have to be filed independently and separately from
the original complaint by the defendant against the third-party. But the Rules
permit defendant to bring in a third-party defendant or so to speak, to litigate his
separate cause of action in respect of plaintiff's claim against a third-party in the
original and principal case with the object of avoiding circuitry of action and
unnecessary proliferation of law suits and of disposing expeditiously in one
litigation the entire subject matter arising from one particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA,
in view of their contract of carriage. Yet, BA adamantly disclaimed its liability and
instead imputed it to PAL which the latter naturally denies. In other words, BA
and PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation
was exclusively between Mahtani and BA, the latter merely endorsing the Manila
to Hongkong leg of the former's journey to PAL, as its subcontractor or agent. In
fact, the fourth paragraph of the "Conditions of Contracts" of the ticket 32 issued
by BA to Mahtani confirms that the contract was one of continuous air
transportation from Manila to Bombay.
4. . . . carriage to be performed hereunder by several successive carriers is
regarded as a single operation.
Prescinding from the above discussion, it is undisputed that PAL, in transporting
Mahtani from Manila to Hongkong acted as the agent of BA.
Parenthetically, the Court of Appeals should have been cognizant of the wellsettled rule that an agent is also responsible for any negligence in the
performance of its function. 33 and is liable for damages which the principal may
suffer by reason of its negligent act. 34 Hence, the Court of Appeals erred when it
opined that BA, being the principal, had no cause of action against PAL, its agent
or sub-contractor.

Also, it is worth mentioning that both BA and PAL are members of the
International Air Transport Association (IATA), wherein member airlines are
regarded as agents of each other in the issuance of the tickets and other matters
pertaining to their relationship. 35 Therefore, in the instant case, the contractual
relationship between BA and PAL is one of agency, the former being the principal,
since it was the one which issued the confirmed ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with our ruling
in Lufthansa German Airlines v. Court of Appeals. 36 In that case, Lufthansa
issued a confirmed ticket to Tirso Antiporda covering five-leg trip aboard different
airlines. Unfortunately, Air Kenya, one of the airlines which was to carry
Antiporda to a specific destination "bumped" him off.
An action for damages was filed against Lufthansa which, however, denied any
liability, contending that its responsibility towards its passenger is limited to the
occurrence of a mishap on its own line. Consequently, when Antiporda
transferred to Air Kenya, its obligation as a principal in the contract of carriage
ceased; from there on, it merely acted as a ticketing agent for Air Kenya.
In rejecting Lufthansa's argument, we ruled:
In the very nature of their contract, Lufthansa is clearly the principal in the
contract of carriage with Antiporda and remains to be so, regardless of those
instances when actual carriage was to be performed by various carriers. The
issuance of confirmed Lufthansa ticket in favor of Antiporda covering his entire
five-leg trip abroad successive carriers concretely attest to this.
Since the instant petition was based on breach of contract of carriage, Mahtani
can only sue BA alone, and not PAL, since the latter was not a party to the
contract. However, this is not to say that PAL is relieved from any liability due to
any of its negligent acts. In China Air Lines, Ltd. v. Court of Appeals, 37 while not
exactly in point, the case, however, illustrates the principle which governs this
particular situation. In that case, we recognized that a carrier (PAL), acting as an
agent of another carrier, is also liable for its own negligent acts or omission in
the performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a third-party complaint
against PAL for the purpose of ultimately determining who was primarily at fault
as between them, is without legal basis. After all, such proceeding is in accord
with the doctrine against multiplicity of cases which would entail receiving the
same or similar evidence for both cases and enforcing separate judgments
therefor. It must be borne in mind that the purpose of a third-party complaint is
precisely to avoid delay and circuitry of action and to enable the controversy to
be disposed of in one suit. 38 It is but logical, fair and equitable to allow BA to sue
PAL for indemnification, if it is proven that the latter's negligence was the
proximate cause of Mahtani's unfortunate experience, instead of totally
absolving PAL from any liability.

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CAG.R. CV No. 43309 dated September 7, 1995 is hereby MODIFIED, reinstating the
third-party complaint filed by British Airways dated November 9, 1990 against
Philippine Airlines. No costs.
SO ORDERED.
Narvasa, C.J., Melo and Francisco, JJ., concur.
Panganiban, J., concurs in the result.
Footnotes
1 CA G.R. CV No. 43309; penned by Associate Justice Cezar P. Francisco,
concurred in by Associate Justices Buenaventura J. Guerrero and Antonio P.
Solano, Rollo, pp. 38-58.
2 Per Jose P. Burgos.
3 Original Record, p. 5.
4 Folder of Exhibit, Exhibit "B."
5 Original Record, pp. 1-4.
6 Ibid., pp. 14-17.
7 Ibid., pp. 26-27.
8 Ibid., 56-57.
9 Ibid., pp. 165-178.
10 Rollo, pp. 30-58.
11 Ibid., p. 18.
12 Original Record, p. 2.
13 Folder of Exhibit, Exhibit "A."
14 Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of
the preceding article, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence as required in article 1733.
15 Philippine Airlines v. Court of Appeals, G.R. No. 120262, July 17, 1997.
16 Lufthansa German Airlines v. IAC, 207 SCRA 350 (1992); Cathay Pacific
Airways v. CA, 219 SCRA 521 (1993).
17 Air France v. Court of Appeals, 171 SCRA 399 (1989).
18 Rollo, pp. 29-30.

19 The full title is Warsaw Convention for Unification of Certain Rules Relating to
International Carriage by Air. See Philippine Treaty Series, Vol. II, 577-590 (1968).
20 Tannen Baum v. National Airlines, Inc., 176 NYS 2d 400; Wadel v. American
Airlines, Inc., 269 SW 2d 855; Randall v. Frontees Airlines, Inc., 397 F. Supp 840.
21 Philippine Airlines v. Court of Appeals, 235 SCRA 48 (1996).
22 Sweet Lines, Inc. v. Teves, 83 SCRA 361 (1978).
23 Lufthansa German Airlines v. IAC, 207 SCRA 350 (1992).
24 TSN, February 19, 1992, p. 9.
25 Talosig v. Vda. de Neeba, 43 SCRA 472 (1972); Catuira v. Court of Appeals,
236 SCRA 398 (1994); Willex Plastic Industries, Corp. v. Court of Appeals, 256
SCRA 478 (1996).
26 TSN, February 19, 1992, pp. 13-14.
27 34 Phil. 739 (1916).
28 Meneses v. Court of Appeals, 246 SCRA 162 (1994).
29 Chan v. Court of Appeals, 33 SCRA 737 (1970); Atlantic Gulf and Pacific
Company of Manila, Inc. v. Court of Appeals, 247 SCRA 606 (1995).
30 Rollo, p. 56.
31 27 SCRA 418 (1969).
32 Exhibit "A".
33 Art. 1909. "An agent is responsible not only for fraud, but also for negligence,
which shall be judged with more or less rigor by the court, according to whether
the agency was or was not for compensation."
34 Art. 1884. "The agent is bound by his acceptance to carry out the agency, and
is liable for damages which through his non-performance, the principal may
suffer."
35 Ortigas v. Lufthansa, 64 SCRA 610 (1975).
36 238 SCRA 290 (1994).
37 185 SCRA 449 (1990).
38 67 CJS 1034.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-2886

August 22, 1952

GREGORIO ARANETA, INC., plaintiff-appellant,

vs.
PAZ TUASON DE PATERNO and JOSE VIDAL, defendants-appellants.
Araneta and Araneta for appellant.
Ramirez and Ortigas for defendants-appellants.
Perkins, Ponce Enrile and Contreras And La O and Feria for appellee.
TUASON, J.:
This is a three-cornered contest between the purchasers, the seller, and the
mortgagee of certain portions (approximately 40,703 square meters) of a big
block of residential land in the district of Santa Mesa, Manila. The plaintiff, which
is the purchaser, and the mortgagee elevated this appeal. Though not an
appellant, the seller and mortgagor has made assignments of error in her brief,
some to strengthen the judgment and others for the purpose of new trial.
The case is extremely complicated and multiple issues were raised.
The salient facts in so far as they are not controverted are these. Paz Tuason de
Paterno is the registered owner of the aforesaid land, which was subdivided into
city lots. Most of these lots were occupied by lessees who had contracts of lease
which were to expire on December 31,1952, and carried a stipulation to the
effect that in the event the owner and lessor should decide to sell the property
the lessees were to be given priority over other buyers if they should desire to
buy their leaseholds, all things being equal. Smaller lots were occupied by
tenants without formal contract.
In 1940 and 1941 Paz Tuason obtained from Jose Vidal several loans totalling
P90,098 and constituted a first mortgage on the aforesaid property to secure the
debt. In January and April, 1943, she obtained additional loans of P30,000 and
P20,000 upon the same security. On each of the last-mentioned occasions the
previous contract of mortgage was renewed and the amounts received were
consolidated. In the first novated contract the time of payment was fixed at two
years and in the second and last at four years. New conditions not relevant here
were also incorporated into the new contracts.
There was, besides, a separate written agreement entitled "Penalidad del
Documento de Novacion de Esta Fecha" which, unlike the principal contracts,
was not registered. The tenor of this separate agreement, all copies, of which
were alleged to have been destroyed or lost, was in dispute and became the
subject of conflicting evidence. The lower court did not make categorical findings
on this point, however, and it will be our task to do so at the appropriate place in
this decision.
In 1943 Paz Tuason decided to sell the entire property for the net amount of
P400,000 and entered into negotiations with Gregorio Araneta, Inc. for this
purpose. The result of the negotiations was the execution on October 19, 1943,
of a contract called "Promesa de Compra y Venta" and identified as Exhibit "1."
This contract provided that subject to the preferred right of the lessees and that
of Jose Vidal as mortgagee, Paz Tuason would sell to Gregorio Araneta, Inc. and

the latter would buy for the said amount of P400,000 the entire estate under
these terms.
El precio sera pagado como sigue: un 40 por ciento juntamente con la
carta de aceptacion del arrendatario, un 20 por ciento delprecio al
otorgarse la escritura de compromiso de venta, y el remanente 40 por
ciento al otorgarse la escritura de venta definitiva, la cual sera otorgada
despues de que se habiese canceladola hipoteca a favor de Jose Vidal que
pesa sobre dichos lotes. Lacomision del 5 por ciento que corresponde a
Jose Araneta serapagada al otorgarse la escritura de compromiso de
venta.
Paz Tuason se obliga a entregar mediante un propio las cartasque dirigira
a este efecto a los arrendatarios, de conformidad con el formulario
adjunto, que se marca como Apendice A.
Expirado el plazo arriba mencionado, Paz Tuason otorgara las escrituras
correspondientes de venta a los arrendatarios que hayan decidido
comprar sus respectivos lotes.
9. Los alquieres correspondientes a este ao se prorratearan entre la
vendedora y el comprador, correspondiendo al comprador los alquileres
correspondientes a Noviembre y Diciembre de este ao y asimismo sera
por cuenta del comprador el amillaramiento correspondiente a dichos
meses.
10. Paz Tuason, reconoce haver recibido en este acto de Gregorio Araneta,
Inc., la suma de Ciento Noventa Mil Pesos (P190,000)como adelanto del
precio de venta que Gregorio Araneta, Inc., tuviere que pagar a Paz
Tuason.
La cantidad que Paz Tuason recibe en este acto sera aplicadapor ella a
saldar su deuda con Jose Vidal, los amillaramientos, sobre el utilizado por
Paz Tuason para otros fines.
11. Una vez determinados los lotes que Paz Tuason podra vendera
Gregorio Araneta, Inc., Paz Tuason otorgara una escritura deventa
definitiva sobre dichos lotes a favor de Gregorio Araneta, Inc.
Gregorio Araneta, Inc., pagara el precio de venta como sigue: 90 por
ciento del mismo al otorgarse la escritura de venta definitiva
descontandose de la cantidad que entonces se tenga que pagar de
adelanto de P190,000 que se entrega en virtud de esta escritura. El 10 por
ciento remanente se pagara a Paz Tuazon, una vez se haya cancelado la
hipoteca que pesa actualmente sobre el terreno.
No obstante la dispuesto en el parrafo 8, cualquier arrendatario que
decida comprar el lote que occupa con contrato de arrendamiento podra
optar por pedir el otorgamiento inmediato a su favor el acto de la escritura
de venta definitiva pagando en el acto el 50 por ciento del precio (ademas
del 40 por ciento que debio incluir en su carta de aceptacion) y el
remanente de 10 por ciento inmediatemente despues de cancelarse la
hipoteca que pesa sobre el terreno.

12. Si la mencionada cantidad de P190,000 excediere del 90 por ciento de

la cantidad que Gregorio Araneta, Inc., tuviere que vender a dicho
comprador, el saldo sera pagado inmediatamente por Paz Tuazon,
tomandolo de las cantidades que reciba de los arrendatarios como precio
de venta.
In furtherance of this promise to buy and sell, letters were sent the lessees giving
them until August 31, 1943, an option to buy the lots they occupied at the price
and terms stated in said letters. Most of the tenants who held contracts of lease
took advantage of the opportunity thus extended and after making the stipulated
payments were giving their deeds of conveyance. These sales, as far as the
record would show, have been respected by the seller.
With the elimination of the lots sold or be sold to the tenants there remained
unencumbered, except for the mortgage to Jose Vidal, Lots 1, 8-16 and 18 which
have an aggregate area of 14,810.20 square meters; and on December 2, 1943,
Paz Tuason and Gregorio Araneta, Inc. executed with regard to these lots an
absolute deed of sale, the terms of which, except in two respects, were similar to
those of the sale to the lessees. This deed, copy of which is attached to the
plaintiff's complaint as Exhibit A, provided, among other things, as follows:
The aforesaid lots are being sold by he Vendor to the Vendee separately at
the prices mentioned in paragraph (6) of the aforesaid contract entitled
"Promesa de Compra y Venta," making a total sum of One Hundred ThirtyNine Thousand Eighty-three pesos and Thirty-two centavos (P139,083.32),
ninety (90%) per cent of which amount, i.e., the sum of One Hundred
Twenty-five Thousand One Hundred Seventy-four Pesos and Ninety-nine
centavos (P125,174.99), the Vendor acknowledges to have received by
virtue of the advance of One Hundred Ninety Thousand (P190,000) Pesos
made by the Vendee to the Vendor upon the execution of the aforesaid
contract entitled "Promesa de Compra y Venta". The balance of Sixty-Four
Thousand Eight Hundred Twenty-five Pesos and One centavo (P64,825.01)
between the sum of P125,174.99, has been returned by the Vendor to the
Vendee, which amount the Vendee acknowledges to have received by
these presents;
The aforesaid sum of P190,000 was delivered by the Vendee to the Vendor
by virtue of four checks issued by the Vendee against the Bank of the
Philippine Islands, as follows:
No. C-286445 in favor of Paz Tuason de P13,476.6
Paterno
2
No. C-286444 in favor of the City
Treasurer, Manila

3,373.38

No. C-286443 in favor of Jose Vidal

30,000.0
0

No. C-286442 in favor of Jose Vidal

143,150.
00

Total

P190,000.
00

The return of the sum of P64,825.01 was made by the Vendor to the
Vendee in a liquidation which reads as follows:
Hemos recibido de Da. Paz Tuason de Paterno
la cantidad de Sesenta y Cuatro mil
Ochocientos Veinticinco Pesos y un centimo
(P64,825.01) enconcepto de devolucion que
nos hace del excesode lo pagadoa ella de

P190,000.
00

Menos el 90% de P139,083.32, importe de los

lotes que vamos a comprar

125,174.
99
64,825.0
1

Exceso
Cheque BIF No. D-442988 de Simplicio del
Rosario

21,984.2
0

Cheque PNB No. 177863-K de L.E. Dumas

21,688.6
0

Cheque PNB No. 267682-K de Alfonso Sycip

20,000.0
0

Cheque PNB No. 83940 de Josefina de Pabalan

4,847.96

Billetes recibidos de Alfonso Sycip

42.96
P68,563.2
1

Menos las comisiones de 5 %

recibidas de Josefina de Pabalan

P538.6
0

L.E. Dumas

1,084.
43

Angela S. Tuason

1,621.
94

3,244.97
P65,318.2
4

Menos cheque BIF No. C-288642 a

favor de Da. Paz Tuason de Paterno
que le entregamos como exceso

493.23
P64,825.0
1

Manila, Noviembre 2, 1943

GREGORIO ARANETA,
INCORPORATED
Por;
(Fdo.) "JOSE ARANETA
Presidente

Recibido cheque No. C-288642 BIF-P493.23

Por:
(Fdo.) "M.J. GONZALEZ
In view of the foregoing liquidation, the vendor acknowledges fully and
unconditionally, having received the sum of P125,174.99 of the present
legal currency and hereby expressly declares that she will not hold the
Vendee responsible for any loss that she might suffer due to the fact that
two of the checks paid to her by the Vendee were issued in favor of Jose
Vidal and the latter has, up to the present time, not yet collected the
same.
The ten (10%) per cent balance of the purchase price not yet paid in the
total sum of P13,908.33 will be paid by the Vendee to the Vendor when the
existing mortgage over the property sold by the Vendor to the Vendee is
duly cancelled in the office of the Register of Deeds, or sooner at the
option of the Vendee.
This Deed of Sale is executed by the Vendor free from all liens and
encumbrances, with the only exception of the existing lease contracts on
parcels Nos. 1, 10, 11, and 16, which lease contracts will expire on
December 31, 1953, with the understanding, however, that this sale is
being executed free from any option or right on the part of the lessees to
purchase the lots respectively leased by them.
It is therefore clearly understood that the Vendor will pay the existing
mortgage on her property in favor of Jose Vidal.
The liquidation of the amounts respectively due between the Vendor and
the Vendee in connection with the rents and real estate taxes as stipulated
in paragraph (9) of the contract entitled "Promesa de Compara y Venta"
will be adjusted between the parties in a separate document.
Should any of the aforesaid lessees of lots Nos. 2, 3, 4, 5, 6, 7, 9 and 17
fail to carry out their respective obligations under the option to purchase
exercised by them so that the rights of the lessee to purchase the
respective property leased by him is cancelled, the Vendor shall be bound
to sell the same to the herein Vendee, Gregorio Araneta, Incorporated, in
conformity with the terms and conditions provided in the aforesaid
contract of "Promesa de Compra y Venta";
The documentary stamps to be affixed to this deed will be for the account
of the Vendor while the expenses for the registration of this document will
be for the account of the Vendee.
The remaining area of the property of the Vendor subject to Transfer
Certificates of Title Nos. 60471 and 60472, are lots Nos. 2, 3, 4, 5, 6, 7, 9,
and 17, all of the Consolidation of lots Nos. 20 and 117 of plan II-4755,
G.L.R.O. Record No. 7680.

Before the execution of the above deed, that is, on October 20, 1943, the day
immediately following the signing of the agreement to buy and sell, Paz Tuason
had offered to Vidal the check for P143,150 mentioned in Exhibit A, in full
settlement of her mortgage obligation, but the mortgagee had refused to receive
that check or to cancel the mortgage, contending that by the separate
agreement before mentioned payment of the mortgage was not to be effected
totally or partially before the end of four years from April, 1943.
Because of this refusal of Vidal's Paz Tuason, through Atty. Alfonso Ponce Enrile,
commenced an action against the mortgagee in October or the early paret of
November 1943. the record of that case was destroyed and no copy of the
complaint was presented in evidence. Attached to the complaint or deposited
with the clerk of court by Attorney Ponce Enrile simultaneously with the
docketing of the suit were the check for P143,150 previously turned down by
Vidal, another certified check for P12,932.61, also drawn by Gregorio Araneta,
Inc., in favor of Vidal, and one ordinary check for P30,000 issued by Paz Tuazon.
These three checks were supposed to cover the whole indebtedness to Vidal
including the principal and interest up to that time and the penalty provided in
the separate agreement.
But the action against Vidal never came on for trial and the record and the
checks were destroyed during the war operations in January or February, 1945;
and neither was the case reconstituted afterward. This failure of the suit for the
cancellation of Vidal's mortgage, coupled with the destruction of the checks
tendered to the mortgagee, the nullification of the bank deposit on which those
checks had been drawn, and the tremendous rise of real estate value following
the termination of the war, gave occasion to the breaking off the schemes
outlined in Exhibits 1 and A; Paz Tuason after liberation repudiated them for the
reasons to be hereafter set forth. The instant action was the offshoot, begun by
Gregorio Araneta, Inc. to compel Paz Tuason to deliver to the plaintiff a clear title
to the lots described in Exhibit A free from all liens and encumbrances, and a
deed of cancellation of the mortgage to Vidal. Vidal came into the case in virtue
of a summon issued by order of the court, and filed a cross-claim against Paz
Tuazon to foreclose his mortgage.
It should be stated that the outset that all the parties are in agreement that
Vidal's loans are still outstanding. Paz Tuason's counsel concede that the tender
of payment to Vidal was legally defective and did not operate to discharge the
mortgage, while the plaintiff is apparently uninterested in this feature of the case
considering the matter one largely between the mortgagor and the mortgagee,
although to a certain degree this notion is incorrect. At any rate, the points of
discord between Paz Tuason and Vidal concern only the accrual of interest on the
loans, Vidal's claim to attorney's fees, and the application of the debt
moratorium law which the debtor now invokes. These matters will be taken up in
the discussion of the controversy between Paz Tuason and Jose Vidal.
The principal bone of contention between Gregorio Araneta, Inc., and Paz Tuason
was the validity of the deed of sale of Exhibit A on which the suit was predicated.
The lower court's judgment was that this contract was invalid and was so
declared, "sin per juicio de que la demandada Paz Tuason de Paterno pague a la
entidad demandante todas las cantidades que habia estado recibiendo de
lareferida entidad demandante, en concepto de pago de losterrenos, en moneda
corriente, segun el cambio que debiaregir al tiempo de otorgarse la escritura
segun la escalade "Ballentine", descontando, sin embargo, de dichas cantidades

cualesquiera que la demandante haya estadorecibiendo como alquileres de los

terrenos supuestamentevendidos a ella." The court based its opinion that Exhibit
1. His Honor, Judge Sotero Rodas, agreedwith the defendant that under
paragraph 8 of Exhibit 1 there was to be no absolute sale to Gregorio Araneta,
Inc., unless Vidal's mortgage was cancelled.
In our opinion the trial court was in error in its interpretation of Exhibit 1. The
contemplated execution of an absolute deed of sale was not contingent on the
cancellation of Vidal's mortgage. What Exhibit 1 did provide (eleventh paragraph)
was that such deed of absolute sale should be executed "una vez determinado
los lotes que Paz Tuason podra vender a Gregorio Araneta, Inc." The lots which
could be sold to Gregorio Araneta, Inc. were definitely known by October 31,
1943, which was the expiry of the tenants' option to buy, and the lots included in
the absolute of which the occupants' option to buy lapsed unconditionally. Such
deed as Exhibit A was then in a condition to be made.
Vidal's mortgage was not an obstacle to the sale. An amount had been set aside
to take care of it, and the parties, it would appear, were confident that the suit
against the mortgagee would succeed. The only doubt in their minds was in the
amount to which Vidal was entitled. The failure of the court to try and decide that
the case was not foreseen either.
This refutes, were think, the charge that there was undue rush on the part of the
plaintiff to push across the sale. The fact that simultaneously with Exhibit A
similar deeds were given the lessees who had elected to buy their leaseholds,
which comprise an area about twice as big as the lots described in Exhibit A, and
the further fact that the sale to the lessees have never been questioned and the
proceeds thereof have been received by the defendant, should add to dispel any
suspicion of bad faith on the part of the plaintiff. If anyone was in a hurry it could
have been the defendant. The clear preponderance of the evidence that Paz
Tuason was pressed for cash and that the payment of the mortgage was only an
incident, or a necessary means to effectuate the sale. Otherwise she could have
settled her mortgage obligation merely by selling a portion of her estate, say,
some of the lots leased to tenants who, except two who were in concentration
camps, were only too anxious to buy and own the lots on which their houses
were built.
Whatever the terms of Exhibit 1, the plaintiff and the defendant were at perfect
liberty to make a new agreement different from or even contrary to the
provisions of that document. The validity of the subsequent sale must of
necessity depend on what it said and not on the provisions of the promise to buy
and sell.
It is as possible proof or fraud that the discrepancies between the two documents
bear some attention. It was alleged that Attorneys Salvador Araneta and J.
Antonio Araneta who the defendant said had been her attorneys and had drawn
Exhibit A, and not informed or had misinformed her about its contents; that being
English, she had not read the deed of sale; that if she had not trusted the said
attorneys she would not have been so foolish as to affix her signature to a
contract so one-sided.
The evidence does not support the defendant. Except in two particulars, Exhibit
A was a substantial compliance with Exhibit 1 in furtherance of which Exhibit A

was made. One departure was the proviso that 10 per cent of the purchase price
should be paid only after Vidal's mortgage should have been cancelled. This
provisional deduction was not onerous or unusual. It was not onerous or unusual
that the vendee should withhold a relatively small portion of the purchase price
before all the impediments to the final consummation of the sale had been
removed. The tenants who had bought their lots had been granted the privilege
to deduct as much as 40 per cent of the stipulated price pending discharge of
the mortgage, although his percentage was later reduced to 10 as in the case of
Gregorio Araneta, Inc. It has also been that the validity of the sales to the
tenants has not been contested; that these sales embraced in the aggregate
24,245.40 square meters for P260,916.68 as compared to 14,811.20 square
meters sold to Gregorio Araneta, Inc. for P139,083.32; that the seller has already
received from the tenant purchasers 90 per cent of the purchase money.
There is good reason to believe that had Gregorio Araneta, Inc. not insisted on
charging to the defendant the loss of the checks deposited with the court, the
sale in question would have gone the smooth way of the sales to the tenants.
Thus Dindo Gonzales, defendant's son, declared:
P. Despues de haberse presentado esta demanda, recuerda usted haber
tenido conversacion con Salvador Araneta acerca de este asunto?
R. Si Seor.
P. Usted fue quien se acerco al seor Salvador Araneta?
R. Si, seor.
P. Quiero usted decir al Honorable Juzgado que era lo que usted dijo al
seor Salvador Araneta?
R. No creo que es propio que yo diga, por tratarse de mi madre.
P. En otras palabras, usted quiere decir que no quiere usted que se vuelva
decir o repetir ante este Honorable Juzgado lo que usted dijo al seor
Salvador Araneta, pues, se trata de su madre?
R. No, seor.
P. Puede usted decirnos que quiso usted decir cuando que no quisiera
decir?
R. Voy a decir lo que Salvador Araneta, yo me acerque a Don Salvador
Araneta, y yo le dije que es una verguenza de que nosotros, en la familia
tengamos que ir a la Corte por este, y tambien dije que mi madre de por si
quiere vender el terreno a ellos, porque mi madre quiere pagar al seor
Vidal, y que es una verguenza, siendo entre parientes, tener que venir por
este; era lo que yo dije al seor Salvador Araneta.
xxx

xxx

xxx

P. No recuerda usted tambien dijo al seor Salvador Araneta que usted no

comulgaba con ella (su madre) en este asunto?

R. Si, Seor; porque yo creia que mi madre solamente queria anular esta
venta, pero cuando me dijo el seor La O y sus abogados que, encima de
quitar la propiedad, todavia tendria ella que pagar al seor Vidal, este no
veso claro.
xxx

xxx

xxx

P. Ahora bien; de tal suerte que, tal como nosotros desperendemos de su

testimonio, tanto, usted como, su madre, esteban muy conformes en la
venta, es asi?
R. Si, seor.
The other stipulation embodied in Exhibit A which had no counterpart in Exhibit 1
was that by which Gregorio Araneta Inc. would hold Paz Tuason liable for the lost
checks and which, as stated, appeared to be at the root of the whole trouble
between the plaintiff and the defendant.
The stipulation reads:
In view of the foregoing liquidation, the Vendor acknowledges fully and
unconditionally, having received the sum of P125,174.99 of the present
legal currency and hereby expressly declares that she will not hold the
Vendee responsible for any loss that she might suffer due to the fact that
two of the checks paid to her by the Vendee were used in favor of Jose
Vidal and the latter has, up to the present time, not yet collected the
same.
It was argued that no person in his or her right senses would knowingly have
agreed to a covenant so iniquitous and unreasonable.
In the light of all the circumstances, it is difficult to believe that the defendant
was deceived into signing Exhibit A, in spite of the provision of which she and her
son complaint. Intelligent and well educated who had been managing her affairs,
she had an able attorney who was assisting her in the suit against Vidal, a case
which was instituted precisely to carry into effect Exhibit A or Exhibit 1, and a
son who is leading citizen and a business-man and knew the English language
very well if she did not. Dindo Gonzalez took active part in, if he was not the
initiator of the negotiations that led to the execution of Exhibit 1, of which he was
an attesting witness besides. If the defendant signed Exhibit A without being
apprised of its import, it can hardly be conceived that she did not have her
attorney or her son read it to her afterward. The transaction involved the
alienation of property then already worth a fortune and now assessed by the
defendant at several times higher. Doubts in defendant's veracity are enhanced
by the fact that she denied or at least pretended in her answer to be ignorant of
the existence of Exhibit A, and that only after she was confronted with the signed
copy of the document on the witness did she spring up the defense of fraud. It
would look as if she gambled on the chance that no signed copy of the deed had
been saved from the war. She could not have forgotten having signed so
important a document even if she had not understood some of its provisions.
From the unreasonableness and inequity of the aforequoted Exhibit A it is not to
be presumed that the defendant did not understand it. It was highly possible that

she did not attach much importance to it, convinced that Vidal could be forced to
accept the checks and not foreseeing the fate that lay in store for the case
against the mortgagee.
Technical objections are made against the deed of sale.
First of these is that Jose Araneta, since deceased, was defendant's agent and at
the same time the president of Gregorio Araneta, Inc.
The trial court found that Jose Araneta was not Paz Tuason's agent or broker. This
finding is contrary to the clear weight of the evidence, although the point would
be irrelevant, if the court were right in its holding that Exhibit A was void on
another ground, i.e., it was inconsistent with Exhibit 1.
Without taking into account defendant's Exhibit 7 and 8, which the court rejected
and which, in our opinion, should have been admitted, Exhibit 1 is decisive of the
defendant's assertion. In paragraph 8 of Exhibit 1 Jose Araneta was referred to as
defendant's agent or broker "who acts in this transaction" and who as such was
to receive a commission of 5 per cent, although the commission was to be
charged to the purchasers, while in paragraph 13 the defendant promised, in
consideration of Jose Araneta's services rendered to her, to assign to him all her
right, title and interest to and in certain lots not embraced in the sales to
Gregorio Araneta, Inc. or the tenants.
However, the trial court hypothetically admitting the existence of the relation of
principal and agent between Paz Tuason and Jose Araneta, pointed out that not
Jose Araneta but Gregorio Araneta, Inc. was the purchaser, and cited the wellknown distinction between the corporation and its stockholders. In other words,
the court opined that the sale to Gregorio Araneta, Inc. was not a sale to Jose
Araneta the agent or broker.
The defendant would have the court ignore this distinction and apply to this case
the other well-known principle which is thus stated in 18 C.J.S. 380: "The courts,
at law and in equity, will disregard the fiction of corporate entity apart from the
members of the corporation when it is attempted to be used as a means of
accomplishing a fraud or an illegal act.".
It will at once be noted that this principle does not fit in with the facts of the case
at bar. Gregorio Araneta, Inc. had long been organized and engaged in real
estate business. The corporate entity was not used to circumvent the law or
perpetrate deception. There is no denying that Gregorio Araneta, Inc. entered
into the contract for itself and for its benefit as a corporation. The contract and
the roles of the parties who participated therein were exactly as they purported
to be and were fully revealed to the seller. There is no pretense, nor is there
reason to suppose, that if Paz Tuason had known Jose Araneta to Gregorio
Araneta, Inc's president, which she knew, she would not have gone ahead with
the deal. From her point of view and from the point of view of public interest, it
would have made no difference, except for the brokerage fee, whether Gregorio
Araneta, Inc. or Jose Araneta was the purchaser. Under these circumstances the
result of the suggested disregard of a technicality would be, not to stop the
commission of deceit by the purchaser but to pave the way for the evasion of a
legitimate and binding commitment buy the seller. The principle invoked by the
defendant is resorted to by the courts as a measure or protection against deceit

and not to open the door to deceit. "The courts," it has been said, "will not ignore
the corporate entity in order to further the perpetration of a fraud." (18 C.J.S.
381.)
The corporate theory aside, and granting for the nonce that Jose Araneta and
Gregorio Araneta, Inc. were identical and that the acts of one where the acts of
the other, the relation between the defendant and Jose Araneta did not fall within
the purview of article 1459 of the Spanish Civil Code. 1
Agency is defined in article 1709 in broad term, and we have not come across
any commentary or decision dealing directly with the precise meaning of agency
as employed in article 1459. But in the opinion of Manresa(10 Manresa 4th ed.
100), agent in the sense there used is one who accepts another's representation
to perform in his name certain acts of more or less transcendency, while
Scaevola (Vol. 23, p. 403) says that the agent's in capacity to buy his principal's
property rests in the fact that the agent and the principal form one juridicial
person. In this connection Scaevola observes that the fear that greed might get
the better of the sentiments of loyalty and disinterestedness which should
animate an administrator or agent, is the reason underlying various classes of
incapacity enumerated in article 1459. And as American courts commenting on
similar prohibition at common law put it, the law does not trust human nature to
resist the temptations likely to arise of antogonism between the interest of the
seller and the buyer.
So the ban of paragraph 2 of article 1459 connotes the idea of trust and
confidence; and so where the relationship does not involve considerations of
good faith and integrity the prohibition should not and does not apply. To come
under the prohibition, the agent must be in a fiduciary with his principal.
Tested by this standard, Jose Araneta was not an agent within the meaning of
article 1459. By Exhibits 7 and 8 he was to be nothing more than a go-between
or middleman between the defendant and the purchaser, bringing them together
to make the contract themselves. There was no confidence to be betrayed. Jose
Araneta was not authorize to make a binding contract for the defendant. He was
not to sell and he did not sell the defendant's property. He was to look for a
buyer and the owner herself was to make, and did make, the sale. He was not to
fix the price of the sale because the price had been already fixed in his
commission. He was not to make the terms of payment because these, too, were
clearly specified in his commission. In fine, Jose Araneta was left no power or
discretion whatsoever, which he could abuse to his advantage and to the owner's
prejudice.
Defendant's other ground for repudiating Exhibit A is that the law firm of Araneta
& Araneta who handled the preparation of that deed and represented by
Gregorio Araneta, Inc. were her attorneys also. On this point the trial court's
opinion is likewise against the defendant.
Since attorney Ponce Enrile was the defendant's lawyer in the suit against Vidal,
it was not likely that she employed Atty. Salvador Araneta and J. Antonio Araneta
as her attorneys in her dealings with Gregorio Araneta, Inc., knowing, as she did,
their identity with the buyer. If she had needed legal counsels, in this transaction
it seems certain that she would have availed herself of the services of Mr. Ponce

Enrile who was allegedly representing her in another case to pave the way for
the sale.
The fact that Attys. Salvador and Araneta and J. Antonio Araneta drew Exhibits 1
and A, undertook to write the letters to the tenants and the deeds of sale to the
latter, and charged the defendant the corresponding fees for all this work, did
not themselves prove that they were the seller's attorneys. These letters and
documents were wrapped up with the contemplated sale in which Gregorio
Araneta, Inc. was interested, and could very well have been written by Attorneys
Araneta and Araneta in furtherance of Gregorio Araneta's own interest. In
collecting the fees from the defendant they did what any other buyer could have
appropriately done since all such expenses normally were to be defrayed by the
seller.
Granting that Attorney Araneta and Araneta were attorneys for the defendant,
yet they were not forbidden to buy the property in question. Attorneys are only
prohibited from buying their client's property which is the subject of litigation.
(Art. 1459, No. 5, Spanish Civil Code.) The questioned sale was effected before
the subject thereof became involved in the present action. There was already at
the time of the sale a litigation over this property between the defendant and
Vidal, but Attys. Salvador Araneta and J. Antonio Araneta were not her attorneys
in that case.
From the pronouncement that Exhibit A is valid, however, it does not follow that
the defendant should be held liable for the loss of the certified checks attached
to the complaint against Vidal or deposited with the court, or of the funds against
which they had been issued. The matter of who should bear this loss does not
depend upon the validity of the sale but on the extent and scope of the clause
hereinbefore quoted as applied to the facts of the present case.
The law and the evidence on this branch of the case revealed these facts, of
some of which passing mention has already been made.
The aforesaid checks, one for P143,150 and one for P12,932.61, were issued by
Gregorio Araneta, Inc. and payable to Vidal, and were drawn against the Bank of
the Philippines with which Gregorio Araneta, Inc. had a deposit in the certification
stated that they were to be "void if not presented for payment date of
acceptance" office (Bank) within 90 days from date of acceptance."
Under banking laws and practice, by the clarification" the funds represented by
the check were transferred from the credit of the maker to that of the payee or
holder, and, for all intents and purposes, the latter became the depositor of the
drawee bank, with rights and duties of one such relation." But the transfer of the
corresponding funds from the credit of the depositor to that of that of the payee
had to be co-extensive with the life of the checks, which in the case was 90 days.
If the checks were not presented for payment within that period they became
invalid and the funds were automatically restored to the credit of the drawer
though not as a current deposit but as special deposit. This is the consensus of
the evidence for both parties which does not materially differ on this proposition.
The checks were never collected and the account against which they were drawn
was not used or claimed by Gregorio Araneta, Inc.; and since that account "was
opened during the Japanese occupation and in Japanese currency," the checks

"became obsolete as the account subject thereto is considered null and void in
accordance with Executive Order No. 49 of the President of the Philippines",
according to the Bank.
Whether the Bank of the Philippines could lawfully limit the negotiability of
certified checks to a period less than the period provided by the Statute of
Limitations does not seem material. The limitation imposed by the Bank as to
time would adversely affect the payee, Jose Vidal, who is not trying to recover on
the instruments but on the contrary rejected them from the outset, insisting that
the payment was premature. As far as Vidal was concerned, it was of no
importance whether the certification was or was not restricted. On the other
hand, neither the plaintiff nor the defendant now insists that Vidal should
present, or should have presented, the checks for collection. They in fact agree
that the offer of those checks to Vidal did not, for technical reason, work to wipe
out the mortgage.
But as to Gregorio Araneta and Paz Tuason, the conditions specified in the
certification and the prevailing regulations of the Bank were the law of the case.
Not only this, but they were aware of and abided by those regulations and
practice, as instanced by the fact that the parties presented testimony to prove
those regulations and practice. And that Gregorio Araneta, Inc. knew that Vidal
had not cashed the checks within 90 days is not, and could not successfully be
denied.
In these circumstances, the stipulation in Exhibit A that the defendant or seller
"shall not hold the vendee responsible for any loss of these checks" was
unconscionable, void and unenforceable in so far as the said stipulation would
stretch the defendant's liability for this checks beyond 90 days. It was not in
accord with law, equity or good conscience to hold a party responsible for
something he or she had no access to and could not make use of but which was
under the absolute control and disposition of the other party. To make Paz Tuason
responsible for those checks after they expired and when they were absolutely
useless would be like holding an obligor to answer for the loss or destruction of
something which the obligee kept in its safe with no power given the obligor to
protect it or interfere with the obligee's possession.
To the extent that the contract Exhibit A would hold the vendor responsible for
those checks after they had lapsed, the said contract was without consideration.
The checks having become obsolete, the benefit in exchange for which the
defendant had consented to be responsible for them had vanished. The sole
motivation on her part for the stipulation was the fact that by the checks the
mortgage might or was to be released. After 90 days the defendant stood to gain
absolutely nothing by them, which had become veritable scraps of paper, while
the ownership of the deposit had reverted to the plaintiff which alone could
withdraw and make use of it.
What the plaintiff could and should have done if the disputed stipulation was to
be kept alive was to keep the funds accessible for the purpose of paying the
mortgage, by writing new checks either to Vidal or to the defendant, as was done
with the check for P30,000, or placing the deposit at the defendant's disposal.
The check for P30,000 intended for the penalty previously had been issued in the
name of Vidal and certified, too, but by mutual agreement it was changed to an
ordinary check payable to Paz Tuason. Although that check was also deposited

with the court and lost, its loss undoubtedly was imputable to the defendant's
account, and she did not seem to disown her liability for it.
Let it be remembered that the idea of certifying the lost checks was all the
plaintiff's. The plaintiff would not trust the defendant and studiously so arranged
matters that she could not by any possibility put a finger on the money. For all
the practical intents and purposes the plaintiff dealt directly with the mortgagee
and excluded the defendant from meddling in the manner of payment to Vidal.
And let it also be kept in mind that Gregorio Araneta, Inc. was not a mere
accommodator in writing these checks. It was as much interested in the
cancellation of the mortgage as Paz Tuason.
Coming down to Vidal's cross-claim Judge Rodas rendered no judgment other
than declaring that the mortgage remained intact and subsisting. The amount to
be paid Vidal was not named and the question whether interest and attorney's
fees were due was not passed upon. The motion for reconsideration of the
decision by Vidal's attorney's praying that Paz Tuason be sentenced to pay the
creditor P244,917.90 plus interest at the rate of 1 percent monthly from
September 10, 1948 and that the mortgaged property be ordered sold in case of
default within 90 days, and another motion by the defendant seeking
specification of the amount she had to pay the mortgagee were summarily
denied by Judge Potenciano Pecson, to whom the motions were submitted, Judge
Rodas by that time having been appointed to the Court of Appeals.
All the facts and evidence on this subject are on the record, however, and we
may just as well determine from these facts and evidence the amount to which
the mortgagee is entitled, instead of remanding the case for new trial, if only to
avoid further delay if the disposition of this case.
It is obvious that Vidal had a right to judgment for his credit and to foreclose the
mortgage if the credit was not paid.
There is no dispute as to the amount of the principal and there is agreement that
the loans made in 1943, in Japanese war notes, should be computed under the
Ballantyne conversion table. As has been said, where the parties do not see eyeto-eye was in regard to the mortgagee's claim to attorney's fees and interest
from October, 1943, which was reached a considerable amount. It was
contended that, having offered to pay Vidal her debt in that month, the
defendant was relieved thereafter from paying such interest.
It is to be recalled that Paz Tuason deposited with the court three checks which
were intended to cover the principal and interest up to October, 1943, plus the
penalty provided in the instrument "Penalidad del Documento de Novacion de
Esta Fecha." The mortgagor maintains that although these checks may not have
constituted a valid payment for the purpose of discharging the debt, yet they did
for the purpose of stopping the running of interest. The defendant draws
attention to the following citations:
An offer in writing to pay a particular sum of money or to deliver a written
instrument or specific personal property is, if rejected, equivalent to the
actual production and tender of the money, instrument or property. (Sec.
24, Rule 123.)

It is not accord with either the letter or the spirit of the law to impose upon
the person affecting a redemption of property, in addition to 12 per cent
interest per annum up to the time of the offer to redeem, a further
payment of 6 per cent per annum from the date of the officer to redeem.
(Fabros vs. Villa Agustin, 18 Phil., 336.)
A tender by the debtor of the amount of this debt, if made in the proper
manner, will suspend the running of interest on the debt for the time of
such tender. (30 Am. Jur., 42.)
In the case of Fabrosa vs. Villa Agustin, supra, a parcel of land had been sold on
execution to one Tabliga. Within the period of redemption Fabros, to whom the
land had been mortgaged by the execution debtor, had offered to redeem the
land from the execution creditor and purchaser at public auction. The trial court
ruled that the redemptioner was not obliged to pay the stipulated interest of 12
per cent after he offered to redeem the property; nevertheless he was sentenced
to pay 6 per cent interest from the date of the offer.
This court on appeal held that "there is no reason for this other (6 per cent)
interest, which appears to be a penalty for delinquency while there was no
delinquency." The court cited an earlier decision, Martinez vs. Campbell, 10 Phil.,
626, where this doctrine was laid down: "When the right of redemption is
exercised within the term fixed by section 465 of the Code of Civil Procedure, and
an offer is made of the amount due for the repurchase of the property to which
said right refers, it is neither reasonable nor just that the repurchaser should pay
interest on the redemption money after the time when he offered to repurchase
and tendered the money therefor."
In the light of these decisions and law, the next query is; Did the mortgagor have
the right under the contract to pay the mortgage on October 20, 1943? The
answer to this question requires an inquiry into the provision of the "Penalidad
del Documento de Novacion de Esta Fecha."
Vidal introduced oral evidence to the effect that he reserved unto himself in that
agreement the right "to accept or refuse the total payment of the loan
outstanding . . ., if at the time of such offer of payment he considered it
advantageous to his interest." This was gist of Vidal's testimony and that of Lucio
M. Tiangco, one of Vidal's former attorneys who, as notary public, had
authenticated the document. Vidal's above testimony was ordered stricken out
as hearsay, for Vidal was blind and, according to him, only had his other lawyer
read the document to him.
We are of the opinion that the court erred in excluding Vidal's statement. There is
no reason to suspect that Vidal's attorney did not correctly read the paper to
him. The reading was a contemporaneous incident of the writing and the
circumstances under which the document was read precluded every possibility of
design, premeditation, or fabrication.
Nevertheless, Vidal's testimony, like the testimony of Lucio M. Tiangco's, was
based on recollection which, with the lapse of time, was for from infallible. By
contrast, the testimony of Attorneys Ponce Enrile, Salvador Araneta, and J.
Antonio Araneta does not suffer from such weakness and is entitled to full faith
and credit. The document was the subject of a close and concerted study on

their part with the object of finding the rights and obligations of the mortgagee
and the mortgagor in the premises and mapping out the course to be pursued.
And the results of their study and deliberation were translated into concrete
action and embodied in a letter which has been preserved. In line with the results
of their study, action was instituted in court to compel acceptance by Vidal of the
checks consigned with the complaint, and before the suit was commenced, and
with the document before him, Atty. Ponce Enrile, in behalf of his client, wrote
Vidal demanding that he accept the payment and execute a deed of cancellation
of the mortgage. In his letter Atty. Ponce Enrile reminded Vidal that the recital in
the "Penalidad del Documento de Novacion de Esta Fecha" was "to the effect
that should the debtor wish to pay the debt before the expiration of the period
the reinstated (two years) such debtor would have to pay, in addition to interest
due, the penalty of P30,000 this is in addition to the penalty clause of 10 per
cent of the total amount due inserted in the document of mortgage of January
20, 1943."
Atty. Ponce Enrile's concept of the agreement, formed after mature and careful
reading of it, jibes with the only possible reason for the insertion of the penalty
provision. There was no reason for the penalty unless it was for defendant's
paying her debt before the end of the agreed period. It was to Vidal's interest
that the mortgage be not settled in the near future, first, because his money was
earning good interest and was guaranteed by a solid security, and second, which
was more important, he, in all probability, shared the common belief that
Japanese war notes were headed for a crash and that four years thence, judging
by the trends of the war, the hostilities would be over.
To say, as Vidal says, that the debtor could not pay the mortgage within four
years and, at the same time, that there would be penalty if she paid after that
period, would be a contradiction. Moreover, adequate remedy was provided for
failure to pay or after the expiration of the mortgage: increased rate or interest,
foreclosure of the mortgage, and attorney's fees.
It is therefore to be concluded that the defendant's offer to pay Vidal in October,
1943, was in accordance with the parties' contract and terminated the debtor's
obligation to pay interest. The technical defects of the consignation had to do
with the discharge of the mortgage, which is conceded on all sides to be still in
force because of the defects. But the matter of the suspension of the running of
interest on the loan stands of a different footing and is governed by different
principles. These principles regard reality rather than technicality, substance
rather than form. Good faith of the offer or and ability to make good the offer
should in simple justice excuse the debtor from paying interest after the offer
was rejected. A debtor can not be considered delinquent who offered checks
backed by sufficient deposit or ready to pay cash if the creditor chose that
means of payment. Technical defects of the offer cannot be adduced to destroy
its effects when the objection to accept the payment was based on entirely
different grounds. If the creditor had told the debtor that he wanted cash or an
ordinary check, which Vidal now seems to think Paz Tuason should have
tendered, certainly Vidal's wishes would have been fulfilled, gladly.
The plain truth was that the mortgagee bent all his efforts to put off the
payment, and thanks to the defects which he now, with obvious inconsistency,
points out, the mortgage has not perished with the checks.

Falling within the reasons for the stoppage of interest are attorney's fees. In fact
there is less merit in the claim for attorney's fees than in the claim for interest;
for the creditor it was who by his refusal brought upon himself this litigation,
refusal which, as just shown, resulted greatly to his benefit.
Vidal, however, is entitled to the penalty, a point which the debtor seems to a
grant. The suspension of the running of the interest is premised on the thesis
that the debt was considered paid as of the date the offer to pay the principal
was made. It is precisely the mortgagor's contention that he was to pay said
penalty if and when she paid the mortgage before the expiration of the four-year
period provided in the mortgage contract. This penalty was designed to take the
place of the interest which the creditor would be entitled to collect if the duration
of the mortgage had not been cut short and from which interest the debtor has
been relieved. "In obligations with a penalty clause the penalty shall substitute
indemnity for damages and the payment of interest. . ." (Art. 1152, Civil Code of
Spain.).
To summarize, the following are our findings and decision:
The contract of sale Exhibit A was valid and enforceable, but the loss of the
checks for P143,150 and P12,932.61 and invalidation of the corresponding
deposit is to be borne by the buyer. Gregorio Araneta, Inc. the value of these
checks as well as the several payments made by Paz Tuason to Gregorio Araneta,
Inc. shall be deducted from the sum of P190,000 which the buyer advanced to
the seller on the execution of Exhibit 1.
The buyer shall be entitled to the rents on the land which was the subject of the
sale, rents which may have been collected by Paz Tuason after the date of the
sale.
Paz Tuason shall pay Jose Vidal the amount of the mortgage and the stipulated
interest up to October 20,1943, plus the penalty of P30,000, provided that the
loans obtained during the Japanese occupation shall be reduced according to the
Ballantyne scale of payment, and provided that the date basis of the
computation as to the penalty is the date of the filing of the suit against Vidal.
Paz Tuason shall pay the amount that shall have been found due under the
contracts of mortgage within 90 days from the time the court's judgment upon
the liquidation shall have become final, otherwise the property mortgaged shall
be ordered sold provided by law.
Vidal's mortgage is superior to the purchaser's right under Exhibit A, which is
hereby declared subject to said mortgage. Should Gregorio Araneta, Inc. be
forced to pay the mortgage, it will be subrogated to the right of the mortgagee.
This case will be remanded to the court of origin with instruction to hold a
rehearing for the purpose of liquidation as herein provided. The court also shall
hear and decide all other controversies relative to the liquidation which may
have been overlooked at this decision, in a manner not inconsistent with the
above findings and judgment.
The mortgagor is not entitled to suspension of payment under the debt
moratorium law or orders. Among other reasons: the bulk of the debt was a pre-

war obligation and the moratorium as to such obligations has been abrogated
unless the debtor has suffered war damages and has filed claim for them; there
is no allegation or proof that she has. In the second place, the debtor herself
caused her creditor to be brought into the case which resulted in the filing of the
cross-claim to foreclose the mortgage. In the third place, prompt settlement of
the mortgage is necessary to the settlement of the dispute and liquidation
between Gregorio Araneta, Inc. and Paz Tuason. If for no other reason, Paz
Tuason would do well to forego the benefits of the moratorium law.
There shall be no special judgments as to costs of either instance.
Paras, C.J., Pablo, Bengzon, Padilla, Bautista Angelo and Labrador, JJ., concur.

RESOLUTION
December 22, 1952
TUASON, J.:
The motion for reconsideration of the plaintiff, Gregorio Araneta, Inc., and the
defendant, Paz Tuason de Paterno, are in large part devoted to the question,
extensively discussed in the decision, of the validity of the contract of sale
Exhibit A. The arguments are not new and at least were given due consideration
in the deliberation and study of the case. We find no reason for disturbing our
decision on this phase of the case.
The plaintiff-appellant's alternative proposition to wit: "Should this Honorable
Court declare that the purchase price was not paid and that plaintiff has to bear
the loss due to the invalidation of the occupation currency, its loss should be
limited to: (a) the purchase price of P139,083.32 less P47,825.70 which plaintiff
paid and the defendant actually collected during the occupation, or the sum of
P92,233.32, or at most, (b) the purchase price of the lot in the sum of
P139,083.32," as well as the alleged over-payment by the defendant-appellee,
may be taken up in the liquidation under the reservation in the judgment that
"the court (below) shall hold a rehearing for the purpose of liquidation as herein
provided" and "shall also hear and decide all other controversies relative to the
liquidation which may have been overlooked in this decision, in the manner not
inconsistent with the above findings and judgment."
These payments and disbursement are matters of accounting which, not having
been put directly in issue or given due attention at the trial and in the appealed
decision, can better be treshed out in the proposed rehearing where each party
will have an opportunity to put forward his views and reasons, with supporting
evidence if necessary, on how the various items in question should be regarded
and credited, in the light of our decision.
As to Jose Vidal's motion: There is nothing to add to or detract from what has
been said in the decision relative to the interest on the loans and attorney's fees.
There are no substantial features of the case that have not been weighed

carefully in arriving at our conclusions. It is our considered opinion that the

decision is in accord with law, reason and equity.
The vehement protest that this court should not modify the conclusion of the
lower court on interest and attorney's fees is actually and entirely contrary to the
cross-claimant's own suggestion in his brief. From page 20 of his brief, we copy
these passages:
We submit that this Honorable Court is in a position now to render
judgment in the foreclosure of mortgage suit as no further issue of fact
need be acted upon by the trial court. Defendant Paz Tuason has admitted
the amount of capital due. That is a fact. She only requests that interest
be granted up to October 20,1943, and that the moratorium law be
applied. Whether this is possible or not is a legal question, which can be
decided by this court. Unnecessary loss of time and expenses to the
parties herein will be avoided by this Honorable Court by rendering
judgment in the foreclosure of mortgage suit as follows:
xxx

xxx

xxx

In reality, the judgment did not adjudicate the foreclosure of the mortgage nor
did it fix the amount due on the mortgage. The pronouncement that the
mortgage was in full force and effect was a conclusion which the mortgagor did
not and does not now question. There was therefore virtually no decision that
could be executed.
Vidal himself moved in the Court of First Instance for amendment of the decision
alleging, correctly, that "the court failed to act on the cross-claim of Jose Vidal
dated April 22, 1947, where he demanded foreclosure of the mortgage . . . ."
That motion like Paz Tuason's motion to complete the judgment, was summarily
denied.
In strict accordance with the procedure, the case should have been remanded to
the court of origin for further proceedings in the form stated by Paz Tuason's
counsel. Both the mortgagor and the mortgagee agree on this. We did not follow
the above course believing it best, in the interest of the parties themselves and
following Vidal's attorney's own suggestion, to decide the controversies between
Vidal and Paz Tuason upon the records and the briefs already submitted.
The three motions for reconsideration are denied.
Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Jugo, Bautista Angelo and
Labrador, JJ., concur.

RESOLUTION
January 26, 1953
TUASON, J.:

In the second motion for reconsideration by defendant-appellee it is urged that

the sale be resolved for failure of plaintiff-appellant to pay the entire purchase
price of the property sold.
Rescission of the contract, it is true, was alternative prayer in the crosscomplaint, but the trial court declared the sale void in accordance with the main
contention of the defendant, and passed no judgment on the matter of
rescission. For this reason, and because rescission was not pressed on appeal,
we deemed unnecessary, if not uncalled for, any pronouncement touching this
point.
In the second place, the nonpayment of a portion, albeit big portion, of the price
was not, in our opinion, such failure as would justify recission under Articles 1124
and 1505 et seq. of the Civil Code of Spain, which was still in force when this
case was tried. "The general rule is that recission will not be permitted for a
slight or casual breach of the contract, but only for such breaches as are so
substantial and fundamental as to defeat the object of the parties." (Song Fo &
Co. vs. Hawaiian-Philippine Co., 47 Phil., 821, 827.)
In the present case, the vendee did not fail or refuse to pay by plan or design,
granting there was failure or refusal to pay. As a matter of fact, the portion of the
purchase price which is said not to have been satisfied until now was actually
received by checks by the vendor and deposited by her with the court in the suit
against Vidal, in accordance with the understanding if not express agreement
between vendor and vendee. The question of who should bear the loss of this
amount, the checks having been destroyed and the funds against which they
were drawn having become of no value, was one of the most bitterly debated
issues, and in adjudging the vendee to be the party to shoulder the said loss and
ordering the said vendee to pay the amount to the vendor, this Court's judgment
was not, and was not intended to be, in the nature of an extension of time of
payment. In contemplation of the Civil Code there was no default, except
possibly in connection with the alleged overcharges by the vendee arising from
honest mistakes of accounting, mistakes which, by our decision, are to be
corrected in a new trial thereby ordered.
The second motion for reconsideration is, therefore, denied.
Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo, Bautista Angelo
and Labrador, JJ., concur.

Footnotes
1

Art. 1459. The following persons cannot take by purchase, even at a

public or judicial auction, either in person or through the mediation of
another:
xxx
2

xxx

xxx

An agent, any property of which the management or sale may have been
intrusted to him;

xxx

xxx

xxx

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 141485

June 30, 2005

PABLITO MURAO and NELIO HUERTAZUELA, petitioners,.

vs.
PEOPLE OF THE PHILIPPINES, respondent.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court,
petitioners pray for the reversal of the Decision of the Court of Appeals in CAG.R. CR No. 21134, dated 31 May 1999,1 affirming with modification the
Judgment of the Regional Trial Court (RTC) of Puerto Princesa City, Palawan, in
Criminal Case No. 11943, dated 05 May 1997,2 finding petitioners guilty beyond
reasonable doubt of the crime of estafa under Article 315(1)(b) of the Revised
Penal Code.
Petitioner Pablito Murao is the sole owner of Lorna Murao Industrial Commercial
Enterprises (LMICE), a company engaged in the business of selling and refilling
fire extinguishers, with branches in Palawan, Naga, Legaspi, Mindoro, Aurora,
Quezon, Isabela, and Laguna. Petitioner Nelio Huertazuela is the Branch Manager
of LMICE in Puerto Princesa City, Palawan. 3
On 01 September 1994, petitioner Murao and private complainant Chito Federico
entered into a Dealership Agreement for the marketing, distribution, and refilling
of fire extinguishers within Puerto Princesa City.4 According to the Dealership
Agreement, private complainant Federico, as a dealer for LMICE, could obtain fire
extinguishers from LMICE at a 50% discount, provided that he sets up his own
sales force, acquires and issues his own sales invoice, and posts a bond with
LMICE as security for the credit line extended to him by LMICE. Failing to comply
with the conditions under the said Dealership Agreement, private complainant
Federico, nonetheless, was still allowed to act as a part-time sales agent for
LMICE entitled to a percentage commission from the sales of fire extinguishers. 5
The amount of private complainant Federicos commission as sales agent for
LMICE was under contention. Private complainant Federico claimed that he was
entitled to a commission equivalent to 50% of the gross sales he had made on
behalf of LMICE,6 while petitioners maintained that he should receive only 30% of
the net sales. Petitioners even contended that as company policy, part-time sales
agents were entitled to a commission of only 25% of the net sales, but since
private complainant Federico helped in establishing the LMICE branch office in

Puerto Princesa City, he was to receive the same commission as the full-time
sales agents of LMICE, which was 30% of the net sales. 7
Private complainant Federicos first successful transaction as sales agent of
LMICE involved two fire extinguishers sold to Landbank of the Philippines
(Landbank), Puerto Princesa City Branch, for the price of P7,200.00. Landbank
issued a check, dated 08 November 1993, pay to the order of "L.M. Industrial
Comml. Enterprises c/o Chito Federico," for the amount of P5,936.40,8 after
deducting from the original sales price the 15% discount granted by private
complainant Federico to Landbank and the 3% withholding tax. Private
complainant Federico encashed the check at Landbank and remitted
only P2,436.40 to LMICE, while he kept P3,500.00 for himself as his commission
from the sale.9
Petitioners alleged that it was contrary to the standard operating procedure of
LMICE that private complainant Federico was named payee of the Landbank
check on behalf of LMICE, and that private complainant Federico was not
authorized to encash the said check. Despite the supposed irregularities
committed by private complainant Federico in the collection of the payment from
Landbank and in the premature withholding of his commission from the said
payment, petitioners forgave private complainant Federico because the latter
promised to make-up for his misdeeds in the next transaction. 10
Private complainant Federico, on behalf of LMICE, subsequently facilitated a
transaction with the City Government of Puerto Princesa for the refill of 202 fire
extinguishers. Because of the considerable cost, the City Government of Puerto
Princesa requested that the transaction be split into two purchase orders, and
the City Government of Puerto Princesa shall pay for each of the purchase orders
separately.11 Pursuant to the two purchase orders, LMICE refilled and delivered all
202 fire extinguishers to the City Government of Puerto Princesa: 154 units on 06
January 1994, 43 more units on 12 January 1994, and the last five units on 13
January 1994.12
The subject of this Petition is limited to the first purchase order, Purchase Order
No. GSO-856, dated 03 January 1994, for the refill of 99 fire extinguishers, with a
total cost of P309,000.00.13 On 16 June 1994, the City Government of Puerto
Princesa issued Check No. 611437 to LMICE to pay for Purchase Order No. GSO856, in the amount of P300,572.73, net of the 3% withholding tax. 14 Within the
same day, petitioner Huertazuela claimed Check No. 611437 from the City
Government of Puerto Princesa and deposited it under the current account of
LMICE with PCIBank.15
On 17 June 1994, private complainant Federico went to see petitioner
Huertazuela at the LMICE branch office in Puerto Princesa City to demand for the
amount of P154,500.00 as his commission from the payment of Purchase Order
No. GSO-856 by the City Government of Puerto Princesa. Petitioner Huertazuela,
however, refused to pay private complainant Federico his commission since the
two of them could not agree on the proper amount thereof. 16

Also on 17 June 1994, private complainant Federico went to the police station to
file an Affidavit-Complaint for estafa against petitioners. 17 Petitioners submitted
their Joint Counter-Affidavit on 12 July 1994.18 The City Prosecution Office of
Puerto Princesa City issued a Resolution, dated 15 August 1994, finding that
a prima faciecase for estafa existed against the petitioners and recommending
the filing of an information for estafa against both of them. 19
The Information, docketed as Criminal Case No. 11943 and raffled to the RTC of
Puerto Princesa City, Palawan, Branch 52, reads as follows
INFORMATION
The undersigned accuses PABLITO MURAO and NELIO C. HUERTAZUELA of the
crime of ESTAFA, committed as follows:
That on or about the 16th day of June, 1994, at Puerto Princesa City, Philippines,
and within the jurisdiction of this Honorable Court, the said accused, conspiring
and confederating together and mutually helping one another, after having
received the amount of P309,000.00 as payment of the 99 tanks of refilled fire
extinguisher (sic) from the City Government of Puerto Princesa, through deceit,
fraud and misrepresentation, did then and there willfully, unlawfully and
feloniously defraud one Chito Federico in the following manner, to wit: said
accused, well knowing that Chito Federico agent of LM Industrial Commercial
Enterprises is entitled to 50% commission of the gross sales as per their
Dealership Contract or the amount of P154,500.00 as his commission for his sale
of 99 refilled fire extinguishers worth P309,000.00, and accused once in
possession of said amount of P309,000.00 misappropriate, misapply and convert
the amount of P154,500.00 for their own personal use and benefit and despite
repeated demands made upon them by complainant to deliver the amount
of P154,500.00, accused failed and refused and still fails and refuses to do so, to
the damage and prejudice of said Chito Federico in the amount of P154,500.00,
Philippine Currency. 20
After holding trial, the RTC rendered its Judgment on 05 May 1997 finding
petitioners guilty beyond reasonable doubt as co-principals of the crime of estafa
defined and penalized in Article 315(1)(b) of the Revised Penal Code. Estafa,
under the said provision, is committed by
ART. 315. Swindling (estafa). Any person who shall defraud another by any of
the means mentioned hereinbelow . . .
1. With unfaithfulness or abuse of confidence, namely:
(a)
(b) By misappropriating or converting, to the prejudice of another, money, goods,
or any other personal property received by the offender in trust or on
commission, or for administration, or under any other obligation involving the
duty to make delivery of or to return the same, even though such obligation be

totally or partially guaranteed by a bond; or by denying having received such

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

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


WHEREFORE, premises considered judgment is hereby rendered finding the
accused PABLITO MURAO and NELIO HUERTAZUELA guilty beyond reasonable
doubt as co-principals, of the crime of estafa defined and penalized in Article 315
par. 1(b) of the Revised Penal Code, and applying the provisions of the
Indeterminate Sentence Law, both accused are hereby sentenced to an
indeterminate penalty ranging from a minimum of TWO (2) YEARS, FOUR (4)
MONTHS and ONE (1) DAY of prision correccional in its medium period, to a
maximum of TWENTY (20) YEARS of reclusion temporal in its maximum period; to
pay Chito Federico, jointly and severally:
a. Sales Commission equivalent to
50% of P309,000.00 or ------------------- P154,500.00
with legal interest thereon from
June 17, 1994 until fully paid;
b. Attorneys fees ---------------------------- P 30,0000.00.21
Resolving the appeal filed by the petitioners before it, the Court of Appeals, in its
Decision, dated 31 May 1999, affirmed the aforementioned RTC Judgment,
finding petitioners guilty of estafa, but modifying the sentence imposed on the
petitioners. The dispositive portion of the Decision of the Court of Appeals reads

WHEREFORE, the appealed decision is hereby AFFIRMED with the MODIFICATION

that appellants PABLITO MURAO and NELIO HUERTAZUELA are hereby each
sentenced to an indeterminate penalty of eight (8) years and One (1) day
of prision mayor, as minimum, to Twenty (20) years of reclusion temporal, as
maximum. The award for 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 moneypaid 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
Although petitioners refusal to pay private complainant Federico his commission
caused prejudice or damage to the latter, said act does not constitute a crime,
particularly estafa by conversion or misappropriation punishable under Article
315(1)(b) of the Revised Penal Code. Without the essential elements for the
commission thereof, petitioners cannot be deemed to have committed the crime.
While petitioners may have no criminal liability, petitioners themselves admit
their civil liability to the private complainant Federico for the latters commission
from the sale, whether it be 30% of the net sales or 50% of the gross sales.
However, this Court is precluded from making a determination and an award of
the civil liability for the reason that the said civil liability of petitioners to pay
private complainant Federico his commission arises from a violation of the
agency contract and not from a criminal act. 34 It would be improper and
unwarranted for this Court to impose in a criminal action the civil liability arising
from a civil contract, which should have been the subject of a separate and
independent civil action.35
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CR No.
21134, dated 31 May 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 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.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

Footnotes
1

Penned by Associate Justice Ruben T. Reyes, with Associate Justices Jainal D.

Rasul and Eloy R. Bello, Jr., concurring; Rollo, pp. 31-48.
2

Penned by Judge Filomeno A. Vergara, Ibid., pp. 53-65.

Ibid., p. 4.

Records, p. 3.

TSN, 08 June 1995, pp. 15-17.

Records, p. 4.

TSN, 14 September 1995, pp. 8-9; TSN, 19 October 1995, p. 9.

Records, p. 90.

TSN, 14 September 1995, pp. 9-13; TSN, 19 October 1995, pp. 5-8.

10

TSN, 14 September 1995, pp. 13-15; TSN, 19 October 1995, pp. 8, 10-11.

11

TSN, 07 March 1996, pp. 31-32.

12

TSN, 19 October 1995, pp. 13-14.

13

The Information filed against petitioners only involved the First Purchase Order.
During the trial before the RTC, it was established that the second Purchase
Order was likewise paid. Respondent filed a Motion to Amend the Pleadings to
include therein the details of the second Purchase Order (Records, pp. 127-130),
but the RTC, in its Order, dated 23 October 1996 (Records, pp. 150-153), denied
said Motion since it would already constitute a substantial amendment of the
Information and the intended amended Information would already charge more
than one offense.
14

Records, pp. 80-81, 91.

15

TSN, 14 September 1995, p. 18.

16

Supra, note 6.

17

Records, pp. 3-5.

18

Records, pp. 10-12.

19

Records, pp. 6-9.

20

Rollo, pp. 51-52.

21

Supra, note 2, pp. 60-65.

22

Supra, note 1, p. 47.

23

Penned by Associate Justice Ruben T. Reyes, with Associate Justices Ramon A.

Barcelona and Eloy R. Bello, Jr. concurring; Rollo, pp. 49-50.
24

Rollo, pp. 3-30.

25

United States v. Reyes, 36 Phil 791 (1917).

26

Art. 1869 of the Civil Code recognizes an agency contracted orally.

27

Pederson v. Johnson, 169 Wis. 320, 172 N.W. 723 (1919).

28

Article 1875 of the Civil Code provides that "Agency is presumed to be for a
compensation, unless there is proof to the contrary."
29

Yong Chan Kim v. People, G.R. No. 84719, 25 January 1991, 193 SCRA 344,
353-354; Galvez v. Court of Appeals, G.R. No. L-22760, 29 November 1971, 42
SCRA 278, 284.
30

G.R. No. 111656, 20 March 1996, 255 SCRA 202.

31

2 Reyes, The Revised Penal Code 662 (1993 rev. ed.)

32

Supra, note 21, p. 41.

33

Yam v. Malik, G.R. No. L-50550-52, 31 October 1979, 94 SCRA 30, 35; United
States v. Figueroa, 22 Phil 269, 271 (1912).
34

People v. Miranda, G.R. No. L-17389, 31 August 1962, 5 SCRA 1067; People v.
Pantig, G.R. No. L-8325, 25 October 1955, 51 O.G. 5627.
35

According to Article 31 of the Civil Code, "When a civil action is based on an

obligation not arising from the act or omission complained of as a felony, such
civil action may proceed independently of the criminal proceedings and
regardless of the result of the latter."
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-109937 March 21, 1994

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS,
represented by CANDIDA G. DANS, and the DBP MORTGAGE
REDEMPTION INSURANCE POOL, respondents.
Office of the Legal Counsel for petitioner.
Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.

QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of
Court to reverse and set aside the decision of the Court of Appeals in CA-G.R CV
No. 26434 and its resolution denying reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I
In May 1987, Juan B. Dans, together with his wife Candida, his son and daughterin-law, applied for a loan of P500,000.00 with the Development Bank of the
Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, then 76
years of age, was advised by DBP to obtain a mortgage redemption insurance
(MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by DBP on August
4, 1987 and released on August 11, 1987. From the proceeds of the loan, DBP
deducted the amount of P1,476.00 as payment for the MRI premium. On August
15, 1987, Dans accomplished and submitted the "MRI Application for Insurance"
and the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10
percent, was credited by DBP to the savings account of the DBP MRI Pool.
Accordingly, the DBP MRI Pool was advised of the credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice,
relayed this information to the DBP MRI Pool. On September 23, 1987, the DBP
MRI Pool notified DBP that Dans was not eligible for MRI coverage, being over the
acceptance age limit of 60 years at the time of application.
On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late
husband's MRI application. The DBP offered to refund the premium of P1,476.00
which the deceased had paid, but Candida Dans refused to accept the same,
demanding payment of the face value of the MRI or an amount equivalent to the

loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00,

which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as
administratrix, filed a complaint with the Regional Trial Court, Branch I, Basilan,
against DBP and the insurance pool for "Collection of Sum of Money with
Damages." Respondent Estate alleged that Dans became insured by the DBP MRI
Pool when DBP, with full knowledge of Dans' age at the time of application,
required him to apply for MRI, and later collected the insurance premium
thereon. Respondent Estate therefore prayed: (1) that the sum of P139,500.00,
which it paid under protest for the loan, be reimbursed; (2) that the mortgage
debt of the deceased be declared fully paid; and (3) that damages be awarded.
The DBP and the DBP MRI Pool separately filed their answers, with the former
asserting a cross-claim against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and
exhibits submitted by respondent Estate. As a result of these admissions, the
trial court narrowed down the issues and, without opposition from the parties,
found the case ripe for summary judgment. Consequently, the trial court ordered
the parties to submit their respective position papers and documentary
evidence, which may serve as basis for the judgment.
On March 10, 1990, the trial court rendered a decision in favor of respondent
Estate and against DBP. The DBP MRI Pool, however, was absolved from liability,
after the trial court found no privity of contract between it and the deceased. The
trial court declared DBP in estoppel for having led Dans into applying for MRI and
actually collecting the premium and the service fee, despite knowledge of his
age ineligibility. The dispositive portion of the decision read as follows:
WHEREFORE, in view of the foregoing consideration and in the furtherance of
justice and equity, the Court finds judgment for the plaintiff and against
Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of
interest as amortization payment paid under protest;
2. To consider the mortgage loan of P300,000.00 including all interest
accumulated or otherwise to have been settled, satisfied or set-off by virtue of
the insurance coverage of the late Juan B. Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other
expenses, and other relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed.
The Cross-claim of Defendant DBP is likewise dismissed (Rollo, p. 79)

The DBP appealed to the Court of Appeals. In a decision dated September 7,

1992, the appellate court affirmed in toto the decision of the trial court. The
DBP's motion for reconsideration was denied in a resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a "Health
Statement for DBP MRI Pool" (Exh. "5-Bank") with the following declaration:
I hereby declare and agree that all the statements and answers contained herein
are true, complete and correct to the best of my knowledge and belief and form
part of my application for insurance. It is understood and agreed that no
insurance coverage shall be effected unless and until this application is approved
and the full premium is paid during my continued good health (Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall take effect: (1)
when the application shall be approved by the insurance pool; and (2) when the
full premium is paid during the continued good health of the applicant. These two
conditions, being joined conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with the DBP MRI
Pool. The pool, however, did not approve the application of Dans. There is also no
showing that it accepted the sum of P1,476.00, which DBP credited to its account
with full knowledge that it was payment for Dan's premium. There was, as a
result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be
held liable on a contract that does not exist.
The liability of DBP is another matter.
It was DBP, as a matter of policy and practice, that required Dans, the borrower,
to secure MRI coverage. Instead of allowing Dans to look for his own insurance
carrier or some other form of insurance policy, DBP compelled him to apply with
the DBP MRI Pool for MRI coverage. When Dan's loan was released on August 11,
1987, DBP already deducted from the proceeds thereof the MRI premium. Four
days latter, DBP made Dans fill up and sign his application for MRI, as well as his
health statement. The DBP later submitted both the application form and health
statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As
service fee, DBP deducted 10 percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and
the second as an insurance agent.
As an insurance agent, DBP made Dans go through the motion of applying for
said insurance, thereby leading him and his family to believe that they had
already fulfilled all the requirements for the MRI and that the issuance of their
policy was forthcoming. Apparently, DBP had full knowledge that Dan's
application was never going to be approved. The maximum age for MRI
acceptance is 60 years as clearly and specifically provided in Article 1 of the

Group Mortgage Redemption Insurance Policy signed in 1984 by all the insurance
companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "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."
The DBP is not authorized to accept applications for MRI when its clients are
more than 60 years of age (Exh. "1-Pool"). Knowing all the while that Dans was
ineligible for MRI coverage because of his advanced age, DBP exceeded the
scope of its authority when it accepted Dan's application for MRI by collecting the
insurance premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon
whether the third person is aware of the limits of the agent's powers. There is no
showing that Dans knew of the limitation on DBP's authority to solicit
applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority
conferred by the principal on the agent and he (third person) has been deceived
by the non-disclosure thereof by the agent, then the latter is liable for damages
to him (V Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The
rule that the agent is liable when he acts without authority is founded upon the
supposition that there has been some wrong or omission on his part either in
misrepresenting, or in affirming, or concealing the authority under which he
assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46
N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries
with it the implication that a deception was perpetrated on the unsuspecting
client, the provisions of Articles 19, 20 and 21 of the Civil Code of the Philippines
come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the performance of his
duties, act with justice give everyone his due and observe honesty and good
faith.
Article 20 provides:
Every person who, contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.
Article 21 provides:
Any person, who willfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for
the damage.

The DBP's liability, however, cannot be for the entire value of the insurance
policy. To assume that were it not for DBP's concealment of the limits of its
authority, Dans would have secured an MRI from another insurance company,
and therefore would have been fully insured by the time he died, is highly
speculative. Considering his advanced age, there is no absolute certainty that
Dans could obtain an insurance coverage from another company. It must also be
noted that Dans died almost immediately, i.e., on the nineteenth day after
applying for the MRI, and on the twenty-third day from the date of release of his
loan.
One is entitled to an adequate compensation only for such pecuniary loss
suffered by him as he has duly proved (Civil Code of the Philippines, Art. 2199).
Damages, to be recoverable, must not only be capable of proof, but must be
actually proved with a reasonable degree of certainty (Refractories Corporation v.
Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine
Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be
included in an accurate estimate of damages (Sun Life Assurance v. Rueda
Hermanos, 37 Phil. 844 [1918]).
While Dans is not entitled to compensatory damages, he is entitled to moral
damages. No proof of pecuniary loss is required in the assessment of said kind of
damages (Civil Code of Philippines, Art. 2216). The same may be recovered in
acts referred to in Article 2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the court according
to the circumstances of each case (Civil Code of the Philippines, Art. 2216).
Considering that DBP had offered to pay P30,000.00 to respondent Estate in ex
gratia settlement of its claim and that DBP's non-disclosure of the limits of its
authority amounted to a deception to its client, an award of moral damages in
the amount of P50,000.00 would be reasonable.
The award of attorney's fees is also just and equitable under the circumstances
(Civil Code of the Philippines, Article 2208 [11]).
WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV
No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE
respondent Estate of Juan B. Dans the amount of P1,476.00 with legal interest
from the date of the filing of the complaint until fully paid; and (2) to PAY said
Estate the amount of Fifty Thousand Pesos (P50,000.00) as moral damages and
the amount of Ten Thousand Pesos (P10,000.00) as attorney's fees. With costs
against petitioner.
SO ORDERED.
Cruz, Davide, Jr., Bellosillo and Kapunan, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-8988

March 30, 1916

HARTFORD BEAUMONT, assignee of W. Borck, plaintiff-appellee,

vs.
MAURO PRIETO, BENITO LEGARDA, JR., and BENITO VALDES as
administrator of the estate of Benito Legarda, deceased, and BENITO
VALDES, defendants and appellants. (See U.S. Supreme Court decision in this
same case., p. 985, post.)
Hausserman, Cohn & Fisher (and subsequently) Gilbert, Cohn & Fisher, and
Escaler & Salas and Ledesma, Lim & Irurreta Goyena for appellants Legarda and
Valdes.
No appearance for the other appellants.
Beaumont & Tenney and Aitken & DeSelms for appellee.
ARAULLO, J.:
Negotiations having been had, prior to December 4, 1911, between W. Borck and
Benito Valdes, relative to the purchase, at first, of a part of the
Nagtajan Hacienda, situated in the district of Sampaloc of this city of Manila and
belonging to Benito Legarda, and later on, of the entire hacienda, said Benito
Valdes, on the date above-mentioned, addressed to said Borck the following
letter (Exhibit E):
MANILA, December 4, 1911.
Mr. W. BORCK,
Real Estate Agent,
Manila, P.I.
SIR: In compliance with your request I herewith give you an option for
three months to buy the property of Mr. Benito Legarda known as the
Nagtahan Hacienda, situated in the district of Sampaloc, Manila, and
consisting of about, 1,993,000 sq. meters of land, for the price of its
assessed government valuation.
B. VALDES.
Subsequent to the said date, W. Borck addressed to Benito Valdes several letters
relative to the purchase and sale of the hacienda, and as he did not obtain what
he expected or believe he was entitled to obtain from Valdes, he filed the
complaint that originated these proceedings, which was amended on the 10th of
the following month, April, by bringing his action not only against Benito Valdes
but also against Benito Legarda, referred to in the letter above quoted.

In said amended complaint it is alleged that the defendant Benito Legarda was
the owners in fee simple of the Nagtajan Hacienda, and that Benito Valdes was
his attorney in fact and had acted as such on the occasions reffered to in the
complaint by virtue of a power of attorney duly executed under notarial seal and
presented in the office of the register of deeds, a copy of which, marked as
Exhibit A, was attached to the complaint; that on or above December 4, 1911,
the defendant Benito Valdez gave to the plaintiff the document written and
signed by him, Valdes, quoted at the beginning of this decision, to wit, the letter
afore-mentioned, which document is inserted in the amendment to the
complaint; that on January 19, 1912, while the offer or option mentioned in said
document still stood, the plaintiff in writing accepted the terms of said offer and
requested of Valdes to be allowed to inspect the property, titles and other
documents pertaining to the property, and offered to pay to the defendant,
immediately and in cash as soon as a reasonable examination could be made of
said property titles and other documents, the price stipulated in the contract for
said hacienda which is also described in the complaint, as well as its value and
the revenue annually obtainable therefrom; that, in spite of the frequent
demands made by the plaintiff, the defendants ha persistently refused to deliver
to him the property titles and other documents relative to said property and to
execute any instrument of conveyance thereof in his favor; that the plaintiff, on
account of said refusal on the part of the defendant Valdes, based on instructions
from the defendant Legarda, had suffered damages in the amount of P760,000,
and, by the tardiness, failure and refusal of the defend to comply with his
obligation, the plaintiff had incurred great expense and suffered great losses,
whereby he was prejudiced in the mount of P80,000; that the plaintiff was and
had been, on all occasions, willing to comply with the obligation imposed upon
him to pay to the defendants the full stipulated price. The plaintiff concluded by
praying: (1) That the defendant Valdes be ordered to execute the necessary
formal document as proof of the contract or obligation before referred to, and to
incorporate the same in a public instrument, and that the defendant Legarda be
ordered to convey in absolute sale to the plaintiff, either directly or through the
defendant Valdes, by a property deed, the said Nagtajan Hacienda, described in
the complaint; (2) that both defendants and each of them be ordered and
required to render an account to the plaintiff of such rents and profits as they
may have collected from the said property from the 19th of January, 1912, until
the date of the execution of the judgment that may be rendered in these
proceedings, together with legal interest on the amounts thereof; (3) that, in
case it can shown that specific performance of the contract is impossible, that
the defendant be ordered to pay the plaintiff damages in the sum of P760,000;
and finally, that the plaintiff have recovered the interests and the costs in these
proceedings.
While this complaint was not yet amended, the defendant Valdes filed a
demurer, on the grounds that there was a misjoinder of parties on account of the
erroneous inclusion therein of the defendant Valdes, that the complaint did not
set forth fact that constituted a cause of action against said defendant, and that
it was ambiguous, unintelligible and vague. This demurrer was overruled on April
11, 1912.
The defendant Benito Legarda also interposed a demurrer to the amended
complaint on the grounds that the facts therein set forth did not constitute a
right of action against him. This demurrer was likewise overruled on June 26,
1912.

On the 22nd of the same month of June, the court, ruling on a petition made in
voluntary insolvency proceedings brought on May 10, 1912, by the plaintiff W.
Borck, and in view of the agreement entered into in said proceedings by all of the
latter's creditors, ordered that the plaintiff Borck be substituted in the instant
proceedings by Hartford Beaumont, as the trustee appointed therein and
representative of the said plaintiff's creditors, the assignee of his rights, in said
proceedings.
The defendant Benito Valdes, answering the complaint as amended, denied each
and all of the allegations thereof from paragraph 4, except those which the
admitted in the special defense, in which he alleged: (1) That the option given by
him to the plaintiff was an option without consideration and subject to the
approval of the defendant Legarda; (2) that, as the defendant Legarda has not
approved said option, it had no value whatever, according to the understanding
and agreement between himself and the plaintiff; (3) that the option offered by
him to the plaintiff had not been accepted by the latter within a reasonable
period of time nor during the time it was in force, in accordance with the
conditions agreed upon between the parties; (4) that he sighed the letter of
December 4, in which he tendered to the plaintiff the option which has given rise
to this suit, through deceit employed by the plaintiff with respect to its contents,
for the plaintiff had stated to him that it was written in accordance with what had
been agreed upon by both parties, without which statement he would not have
signed it; (5) that the plaintiff, on the prior to January 19, 1912, was insolvent,
and had neither proven his solvency nor offered to pay the price in cash, as he
had agreed to do; and (6) that he, Valdes, was merely a general attorney in fact
of the defendant Benito Legarda and had no interest whatever in the subjectmatter of the suit, nor in the litigation, and in all his acts had carried out the
instructions of the said Legarda. He finally prayed that the complaint be
dismissed with costs against the plaintiff.
The defendant Benito Legarda, answering the complaint, denied each and all of
the allegations thereof, from paragraph 3, except such as he expressly admitted
and were contained in the special defense inserted in said answer, in which he
alleged: (1) That his codefendant Benito Valdes, though his attorney-in-fact, had
instructions not to give any option on the hacienda in question without Legarda's
previous knowledge and consent; (2) that on and before December 4, 1911, the
plaintiff had knowledge of the scope and limitations of the powers conferred
upon the defendant Valdes; (3) that the latter gave the option, alleged by the
plaintiff, without his (Legarda's) knowledge or consent, thus violating the
instructions he had given to the said Valdes; (4) that he had disapproved and
rejected the option in question as soon as he had learned of it; (5) that he had
been informed, and therefore alleged as true, that the option said to have been
executed in behalf of the plaintiff had been obtained by the latter by a false and
malicious interruption of the letter of December 4, 1911, and that the plaintiff,
availing himself of such interpretation, induced the defendant Valdes to sign the
said option; (6) that the option said to have been tendered to the plaintiff had
not been legally accepted; and (7) that on the subsequently to January 19, 1912,
the date on which, according to the plaintiff, a tender of payment of the price of
the Nagtajan Hacienda, in accordance with its assessed value, was made to his
codefendant Valdes, as well as to the date of the answer, the plaintiff was
insolvent.
After the hearing, in which the respective parties presented their evidence, the
Court of First Instance of this city of Manila, on February 12, 1912, rendered

judgment in which he found; (1) That the instrument Exhibit E that is, the letter
of December 4, 1911, quoted at the beginning of this decision), as supported by
Exhibit A (the power of attorney, a copy of which accompanied the complaint)
and as confirmed by Exhibit G (the letter of January 19, 1912, addressed by the
plaintiff Borck to the defendant Valdes, presented in evidence at the trial and of
which mention will be made elsewhere herein), constituted a contract by which
the principal defendant undertook to convey to the plaintiff the property therein
described; (2) that the plaintiff made a sufficient tender of performance, of his
part, of the contract, in accordance with section 347 of the Code of Civil
Procedure; (3) that the defendants had failed to execute such conveyance in
accordance with said contract, and that the plaintiff was entitled to the specific
performance thereof, and to the net income, if any, obtained from the land since
January 19, 1912, but that he had not shown sufficient loss which entitle him to
additional damage unless it subsequently should appear that a conveyance could
not be made. The court accordingly decreed: (1) That upon the payment by the
plaintiff to the principal defendant, Benito Legarda, or to the clerk of the court, of
the sum of P307,000, the said defendant, or his codefendant and attorney-infact, should execute and deliver to the plaintiff good and sufficient conveyance,
free of all incumbrance, of the property described in Exhibits B and C, attached
to the plaintiffs complaint, so far as the same was included within the terms of
Exhibit G; (2) that upon the said defendants' failure to execute such conveyance
within a reasonable time after such payment, the clear of the court should
execute one, and the same together with the decree, should constitute a true
conveyance; (3) that if for any sufficient reason such conveyance could not then
be made, the plaintiff should have and recover from the defendant Legarda, as
alternative damages, the sum of P73,000, with interest thereon at 6 per cent per
annum from March 13, 1912; and (4) that the defendants should render an
accounting, within thirty days, of the income and profits derived from said
property since January 19, 1912, and pay the costs of the proceedings.
The parties having being notified of this judgment, the defendant Benito Legarda
and Benito Valdes excepted thereto and at the same time prayed that it be se
aside and that they be granted a new trial on the grounds that the judgment was
not sufficiently supported by the evidence and was contrary to law, and that the
findings of fact therein contained were manifestly and openly contrary to the
weight of the evidence. Their prayer having been denied by a ruling to which
they also excepted, they have brought these proceedings on appeal to the
Supreme Court by the proper bill of exceptions, and have specified in their
respective briefs several errors which they allege the lower court committed.
Some of these errors consist in that the trial judge overruled the demurrer filed
to the complaint; others, in that he admitted certain evidence and excluded
others, this being the alleged cause of the erroneous consideration of the
instrument Exhibit E and of the rights and obligations derived from it, both with
respect to the plaintiff and the two defendants' and still others refer to the
various statements in the judgment resulting from those findings and on which
the conclusions arrived at, have been founded.
The defendant Benito Legarda also alleged, among the said errors, as especially
affecting his rights, that the court held that Benito Valdes was his agent,
empowered to execute contracts in his (Legarda's) name in respect to real
property; that the court admitted in evidence the document Exhibit A, introduced
by the plaintiff, to wit, the copy of the power of attorney attached to the
complaint, which never was offered as such; and that he based one of his
findings thereon.

The defendant Benito Valdes specified, also particularly with reference to

himself, other errors consisting in the court having held that he voluntarily
executed the option in question, instead of holding that it was obtained through
fraud; and likewise in holding that the document Exhibit E was a contract of
option and not an offer to sell, and in not holding that said option was an offer
subject to the approval of the defendant Legarda.
Inasmuch as it does not appear from the bill of exceptions that the defendants
recorded the exceptions to the overruling of the demurrer respectively filed to
the complaint by both defendants, the assignment of error relative to the said
ruling cannot be taken into consideration by this Supreme Court.
The plaintiff's action is based on the failure of the defendant Valdes, as the agent
or attorney in fact of the other defendant Benito Legarda, to perform the
obligation contracted by the Benito Valdes to sell to the plaintiff the property
belonging to the said Legarda, mentioned in the letter of December 4, 1911
(Exhibit E), within the period and for the price specified therein; and the object or
purpose of these proceedings is to require fulfillment of the said obligation and to
secure the payment of a proper indemnity for damages to the plaintiff because
of its not having been duly and timely complied with.
Inasmuch as it was set forth in the document Exhibit E that the property known
as the Nagtajan Hacienda, (an option to buy which was given by the defendant
Valdes to the plaintiff Borck) belonged to Benito Legarda; as negotiations had
been undertaken prior to the execution of the said document, between the
plaintiff Borck and the defendant Valdes with respect to the maters set forth in
that document, by virtue of which Borck knew that Valdes was Legarda's agent
or attorney-in-fact, although it appears in said instrument that the agent Valdes
acted in his own name; and, further, as the plaintiff in the complaint made the
necessary allegations to explain the relations that existed between the principal
Legarda and the agent Valdez with regard to the said document Exhibit E and the
failure alleged by the plaintiff, to fulfill the stipulations therein contained;
therefore, the facts alleged in the complaint did constitute a right of action
against either or both defendants, and the lower court did not err in so holding,
for, though the person who contracts with an agent has no action against the
principal, pursuant to article 1717 of the Civil Code, when the agent acts in his
own name, as in such a case the agent would be directly liable to the person with
whom he contracted as if it were a personal matter of the agent's yet this does
not occur when the acts performed by the agent involved the principal's own
things, and in the document Exhibit E, which was inserted in the complaint when
the latter was amended, it appears that the defendant Valdes, who signed the
said document, stated that the property, the option to buy which he gave to the
plaintiff, Borck, belonged to Legarda. And as it is unquestionable that, pursuant
to the above-cited provision of law, the action was properly brought against
Benito Legarda as Valdes' principal, it is also unquestionable that Valdes was
properly included in the complaint as one of the defendant, for said article 1717,
in providing that in cases like the one here in question the person who
contracted with the agent has an action against the principal, does not say that
such person does not have, and cannot bring an action against the agent also,
and the silence of the statute on this point should not be construed in that sense,
when the rights and obligations, the matter brought into discussion by means
of the action prosecuted, cannot be legally and juridically determined without
hearing both the principal and the agent.

Section 114 of the Code of Civil Procedure in force, treating of the parties who
should be included in an action as defendants, includes any person who has or
claims an interest in the controversy or the subject-mater thereof adverse to the
plaintiff, or who is a necessary party to a complete determination or settlement
of the questions involved therein; and there can be no doubt whatever, and the
record itself shows, that the agent Benito Valdes was and in a necessary party in
these proceedings for the complete and proper determination of the matter
involved.
As one of the allegations of the complaint was that the defendant Benito Valdes
was the attorney in fact of Benito Legarda, the owner of the Nagtajan Hacienda,
the option to buy which was granted by the said defendant Valdes to the plaintiff
Borck, in the letter of December 4, 1911, Exhibit E, there was attached to the
complaint a copy of the power of attorney marked Exhibit A, by virtue of which,
as therein also set forth, the defendant Benito Valdes, the attorney-in-fact of
Benito Legarda, in giving to the plaintiff the option to buy the said hacienda, had
acted according to the aforesaid document Exhibit F, which was likewise inserted
in the amended complaint as a part thereof.
Inasmuch as the relation which, according to the plaintiff, existed between Benito
Legarda and Benito Valdes as to the obligation contracted by means of Exhibit E,
and the fulfillment thereof was established by means of the said allegations,
supported, as it appeared, by the power of attorney Exhibit A, and by the letter
or document Exhibit E (which were made by the plaintiff a part of the complaint),
the joining of the copy of the power of attorney to the complaint cannot be
considered to have been done merely for the purpose of attesting the personality
of either of the defendants, but to show the legal status of each of them in the
obligation referred to, in view of the terms of the document Exhibit E, the
authority under which the defendant Valdes acted in executing this document, as
well as the fact of hi having been granted such authority by the defendant
Legarda, by means of said power of attorney. So that as said two documents, to
wit, Exhibit A or the power of attorney executed by Legarda in favor of Valdes,
authorizing him to perform various acts, among them, that of selling,
exchanging, ceding, admitting in payment or by way of compensation or in any
other manner acquiring or conveying all kinds of real property for such prices
and on such conditions he might deem proper, and the document Exhibit E, or
the letter setting forth the option given to the plaintiff Valdes to buy the said
Nagtajan Hacienda belonging to Legarda, cannot be considered separately, in
view of the allegations of the complaint and the action brought thereon against
the two defendants; and as said two documents, each of complement of the
other, constituted the basis of the action brought in the complaint, and as their
genuineness and due execution were not denied under oath by either of the two
defendants, as they might have done, pursuant to section 103 of the Code of
Civil Procedure, the plaintiff was not obliged to present at the trial, as proof, the
aforementioned power of attorney to prove its existence and the fact of Valdes
being his attorney in fact, vested with the powers specified in this instrument,
notwithstanding the general denial made by the defendant Legarda in his answer
of the allegations contained in the complaint from its third paragraph on, in
which paragraph that averment is made, supported by the copy of the said
power of attorney attached to the complaint.
On the contrary, as the said document Exhibit A constitutes prima facie proof of
the fact that Benito Valdes is the attorney-in-fact of Benito Legarda, and that he
is vested with the powers specified therein, on account of Legarda's not having

denied under oath the genuiness and due execution of the said document, it was
therefore incumbent upon Legarda himself to prove that he had not executed the
said power of attorney in Valdes' favor and that he had not conferred upon him,
by virtue thereof, the powers therein mentioned. (Merchant vs. International
Banking Corporation, 6 Phil., 314; Papa vs. Martinez, 12 Phil., 613; Chinese
Chamber of Commerce vs. Pua Te Ching, 14 Phil., 222; Banco EspanolFilipino vs. McKay & Zoeller, 27 Phil., 183; Knight vs. Whitmore, 125 Cal., 198;
McCormick Harvesting Machine Co., vs. Doucette, 61 Minn., 40.)
The lower court, therefore, did not err in holding that Benito Valdes was the
agent of Benito Legarda, vested with powers to execute contracts for the sale of
real estate in the latter's name; nor in considering as proof the power of
attorney, the plaintiff's Exhibit A, and making it the basis of one of the
conclusions of the judgment, notwithstand that it was not offered as such proof
by the plaintiff. Consequently, the court likewise did not err in admitting the
evidence introduced by the plaintiff himself to show the existence of the
contractual obligation on the part of the defendant Legarda, as principal of the
other defendant, Valdes, and which was contended by the plaintiff to be one of
the grounds of the action brought in this complaint against the two defendants.
It is unquestionable that, by means of the document Exhibit E, to wit, the letter
of December 4, 1911, quoted at the beginning of this decision, the defendant
Valdes granted to the plaintiff Borck the right to purchase the
NagtajanHacienda belonging to Benito Legarda, during the period of three
months and for its assessed valuation, a grant which necessarily implied the
offer or obligation on the part of the defendant Valdes to sell to Borck the
saidhacienda during the period and for the price mentioned, and as the grant
made by Valdes to Borck in the said letter was made as a result of the requests
of Borck himself, as stated in the letter, and of the negotiations previously
entered into between the latter and Valdes with respect to the purchase of
the hacienda, as shown in the letter of the 2d of the same month of December,
that is, the letter which two days before was addressed by Borck to Valdes,
Exhibit C, the terms of the said document Exhibit E appear to be of the nature of
an option contract between Valdes and Borck, inasmuch as, by means of said
document, the former finally accepted the propositions of the latter with respect
to the granting of that right to Borck. There was, therefore a meeting of minds on
the part of the one and the other, with regard to the stipulations made in the
said document. But it is not shown that there was any cause or consideration for
that agreement, and this omission is a bar which precludes our holding that the
stipulations contained in Exhibit E is a contract of option, for, pursuant to article
121 of the Civil Code, there can be no contract without the requisite, among
others, of the cause for the obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in
the following language:
A contract by virtue of which A, in consideration of the payment of a
certain sum to B, acquires the privilege of buying from, or selling to, B
certain securities or properties within a limited time at a specified price.
(Storyvs. Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases," citing the case of
Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following
quotation has been taken:

An agreement in writing to give a person the `option' to purchase lands

within a given time at a named price is neither a sale nor an agreement to
sell. It is simply a contract by which the owner of property agrees with
another person that he shall have the right to buy his property at a fixed
price within a certain time. He does not sell his land; he does not then
agree to sell it; but he does sell something; that is, the right or privilege to
buy at the election or option of the other party. The second party gets
in praesenti, not lands, nor an agreement that he shall have lands, but he
does get something of value; that is, the right to call for the receive lands
if he elects. The owner parts with his right to sell his lands, except to the
second party, for a limited period. The second party receives this right, or,
rather, from his point of view, he receives the right to elect to buy.
But the two definitions above cited refer to the contract of option, or, what
amounts to the same thing, to the case where there was cause or consideration
for the obligation, the subject of the agreement made by the parties; while in the
case at bar there was no such cause or consideration.
The lower court in the judgment appealed from said:
There is some discussion in the briefs as to whether this instrument
constitutes a mere offer to sell or an actual contract of option. In terms it
purports to be the latter and in fact recites the acceptance of a "request"
or offer, by the plaintiff. But viewing the instrument as in itself no more
than an offer, it was at least a continuing one, "for three months," and as
it is not claimed to have been withdrawn during that period, nor afterward,
the plaintiff could at any time enter into an actual contract, if it were not
such already, by mere acceptance.
So the, the lower court did not insist that, by the said document Exhibit E, a real
contract of option was executed. He stated that it was at least a continuing offer
for three months an offer which it was neither alleged nor proven to have been
withdrawn during that period and held that but the plaintiff's mere acceptance
at any time during the course of said period, the terms of the said document
became a contract, if such it were not already.
There is therefor no foundation for the third assignment of error made by the
defendant Valdes, to wit, that the lower court erred in holding that the document
Exhibit E was a contract of option and not an offer to sell.
A certainly this document Exhibit E contains an offer or promise on the part of
the defendant Valdes, who signed it, to sell the hacienda in question to the
plaintiff Borck, at its assessed valuation, to whom was granted three months
within which to make use of his right to purchase the property. In order that such
an offer, or proposal, or promise on the part of Valdes, to sell the
said hacienda might be converted into a binding contract for him and for Borck,
it was necessary that the latter should have accepted the offer, by making use of
the right thereby granted him, within the period stipulated, and paying the price
agreed upon in that document.
Referring particularly to the sale of real estate, there is in fact practically no
difference between a contract of option to purchase land and an offer or promise
to sell it. In both cases the purchaser has the right to decide whether he will buy

the land, and that right becomes a contract when it is exercised, or, what
amounts to the same thing, when use is made of the option, or when the offer or
promise to sell the property is accepted in conformity with the terms and
conditions specified in such option, offer, or promise.
An option for the purchase of a real estate is merely a right of election to
purchase which when exercised, by comes a contract.
(Hopwood vs. McCausland, 120 Iowa, 218.)
So that in the case at bar it is immaterial whether the contents of the document
be considered as an option granted by the defendant Valdes to the plaintiff to
purchase the Nagtajan Hacienda, or as an offer or promise on the part of the
former to sell the estate to the latter within the period and for the price specified
in Exhibit E.
In the defendants' answer no concrete allegation was made that either of them
had withdrawn said offer to sell, but the defendant Valdes introduced evidence to
prove that the withdrawal of the offer was made before the plaintiff had accepted
it, that is, before January 17, 1912, and for this purpose presented a letter from
the defendant Legarda (p. 103, part 1 of the record), dated November 13, 1911,
and addressed from Paris to Mauro Prieto, also one of Legarda's attorneys in fact.
In this letter Legarda stated to Prieto, among other things, that, with reference to
the steps taken by Borck for the purchase of the Nagtajan Hacienda, the
addressee might say to Borck that the writer was not very anxious to sell the
property except for a price greater than P400,000 in cash. The defendant Valdes
testified that the contents of this letter were communicated by him to Borck,
though he did not state positively on what date. Valdes also presented the
witnesses Alejandro Roces and Jose E. Alemany. The first testified that sometime
during the second half of January, on an occasion when he was in Dr. Valdes'
office, he heard the latter and Borck speaking, and that Borck said something to
Dr. Valdes about P300,000, and that it would be difficult to find a purchaser for
cash; and that he also heard them talk about P400,000. The second witness, Dr.
Jose E. Alemany, also testified that about the 12th or 15th of January, at a time
when he was in Dr. Valdes' office, he heard a conversation between Valdes and
Borck in which the former said to the latter that what Borck wanted was
impossible, and that the latter replied to Valdes that it was very dear, that he did
not want it, that he did not have the money. On this occasion, this witness also
heard them talking about P400,000.
As the record does not show positively that the defendant Valdes, on the
occasion above referred to, told the plaintiff Borck that he (Valdes) withdrew the
offer of sale contained in the document Exhibit E, for here merely communicated
to Borck the contents of the said letter from Legarda to Prieto, as the date when
he did this does not appear; and as the statements made by the witnesses with
regard to the conversation they heard between Valdes and Borck are vague and
as it cannot be deduced therefrom that such statements referred expressly to
the fact that Valdes withdrew the offer on that occasion, it must be concluded
that there is no proof on this point. But, though it had been proven that the
withdrawal of the offer was made in the month of December, 1911, or before
January 17, 1912, as stated by Valdes' counsel in his brief, such a fact could not
be a bar to, or annul the acceptance by the plaintiff Borck, of said offer on any
date prior to the expiration of the three months fixed in the document Exhibit E,
to wit, March 4, 1912, because the offer or promise to sell therein contained was
not made without period or limitation whatever (in which case Valdes might have

withdrawn it and the latter have accepted it at nay time until it was withdrawn)
but for three months, that is, for a specific period of time; and, as the plaintiff
Borck had a right to accept the offer during that period, it was Valdes'
corresponding duty not to withdraw the offer during the same period. Therefore
the withdrawal of the offer claimed to have been made by this defendant was
null and void.
Consequently, the lower court did not err in holding that the offer and not been
withdrawn during the three months mentioned and that it could be converted
into a real contract by the plaintiff Borck's mere acceptance within the same
period.
One of the allegations made by the plaintiff in the complaint, as we have seen, is
that on January 19, 1912, while the said offer was still open, the plaintiff
accepted it in writing, in conformity with its terms, and requested permission of
the defendant Valdes to inspect the property titles and other documents
pertaining to the estate, and offered to pay the defendant Valdes as soon as a
reasonable examination could be made of the said property titles and other
documents, immediately and in cash the price stipulated and agreed upon in the
contract for the said stipulated and agreed upon in the contract for the
said hacienda. To prove this allegation, the plaintiff presented the document
Exhibit G, which reads as follows:
MANILA, January 19, 1912.
DR. BENITO VALDES,
195 San Sebastian,
City.
SIR: I hereby advise you that I am ready to purchase
the Hacienda Nagtahan, situated in the district of Sampaloc and
Nagtahan, Manila, and in the Province of Rizal, consisting of about
1,993,000, square meters of land, property of Mr. Benito Legarda, for the
sum of three hundred and seven thousand (307,000) pesos Ph. c. the price
quoted in the option given my by you.
Full payment will be made on or before the third day of March 1912,
provided all documents in connection with the Hacienda Nagtahan, as
Torrens title deed, contracts of leases and other matters be immediately
placed at my disposal for inspection and if such papers have been found in
good order.
Very truly yours,
W. BORCK.
In the preceding letter that plaintiff in fact did state that he accepted the offer
made to him or the option given to him by the defendant Valdes in the document
or letter of December 4, 1911, Exhibit E, for, even though it was not stated
therein what option it was that was mentioned in the said letter it is
unquestionable that it could refer to no other than to the option or offer

mentioned in the said Exhibit E, as no other was then pending between the
plaintiff and this defendant.
But aside from the fact that the complete payment of the P307,000 mentioned in
the said letter was made to depend on the condition that all the documents
relative to the Nagtahan Hacienda, such as the Torrens title, etc., be immediately
placed at the plaintiff's disposal for his inspection, and be found satisfactory, the
said tender of payment was offered to be made on or before March 3, 1912.
A simple statement of the last part of the letter is enough to convince that the
plaintiff did not offer to pay, immediately and in cash to the defendant Valdes as
he alleged in his complaint, the price stipulated and agreed upon between
themselves in the said document Exhibit E. Of court, it is undeniable that the
plaintiff Borck had a right to examine the title deed and all the documents
relative to the Nagtajan Hacienda, before the sale of the property should be
consummated by means of the execution of the proper deed of conveyance in
his favor by the defendant Valdes as the attorney-in-fact of the other defendant
Legarda, and, consequently, the plaintiff Borck was also entitled to refrain from
making payment as long as he should not find the documents relative to the said
property complete and satisfactory, an indispensable condition in order that the
said deed of conveyance might be executed in his favor. But at the very moment
this instrument was executed and signed by the vendor, the payment of the
stipulated price should have been made in order that it might be an immediate
cash payment. Pursuant to the language of that part of the document or letter
Exhibit G to which we now refer in respect to the payment, it cannot be
understood that the plaintiff tendered payment to the defendant immediately
and in cash, for the simple reason that if the documents had been placed by the
defendant at the plaintiff's disposal for his inspection, for example, on January
20th, the day following the date of the letter Exhibit G, and the plaintiff had
examined and found them satisfactory, and the defendant Valdes had executed
in the plaintiff's favor the proper deed of conveyance or sale of the hacienda on
the 25th of the same month of January, according to the exact terms of the letter
of acceptance of the offer, Exhibit G, dated January 19, 1912, the plaintiff, that is,
the purchaser Borck, could have made full payment to the defendant Valdes, of
the P307,000, the price of the property, on the 3d of March, 1912, or on any date
on which the deed of conveyance was issued, from the 25th of January up to the
said 3d day of March, for nothing else can be understood by, and no other
meaning and scope can attach to, the words "full payment will be made on or
before the third day of March 1912." In short, by the way the part of said
document Exhibit G relative to the offer of payment in the example above given
is drawn, the purchaser Borck might pay the stipulated price of the property, or
have the period from the 25th of January to the 3d of March within which to pay
it, and meanwhile the ownership of the estate would already have been
conveyed, by means of the proper deed, to the purchaser Borck, and he could
not have been obliged to pay the said price until the very day of March 3, 1912,
by reason of the contents of the said letter, Exhibit G.
In connection with the allegation we have just been discussing, to wit, that the
plaintiff Borck made a tender of payment to the defendant Valdes "immediately
and in cash" of the price of the hacienda fixed in the instrument Exhibit G, the
plaintiff also presented as proof, in relation to the allegation as to the
presentation of the letter of January 19, 1912, Exhibit G, another letter written by
himself, and also addressed to the defendant Valdes, under date of the 23rd of

the same month of January This document is marked Exhibit J and is of the
following tenor:
January 23, 1912.
DR. BENITO VALDES,
195 Calle San Sebastian,
City.
SIR. I have the pleasure to inform you that I can improve the conditions of
payment for the Hacienda Nagtahan in so far as to agree to pay the whole
amount of purchase price, three hundred and seven thousand (307,000)
pesos, Ph., c., ten days after the Torrens title deeds and all papers in
connection with the hacienda have been placed at my disposal for
inspection and these documents and papers have been found in good
order.
Respectfully yours,
As may be seen by the language in which the preceding letter is couched, the
plaintiff virtually recognized, just as he had done in the letter of January 19th,
that is, the one written four days before, Exhibit G, that the tender of payment to
the defendant Valdes, of the price of the hacienda, could not be understood to
have been a tender of "immediate and cash" payment, as alleged in the
complaint, but that payment might be made on any date prior to March 3, or on
this same date, even though he may have found satisfactory all the documents
that the defendant might have placed at his disposal to be examined, and
consequently, although the proper deed of conveyance of the property should
have been executed in his favor. Nothing else is meant by the statement made
by the plaintiff Borck to the defendant Valdes in the letter of January 23, Exhibit J,
that he had the pleasure to inform him that he could improve the conditions of
payment for the Hacienda Nagtajan in so far as to agree to pay the whole
amount of purchase price, P307,000, ten days after the Torrens title deeds and
all papers in connection with the haciendashould have been placed at his
disposal for inspection and should have been found satisfactory, for the payment
which Borck offered to make to Valdes, of the price of the property, in said letter
Exhibit J, was not indeed to be effected on the third of March or prior thereto, but
within the limited period of ten days after the documents-relative to the property
should have been delivered to the plaintiff for his inspection and been found
satisfactory. And were they any doubt that the meaning or the sense; of said
offer was not as just above stated, it would be removed by a mere perusal of the
statement made therein by the plaintiff telling the defendant Valdes that he, the
former, had the pleasure to inform he latter that he, Borck, could improve the
conditions of payment for the hacienda, to wit, those mentioned in the letter
written' four days before, that is, on January 19th, Exhibit G, in the manner
aforementioned by paying the whole amount of the purchase price ten days after
the documents should have been delivered to the plaintiff and he should have
found them satisfactory.
But, the letter of January 23, Exhibit J, is drawn up_in such a way that it also does
not contain any tender of "immediate and cash" payment by the plaintiff Borck
to the defendant Valdes.

Indeed, as said letter makes the total payment of the price of the property
depend on the delivery by the defendant Valdes to the plaintiff Borck of all the
documents relative to the hacienda, and of the further condition that, the latter
should find such documents in good order and satisfactory, and as a period of
ten days was fixed for the said payment, counting from the date of the delivery
of the documents, and on the condition that Borck should find them satisfactory,
the date of payment cannot be-understood to have been fixed for any certain
day after those ten days, or for the eleventh day, for the simple reason that, for
example, if the documents were delivered to Borck on February 1 for his
inspection, and after the lapse of ten days thereafter he had not finished
examining them and had kept them in his possession for this purpose for ten
days longer, that is, until February 20, and then had found them satisfactory, the
result would be that the payment would have had to be made, not ten days, but
twenty days, after the delivery of the said documents, and this would have been
authorized by the ambiguous terms in which the tender of payment are couched.
But supposing that as appears to be the case, it had been the purpose of the
plaintiff Borck, in fixing those ten days in the letter Exhibit J, for the payment,
that there should be an interval of said ten days between the delivery and
inspection of the said titles and the determination of whether they were
satisfactory or not, it might also have happened that on the third day after the
delivery of the titles, these might have been found by the purchaser to be
satisfactory, and that the vendor might immediately have executed the proper
deed of conveyance of the property in the purchaser's favor. In that event,
according to the terms of said letter Exhibit J, the purchaser Borck would not be
obliged to make payment to the vendor Valdes until seven days after the
execution of the deed of conveyance and the transfer of the property to the
former that is, not until the expiration of the period of ten days counting from the
date of the delivery of the documents tothe purchaser; and it is evident that
such a payment would not be in cash, pursuant to the provisions of article 1462,
in connection with article 1500, of the Civil Code.
Furthermore: The plaintiff Borck also presented another letter in connection with
his aforementioned allegation made in the complaint, and related to the other
two previous letters, Exhibit G and J, to prove what he had intended to
accomplish by means of the latter, to wit, that the tender of payment made by
him to the defendant was made in accordance with the said allegation,
"immediately and in cash."
This letter (Exhibit K) bears the date of February 28,t1912, and reads as follows:
MANILA, P.I., February 28, 1912.
DR. BENITO VALDES,
Attorney-in-fact for Benito Legarda
Manila.
DEAR SIR: To prevent any misunderstanding, I wish to advise you that the
purchase price of the Hacienda Nagtahan is ready to be paid over to you,
and I request you to notify me whenever it is convenient for you to place
at my disposal for inspection the title deed and papers in connection with
said estate.

Very respectfully,
W. BORCK.
As may also be seen by the very terms employed by the-plaintiff in this letter, he
virtually admits, clearly acknowledges, that in the two previous letters, Exhibits G
and J, he had made the tender of payment of the price for the Nagtajan Hacienda
in such a manner that it could not be understood to have been in accordance
with the agreement entered into between himself and Valdes, that is, that the
payment should be in cash.
The letter Exhibit K in fact begins with these words:
"To prevent any misunderstanding." and then says: I wish to advise you
that the purchase price for the Hacienda Nagtahan is ready to be paid
over to you, and request you to notify me whenever it is convenient for
you to place at my disposal for inspection the title deed and papers in
connection with said estate.
The first words of the letter of course indicate that the plaintiff Borck himself, in
writing them, feared, at least the was not sure, that, in accepting, in the letter of
January 19th, Exhibit G, the offer of the sale of the hacienda to him by Valdes,
and in making therein the tender of payment band in renewing this tender in the
letter, Exhibit J, of the 23 of the same month, he, the plaintiff, had not conformed
to the terms of the offer of sale or of the option to buy, given to him by Valdes by
means of the document Exhibit E, for in the said last letter, Exhibit K, he takes it
for granted that there was or might be some misunderstanding between himself
and the defendant Valdes with)respect to the tender made by him of the price of
the estate. According to the admission of the plaintiff Borck in his complaint, this
price was to be paid "at one and in cash." In the said letter Exhibit K, to avoid
that misunderstanding, the plaintiff Borck stated to the defendant Valdes that
the purchase price for the hacienda was ready to be paid over to hi, and
requested to be notified by Valdes when it would be convenient for him to place
at the plaintiff's disposal for inspection the title deed and papers in connection
with said estate.
The notification contained in this letter written by Borck to Valdes, that the
purchase price of the estate was ready to be paid over to the latter, and the
mention made in this same letter, immediately after the notification, of the
inspection which the plaintiff wished to make of the titles which he desired
should be delivered to him for this purpose, show that this last letter, Exhibit K,
relates to the one that preceded it, dated January 23, Exhibit J, or, what amounts
to the same thing, is a result of it, for it is virtually said therein that the price of
P307,000 (which according to his previous letter, he had agreed to pay for
the hacienda, ten days after the delivery to him of the documents relative to the
estate and their having been found by him to be satisfactory) was already held in
readiness by the plaintiff for delivery to the defendant, but this delivery of the
price was subordinated to the delivery requested by the plaintiff to those titles
and other documents,and to the plaintiff's finding such documents satisfactory,
and the delivery of the price was also subordinate to the period of the ten days,
mentioned in the said letter Exhibit J. The letter Exhibit K can have no
meaningwhatever in that part thereof where reference is made tothe offer of
payment of the price of the hacienda, or to the payment itself, except in

connection with the previous Exhibit J, inasmuch as the letter Exhibit K does not
state when Borck was to deliver to Valdes the price which, according to this same
letter, the plaintiff already had in readiness for that purpose. So that neither in
the letter Exhibit K is any specific offer of payment made by the plaintiff Borck to
the defendant Valdes, of the price stipulated in the document Exhibit E to be paid
"at open and in cash," notwithstanding its being said therein that the plaintiff
had the money ready to be turned over to the defendant.
Upon the plaintiff Borck's testifying at the trial as witness, said documents
Exhibits E, G., J, and K, and also others marked from A to M, including the four
just referred to, were presented in evidence. Among these documents is found
Exhibit F, which reads as follows:
MANILA, January 17, 1912.
DR. BENITO VALDES,
194 San Sebastian,
City.
SIR: In reference to our negotiations regarding the Hacienda Nagtahan at
Manila, property of Mr. Benito Legarda, consisting of about 1,993,000 sq.
meters of land, I offer to purchase said property for the sum of three
hundred and seven thousand (307,000) pesos P. c., cash, net to you,
payable the first day of May 1912 or before and with delivery of a Torrens
title free of all encumbrances as taxes and other debts.
Respectfully,
YOURS,
On said documents being presented in evidence at the trial, the defendants
objected to their admission; the court reserved his decision thereon and in the
judgment appealed from made no mention as to the contents of said
documentExhibit F, and in ruling on the defendants' motion for a new trial, in
which motion they signed as one of the error of the said judgment the fact that
no notice whatever had been taken therein of the said Exhibit F, which
defendants claimed to be one of the their most important proofs, the court
stated as a reason for the omission that this Exhibit F was unsigned, unidentified
and was not attested by anyone, besides the fact that no conclusion, either in
favorof or against the plaintiff, could be based on its because, although the said
letter, that is, Exhibit F, might have been actually delivered, no right whatever
could be predicated thereon, nor any liability, and it was, therefore, inadmissible.
The record shows that when Exhibit F and Exhibits G, J, K, L, and M, were shown
to the defendant Valdes by the plaintiff's counsel Beaumont, for their
identification and in order that Valdes might state to the court whether he had
received the originals and, if so, where they were, defendant merely said in reply
that he had received three originals from Borck and two originals from Beaumont
(p. 14 of the transcription of the stenographic notes), and exhibited the originals
of Exhibits C, M. L., K, and G, but not that ofExhibit F. The plaintiff Borck having
been presented as a witness, after he had been asked the first four questions by
Attorney Hartford Beaumont, the latter made the following statement: "I would

like to interrupt the witness at this moment in order to present all the Exhibits A
to M, which were identified by the previous witness." Counsel for the defendant
Legarda objected to the admission of the said documents on the ground that
they were incompetent, immaterial and irrelevant. The same objection was also
made by counsel for the defendant Valdes in behalf of his client, and the court
said that he would reserve his decision (pp. 24 and 25 of the record).
During the examination of plaintiff Borck, in which Attorney Beaumont plied him
with questions in regard to the aforementioned documents, beginning with
Exhibit A and showed him the documents themselves, on coming to Exhibit F,
after having given attention to other exhibits among which was Exhibit O, which
we shall mention later on, the plaintiff answered the questions put to him with
respect to Exhibit F in the following manner as found in the transcription of the
stenographic notes in English(p. 61 on the record):
Q.
Now I will show you Exhibit F, and call you attention to the fact that
it has the same date, January 17, as Exhibit O, and ask you to state the
circumstances under which Exhibit O was signed
A.

This is may acceptance of the option of Dr. Valdes.

Q.

How does it happen that it has the same date as Exhibit O?

A.
Because I don't believe in hanging back with my business. I
conclude it as soon as possible. As soon as I got the offer, I made my
acceptance to Dr. Valdes.
The document Exhibit F, as has been seen, is unsigned but the document Exhibit
J, to wit, the aforementioned letter of January 23, 1912, is in the same condition.
It is true that although the document Exhibit J is unsigned because it is a copy of
the letter addressed on that same date to Valdes by Borck, Valdes kept the
original in his possession and he did not present the original of Exhibit Fibut only
the other letters before mentioned, although he stated with reference to the
letter he had received from Borck, that as he was not a business man and was
not acquainted with that kind of business, he sometimes read the letters and,
after taking notes of their contents, transmitted their substance to Mr. Legarda,
and at other times sent to him the letters themselves, from which testimony of
Valdes it is concluded that he was not in the habit of keeping the originals he
received from Borck. However, as has already been seen, notwithstanding that
Exhibit F was not identified by Valdes, the plaintiff Borck, However, as has
already been seen, notwithstanding that Exhibit F was not identified by Valdes,
the plaintiff Borck, referring to the said document on its being shown to him by
his attorney, who called his attention to the fact that it has the same date,
January 17, as Exhibit O, and asked him to state the circumstances under which
Exhibit O was signed, said that Exhibit F was his acceptance of Dr. Valdes' option;
and in answering the next question, explained the reason why Exhibit F bore the
same date as Exhibit O, saying that "he did not believe in hangingback with his
business;" that he "concluded it as soon as possible;" and that "as soon as he got
the offer, he made his acceptance to Dr. Valdes."
Exhibit O is as follows:

MANILA, January 17, 1912.

W. BORCK, Esq.,
Manila.
DEAR SIR: Referring to our recent conversation regarding_the proposed
purchase by clients of ours of the property known as the Hacienda
Nagtajan, I beg to advise you that our clients, after investigation of the
physical conditions of the property, are prepared to make an offer for the
purchase of the same at the price named by you, to wit, P380,000, cash,
provided that there is good titled to the property, that it contains
substantially and area represented, namely, 1,993,000 square meters, and
that the existing leases upon certain portions of the said property are
found to be in proper form. It is the desire of our clients to have an
opportunity to investigate the legality of_the title and leases at the earliest
practicable moment, and they have authorized us to say that if the
conditions are satisfactory with regard to these matters, they are prepared
to make you a firm offer of the amount above named, and to make a
deposit of a reasonable amount as an evidence of good faith.
Very truly yours,
BRUCE LAWRENCE, ROSS, AND
BLOCK,
"JAMES ROSS."
Connecting the contents of this document Exhibit O with those of the previous
Exhibit F, and taking into account the testimony given by Borck, as above
quoted, in answering the questions put to him by his own attorney, relative to
the said exhibits, it is clearly understood that on Borck's receiving the letter of
January 17m 1912, from the law firm of Bruce, Lawrence, Ross and Block, and
signed by James Ross, Exhibit O, in which these gentlemen stated that they were
prepared to make an offer for the purchase of the Hacienda Nagtajan at the price
of P380,000 cash, he wrote on the same date, January 17, to Dr. Valdes the
letter, a copy of which is Exhibit F, in which, referring to the negotiations
between them regarding the said Nagtajan Hacienda, he offered to purchase this
property for P307,000, cash and net, payable on or before the first day of May,
1912, delivery to be made to him to a Torrens title free of all encumbrance, such
as taxes and other debts. For this reason the plaintiff Borck stated in his
testimony that the said letter Exhibit F was his acceptance of Dr. Valdes option,
for, not believing in hanging back with his business and desiring to conclude it as
soon as possible, as soon as he received the officer, contained in the letter
Exhibit O, from the said law firm, he transmitted or made known his acceptance
to Dr. Valdes.
We do not think there could be a better identification of the letter Exhibit F than
that made by it sown writer, the plaintiff Borck, for he admitted in his testimony
that he wrote this letter, and although the defendant Valdes did not present the
original of the said letter Exhibit F, perhaps because it was one of those which he
did not keep in his possession, there can be no doubt whatever that the original
of the said Exhibit F was transmitted to Valdes by the plaintiff Borck, of the latter
explicitly said so in stating that letter was his acceptance of Dr. Valdes' option,

the plaintiff explaining why he had written said letter, on referring to the relation
between said Exhibit F and the Exhibit C, on account of the same date both
letters bore, on making further explanations in the matter, hand saying: "As soon
as I got the offer, I made my acceptance to Dr. Valdes." Furthermore, if there
were still any doubt whatever about this, it would disappear after a consideration
of the following quotation taken from the plaintiff's written brief file before the
lower court rendered judgment, in which mention is made of the said brief and of
the questions discussed therein said brief is found on pages 190 to 206 of the
record and is signed, by the plaintiff's attorneys, Aitken and Beaumont.
On page 195 thereof, appears the following:
3. THE ACCEPTANCE.
On the 17th of January, 1912, Mr. Borck received a written offer (Exhibit O)
for the property from Mr. James Ross of this city for the price of P380,000
and thereupon on the same day wrote Dr. Valdes the letter which appears
as Exhibit T (pp. 56, 169 of the record). No question arises as to the
validity of this acceptance for reasons which will presently appear. . . .
As may be seen, in the paragraph of that brief signed by the plaintiff's attorney
there is a restatement of what the plaintiff had said in his testimony, to with, that
as soon as he received, on January 17, 1912, a written offer Exhibit O, from Mr.
James Ross of this city for the property in question and for the price of P380,000,
he wrote on the same day the letter of Dr. Valdes that appears as Exhibit T (pp.
56, 169, of the record). In this same brief the statement was also made that no
question had arisen as to the validity of this acceptance, for the reasons which
would presently appear.
It is to be noted that Exhibit T, mentioned in the preceding paragraph transcribed
from the brief, is the same Exhibit F, which was erroneously marked with the
letter T in the said paragraph, as shown by the fact that in this paragraph Exhibit
T is referred to as being found on page 56 of the record, which page containes
Exhibit F, and on page 169 of the record, which contains a copy of the same
Exhibit F,_the date of this latter exhibit, January 17, being also that of the Exhibit
O, mentioned in the said brief.
The trial court therefore erred in not admitting in evidencesaid document Exhibit
F and, consequently, in not taking it into consideration in the judgment appealed
from. This rejection cannot be warranted by the fact that the defendants
themselves opposed its admission, for the latter also opposed the admission of
all the documents presented by the plaintiff, on the understanding that, as they
were not bound by the documents Exhibits A and E, the one as principal and the
other as agent, such documents were immaterial, incompetent and irrelevant,
nevertheless the trial court admitted some of those documents and considered
them for the purpose of drawing his conclusions in the judgment rendered.
It is hardly necessary now to show that said letter of January 17, 1912 (Exhibit F)
was Borck's acceptance of the option or offer of sale made to him by the
defendant Valdes in his letter of December 4, 1911 (Exhibit E), for the plaintiff
Borck himself admitted in his testimony at the trial that the letter Exhibit F was
his acceptance of said option.

In fact, the plaintiff Borck, referring in the letter, Exhibit F, to the negotiations
between himself and Valdes regarding the Nagtajan Hacienda belonging to
Benito Legarda, offers to purchase said property for the sum of P307,000, cash
and net, payable the first day of May 1912, or before, the plaintiff to be furnished
with a Torrens title free of all encumbrances, such as taxes and other debts. The
offer of sale or option of purchase contained in the document Exhibit E, was for
the period of three months, from December 4, 1911, for the assessed valuation
of the property, understood to be P307,000, though subsequently at the trial it
was fixed by agreement of the parties at P306,954 and payment was to be made
in cash, for, even though this was not stated in the document, that failure itself
so to state created the understanding that the price was to be paid in cash when
delivery of the property was made, in accordance with the provisions of article
1462, in connection with article 1500, of the Civil Code. The plaintiff Borck
recognized this in his complaint, in making the allegation we considered at the
beginning of this decision, to with, that he accepted in writing the said offer in
conformity with its terms and offered to pay to the said Valdes, "immediately and
in cash" the price stipulated; and he also so testified atthe trial, saying, in
reference to the conditions of the payment of the purchase price, that "the
conditions were not discussed, because the payment was to be made in cash on
exhibition of the documents." Now then, in the document Exhibit F, that is, the
letter of January 17, 1912, it is stated that payment of the net amount would be
made in cash on_the first day of May, 1912, or before. So that it may be said with
all the more reason that in relation to the other offers of payment contained in
the documents F, G, J, and K, that in the letter, Exhibit F, the plaintiff Borck, in
accepting the offer of sale, did not make an offer to pay the price "immediately
and in cash," as stated in his allegation set forth in the complaint, for, by virtue
of the said documents, he reserved to himself the right to make the payment on
the first day of May, 1912, or on any date prior thereto, as might suit him, that i,
two months after the termination of the option or of the offer, which would be, on
or before March 4, 1912, although the deed of conveyance of the property in his
favor should have been executed by the defendant Valdes on any date within the
period of the option, that is, within the three months which ended on the said 4th
day of March, 1912, whereby the plaintiff virtually gave himself five months from
the date of the offer of sale or option of purchase, to effect the said payment.
This is evidently not an offer to pay "immediately and in cash," nor is it a
payment in cash, as the law provides, nor such a payment as the plaintiff Borck
himself understood it to be, when he stated in his testimony that the payment
was to be made in cash upon exhibition of the documents.
Duly considering the documents Exhibits F, G, J, andk, that is, the statements
made by the plaintiff Borck in the letter of January 17, 19 and 23, 1912, and
February 28th of the same year, addressed by him to the defendant Valdes, in
accepting the option that the latter had granted him for the purchase of the
Nagtajan Hacienda, or the offer of sale of the said hacienda defendant made to
the plaintiff, with respect to the payment of the price therof, it is seen that in the
said documents the plaintiff Borck offered to pay to the defendant Valdes the
said price, first within the period of five months from December 4, 1911,
afterwards within the terms of three months from the same date of December 4,
and, finally, within a period which could as well be ten days as twenty or thirty of
more days from the time Valdes should put at the plaintiff's disposal to be
inspected, the titles and other documents relative to the said hacienda, and the
plaintiff should find them satisfactory and the proper deed of conveyance should,
in consequence thereof, be executed in his favor by Valdes; and this evidently is
an offer of payment in installments, and not an "immediate and cash" payment.

The lower court in the judgment appealed from says that as the document
Exhibit E, dated December 4, 1911, gave the plaintiff a three months' option for
the purchase of the property, a period which expired, therefore, on March 4,
1912, this necessarily allowed the plaintiff them for the payment until this last
date, and as in the letter Exhibit G, of the date of January 19, 1912, the plaintiff
said that he would pay before the expiration of the said period, in no manner
could this have modified the option, rather, on the contrary, it coincided with it,
the court adding, moreover, that a payment made on or before the 4th of March
would have been a payment in cash, if this was required by Exhibit E.
It is true that the period granted by the defendant Valdes to the plaintiff for
purchasing the property, was three months from December 4, 1912, but not
because this period expired on March 4, 1912, that is, the last day of the said
three months, may it be understood that the defendant granted to the plaintiff
the period for payment until the very last day, March 4, 1912, for the simple
reason that, the period for the purchase being three months, that is,the time
during which the plaintiff Borck could make use of the power or the right granted
by him by Valdes to arrange for the purchase of, and to purchase in fact, the said
property, if Borck purchased it on any date prior to March 4, 1912 (on January 19,
1912, for example) the result would be that the proper deed of sale being
consequently executed in his favor on the said date of January 19, and the time
that payment would be made not having been fixed in the said document Exhibit
E, such payment wouldhave to be made at the time of the delivery of the thing
sold, pursuant to article 1500 of the Civil Code; but as, in accordance with article
1462 of the same code, the execution of the deed of sale is equivalent to the
delivery of the thing which is the object of the contract, the payment would not
be in cash if it were not made on the same 19th day of January, 1912, and were
postponed until some other later day, or until March 4, 1912. In short, it is
impossible to confound the period of the option granted to the plaintiff Borck for
the purchase of the Nagtajan Hacienda, with the period for the payment of it
price, had he purchased it. The plaintiff Borck had three months, from December
4, 1911, within which to make the purchase; to make the payment he did not
have a single day after the date on which the proper deed of sale would have
been executed in his favor; he was to pay the price at the very moment the said
deed was executed, because, by this means, the property would have been
delivered to his, although there still might have been lacking one or two months
of the three months' period of the said option. This is the payment in cash to
which the law refers in the sale of real estate in cases where the time for making
payment has not been fixed, and the plaintiff himself, Borck, so understood when
he stated in his testimony, as we have before said, that, as the conditions for the
payment had notbeen discussed, payment was to be made in cash on exhibition
of the documents, or, what amounts to the same thing, on the execution of the
proper deed of sale of the property in his favor. It is therefore evident was not
fixed therein, the document Exhibit E, dated December 4, 1911, required the
payment to be made in cash, and the lower court erred in holding that the
plaintiff Borck's letter, Exhibit G, of the date of January 19, 1912, in stating that
the payment would be made on or before March 4, 1912, in no manner modified
the option or offer of sale contained in the document Exhibit E, but that on the
contrary it coincided therewith; also in holding that a payment made on or before
March 4, 1912, would have been a cash payment.
The letter of December 4, 1911, Exhibit E, contained, as aforesaid, an offer of
sale or a proposal of sale on the partof the defendant Valdes to the plaintiff
Borck, of the Nagtajan Hacienda, for the assessed valuation of the same,

effective during the period of three months counting from the said date. Such
proposal or offer was an expression of the will only of the defendant Valdes,
manifested to the plaintiff Borck. In order that such a proposal might have the
force of a contract, it was necessary that the plaintiff Borck's will should have
been expressed in harmony with all the terms of the said proposal.
Consent is shown by the concurrence of the offer and the acceptance of
the thing and the cause which are to constitute the contract. (Art. 1262,
Civil Code.)
There is no contract unless, among other requisites, there is consent of the
contracting parties. (Art. 1261, par. 1, of the same code.)
Contracts are perfected by mere consent, and from that time they are
binding, not only with regard to the fulfillment of what has been expressly
stipulated, but also with regard to all the consequences which, according
to their character, are in accordance with good faith, use, and law. (Art.
1258, Civil Code.)
Promises are binding in just so far as they are accepted in the explicit
terms in which they are made; it not being lawful to alter, against the will
of the promisor, the conditions imposed by him (Decision of the supreme
court of Spain, of November 25, 1858); for only thus may the
indispensable consent of the parties exist for the perfection of the
contract. (Decision of the same court, of September 26, 1871.)
An option is an unaccepted offer. It states the terms and conditions on
which the owner is willing to sell or lease his land, if the holder elects to
accept them withinthe time limited. If the holder does so elect, he must
give notice to the other party, and the accepted offer thereupon becomes
a valid and binding contract. If an acceptance is not made within the time
fixed, the owner is no longer bound by his offer, and the option is at an
end. (words and Phrases, vol. 6, p. 5000, citing McMillan vs. Philadelphia
Co., 28 Atl., 220; 159 Pa., 142.)
An offer of a bargain by one person to another, imposes no obligation
upon the former, unless it be accepted by the latter, according to the
terms in which the offer was made. Any qualification or, or departure from,
those terms, invalidates the offer, unless the same be agreed to by the
person who made it. (Eliason et al. vs. Henshaw, 4 Wheaton, 225.)
In order that an acceptance of proposition may be operative it must be
unequivocal, unconditional, and without variance of any sort between it
and the proposal, . . . . An absolute acceptance of a proposal, coupled with
any qualification or condition, will not be regarded as a complete contract,
because there at no time exists the requisite mutual assent to the same
thing in the same senses. (Bruner et al. vs. Wheaton, 46 Mo., 363.)
As already seen while we were considering the documents Exhibits F, G, J, and K,
the plaintiff Borck accepted the offer of sale made to hi, or the option of
purchase given him in document Exhibit E by the defendant Valdes, of the
Nagtajan Hacienda, for the assessed valuation of the same, but his acceptance
was not in accordance with the condition with regard to the payment of the price

of the property, under which the offer or the option was made for, while this
payment was to be paid in cash, as the plaintiff Borck himself admitted and the
defendant Valdes positively stated in his testimony, and also a provided by law,
for the reason that the time was not fixed in said offer or option when the
payment should be made in the aforesaid four documents Exhibits F, G, J, and K,
the plaintiff Borck made the offer to pay the said price, in the first of them, within
the period of five months from December 14, 1911; in the second, within the
period of three months from the same date, and, finally, in the other two
documents, within an indefinite period which could as well be ten days as twenty
or thirty or more, counting from the date when the muniments of title relative to
the said hacienda should have been placed at his disposal to be inspected and
he should have found them satisfactory and, in consequence thereof, the deed of
conveyance should have been executed in his favor by the defendant Valdes.
So that there was no concurrence of the offer and the acceptance as to one of
the conditions related to the cause of the contract, to wit, the form in which the
payment should be made. The expression of Borck's will was not in accordance
with all the terms of Valdes' proposal, or, what amounts to the same thing, the
latter's promise was not accepted by the former in the specific terms, in which it
was made, and finally, the acceptance of the said proposal on Borck's part was
not unequivocal and without variance of any sort between it and the proposal,
because, in view of the terms in which the payment was offered by Borck in his
said letters of January 17, 19 and 23, Exhibits F, G, J, and K, there was variance
from the moment in which according to said terms, in the first two letters, the
payment of the price should be made on or before the 1st of May and on or
before the 3d of March, 1912, respectively, that is, within a period limited in
those letters, and the offer of payment was equivocal inasmuch as, by the last
two letters, it was made to depend on certain acts as a basis for fixing the period
in which the said payment should have to be made; finally, there was no mutual
conformity between the person who made the proposal or offer, Valdes, and the
person who accepted it, Borck, in the same sense with respect to the form of
payment, and Borck deviated from the terms of the proposition with regard to
the form of payment and the record does not show that Valdes assented to such
variance.
It is, therefore, evident that, in accordance with the provision of law and the
principles laid down in the decisions above cited, the proposal or offer of sale
made by the defendant Valdes to the plaintiff Borck, or the option of purchase
granted by the former to the latter, with respect to the Nagtajan Hacienda, in the
document Exhibit E, was not converted into a perfect and binding contract for
the, and that as Valdes did not assent to the modification introduced by Borck in
the offer of sale made by this defendant in regard to one of its terms, to with, the
form of payment, the said offer became null and void, and, consequently, Borck
has no right to demand of the defendant Valdes and of the latter's principal, the
other defendant, Legarda, or of the administrators of the estate left by Legarda
at his death which occurred during the course of these proceedings, and whose
names appear at the beginning of this decision, the fulfillment of that offer, nor,
therefore, any indemnity whatever for such nonfulfillment.
The lower court erred, than, in finding otherwise in the three conclusions of law
contained in the judgment appealed from which were mentioned at the
beginning of this decision and on which, in short, the pronouncement made in
that judgment was founded.

As the power of attorney conferred by Benito Legarda upon Benito Valdes was
explicit and positive, according to the document Exhibit A, a copy of which was
attached to the complaint, to sell and convey all kinds of real estate at such
prices and on such conditions as Valdes might deem proper, and also as the
terms of the option granted by Valdes to Borck, or of the offer of sale made by
the former to the latter in the document Exhibit E, of the Nagtajan Hacienda
belonging to Benito Legarda, are clear; and, furthermore, as the plaintiff made
the said documents an integral part of the complaint as the grounds thereof, the
testimony introduced by the defendant Valdes to prove that said offer of sale
made by him to Borck was subject to the approval of his, Valdes', principal was
improper (sections 103 and 285, Code Civ. Proc.) and the lower court did not err
in not taking that testimony into consideration in his judgment. Likewise the
evidence presented by the defendant Valdes in an endeavor to prove that said
offer of sale was obtained from him by the plaintiff Borck by means of fraud and
deceit, was improper. Consequently the trial court did not err by making no
finding in the judgment on those two points.
In conclusion, as the offer of sale of the Nagtajan Hacienda, made by Valdes to
Borck, or the option of purchase thereof granted by the former to the latter by
the letter of December 4, 1911, Exhibit E, did not constitute a perfect contract
and, consequently, was not binding upon the defendants Valdes and Legarda or
the plaintiff Borck, by reason of the lack of the mutual assent of the parties
concerned therein, which is wholly in accordance with the terms of the said offer,
there can be no obligation demandable in law by virtue of the stipulations
contained in said document, and the action prosecuted by the plaintiff for that
purpose in these proceedings in improper.
For the foregoing reasons the judgment appealed from is reversed and we
absolve the defendants from the complaint. The costs of the first instance shall
be imposed upon the plaintiff. No special finding is made with respect to those of
this second instance. So ordered.
Arellano, C.J., Torres and Johnson, JJ., concur.
Moreland and Trent, JJ., concur in the result.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 159489

February 4, 2008

FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE ASSURANCE,

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

This petition for review on certiorari seeks the reversal of the Decision 1 and
Resolution,2 dated November 29, 2002 and August 5, 2003, respectively, of the
Court of Appeals in CA-G.R. CV No. 33568. The appellate court had affirmed the
Decision3 dated October 10, 1989 of the Regional Trial Court (RTC) of Manila,
Branch 3, finding petitioner as defendant and the co-defendants below jointly
and severally liable to the plaintiffs, now herein respondents.
The antecedent facts are as follows:
Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment life
insurance issued by petitioner Filipinas Life Assurance Company (Filipinas Life).
Pedroso claims Renato Valle was her insurance agent since 1972 and Valle
collected her monthly premiums. In the first week of January 1977, Valle told her
that the Filipinas Life Escolta Office was holding a promotional investment
program for policyholders. It was offering 8% prepaid interest a month for certain
amounts deposited on a monthly basis. Enticed, she initially invested and issued
a post-dated check dated January 7, 1977 for P10,000.4 In return, Valle issued
Pedroso his personal check forP800 for the 8% 5 prepaid interest and a Filipinas
Life "Agents Receipt" No. 807838.6
Subsequently, she called the Escolta office and talked to Francisco Alcantara, the
administrative assistant, who referred her to the branch manager, Angel Apetrior.
Pedroso inquired about the promotional investment and Apetrior confirmed that
there was such a promotion. She was even told she could "push through with the
check" she issued. From the records, the check, with the endorsement of
Alcantara at the back, was deposited in the account of Filipinas Life with the
Commercial Bank and Trust Company (CBTC), Escolta Branch.
Relying on the representations made by the petitioners duly authorized
representatives Apetrior and Alcantara, as well as having known agent Valle for
quite some time, Pedroso waited for the maturity of her initial investment. A
month after, her investment of P10,000 was returned to her after she made a
written request for its refund. The formal written request, dated February 3,
1977, was written on an inter-office memorandum form of Filipinas Life prepared
by Alcantara.7 To collect the amount, Pedroso personally went to the Escolta
branch where Alcantara gave her the P10,000 in cash. After a second
investment, she made 7 to 8 more investments in varying amounts,
totaling P37,000 but at a lower rate of 5%8 prepaid interest a month. Upon
maturity of Pedrosos subsequent investments, Valle would take back from
Pedroso the corresponding yellow-colored agents receipt he issued to the latter.
Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance
policyholder, about the investment plan. Palacio made a total investment
of P49,5509 but at only 5% prepaid interest. However, when Pedroso tried to
withdraw her investment, Valle did not want to return some P17,000 worth of it.
Palacio also tried to withdraw hers, but Filipinas Life, despite demands, refused to
return her money. With the assistance of their lawyer, they went to Filipinas Life
Escolta Office to collect their respective investments, and to inquire why they
had not seen Valle for quite some time. But their attempts were futile. Hence,
respondents filed an action for the recovery of a sum of money.
After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co-defendants
Valle, Apetrior and Alcantara jointly and solidarily liable to the respondents.

On appeal, the Court of Appeals affirmed the trial courts ruling and subsequently
denied the motion for reconsideration.
Petitioner now comes before us raising a single issue:
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR
AND GRAVELY ABUSED ITS DISCRETION IN AFFIRMING THE DECISION OF THE
LOWER COURT HOLDING FLAC [FILIPINAS LIFE] TO BE JOINTLY AND SEVERALLY
LIABLE WITH ITS CO-DEFENDANTS ON THE CLAIM OF RESPONDENTS INSTEAD OF
HOLDING ITS AGENT, RENATO VALLE, SOLELY LIABLE TO THE RESPONDENTS. 10
Simply put, did the Court of Appeals err in holding petitioner and its codefendants 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.
LEONARDO A. QUISUMBING
Associate Justice

WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
CONCHITA CARPIO MORALES
Associate Justice

DANTE O. TINGA
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1

Rollo, pp. 43-55. Penned by Associate Justice Renato C. Dacudao, with Associate
Justices Eugenio S. Labitoria and Danilo B. Pine concurring.
2

Id. at 56.

Id. at 57-63. Penned by Judge Clemente M. Soriano.

Records, p. 246.

TSN, October 7, 1983, pp. 9-10.

Records, p. 248.

Id. at 247.

Supra note 5.

Records, pp. 253-264.

10

Rollo, p. 108.

11

Id. at 109.

12

CIVIL CODE, Art. 1868.

13

Lopez, et al. v. Hon. Alvendia, et al., 120 Phil. 1424, 1431-1432 (1964).

14

BA Finance Corporation v. Court of Appeals, G.R. No. 94566, July 3, 1992, 211
SCRA 112, 118.

15

CIVIL CODE, Art. 1911.

16

Id., 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.
17

Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No. 151319, November
22, 2004, 443 SCRA 377, 394.
18

Prudential Bank v. Court of Appeals, G.R. No. 108957, June 14, 1993, 223 SCRA
350, 357.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 151319

November 22, 2004

MANILA MEMORIAL PARK CEMETERY, INC., petitioner,

vs.
PEDRO L. LINSANGAN, respondent.

DECISION

TINGA, J.:
For resolution in this case is a classic and interesting texbook question in the law
on agency.
This is a petition for review assailing the 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.
The facts of the case are as follows:
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called
Garden State at the Holy Cross Memorial Park owned by petitioner (MMPCI).
According to Baluyot, a former owner of a memorial lot under Contract No. 25012

was no longer interested in acquiring the lot and had opted to sell his rights
subject to reimbursement of the amounts he already paid. The contract was for
P95,000.00. Baluyot reassured Atty. Linsangan that once reimbursement is made
to the former buyer, the contract would be transferred to him. Atty. Linsangan
agreed and gave Baluyot P35,295.00 representing the amount to be reimbursed
to the original buyer and to complete the down payment to MMPCI. 3 Baluyot
issued handwritten and typewritten receipts for these payments. 4
Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be
issued Contract No. 28660, a new contract covering the subject lot in the name
of the latter instead of old Contract No. 25012. Atty. Linsangan protested, but
Baluyot assured him that he would still be paying the old price of P95,000.00
with P19,838.00 credited as full down payment leaving a balance of about
P75,000.00.5
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11
(15), Block 83, Garden Estate I denominated as Contract No. 28660 and the
Official Receipt No. 118912 dated 6 April 1985 for the amount of P19,838.00.
Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected to
the new contract price, as the same was not the amount previously agreed upon.
To convince Atty. Linsangan, Baluyot executed a 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
Prepared by:
(Signed)
(MRS.) FLORENCIA C. BALUYOT
Agency Manager
Holy Cross Memorial Park
4/18/85
Dear Atty. Linsangan:
This will confirm our agreement that while the offer to purchase under
Contract No. 28660 states that the total price of P132,250.00 your
undertaking is to pay only the total sum of P95,000.00 under the old price.
Further the total sum of P19,838.00 already paid by you under O.R. #
118912 dated April 6, 1985 has been credited in the total purchase price
thereby leaving a balance of P75,162.00 on a monthly installment of
P1,800.00 including interests (sic) charges for a period of five (5) years.
(Signed)

FLORENCIA C. BALUYOT
By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted
Official Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued
twelve (12) postdated checks of P1,800.00 each in favor of MMPCI. The next
year, or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated
checks in favor of MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No.
28660 was cancelled for reasons the latter could not explain, and presented to
him another proposal for the purchase of an equivalent property. He refused the
new proposal and insisted that Baluyot and MMPCI honor their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty.
Linsangan filed a Complaint7 for Breach of Contract and Damages against the
former.
Baluyot did not present any evidence. For its part, MMPCI alleged that Contract
No. 28660 was cancelled conformably with the terms of the contract 8 because of
non-payment of arrearages.9 MMPCI stated that Baluyot was not an agent but an
independent contractor, and as such was not authorized to represent MMPCI or
to use its name except as to the extent expressly stated in the Agency Manager
Agreement.10 Moreover, MMPCI was not aware of the arrangements entered into
by Atty. Linsangan and Baluyot, as it in fact received a down payment and
monthly installments as indicated in the contract. 11 Official receipts showing the
application of payment were turned over to Baluyot whom Atty. Linsangan had
from the beginning allowed to receive the same in his behalf. Furthermore,
whatever misimpression that Atty. Linsangan may have had must have been
rectified by the Account Updating Arrangement signed by Atty. Linsangan which
states that he "expressly admits that Contract No. 28660 'on account of serious
delinquencyis now due for cancellation under its terms and conditions.''' 12
The trial court held MMPCI and Baluyot jointly and severally liable. 13 It found that
Baluyot was an agent of MMPCI and that the latter was estopped from denying
this agency, having received and enchased the checks issued by Atty. Linsangan
and given to it by Baluyot. While MMPCI insisted that Baluyot was authorized to
receive only the down payment, it allowed her to continue to receive postdated
checks from Atty. Linsangan, which it in turn consistently encashed. 14
The dispositive portion of the decision reads:
WHEREFORE, judgment by preponderance of evidence is hereby rendered
in favor of plaintiff declaring Contract No. 28660 as valid and subsisting
and ordering defendants to perform their undertakings thereof which
covers burial lot No. A11 (15), Block 83, Section Garden I, Holy Cross
Memorial Park located at Novaliches, Quezon City. All payments made by
plaintiff to defendants should be credited for his accounts. NO DAMAGES,
NO ATTORNEY'S FEES but with costs against the defendants.
The cross claim of defendant Manila Memorial Cemetery Incorporated as
against defendant Baluyot is GRANTED up to the extent of the costs.

SO ORDERED.15
MMPCI appealed the trial court's decision to the Court of Appeals. 16 It claimed
that Atty. Linsangan is bound by the written contract with MMPCI, the terms of
which were clearly set forth therein and read, understood, and signed by the
former.17 It also alleged that Atty. Linsangan, a practicing lawyer for over thirteen
(13) years at the time he entered into the contract, is presumed to know his
contractual obligations and is fully aware that he cannot belatedly and
unilaterally change the terms of the contract without the consent, much less the
knowledge of the other contracting party, which was MMPCI. And in this case,
MMPCI did not agree to a change in the contract and in fact implemented the
same pursuant to its clear terms. In view thereof, because of Atty. Linsangan's
delinquency, MMPCI validly cancelled the contract.
MMPCI further alleged that it cannot be held jointly and solidarily liable with
Baluyot as the latter exceeded the terms of her agency, neither did MMPCI ratify
Baluyot's acts. It added that it cannot be charged with making any
misrepresentation, nor of having allowed Baluyot to act as though she had full
powers as the written contract expressly stated the terms and conditions which
Atty. Linsangan accepted and understood. In canceling the contract, MMPCI
merely enforced the terms and conditions imposed therein. 18
Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was
the former's obligation, as a party knowingly dealing with an alleged agent, to
determine the limitations of such agent's authority, particularly when such
alleged agent's actions were patently questionable. According to MMPCI, Atty.
Linsangan did not even bother to verify Baluyot's authority or ask copies of
official receipts for his payments.19
The Court of Appeals affirmed the decision of the trial court. It upheld the trial
court's finding that Baluyot was an agent of MMPCI at the time the disputed
contract was entered into, having represented MMPCI's interest and acting on its
behalf in the dealings with clients and customers. Hence, MMPCI is considered
estopped when it allowed Baluyot to act and represent MMPCI even beyond her
authority.20 The appellate court likewise found that the acts of Baluyot bound
MMPCI when the latter allowed the former to act for and in its behalf and stead.
While Baluyot's authority "may not have been expressly conferred upon her, the
same may have been derived impliedly by habit or custom, which may have
been an accepted practice in the company for a long period of time." 21 Thus, the
Court of Appeals noted, innocent third persons such as Atty. Linsangan should
not be prejudiced where the principal failed to adopt the needed measures to
prevent misrepresentation. Furthermore, if an agent misrepresents to a
purchaser and the principal accepts the benefits of such misrepresentation, he
cannot at the same time deny responsibility for such misrepresentation. 22 Finally,
the Court of Appeals declared:
There being absolutely nothing on the record that would show that the court a
quo overlooked, disregarded, or misinterpreted facts of weight and significance,
its factual findings and conclusions must be given great weight and should not
be disturbed by this Court on appeal.
WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and
the appealed decision in Civil Case No. 88-1253 of the Regional Trial Court,

National Capital Judicial Region, Branch 57 of Makati, is hereby AFFIRMED

in toto.
SO ORDERED.23
MMPCI filed its Motion for Reconsideration,24 but the same was denied for lack of
merit.25
In the instant Petition for Review, MMPCI claims that the Court of Appeals
seriously erred in disregarding the plain terms of the written contract and Atty.
Linsangan's failure to abide by the terms thereof, which justified its cancellation.
In addition, even assuming that Baluyot was an agent of MMPCI, she clearly
exceeded her authority and Atty. Linsangan knew or should have known about
this considering his status as a long-practicing lawyer. MMPCI likewise claims that
the Court of Appeals erred in failing to consider that the facts and the applicable
law do not support a judgment against Baluyot only "up to the extent of costs." 26
Atty. Linsangan argues that he did not violate the terms and conditions of the
contract, and in fact faithfully performed his contractual obligations and
complied with them in good faith for at least two years. 27 He claims that contrary
to MMPCI's position, his profession as a lawyer is immaterial to the validity of the
subject contract and the case at bar. 28 According to him, MMPCI had practically
admitted in its Petition that Baluyot was its agent, and thus, the only issue left to
be resolved is whether MMPCI allowed Baluyot to act as though she had full
powers to be held solidarily liable with the latter. 29
We find for the petitioner MMPCI.
The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the
Rules of Court is limited to reviewing only errors of law, not fact, unless the
factual findings complained of are devoid of support by the evidence on record or
the assailed judgment is based on misapprehension of facts. 30 In BPI Investment
Corporation v. D.G. Carreon Commercial Corporation, 31 this Court ruled:
There are instances when the findings of fact of the trial court and/or Court
of Appeals may be reviewed by the Supreme Court, such as (1) when the
conclusion is a finding grounded entirely on speculation, surmises and
conjectures; (2) when the inference made is manifestly mistaken, absurd
or impossible; (3) where there is a grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings are
contrary to those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioners'
main and reply briefs are not disputed by the respondents; and (10) the
findings of fact of the Court of Appeals are premised on the supposed
absence of evidence and contradicted by the evidence on record. 32
In the case at bar, the Court of Appeals committed several errors in the
apprehension of the facts of the case, as well as made conclusions devoid of
evidentiary support, hence we review its findings of fact.

By the contract of agency, a person binds himself to render some service or to

do something in representation or on behalf of another, with the consent or
authority of the latter. 33 Thus, the elements of agency are (i) consent, express or
implied, of the parties to establish the relationship; (ii) the object is the execution
of a juridical act in relation to a third person; (iii) the agent acts as a
representative and not for himself; and (iv) the agent acts within the scope of his
authority.34
In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that
under its Agency Manager Agreement; an agency manager such as Baluyot is
considered an independent contractor and not an agent.35However, in the same
contract, Baluyot as agency manager was authorized to solicit and remit to
MMPCI offers to purchase interment spaces belonging to and sold by the
latter.36 Notwithstanding the claim of MMPCI that Baluyot was an independent
contractor, the fact remains that she was authorized to solicit solely for and in
behalf of MMPCI. As properly found both by the trial court and the Court of
Appeals, Baluyot was an agent of MMPCI, having represented the interest of the
latter, and having been allowed by MMPCI to represent it in her dealings with its
clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be
bound by the contract procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase
interment spaces obtained on forms provided by MMPCI. The terms of the offer to
purchase, therefore, are contained in such forms and, when signed by the buyer
and an authorized officer of MMPCI, becomes binding on both parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and
validated by MMPCI showed a total list price of P132,250.00. Likewise, it was
clearly stated therein that "Purchaser agrees that he has read or has had read to
him this agreement, that he understands its terms and conditions, and that there
are no covenants, conditions, warranties or representations other than those
contained herein."37 By signing the Offer to Purchase, Atty. Linsangan signified
that he understood its contents. That he and Baluyot had an agreement different
from that contained in the Offer to Purchase is of no moment, and should not
affect MMPCI, as it was obviously made outside Baluyot's authority. To repeat,
Baluyot's authority was limited only to soliciting purchasers. She had no
authority to alter the terms of the written contract provided by MMPCI. The
document/letter "confirming" the agreement that Atty. Linsangan would have to
pay the old price was executed by Baluyot alone. Nowhere is there any indication
that the same came from MMPCI or any of its officers.
It is a settled rule that persons dealing with an agent are bound at their peril, if
they would hold the principal liable, to ascertain not only the fact of agency but
also the nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to establish it. 38 The basis for agency is
representation and a person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. 39 If he does not make such an
inquiry, he is chargeable with knowledge of the agent's authority and his
ignorance of that authority will not be any excuse. 40

As noted by one author, the ignorance of a person dealing with an agent as to

the scope of the latter's authority is no excuse to such person and the fault
cannot be thrown upon the principal. 41 A person dealing with an agent assumes
the risk of lack of authority in the agent. He cannot charge the principal by
relying upon the agent's assumption of authority that proves to be unfounded.
The principal, on the other hand, may act on the presumption that third persons
dealing with his agent will not be negligent in failing to ascertain the extent of
his authority as well as the existence of his agency. 42
In the instant case, it has not been established that Atty. Linsangan even
bothered to inquire whether Baluyot was authorized to agree to terms contrary
to those indicated in the written contract, much less bind MMPCI by her
commitment with respect to such agreements. Even if Baluyot was Atty.
Linsangan's friend and known to be an agent of MMPCI, her declarations and
actions alone are not sufficient to establish the fact or extent of her
authority.43 Atty. Linsangan as a practicing lawyer for a relatively long period of
time when he signed the contract should have been put on guard when their
agreement was not reflected in the contract. More importantly, Atty. Linsangan
should have been alerted by the fact that Baluyot failed to effect the transfer of
rights earlier promised, and was unable to make good her written commitment,
nor convince MMPCI to assent thereto, as evidenced by several attempts to
induce him to enter into other contracts for a higher consideration. As properly
pointed out by MMPCI, as a lawyer, a greater degree of caution should be
expected of Atty. Linsangan especially in dealings involving legal documents. He
did not even bother to ask for official receipts of his payments, nor inquire from
MMPCI directly to ascertain the real status of the contract, blindly relying on the
representations of Baluyot. A lawyer by profession, he knew what he was doing
when he signed the written contract, knew the meaning and value of every word
or phrase used in the contract, and more importantly, knew the legal effects
which said document produced. He is bound to accept responsibility for his
negligence.
The trial and appellate courts found MMPCI liable based on ratification and
estoppel. For the trial court, MMPCI's acts of accepting and encashing the checks
issued by Atty. Linsangan as well as allowing Baluyot to receive checks drawn in
the name of MMPCI confirm and ratify the contract of agency. On the other hand,
the Court of Appeals faulted MMPCI in failing to adopt measures to prevent
misrepresentation, and declared that in view of MMPCI's acceptance of the
benefits of Baluyot's misrepresentation, it can no longer deny responsibility
therefor.
The Court does not agree. Pertinent to this case are the following provisions of
the Civil Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding
the scope of his authority, and the principal does not ratify the contract, it
shall be void if the party with whom the agent contracted is aware of the
limits of the powers granted by the principal. In this case, however, the
agent is liable if he undertook to secure the principal's ratification.
Art. 1910. The principal must comply with all the obligations that the
agent may have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the principal
is solidarily liable with the agent if the former allowed the latter to act as
though he had full powers.
Thus, the acts of an agent beyond the scope of his authority do not bind the
principal, unless he ratifies them, expressly or impliedly. Only the principal can
ratify; the agent cannot ratify his own unauthorized acts. Moreover, the principal
must have knowledge of the acts he is to ratify. 44
Ratification in agency is the adoption or confirmation by one person of an act
performed on his behalf by another without authority. The substance of the
doctrine is confirmation after conduct, amounting to a substitute for a prior
authority. Ordinarily, the principal must have full knowledge at the time of
ratification of all the material facts and circumstances relating to the
unauthorized act of the person who assumed to act as agent. Thus, if material
facts were suppressed or unknown, there can be no valid ratification and this
regardless of the purpose or lack thereof in concealing such facts and regardless
of the parties between whom the question of ratification may
arise.45Nevertheless, this principle does not apply if the principal's ignorance of
the material facts and circumstances was willful, or that the principal chooses to
act in ignorance of the facts. 46 However, in the absence of circumstances putting
a reasonably prudent man on inquiry, ratification cannot be implied as against
the principal who is ignorant of the facts. 47
No ratification can be implied in the instant case.
A perusal of Baluyot's Answer48 reveals that the real arrangement between her
and Atty. Linsangan was for the latter to pay a monthly installment of P1,800.00
whereas Baluyot was to shoulder the counterpart amount of P1,455.00 to meet
the P3,255.00 monthly installments as indicated in the contract. Thus, every
time an installment falls due, payment was to be made through a check from
Atty. Linsangan for P1,800.00 and a cash component of P1,455.00 from
Baluyot.49 However, it appears that while Atty. Linsangan issued the post-dated
checks, Baluyot failed to come up with her part of the bargain. This was
supported by Baluyot's statements in her 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.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Footnotes
1

Promulgated by the Eighth Division, penned by Associate Justice Perlita J.

Tria Tirona, with Justices Eugenio S. Labitoria and Eloy R. Bello, Jr.,
concurring; Rollo. pp. 91-98.
2

Id. at 101.

Id. at 92.

RTC Records, pp. 242-246.

Id. at 247.

Id. at 128.

Docketed as CV-88-1253, raffled to Regional Trial Court o Makati, Branch

27, presided by Judge Arsenio Magpale. Id. at 1.
8

Id. at 247; the contract provides in part:

Time is of the essence of this agreement and Purchaser agrees that
should any of the foregoing payments, including accrued interest,
remain unpaid or should any of the covenants or conditions
contained herein remain unperformed by him for a period of 30
days after the same was to have been paid or performed under this
Offer to Purchase, Purchaser shall forthwith and without demand be
in default and in that event this agreement shall, at the option of
Seller, become automatically null and void, and Seller may re-enter
the above-described property and hold, sell, or dispose the same
without any liability to Purchaser, and retain all payments made by
Purchaser prior to such re-entry as liquidated damages. Should
Purchaser default in the payment of any one of the above-stated
downpayments or installments, then the entire obligation shall
automatically become due and demandable, and in that event, all
discounts and interest-free concessions previously granted shall be
deemed nullified and the discounts shall be added back to the
above purchase price and interest shall be charged at the rate of
twenty-four percent (24%) per annum on the declining balance.
Purchaser further agrees that waiver by Seller of any breach of any
of the covenants or conditions contained herein shall not be
construed as a waiver of any subsequent breach. Purchaser agrees
that the exercise by the Seller of any remedy to protect its rights
shall not be a waiver of any other remedy by law.

Rollo, p. 56.

10

RTC Records, p. 29.

11

Id. at 36.

12

Id. at 33.

13

Decision dated 27 February 1995, Rollo, pp. 156-161.

14

Id. at 160-161.

15

Id. at 161.

16

Docketed as CA- G.R. CV No.49802.

17

CA Records, pp. 190-191.

18

Rollo, pp. 207-218.

19

Id. at 220-227.

20

Id. at 95.

21

Id. at 96.

22

Id. at 97.

23

Id. at 97.

24

Id. at 136-152.

25

Id. at 154.

26

Id. at 58-60.

26

Id. at 60.

27

Id. at 277.

28

Id. at 273.

29

Id. at 280.

30

Tsai v. Court of Appeals, G.R. No. 120098, 2 October 2001, 366 SCRA
324, 335, citing Congregation of the Religious of the Virgin Mary v. Court of
Appeals, 291 SCRA 385 (1998).
31

422 Phil. 367 (2001).

32

Id. at 378 citing Cebu Shipyard and Engineering Works, Inc. v. William
Lines, Inc., 366 Phil. 439 (1999), citing Misa v. Court of Appeals, 212 SCRA
217.
33

Article 1868, Civil Code.

34

A. Tolentino, the Civil Code 396 (1992).

35

RTC Records, p. 462.

36

Art. IV of the Agency Manager Agreement provides in part :

Subject to the terms and conditions hereinafter set forth and
effective as of the date set forth above, the COMPANY authorizes
AGENCY MANAGER to solicit and remit to COMPANY offers to
purchase interment spaces belonging to and sold by the COMPANY.
Such offers to purchase shall be obtained on forms provided by the
COMPANY which, on execution by a duly authorized officer of the
COMPANY, and not before, will bind the COMPANY. (RTC Records, pp.
459.)

37

Id. at 247.

38

Yu Eng Cho v. Pan American World Airways, Inc., 385 Phil. 453, 465
(2000).
39

Safic Alcan & Cie v. Imperial Vegetable Oil Co., Inc., G.R. No. 126751, 28
March 2001, 355 SCRA 559, 568, citations omitted.
40

Bacaltos Coal Mines v. Court of Appeals, G.R. No. 114091, June 29, 1995,
245 SCRA 460, 467.
41

V. J. Francisco, Agency 265 (1952).

42

Id. citing 2 Am. Jur. 76-77

43

Supra note 38 at 467.

44

Supra note 34 citing Brownell v. Parreo, (C.A.) 54 Off. Gaz. 7419.

45

J. Nolledo and Capistrano, The Philippine Law of Agency, 47 (1960) citing

2 C.J.S. 1081.
46

Id. at 47 citing Hutchinson Co. v. Gould, 181 p. 651, 180 Cal. 356.

47

Id. at 48.

48

RTC Records, pp. 48-52.

49

Id. at 50.

50

Id. at 466.

51

Lim v. Queensland Tokyo Commodities, Inc., 424 Phil. 35, 43-44

(2002( citing Philippine National Bank v. Court of Appeals, 308 SCRA 229
(1999).

52

Mijares v. Court of Appeals, G.R. No. 113558, 338 Phil. 274, 286 (1997)
citing 28 Am Jur 2d Estoppel 80, citations omitted:
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. A lack of diligence by a party claiming estoppel is
generally fatal. If the party conducts himself with careless
indifference to means of information reasonable at hand, or ignores
highly suspicious circumstances, he may not invoke the doctrine of
estoppel. Good faith is generally regarded as requiring the exercise
of reasonable diligence to learn the truth, and accordingly, estoppel
is denied where the party claiming it was put on inquiry as to the
truth and had available means for ascertaining it, at least where
actual fraud has not been practiced on the party claiming the
estoppel
53

Arcelona v. Court of Appeals, 345 Phil. 250 (1997) citing La Naval Drug
Corporation v. Court of Appeals, 236 SCRA 78 (1994).
54

Supra note 39 at 569 citing Cervantes v. Court of Appeals, 304 SCRA 25

(1999).
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 137686

February 8, 2000

RURAL BANK OF MILAOR (CAMARINES SUR), petitioner,

vs.
FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIO, FELICISIMO
OCFEMIA, RENATO OCFEMIA JR, and WINSTON OCFEMIA, respondents.
PANGANIBAN, J.:
When a bank, by its acts and failure to act, has clearly clothed its manager with
apparent authority to sell an acquired asset in the normal course of business, it is
legally obliged to confirm the transaction by issuing a board resolution to enable
the buyers to register the property in their names. It has a duty to perform
necessary and lawful acts to enable the other parties to enjoy all benefits of the
contract which it had authorized.
The Case
Before this Court is a Petition for Review on Certiorari challenging the December
18, 1998 Decision of the Court of Appeals 1 (CA) in CA-GR SP No. 46246, which
affirmed the May 20, 1997 Decision 2 of the Regional Trial Court (RTC) of Naga
City (Branch 28). The CA disposed as follows:

Wherefore, premises considered, the Judgment appealed from is hereby

AFFIRMED. Costs against the respondent-appellant. 3
The dispositive portion of the judgment affirmed by the CA ruled in this wise:
WHEREFORE, in view of all the foregoing findings, decision is hereby rendered
whereby the [petitioner] Rural Bank of Milaor (Camarines Sur), Inc. through its
Board of Directors is hereby ordered to immediately issue a Board Resolution
confirming the Deed of Sale it executed in favor of Renato Ocfemia marked
Exhibits C, C-1 and C-2); to pay [respondents] the sum of FIVE HUNDRED
(P500.00) PESOS as actual damages; TEN THOUSAND (P10,000.00) PESOS as
attorney's fees; THIRTY THOUSAND (P30,000.00) PESOS as moral damages;
THIRTY THOUSAND (P30,000.00) PESOS as exemplary damages; and to pay the
costs. 4
Also assailed is the February 26, 1999 CA Resolution
Motion for Reconsideration.

which denied petitioner's

The Facts
The trial court's summary of the undisputed facts was reproduced in the CA
Decision as follows:
This is an action for mandamus with damages. On April 10, 1996, [herein
petitioner] was declared in default on motion of the [respondents] for failure to
file an answer within the reglementary-period after it was duly served with
summons. On April 26, 1996, [herein petitioner] filed a motion to set aside the
order of default with objection thereto filed by [herein respondents].
On June 17, 1996, an order was issued denying [petitioner's] motion to set aside
the order of default. On July 10, 1996, the defendant filed a motion for
reconsideration of the order of June 17, 1996 with objection thereto by
[respondents]. On July 12, 1996, an order was issued denying [petitioner's]
motion for reconsideration. On July 31, 1996, [respondents] filed a motion to set
case for hearing. A copy thereof was duly furnished the [petitioner] but the latter
did not file any opposition and so [respondents] were allowed to present their
evidence ex-parte. A certiorari case was filed by the [petitioner] with the Court of
Appeals docketed as CA GR No. 41497-SP but the petition was denied in a
decision rendered on March 31, 1997 and the same is now final.
The evidence presented by the [respondents] through the testimony of Marife O.
Nio, one of the [respondents] in this case, show[s] that she is the daughter of
Francisca Ocfemia, a co-[respondent] in this case, and the late Renato Ocfemia
who died on July 23, 1994. The parents of her father, Renato Ocfemia, were
Juanita Arellano Ocfemia and Felicisimo Ocfemia. Her other co-[respondents]
Rowena O. Barrogo, Felicisimo Ocfemia, Renato Ocfemia, Jr. and Winston Ocfemia
are her brothers and sisters.1wphi1.nt
Marife O. Nio knows the five (5) parcels of land described in paragraph 6 of the
petition which are located in Bombon, Camarines Sur and that they are the ones
possessing them which [were] originally owned by her grandparents, Juanita
Arellano Ocfemia and Felicisimo Ocfemia. During the lifetime of her
grandparents, [respondents] mortgaged the said five (5) parcels of land and two

(2) others to the [petitioner] Rural Bank of Milaor as shown by the Deed of Real
Estate Mortgage (Exhs. A and A-1) and the Promissory Note (Exh. B).
The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to
redeem the mortgaged properties consisting of seven (7) parcels of land and so
the mortgage was foreclosed and thereafter ownership thereof was transferred
to the [petitioner] bank. Out of the seven (7) parcels that were foreclosed, five
(5) of them are in the possession of the [respondents] because these five (5)
parcels of land described in paragraph 6 of the petition were sold by the
[petitioner] bank to the parents of Marife O. Nio as evidenced by a Deed of Sale
executed in January 1988 (Exhs. C, C-1 and C-2).
The aforementioned five (5) parcels of land subject of the deed of sale (Exh. C),
have not been, however transferred in the name of the parents of Merife O. Nio
after they were sold to her parents by the [petitioner] bank because according to
the Assessor's Office the five (5) parcels of land, subject of the sale, cannot be
transferred in the name of the buyers as there is a need to have the document of
sale registered with the Register of Deeds of Camarines Sur.
In view of the foregoing, Marife O. Nio went to the Register of Deeds of
Camarines Sur with the Deed of Sale (Exh. C) in order to have the same
registered. The Register of Deeds, however, informed her that the document of
sale cannot be registered without a board resolution of the [petitioner] Bank.
Marife Nio then went to the bank, showed to if the Deed of Sale (Exh. C), the
tax declaration and receipt of tax payments and requested the [petitioner] for a
board resolution so that the property can be transferred to the name of Renato
Ocfemia the husband of petitioner Francisca Ocfemia and the father of the other
[respondents] having died already.
The [petitioner] bank refused her request for a board resolution and made many
alibi[s]. She was told that the [petitioner] bank ha[d] a new manager and it had
no record of the sale. She was asked and she complied with the request of the
[petitioner] for a copy of the deed of sale and receipt of payment. The president
of the [petitioner] bank told her to get an authority from her parents and other
[respondents] and receipts evidencing payment of the consideration appearing in
the deed of sale. She complied with said requirements and after she gave all
these documents, Marife O. Nio was again told to wait for two (2) weeks
because the [petitioner] bank would still study the matter.
After two (2) weeks, Marife O. Nio returned to the [petitioner] bank and she was
told that the resolution of the board would not be released because the
[petitioner] bank ha[d] no records from the old manager. Because of this, Marife
O. Nio brought the matter to her lawyer and the latter wrote a letter on
December 22, 1995 to the [petitioner] bank inquiring why no action was taken by
the board of the request for the issuance of the resolution considering that the
bank was already fully paid [for] the consideration of the sale since January 1988
as shown by the deed of sale itself (Exh. D and D-1 ).
On January 15, 1996 the [petitioner] bank answered [respondents'] lawyer's
letter (Exh. D and D-1) informing the latter that the request for board resolution
ha[d] already been referred to the board of directors of the [petitioner] bank with
another request that the latter should be furnished with a certified machine copy
of the receipt of payment covering the sale between the [respondents] and the

[petitioner] (Exh. E). This request of the [petitioner] bank was already complied
[with] by Marife O. Nio even before she brought the matter to her lawyer.
On January 23, 1996 [respondents'] lawyer wrote back the branch manager of
the [petitioner] bank informing the latter that they were already furnished the
receipts the bank was asking [for] and that the [respondents] want[ed] already
to know the stand of the bank whether the board [would] issue the required
board resolution as the deed of sale itself already show[ed] that the [respondents
were] clearly entitled to the land subject of the sale (Exh. F). The manager of the
[petitioner] bank received the letter which was served personally to him and the
latter told Marife O. Nio that since he was the one himself who received the
letter he would not sign anymore a copy showing him as having already received
said letter (Exh. F).
After several days from receipt of the letter (Exh. F) when Marife O. Nio went to
the [petitioner] again and reiterated her request, the manager of the [petitioner]
bank told her that they could not issue the required board resolution as the
[petitioner] bank ha[d] no records of the sale. Because of this Merife O. Nio
already went to their lawyer and ha[d] this petition filed.
The [respondents] are interested in having the property described in paragraph 6
of the petition transferred to their names because their mother and co-petitioner,
Francisca Ocfemia, is very sickly and they want to mortgage the property for the
medical expenses of Francisca Ocfemia. The illness of Francisca Ocfemia beg[a]n
after her husband died and her suffering from arthritis and pulmonary disease
already became serious before December 1995.
Marife O. Nio declared that her mother is now in serious condition and they
could not have her hospitalized for treatment as they do not have any money
and this is causing the family sleepless nights and mental anguish, thinking that
their mother may die because they could not submit her for medication as they
do not have money. 6
The trial court granted the Petition. As noted earlier, the CA affirmed the RTC
Decision.
Hence, this recourse. 7 In a Resolution dated June 23, 1999, this Court issued a
Temporary Restraining Order directing the trial court "to refrain and desist from
executing [pending appeal] the decision dated May 20, 1997 in Civil Case No.
RTC-96-3513, effective immediately until further orders from this Court." 8
Ruling of the Court of Appeals
The CA held that herein respondents were "able to prove their present cause of
action" against petitioner. It ruled that the RTC had jurisdiction over the case,
because (1) the Petition involved a matter incapable of pecuniary estimation;
(2) mandamus fell within the jurisdiction of RTC; and (3) assuming that the action
was for specific performance as argued by the petitioner, it was still cognizable
by the said court.
Issues
In its Memorandum,

the bank posed the following questions:

1. Question of Jurisdiction of the Regional Trial Court. Has a Regional Trial

Court original jurisdiction over an action involving title to real property with a
total assessed value of less than P20,000.00?
2. Question of Law. May the board of directors of a rural banking corporation
be compelled to confirm a deed of absolute sale of real property owned by the
corporation which deed of sale was executed by the bank manager without prior
authority of the board of directors of the rural banking corporation? 10
This Court's Ruling
The present Petition has no merit.
First Issue:
Jurisdiction of the Regional Trial Court
Petitioner submits that the RTC had no jurisdiction over the case. Disputing the
ruling of the appellate court that the present action was incapable of pecuniary
estimation, petitioner argues that the matter in fact involved title to real property
worth less than P20,000. Thus, under RA 7691, the case should have been filed
before a metropolitan trial court, a municipal trial court or a municipal circuit trial
court.
We disagree. The well-settled rule is that jurisdiction is determined by the
allegations of the complaint. 11 In the present case, the Petition for Mandamus
filed by respondents before the trial court prayed that petitioner-bank be
compelled to issue a board resolution confirming the Deed of Sale covering five
parcels of unregistered land, which the bank manager had executed in their
favor. The RTC has jurisdiction over such action pursuant to Section 21 of BP 129,
which provides:
Sec. 21. Original jurisdiction in other cases. Regional Trial Courts shall exercise
original jurisdiction;
(1) in the issuance of writ of certiorari, prohibition, mandamus, quo
warranto, habeas corpus and injunction which may be enforced in any part of
their respective regions; and
(2) In actions affecting ambassadors and other public ministers and consuls.
A perusal of the Petition shows that the respondents did not raise any question
involving the title to the property, but merely asked that petitioner's board of
directors be directed to issue the subject resolution. Moreover, the bank did not
controvert the allegations in the said Petition. To repeat, the issue therein was
not the title to the property; it was respondents' right to compel the bank to
issue a board resolution confirming the Deed of Sale.
Second Issue:
Authority of the Bank Manager
Respondents initiated the present proceedings, so that they could transfer to
their names the subject five parcels of land; and subsequently, to mortgage said
lots and to use the loan proceeds for the medical expenses of their ailing mother.

For the property to be transferred in their names, however, the register of deeds
required the submission of a board resolution from the bank confirming both the
Deed of Sale and the authority of the bank manager, Fe S. Tena, to enter into
such transaction. Petitioner refused. After being given the runaround by the
bank, respondents sued in exasperation.
Allegations in the Petition for Mandamus Deemed Admitted
Respondents based their action before the trial court on the Deed of Sale, the
substance of which was alleged in and a copy thereof was attached to the
Petition for Mandamus. The Deed named Fe S. Tena as the representative of the
bank. Petitioner, however, failed to specifically deny under oath the allegations in
that contract. In fact, it filed no answer at all, for which reason it was declared in
default. Pertinent provisions of the Rules of Court read:
Sec. 7. Action or defense based on document. Whenever an action or defense
is based upon a written instrument or document, the substance of such
instrument or document shall be set forth in the pleading, and the original or a
copy thereof shall be attached to the pleading as an exhibit, which shall be
deemed to be a part of the pleading, or said copy may with like effect be set
forth in the pleading.
Sec. 8. How to contest genuineness of such documents. When an action or
defense is founded upon a written instrument, copied in or attached to the
corresponding pleading as provided in the preceding section, the genuineness
and due execution of the instrument shall be deemed admitted unless the
adverse party, under oath, specifically denies them, and sets forth what he
claims to be the facts; but this provision does not apply when the adverse party
does not appear to be a party to the instrument or when compliance with an
order for an inspection of the original instrument is refused. 12
In failing to file its answer specifically denying under oath the Deed of Sale, the
bank admitted the due execution of the said contract. Such admission means
that it acknowledged that Tena was authorized to sign the Deed of Sale on its
behalf. 13 Thus, defenses that are inconsistent with the due execution and the
genuineness of the written instrument are cut off by an admission implied from a
failure to make a verified specific denial.
Other Acts of the Bank
In any event, the bank acknowledged, by its own acts or failure to act, the
authority of Fe S. Tena to enter into binding contracts. After the execution of the
Deed of Sale, respondents occupied the properties in dispute and paid the real
estate taxes due thereon. If the bank management believed that it had title to
the property, it should have taken some measures to prevent the infringement or
invasion of its title thereto and possession thereof.
Likewise, Tena had previously transacted business on behalf of the bank, and the
latter had acknowledged her authority. A bank is liable to innocent third persons
where representation is made in the course of its normal business by an agent
like Manager Tena, even though such agent is abusing her authority. 14 Clearly,
persons dealing with her could not be blamed for believing that she was

authorized to transact business for and on behalf of the bank. Thus, this Court
has ruled in Board of Liquidators v. Kalaw: 15
Settled jurisprudence has it that where similar acts have been approved by the
directors as a matter of general practice, custom, and policy, the general
manager may bind the company without formal authorization of the board of
directors. In varying language, existence of such authority is established, by
proof of the course of business, the usages and practices of the company and by
the knowledge which the board of directors has, or must be presumed to have, of
acts and doings of its subordinates in and about the affairs of the corporation. So
also,
. . . authority to act for and bind a corporation may be presumed from acts of
recognition in other instances where the power was in fact exercised.
. . . Thus, when, in the usual course of business of a corporation, an officer has
been allowed in his official capacity to manage its affairs, his authority to
represent the corporation may be implied from the manner in which he has been
permitted by the directors to manage its business.
Notwithstanding the putative authority of the manager to bind the bank in the
Deed of Sale, petitioner has failed to file an answer to the Petition below within
the reglementary period, let alone present evidence controverting such authority.
Indeed, when one of herein respondents, Marife S. Nino, went to the bank to ask
for the board resolution, she was merely told to bring the receipts. The bank
failed to categorically declare that Tena had no authority. This Court stresses the
following:
. . . Corporate transactions would speedily come to a standstill were every person
dealing with a corporation held duty-bound to disbelieve every act of its
responsible officers, no matter how regular they should appear on their face. This
Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655, that
In passing upon the liability of a corporation in cases of this kind it is always well
to keep in mind the situation as it presents itself to the third party with whom the
contract is made. Naturally he can have little or no information as to what occurs
in corporate meetings; and he must necessarily rely upon the external
manifestation of corporate consent. The integrity of commercial transactions can
only be maintained by holding the corporation strictly to the liability fixed upon it
by its agents in accordance with law; and we would be sorry to announce a
doctrine which would permit the property of man in the city of Paris to be
whisked out of his hands and carried into a remote quarter of the earth without
recourse against the corporation whose name and authority had been used in
the manner disclosed in this case. As already observed, it is familiar doctrine that
if a corporation knowingly permits one of its officers, or any other agent, to do
acts within the scope of an apparent authority, and thus holds him out to the
public as possessing power to do those acts, the corporation will, as against any
one who has in good faith dealt with the corporation through such agent, be
estopped from denying his authority; and where it is said "if the corporation
permits this means the same as "if the thing is permitted by the directing power
of the corporation." 16

In this light, the bank is estopped from questioning the authority of the bank
manager to enter into the contract of sale. If a corporation knowingly permits
one of its officers or any other agent to act within the scope of an apparent
authority, it holds the agent out to the public as possessing the power to do
those acts; thus, the corporation will, as against anyone who has in good faith
dealt with it through such agent, be estopped from denying the agent's
authority. 17
Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale.
Accordingly, it has a clear legal duty to issue the board resolution sought by
respondent's. Having authorized her to sell the property, it behooves the bank to
confirm the Deed of Sale so that the buyers may enjoy its full use.
The board resolution is, in fact, mere paper work. Nonetheless, it is paper work
necessary in the orderly operations of the register of deeds and the full
enjoyment of respondents' rights. Petitioner-bank persistently and unjustifiably
refused to perform its legal duty. Worse, it was less than candid in dealing with
respondents regarding this matter. In this light, the Court finds it proper to assess
the bank treble costs, in addition to the award of damages.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision and
Resolution AFFIRMED. The Temporary Restraining Order issued by this Court is
hereby LIFTED. Treble costs against petitioner.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., please see concurring opinion.

Separate Opinions
VITUG, J., concurring opinion;
I share the views expressed in the ponencia written for the Court by our
esteemed colleague Mr. Justice Artemio V. Panganiban. There is just a brief
clarificatory statement that I thought could be made.
The Civil Code, being a law of general application, can be suppletory to special
laws and certainly not preclusive of those that govern commercial transactions.
Indeed, in its generic sense, civil law can rightly be said to encompass
commercial law. Jus civile, in ancient Rome, was merely used to distinguish it
from jus gentium or the law common to all the nations within the empire and, at
some time later, only in contrast to international law. In more recent times, civil
law is so referred to as private law in distinction from public law and criminal law.
Today, it may not be totally inaccurate to consider commercial law, among some
other special laws, as being a branch of civil law.
Sec. 45 of the Corporation Code provides:

Sec. 45. Ultra vires acts of corporations. No corporation under this Code shall
possess or exercise any corporate powers except those conferred by this Code or
by its articles of incorporation and except such as are necessary or incidental to
the exercise of the powers so conferred.
The language of the Code appears to confine the term ultra vires to an act
outside or beyond express, implied and incidental corporate powers.
Nevertheless, the concept can also include those acts that may ostensibly be
within such powers but are, by general or special laws, either proscribed or
declared illegal. In general, although perhaps loosely, ultra vires has also been
used to designate those acts of the board of directors or of corporate officers
when acting beyond their respective spheres of authority. In the context that the
law has used the term in Article 45 of the Corporation Code, an ultra vires act
would be void and not susceptible to ratification. 1 In determining whether or not
a corporation may perform an act, one considers the logical and necessary
relation between the act assailed and the corporate purpose expressed by the
law or in the charter. For if the act were one which is lawful in itself or not
otherwise prohibited and done for the purpose of serving corporate ends or
reasonably contributes to the promotion of those ends in a substantial and not
merely in a remote and fanciful sense, it may be fairly considered within
corporate powers. 2
Sec. 23 of the Corporation Code states that the corporate powers are to be
exercised, all business conducted, and all property of corporations controlled and
held, by the Board of Directors. When the act of the board is within corporate
powers but it is done without the concurrence of the shareholders as and when
such approval is required by law 3 or when the act is beyond its competence to
do, 4 the act has been described as void 5 or, as unenforceable, 6 or as ineffective
and not legally binding. 7 These holdings notwithstanding, the act cannot
accurately be likened to an ultra vires act of the corporation itself defined in
Section 45 of the Code. Where the act is within corporate powers but the board
has acted without being competent to independently do so, the action is not
necessarily and totally devoid of effects, and it may generally be ratified
expressly or impliedly. Thus, an acceptance of benefits derived by the
shareholders from an outside investment made by the board without the
required concurrence of the stockholders may, nonetheless, be so considered as
an effective investment. 8 It may be said, however, that when the board
resolution is yet executory, the act should aptly be deemed inoperative and
specific performance cannot be validly demanded but, if for any reason, the
contemplated action is carried out, such principles as ratification or prescription
when applicable, normally unknown in void contracts, can serve to negate a
claim for the total nullity thereof.
Corporate officers, in their case, may act on such matters as may be authorized
either expressly by the By-laws or Board Resolutions or impliedly such as by
general practice or policy or as are implied by express powers. When officers are
allowed to act in certain particular cases, their acts conformably therewith can
bind the company. Hence, a corporate officer entrusted with general
management and control of the business has the implied authority to act or
contract for the corporation which may be necessary or appropriate to conduct
the ordinary business. 9 If the act of corporate officers comes within corporate
powers but it is done without any express or implied authority therefor from the
by-laws, board resolutions or corporate practices, such an act does not bind the
corporation. The Board, however, acting within its competence, may ratify the

unauthorized act of the corporate officer. So, too, a corporation may be held in
estoppel from denying as against innocent third persons the authority of its
officers or agents who have been clothed by it with ostensible or apparent
authority. 10
The Corporation Code itself has not been that explicit with respect to the
consequences of ultra vires acts; hence, the varied ascriptions to its effects
heretofore expressed. It may well be to consider futile any further attempt to
have these situations bear any exact equivalence to the civil law precepts of
defective contracts. Nevertheless, general statements could be made. Here
reiterated, while an act of the corporation which is either illegal or outside of
express, implied or incidental powers as so provided by law or the charter would
be void under Article 5 11 of the Civil Code, and the act is not susceptible to
ratification, an unauthorized act (if within corporate powers) of the board or a
corporate officer, however, would only be unenforceable conformably with Article
1403 12 of the Civil Code but, if the party with whom the agent has contracted is
aware of the latter's limits of powers, the unauthorized act is declared void by
Article 1898 13 of the same Code, although still susceptible thereunder to
ratification by the principal. Any person dealing with corporate boards and
officers may be said to be charged with the knowledge that the latter can only
act within their respective limits of power, and he is put to notice accordingly.
Thus, it would generally behoove such a person to look into the extent of the
authority of corporate agents since the onus would ordinarily be with
him.1wphi1.nt

Footnotes
1

Special Thirteenth Division composed of J. Renato C. Dacudao, ponente; and JJ

Salvador J. Valdez Jr. (chairman) and Roberto A. Barrios (member), both
concurring.
2

Penned by Judge Antonio N. Gerona.

CA Decision, p. 9; rollo, p. 25.

RTC Decision, p. 6; rollo, p. 49.

Rollo, pp. 36-37.

RTC Decision, pp. 1-3; rollo, pp. 44-46.

The case was deemed submitted for resolution on October 27, 1999, upon
receipt by this Court of the respective Memoranda of the petitioner and the
respondents. The Memorandum of Petitioner was signed by Atty. David C. Naval,
while that of respondents was signed by Atty. Eustaquio S. Beltran.
8

Rollo, p. 117.

Rollo, pp. 153-160.

10

Ibid., p. 154.

11

Santiago v. Guingona, 298 SCRA 756, 766, November 18, 1998; Bernate v. CA,
263 SCRA 323, October 18, 1996; Sandel v. CA, 262 SCRA 101, September 19,
1996.
12

Rule 8 of the Rules of Court.

13

Imperial Textile Mills, Inc. v. C.A., 183 SCRA 1, March 22, 1990.

14

First Philippine International Bank v. CA, infra, note 17.

15

20 SCRA 987, 1005, August 14, 1967, per Sanchez, J.

16

Francisco v. GSIS, 7 SCRA 577, 583-584, March 30, 1963, per Reyes, J.B.L., J.

17

First International Bank v. CA, 252 SCRA 259, January 24, 1996; People's
Aircargo and Warehousing Co., Inc. v. CA, 297 SCRA 170, 184-185, October 7,
1998.

VITUG, J., concurring opinion;

1

Republic vs. Acoje Mining Co , Inc., 7 SCRA 361. Although in this case the
Supreme Court held that the opening of a post office branch by a corporation
falls under its implied powers and, therefore, not an ultra vires act, since said
facility is needed for the convenience of its personnel and employees.
2

National Power Corporation vs. Judge Vera, 170 SCRA 721.

Such as an the sale of all or substantially all of the corporate assets or an

investment in another corporation outside corporate purposes.
4

Like the removal of a director.

Pea vs. Court of Appeals, 193 SCRA 717.

Ricafort vs. Moya, 195 SCRA 247.

Natino vs. Intermediate Appellate Court, 197 SCRA 323.

Gokongwei, Jr. vs. Securities & Exchange Commission, 89 SCRA 336 97 SCRA
78.
9

Board of Liquidators vs. Heirs of Kalaw, 20 SCRA 987.

10

In Yao Ka Sin Trading vs. Court of Appeals, the Court said. The rule is, of course
settled that although an officer or agent acts without or in excess of, his actual
authority however, if he acts within the scope of an apparent authority with
which the corporation has clothed him by holding him out or permitting him to

appear as having such authority, the corporation is bound thereby in favor of a

person who deals with him in good faith in reliance on that apparent authority, as
where an officer is allowed to exercise a particular authority with respect to the
business, or a particular branch of it, continuously and publicly, for a
considerable time. Also, "if a private corporation intentionally or negligently
clothes its officers or agent with apparent power to perform acts for it, the
corporation will be estopped to deny that such apparent authority is real, as to
innocent third persons dealing in good faith with such officers or agents.
(Fletcher, op, cit. 340) This "apparent authority may result from (1) the general
manner by which the corporation holds out an officer or agent as having power
to act or, in other words, the apparent authority with which it clothes him to act
in general, or (2) the acquiescence in his acts of a particular nature, with actual
or constructive knowledge thereof, whether within or without the scope of his
ordinary powers."
11

Art. 5. Acts executed against the provisions of mandatory or prohibitory laws

shall be void except when the law itself authorities their validity.
12

Art. 1403. The following contracts are unenforceable, unless they are ratified.

(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action unless the same, or some note or memorandum thereof,
be in writing, and subscribed and by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or
a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year from the
making thereof;
(b) A special promise to answer for the debt, default or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual
promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not
less than five hundred pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them of such things in action,
or pay at the time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a sufficient
memorandum;
(e) An agreement for the leasing for a longer period than one year, or for the sale
of real property or of an interest therein;
(f) A representation as to the credit of a third person;
(3) Those where both parties are incapable of giving consent to a contract.

13

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.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

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.
Leighton R. Siazon for petitioner.
Melanio L. Zoreta for private respondent.

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 defendantappellant Kue Cuison is hereby ordered to pay plaintiff-appellant Valiant
Investment Associates the sum of P297,487.30 with 12% interest from the filing
of the complaint until the amount is fully paid, plus the sum of 7% of the total
amount due as attorney's fees, and to pay the costs. In all other respects, the
decision appealed from is affirmed. (Rollo, p. 55)
In this petition, petitioner contends that:
THE HONORABLE COURT ERRED IN FINDING TIU HUY TIAC AGENT OF
DEFENDANT-APPELLANT CONTRARY TO THE UNDISPUTED/ESTABLISHED FACTS
AND CIRCUMSTANCES.
THE HONORABLE COURT ERRED IN FINDING DEFENDANT-APPELLANT LIABLE FOR
AN OBLIGATION UNDISPUTEDLY BELONGING TO TIU HUY TIAC.
THE HONORABLE COURT ERRED IN REVERSING THE WELL-FOUNDED DECISION
OF THE TRIAL COURT, (Rollo, p, 19)
The issue here is really quite simple whether or not Tiu Huy Tiac possessed the
required authority from petitioner sufficient to hold the latter liable for the
disputed transaction.
This petition ought to have been denied outright, forin the final analysis, it raises
a factual issue. It is elementary that in petitions for review under Rule 45, this
Court only passes upon questions of law. An exception thereto occurs where the
findings of fact of the Court of Appeals are at variance with the trial court, in
which case the Court reviews the evidence in order to arrive at the correct
findings based on the records.
As to the merits of the case, it is a well-established rule that one who clothes
another with apparent authority as his agent and holds him out to the public as
such cannot be permitted to deny the authority of such person to act as his
agent, to the prejudice of innocent third parties dealing with such person in good
faith and in the honest belief that he is what he appears to be (Macke, et al, v.
Camps, 7 Phil. 553 (1907]; Philippine National Bank. v Court of Appeals, 94 SCRA

357 [1979]). From the facts and the evidence on record, there is no doubt that
this rule obtains. The petition must therefore fail.
It is evident from the records that by his own acts and admission, petitioner held
out Tiu Huy Tiac to the public as the manager of his store in Sto. Cristo, Binondo,
Manila. More particularly, petitioner explicitly introduced Tiu Huy Tiac to
Bernardino Villanueva, respondent's manager, as his (petitioner's) branch
manager as testified to by Bernardino Villanueva. Secondly, Lilian Tan, who has
been doing business with petitioner for quite a while, also testified that she knew
Tiu Huy Tiac to be the manager of petitioner's Sto. Cristo, Binondo branch. This
general perception of Tiu Huy Tiac as the manager of petitioner's Sto. Cristo store
is even made manifest by the fact that Tiu Huy Tiac is known in the community
to be the "kinakapatid" (godbrother) of petitioner. In fact, even petitioner
admitted his close relationship with Tiu Huy Tiac when he said that they are "like
brothers" (Rollo, p. 54). There was thus no reason for anybody especially those
transacting business with petitioner to even doubt the authority of Tiu Huy Tiac
as his manager in the Sto. Cristo Binondo branch.
In a futile attempt to discredit Villanueva, petitioner alleges that the former's
testimony is clearly self-serving inasmuch as Villanueva worked for private
respondent as its manager.
We disagree, The argument that Villanueva's testimony is self-serving and
therefore inadmissible on the lame excuse of his employment with private
respondent utterly misconstrues the nature of "'self-serving evidence" and the
specific ground for its exclusion. As pointed out by this Court in Co v. Court of
Appeals et, al., (99 SCRA 321 [1980]):
Self-serving evidence is evidence made by a party out of court at one time; it
does not include a party's testimony as a witness in court. It is excluded on the
same ground as any hearsay evidence, that is the lack of opportunity for 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 crossexamination, to produce the very first invoice of the transaction between
petitioner and private respondent as another ground to discredit Villanueva's
testimony. Such failure, proves that Villanueva was not only bluffing when he
pretended that he can produce the invoice, but that Villanueva was likewise
prevaricating when he insisted that such prior transactions actually took place.
Petitioner is mistaken. In fact, it was petitioner's counsel himself who withdrew
the reservation to have Villanueva produce the document in court. As aptly
observed by the Court of Appeals in its decision:
. . . However, during the hearing on March 3, 1981, Villanueva failed to present
the document adverted to because defendant-appellant's counsel withdrew his
reservation to have the former (Villanueva) produce the document or invoice,
thus prompting plaintiff-appellant to rest its case that same day (t.s.n., pp. 3940, Sess. of March 3, 1981). Now, defendant-appellant assails the credibility of
Villanueva for having allegedly failed to produce even one single document to
show that plaintiff-appellant have had transactions before, when in fact said

failure of Villanueva to produce said document is a direct off-shoot of the action

of defendant-appellant's counsel who withdrew his reservation for the production
of the document or invoice and which led plaintiff-appellant to rest its case that
very day. (Rollo, p.52)
In the same manner, petitioner assails the credibility of Lilian Tan by alleging that
Tan was part of an intricate plot to defraud him. However, petitioner failed to
substantiate or prove that the subject transaction was designed to defraud him.
Ironically, it was even the testimony of petitioner's daughter and assistant
manager Imelda Kue Cuison which confirmed the credibility of Tan as a witness.
On the witness stand, Imelda testified that she knew for a fact that prior to the
transaction in question, Tan regularly transacted business with her father
(petitioner herein), thereby corroborating Tan's testimony to the same effect. As
correctly found by the respondent court, there was no logical explanation for Tan
to impute liability upon petitioner. Rather, the testimony of Imelda Kue Cuison
only served to add credence to Tan's testimony as regards the transaction, the
liability for which petitioner wishes to be absolved.
But of even greater weight than any of these testimonies, is petitioner's
categorical admission on the witness stand that Tiu Huy Tiac was the manager of
his store in Sto. Cristo, Binondo, to wit:
Court:
xxx xxx xxx
Q And who was managing the store in Sto. Cristo?
A At first it was Mr. Ang, then later Mr. Tiu Huy Tiac but I cannot remember the
exact year.
Q So, Mr. Tiu Huy Tiac took over the management,.
A Not that was because every afternoon, I was there, sir.
Q But in the morning, who takes charge?
A Tiu Huy Tiac takes charge of management and if there (sic) orders for
newsprint or bond papers they are always referred to the compound in Baesa, sir.
(t.s.n., p. 16, Session of January 20, 1981, CA decision, Rollo, p. 50, emphasis
supplied).
Such admission, spontaneous no doubt, and standing alone, is sufficient to
negate all the denials made by petitioner regarding the capacity of Tiu Huy Tiac
to enter into the transaction in question. Furthermore, consistent with and as an
obvious indication of the fact that Tiu Huy Tiac was the manager of the Sto.
Cristo branch, three (3) months after Tiu Huy Tiac left petitioner's employ,
petitioner even sent, communications to its customers notifying them that Tiu
Huy Tiac is no longer connected with petitioner's business. Such undertaking
spoke unmistakenly of Tiu Huy Tiac's valuable position as petitioner's manager
than any uttered disclaimer. More than anything else, this act taken together
with the declaration of petitioner in open court amount to admissions under Rule
130 Section 22 of the Rules of Court, to wit : "The act, declaration or omission of

a party as to a relevant fact may be given in evidence against him." For wellsettled 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.
Feliciano, Romero, Melo and Vitug, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
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 Certiorari 1 seeking to annul the Decision of
the Court of Appeals2 dated May 4, 1994 in CA-G.R. CV No. 37996, which
affirmed in toto the decision3 of the Regional Trial Court of Quezon City, Branch
80, in Civil Case No. Q-89-2631. The trial court disposed as follows:

"WHEREFORE, the Court finds defendants Constante and Corazon Amor de

Castro jointly and solidarily liable to plaintiff the sum of:
a) P303,606.24 representing unpaid commission;
b) P25,000.00 for and by way of moral damages;
c) P45,000.00 for and by way of attorney's fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20, 1991."
The Antecedent Facts
On May 29, 1989, private respondent Francisco Artigo ("Artigo" for brevity) sued
petitioners Constante A. De Castro ("Constante" for brevity) and Corazon A. De
Castro ("Corazon" for brevity) to collect the unpaid balance of his broker's
commission from the De Castros. 4 The Court of Appeals summarized the facts in
this wise:
"x x x. Appellants5 were co-owners of four (4) lots located at EDSA corner
New York and Denver Streets in Cubao, Quezon City. In a letter dated
January 24, 1984 (Exhibit "A-1, p. 144, Records), 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 coowners 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
evidencealiunde could be presented to prove that the actual purchase price
was P7.05 million and not P3.6 million as appearing in the deed of sale.
Evidence aliunde is admissible considering that Artigo is not a party, but a mere
witness in the deed of sale between the De Castros and Times Transit. The Court
of Appeals explained that, "the rule that oral evidence is inadmissible to vary the
terms of written instruments is generally applied only in suits between parties to
the instrument and strangers to the contract are not bound by it." Besides, Artigo
was not suing under the deed of sale, but solely under the contract of agency.
Thus, the Court of Appeals upheld the trial court's finding that the purchase price
was P7.05 million and not P3.6 million.
Hence, the instant petition.
The Issues
According to petitioners, the Court of Appeals erred in I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO
IMPLEAD INDISPENSABLE PARTIES-IN-INTEREST;

II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND

THAT ARTIGO'S CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT,
WAIVER, OR ABANDONMENT;
III. CONSIDERING INCOMPETENT EVIDENCE;
IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;
V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES;
VI. NOT AWARDING THE DE CASTRO'S MORAL AND EXEMPLARY DAMAGES,
AND ATTORNEY'S FEES.
The Court's Ruling
The petition is bereft of merit.
First Issue: whether the complaint merits dismissal for failure to
implead other co-owners as indispensable parties
The De Castros argue that Artigo's complaint should have been dismissed for
failure to implead all the co-owners of the two lots. The De Castros claim that
Artigo always knew that the two lots were co-owned by Constante and Corazon
with their other siblings Jose and Carmela whom Constante merely represented.
The De Castros contend that failure to implead such indispensable parties is fatal
to the complaint since Artigo, as agent of all the four co-owners, would be paid
with funds co-owned by the four co-owners.
The De Castros' contentions are devoid of legal basis.
An indispensable party is one whose interest will be affected by the court's
action in the litigation, and without whom no final determination of the case can
be had.7 The joinder of indispensable parties is mandatory and courts cannot
proceed without their presence.8 Whenever it appears to the court in the course
of a proceeding that an indispensable party has not been joined, it is the duty of
the court to stop the trial and order the inclusion of such party. 9
However, the rule on mandatory joinder of indispensable parties is not applicable
to the instant case.
There is no dispute that Constante appointed Artigo in a handwritten note dated
January 24, 1984 to sell the properties of the De Castros for P23 million at a 5
percent commission. The authority was on a first come, first serve basis. The
authority reads in full:
"24 Jan. 84
To Whom It May Concern:
This is to state that Mr. Francisco Artigo is authorized as our real estate
broker in connection with the sale of our property located at Edsa Corner
New York & Denver, Cubao, Quezon City.

Asking price P 23,000,000.00 with 5% commission as agent's fee.

C.C. de Castro
owner & representing
co-owners
This authority is on a first-come
First serve basis CAC"
Constante signed the note as owner and as representative of the other coowners. Under this note, a contract of agency was clearly constituted between
Constante and Artigo. Whether Constante appointed Artigo as agent, in
Constante's individual or representative capacity, or both, the De Castros cannot
seek the dismissal of the case for failure to implead the other co-owners as
indispensable parties. The De Castros admit that the other co-owners are
solidarily liable under the contract of agency,10 citing Article 1915 of the
Civil Code, which reads:
Art. 1915. If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the agent for
all the consequences of the agency.
The solidary liability of the four co-owners, however, militates against the De
Castros' theory that the other co-owners should be impleaded as indispensable
parties. A noted commentator explained Article 1915 thus
"The rule in this article applies even when the appointments were made
by the principals in separate acts, provided that they are for the same
transaction. The solidarity arises from the common interest of the
principals, and not from the act of constituting the agency. By
virtue of this solidarity, the agent can recover from any principal
the whole compensation and indemnity owing to him by the
others. The parties, however, may, by express agreement, negate this
solidary responsibility. The solidarity does not disappear by the mere
partition effected by the principals after the accomplishment of the
agency.
If the undertaking is one in which several are interested, but only some
create the agency, only the latter are solidarily liable, without prejudice to
the effects of negotiorum gestio with respect to the others. And if the
power granted includes various transactions some of which are common
and others are not, only those interested in each transaction shall be liable
for it."11
When the law expressly provides for solidarity of the obligation, as in the liability
of co-principals in a contract of agency, each obligor may be compelled to pay
the entire obligation.12 The agent may recover the whole compensation from any
one of the co-principals, as in this case.
Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the
solidary debtors. This article reads:

Art. 1216. The creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The demand made against
one of them shall not be an obstacle to those which may subsequently be
directed against the others, so long as the debt has not been fully
collected.
Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co.,
Inc.13 that
"x x x solidarity does not make a solidary obligor an indispensable
party in a suit filed by the creditor. Article 1216 of the Civil Code says
that the creditor `may proceed against anyone of the solidary debtors or
some or all of them simultaneously'." (Emphasis supplied)
Second Issue: whether Artigo's claim has been extinguished by full
payment, waiver or abandonment
The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo
was given "his proportionate share and no longer entitled to any balance."
According to them, Artigo was just one of the agents involved in the sale and
entitled to a "proportionate share" in the commission. They assert that Artigo did
absolutely nothing during the second negotiation but to sign as a witness in the
deed of sale. He did not even prepare the documents for the transaction as an
active real estate broker usually does.
The De Castros' arguments are flimsy.
A contract of agency which is not contrary to law, public order, public policy,
morals or good custom is a valid contract, and constitutes the law between the
parties.14 The contract of agency entered into by Constante with Artigo is the law
between them and both are bound to comply with its terms and conditions in
good faith.
The mere fact that "other agents" intervened in the consummation of the sale
and were paid their respective commissions cannot vary the terms of the
contract of agency granting Artigo a 5 percent commission based on the selling
price. These "other agents" turned out to be employees of Times Transit, the
buyer Artigo introduced to the De Castros. This prompted the trial court to
observe:
"The alleged `second group' of agents came into the picture only during
the so-called `second negotiation' and it is amusing to note that these
(sic) second group, prominent among whom are Atty. Del Castillo and Ms.
Prudencio, happened to be employees of Times Transit, the buyer of the
properties. And their efforts were limited to convincing Constante to 'part
away' with the properties because the redemption period of the foreclosed
properties is around the corner, so to speak. (tsn. June 6, 1991).
xxx
To accept Constante's version of the story is to open the floodgates of
fraud and deceit. A seller could always pretend rejection of the offer and
wait for sometime for others to renew it who are much willing to accept a

commission far less than the original broker. The immorality in the
instant case easily presents itself if one has to consider that the
alleged `second group' are the employees of the buyer, Times
Transit and they have not bettered the offer secured by Mr. Artigo
for P7 million.
It is to be noted also that while Constante was too particular about the
unrenewed real estate broker's license of Mr. Artigo, he did not bother at
all to inquire as to the licenses of Prudencio and Castillo. (tsn, April 11,
1991, pp. 39-40)."15 (Emphasis supplied)
In any event, we find that the 5 percent real estate broker's commission is
reasonable and within the standard practice in the real estate industry for
transactions of this nature.
The De Castros also contend that Artigo's inaction as well as failure to protest
estops him from recovering more than what was actually paid him. The De
Castros cite Article 1235 of the Civil Code which reads:
Art. 1235. When the obligee accepts the performance, knowing its
incompleteness and irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with.
The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's
acceptance of partial payment of his commission neither amounts to a waiver of
the balance nor puts him in estoppel. This is the import of Article 1235 which was
explained in this wise:
"The word accept, as used in Article 1235 of the Civil Code, means to take
as satisfactory or sufficient, or agree to an incomplete or irregular
performance. Hence, the mere receipt of a partial payment is not
equivalent to the required acceptance of performance as would
extinguish the whole obligation."16(Emphasis supplied)
There is thus a clear distinction between acceptance and mere receipt. In this
case, it is evident that Artigo merely received the partial payment without
waiving the balance. Thus, there is no estoppel to speak of.
The De Castros further argue that laches should apply because Artigo did not file
his complaint in court until May 29, 1989, or almost four years later. Hence,
Artigo's claim for the balance of his commission is barred by laches.
Laches means the failure or neglect, for an unreasonable and unexplained length
of time, to do that which by exercising due diligence could or should have been
done earlier. It is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either has
abandoned it or declined to assert it.17
Artigo disputes the claim that he neglected to assert his rights. He was
appointed as agent on January 24, 1984. The two lots were finally sold in June
1985. As found by the trial court, Artigo demanded in April and July of 1985 the
payment of his commission by Constante on the basis of the selling price
of P7.05 million but there was no response from Constante. 18 After it became

clear that his demands for payment have fallen on deaf ears, Artigo decided to
sue on May 29, 1989.
Actions upon a written contract, such as a contract of agency, must be brought
within ten years from the time the right of action accrues. 19 The right of action
accrues from the moment the breach of right or duty occurs. From this moment,
the creditor can institute the action even as the ten-year prescriptive period
begins to run.20
The De Castros admit that Artigo's claim was filed within the ten-year
prescriptive period. The De Castros, however, still maintain that Artigo's cause of
action is barred by laches. Laches does not apply because only four years had
lapsed from the time of the sale in June 1985. Artigo made a demand in July
1985 and filed the action in court on May 29, 1989, well within the ten-year
prescriptive period. This does not constitute an unreasonable delay in asserting
one's right. The Court has ruled, "a delay within the prescriptive period is
sanctioned by law and is not considered to be a delay that would bar
relief."21 In explaining that laches applies only in the absence of a statutory
prescriptive period, the Court has stated "Laches is recourse in equity. Equity, however, is applied only in the
absence, never in contravention, of statutory law. Thus, laches,
cannot, as a rule, be used to abate a collection suit filed within
the prescriptive period mandated by the Civil Code."22
Clearly, the De Castros' defense of laches finds no support in law, equity or
jurisprudence.
Third issue: whether the determination of the purchase price was made
in violation of the Rules on Evidence
The De Castros want the Court to re-examine the probative value of the evidence
adduced in the trial court to determine whether the actual selling price of the
two lots was P7.05 million and not P3.6 million. The De Castros contend that it is
erroneous to base the 5 percent commission on a purchase price of P7.05 million
as ordered by the trial court and the appellate court. The De Castros insist that
the purchase price is P3.6 million as expressly stated in the deed of sale, the due
execution and authenticity of which was admitted during the trial.
The De Castros believe that the trial and appellate courts committed a mistake in
considering incompetent evidence and disregarding the best evidence and
parole evidence rules. They claim that the Court of Appeals erroneously
affirmed sub silentio the trial court's reliance on the various correspondences
between Constante and Times Transit which were mere photocopies that do not
satisfy the best evidence rule. Further, these letters covered only the first
negotiations between Constante and Times Transit which failed; hence, these are
immaterial in determining the final purchase price.
The De Castros further argue that if there was an undervaluation, Artigo who
signed as witness benefited therefrom, and being equally guilty, should be left
where he presently stands. They likewise claim that the Court of Appeals erred in
relying on evidence which were not offered for the purpose considered by the
trial court. Specifically, Exhibits "B", "C", "D" and "E" were not offered to prove

that the purchase price was P7.05 Million. Finally, they argue that the courts a
quo erred in giving credence to the perjured testimony of Artigo. They want the
entire testimony of Artigo rejected as a falsehood because he was lying when he
claimed at the outset that he was a licensed real estate broker when he was not.
Whether the actual purchase price was P7.05 Million as found by the trial court
and affirmed by the Court of Appeals, or P3.6 Million as claimed by the De
Castros, is a question of fact and not of law. Inevitably, this calls for an inquiry
into the facts and evidence on record. This we can not do.
It is not the function of this Court to re-examine the evidence submitted by the
parties, or analyze or weigh the evidence again. 23 This Court is not the proper
venue to consider a factual issue as it is not a trier of facts. In petitions for review
on certiorari 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])."
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
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.
Puno, and Panganiban, JJ., concur.
Sandoval-Gutierrez, J., no part due to close family relation with a party.

Footnote
1

Under Rule 45 of the Rules of Court.

Seventh Division composed of Justices Ricardo J. Francisco (Chairman and

Ponente); Salome A. Montoya and Ramon A. Barcelona (Members).
3

Penned by Judge Benigno T. Dayaw.

When referred to collectively.

Referring to the De Castros.

Referring to Artigo.

Rule 3, Section 7 of the Rules of Court; Seno vs. Mangubat, 156 SCRA 113
(1987); Quisumbing vs. Court of Appeals, 189 SCRA 325 (1990);
Lozano vs. Ballesteros, 195 SCRA 681 (1991).
8

Ibid.

Vicente J. Francisco, The Revised Rules of Court, Vol. 1, p. 271, 1973 ed.

10

Memorandum of Petitioner dated April 23, 1997, p.8; Rollo, p. 175.

11

Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code

of the Philippines, Vol. 5, pp.. 428-429, 1992 ed.
12

Art. 1207 of the Civil Code provides as follows: "Art. 1207. The
concurrence of two or more creditors or of two or more debtors in one and
the same obligation does not imply that each one of the former has a right
to demand, or that each one of the latter is bound to render, entire
compliance with the prestation. There is solidary liability only when the
obligation expressly so states, or when the law or the nature of the
obligation requires solidarity."
13

154 SCRA 738 (1987), reiterated in Republic vs. Sandiganbayan, 173

SCRA 72 (1989).
14

San Andres vs. Rodriguez, 332 SCRA 769 (2000).

15

Decision dated December 20, 1991 of RTC Judge Benigno T. Dayan,

Rollo, pp. 33-34.
16

Tolentino, supra, see note 11, Vol. 4, p. 279.

17

Republic vs. Court of Appeals, 301 SCRA 366 (1999); Ochagabia vs.
Court of Appeals, 304 SCRA 587 (1999).
18

RTC Decision, p. 7; Rollo, pp. 20-36, see p. 35.

19

Article 1144 of the Civil Code provides as follows: "Art. 1144. The
following actions must be brought within ten years from the time the right
of action accrues: (1) Upon a written contract; (2) Upon an obligation
created by law; (3) Upon a judgment."
20

Tolention, supra, see note 16, p. 44.

21

Agra vs. Philippine National Bank, 309 SCRA 509 (1999).

22

Ibid.

23

Moomba Mining Exploration Company vs. Court of Appeals, , 317 SCRA

388 (1999).
24

247 SCRA 291 (1995).

25

Barzaga vs. Court of Appeals, 268 SCRA 105 (1997).

26

Jose C. Vitug, Compendium of Civil Law and Jurisprudence, p. 841, 1993

Ed.
27

Art. 2208, Civil Code of the Philippines.

Republic of the Philippines
SUPREME COURT
Manila

EN BANC
G.R. No. L-13471

January 12, 1920

VICENTE SY-JUCO and CIPRIANA VIARDO, plaintiffs-appellants,

vs.
SANTIAGO V. SY-JUCO, defendant-appellant.
Sumulong and Estrada for plaintiffs and appellants.
Delgado and Delgado for defendant and appellant.
AVANCEA, J.:
In 1902 the defendant was appointed by the plaintiffs administrator of their
property and acted as such until June 30, 1916, when his authority was
cancelled. The plaintiffs are defendant's father and mother who allege that
during his administration the defendant acquired the property claimed in the
complaint in his capacity as plaintiffs' administrator with their money and for
their benefit. After hearing the case the trial court rendered his decision, the
dispositive part of which is the following:
Wherefore, the court give judgment for the plaintiffs and orders:
1. That the defendant return to the plaintiffs the launch Malabon, in
question, and execute all the necessary documents and instruments for
such delivery and the registration in the records of the Custom House of
said launch as plaintiffs' property;
2. That the defendant return to the plaintiffs the casco No. 2584, or pay to
them the value thereof which has been fixed at the sum of P3,000, and
should the return of said casco be made, execute all the necessary
instruments and documents for its registration in plaintiffs' name at the
Custom House; and
3. That the defendant return to the plaintiffs the automobile No. 2060 and
execute the necessary instruments and documents for its registration at
the Bureau of Public Works. And judgment is hereby given for the
defendant absolving him from the complaint so far concerns:
1. The rendition of accounts of his administration of plaintiffs property;
2. The return of the casco No. 2545;
3. The return of the typewriting machine;
4. The return of the house occupied by the defendant; and
5. The return of the price of the piano in question.
Both parties appealed from this judgment.
In this instance defendant assigns three errors alleged to have been committed
by the lower court in connection with the three items of the dispositive part of

the judgment unfavorable to him. We are of the opinion that the evidence
sufficiently justifies the judgment against the defendant.
Regarding the launch Malabon, it appears that in July, 1914, the defendant
bought it in his own name from the Pacific Commercial Co., and afterwards
registered it at the Custom House. But his does not necessarily show that the
defendant bought it for himself and with his own money, as he claims. This
transaction was within the agency which he had received from the plaintiffs. The
fact that he has acted in his own name may be only, as we believe it was, a
violation of the agency on his part. As the plaintiffs' counsel truly say, the
question is not in whose favor the document of sale of the launch is executed nor
in whose name same was registered, but with whose money was said launch
bought. The plaintiffs' testimony that it was bought with their money and for
them is supported by the fact that, immediately after its purchase, the launch
had to be repaired at their expense, although said expense was collected from
the defendant. I the launch was not bought for the plaintiffs and with their
money, it is not explained why they had to pay for its repairs.
The defendant invokes the decision of this Court in the case of Martinez vs.
Martinez (1 Phil. Rep., 647), which we do not believe is applicable to the present
case. In said case, Martinez, Jr., bought a vessel in his own name and in his name
registered it at the Custom House. This court then said that although the funds
with which the vessel was bought belonged to Martinez Sr., Martinez Jr. is its sole
and exclusive owner. But in said case the relation of principal and agent, which
exists between the plaintiffs and the defendant in the present case, did not exist
between Martinez, Sr., and Martinez, Jr. By this agency the plaintiffs herein
clothed the defendant with their representation in order to purchase the launch
in question. However, the defendant acted without this representation and
bought the launch in his own name thereby violating the agency. If the result of
this transaction should be that the defendant has acquired for himself the
ownership of the launch, it would be equivalent to sanctioning this violation and
accepting its consequences. But not only must the consequences of the violation
of this agency not be accepted, but the effects of the agency itself must be
sought. If the defendant contracted the obligation to but the launch for the
plaintiffs and in their representation, but virtue of the agency, notwithstanding
the fact that he bought it in his own name, he is obliged to transfer to the
plaintiffs the rights he received from the vendor, and the plaintiffs are entitled to
be subrogated in these rights.
There is another point of view leading us to the same conclusion. From the rule
established in article 1717 of the Civil Code that, when an agency acts in his own
name, the principal shall have no right of action against the person with whom
the agent has contracted, cases involving things belonging to the principal are
excepted. According to this exception (when things belonging to the principal are
dealt with) the agent is bound to the principal although he does not assume the
character of such agent and appears acting in his own name (Decision of the
Supreme Court of Spain, May 1, 1900). This means that in the case of this
exception the agent's apparent representation yields to the principal's true
representation and that, in reality and in effect, the contract must be considered
as entered into between the principal and the third person; and, consequently, if
the obligations belong to the former, to him alone must also belong the rights
arising from the contract. The money with which the launch was bough having
come from the plaintiff, the exception established in article 1717 is applicable to
the instant case.

Concerning the casco No. 2584, the defendant admits it was constructed by the
plaintiff himself in the latter's ship-yard. Defendant's allegation that it was
constructed at his instance and with his money is not supported by the evidence.
In fact the only proof presented to support this allegation is his own testimony
contradicted, on the on hand, by the plaintiffs' testimony and, on the other hand,
rebutted by the fact that, on the date this casco was constructed, he did not
have sufficient money with which to pay the expense of this construction.
As to the automobile No. 2060, there is sufficient evidence to show that its prices
was paid with plaintiffs' money. Defendant's adverse allegation that it was paid
with his own money is not supported by the evidence. The circumstances under
which, he says, this payment has been made, in order to show that it was made
with his own money, rather indicate the contrary. He presented in evidence his
check-book wherein it appears that on March 24, 1916, he issued a check for
P300 and on the 27th of same month another for P400 and he says that the first
installment was paid with said checks. But it results that, in order to issue the
check for P300 on March 24 of that year, he had to deposit P310 on that same
day; and in order to issue the other check for P400 on the 27th of the same
month, he deposited P390 on that same day. It was necessary for the defendant
to make these deposits for on those dates he had not sufficient money in the
bank for which he could issue those checks. But, in order to pay for the price of
the automobile, he could have made these payments directly with the money he
deposited without the necessity of depositing and withdrawing it on the same
day. If this action shows something, it shows defendant's preconceived purpose
of making it appear that he made the payment with his own funds deposited in
the bank.
The plaintiffs, in turn, assign in this instance the following three errors alleged to
have been committed by the lower court:
1. The court erred in not declaring that the plaintiffs did not sell to the
defendant the casco No. 2545 and that they were its owners until it was
sunk in June, 1916.
2. The court erred in absolving the defendant from his obligation to render
an account of his administration to the plaintiffs, and to pay to the latter
the amount of the balance due in their favor.
3. The court erred in not condemning the defendant to pay to the plaintiffs
the value of the woods, windows and doors taken from their lumber-year
by the defendant and used in the construction of the house on calle Real
of the barrio of La Concepcion, municipality of Malabon, Rizal.
Concerning the casco No. 2545, the lower court refrained from making any
declaration about its ownership in view of the fact that this casco had been
leased and was sunk while in the lessee's hands before the complaint in this case
was filed. The lower court, therefore, considered it unnecessary to pass upon this
point. We agree with the plaintiffs that the trial court should have made a
pronouncement upon this casco. The lessee may be responsible in damages for
its loss, and it is of interest to the litigants in this case that it be determined who
is the owner of said casco that may enforce this responsibility of the lessee.

Upon an examination of the evidence relative to this casco, we find that it

belonged to the plaintiffs and that the latter sold it afterwards to the defendant
by means of a public instrument. Notwithstanding plaintiffs' allegation that when
they signed this instrument they were deceived, believing it not to be an
instrument of sale in favor of the defendant, nevertheless, they have not
adduced sufficient proof of such deceit which would destroy the presumption of
truth which a public document carries with it. Attorney Sevilla, who acted as the
notary in the execution of this instrument, testifying as a witness in the case,
said that he never verified any document without first inquiring whether the
parties knew its content. Our conclusion is that this casco was lawfully sold to
the defendant by the plaintiffs.
Concerning the wood, windows and doors given by the plaintiffs to the defendant
and used in the construction of the latter's house on calle Real of the barrio of La
Concepcion of the municipality of Malabon, Rizal, we find correct the trial Court's
decision that they were given to the defendant as his and his wife's property.
Concerning the rendition of accounts which the plaintiffs require of the
defendant, we likewise find correct the trial court's decision absolving the latter
from this petition, for it appears, from the plaintiffs' own evidence, that the
defendant used to render accounts of his agency after each transactions, to the
plaintiffs' satisfaction.
From the foregoing considerations, we affirm the judgment appealed from in all
its parts except in so far as thecasco No. 2545 is concerned, and as to this we
declare that, it having been sold by the plaintiffs to the defendant, the latter is
absolved. No special findings as to costs. So ordered.
Arellano, C.J., Torres, Johnson, Araullo, Street and Malcolm, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-39037

October 30, 1933

THE PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
PAZ AGUDELO Y GONZAGA, ET AL., defendants.
PAZ AGUDELO Y GONZAGA, appellant.
Hilado and Hilado and Norberto Romualdez for appellant.
Roman J. Lacson for appellee.

VILLA-REAL, J.:
The defendant Paz Agudelo y Gonzaga appeals to this court from the
judgment rendered by the Court of First Instance of Occidental Negros, the
dispositive part of which reads as follows:

Wherefore, judgment is rendered herein absolving the defendant

Mauro A. Garrucho from the complaint and ordering the defendant Paz
Agudelo y Gonzaga to pay to the plaintiff the sum of P31,091.55,
Philippine currency, together with the interest on the balance of
P20,774.73 at 8 per cent per annum of P4.55 daily from July 16, 1929,
until fully paid, plus the sum of P1,500 as attorney's fees, and the costs of
this suit.
It is hereby ordered that in case the above sums adjudged in favor
of the defendant by virtue of this judgment are not paid to the Philippine
National Bank or deposited in the office of the clerk of this court, for
delivery to the plaintiff, within three months from the date of this decision,
the provincial sheriff of Occidental Negros shall set at public auction the
mortgaged properties described in annex E of the second amended
complaint, and apply the proceeds thereof to the payment of the sums in
question.
It is further ordered that in case the proceeds of the mortgaged
properties are not sufficient to cover the amount of this judgment, a writ
of execution be issued against any other property belonging to the
defendant Paz Agudelo y Gonzaga, not otherwise exempt from execution,
to cover the balance resulting therefrom.
In support of her appeal, the appellant assigns six alleged errors as
committed by the trial court, which we shall discuss in the course of this
decision.
The following pertinent facts, which have been proven without dispute
during the trial, are necessary for the decision of the questions raised in the
present appeal, to wit:
On November 9, 1920, the defendant-appellant Paz Agudelo y Gonzaga
executed in favor of her nephew, Mauro A. Garrucho, the document Exhibit K
conferring upon him a special power of attorney sufficiently broad in scope to
enable him to sell, alienate and mortgage in the manner and form he might
deem convenient, all her real estate situated in the municipalities of Murcia and
Bacolod, Occidental Negros, consisting in lots Nos. 61 and 207 of the cadastral
survey of Bacolod, Occidental Negros, together with the improvement thereon.
On December 22, 1920, Amparo A. Garrucho executed the document
Exhibit H whereby she conferred upon her brother Mauro A Garrucho a special
power of attorney sufficiently broad in scope to enable him to sell, alienate,
mortgage or otherwise encumber, in the manner and form he might deem
convenient, all her real estate situated in the municipalities of Murcia and Bago,
Occidental Negros.
Nothing in the aforesaid powers of attorney expressly authorized Mauro A.
Garrucho to contract any loan nor to constitute a mortgage on the properties
belonging to the respective principals, to secure his obligations.
On December 23, 1920, Mauro A. Garrucho executed in the favor of the
plaintiff entity, the Philippine National bank, the document Exhibit G, whereby he
constituted a mortgage on lot No. 878 of the cadastral survey of Murcia,

Occidental Negros, with all the improvements thereon, described in transfer

certificate of title No. 2415 issued in the name of Amparo A. Garrucho, to secure
the payment of credits, loans, commercial overdrafts, etc., not exceeding P6,000,
together with interest thereon, which he might obtain from the aforesaid plaintiff
entity, issuing the corresponding promissory note to that effect.
During certain months of the year 1921 and 1922, Mauro A. Garrucho
maintained a personal current account with the plaintiff bank in the form of a
commercial credit withdrawable through checks (Exhibits S, 1 and T).
On August 24, 1931, the said Mauro A. Garrucho executed in favor of the
plaintiff entity, the Philippine National Bank, the document Exhibit J whereby he
constituted a mortgage on lots Nos. 61 and 207 of the cadastral survey of
Bacolod together with the buildings and improvements thereon, described in
original certificates of title Nos. 2216 and 1148, respectively, issued in the name
of Paz Agudelo y Gonzaga, to secure the payment of credits, loans and
commercial overdrafts which the said bank might furnish him to the amount of
P16,00, payable on August 24, 1922, executing the corresponding promissory
note to that effect.
The mortgage deeds Exhibit G and J as well as the corresponding
promissory notes for P6,000 and P16,000, respectively, were executed in Mauro
A. Garrucho's own name and signed by him in his personal capacity, authorizing
the mortgage creditor, the Philippine National Bank, to take possession of the
mortgaged properties, by means of force if necessary, in case he failed to
comply with any of the conditions stipulated therein.
On January 4, 1922, the manager of the Iloilo branch of the Philippine
National Bank notified Mauro A. Garrucho that his promissory note for P6,000 of
10 days within which to make payment thereof (Exhibit O).1awphil.net
On May 9, 1922, the said manager notified Mauro A. Garrucho that his
commercial credit was closed from that date (Exhibit S).
Inasmuch as Mauro A. Garrucho had overdrawn his credit with the plaintiffappellee, the said manager thereof, in a letter dated June 27, 1922 (Exhibit T),
requested him to liquidate his account amounting to P15,148.15, at the same
time notifying him that his promissory note for P16,000 giving as security for the
commercial overdraft in question, had fallen due some time since.
On July 15, 1922, Mauro A. Garrucho, executed in favor of the plaintiff
entity the deed Exhibit C whereby he constituted a mortgage on lots Nos. 61 and
207 of the cadastral survey of Bacolod, together with the improvements thereon,
described in transfer certificates of title Nos. 2216 and 1148, respectively, issued
in the name of Paz Agudelo y Gonzaga, and on lot No. 878 of the cadastral
survey of Murcia, described in transfer certificate of title No. 2415, issued in the
name of Amparo A. Garrucho.
In connection of the credits, loans, and commercial overdrafts amounting
to P21,000 which had been granted him, Mauro A. Garrucho, on the said date July
15, 1922, executed the promissory note, Exhibit B, for P21,000 as a novation of
the former promissory notes for P6,000 and P16,000, respectively.

In view of the aforesaid consolidated mortgage, Exhibit C, the Philippine

National Bank, on the said date of July 15, 1922, cancelled the mortgages
constituted on lots Nos. 61, 207 and 878 described in Torrens titles Nos. 2216,
1148 and 2415, respectively.
On November 25, 1925, Amparo A. Garrucho sold lot No. 878 described in
certificate of title No. 2415, to Paz Agudelo y Gonzaga (Exhibit M).
On January 15, 1926, in the City of Manila, Paz Agudelo y Gonzaga signed
the affidavit, Exhibit N, which reads as follows:
Know all men by these presents: That I, Paz Agudelo y Gonzaga,
single, of age, and resident of the City of Manila, P. I., by these present do
hereby agree and consent to the transfer in my favor of lot No. 878 of the
Cadastre of Murcia, Occidental Negros, P. I., by Miss Amparo A. Garrucho,
as evidenced by the public instrument dated November 25, 1925,
executed before the notary public Mr. Genaro B. Benedicto, and do hereby
further agree to the amount of the lien thereon stated in the mortgage
deed executed by Miss Amparo A. Garrucho in favor of the Philippine
National Bank.
In testimony whereof, I hereunto affix my signature in the City of
Manila, P.I., this 15th of January, 1926.
(Sgd.) PAZ AGUDELO Y GONZAGA.
Pursuant to the sale made by Amparo A. Garrucho in favor of Paz Agudelo
y Gonzaga, of lot No. 878 of the cadastral survey of Murcia, described in
certificate of title No. 2145 issued in the name of said Amparo A. Garrucho, and
to the affidavit, Exhibit N, transfer certificate of title No. 5369 was issued in the
name of Paz Agudelo y Gonzaga.
Without discussing and passing upon whether or not the powers of
attorney issued in favor of Mauro A. Garrucho by his sister, Amparo A. Garrucho,
and by his aunt, Paz Agudelo y Gonzaga, respectively, to mortgage their
respective real estate, authorized him to obtain loans secured by mortgage in
the properties in question, we shall consider the question of whether or not Paz
Agudelo y Gonzaga is liable for the payment of the loans obtained by Mauro A.
Garrucho from the Philippine National Bank for the security of which he
constituted a mortgage on the aforesaid real estate belonging to the defendantappellant Paz Agudelo y Gonzaga.
Article 1709 of the Civil Code provides the following:
ART. 1709. By the contract of agency, one person binds himself to
render some service, or to do something for the account or at the request
of another.
And article 1717 of the same Code provides as follows:
ART. 1717. When an agent acts in his own name, the principal shall
have no right of action against the persons with whom the agent has
contracted, or such persons against the principal.

In such case, the agent is directly liable to the person with whom he
has contracted, as if the transaction were his own. Cases involving things
belonging to the principal are excepted.
The provisions of this article shall be understood to be without
prejudice to actions between principal and agent.
Aside from the phrases "attorney in fact of his sister, Amparo A. Garrucho,
as evidenced by the power of attorney attached hereto" and "attorney in fact of
Paz Agudelo y Gonzaga" written after the name of Mauro A. Garrucho in the
mortgage deeds, Exhibits G. and J, respectively, there is nothing in the said
mortgage deeds to show that Mauro A. Garrucho is attorney in fact of Amparo A.
Garrucho and of Paz Agudelo y Gonzaga, and that he obtained the loans
mentioned in the aforesaid mortgage deeds and constituted said mortgages as
security for the payment of said loans, for the account and at the request of said
Amparo A. Garrucho and Paz Agudelo y Gonzaga. The above-quoted phrases
which simply described his legal personality, did not mean that Mauro A.
Garrucho obtained the said loans and constituted the mortgages in question for
the account, and at the request, of his principals. From the titles as well as from
the signatures therein, Mauro A. Garrucho, appears to have acted in his personal
capacity. In the aforesaid mortgage deeds, Mauro A. Garrucho, in his capacity as
mortgage debtor, appointed the mortgage creditor Philippine National Bank as
his attorney in fact so that it might take actual and full possession of the
mortgaged properties by means of force in case of violation of any of the
conditions stipulated in the respective mortgage contracts. If Mauro A. Garrucho
acted in his capacity as mere attorney in fact of Amparo A. Garrucho and of Paz
Agudelo y Gonzaga, he could not delegate his power, in view of the legal
principle of"delegata potestas delegare non potest" (a delegated power cannot
be delegated), inasmuch as there is nothing in the records to show that he has
been expressly authorized to do so.
He executed the promissory notes evidencing the aforesaid loans, under
his own signature, without authority from his principal and, therefore, were not
binding upon the latter (2 Corpus Juris, pp. 630-637, par. 280). Neither is there
anything to show that he executed the promissory notes in question for the
account, and at the request, of his respective principals (8 Corpus Juris, pp. 157158).
Furthermore, it is noted that the mortgage deeds, Exhibits C and J, were
cancelled by the documents, Exhibits I and L, on July 15, 1922, and in their stead
the mortgage deed, Exhibit C, was executed, in which there is absolutely no
mention of Mauro A. Garrucho being attorney in fact of anybody, and which
shows that he obtained such credit fro himself in his personal capacity and
secured the payment thereof by mortgage constituted by him in his personal
capacity, although on properties belonging to his principal Paz Agudelo y
Gonzaga.
Furthermore, the promissory notes executed by Mauro A. Garrucho in favor
of the Philippine National Bank, evidencing loans of P6,000 and P16,000 have
been novated by the promissory notes for P21,000 (Exhibit B) executed by Mauro
A. Garrucho, not only without express authority from his principal Paz Agudelo y
Gonzaga but also under his own signature.

In the case of National Bank vs. Palma Gil (55 Phil., 639), this court laid
down the following doctrine:
A promissory note and two mortgages executed by the agent for
and on behalf of his principal, in accordance with a power of attorney
executed by the principal in favor of the agent, are valid, and as provided
by article 1727 of contracted by the agent; but a mortgage on real
property of the principal not made and signed in the name of the principal
is not valid as to the principal.
It has been intimated, and the trial judge so stated. that it was the
intention of the parties that Mauro A. Garrucho would execute the promissory
note, Exhibit B, and the mortgage deed, Exhibit C, in his capacity as attorney in
facts of Paz Agudelo y Gonzaga, and that although the terms of the aforesaid
documents appear to be contrary to the intention of the parties, such intention
should prevail in accordance with article 1281 of the Civil Code.
Commenting on article 1281 of the Civil Code, Manresa, in his
Commentaries to the Civil Code, says the following:
IV. Intention of the contracting parties; its appreciation. In order
that the intention may prevail, it is necessary that the question of
interpretation be raised, either because the words used appear to be
contrary thereto, or by the existence of overt acts opposed to such words,
in which the intention of the contracting parties is made manifest.
Furthermore, in order that it may prevail against the terms of the contract,
it must be clear or, in other words, besides the fact that such intention
should be proven by admissible evidence, the latter must be of such
charter as to carry in the mind of the judge an unequivocal conviction.
This requisite as to the kind of evidence is laid down in the decision
relative to the Mortgage Law of September 30, 1891, declaring that article
1281 of the Civil Code gives preference to intention only when it is clear.
When the aforesaid circumstances is not present in a document, the only
thing left for the register of deeds to do is to suspend the registration
thereof, leaving the solution of the problem to the free will of the parties or
to the decision of the courts.
However, the evident intention which prevails against the defective
wording thereof is not that of one of the parties, but the general intent,
which, being so, is to a certain extent equivalent to mutual consent,
inasmuch as it was the result desired and intended by the contracting
parties. (8 Manresa, 3d edition, pp. 726 and 727.)
Furthermore, the records do not show that the loan obtained by Mauro A.
Garrucho, evidenced by the promissory note, Exhibit B, was for his principal Paz
Agudelo y Gonzaga. The special power of attorney, Exhibit K, does not authorize
Mauro A. Garrucho to constitute a mortgage on the real estate of his principal to
secure his personal obligations. Therefore, in doing so by virtue of the document,
Exhibit C, he exceeded the scope if his authority and his principal is not liable for
his acts. (2 Corpus Juris, p. 651; article 1714, Civil Code.)
It is further claimed that inasmuch as the properties mortgaged by Mauro
A. Garrucho belong to Paz Agudelo y Gonzaga, the latter is responsible for the

acts of the former although he acted in his own name, in accordance with the
exception contained in article 1717 of the Civil Code. It would be an exception
with the properties of his own name in connection with the properties of his
principal, does so within the scope of his authority. It is noted that Mauro A.
Garrucho was not authorized to execute promissory notes even in the name of
his principal Paz Agudelo y Gonzaga, nor to constitute a mortgage on her real
properties to secure such promissory notes. The plaintiff Philippine National Bank
should know this inasmuch as it is in duty bound to ascertain the extent of the
agent's authority before dealing with him. Therefore, Mauro A. Garrucho and not
Paz Agudelo y Gonzaga is personally liable for the amount of the promissory note
Exhibit B. (2 Corpus Juris, pp. 563-564.)
However, Paz Agudelo y Gonzaga in an affidavit dated January 15, 1926
(Exhibit AA), and in a letter dated January 16, 1926 (Exhibit Z), gave her consent
to the lien on lot No. 878 of the cadastre of Murcia, Occidental Negros, described
in Torrens title No. 5369, the ownership of which was transferred to her by her
niece Amparo A. Garrucho. This acknowledgment, however, does not extend to
lots Nos. 207 and 61 of the cadastral survey of Bacolod, described in transfer
certificates of title Nos. 1148 and 2216, respectively, inasmuch as, although it is
true that a mortgage is indivisible as to the contracting parties and as top their
successors in interest (article 1860, Civil Code), it is not so with respect to a third
person who did not take part in the constitution thereof either personally or
through an agent, inasmuch as he can make the acknowledgment thereof in the
form and to the extent he may deem convenient, on the ground that he is not in
duty bound to acknowledge the said mortgage. Therefore, the only liability of the
defendant-appellant Paz Agudelo y Gonzaga is that which arises from the
aforesaid acknowledgment, but only with respect to the lien and not to the
principal obligation secured by the mortgage acknowledged by her to have been
constituted on said lot No. 878 of the cadastral survey of Murcia, Occidental
Negros. Such liability is not direct but a subsidiary one.
Having reach this contention, it is unnecessary to pass upon the other
questions of law raised by the defendant- appellant in her brief and upon the law
cited therein.
In view of the foregoing consideration, we are of the opinion and so hold
that when an agent negotiates a loan in his personal capacity and executes a
promissory note under his own signature, without express authority from his
principal, giving as security therefor real estate belonging to the letter, also in his
own name and not in the name and representation of the said principal, the
obligation do constructed by him is personal and does not bind his aforesaid
principal.
Wherefore, it is hereby held that the liability constructed by the aforesaid
defendant-appellant Paz Agudelo y Gonzaga is merely subsidiary to that of Mauro
A. Garrucho, limited lot No. 878 of the cadastral survey of Murcia, Occidental
Negros, described in Torrens title No. 2415. However, inasmuch as the principal
obligator, Mauro A. Garrucho, has been absolved from the complaint and the
plaintiff- appellee has not appealed from the judgment absolving him, the law
does not afford any remedy whereby Paz Agudelo y Gonzaga may be required to
comply with the said subsidiary obligation in view of the legal maxim that the
accessory follows the principal. Wherefore, the defendant herein should also be
absolved from the complaint which is hereby dismissed, with the costs against
the appellee. So ordered.

Avancea, C.J., Malcolm, Hull, and Imperial, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-19001

November 11, 1922

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

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

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

Folio No. 2494

Mr. DOMINGO RODRIGUEZ,

Iloilo, Iloilo, P.I.
In account with
HARRY E. KEELER ELECTRIC COMPANY, INC.
221 Calle Echaque, Quiapo, Manila, P.I.
MANILA, P.I., August 18, 1920.
The answer alleges and the receipt shows upon its face that the plaintiff
sold the plant to the defendant, and that he bought it from the plaintiff. The
receipt is signed as follows:
Received payment
HARRY E. KEELER ELECTRIC CO. Inc.,
Recibi
(Sgd.) A. C. MONTELIBANO.
There is nothing on the face of this receipt to show that Montelibano was
the agent of, or that he was acting for, the plaintiff. It is his own personal receipt
and his own personal signature. Outside of the fact that Montelibano received
the money and signed this receipt, there is no evidence that he had any
authority, real or apparent, to receive or receipt for the money. Neither is there
any evidence that the plaintiff ever delivered the statement to Montelibano, or
authorized anyone to deliver it to him, and it is very apparent that the statement
in question is the one which was delivered by the plaintiff to Cenar, and is the
one which Cenar delivered to the defendant at the request of the defendant.
The evidence of the defendant that Montelibano was the one who sold him
the plant is in direct conflict with his own pleadings and the receipt statement
which he offered in evidence. This statement also shows upon its face that
P81.60 of the bill is for:
To Passage round trip, 1st Class @
P40.80 a trip ........................................... P81.60.
Plus Labor @ P5.00 per day
Machine's transportation ................. 9.85.
This claim must be for the expenses of Cenar in going to Iloilo from Manila
and return, to install the plant, and is strong evidence that it was Cenar and not
Montelibano who installed the plant. If Montelibano installed the plant, as
defendant claims, there would not have been any necessity for Cenar to make
this trip at the expense of the defendant. After Cenar's return to Manila, the
plaintiff wrote a letter to the defendant requesting the payment of its account, in
answer to which the defendant on September 24 sent the following telegram:
Electric plant accessories and installation are paid to Montelibano
about three weeks Keeler Company did not present bill.
This is in direct conflict with the receipted statement, which the defendant
offered in evidence, signed by Montelibano. That shows upon its face that it was
an itemized statement of the account of plaintiff with the defendant. Again, it will

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

not easily to be overestimated, that persons dealing with an assumed

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

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 94566 July 3, 1992

BA FINANCE CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and TRADERS ROYAL BANK, respondents.

MEDIALDEA, J.:
This is a petition for review on certiorari of the decision of the respondent
appellate court which reversed the ruling of the trial court dismissing the case
against petitioner.
The antecedent facts are as follows:
On December 17, 1980, Renato Gaytano, doing business under the name Gebbs
International, applied for and was granted a loan with respondent Traders Royal
Bank in the amount of P60,000.00. As security for the payment of said loan, the
Gaytano spouses executed a deed of suretyship whereby they agreed to pay
jointly and severally to respondent bank the amount of the loan including
interests, penalty and other bank charges.
In a letter dated December 5, 1980 addressed to respondent bank, Philip Wong
as credit administrator of BA Finance Corporation for and in behalf of the latter,
undertook to guarantee the loan of the Gaytano spouses. The letter reads:
This is in reference to the application of Gebbs International for a
twenty-five (25) month term loan of 60,000.00 with your Bank.
In this connection, please be advised that we unconditionally
guarantee full payment in peso value the said accommodation (sic)
upon non-payment by subject up to a maximum amount of
P60,000.00.
Hoping this would meet your requirement and expedite the early
processing of their application.
Thank you.
Very truly yours,
BA FINANCE CORPORATION

(signed)
PHILIP H. WONG
Credit Administrator
(p. 12, Rollo)
Partial payments were made on the loan leaving an unpaid balance in the
amount of P85,807.25. Since the Gaytano spouses refused to pay their
obligation, respondent bank filed with the trial court complaint for sum of money
against the Gaytano spouses and petitioner corporation as alternative defendant.
The Gaytano spouses did not present evidence for their defense. Petitioner
corporation, on the other hand, raised the defense of lack of authority of its
credit administrator to bind the corporation.
On December 12, 1988, the trial court rendered a decision the dispositive portion
of which states:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor
of plaintiff and against defendants/Gaytano spouses, ordering the
latter to jointly and severally pay the plaintiff the following:
1) EIGHTY FIVE THOUSAND EIGHT HUNDRED SEVEN AND 25/100
(P85,807.25), representing the total unpaid balance with
accumulated interests, penalties and bank charges as of September
22, 1987, plus interests, penalties and bank charges thereafter until
the whole obligation shall have been fully paid.
2) Attorney's fees at the stipulated rate of ten (10%) percent
computed from the total obligation; and
3) The costs of suit.
The dismissal of the case against defendant BA Finance Corporation
is hereby ordered without pronouncement as to cost.
SO ORDERED. (p. 31, Rollo)
Not satisfied with the decision, respondent bank appealed with the Court of
Appeals. On March 13, 1990, respondent appellate court rendered judgment
modifying the decision of the trial court as follows:
In view of the foregoing, the judgment is hereby rendered ordering
the defendants Gaytano spouses and alternative defendant BA
Finance Corporation, jointly and severally, to pay the plaintiff the
amount of P85,807.25 as of September 8, 1987, including interests,
penalties and other back (sic) charges thereon, until the full
obligation shall have been fully paid. No pronouncement as to costs.
SO ORDERED. (p. 27 Rollo)
Hence this petition was filed with the petitioner assigning the following errors
committed by respondent appellate court:

1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING

THAT PETITIONER IS JOINTLY AND SEVERALLY LIABLE WITH GAYTANO
SPOUSES DESPITE ITS FINDINGS THAT THE LETTER GUARANTY (EXH.
"C") IS "INVALID AT ITS INCEPTION";
2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING
THAT THE PETITIONER WAS GUILTY OF ESTOPPEL DESPITE THE FACT
THAT IT NEVER KNEW OF SUCH ALLEGED LETTER-GUARANTY;
3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT
RULING THAT SUCH LETTER GUARANTY (EXHIBIT "C") BEING
PATENTLY ULTRA VIRES, IS UNENFORCEABLE;
4. THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING
RELIEF ON PETITIONER'S COUNTERCLAIM
(p. 10, Rollo).
Since the issues are interrelated, it would be well to discuss them jointly.
Petitioner contends that the letter guaranty is ultra vires, and therefore
unenforceable; that said letter-guaranty was issued by an employee of petitioner
corporation beyond the scope of his authority since the petitioner itself is not
even empowered by its articles of incorporation and by-laws to issue guaranties.
Petitioner also submits that it is not guilty of estoppel to make it liable under the
letter-guaranty because petitioner had no knowledge or notice of such letterguaranty; that the allegation of Philip Wong, credit administrator, that there was
an audit was not supported by evidence of any audit report or record of such
transaction in the office files.
We find the petitioner's contentions meritorious. It is a settled rule that persons
dealing with an assumed agent, whether the assumed agency be a general or
special one are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority,
and in case either is controverted, the burden of proof is upon them to establish
it (Harry Keeler v. Rodriguez, 4 Phil. 19). Hence, the burden is on respondent
bank to satisfactorily prove that the credit administrator with whom they
transacted acted within the authority given to him by his principal, petitioner
corporation. The only evidence presented by respondent bank was the testimony
of Philip Wong, credit administrator, who testified that he had authority to issue
guarantees as can be deduced from the wording of the memorandum given to
him by petitioner corporation on his lending authority. The said memorandum
which allegedly authorized Wong not only to approve and grant loans but also to
enter into contracts of guaranty in behalf of the corporation, partly reads:
To: Philip H. Wong, SAM
Credit Administrator
From: Hospicio B. Bayona, Jr., VP and
Head of Credit Administration
Re: Lending Authority

I am pleased to delegate to you in your capacity as Credit

Administrator the following lending limits:
a) P650,000.00 Secured Loans
b) P550,000.00 Supported Loans
c) P350,000.00 Truck Loans/Contracts/Leases
d) P350,000.00 Auto Loan Contracts/Leases
e) P350,000.00 Appliance Loan Contracts
f) P350,000.00 Unsecured Loans
Total loans and/or credits [combination of (a) thru (f) extended to
any one borrower including parents, affiliates and/or subsidiaries,
should not exceed P750,000.00. In exercising the limits
aforementioned, both direct and contingent commitments to the
borrower(s) should be considered.
All loans must be within the Company's established lending
guideline and policies.
xxx xxx xxx
LEVELS OF APPROVAL
All transactions in excess of any branch's limit must be
recommended to you through the Official Credit Report for approval.
If the transaction exceeds your limit, you must concur in application
before submitting it to the Vice President, Credit Administration for
approval or concurrence.
. . . (pp. 62-63, Rollo) (Emphasis ours)
Although Wong was clearly authorized to approve loans even up to P350,000.00
without any security requirement, which is far above the amount subject of the
guaranty in the amount of P60,000.00, nothing in the said memorandum
expressly vests on the credit administrator power to issue guarantees. We
cannot agree with respondent's contention that the phrase "contingent
commitment" set forth in the memorandum means guarantees. It has been held
that a power of attorney or authority of an agent should not be inferred from the
use of vague or general words. Guaranty is not presumed, it must be expressed
and cannot be extended beyond its specified limits (Director v. Sing Juco, 53 Phil.
205). In one case, where it appears that a wife gave her husband power of
attorney to loan money, this Court ruled that such fact did not authorize him to
make her liable as a surety for the payment of the debt of a third person (Bank of
Philippine Islands v. Coster, 47 Phil. 594).
The sole allegation of the credit administrator in the absence of any other proof
that he is authorized to bind petitioner in a contract of guaranty with third
persons should not be given weight. The representation of one who acts as agent
cannot by itself serve as proof of his authority to act as agent or of the extent of
his authority as agent (Velasco v. La Urbana, 58 Phil. 681). Wong's testimony that
he had entered into similar transactions of guaranty in the past for and in behalf
of the petitioner, lacks credence due to his failure to show documents or records
of the alleged past transactions. The actuation of Wong in claiming and testifying

that he has the authority is understandable. He would naturally take steps to

save himself from personal liability for damages to respondent bank considering
that he had exceeded his authority. The rule is clear that an agent who exceeds
his authority is personally liable for damages (National Power Corporation v.
National Merchandising Corporation, Nos. L-33819 and
L-33897, October 23, 1982, 117 SCRA 789).
Anent the conclusion of respondent appellate court that petitioner is estopped
from alleging lack of authority due to its failure to cancel or disallow the
guaranty, We find that the said conclusion has no basis in fact. Respondent bank
had not shown any evidence aside from the testimony of the credit administrator
that the disputed transaction of guaranty was in fact entered into the official
records or files of petitioner corporation, which will show notice or knowledge on
the latter's part and its consequent ratification of the said transaction. In the
absence of clear proof, it would be unfair to hold petitioner corporation guilty of
estoppel in allowing its credit administrator to act as though the latter had power
to guarantee.
ACCORDINGLY, the petition is GRANTED and the assailed decision of the
respondent appellate court dated March 13, 1990 is hereby REVERSED and SET
ASIDE and another one is rendered dismissing the complaint for sum of money
against BA Finance Corporation.
SO ORDERED.
Cruz, Grio-Aquino and Bellosillo, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 114091 June 29, 1995

BACALTOS COAL MINES and GERMAN A. BACALTOS, petitioners,
vs.
HON. COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

DAVIDE, JR., J.:

Petitioners seek the reversal of the decision of 30 September 1993 of the Court
of Appeals in CA-G.R. CV No. 35180, 1 entitled "San Miguel Corporation vs.
Bacaltos Coal Mines, German A. Bacaltos and Rene R. Savellon," which affirmed
the decision of 19 August 1991 of the Regional Trial Court (RTC) of Cebu, Branch
9, in Civil Case No. CEB-8187 2 holding petitioners Bacaltos Coal Mines and
German A. Bacaltos and their co-defendant Rene R. Savellon jointly and severally
liable to private respondent San Miguel Corporation under a Trip Charter Party.

The paramount issue raised is whether Savellon was duly authorized by the
petitioners to enter into the Trip Charter Party (Exhibit "A") 3 under and by virtue
of an Authorization (Exhibit "C" and Exhibit "1"), 4 dated 1 March 1988, the
pertinent portions of which read as follows:
I. GERMAN A. BACALTOS, of legal age, Filipino, widower, and residing
at second street, Espina Village, Cebu City, province of Cebu,
Philippines, do hereby authorize RENE R. SAVELLON, of legal age,
Filipino and residing at 376-R Osmea Blvd., Cebu City, Province of
Cebu, Philippines, to use the coal operating contract of BACALTOS
COAL MINES of which I am the proprietor, for any legitimate purpose
that it may serve. Namely, but not by way of limitation, as follows:
(1) To acquire purchase orders for and in behalf of
BACALTOS COAL MINES;
(2) To engage in trading under the style of BACALTOS
COAL MINES/RENE SAVELLON;
(3) To collect all receivables due or in arrears from
people or companies having dealings under BACALTOS
COAL MINES/RENE SAVELLON;
(4) To extend to any person or company by substitution
the same extent of authority that is granted to Rene
Savellon;
(5) In connection with the preceeding paragraphs to
execute and sign documents, contracts, and other
pertinent papers.
Further, I hereby give and grant to RENE SAVELLON full authority to
do and perform all and every lawful act requisite or necessary to
carry into effect the foregoing stipulations as fully to all intents and
purposes as I might or would lawfully do if personally present, with
full power of substitution and revocation.
The Trip Charter Party was executed on 19 October 1988 "by and between
BACALTOS COAL MINES, represented by its Chief Operating Officer, RENE ROSEL
SAVELLON" and private respondent San Miguel Corporation (hereinafter SMC),
represented by Francisco B. Manzon, Jr., its "SAVP and Director, Plant OperationsMandaue" Thereunder, Savellon claims that Bacaltos Coal Mines is the owner of
the vessel M/V Premship II and that for P650,000.00 to be paid within seven days
after the execution of the contract, it "lets, demises" the vessel to charterer SMC
"for three round trips to Davao."
As payment of the aforesaid consideration, SMC issued a check (Exhibit
"B") 5 payable to "RENE SAVELLON IN TRUST FOR BACALTOS COAL MINES" for
which Savellon issued a receipt under the heading of BACALTOS COAL MINES
with the address at No 376-R Osmea Blvd., Cebu City (Exhibit "B-1"). 6
The vessel was able to make only one trip. Its demands to comply with the
contract having been unheeded, SMC filed against the petitioners and Rene

Savellon the complaint in Civil Case No. CEB-8187 for specific performance and
damages. In their Answer, 7 the petitioners alleged that Savellon was not their
Chief Operating Officer and that the powers granted to him are only those clearly
expressed in the Authorization which do not include the power to enter into any
contract with SMC. They further claimed that if it is true that SMC entered into a
contract with them, it should have issued the check in their favor. They setup
counterclaims for moral and exemplary damages and attorney's fees.
Savellon did not file his Answer and was declared in default on 17 July 1990.

At the pre-trial conference on 1 February 1991, the petitioners and SMC agreed
to submit the following issues for resolution:
Plaintiff
1. Whether or not defendants are jointly liable to plaintiff for
damages on account of breach of contract;
2. Whether or not the defendants acted in good faith in its
representations to the plaintiff;
3. Whether or not defendant Bacaltos was duly enriched on the
payment made by the plaintiff for the use of the vessel;
4. Whether or not defendant Bacaltos is estopped to deny the
authorization given to defendant Savellon;
Defendants
1. Whether or not the plaintiff should have first investigated the
ownership of vessel M/V PREM [SHIP] II before entering into any
contract with defendant Savellon;
2. Whether or not defendant Savellon was authorized to enter into a
shipping contract with the [plaintiff] corporation;
3. Whether or not the plaintiff was correct and not mistaken in
issuing the checks in payment of the contract in the name of
defendant Savellon and not in the name of defendant Bacaltos Coal
Mines;
4. Whether or not the plaintiff is liable on defendants'
counterclaim. 9
After trial, the lower court rendered the assailed decision in favor of SMC and
against the petitioners and Savellon as follows:
WHEREFORE, by preponderance of evidence, the Court hereby
renders judgment in favor of plaintiff and against defendants,
ordering defendants Rene Savellon, Bacaltos Coal Mines and
German A. Bacaltos, jointly and severally, to pay to plaintiff:

1. The amount of P433,000.00 by way of reimbursement of the

consideration paid by plaintiff, plus 12% interest to start from date
of written demand, which is June 14, 1989;
2. The amount of P20,000.00 by way of exemplary damages;
3. The amount of P20,000.00 as attorney's fees and P5,000.00 as
Litigation expenses. Plus costs. 10
It ruled that the Authorization given by German Bacaltos to Savellon necessarily
included the power to enter into the Trip Charter Party. It did not give credence to
the petitioners' claim that the authorization refers only to coal or coal mining and
not to shipping because, according to it, "the business of coal mining may also
involve the shipping of products" and "a company such as a coal mining
company is not prohibited to engage in entering into a Trip Charter Party
contract." It further reasoned out that even assuming that the petitioners did not
intend to authorize Savellon to enter into the Trip Charter Party, they are still
liable because: (a) SMC appears to be an innocent party which has no knowledge
of the real intent of the parties to the Authorization and has reason to rely on the
written Authorization submitted by Savellon pursuant to Articles 1900 and 1902
of the Civil Code; (b) Savellon issued an official receipt of Bacaltos Coal Mines
(Exhibit "B-1") for the consideration of the Trip Charter Party, and the petitioners
denial that they caused the printing of such official receipt is "lame" because
they submitted only a cash voucher and not their official receipt; (c) the "Notice
of Readiness" (Exhibit "A-1") is written on a paper with the letterhead "Bacaltos
Coal Mines" and the logo therein is the same as that appearing in their voucher;
(d) the petitioners were benefited by the payment because the real payee in the
check is actually Bacaltos Coal Mines and since in the Authorization they
authorized Savellon to collect receivables due or in arrears, the check was then
properly delivered to Savellon; and, (e) if indeed Savellon had not been
authorized or if indeed he exceeded his authority or if the Trip Charter Party was
personal to him and the petitioners have nothing to do with it, then Savellon
should have "bother[ed] to answer" the complaint and the petitioners should
have filed "a cross-claim" against him.
In their appeal to the Court of Appeals in CA-G.R. CV No. 35180, the petitioners
asserted that the trial court erred in: (a) not holding that SMC was negligent in
(1) not verifying the credentials of Savellon and the ownership of the vessel, (2)
issuing the check in the name of Savellon in trust for Bacaltos Coal Mines
thereby allowing Savellon to encash the check, and, (3) making full payment of
P650,000.00 after the vessel made only one trip and before it completed three
trips as required in the Trip Charter Party; (b) holding that under the authority
given to him Savellon was authorized to enter into the Trip Charter Party; and, (c)
holding German Bacaltos jointly and severally liable with Savellon and Bacaltos
Coal Mines. 11
As stated at the beginning, the Court of Appeals affirmed in toto the judgment of
the trial court. It held that: (a) the credentials of Savellon is not an issue since
the petitioners impliedly admitted the agency while the ownership of the vessel
was warranted on the face of the Trip Charter Party; (b) SMC was not negligent
when it issued the check in the name of Savellon in trust for Bacaltos Coal Mines
since the Authorization clearly provides that collectibles of the petitioners can be
coursed through Savellon as the agent; (c) the Authorization includes the power
to enter into the Trip Charter Party because the "five prerogatives" enumerated

in the former is prefaced by the phrase "but not by way of limitation"; (d) the
petitioners' statement that the check should have been issued in the name of
Bacaltos Coal Mines is another implicit admission that the Trip Charter Party is
part and parcel of the petitioners' business notwithstanding German Bacaltos's
contrary interpretation when he testified, and in any event, the construction of
obscure words should not favor him since he prepared the Authorization in favor
of Savellon; and, (e) German Bacaltos admitted in the Answer that he is the
proprietor of Bacaltos Coal Mines and he likewise represented himself to be so in
the Authorization itself, hence he should not now be permitted to disavow what
he initially stated to be true and to interpose the defense that Bacaltos Coal
Mines has a distinct legal personality.
Their motion for a reconsideration of the above decision having been denied, the
petitioners filed the instant petition wherein they raise the following errors:
I. THE RESPONDENT COURT ERRED IN HOLDING THAT
RENE SAVELLON WAS AUTHORIZED TO ENTER INTO A
TRIP CHARTER PARTY CONTRACT WITH PRIVATE
RESPONDENT INSPITE OF ITS FINDING THAT SUCH
AUTHORITY CANNOT BE FOUND IN THE FOUR CORNERS
OF THE AUTHORIZATION;
II. THE RESPONDENT COURT ERRED IN NOT HOLDING
THAT BY ISSUING THE CHECK IN THE NAME OF RENE
SAVELLON IN TRUST FOR BACALTOS COAL MINES, THE
PRIVATE RESPONDENT WAS THE AUTHOR OF ITS OWN
DAMAGE; AND
III. THE RESPONDENT COURT ERRED IN HOLDING
PETITIONER GERMAN BACALTOS JOINTLY AND
SEVERALLY LIABLE WITH RENE SAVELLON AND COPETITIONER BACALTOS COAL MINES IN SPITE OF THE
FINDING OF THE COURT A QUO THAT PETITIONER
BACALTOS COAL MINES AND PETITIONER BACALTOS
ARE TWO DISTINCT AND SEPARATE LEGAL
PERSONALITIES. 12
After due deliberations on the allegations, issues raised, and arguments adduced
in the petition, and the comment thereto and reply to the comment, the Court
resolved to give due course to the petition.
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. 13 American
jurisprudence 14 summarizes the rule in dealing with an agent as follows:
A third person dealing with a known agent may not act negligently
with regard to the extent of the agent's authority or blindly trust the

agent's statements in such respect. Rather, he must use reasonable

diligence and prudence to ascertain whether the agent is acting and
dealing with him within the scope of his powers. The mere opinion
of an agent as to the extent of his powers, or his mere assumption
of authority without foundation, will not bind the principal; and a
third person dealing with a known agent must bear the burden of
determining for himself, by the exercise of reasonable diligence and
prudence, the existence or nonexistence of the agent's authority to
act in the premises. In other words, whether the agency is general
or special, the third person is bound to ascertain not only the fact of
agency, but the nature and extent of the authority. 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.
Or, as stated in Harry E. Keller Electric Co. vs. Rodriguez,
Mechem on Agency:

15

quoting

The person dealing with the agent must also act with ordinary
prudence and reasonable diligence. Obviously, if he knows or has
good reason to believe that the agent is exceeding his authority, he
cannot claim protection. So if the suggestions of probable
limitations be of such a clear and reasonable quality, or if the
character assumed by the agent is of such a suspicious or
unreasonable nature, or if the authority which he seeks to exercise
is of such an unusual or improbable character, as would suffice to
put an ordinarily prudent man upon his guard, the party dealing
with him may not shut his eyes to the real estate of the case, but
should either refuse to deal with the agent at all, or should
ascertain from the principal the true condition of affairs. [emphasis
supplied].
In the instant case, since the agency of Savellon is based on a written document,
the Authorization of 1 March 1988 (Exhibits "C" and "1"), the extent and scope of
his powers must be determined on the basis thereof. The language of the
Authorization is clear. It pertinently states as follows:
I. GERMAN A. BACALTOS do hereby authorize RENE R. SAVELLON . . . to use the
coal operating contract of BACALTOS COAL MINES, of which I am the
proprietor, for any legitimate purpose that it may serve. Namely, but not by way
of limitation, as follows . . . [emphasis supplied].
There is only one express power granted to Savellon, viz., to use the coal
operating contract for anylegitimate purpose it may serve. The
enumerated "five prerogatives" to employ the term used by the Court of
Appeals are nothing but the specific prerogatives subsumed under or
classified as part of or as examples of the power to use the coal operating
contract. The clause "but not by way of limitation" which precedes the
enumeration could only refer to or contemplate other prerogatives which
must exclusively pertain or relate or be germane to the power to use the
coal operating contract. The conclusion then of the Court of Appeals that
the Authorization includes the power to enter into the Trip Chapter Party
because the "five prerogatives" are prefaced by such clause, is seriously
flawed. It fails to note that the broadest scope of Savellon's authority is

limited to the use of the coal operating contract and the clause cannot
contemplate any other power not included in the enumeration or which
are unrelated either to the power to use the coal operating contract or to
those already enumerated. In short, while the clause allows some room for
flexibility, it can comprehend only additional prerogatives falling within the
primary power and within the same class as those enumerated. The trial
court, however, went further by hastily making a sweeping conclusion that
"a company such as a coal mining company is not prohibited to engage in
entering into a Trip Charter Party contract." 16 But what the trial court
failed to consider was that there is no evidence at all that Bacaltos Coal
Mines as a coal mining company owns and operates vessels, and even if it
owned any such vessels, that it was allowed to charter or lease them. The
trial court also failed to note that the Authorization is not a general power
of attorney. It is a special power of attorney for it refers to a clear mandate
specifically authorizing the performance of a specific power and of express
acts subsumed therein. 17 In short, both courts below unreasonably
expanded the express terms of or otherwise gave unrestricted meaning to
a clause which was precisely intended to prevent unwarranted and
unlimited expansion of the powers entrusted to Savellon. The suggestion
of the Court of Appeals that there is obscurity in the Authorization which
must be construed against German Bacaltos because he prepared the
Authorization has no leg to stand on inasmuch as there is no obscurity or
ambiguity in the instrument. If any obscurity or ambiguity indeed existed,
then there will be more reason to place SMC on guard and for it to exercise
due diligence in seeking clarification or enlightenment thereon, for that
was part of its duty to discover upon its peril the nature and extent of
Savellon's written agency. Unfortunately, it did not.
Howsoever viewed, the foregoing conclusions of the Court of Appeals and the
trial court are tenuous and farfetched, bringing to unreasonable limits the clear
parameters of the powers granted in the Authorization.
Furthermore, had SMC exercised due diligence and prudence, it should have
known in no time that there is absolutely nothing on the face of the Authorization
that confers upon Savellon the authority to enter into any Trip Charter Party. Its
conclusion to the contrary is based solely on the second prerogative under the
Authorization, to wit:
(2) To engage in trading under the style of BACALTOS COAL
MINES/RENE SAVELLON;
unmindful that such is but a part of the primary authority to use the coal
operating contract which it did not even require Savellon to produce. Its
principal witness, Mr. Valdescona, expressly so admitted on crossexamination, thus:
Atty. Zosa (to witness ON CROSS)
Q You said that in your office Mr. Rene Savellon
presented to you this authorization marked Exhibit "C"
and Exhibit "1" for the defendant?
A Yes, sir.

Q Did you read in the first part[y] of this authorization

Mr. Valdescona that Mr. Rene Savellon was authorized
as the coal operating contract of Bacaltos Coal Mines?
A Yes, sir.
Q Did it not occur to you that you should have
examined further the authorization of Mr. Rene
Savellon, whether or not this coal operating contract
allows Mr. Savellon to enter into a trip charter party?
A Yes, sir. We discussed about the extent of his
authorization and he referred us to the number 2
provision of this authorization which is to engage in
trading under the style of Bacaltos Coal Mines/Rene
Savellon, which we followed up to the check
preparation because it is part of the authority.
Q In other words, you examined this and you found out
that Mr. Savellon is authorized to use the coal
operating contract of Bacaltos Coal Mines?
A Yes, sir.
Q You doubted his authority but you found out in
paragraph 2 that he is authorized that's why you
agreed and entered into that trip charter party?
A We did not doubt his authority but we were
questioning as to the extent of his operating contract.
Q Did you not require Mr. Savellon to produce that coal
operating contract of Bacaltos Coal Mines?
A No sir. We did not.

18

Since the principal subject of the Authorization is the coal operating contract,
SMC should have required its presentation to determine what it is and how it may
be used by Savellon. Such a determination is indispensable to an inquiry into the
extent or scope of his authority. For this reason, we now deem it necessary to
examine the nature of a coal operating contract.
A coal operating contract is governed by P.D. No. 972 (The Coal Development Act
of 1976), as amended by P.D. No. 1174. It is one of the authorized ways of active
exploration, development, and production of coal resources 19in a specified
contract area. 20 Section 9 of the decree prescribes the obligation of the
contractor, thus:
Sec. 9. Obligations of Operator in Coal Operating Contract. The
operator under a coal operating contract shall undertake, manage
and execute the coal operations which shall include:

(a) The examination and investigation of lands supposed to contain

coal, by detailed surface geologic mapping, core drilling, trenching,
test pitting and other appropriate means, for the purpose of probing
the presence of coal deposits and the extent thereof;
(b) Steps necessary to reach the coal deposit so that it can be
mined, including but not limited to shaft sinking and tunneling; and
(c) The extraction and utilization of coal deposits.
The Government shall oversee the management of the operation
contemplated in a coal operating contract and in this connection,
shall require the operator to:
(a) Provide all the necessary service and technology;
(b) Provide the requisite financing;
(c) Perform the work obligations and program prescribed in the coal
operating contract which shall not be less than those prescribed in
this Decree;
(d) Operate the area on behalf of the Government in accordance
with good coal mining practices using modern methods appropriate
for the geological conditions of the area to enable maximum
economic production of coal, avoiding hazards to life, health and
property, avoiding pollution of air, lands and waters, and pursuant
to an efficient and economic program of operation;
(e) Furnish the Energy Development Board promptly with all
information, data and reports which it may require;.
(f) Maintain detailed technical records and account of its
expenditures;
(g) Conform to regulations regarding, among others, safety
demarcation of agreement acreage and work areas, noninterference
with the rights of the other petroleum, mineral and natural
resources operators;
(h) Maintain all necessary equipment in good order and allow access
to these as well as to the exploration, development and production
sites and operations to inspectors authorized by the Energy
Development Board;
(i) Allow representatives authorized by the Energy Development
Board full access to their accounts, books and records for tax and
other fiscal purposes.
Section 11 thereof provides for the minimum terms and conditions of a coal
operating contract.

From the foregoing, it is obvious that a scrutiny of the coal operating contract of
Bacaltos Coal Mines would have provided SMC knowledge of the activities which
are germane, related, or incident to the power to use it. But it did not even
require Savellon to produce the same.
SMC's negligence was further compounded by its failure to verify if Bacaltos Coal
Mines owned a vessel. A party desiring to charter a vessel must satisfy itself that
the other party is the owner of the vessel or is at least entitled to its possession
with power to lease or charter the vessel. In the instant case, SMC made no such
attempt. It merely satisfied itself with the claim of Savellon that the vessel it was
leasing is owned by Bacaltos Coal Mines and relied on the presentation of the
Authorization as well as its test on the sea worthiness of the vessel. Valdescona
thus declared on direct examination as follows:
A In October, a certain Rene Savellon called our office
offering us shipping services. So I told him to give us a
formal proposal and also for him to come to our office
so that we can go over his proposal and formally
discuss his offer.
Q Did Mr. Rene Savellon go to your office?
A Few days later he came to our office and gave us his
proposal verbally offering a vessel for us to use for our
cargo.
Q Did he mention the owner of that vessel?
A Yes, sir. That it is Bacaltos.
Q Did he present a document to you?
A Yes, sir. He presented to us the authorization.
Q When Mr. Rene Savellon presented to you the
authorization what did you do?.
A On the strength of that authorization we initially
asked him for us to check the vessel to see its sea
worthiness, and we assigned our in-house surveyor to
check the sea worthiness of the vessel which was on
dry dock that time in Danao.
Q What was the result of your inspection?
A We found out the vessel's sea worthiness to be our
cargo carrier.
Q After that what did you do?
A After that we were discussing the condition of the
contract.

Q Were you able to execute that contract?

A Yes, sir . 21
He further declared as follows:
Q When you entered into a trip charter contract did
you check the ownership of M/V Premship?
A The representation made by Mr. Rene Savellon was
that Bacaltos Coal Mines operates the vessel and on
the strength of the authorization he showed us we
were made to believe that it was Bacaltos Coal Mines
that owned it.
COURT: (to witness)
Q In other words, you just believed Rene Savellon?
A Yes, sir.
COURT: (to witness)
Q You did not check with Bacaltos Coal Mines?
A That is the representation he made.
Q Did he show you document regarding this M/V
Premship II?
A No document shown. 22
The Authorization itself does not state that Bacaltos Coal Mines owns any vessel,
and since it is clear therefrom that it is not engaged in shipping but in coal
mining or in coal business, SMC should have required the presentation of
pertinent documentary proof of ownership of the vessel to be chartered. Its inhouse surveyor who saw the vessel while drydocked in Danao and thereafter
conducted a sea worthiness test could not have failed to ascertain the registered
owner of the vessel. The petitioners themselves declared in open court that they
have not leased any vessel for they do not need it in their coal
operations 23 thereby implying that they do not even own one.
The Court of Appeals' asseveration that there was no need to verify the
ownership of the vessel because such ownership is warranted on the face of the
trip charter party begs the question since Savellon's authority to enter into that
contract is the very heart of the controversy.
We are not prepared to accept SMC's contention that the petitioners' claim that
they are not engaged in shipping and do not own any ship is belied by the fact
that they maintained a pre-printed business form known as a "Notice of
Readiness" (Exhibit "A-1"). 24 This paper is only a photocopy and, despite its
reservation to present the original for purposes of comparison at the next
hearing, 25 SMC failed to produce the latter. This "Notice of Readiness" is not,

therefore, the best evidence, hence inadmissible under Section 3, Rule 130 of the
Rules of Court. It is true that when SMC made a formal offer of its exhibits, the
petitioners did not object to the admission of Exhibit "A-1," the "Notice of
Readiness," under the best evidence rule but on the ground that Savellon was
not authorized to enter into the Trip Charter Party and that the party who signed
it, one Elmer Baliquig, is not the petitioners' employee but of Premier Shipping
Lines, the owner of the vessel in question. 26 The petitioners raised the issue of
inadmissibility under the best evidence rule only belatedly in this petition. But
although Exhibit "A-1" remains admissible for not having been timely objected to,
it has no probative value as to the ownership of the vessel.
There is likewise no proof that the petitioners received the consideration of the
Trip Charter Party. The petitioners denied having received it. 27 The evidence for
SMC established beyond doubt that it was Savellon who requested in writing on
19 October 1988 that the check in payment therefor be drawn in favor of
BACALTOS COAL MINES/RENE SAVELLON (Exhibit "B-3") and that SMC drew the
check in favor of RENE SAVELLON IN TRUST FOR BACALTOS COALMINES (Exhibit
"B") and delivered it to Savellon who there upon issued a receipt (Exhibit "B-1").
We agree with the petitioners that SMC committed negligence in drawing the
check in the manner aforestated. It even disregarded the request of Savellon
that it be drawn in favor of BACALTOS COAL MINES/RENE SAVELLON.
Furthermore, assuming that the transaction was permitted in the Authorization,
the check should still have been drawn in favor of the principal. SMC then made
possible the wrong done. There is an equitable maxim that 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. 28 For this rule to apply, the condition precedent is that
both parties must be innocent. In the present case, however, SMC is guilty of not
ascertaining the extent and limits of the authority of Savellon. In not doing so,
SMC dealt with Savellon at its own peril.
Having thus found that SMC was the author of its own damage and that the
petitioners are, therefore, free from any liability, it has become unnecessary to
discuss the issue of whether Bacaltos Coal Mines is a corporation with a
personality distinct and separate from German Bacaltos.
WHEREFORE, the instant petition is GRANTED and the challenged decision of 30
September 1993 of the Court of Appeals in CA-G.R. CV No. 35180 is hereby
REVERSED and SET ASIDE and another judgment is hereby rendered MODIFYING
the judgment of the Regional Trial Court of Cebu, Branch 9, in Civil Case No. CEB8187 by setting aside the declaration of solidary liability, holding defendant
RENE R. SAVELLON solely liable for the amounts adjudged, and ordering the
dismissal of the case as against herein petitioners.
SO ORDERED.
Bellosillo, Quiason, and Kapunan, JJ., concur.
Padilla, J., took no part.

Footnotes

1 Annex "D" of Petition; Rollo, 64-71. Per Herrera, M., J., with
Francisco, C., and Guerrero, B., JJ., concurring.
2 Annex "B," Id.; Id., 24-32. Per Judge Benigno G. Gaviola.
3 Original Records (OR), 8-10.
4 Id., 11. The document is not acknowledged before a notary public.
5 OR, 12.
6 Id., 13.
7 Id.,16-18.
8 Id., 44.
9 OR, 57-58.
10 OR, 138; Rollo, 32.
11 Annex "C" of Petition, Brief for Appellants; Rollo, 45-46.
12 Rollo, 9.
13 Veloso vs. La Urbana, 58 Phil. 681 [1933], citing Deen vs. Pacific
Commercial Co., 42 Phil. 738 [1922] and Harry E. Kelter Electric Co.
vs. Rodriguez, 44 Phil. 19 [1922]. See also Strong vs. Repide, 6 Phil.
680 [1906] and Pineda vs. Court of Appeals, 226 SCRA 754 [1993].
14 3 Am Jur 2d Agency 83 [1986].
15 Supra note 13.
16 OR, 135; Rollo, 29.
17 See Article 1876 Civil Code.
18 TSN, 4 April 1991, 21-22.
19 Section 4.
20 Section 6.
21 TSN, 4 April 1991, 6-7.
22 TSN, 4 April 1991, 14-15.
23 TSN, 30 April 1991, 23-24.
24 OR, 73.

25 TSN, 4 April 1991, 11-12.

26 OR, 74.
27 TSN, 30 April 1991, 5-6.
28 Francisco vs. Government Service Insurance System, 7 SCRA 577
[1963], cited in Cuison vs. Court of Appeals, 227 SCRA 391 [1993].
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-8169 December 29, 1913
ANTONIO M. A. BARRETTO, plaintiff-appellant,
vs.
JOSE SANTA MARINA, defendant-appellee.
Hausserman, Cohn and Fisher, for appellant.
W. A. Kincaid and Thos. L. Hartigan, for appellee.

TORRES, J.:
These cases were appealed by counsel for the plaintiff, through a bill of
exceptions, from the judgment of January 17, 1912, and the order of February 5
of the same year, whereby the Honorable S. del Rosario, judge, sentenced the
defendant to pay to the plaintiff the salary to which he was entitled for the first
eight days of January, 1910, also that for the following month, at the rate of
P3,083.33 per month, without special finding as to costs, and dismissed the
second cause of action contained in the complaint presented in that case.
On January 5, 1911, for the plaintiff Antonio M.a Barretto filed suit against Jose
Santa Marina, alleging that the defendant, a resident of Spain, was then the
owner and proprietor of the business known as the La Insular Cigar and Cigarette
Factory, established in these Islands, which business consisted in the purchase of
leaf tobacco and other raw material, in the preparation of the same, and in the
sale of cigars and cigarettes in large quantities; that on January 8, 1910, and for
a long time prior thereto, the plaintiff held and had held the position of agent of
the defendant in the Philippine Islands for the management of the said business
in the name and for the account of the said defendant; that the plaintiff's
services were rendered in pursuance of a contract whereby the defendant
obligated himself in writing to hire the said services for so long a time as the
plaintiff should not show discouragement and to compensate such services at
the rate of P37,000 Philippine currency per annum; that, on the aforesaid 8th day
of January, 1910, the defendant, without reason, justification, or pretext and in
violation of the contract before mentioned, summarily and arbitrarily dispensed
with the plaintiff's services and removed him from the management of the
business, since which date the defendant had refused to pay him the

compensation, or any part thereof, due him and payable in full for services
rendered subsequent to December 31, 1909; and that, as a second cause of
action based upon the facts aforestated, the plaintiff had suffered losses and
damages in the sum of P100,000 Philippine currency. Said counsel therefore
prayed that judgment be rendered against the defendant by sentencing him to
pay to the plaintiff P137,000 Philippine currency, and the interest thereon at the
legal rate, in addition to the payment of the costs, together with such other
equitable remedies as the law allows.
By an order of March 14, 1911, the Honorable A. S. Crossfield, judge overruled
the demurrer to the first cause of action, but sustained that to the second.
Counsel for the plaintiff entered an exception to this order in so far as it
sustained the demurrer interposed by the defendant to the second cause of
action.
By his written answer to the complaint, on July 19, 1911, counsel for the
defendant, reserving his exception to the order of the court overruling his
demurrer filed against the first cause of action, denied each and all of the
allegations contained in the complaint, relative to such first cause of action.
As a special defense of the latter, he set forth that the plaintiff had no contract
whatever with the defendant in which any period of time was stipulated during
which the former was to render his services as manager of the La Insular factory;
that the defendant revoked for just cause the power conferred upon the plaintiff;
that subsequent to the revocation of such power, and on the occasion of the
plaintiff's having sold all his rights and interests in the business of the La Insular
factory to the defendant, in consideration of the sum received by him, the
plaintiff renounced all action, intervention and claim that he might have against
the defendant relative to the business aforementioned, whereby all the questions
that might have arisen between them were settled.
On December 19, 1911, counsel for each of the parties presented to the court as
stipulation of the following purport:
In clause 11 of the will executed by Don Joaquin Santa Marina y Perez in
Madrid before a notary public on August 4, 1901, and duly legalized in
these Islands, there appears the following:
"The testator provides that the testamentary executor who is
holding office as such shall enjoy a salary, allotment, or emolument
of 4,000 pesos per annum which shall be paid out of the testator's
estate; but that in case of consultation, the testamentary executors
consulted shall not be entitled to this allotment, nor to any other, on
account of such consultation."
According to the statement of the sums collected by Antonio M.a Barretto as the
judicial administrator of the estate of Joaquin Santa Marina from November,
1908, to March, 1910, and during twenty-three days of April of the latter year,
the total amount so collected was P5,923.28.
Antonio M.a Barretto ceased to manage the La Insular factory, as the judicial
administrator of the estate of the deceased Joaquin Santa Marina, in October,

1909, and not on November 7, 1908, as erroneously out in the stenographic

notes.
The remuneration paid to Barretto as judicial administrator of the estate of Santa
Marina was independent of that which pertained to him for his services as
manager of the La Insular factory both before and after the date on which he
ceased to administer the said factory as such judicial administrator.
In the stipulation before mentioned there also appears the following: "The facts
above stated are true, but there is a controversy between the attorneys for the
plaintiff and the defendant, as to whether such facts are relevant as evidence in
the said case. They therefore submit this question to the court if it determines
that they are relevant as evidence they should be admitted as such, with
exception by the defendant, but if it determines that they are not relevant as
evidence they should be excluded, with exception by the plaintiff."
After the hearing of the case, with the introduction of evidence by both parties,
the court, on January 17, 1912, rendered the judgment aforementioned, to which
an exception was taken by counsel for the plaintiff, who by written motion asked
that the said judgment be set aside and a new trial granted, because such
judgment was not sufficiently warranted by the evidence and was contrary to law
and because the findings of fact therein contained were openly and manifestly
contrary to the weight of the evidence. This motion was denied, with exception
by the plaintiff. By an order of the 5th of the following month of February, issued
in view of a petition presented by counsel for the plaintiff, the court dismissed
the second cause of action set out in the complaint, to which order said counsel
likewise excepted.
Upon presentation of the proper bill of exceptions, the same was approved,
certified, and forwarded to the clerk of this court.
Demand is made in this suit for the payment of the considerable sum of
P137,000, together with the legal interest thereon. Two amounts make up this
sum: One of P37,000, as salary for the year 1910, claimed to be due for services
rendered by the plaintiff as agent and manager of the tobacco factory known as
La Insular; and the other of P100,000, as an indemnity for losses and damages,
on account of the plaintiff's removal without just cause from his position as agent
and manager of said factory, effected arbitrarily and in violation of the contract
of hire of services between the parties, the plaintiff claiming to be still entitled to
hold the position from which he was dismissed.
The most important fact in this case, which stands out prominently from the
evidence regarded as a whole, is that of the plaintiff Barretto's renunciation or
registration of the position he held as agent and manager of the said factory,
which was freely and voluntarily made by him on the occasion of the insolvency
and disappearance of the Chinaman Uy Yan, who had bought from the factory
products aggregating in value the considerable sum of P97,000 and, without
paying this large debt, disappeared and has not been seen since.
Antonio M.a Barretto the agent and manager of the said factory, said among
other things the following, in the letter, Exhibit 3, addressed by him to Jose Santa
Marina, on January 2, 1909:

I have to report to you an exceedingly disagreeable matter. This Chinaman

Uy Yan, with whose name I begin this paragraph, has failed and owes the
factory the considerable sum of P97,000. We will see that I can get from
him, although when these Chinamen fail it is because they have spent
everything. I will turned the matter over to my attorney in order that he
may sue the party. I am not attempting to make light of this matter. I
acknowledge that I have been rather more generous with this fellow than I
should have been; but this is the way of doing business here. . . .
I have always thought that when the manager of a business trips up in a
matter like this he should tender his resignation, and I still think so. The
position is at your disposal to do as you like.
This letter is authentic and was neither denied nor rejected by the plaintiff,
Barretto.lawphil.net
Although Santa Marina did not immediately reply and tell him what opinion he
may have formed and the decision he had reached in the matter, it is no less
true that the silence and lack of reply on the part of the chief owner of the
factory were sufficient indications that the resignation had been virtually
accepted and that if he did not reply immediately it was because he intended to
act cautiously. As the addressee, the chief owner of the factory, knew of no one
at that time whom he could appoint relieve the writer, who had resigned, it was
to be presumed that he was thereafter looking for some trustworthy person who
might substitute the plaintiff in his position of agent and manager of the factory,
communicated to the plaintiff that he had revoked the power conferred upon him
and had appointed Mr. J. McGavin to substitute him in his position of manager of
the La Insular factory, whereby the plaintiff's resignation, tendered in his
aforesaid letter of January 2, 1909, Exhibit 3, was expressly accepted.
After the plaintiff had resigned the position he held, and notwithstanding the
lapse of several months before its express acceptance, it cannot be understood
that he has any right to demand an indemnity for losses and damages
particularly since he ostensibly and frankly acknowledged that he had been
negligent in the discharge of his duties and that he had overstepped his
authority in the management of the factory, with respect to the Chinaman
mentioned. The record does not show that Santa Marina, his principal, required
him to resign his position as manager, but that Barretto himself voluntarily
stated by letter to his principal that, for the reasons therein mentioned, he
resigned and placed at the latter's disposal the position of agent and manager of
the La Insular factory; and if the principal, Santa Marina, deemed it suitable to
relieve the agent, for having been negligent and overstepping his authority in
the discharge of his office, and furthermore because of his having expressly
resigned his position, and placed it at the disposal of the chief owner of the
business, it cannot be explained how such person can be entitled to demand an
indemnity for losses and damages, from his principal, who merely exercised his
lawful right of relieving the plaintiff from the position which he had voluntarily
given up.
So, the agent and manager Barretto was not really dismissed or removed by the
defendant Santa Marina. What did occur was that, in view of the resignation
rendered by the plaintiff for the reasons which he himself conscientiously
deemed to warrant his surrender of the position he was holding in the La Insular
factory, the principal owner of the establishment, the defendant Santa Marina,

had to took for and appoint another agent and manager to relieve and substitute
him in the said employment a lawful act performed by the principal owner of
the factory and one which cannot serve as a ground upon which to demand from
the latter an indemnity for losses and damages, inasmuch as, in view of the facts
that occurred and were acknowledged and confessed by Barretto in his letters,
Exhibits 3 and 6, the plaintiff could not expect, nor ought to have expected, that
the defendant should have insisted on the unsuccessful agent's continuance in
his position, or that he should not have accepted the resignation tendered by the
plaintiff in his first letter. By the mere fact that the defendant remained silent
and designated another person, Mr. J. McGavin, to, discharge in the plaintiff's
stead the powers and duties of agent and manager of the said factory, Barretto
should have understood that his resignation had been accepted and that if its
acceptance was not communicated to him immediately it was owing to the
circumstance that the principal owner of the factory did not then have, nor until
several months afterwards, any other person whom he could appoint and place
in his stead, for, as soon as the defendant Santa Marina could appoint the said
McGavin, he revoked the power he had conferred upon the plaintiff and
communicated this fact to the latter, by means of the letter, Exhibit D, which was
presented to him by the bearer thereof, McGavin himself, the new manager and
agent appointed.
Omitting consideration for the moment of the first error attributed to the trial
judge by his sustaining the demurrer filed against the second cause of action,
relative to the collection of P100,000 as the amount of the losses and damages
occasioned to the plaintiff, and turning our attention to the second error imputed
to him by his refusal to sentence the defendant, for the first cause of action, to
the payment of P37,000 or of any sum over P3,083.33, we shall proceed to
examine the question whether any period or term for the duration of the position
of agent and manager was fixed in the verbal contract made between the
deceased Joaquin Santa Marina, the defendant's predecessor in interest, and the
plaintiff antonio M.a Barretto a contract which, after Joaquin Santa Marina's
death was ratified by his brother and heir, the defendant Jose Santa Marina.
The defendant acknowledged the said verbal contract and also its ratification by
him after his brother's death; but he denied any stipulation therein that Barretto
should hold his office for any specific period of time fixed by and between the
contracting parties, for the deceased Joaquin Santa Marina, in conferring power
upon the plaintiff, did not do so for any specific time nor did he set any period
within which he should hold his office of agent and manager of the La Insular
factory; neither did he fix the date for the termination of such services, in the
instrument of power of attorney executed by the defendant Santa Marina before
a notary on the 25th of September, 1908. (Record, p. 20.)
From the context of the instrument just mentioned it can not be concluded that
any time whatever was fixed during which the plaintiff should hold his position of
agent. The defendant, in executing that instrument, whereby the agreement
made between his brother Joaquin and Barretto was ratified, did no more than
accord to the plaintiff the same confidence that the defendant's predecessor in
interest had in him; and so long as this merely subjective condition of trust
lodged in the agent existed, the time during which the latter might hold his office
could be considered indefinite or undetermined, but as soon as that
indespensable condition of a power of attorney disappeared and the conduct of
the agent deceased to inspire confidence, the principal had a right to revoke the

power he had conferred upon his agent, especially when the latter, for good
reasons, gave up the office he was holding.
Article 1733 of the civil Code, applicable to the case at bar, according to the
provisions of article 2 of the Code of Commerce, prescribes: "The principal may,
at his will, revoke the power and compel the agent to return the instrument
containing the same in which the authority was given."
Article 279 of the Code of Commerce provides: "The principal may revoke the
commission intrusted to an agent at any stage of the transaction, advising him
thereof, but always being liable for the result of the transactions which took
place before the latter was informed of the revocation."1awphi1.net
From the above legal provisions it is clearly to be inferred that the contract of
agency can subsist only so long as the principal has confidence in his agent,
because, from the moment such confidence disappears and although there be a
fixed period for the excercise of the office of agent, a circumstance that does not
appear in the present case the principal has a perfect right to revoke the power
that he had conferred upon the agent owing to the confidence he had in him and
which for sound reasons had ceased to exist.
The record does not show it to have been duly proved. notwithstanding the
plaintiff's allegation, that a period was fixed for holding his agency or office of
agent and manager of the La Insular factory. It would be improper, for the
purpose of supplying such defect, to apply to the present case the provisions of
article 1128 of the Civil Code. This article relates to obligation for which no
period has been fixed for their fulfillment, but, which, from their nature and
circumstances, allow the inference that there was an intention to grant such
period to the debtor, wherefore the courts are authorized to fix the duration of
the same, and the reason why it is inapplicable is that the rights and obligations
existing between Barretto and Santa Marina are absolutely different from those
to which it refers, for, according to article 1732 of the Civil Code, agency is
terminated:
1. By revocation.
2. By withdrawal of the agent.
3. By death, interdiction, bankruptcy, or insolvency of the principal or of
the agent.
It is not incumbent upon the courts to fix the period during which contracts for
services shall last. Their duration is understood to be implicity fixed, in default of
express stipulation, by the period for the payment of the salary of the employee.
Therefore the doctrine of the tacit renewal of leases of property, established in
article 1566 of the Civil Code, is not applicable to the case at bar. And even
though the annual salary fixed for the services to be rendered by the plaintiff as
agent and manager of the La Insular factory, was P37,000, yet, in accordance
with the custom universally observed throughout the world, salaries fixed for the
year are collected and paid in monthly installments as they fall due, and so the
plaintiff collected and was paid his remuneration; therefore, on the latter's
discontinuance in his office as agent, he would at most be entitled to the salary
for one month and some odd days, allowed in the judgment of the lower court.

Article 302 of the Code of Commerce reads thus:

In cases in which no special time is fixed in the contracts of service, any
one of the parties thereto may dissolve it, advising the other party thereof
one month in advance.
The factor or shop clerk shall be entitled, in such case, to the salary due
for one month.
From the mere fact that the principal no longer had confidence in the agent, he is
entitled to withdraw it and to revoke the power he conferred upon the latter,
even before the expiration of the period of the engagement or of the agreement
made between them; but, in the present case, once it has been shown that,
between the deceased Joaquin Santa Marina and the latter's heir, now the
defendant, on the one hand, and the plaintiff Barretto, on the other, no period
whatever was stipulated during which the last-named should hold the office and
manager of the said factory, it is unquestionable that the defendant, even
without good reasons, could lawfully revoke the power conferred upon the
plaintiff and appoint in his place Mr. McGavin, and thereby contracted no liability
whatever other than the obligation to pay the plaintiff the salary pertaining to
one month and some odd days, as held in the judgment below.
Barretto himself acknowledged in his aforesaid letter, Exhibit 3, that he had
exceeded his authority and acted negligently in selling on credit to the said
Chinaman a large quantity of the products of the factory under the plaintiff's
management, reaching the considerable value of P97,000; whereby he confessed
one of the causes which led to his removal, the revocation of the power
conferred upon him and the appointment of a new agent in his place.
The defendant, Jose Santa Marina, in his letter of December 2, 1909, whereby he
communicated to the plaintiff the revocation of the power he had conferred upon
him and the appointment of another new agent, Mr. McGavin, stated among
other things that the loan contracted by the agent Barretto, without the approval
of the principal, caused a great panic among the stockholders of the factory and
that the defendant hoped to allay it by the new measure that he expected to
adopt. This, then, was still another reason the induced the principal to withdraw
the confidence placed in the plaintiff and to revoke the power he had conferred
upon him. Therefore, even omitting consideration of the resignation before
mentioned, we find duly warranted the reasons which impelled the defendant to
revoke the said power and relieve the plaintiff from the position of agent and
manager of the La Insular factory.
In accordance with the provisions of article 283 of the Code of Commerce, the
manager of an enterprise or manufacturing or commercial establishment,
authorized to administer it and direct it, with more or less powers, as the owner
may have considered advisable, shall have the legal qualifications of an agent.
Article 300 of the same code prescribes: "The following shall be special reasons
for which principals may discharge their employees, even though the time of
service of the contract has not elapsed: Fraud or breach of trust in the business
intrusted to them . . . "

By reason of these legal provisions the defendant, in revoking the authority

conferred upon the plaintiff, acted within his unquestionable powers and did not
thereby violate any statute whatever that may have limited them; consequently,
he could not have caused the plaintiff any harm or detriment to his rights and
interests, for not only had Santa Marina a justifiable reason to proceed as he did,
but also no period whatever had been stipulated during which the plaintiff should
be entitled to hold his position; and furthermore, because, in relieving the latter
and appointing another person in his place, the defendant acted in accordance
with the renunciation and resignation which the plaintiff had tendered. If the
plaintiff is entitled to any indemnity in accordance with law, such was awarded to
him in the judgment of the lower court by granting him the right to collect salary
for one month and some odd days.
As for the other features of the case, the record does not show that the plaintiff
has any good reason or legal ground upon which to claim an indemnity for losses
and damages in the sum of P100,000, for it was not proved that he suffered to
that extent, and the judgment appealed from has awarded him the month's
salary to which he is entitled. Therefore that judgment and the order of March 14
sustaining the demurrer to the second cause of action are both in accordance
with the law.
For the foregoing reasons, whereby the errors assigned to the said judgment and
order are deemed to have been refuted, both judgment and order are hereby
affirmed, with costs against the appellant.
Arellano, C.J., Johnson and Carson, JJ., concur.
Moreland, J., concurs in the result.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

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

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

NOCON, J.:
This is a petition for review on certiorari from the decision dated July 31, 1975 of
the Court of Appeals in CA-G.R. No. 47763-R which affirmed in toto the decision
of the Court of First Instance of Manila, Branch VII, in Civil Case No. 56355
dismissing the complaint filed by petitioner CMS Logging, Inc. (CMS, for brevity)
against private respondent D.R. Aguinaldo Corporation (DRACOR, for brevity) and

ordering the former to pay the latter attorney's fees in the amount of P1,000.00
and the costs.
The facts of the case are as follows: Petitioner CMS is a forest concessionaire
engaged in the logging business, while private respondent DRACOR is engaged in
the business of exporting and selling logs and lumber. On August 28, 1957, CMS
and DRACOR entered into a contract of agency 1 whereby the former appointed
the latter as its exclusive export and sales agent for all logs that the former may
produce, for a period of five (5) years. The pertinent portions of the agreement,
which was drawn up by DRACOR, 2 are as follows:
1. SISON [CMS] hereby appoints DRACOR as his sole and exclusive
export sales agent with full authority, subject to the conditions and
limitations hereinafter set forth, to sell and export under a firm sales
contract acceptable to SISON, all logs produced by SISON for a
period of five (5) years commencing upon the execution of the
agreement and upon the terms and conditions hereinafter provided
and DRACOR hereby accepts such appointment;
xxx xxx xxx
3. It is expressly agreed that DRACOR shall handle exclusively all
negotiations of all export sales of SISON with the buyers and
arrange the procurement and schedules of the vessel or vessels for
the shipment of SISON's logs in accordance with SISON's written
requests, but DRACOR shall not in anyway [sic] be liable or
responsible for any delay, default or failure of the vessel or vessels
to comply with the schedules agreed upon;
xxx xxx xxx
9. It is expressly agreed by the parties hereto that DRACOR shall
receive five (5%) per cent commission of the gross sales of logs of
SISON based on F.O.B. invoice value which commission shall be
deducted from the proceeds of any and/or all moneys received by
DRACOR for and in behalf and for the account of SISON;
By virtue of the aforesaid agreement, CMS was able to sell through DRACOR a
total of 77,264,672 board feet of logs in Japan, from September 20, 1957 to April
4, 1962.
About six months prior to the expiration of the agreement, while on a trip to
Tokyo, Japan, CMS's president, Atty. Carlos Moran Sison, and general manager
and legal counsel, Atty. Teodoro R. Dominguez, discovered that DRACOR had
used Shinko Trading Co., Ltd. (Shinko for brevity) as agent, representative or
liaison officer in selling CMS's logs in Japan for which Shinko earned a
commission of U.S. $1.00 per 1,000 board feet from the buyer of the logs. Under
this arrangement, Shinko was able to collect a total of U.S. $77,264.67. 3
CMS claimed that this commission paid to Shinko was in violation of the
agreement and that it (CMS) is entitled to this amount as part of the proceeds of
the sale of the logs. CMS contended that since DRACOR had been paid the 5%
commission under the agreement, it is no longer entitled to the additional

commission paid to Shinko as this tantamount to DRACOR receiving double

compensation for the services it rendered.
After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or
P2,883,351.90, 4 directly to several firms in Japan without the aid or intervention
of DRACOR.
CMS sued DRACOR for the commission received by Shinko and for moral and
exemplary damages, while DRACOR counterclaimed for its commission,
amounting to P144,167.59, from the sales made by CMS of logs to Japanese
firms. In its reply, CMS averred as a defense to the counterclaim that DRACOR
had retained the sum of P101,167.59 as part of its commission for the sales
made by CMS. 5 Thus, as its counterclaim to DRACOR's counterclaim, CMS
demanded DRACOR return the amount it unlawfully retained. DRACOR later filed
an amended counterclaim, alleging that the balance of its commission on the
sales made by CMS was P42,630.82, 6 thus impliedly admitting that it retained
the amount alleged by CMS.
In dismissing the complaint, the trial court ruled that no evidence was presented
to show that Shinko received the commission of U.S. $77,264.67 arising from the
sale of CMS's logs in Japan, though the trial court stated that "Shinko was able to
collect the total amount of $77,264.67 US Dollars (Exhs. M and M-1)." 7 The
counterclaim was likewise dismissed, as it was shown that DRACOR had waived
its rights to the balance of its commission in a letter dated February 2, 1963 to
Atty. Carlos Moran Sison, president of CMS. 8 From said decision, only CMS
appealed to the Court of Appeals.
The Court of Appeals, in a 3 to 2 decision, 9 affirmed the dismissal of the
complaint since "[t]he trial court could not have made a categorical finding that
Shinko collected commissions from the buyers of Sison's logs in Japan, and could
not have held that Sison is entitled to recover from Dracor the amount collected
by Shinko as commissions, plaintiff-appellant having failed to prove by
competent evidence its claims." 10
Moreover, the appellate court held:
There is reason to believe that Shinko Trading Co. Ltd., was paid by
defendant-appellee out of its own commission of 5%, as indicated in
the letter of its president to the president of Sison, dated February
2, 1963 (Exhibit "N"), and in the Agreement between Aguinaldo
Development Corporation (ADECOR) and Shinko Trading Co.,
Ltd. (Exhibit "9"). Daniel R. Aguinaldo stated in his said letter:
. . . , I informed you that if you wanted to pay me for the service,
then it would be no more than at the standard rate of 5%
commission because in our own case, we pay our Japanese agents
2-1/2%. Accordingly, we would only add a similar amount of 2-1/2%
for the service which we would render you in the Philippines. 11
Aggrieved, CMS appealed to this Court by way of a petition for review
on certiorari, alleging (1) that the Court of Appeals erred in not making a
complete findings of fact; (2) that the testimony of Atty. Teodoro R. Dominguez,
regarding the admission by Shinko's president and director that it collected a

commission of U.S. $1.00 per 1,000 board feet of logs from the Japanese buyers,
is admissible against DRACOR; (3) that the statement of DRACOR's chief legal
counsel in his memorandum dated May 31, 1965, Exhibit "K", is an admission
that Shinko was able to collect the commission in question; (4) that the fact that
Shinko received the questioned commissions is deemed admitted by DRACOR by
its silence under Section 23, Rule 130 of the Rules of Court when it failed to reply
to Atty. Carlos Moran Sison's letter dated February 6, 1962; (5) that DRACOR is
not entitled to its 5% commission arising from the direct sales made by CMS to
buyers in Japan; and (6) that DRACOR is guilty of fraud and bad faith in its
dealings with CMS.
With regard to CMS's arguments concerning whether or not Shinko received the
commission in question, We find the same unmeritorious.
To begin with, these arguments question the findings of fact made by the Court
of Appeals, which are final and conclusive and can not be reviewed on appeal to
the Supreme Court. 12
Moreover, while it is true that the evidence adduced establishes the fact that
Shinko is DRACOR's agent or liaison in Japan, 13 there is no evidence which
established the fact that Shinko did receive the amount of U.S. $77,264.67 as
commission arising from the sale of CMS's logs to various Japanese firms.
The fact that Shinko received the commissions in question was not established
by the testimony of Atty. Teodoro R. Dominguez to the effect that Shinko's
president and director told him that Shinko received a commission of U.S. $1.00
for every 1,000 board feet of logs sold, since the same is hearsay. Similarly, the
letter of Mr. K. Shibata of Toyo Menka Kaisha, Ltd. 14 is also hearsay since Mr.
Shibata was not presented to testify on his letter.
CMS's other evidence have little or no probative value at all. The statements
made in the memorandum of Atty. Simplicio R. Ciocon to DRACOR dated May 31,
1965, 15 the letter dated February 2, 1963 of Daniel
R. Aguinaldo, 16 president of DRACOR, and the reply-letter dated January 9,
1964 17 by DRACOR's counsel Atty. V. E. Del Rosario to CMS's demand letter
dated September 25, 1963 can not be categorized as admissions that Shinko did
receive the commissions in question.
The alleged admission made by Atty. Ciocon, to wit
Furthermore, as per our records, our shipment of logs to Toyo Menka
Kaisha, Ltd., is only for a net volume of 67,747,732 board feet which
should enable Shinko to collect a commission of US $67,747.73 only
can not be considered as such since the statement was made in the
context of questioning CMS's tally of logs delivered to various Japanese
firms.
Similarly, the statement of Daniel R. Aguinaldo, to wit
. . . Knowing as we do that Toyo Menka is a large and reputable
company, it is obvious that they paid Shinko for certain services

which Shinko must have satisfactorily performed for them in Japan

otherwise they would not have paid Shinko
and that of Atty. V. E. Del Rosario,
. . . It does not seem proper, therefore, for CMS Logging, Inc., as
principal, to concern itself with, much less question, the right of
Shinko Trading Co., Ltd. with which our client debt directly, to
whatever benefits it might have derived form the ultimate
consumer/buyer of these logs, Toyo Menka Kaisha, Ltd. There
appears to be no justification for your client's contention that these
benefits, whether they can be considered as commissions paid by
Toyo Menka Kaisha to Shinko Trading, are to be regarded part of the
gross sales.
can not be considered admissions that Shinko received the questioned
commissions since neither statements declared categorically that Shinko
did in fact receive the commissions and that these arose from the sale of
CMS's logs.
As correctly stated by the appellate court:
It is a rule that "a statement is not competent as an admission
where it does not, under a reasonable construction, appear to admit
or acknowledge the fact which is sought to be proved by it". An
admission or declaration to be competent must have been
expressed in definite, certain and unequivocal language (Bank of
the Philippine Islands vs. Fidelity & Surety Co., 51 Phil. 57, 64). 18
CMS's contention that DRACOR had admitted by its silence the allegation that
Shinko received the commissions in question when it failed to respond to Atty.
Carlos Moran Sison's letter dated February 6, 1963, is not supported by the
evidence. DRACOR did in fact reply to the letter of Atty. Sison, through the letter
dated March 5, 1963 of F.A. Novenario, 19 which stated:
This is to acknowledge receipt of your letter dated February 6, 1963,
and addressed to Mr. D. R. Aguinaldo, who is at present out of the
country.
xxx xxx xxx
We have no record or knowledge of any such payment of
commission made by Toyo Menka to Shinko. If the payment was
made by Toyo Menka to Shinko, as stated in your letter, we knew
nothing about it and had nothing to do with it.
The finding of fact made by the trial court, i.e., that "Shinko was able to collect
the total amount of $77,264.67 US Dollars," can not be given weight since this
was based on the summary prepared by CMS itself, Exhibits "M" and "M-1".
Moreover, even if it was shown that Shinko did in fact receive the commissions in
question, CMS is not entitled thereto since these were apparently paid by the

buyers to Shinko for arranging the sale. This is therefore not part of the gross
sales of CMS's logs.
However, We find merit in CMS's contention that the appellate court erred in
holding that DRACOR was entitled to its commission from the sales made by CMS
to Japanese firms.
The principal may revoke a contract of agency at will, and such revocation may
be express, or implied, 20 and may be availed of even if the period fixed in the
contract of agency as not yet expired. 21 As the principal has this absolute right
to revoke the agency, the agent can not object thereto; neither may he claim
damages arising from such revocation, 22 unless 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-infact, 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.
Narvasa, C.J., Padilla and Regalado JJ., concur.

Footnotes
1 Exhibit "A".
2 Exhibit "B".
3 Exhibits "M" and "M-1".
4 Exhibit "AA-2".
5 See Record on Appeal. p. 25.
6 Exhibit "BB-1".
7 Record on Appeal, p. 39.
8 Exhibit "N" and "N-1".
9 Ponente: Justice Luis B. Reyes; Justices Ricardo C. Puno and
Francisco Tantuico, Jr., concurring. Justices Roseller T. Lim and
Magno S. Gatmaitan, dissenting. Because of a 2 to 1 vote within the
division hearing the case, two additional members of the Court of
Appeals were assigned to sit with the members of the division.
10 Decision of the Court of Appeals, p. 12.
11 Id., pp. 13-14.
12 Amigo vs. Teves, 50 O.G. 5799.
13 Exhibits "C", "C-1", "C-2", "E", "E-1", "E-1-A", to "E-1-C". See
also T.S.N., August 24, 1967, pp. 156-159, and T.S.N., October 12,
1967, pp. 164-169.
14 Exhibit "FF", "FF-1" and "FF-2".
15 Exhibit "K" and "K-1".
16 Exhibit "N".
17 Exhibit "X".
18 Decision of the Court of Appeals, p. 13.

19 Exhibit "P".
20 Art. 1920, Civil Code.
21 Barretto vs. Santa Marina, 26 Phil. 440.
22 Padilla, Civil Law, Vol. VI, p. 297.
23 Infante vs. Cunanan, 93 Phil. 691.
24 107 Phil. 824 (1960).
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-10881

September 30, 1958

EULOGIO DEL ROSARIO, AURELIO DEL ROSARIO, BENITO DEL ROSARIO,

BERNARDO DEL ROSARIO, ISIDRA DEL ROSARIO, DOMINGA DEL ROSARIO
and CONCEPCION BORROMEO, plaintiff-appellees,
vs.
PRIMITIVO ABAD and TEODORICO ABAD, defendants-appellants.
Baustita and Bautista for appellees.
Agustin C. Bagasao for appellants.
PADILLA, J.:
Appeal from a judgment rendered by the Court of First Instance of Nueva Ecija in
civil case No. 1084.
The facts are undisputed, the parties having entered into an agreed statement
thereof, the pertinent and materials part of which are: The plaintiffs are the
children and heirs of the late Tiburcio del Rosario. On 12 December 1936, the
Secretary of Agriculture and Commerce, by authority of the President of the
Commonwealth of the Philippines, issued under the provisions of the Public Land
Act (Act No. 2874) homestead patent No. 40596 to Tiburcio del Rosario. The
homestead with an area of 9 hectares, 43 ares and 14 centares is situated in
barrio San Mauricio, municipality of San Jose, province of Nueva Ecija. On 11
February 1937, the Registrar of Deeds in and for the province of Nueva Ecija
issued original certificate of title No. 4820 in the name of the homesteader
(Annex A, stipulation of facts, pp. 25-30, Rec. on App.). On 24 February 1937,
Tiburcio del Rosario obtained a loan from Primitivo Abad in the sum of P2,000
with interest at the rate of 12% per annum, payable on 31 December 1941. As
security for the payment thereof he mortgaged the improvements of the parcel
of land in favor of the creditor (Annex B, complaint, pp. 10-13, Rec. on App.). On
the same day, 24 February, the mortgagor executed an "irrevocable special
power of attorney coupled with interest" in favor of the mortgagee, authorizing
him, among others, to sell and convey the parcel of land (Annex A, complaint,
pp. 7-9, Rec. on App.). Thereafter the mortgagor and his family moved to

Santiago, Isabela, and there established a new residence. Sometime in

December 1945 the mortgagor died leaving the mortgage debt unpaid. On 9
June 1947, Primitivo Abad, acting as attorney-in-fact of Tiburcio del Rosario, sold
the parcel of land to his son Teodorico Abad for and in consideration of the token
sum of P1.00 and the payment by the vendee of the mortgage debt of Tiburcio
del Rosario to Primitivo Abad (Annex C, complaint, pp. 13-16, Rec. on App.). The
vendee took possession of the parcel of land. Upon the filing and registration of
the last deed of sale, the Registrar of Deeds in and for the province of Nueva
Ecija cancelled original certificate of title No. 4820 in the name of Tiburcio del
Rosario and in lieu thereof issued transfer certificate of title No. 1882 in favor of
the vendee Teodorico Abad.
On 29 December 1952 the plaintiffs brought suit against the defendants to
recover possession and ownership of the parcel of land, damages, attorney's fees
and costs. The defendants answered the complaint and prayed for the dismissal
thereof, damages, attorney's fees and costs.
On 25 October 1954, after the parties had submitted the case upon a stipulation
of facts, the Court rendered judgment, the dispositive part of which is:
WHEREFORE, the deed of sale executed by Primitivo Abad in favor of
Teodorica Abad, Annex C, is hereby declared null and void; and Teodorico
Abad is hereby ordered to execute a deed of reconveyance of the land
originally with OCT No. 4820, now covered by Transfer Certificate of Title
No. 1880, in favor of the plaintiffs. No pronouncement as to costs.
The defendants appealed to the Court of Appeals, which certified the case to this
Court as no question of fact is involved.
Section 116 of the Public Land Act (Act No. 2874), under which the homestead
was granted to the appellees' father, provides:
Lands acquired under the free patent or homestead provisions shall not be
subject to encumbrance or alienation from the date of the approval of the
application and for a term of five years from and after the date of the
issuance of the patent or grant, nor shall they become liable to the
satisfaction of any debt contracted prior to the expiration of said period;
but the improvements or crops on the land may be mortgaged or pledged
to qualified persons, associations, or corporations.
The encumbrance or alienation of lands acquired by free patent or homestead in
violation of this section is null and void.1
There is no question that the mortgage on the improvements of the parcel of
land executed by Tiburcio del Rosario in favor of Primitivo Abad (Annex B,
complaint, pp. 10-13, Rec. on App.) is valid.
The power of attorney executed by Tiburcio del Rosario in favor of Primitivo Abad
(Annex A, complaint, pp. 7-9, Rec. on App.) providing, among others, that is
coupled with an interest in the subject matter thereof in favor of the said
attorney and are therefore irrevocable, and . . . conferring upon my said attorney
full and ample power and authority to do and perform all things reasonably
necessary and proper for the due carrying out of the said powers according to

the true tenor and purport of the same, . . ." does not create an agency coupled
with an interest nor does it clothe the agency with an irrevocable character. A
mere statement in the power of attorney that it is coupled with an interest is not
enough. In what does such interest consist must be stated in the power of
attorney. The fact that Tiburcio del Rosario, the principal, had mortgaged the
improvements of the parcel of land to Primitivo Abad, the agent, (Annex B,
complaint, pp. 10-13, Rec. on App.) is not such an interest as could render
irrevocable the power of attorney executed by the principal in favor of the agent.
In fact no mention of it is made in the power of attorney. The mortgage on the
improvements of the parcel of land has nothing to do with the power of attorney
and may be foreclosed by the mortgagee upon failure of the mortgagor to
comply with his obligation. As the agency was not coupled with an interest, it
was terminated upon the death of Tiburcio del Rosario, the principal, sometime in
December 1945, and Primitivo Abad, the agent, could no longer validly convey
the parcel of land to Teodorico Abad on 9 June 1947. The sale, therefore, to the
later was null and void. But granting that the irrevocable power of attorney was
lawful and valid it would subject the parcel of land to an encumbrance. As the
homestead patent was issued on 12 December 1936 and the power of
attorney was executed on 24 February 1937, it was in violation of the
law that prohibits the alienation or encumbrance of land acquired by
homestead from the date of the approval of the application and for a
term of five years from and after the issuance of the patent or grant.
Appellants contend that the power of attorney was to be availed of by the agent
after the lapse of the prohibition period of five years, and that in fact Primitivo
Abad sold the parcel of land on 9 June 1947, after the lapse of such period.
Nothing to that effect is found in the power of attorney.
Appellants claim that the trial court should have directed the appellees to
reimburse Teodorico Abad for what he had paid to Primitivo Abad to discharge
the mortgage in the latter's favor as part of the consideration of the sale. As the
sale to Teodorico Abad is null and void, the appellees can not be compelled to
reimburse Teodorico Abad for what he had paid to Primitivo Abad. The former's
right of action is against the latter, without prejudice to the right of Primitive
Abad to foreclose the mortgage on the improvements of the parcel of land if the
mortgage debt is not paid by the appellees, as heirs and successors-in-interest of
the mortgagor.
The judgment appealed from is affirmed, with costs against the appellants.
Paras, C. J., Bengzon, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes,
J.B.L., and Endencia, JJ.,concur.

Footnotes
1

Section 122, Public Land Act (Act No. 2874).

SECOND DIVISION

[G.R. No. 156015. August 11, 2005]

REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M.
CALIMLIM, in his capacity as former Chief of the Intelligence
Service, Armed Forces of the Philippines (ISAFP), and former
Commanding General, Presidential Security Group (PSG), and MAJ.
DAVID B. DICIANO, in his capacity as an Officer of ISAFP and
former member of the PSG, petitioners, vs. HON. VICTORINO
EVANGELISTA, in his capacity as Presiding Judge, Regional Trial
Court, Branch 223, Quezon City, and DANTE LEGASPI, represented
by his attorney-in-fact, Paul Gutierrez, respondents.
DECISION
PUNO, J.:
The case at bar stems from a complaint for damages, with prayer for the
issuance of a writ of preliminary injunction, filed by private respondent
Dante Legaspi, through his attorney-in-fact Paul Gutierrez, against
petitioners Gen. Jose M. Calimlim, Ciriaco Reyes and Maj. David Diciano
before the Regional Trial Court (RTC) of Quezon City.[1]
The Complaint alleged that private respondent Legaspi is the owner of a
land located in Bigte, Norzagaray, Bulacan. In November 1999, petitioner
Calimlim, representing the Republic of the Philippines, and as then head of
the Intelligence Service of the Armed Forces of the Philippines and the
Presidential Security Group, entered into a Memorandum of Agreement
(MOA) with one Ciriaco Reyes. The MOA granted Reyes a permit to hunt
for treasure in a land in Bigte, Norzagaray, Bulacan. Petitioner Diciano
signed the MOA as a witness.[2] It was further alleged that thereafter,
Reyes, together with petitioners, started, digging, tunneling and blasting
works on the said land of Legaspi. The complaint also alleged that
petitioner Calimlim assigned about 80 military personnel to guard the area
and encamp thereon to intimidate Legaspi and other occupants of the area
from going near the subject land.
On February 15, 2000, Legaspi executed a special power of attorney (SPA)
appointing his nephew, private respondent Gutierrez, as his attorney-infact. Gutierrez was given the power to deal with the treasure hunting
activities on Legaspis land and to file charges against those who may
enter it without the latters authority. [3] Legaspi agreed to give Gutierrez
40% of the treasure that may be found in the land.
On February 29, 2000, Gutierrez filed a case for damages and injunction
against petitioners for illegally entering Legaspis land. He hired the legal
services of Atty. Homobono Adaza. Their contract provided that as legal
fees, Atty. Adaza shall be entitled to 30% of Legaspis share in whatever
treasure may be found in the land. In addition, Gutierrez agreed to pay
Atty. Adaza P5,000.00 as appearance fee per court hearing and defray all
expenses for the cost of the litigation. [4] Upon the filing of the complaint,
then Executive Judge Perlita J. Tria Tirona issued a 72-hour temporary
restraining order (TRO) against petitioners.

The case[5] was subsequently raffled to the RTC of Quezon City, Branch
223, then presided by public respondent Judge Victorino P. Evangelista.
On March 2, 2000, respondent judge issued another 72-hour TRO and a
summary hearing for its extension was set on March 7, 2000.
On March 14, 2000, petitioners filed a Motion to Dismiss [6] contending:
first, there is no real party-in-interest as the SPA of Gutierrez to bring the
suit was already revoked by Legaspi on March 7, 2000, as evidenced by a
Deed of Revocation,[7] and, second, Gutierrez failed to establish that the
alleged armed men guarding the area were acting on orders of
petitioners. On March 17, 2000, petitioners also filed a Motion for
Inhibition[8] of the respondent judge on the ground of alleged partiality in
favor of private respondent.
On March 23, 2000, the trial court granted private respondents
application for a writ of preliminary injunction on the following grounds: (1)
the diggings and blastings appear to have been made on the land of
Legaspi, hence, there is an urgent need to maintain the status quo to
prevent serious damage to Legaspis land; and, (2) the SPA granted to
Gutierrez continues to be valid.[9] The trial court ordered thus:
WHEREFORE, in view of all the foregoing, the Court hereby resolves to
GRANT plaintiffs application for a writ of preliminary injunction. Upon
plaintiffs filing of an injunction bond in the amount of ONE HUNDRED
THOUSAND PESOS (P100,000.00), let a Writ of Preliminary Injunction issue
enjoining the defendants as well as their associates, agents or
representatives from continuing to occupy and encamp on the land of the
plaintiff LEGASPI as well as the vicinity thereof; from digging, tunneling
and blasting the said land of plaintiff LEGASPI; from removing whatever
treasure may be found on the said land; from preventing and threatening
the plaintiffs and their representatives from entering the said land and
performing acts of ownership; from threatening the plaintiffs and their
representatives as well as plaintiffs lawyer.
On even date, the trial court issued another Order [10] denying petitioners
motion to dismiss and requiring petitioners to answer the complaint. On
April 4, 2000, it likewise denied petitioners motion for inhibition. [11]
On appeal, the Court of Appeals affirmed the decision of the trial court. [12]
Hence this petition, with the following assigned errors:
I
WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND PRIVATE
RESPONDENT GUTIERREZ HAS BEEN EFFECTIVELY REVOKED BY LEGASPI.
II
WHETHER THE COMPLAINT AGAINST PETITIONERS SHOULD BE DISMISSED.
III

WHETHER RESPONDENT JUDGE OUGHT TO HAVE INHIBITED HIMSELF FROM

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

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

enclosed area of Legaspis land. Whether the land fenced by

Gutierrez and claimed to be included in the land of Legaspi
covered an area beyond that which is included in the title of
Legaspi is a factual issue still subject to litigation and proof by
the parties in the main case for damages. It was necessary for the
trial court to issue the writ of preliminary injunction during the pendency
of the main case in order to preserve the rights and interests of private
respondents Legaspi and Gutierrez.
On the third issue, petitioners charge that the respondent judge lacked the
neutrality of an impartial judge. They fault the respondent judge for not
giving credence to the testimony of their surveyor that the diggings were
conducted outside the land of Legaspi. They also claim that respondent
judges rulings on objections raised by the parties were biased against
them.
We have carefully examined the records and we find no sufficient basis to
hold that respondent judge should have recused himself from hearing the
case. There is no discernible pattern of bias on the rulings of the
respondent judge. Bias and partiality can never be presumed. Bare
allegations of partiality will not suffice in an absence of a clear showing
that will overcome the presumption that the judge dispensed justice
without fear or favor.[24] It bears to stress again that a judges appreciation
or misappreciation of the sufficiency of evidence adduced by the parties,
or the correctness of a judges orders or rulings on the objections of
counsels during the hearing, without proof of malice on the part of
respondent judge, is not sufficient to show bias or partiality. As we held in
the case of Webb vs. People,[25] the adverse and erroneous rulings of a
judge on the various motions of a party do not sufficiently prove bias and
prejudice to disqualify him. To be disqualifying, it must be shown that the
bias and prejudice stemmed from an extrajudicial source and result in an
opinion on the merits on some basis other than what the judge learned
from his participation in the case. Opinions formed in the course of judicial
proceedings, although erroneous, as long as based on the evidence
adduced, do not prove bias or prejudice. We also emphasized that
repeated rulings against a litigant, no matter how erroneously, vigorously
and consistently expressed, do not amount to bias and prejudice which
can be a bases for the disqualification of a judge.
Finally, the inhibition of respondent judge in hearing the case for damages
has become moot and academic in view of the latters death during the
pendency of the case. The main case for damages shall now be heard and
tried before another judge.
IN VIEW WHEREOF, the impugned Orders of the trial court in Civil Case
No. Q-00-40115, dated March 23 and April 4, 2000, are AFFIRMED. The
presiding judge of the Regional Trial Court of Quezon City to whom Civil
Case No. Q-00-40115 was assigned is directed to proceed with dispatch in
hearing the main case for damages. No pronouncement as to costs.
SO ORDERED.
Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

[1]

Complaint, dated February 29, 2000; Rollo, pp. 84-90.

[2]

Petitioners have since retired from government service.

[3]

Rollo, p. 91.

[4]

Rollo, p. 177.

[5]

Docketed as Civil Case No. Q-00-40115.

[6]

Rollo, pp. 95-103.

[7]

Revocation of SPA, Rollo, p. 92.

[8]

Rollo, pp. 105-122.

[9]

Order, dated March 23, 2000, Rollo, pp. 124-127.

[10]

Order, dated March 23, 2000, Rollo, pp. 128-130.

[11]

Rollo, pp. 131-132.

[12]

Decision, dated November 8, 2000, penned by Associate Justice Eubulo

G. Verzola and concurred in by Associate Justices Marina L. Buzon and
Perlita J. Tria Tirona; Rollo, pp. 72-80.
[13]

Saums v. Parfet, 270 Mich. 165, 258 N.W. 235.

[14]

Agency, Vicente J. Francisco, p. 353.

[15]

Art. 1927, Civil Code.

[16]

Cox v. Freeman, 1951 OK 16, 204 Okla. 138, 227 P. 2d 670.

[17]

Civil Code of the Philippines Annotated, Ambrosio Padilla, 1987 ed., Vol.
VI, p. 447.
[18]

Philippine National Bank v. Ritratto Group, Inc., 362 SCRA 216 (2001).

[19]

Republic of the Philippines v. Silerio, 272 SCRA 280 (1997).

[20]

Heirs of Joaquin Asuncion v. Commission on Audit, 304 SCRA 322

(1999).
[21]

Buayan Cattle Co., Inc. v. Quintillan, 128 SCRA 276 (1984).

[22]

Developers Group of Companies, Inc. v. Court of Appeals, 219 SCRA 715

(1993).
[23]

Saulog v. Court of Appeals, 262 SCRA 51 (1996).

[24]

Spouses Causin v. Judge Demecillo, A.M. No. RTJ-04-1860, September 8,

2004.
[25]

276 SCRA 243 (1997).

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-18616

March 31, 1964

VICENTE M. COLEONGCO, plaintiff-appellant,

vs.
EDUARDO L. CLAPAROLS, defendant-appellee.
San Juan, Africa and Benedicto for plaintiff-appellant.
Alberto Jamir for defendant-appellee.
REYES, J.B.L., J.:
Appeal by plaintiff Vicente Coleongco from a decision of the Court of First
Instance of Negros Occidental (in its Civil Case No. 4170) dismissing plaintiff's
action for damages, and ordering him to pay defendant Eduardo Claparols the
amount of P81,387.27 plus legal interest from the filing of the counterclaim till
payment thereof; P50,000 as moral and compensatory damages suffered by
defendant; and costs.
A writ of preliminary attachment for the sum of P100,000 was subsequently
issued against plaintiff's properties in spite of opposition thereto.
Plaintiff Coleongco, not being in conformity with the judgment appealed to this
Court directly, the claims involved being in excess of P200,000.
The antecedent facts as found by the trial court and shown by the records, are as
follows:
Since 1951, defendant-appellee, Eduardo L. Claparols, operated a factory for the
manufacture of nails in Talisay, Occidental Negros, under the style of "Claparols
Steel & Nail Plant". The raw material, nail wire, was imported from foreign
sources, specially from Belgium; and Claparols had a regular dollar allocation
therefor, granted by the Import Control Commission and the Central Bank. The
marketing of the nails was handled by the "ABCD Commercial" of Bacolod, which
was owned by a Chinaman named Kho To.1wph1.t

Losses compelled Claparols in 1953 to look for someone to finance his imports of
nail wires. At first, Kho To agreed to do the financing, but on April 25, 1953, the
Chinaman introduced his compadre, appellant Vicente Coleongco, to the
appellee, recommending said appellant to be the financier in the stead of Kho To.
Claparols agreed, and on April 25 of that year a contract (Exhibit B) was
perfected between them whereby Coleongco undertook to finance and put up
the funds required for the importation of the nail wire, which Claparols bound
himself to convert into nails at his plant. It was agreed that Coleongco would
have the exclusive distribution of the product, and the "absolute care in the
marketing of these nails and the promotion of sales all over the Philippines",
except the Davao Agency; that Coleongco would "share the control of all the
cash" from sales or deposited in banks; that he would have a representative in
the management; that all contracts and transactions should be jointly approved
by both parties; that proper books would be kept and annual accounts rendered;
and that profits and losses would be shared "on a 50-50 basis". The contract was
renewed from one year to year until 1958, and Coleongco's share subsequently
increased by 5% of the net profit of the factory (Exhibits D, E, F).
Two days after the execution of the basic agreement, Exhibit "B", on April 27,
1953, Claparols executed in favor of Coleongco, at the latter's behest a special
power of attorney (Exhibit C) to open and negotiate letters of credit, to sign
contracts, bills of lading, invoices, and papers covering transactions; to represent
appellee and the nail factory; and to accept payments and cash advances from
dealers and distributors. Thereafter, Coleongco also became the assistant
manager of the factory, and took over its business transactions, while Claparols
devoted most of his time to the nail manufacture processes.
Around mid-November of 1956, appellee Claparols was disagreeably surprised by
service of an alias writ of execution to enforce a judgment obtained against him
by the Philippine National Bank, despite the fact that on the preceding
September he had submitted an amortization plan to settle the account. Worried
and alarmed, Claparols immediately left for Manila to confer with the bank
authorities. Upon arrival, he learned to his dismay that the execution had been
procured because of derogatory information against appellee that had reached
the bank from his associate, appellant Coleongco. On July 6, 1956, the latter,
without appellee's knowledge, had written to the bank
in connection with the verbal offer for the acquisition by me of the
whole interest of Mr. Eduardo L. Claparols in the Claparols Steel & Nail
Plant and the Claparols Hollow Blocks Factory" (Exhibit 36);
and later, on October 29, 1956, Coleongco had written again the bank another
letter (Exhibit 35), also behind the back of appellee, wherein Coleongco charged
Claparols with taking machines mortgaged to the bank, and added - .
In my humble personal opinion I presume that Mr. Eduardo L. Claparols is
not serious in meeting his obligations with your bank, otherwise he had
not taken these machines and equipments a sign of bad faith since the
factory is making a satisfactory profit of my administration.
Fortunately, Claparols managed to arrange matters with the bank and to have
the execution levy lifted. Incensed at what he regarded as disloyalty of his
attorney-in-fact, he consulted lawyers. The upshot was that appellee revoked the

power of attorney (Exhibit "C"), and informed Coleongco thereof (Exhibits T, T-1),
by registered mail, demanding a full accounting at the same time. Coleongco, as
could be expected, protested these acts of Claparols, but the latter insisted, and
on the first of January, 1957 wrote a letter to Coleongco dismissing him as
assistant manager of the plant and asked C. Miller & Company, auditors, to go
over the books and records of the business with a view to adjusting the accounts
of the associates. These last steps were taken in view of the revelation made by
his machinery superintendent, Romulo Agsam, that in the course of the
preceding New Year celebrations Coleongco had drawn Agsam aside and
proposed that the latter should pour acid on the machinery to paralyze the
factory. The examination by the auditors, summarized in Exhibits 80 and 87,
found that Coleongco owed the Claparols Nail Factory the amount of P87,387.37,
as of June 30, 1957.
In the meantime, Claparols had found in the factory files certain correspondence
in February, 1955 between Coleongco and the nail dealer Kho To whereby the
former proposed to Kho that the latter should cut his monthly advances to
Claparols from P2,000 to P1,000 a month, because
I think it is time that we do our plan to take advantage of the difficulties of
Eddie with the banks for our benefit. If we can squeeze him more. I am
sure that we can extend our contract with him before it ends next year,
and perhaps on better terms. If we play well our cards we might yet own
his factory (Exhibit 32);
and conformably to Coleongco's proposal, Kho To had written to Claparols that
"due to present business conditions" the latter could only be allowed to draw
P1,000 a month beginning April, 1955 (Exhibit 33).
As the parties could not amicably settle their accounts, Coleongco filed a suit
against Claparols charging breach of contract, asking for accounting, and praying
for P528,762.19 as damages, and attorney's fees, to which Claparols answered,
denying the charge, and counter-claiming for the rescission of the agreement
with Coleongco for P561,387.99 by way of damages. After trial, the court
rendered judgment, as stated at the beginning of this opinion.
In this appeal, it is first contended by the appellant Coleongco that the power of
attorney (Exhibit "C") was made to protect his interest under the financing
agreement (Exhibit "B") and was one coupled with an interest that the appellee
Claparols had no legal power to revoke. This point can not be sustained. The
financing agreement itself already contained clauses for the protection of
appellant's interest, and did not call for the execution of any power of attorney in
favor of Coleongco. But granting appellant's view, it must not be forgotten that a
power of attorney can be made irrevocable by contract only in the sense that the
principal may not recall it at his pleasure; but coupled with interest or not, the
authority certainly can be revoked for a just cause, such as when the attorney-infact betrays the interest of the principal, as happened in this case. It is not open
to serious doubt that the irrevocability of the power of attorney may not be used
to shield the perpetration of acts in bad faith, breach of confidence, or betrayal
of trust, by the agent for that would amount to holding that a power coupled with
an interest authorizes the agent to commit frauds against the principal.

Our new Civil Code, in Article 1172, expressly provides the contrary in
prescribing that responsibility arising from fraud is demandable in all obligations,
and that any waiver of action for future fraud is void. It is also on this principle
that the Civil Code, in its Article 1800, declares that the powers of a partner,
appointed as manager, in the articles of co-partnership are irrevocable without
just or lawful cause; and an agent with power coupled with an interest can not
stand on better ground than such a partner in so far as irrevocability of the
power is concerned.
That the appellee Coleongco acted in bad faith towards his principal Claparols is,
on the record, unquestionable. His letters to the Philippine National Bank
(Exhibits 35 and 36) attempting to undermine the credit of the principal and to
acquire the factory of the latter, without the principal's knowledge; Coleongco's
letter to his cousin, Kho To (Exhibit 32), instructing the latter to reduce to onehalf the usual monthly advances to Claparols on account of nail sales in order to
squeeze said appellee and compel him to extend the contract entitling
Coleongco to share in the profits of the nail factory on better terms, and
ultimately "own his factory", a plan carried out by Kho's letter, Exhibit 33,
reducing the advances to Claparols; Coleongco's attempt to, have Romulo Agsam
pour acid on the machinery; his illegal diversion of the profits of the factory to his
own benefit; and the surreptitious disposition of the Yates band resaw machine in
favor of his cousin's Hong Shing Lumber Yard, made while Claparols was in
Baguio in July and August of 1956, are plain acts of deliberate sabotage by the
agent that fully justified the revocation of the power of attorney (Exhibit "C") by
Claparols and his demand for an accounting from his agent Coleongco.
Appellant attempts to justify his letter to the Philippine National Bank (Exhibits
35 and 36), claiming that Claparols' mal-administration of the business
endangered the security for the advances that he had made under the financing
contract (Exhibit "B"). But if that were the case, it is to be expected that
Coleongco would have first protested to Claparols himself, which he never did.
Appellant likewise denies the authorship of the letter to Kho (Exhibit 32) as well
as the attempt to induce Agsam to damage the machinery of the factory.
Between the testimony of Agsam and Claparols and that of Coleongco, the court
below whose to believe the former, and we see no reason to alter the lower
court's conclusion on the value of the evidence before it, considering that Kho's
letter to Claparols (Exhibit 33) plainly corroborates and dovetails with the plan
outlined in Coleongco's own letter (Exhibit 32), signed by him, and that the
credibility of Coleongco is affected adversely by his own admission of his having
been previously convicted of estafa (t.s.n., pp. 139, 276), a crime that implies
moral turpitude. Even disregarding Coleongco's letter to his son-in-law (Exhibit
82) that so fully reveals Coleongco's lack of business scruples, the clear
preponderance of evidence is against appellant.
The same remarks apply to the finding of the trial court that it was appellant
Coleongco, and not Claparols, who disposed of the band resawing equipment,
since said machine was received in July, 1956 and sold in August of that year to
the Hong Shing Lumber Co., managed by appellant's cousin Vicente Kho. The
untruth of Coleongco's charge that Claparols, upon his return from Baguio in
September, 1956, admitted having sold the machine behind his associate's back
is further evidenced by (a) Coleongco's letter, Exhibit "V", dated October 29,
1956, inquiring the whereabouts of the resaw equipment from Claparols (an
inquiry incompatible with Claparols' previous admission); (b) by the undenied
fact that the appellee was in Baguio and Coleongco was acting for him during the

months of July and August when the machine was received and sold; and (c) the
fact that as between the two it is Coleongco who had a clear interest in selling
the sawing machine to his cousin Kho To's lumber yard. If Claparols wished to sell
the machine without Coleongco's knowledge, he would not have picked the
latter's cousin for a buyer.
The action of plaintiff-appellant for damages and lost profits due to the
discontinuance of the financing agreement, Exhibit "B", may not prosper,
because the record shows that the appellant likewise breached his part of the
contract. It will be recalled that paragraph 2 of the contract, Exhibit "B", it was
stipulated:
That the Party of the Second Part (Coleongco) has agreed to finance and
put up all the necessary money which may be needed to pay for the
importation of the raw materials needed by such nail factory and allocated
by the ICC from time to time, either in cash of with whatever suitable
means which the Party of the Second Part may be able to make by suitable
arrangements with any well-known banking institution recognized by the
Central Bank of the Philippines.
Instead of putting up all the necessary money needed to finance the imports of
raw material, Coleongco merely advanced 25% in cash on account of the price
and had the balance covered by surety agreements executed by Claparols and
others as solidary, (joint and several) guarantors (see Exhibits G, H, I). The
upshot of this arrangement was that Claparols was made to shoulder 3/4 of the
payment for the imports, contrary to the financing agreement. Paragraph 11 of
the latter expressly denied Coleongco any power or authority to bind Claparols
without previous consultation and authority. When the balances for the cost of
the importations became due, Coleongco, in some instances, paid it with the
dealers' advances to the nail factory against future sales without the knowledge
of Claparols (Exhibits "K" to K-11, K-13). Under paragraphs 8 and 11 of the
financing agreement, Coleongco was to give preference to the operating
expenses before sharing profits, so that until the operating costs were provided
for, Coleongco had no right to apply the factory's income to pay his own
obligations.
Again, the examination of the books by accountant Atienza of C. Miller and Co.,
showed that from 1954 onwards Coleongco (who had the control of the factory's
cash and bank deposits, under Paragraph 11 of Exhibit "B") never liquidated and
paid in full to Claparols his half of the profits, so that by the end of 1956 there
was due to Claparols P38,068.41 on this account (Exhibit 91). For 1957 to 1958
Claparols financed the imports of nail wire without the help of appellant, and in
view of the latter's infringement of his obligations, his acts of disloyalty
previously discussed, and his diversions of factory funds (he even bought two
motor vehicles with them), we find no justification for his insistence in sharing in
the factory's profit for those years, nor for the restoration of the revoked power
of attorney.
The accountant's reports and testimony (specially Exhibits 80 to 87) prove that
as of June 30, 1957, Coleongco owed to Claparols the sum of P83,466.34 that
after some adjustment was reduced to P81,387.37, practically accepted even by
appellant's auditor. The alleged discrepancies between the general ledger and
the result thus arrived at was satisfactorily explained by accountant Atienza in
his testimony (t.s.n., 1173-1178).

No error was, therefore, committed by the trial court in declaring the financing
contract (Exh. B) properly resolved by Claparols or in rendering judgment against
appellant in favor of appellee for the said amount of P81,387.37. The basic rule
of contracts requires parties to act loyally toward each other in the pursuit of the
common end, and appellant clearly violated the rule of good faith prescribed by
Art. 1315 of the new Civil Code.
The lower court also allowed Claparols P50,000 for damages, material, moral,
and exemplary, caused by the appellant Coleongco's acts in maliciously
undermining appellee's credit that led the Philippine National Bank to secure a
writ of execution against Claparols. Undeniably, the attempts of Coleongco to
discredit and "squeeze" Claparols out of his own factory and business could not
but cause the latter mental anguish and serious anxiety, as found by the court
below, for which he is entitled to compensation; and the malevolence that lay
behind appellee's actions justified also the imposition of exemplary or deterrent
damages (Civ. Code, Art. 2232). While the award could have been made larger
without violating the canons of justice, the discretion in fixing such damages
primarily lay in the trial court, and we feel that the same should be respected.
IN VIEW OF THE FOREGOING, the decision appealed from is affirmed. Costs
against appellant Vicente Coleongco.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes,
Dizon, Regala and Makalintal, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 83122 October 19, 1990
ARTURO P. VALENZUELA and HOSPITALITA N.
VALENZUELA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, BIENVENIDO M. ARAGON,
ROBERT E. PARNELL, CARLOS K. CATOLICO and THE PHILIPPINE
AMERICAN GENERAL INSURANCE COMPANY, INC., respondents.
Albino B. Achas for petitioners.
Angara, Abello, Concepcion, Regala & Cruz for private respondents.

GUTIERREZ, JR., J.:

This is a petition for review of the January 29, 1988 decision of the Court
of Appeals and the April 27, 1988 resolution denying the petitioners'
motion for reconsideration, which decision and resolution reversed the

decision dated June 23,1986 of the Court of First Instance of Manila,

Branch 34 in Civil Case No. 121126 upholding the petitioners' causes of
action and granting all the reliefs prayed for in their complaint against
private respondents.
The antecedent facts of the case are as follows:
Petitioner Arturo P. Valenzuela (Valenzuela for short) is a General Agent of
private respondent Philippine American General Insurance Company, Inc.
(Philamgen for short) since 1965. As such, he was authorized to solicit and
sell in behalf of Philamgen all kinds of non-life insurance, and in
consideration of services rendered was entitled to receive the full agent's
commission of 32.5% from Philamgen under the scheduled commission
rates (Exhibits "A" and "1"). From 1973 to 1975, Valenzuela solicited
marine insurance from one of his clients, the Delta Motors, Inc. (Division of
Electronics Airconditioning and Refrigeration) in the amount of P4.4 Million
from which he was entitled to a commission of 32% (Exhibit "B").
However, Valenzuela did not receive his full commission which amounted
to P1.6 Million from the P4.4 Million insurance coverage of the Delta
Motors. During the period 1976 to 1978, premium payments amounting to
P1,946,886.00 were paid directly to Philamgen and Valenzuela's
commission to which he is entitled amounted to P632,737.00.
In 1977, Philamgen started to become interested in and expressed its
intent to share in the commission due Valenzuela (Exhibits "III" and "III-1")
on a fifty-fifty basis (Exhibit "C"). Valenzuela refused (Exhibit "D").
On February 8, 1978 Philamgen and its President, Bienvenido M. Aragon
insisted on the sharing of the commission with Valenzuela (Exhibit E). This
was followed by another sharing proposal dated June 1, 1978. On June
16,1978, Valenzuela firmly reiterated his objection to the proposals of
respondents stating that: "It is with great reluctance that I have to decline
upon request to signify my conformity to your alternative proposal
regarding the payment of the commission due me. However, I have no
choice for to do otherwise would be violative of the Agency Agreement
executed between our goodselves." (Exhibit B-1)
Because of the refusal of Valenzuela, Philamgen and its officers, namely:
Bienvenido Aragon, Carlos Catolico and Robert E. Parnell took drastic
action against Valenzuela. They: (a) reversed the commission due him by
not crediting in his account the commission earned from the Delta Motors,
Inc. insurance (Exhibit "J" and "2"); (b) placed agency transactions on a
cash and carry basis; (c) threatened the cancellation of policies issued by
his agency (Exhibits "H" to "H-2"); and (d) started to leak out news that
Valenzuela has a substantial account with Philamgen. All of these acts
resulted in the decline of his business as insurance agent (Exhibits "N",
"O", "K" and "K-8"). Then on December 27, 1978, Philamgen terminated
the General Agency Agreement of Valenzuela (Exhibit "J", pp. 1-3, Decision
Trial Court dated June 23, 1986, Civil Case No. 121126, Annex I, Petition).

The petitioners sought relief by filing the complaint against the private
respondents in the court a quo (Complaint of January 24, 1979, Annex "F"
Petition). After due proceedings, the trial court found:
xxx xxx xxx
Defendants tried to justify the termination of plaintiff Arturo P. Valenzuela
as one of defendant PHILAMGEN's General Agent by making it appear that
plaintiff Arturo P. Valenzuela has a substantial account with defendant
PHILAMGEN particularly Delta Motors, Inc.'s Account, thereby prejudicing
defendant PHILAMGEN's interest (Exhibits 6,"11","11- "12- A"and"13-A").
Defendants also invoked the provisions of the Civil Code of the Philippines
(Article 1868) and the provisions of the General Agency Agreement as
their basis for terminating plaintiff Arturo P. Valenzuela as one of their
General Agents.
That defendants' position could have been justified had the termination of
plaintiff Arturo P. Valenzuela was (sic) based solely on the provisions of the
Civil Code and the conditions of the General Agency Agreement. But the
records will show that the principal cause of the termination of the plaintiff
as General Agent of defendant PHILAMGEN was his refusal to share his
Delta commission.
That it should be noted that there were several attempts made by
defendant Bienvenido M. Aragon to share with the Delta commission of
plaintiff Arturo P. Valenzuela. He had persistently pursued the sharing
scheme to the point of terminating plaintiff Arturo P. Valenzuela, and to
make matters worse, defendants made it appear that plaintiff Arturo P.
Valenzuela had substantial accounts with defendant PHILAMGEN.
Not only that, defendants have also started (a) to treat separately the
Delta Commission of plaintiff Arturo P. Valenzuela, (b) to reverse the Delta
commission due plaintiff Arturo P. Valenzuela by not crediting or applying
said commission earned to the account of plaintiff Arturo P. Valenzuela, (c)
placed plaintiff Arturo P. Valenzuela's agency transactions on a "cash and
carry basis", (d) sending threats to cancel existing policies issued by
plaintiff Arturo P. Valenzuela's agency, (e) to divert plaintiff Arturo P.
Valenzuela's insurance business to other agencies, and (f) to spread wild
and malicious rumors that plaintiff Arturo P. Valenzuela has substantial
account with defendant PHILAMGEN to force plaintiff Arturo P. Valenzuela
into agreeing with the sharing of his Delta commission." (pp. 9-10,
Decision, Annex 1, Petition).
xxx xxx xxx
These acts of harrassment done by defendants on plaintiff Arturo P.
Valenzuela to force him to agree to the sharing of his Delta commission,
which culminated in the termination of plaintiff Arturo P. Valenzuela as one

of defendant PHILAMGEN's General Agent, do not justify said termination

of the General Agency Agreement entered into by defendant PHILAMGEN
and plaintiff Arturo P. Valenzuela.
That since defendants are not justified in the termination of plaintiff Arturo
P. Valenzuela as one of their General Agents, defendants shall be liable for
the resulting damage and loss of business of plaintiff Arturo P. Valenzuela.
(Arts. 2199/2200, Civil Code of the Philippines). (Ibid, p. 11)
The court accordingly rendered judgment, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
against defendants ordering the latter to reinstate plaintiff Arturo P.
Valenzuela as its General Agent, and to pay plaintiffs, jointly and severally,
the following:
1. The amount of five hundred twenty-one thousand nine hundred sixty
four and 16/100 pesos (P521,964.16) representing plaintiff Arturo P.
Valenzuela's Delta Commission with interest at the legal rate from the
time of the filing of the complaint, which amount shall be adjusted in
accordance with Article 1250 of the Civil Code of the Philippines;
2. The amount of seventy-five thousand pesos (P75,000.00) per month as
compensatory damages from 1980 until such time that defendant
Philamgen shall reinstate plaintiff Arturo P. Valenzuela as one of its general
agents;
3. The amount of three hundred fifty thousand pesos (P350,000.00) for
each plaintiff as moral damages;
4. The amount of seventy-five thousand pesos (P75,000.00) as and for
attorney's fees;
5. Costs of the suit. (Ibid., P. 12)
From the aforesaid decision of the trial court, Bienvenido Aragon, Robert
E. Parnell, Carlos K. Catolico and PHILAMGEN respondents herein, and
defendants-appellants below, interposed an appeal on the following:
ASSIGNMENT OF ERRORS
I
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 thirtytwo 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 (DecisionJanuary 20, 1988, p. 16; Petition, Annex "A"), we rule that the respondent
court erred in holding Valenzuela liable. We find no factual and legal basis
for the award. Under Section 77 of the Insurance Code, the remedy for the
non-payment of premiums is to put an end to and render the insurance
policy not binding
Sec. 77 ... [N]otwithstanding any agreement to the contrary, no policy or
contract of insurance is valid and binding unless and until the premiums
thereof have been paid except in the case of a life or industrial life policy
whenever the grace period provision applies (P.D. 612, as amended
otherwise known as the Insurance Code of 1974)

In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. (92

SCRA 419 [1979]) we held that the non-payment of premium does not
merely suspend but puts an end to an insurance contract since the time of
the payment is peculiarly of the essence of the contract. And in Arce v.
The Capital Insurance and Surety Co. Inc. (117 SCRA 63, [1982]), we
reiterated the rule that unless premium is paid, an insurance contract
does not take effect. Thus:
It is to be noted that Delgado (Capital Insurance & Surety Co., Inc. v.
Delgado, 9 SCRA 177 [1963] was decided in the light of the Insurance Act
before Sec. 72 was amended by the underscored portion. Supra. Prior to
the Amendment, an insurance contract was effective even if the premium
had not been paid so that an insurer was obligated to pay indemnity in
case of loss and correlatively he had also the right to sue for payment of
the premium. But the amendment to Sec. 72 has radically changed the
legal regime in that unless the premium is paid there is no insurance. "
(Arce v. Capitol Insurance and Surety Co., Inc., 117 SCRA 66; Emphasis
supplied)
In Philippine Phoenix Surety case, we held:
Moreover, an insurer cannot treat a contract as valid for the purpose of
collecting premiums and invalid for the purpose of indemnity. (Citing
Insurance Law and Practice by John Alan Appleman, Vol. 15, p. 331;
Emphasis supplied)
The foregoing findings are buttressed by Section 776 of the insurance
Code (Presidential Decree No. 612, promulgated on December 18, 1974),
which now provides that no contract of Insurance by an insurance
company is valid and binding unless and until the premium thereof has
been paid, notwithstanding any agreement to the contrary (Ibid., 92 SCRA
425)
Perforce, since admittedly the premiums have not been paid, the policies
issued have lapsed. The insurance coverage did not go into effect or did
not continue and the obligation of Philamgen as insurer ceased. Hence, for
Philamgen which had no more liability under the lapsed and inexistent
policies to demand, much less sue Valenzuela for the unpaid premiums
would be the height of injustice and unfair dealing. In this instance, with
the lapsing of the policies through the nonpayment of premiums by the
insured there were no more insurance contracts to speak of. As this Court
held in the Philippine Phoenix Surety case, supra "the non-payment of
premiums does not merely suspend but puts an end to an insurance
contract since the time of the payment is peculiarly of the essence of the
contract."
The respondent appellate court also seriously erred in according undue
reliance to the report of Banaria and Banaria and Company, auditors, that
as of December 31, 1978, Valenzuela owed Philamgen P1,528,698.40. This

audit report of Banaria was commissioned by Philamgen after Valenzuela

was almost through with the presentation of his evidence. In essence, the
Banaria report started with an unconfirmed and unaudited beginning
balance of account of P1,758,185.43 as of August 20, 1976. But even with
that unaudited and unconfirmed beginning balance of P1,758,185.43,
Banaria still came up with the amount of P3,865.49 as Valenzuela's
balance as of December 1978 with Philamgen (Exh. "38-A-3"). In fact, as
of December 31, 1976, and December 31, 1977, Valenzuela had no unpaid
account with Philamgen (Ref: Annexes "D", "D-1", "E", Petitioner's
Memorandum). But even disregarding these annexes which are records of
Philamgen and addressed to Valenzuela in due course of business, the
facts show that as of July 1977, the beginning balance of Valenzuela's
account with Philamgen amounted to P744,159.80. This was confirmed by
Philamgen itself not only once but four (4) times on different occasions, as
shown by the records.
On April 3,1978, Philamgen sent Valenzuela a statement of account with a
beginning balance of P744,159-80 as of July 1977.
On May 23, 1978, another statement of account with exactly the same
beginning balance was sent to Valenzuela.
On November 17, 1978, Philamgen sent still another statement of account
with P744,159.80 as the beginning balance.
And on December 20, 1978, a statement of account with exactly the same
figure was sent to Valenzuela.
It was only after the filing of the complaint that a radically different
statement of accounts surfaced in court. Certainly, Philamgen's own
statements made by its own accountants over a long period of time and
covering examinations made on four different occasions must prevail over
unconfirmed and unaudited statements made to support a position made
in the course of defending against a lawsuit.
It is not correct to say that Valenzuela should have presented its own
records to refute the unconfirmed and unaudited finding of the Banaria
auditor. The records of Philamgen itself are the best refutation against
figures made as an afterthought in the course of litigation. Moreover,
Valenzuela asked for a meeting where the figures would be reconciled.
Philamgen refused to meet with him and, instead, terminated the agency
agreement.
After off-setting the amount of P744,159.80, beginning balance as of July
1977, by way of credits representing the commission due from Delta and
other accounts, Valenzuela had overpaid Philamgen the amount of
P530,040.37 as of November 30, 1978. Philamgen cannot later be heard
to complain that it committed a mistake in its computation. The alleged
error may be given credence if committed only once. But as earlier stated,

the reconciliation of accounts was arrived at four (4) times on different

occasions where Philamgen was duly represented by its account
executives. On the basis of these admissions and representations,
Philamgen cannot later on assume a different posture and claim that it
was mistaken in its representation with respect to the correct beginning
balance as of July 1977 amounting to P744,159.80. The Banaria audit
report commissioned by Philamgen is unreliable since its results are
admittedly based on an unconfirmed and unaudited beginning balance of
P1,758,185.43 as of August 20,1976.
As so aptly stated by the trial court in its decision:
Defendants also conducted an audit of accounts of plaintiff Arturo P.
Valenzuela after the controversy has started. In fact, after hearing
plaintiffs have already rested their case.
The results of said audit were presented in Court to show plaintiff Arturo P.
Valenzuela's accountability to defendant PHILAMGEN. However, the
auditor, when presented as witness in this case testified that the
beginning balance of their audit report was based on an unaudited
amount of P1,758,185.43 (Exhibit 46-A) as of August 20, 1976, which was
unverified and merely supplied by the officers of defendant PHILAMGEN.
Even defendants very own Exhibit 38- A-3, showed that plaintiff Arturo P.
Valenzuela's balance as of 1978 amounted to only P3,865.59, not
P826,128.46 as stated in defendant Bienvenido M. Aragon's letter dated
December 20,1978 (Exhibit 14) or P1,528,698.40 as reflected in
defendant's Exhibit 46 (Audit Report of Banaria dated December 24,
1980).
These glaring discrepancy (sic) in the accountability of plaintiff Arturo P.
Valenzuela to defendant PHILAMGEN only lends credence to the claim of
plaintiff Arturo P. Valenzuela that he has no outstanding account with
defendant PHILAMGEN when the latter, thru defendant Bienvenido M.
Aragon, terminated the General Agency Agreement entered into by
plaintiff (Exhibit A) effective January 31, 1979 (see Exhibits "2" and "2-A").
Plaintiff Arturo P. Valenzuela has shown that as of October 31, 1978, he
has overpaid defendant PHILAMGEN in the amount of P53,040.37 (Exhibit
"EEE", which computation was based on defendant PHILAMGEN's balance
of P744,159.80 furnished on several occasions to plaintiff Arturo P.
Valenzuela by defendant PHILAMGEN (Exhibits H-1, VV, VV-1, WW, WW-1 ,
YY , YY-2 , ZZ and , ZZ-2).
Prescinding from the foregoing, and considering that the private
respondents terminated Valenzuela with evident mala fide it necessarily
follows that the former are liable in damages. Respondent Philamgen has
been appropriating for itself all these years the gross billings and income
that it unceremoniously took away from the petitioners. The
preponderance of the authorities sustain the preposition that a principal

can be held liable for damages in cases of unjust termination of agency.

In Danon v. Brimo, 42 Phil. 133 [1921]), this Court ruled that where no
time for the continuance of the contract is fixed by its terms, either party
is at liberty to terminate it at will, subject only to the ordinary
requirements of good faith. The right of the principal to terminate his
authority is absolute and unrestricted, except only that he may not do so
in bad faith.
The trial court in its decision awarded to Valenzuela the amount of
Seventy Five Thousand Pesos (P75,000,00) per month as compensatory
damages from June 1980 until its decision becomes final and executory.
This award is justified in the light of the evidence extant on record
(Exhibits "N", "N-10", "0", "0-1", "P" and "P-1") showing that the average
gross premium collection monthly of Valenzuela over a period of four (4)
months from December 1978 to February 1979, amounted to over
P300,000.00 from which he is entitled to a commission of P100,000.00
more or less per month. Moreover, his annual sales production amounted
to P2,500,000.00 from where he was given 32.5% commissions. Under
Article 2200 of the new Civil Code, "indemnification for damages shall
comprehend not only the value of the loss suffered, but also that of the
profits which the obligee failed to obtain."
The circumstances of the case, however, require that the contractual
relationship between the parties shall be terminated upon the satisfaction
of the judgment. No more claims arising from or as a result of the agency
shall be entertained by the courts after that date.
ACCORDINGLY, the petition is GRANTED. The impugned decision of January
29, 1988 and resolution of April 27, 1988 of respondent court are hereby
SET ASIDE. The decision of the trial court dated January 23, 1986 in Civil
Case No. 121126 is REINSTATED with the MODIFICATIONS that the amount
of FIVE HUNDRED TWENTY ONE THOUSAND NINE HUNDRED SIXTY-FOUR
AND 16/100 PESOS (P521,964.16) representing the petitioners Delta
commission shall earn only legal interests without any adjustments under
Article 1250 of the Civil Code and that the contractual relationship
between Arturo P. Valenzuela and Philippine American General Insurance
Company shall be deemed terminated upon the satisfaction of the
judgment as modified.
SO ORDERED.
Bidin and Cortes, JJ., concur.
Fernan, C.J., (Chairman), took no part
Feliciano, J., is on leave.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-28050

March 13, 1928

FEDERICO VALERA, plaintiff-appellant,

vs.
MIGUEL VELASCO, defendant-appellee.
Jose Martinez San Agustin for appellant.
Vicente O. Romualdez, Crispulo T. Manubay and Placido P. Reyes for appellee.
VILLA-REAL, J.:
This is an appeal taken by Federico Valera from the judgment of the Court of First
Instance of Manila dismissing his complaint against Miguel Velasco, on the
ground that he has not satisfactorily proven his right of action.
In support of his appeal, the appellant assigns the following alleged as
committed by the trial court in its judgment, to wit: (1) The lower court erred in
holding that one of the ways of terminating an agency is by the express or tacit
renunciation of the agent; (2) the lower court erred in holding that the institution
of a civil action and the execution of the judgment obtained by the agent against
his principal is but renunciation of the powers conferred on the agent; (3) the
lower erred in holding that, even if the sale by Eduardo Hernandez to the plaintiff
Federico Valera be declared void, such a declaration could not prevail over the
rights of the defendant Miguel Velasco inasmuch as the right redemption was
exercised by neither Eduardo Hernandez nor the plaintiff Federico Valera; (4) the
lower court erred in not finding that the defendant Miguel Velasco was, and at
present is, an authorized representative of the plaintiff Federico Valera; (5) the
lower court erred in not annulling the sale made by the sheriff at public auction
to defendant Miguel Velasco, Exhibit K; (6) the lower court erred in failing to
annul the sale executed by Eduardo Hernandez to the plaintiff Federico Valera,
Exhibit C; (7) the lower court erred in not annulling Exhibit L, that is, the sale at
public auction of the right to repurchase the land in question to Salvador Vallejo;
(8) the lower court erred in not declaring Exhibit M null and void, which is the
sale by Salvador Vallejo to defendant Miguel Velasco; (9) the lower court erred in
not ordering the defendant Miguel Velasco to liquidate his accounts as agent of
the plaintiff Federico Valera; (10) the lower court erred in not awarding plaintiff
the P5,000 damages prayed for.
The pertinent facts necessary for the solution of the questions raised by the
above quoted assignments of error are contained in the decision appealed from
and are as follows:
By virtue of the powers of attorney, Exhibits X and Z, executed by the
plaintiff on April 11, 1919, and on August 8, 1922, the defendant was
appointed attorney-in-fact of the said plaintiff with authority to manage his

property in the Philippines, consisting of the usufruct of a real property

located of Echague Street, City of Manila.
The defendant accepted both powers of attorney, managed plaintiff's
property, reported his operations, and rendered accounts of his
administration; and on March 31, 1923 presented exhibit F to plaintiff,
which is the final account of his administration for said month, wherein it
appears that there is a balance of P3,058.33 in favor of the plaintiff.
The liquidation of accounts revealed that the plaintiff owed the defendant
P1,100, and as misunderstanding arose between them, the defendant
brought suit against the plaintiff, civil case No. 23447 of this court.
Judgment was rendered in his favor on March 28, 1923, and after the writ
of execution was issued, the sheriff levied upon the plaintiff's right of
usufruct, sold it at public auction and adjudicated it to the defendant in
payment of all of his claim.
Subsequently, on May 11, 1923, the plaintiff sold his right of redemption to
one Eduardo Hernandez, for the sum of P200 (Exhibit A). On September 4,
1923, this purchaser conveyed the same right of redemption, for the sum
of P200, to the plaintiff himself, Federico Valera (Exhibit C).
After the plaintiff had recovered his right of redemption, one Salvador
Vallejo, who had an execution upon a judgment against the plaintiff
rendered in a civil case against the latter, levied upon said right of
redemption, which was sold by the sheriff at public auction to Salvador
Vallejo for P250 and was definitely adjudicated to him. Later, he
transferred said right of redemption to the defendant Velasco. This is how
the title to the right of usufruct to the aforementioned property later came
to vest the said defendant.
As the first two assignments of error are very closely related to each other, we
will consider them jointly.
Article 1732 of the Civil Code reads as follows:
Art. 1732. Agency is terminated:
1. By revocation;
2. By the withdrawal of the agent;
3. By the death, interdiction, bankruptcy, or insolvency of the principal or
of the agent.
And article 1736 of the same Code provides that:
Art. 1736. An agent may withdraw from the agency by giving notice to the
principal. Should the latter suffer any damage through the withdrawal, the
agent must indemnify him therefore, unless the agent's reason for his
withdrawal should be the impossibility of continuing to act as such without
serious detriment to himself.

In the case of De la Pea vs. Hidalgo (16 Phil., 450), this court said laid down the
following rule:
1. AGENCY; ADMINISTRATION OF PROPERTY; IMPLIED AGENCY. When the
agent and administrator of property informs his principal by letter that for
reasons of health and medical treatment he is about to depart from the
place where he is executing his trust and wherein the said property is
situated, and abandons the property, turns it over to a third party, renders
accounts of its revenues up to the date on which he ceases to hold his
position and transmits to his principal statement which summarizes and
embraces all the balances of his accounts since he began the
administration to the date of the termination of his trust, and, without
stating when he may return to take charge of the administration of the
said property, asks his principal to execute a power of attorney in due
form in favor of a transmit the same to another person who took charge of
the administration of the said property, it is but reasonable and just to
conclude that the said agent had expressly and definitely renounced his
agency and that such agency duly terminated, in accordance with the
provisions of article 1732 of the Civil Code, and, although the agent in his
aforementioned letter did not use the words "renouncing the agency," yet
such words, were undoubtedly so understood and accepted by the
principal, because of the lapse of nearly nine years up to the time of the
latter's death, without his having interrogated either the renouncing
agent, disapproving what he had done, or the person who substituted the
latter.
The misunderstanding between the plaintiff and the defendant over the payment
of the balance of P1,000 due the latter, as a result of the liquidation of the
accounts between them arising from the collections by virtue of the former's
usufructuary right, who was the principal, made by the latter as his agent, and
the fact that the said defendant brought suit against the said principal on March
28, 1928 for the payment of said balance, more than prove the breach of the
juridical relation between them; for, although the agent has not expressly told his
principal that he renounced the agency, yet neither dignity nor decorum permits
the latter to continue representing a person who has adopted such an
antagonistic attitude towards him. When the agent filed a complaint against his
principal for recovery of a sum of money arising from the liquidation of the
accounts between them in connection with the agency, Federico Valera could not
have understood otherwise than that Miguel Velasco renounced the agency;
because his act was more expressive than words and could not have caused any
doubt. (2 C. J., 543.) In order to terminate their relations by virtue of the agency
the defendant, as agent, rendered his final account on March 31, 1923 to the
plaintiff, as principal.
Briefly, then, the fact that an agent institutes an action against his principal for
the recovery of the balance in his favor resulting from the liquidation of the
accounts between them arising from the agency, and renders and final account
of his operations, is equivalent to an express renunciation of the agency, and
terminates the juridical relation between them.
If, as we have found, the defendant-appellee Miguel Velasco, in adopting a
hostile attitude towards his principal, suing him for the collection of the balance
in his favor, resulting from the liquidation of the agency accounts, ceased ipso
facto to be the agent of the plaintiff-appellant, said agent's purchase of the

aforesaid principal's right of usufruct at public auction held by virtue of an

execution issued upon the judgment rendered in favor of the former and against
the latter, is valid and legal, and the lower court did not commit the fourth and
fifth assignments of error attributed to it by the plaintiff-appellant.
In regard to the third assignment of error, it is deemed unnecessary to discuss
the validity of the sale made by Federico Valera to Eduardo Hernandez of his
right of redemption in the sale of his usufructuary right made by the sheriff by
virtue of the execution of the judgment in favor of Miguel Velasco and against the
said Federico Valera; and the same thing is true as to the validity of the resale of
the same right of redemption made by Eduardo Hernandez to Federico Valera;
inasmuch as Miguel Velasco's purchase at public auction held by virtue of an
execution of Federico Valera's usufructuary right is valid and legal, and as neither
the latter nor Eduardo Hernandez exercised his right of redemption within the
legal period, the purchaser's title became absolute.
Moreover, the defendant-appellee, Miguel Velasco, having acquired Federico
Valera's right of redemption from Salvador Vallejo, who had acquired it at public
auction by virtue of a writ of execution issued upon the judgment obtained by
the said Vallejo against the said Valera, the latter lost all right to said usufruct.
And even supposing that Eduardo Hernandez had been tricked by Miguel Velasco
into selling Federico Valera's right of repurchase to the latter so that Salvador
Vallejo might levy an execution on it, and even supposing that said resale was
null for lack of consideration, yet, inasmuch as Eduardo Hernandez did not
present a third party claim when the right was levied upon for the execution of
the judgment obtained by Vallejo against Federico Vallera, nor did he file a
complaint to recover said right before the period of redemption expired, said
Eduardo Hernandez, and much less Federico Valera, cannot now contest the
validity of said resale, for the reason that the one-year period of redemption has
already elapsed.
Neither did the trial court err in not ordering Miguel Velasco to render a
liquidation of accounts from March 31, 1923, inasmuch as he had acquired the
rights of the plaintiff by purchase at the execution sale, and as purchaser, he was
entitled to receive the rents from the date of the sale until the date of the
repurchase, considering them as part of the redemption price; but not having
exercised the right repurchase during the legal period, and the title of the
repurchaser having become absolute, the latter did not have to account for said
rents.
Summarizing, the conclusion is reached that the disagreements between an
agent and his principal with respect to the agency, and the filing of a civil action
by the former against the latter for the collection of the balance in favor of the
agent, resulting from a liquidation of the agency accounts, are facts showing a
rupture of relations, and the complaint is equivalent to an express renunciation
of the agency, and is more expressive than if the agent had merely said, "I
renounce the agency."
By virtue of the foregoing, and finding no error in the judgment appealed from,
the same is hereby affirmed in all its parts, with costs against the appellant. So
ordered.

Johnson, Malcolm, Villamor, Ostrand and Johns, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO
S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil Code in this
appeal by certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2
for the appellees) entered into on Oct. 19, 1960 by and between
Mrs. Segundina Noguera, party of the first part; the Tourist World
Service, Inc., represented by Mr. Eliseo Canilao as party of the
second part, and hereinafter referred to as appellants, the Tourist
World Service, Inc. leased the premises belonging to the party of
the first part at Mabini St., Manila for the former-s use as a branch
office. In the said contract the party of the third part held herself
solidarily liable with the party of the part for the prompt payment of
the monthly rental agreed on. When the branch office was opened,
the same was run by the herein appellant Una 0. Sevilla payable to
Tourist World Service Inc. by any airline for any fare brought in on
the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3%
was to be withheld by the Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World
Service, Inc. appears to have been informed that Lina Sevilla was
connected with a rival firm, the Philippine Travel Bureau, and, since
the branch office was anyhow losing, the Tourist World Service
considered closing down its office. This was firmed up by two
resolutions of the board of directors of Tourist World Service, Inc.
dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the
office of the manager and vice-president of the Tourist World
Service, Inc., Ermita Branch, and the second,authorizing the
corporate secretary to receive the properties of the Tourist World
Service then located at the said branch office. It further appears
that on Jan. 3, 1962, the contract with the appellees for the use of
the Branch Office premises was terminated and while the effectivity
thereof was Jan. 31, 1962, the appellees no longer used it. As a

matter of fact appellants used it since Nov. 1961. Because of this,

and to comply with the mandate of the Tourist World Service, the
corporate secretary Gabino Canilao went over to the branch office,
and, finding the premises locked, and, being unable to contact Lina
Sevilla, he padlocked the premises on June 4, 1962 to protect the
interests of the Tourist World Service. When neither the appellant
Lina Sevilla nor any of her employees could enter the locked
premises, a complaint wall filed by the herein appellants against the
appellees with a prayer for the issuance of mandatory preliminary
injunction. Both appellees answered with counterclaims. For
apparent lack of interest of the parties therein, the trial court
ordered the dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the
order dismissing her counterclaim which the court a quo, in an order
dated June 8, 1963, granted permitting her to present evidence in
support of her counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the
herein appellees and after the issues were joined, the reinstated
counterclaim of Segundina Noguera and the new complaint of
appellant Lina Sevilla were jointly heard following which the court a
quo ordered both cases dismiss for lack of merit, on the basis of
which was elevated the instant appeal on the following assignment
of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE
OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS.
LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD
SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE
RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT
WAS ONE OF JOINT BUSINESS VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFFAPPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING
THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE
TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES
HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM
THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN
HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL
APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O.
SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT
APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR
FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be
resolved are:
1. Whether the appellee Tourist World Service unilaterally
disconnected the telephone line at the branch office on Ermita;
2. Whether or not the padlocking of the office by the Tourist World
Service was actionable or not; and
3. Whether or not the lessee to the office premises belonging to the
appellee Noguera was appellees TWS or TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness
venture was entered into by and between her and appellee TWS
with offices at the Ermita branch office and that she was not an
employee of the TWS to the end that her relationship with TWS was
one of a joint business venture appellant made declarations
showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and
wife of an eminent eye, ear and nose specialist as well
as a imediately columnist had been in the travel
business prior to the establishment of the joint
business venture with appellee Tourist World Service,
Inc. and appellee Eliseo Canilao, her compadre, she
being the godmother of one of his children, with her
own clientele, coming mostly from her own social circle
(pp. 3-6 tsn. February 16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease
agreement dated 19 October 1960 (Exh. 'A') covering
the premises at A. Mabini St., she expressly warranting
and holding [sic] herself 'solidarily' liable with appellee
Tourist World Service, Inc. for the prompt payment of
the monthly rentals thereof to other appellee Mrs.
Noguera (pp. 14-15, tsn. Jan. 18,1964).
3. Appellant Mrs. Sevilla did not receive any salary
from appellee Tourist World Service, Inc., which had its
own, separate office located at the Trade & Commerce
Building; nor was she an employee thereof, having no
participation in nor connection with said business at
the Trade & Commerce Building (pp. 16-18 tsn Id.).
4. Appellant Mrs. Sevilla earned commissions for her
own passengers, her own bookings her own business
(and not for any of the business of appellee Tourist
World Service, Inc.) obtained from the airline
companies. She shared the 7% commissions given by
the airline companies giving appellee Tourist World
Service, Lic. 3% thereof aid retaining 4% for herself
(pp. 18 tsn. Id.)

5. Appellant Mrs. Sevilla likewise shared in the

expenses of maintaining the A. Mabini St. office, paying
for the salary of an office secretary, Miss Obieta, and
other sundry expenses, aside from desicion the office
furniture and supplying some of fice furnishings (pp.
15,18 tsn. April 6,1965), appellee Tourist World Service,
Inc. shouldering the rental and other expenses in
consideration for the 3% split in the co procured by
appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).
6. It was the understanding between them that
appellant Mrs. Sevilla would be given the title of
branch manager for appearance's sake only (p. 31 tsn.
Id.), appellee Eliseo Canilao admit that it was just a
title for dignity (p. 36 tsn. June 18, 1965- testimony of
appellee Eliseo Canilao pp. 38-39 tsn April 61965testimony of corporate secretary Gabino Canilao (pp2-5, Appellants' Reply Brief)
Upon the other hand, appellee TWS contend that the appellant was
an employee of the appellee Tourist World Service, Inc. and as such
was designated manager. 1
xxx xxx xxx
The trial court 2 held for the private respondent on the premise that the private
respondent, Tourist World Service, Inc., being the true lessee, it was within its
prerogative to terminate the lease and padlock the premises. 3 It likewise found
the petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service,
Inc. and as such, she was bound by the acts of her employer. 4 The respondent
Court of Appeal 5 rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining the lower
court, erred. Specifically, they state:
I
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED
ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY
TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF
THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR
ANY OF HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE
APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT,
WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD
SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN
THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT
(SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER
TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION
AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.
II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED

ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD
"OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND
COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A"
P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED
ITS DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT
SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL
CODE ON RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED
ITS DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT
RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD
SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH
COULD NOT BE TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD
SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true nature of the
relation between Lina Sevilla and Tourist World Service, Inc. The respondent
Court of see fit to rule on the question, the crucial issue, in its opinion being
"whether or not the padlocking of the premises by the Tourist World Service, Inc.
without the knowledge and consent of the appellant Lina Sevilla entitled the
latter to the relief of damages prayed for and whether or not the evidence for the
said appellant supports the contention that the appellee Tourist World Service,
Inc. unilaterally and without the consent of the appellant disconnected the
telephone lines of the Ermita branch office of the appellee Tourist World Service,
Inc. 7 Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was
a mere employee, being "branch manager" of its Ermita "branch" office and that
inferentially, she had no say on the lease executed with the private respondent,
Segundina Noguera. The petitioners contend, however, that relation between the
between parties was one of joint venture, but concede that "whatever might
have been the true relationship between Sevilla and Tourist World Service," the
Rule of Law enjoined Tourist World Service and Canilao from taking the law into
their own hands, 8 in reference to the padlocking now questioned.
The Court finds the resolution of the issue material, for if, as the private
respondent, Tourist World Service, Inc., maintains, that the relation between the
parties was in the character of employer and employee, the courts would have
been without jurisdiction to try the case, labor disputes being the exclusive
domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations,
pursuant to statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the evidence of
an employer-employee relation. In general, we have relied on the so-called right
of control test, "where the person for whom the services are performed reserves
a right to control not only the end to be achieved but also the means to be used
in reaching such end." 10 Subsequently, however, we have considered, in addition
to the standard of right-of control, the existing economic conditions prevailing

between the parties, like the inclusion of the employee in the payrolls, in
determining the existence of an employer-employee relationship. 11
The records will show that the petitioner, Lina Sevilla, was not subject to control
by the private respondent Tourist World Service, Inc., either as to the result of the
enterprise or as to the means used in connection therewith. In the first place,
under the contract of lease covering the Tourist Worlds Ermita office, she had
bound herself in solidumas and for rental payments, an arrangement that would
be like claims of a master-servant relationship. True the respondent Court would
later minimize her participation in the lease as one of mere guaranty, 12 that
does not make her an employee of Tourist World, since in any case, a true
employee cannot be made to part with his own money in pursuance of his
employer's business, or otherwise, assume any liability thereof. In that event, the
parties must be bound by some other relation, but certainly not employment.
In the second place, and as found by the Appellate Court, '[w]hen the branch
office was opened, the same was run by the herein appellant Lina O. Sevilla
payable to Tourist World Service, Inc. by any airline for any fare brought in on the
effort of Mrs. Lina Sevilla. 13 Under these circumstances, it cannot be said that
Sevilla was under the control of Tourist World Service, Inc. "as to the means
used." Sevilla in pursuing the business, obviously relied on her own gifts and
capabilities.
It is further admitted that Sevilla was not in the company's payroll. For her
efforts, she retained 4% in commissions from airline bookings, the remaining 3%
going to Tourist World. Unlike an employee then, who earns a fixed salary
usually, she earned compensation in fluctuating amounts depending on her
booking successes.
The fact that Sevilla had been designated 'branch manager" does not make her,
ergo, Tourist World's employee. As we said, employment is determined by the
right-of-control test and certain economic parameters. But titles are weak
indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a
consequence, accepting Lina Sevilla's own, that is, that the parties had
embarked on a joint venture or otherwise, a partnership. And apparently, Sevilla
herself did not recognize the existence of such a relation. In her letter of
November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s]
right to stop the operation of your branch office 14 in effect, accepting Tourist
World Service, Inc.'s control over the manner in which the business was run. A
joint venture, including a partnership, presupposes generally a of standing
between the joint co-venturers or partners, in which each party has an equal
proprietary interest in the capital or property contributed 15 and where each
party exercises equal rights in the conduct of the business. 16 furthermore, the
parties did not hold themselves out as partners, and the building itself was
embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct
partnership name.
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed
to (wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she
must have done so pursuant to a contract of agency. It is the essence of this
contract that the agent renders services "in representation or on behalf of

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

office properties. On January 3, 1962, the private respondents ended the lease
over the branch office premises, incidentally, without notice to her.
It was only on June 4, 1962, and after office hours significantly, that the Ermita
office was padlocked, personally by the respondent Canilao, on the pretext that it
was necessary to Protect the interests of the Tourist World Service. " 22 It is
strange indeed that Tourist World Service, Inc. did not find such a need when it
cancelled the lease five months earlier. While Tourist World Service, Inc. would
not pretend that it sought to locate Sevilla to inform her of the closure, but
surely, it was aware that after office hours, she could not have been anywhere
near the premises. Capping these series of "offensives," it cut the office's
telephone lines, paralyzing completely its business operations, and in the
process, depriving Sevilla articipation therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to
punish Sevillsa it had perceived to be disloyalty on her part. It is offensive, in any
event, to elementary norms of justice and fair play.
We rule therefore, that for its unwarranted revocation of the contract of agency,
the private respondent, Tourist World Service, Inc., should be sentenced to pay
damages. Under the Civil Code, moral damages may be awarded for "breaches
of contract where the defendant acted ... in bad faith. 23
We likewise condemn Tourist World Service, Inc. to pay further damages for the
moral injury done to Lina Sevilla from its brazen conduct subsequent to the
cancellation of the power of attorney granted to her on the authority of Article 21
of the Civil Code, in relation to Article 2219 (10) thereof
ART. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage. 24
ART. 2219. Moral damages 25 may be recovered in the following and
analogous cases:
xxx xxx xxx
(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32,
34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to
respond for the same damages in a solidary capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned,
no evidence has been shown that she had connived with Tourist World Service,
Inc. in the disconnection and padlocking incidents. She cannot therefore be held
liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral damages,24
P10,000.00 as exemplary damages, 25and P5,000.00 as nominal 26 and/or
temperate 27 damages, to be just, fair, and reasonable under the circumstances.

WHEREFORE, the Decision promulgated on January 23, 1975 as well as the

Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby
REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc.,
and Eliseo Canilao, are ORDERED jointly and severally to indemnify the
petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum
of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and
for nominal and/or temperate damages.
Costs against said private respondents.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.

Footnotes
1 Rollo, 30-45.
2 Court of First Instance of Manila, Branch XIX Montesa, Agustin,
Presiding Judge.
3 Rollo, Id 55; Record on Appeal, 38.
4 Record on Appeal, Id., 37-38.
5 Gaviola, Jr., RAmon, J., Reyes, Luis, and De Castro, Pacific, JJ.,
Conccurring
6 Rollo, Id., 124; Brief for Petitioners, 1-2.
7 Rollo, Id., 36.
8 Id., 21; emphasis in the original.
9 See Rep. Act No. 875 See also Rep. Act No. 1052, as amended by
Rep. Act No. 1787.
10 LVN Pictures, Inc. v. Philippine Musicians Guild, No. L-12582,
January 28,1961, 1 SCRA 132,173 (1961); emphasis in the original.
11 Visayan Stevedore Trans. Co., et al. v. C.I.R., et al., No. L-21696,
February 25,1967,19 SCRA 426 (1967).
12 Rollo, Id., 40.
13 Id 31.
14 Id., 47.

15 BAUTISTA, TREATISE ON PHILIPPINE PARTNERSHIP LAW 34

(1978).
16 Op cit 37. In Tuazon v. Balanos [95 Phil. 106 (1954)], this Court
distinguished between a joint venture and a partnership but this
view has since raised questions from authorities. According to
Campos, there seems to be no fundamental distinction between the
two forms of business combinations. CAMPOS, THE CORPORATION
CODE 12 (1981).] For p of this case, we use the terms of
interchangeable.
17 See rollo, id.
18 CIVIL CODE, art. 1868.
19 See VI PADILLA, CIVIL LAW 350 (1974).
20 Rollo, id., 36.
21 Id, 31.
22 Id.
23 CIVIL CODE, art. 2220.
24 Supra.
25 Supra, art. 2232.
26 Supra art. 2221.
27 Supra, art. 2224.
Republic of the Philippines
SUPREME COURT
THIRD DIVISION
G.R. NOS. 166299-300 December 13, 2005
AURELIO K. LITONJUA, JR., Petitioner,
vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME,
INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K. LITONJUA
SHIPPING AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO., INC.,
LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec), LUNETA
THEATER, INC., E & L REALTY, (formerly E & L INTL SHIPPING CORP.),
FNP CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV. REALTY CO.,
INC., GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP., "L" DEV.
CORP, LCM THEATRICAL ENTERPRISES, INC., LITONJUA SHIPPING CO.
INC., MACOIL INC., ODEON REALTY CORP., SARATOGA REALTY, INC., ACT
THEATER INC. (formerly General Theatrical & Film Exchange, INC.),

AVENUE REALTY, INC., AVENUE THEATER, INC. and LVF PHILIPPINES,

INC., (Formerly VF PHILIPPINES),Respondents.
DECISION
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio
K. Litonjua, Jr. seeks to nullify and set aside the Decision of the Court of Appeals
(CA) dated March 31, 20041 in consolidated cases C.A. G.R. Sp. No.
76987 and C.A. G.R. SP. No 78774 and its Resolution dated December 07,
2004,2 denying petitioners motion for reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K.
Litonjua, Sr. (Eduardo) are brothers. The legal dispute between them started
when, on December 4, 2002, in the Regional Trial Court (RTC) at Pasig City,
Aurelio filed a suit against his brother Eduardo and herein respondent Robert T.
Yang (Yang) and several corporations for specific performance and accounting. In
his complaint,3 docketed as Civil Case No. 69235 and eventually raffled to Branch
68 of the court,4 Aurelio alleged that, since June 1973, he and Eduardo are into a
joint venture/partnership arrangement in the Odeon Theater business which had
expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon
Realty Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc.,
owner of lands and buildings, among other corporations. Yang is described in the
complaint as petitioners and Eduardos partner in their Odeon Theater
investment.5 The same complaint also contained the following material
averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint
venture/partnership for the continuation of their family business and common
family funds .
3.01.1 This joint venture/[partnership] agreement was contained in a
memorandum addressed by Eduardo to his siblings, parents and other
relatives. Copy of this memorandum is attached hereto and made an integral
part asAnnex "A" and the portion referring to [Aurelio] submarked as Annex "A1".
3.02 It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelios] retaining his share in the remaining family businesses
(mostly, movie theaters, shipping and land development) and contributing his
industry to the continued operation of these businesses, [Aurelio] will be given
P1 Million or 10% equity in all these businesses and those to be subsequently
acquired by them whichever is greater. . . .
4.01 from 22 June 1973 to about August 2001, or [in] a span of 28 years,
[Aurelio] and Eduardo had accumulated in their joint venture/partnership various
assets including but not limited to the corporate defendants and [their]
respective assets.

4.02 In addition . . . the joint venture/partnership had also acquired [various

other assets], but Eduardo caused to be registered in the names of other
parties.
xxx xxx xxx
4.04 The substantial assets of most of the corporate defendants consist of real
properties . A list of some of these real properties is attached hereto and made
an integral part as Annex "B".
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became
sour so that [Aurelio] requested for an accounting and liquidation of his share in
the joint venture/partnership [but these demands for complete accounting and
liquidation were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo
and/or the corporate defendants as well as Bobby [Yang], are transferring . . .
various real properties of the corporations belonging to the joint
venture/partnership to other parties in fraud of [Aurelio]. In consequence,
[Aurelio] is therefore causing at this time the annotation on the titles of these
real properties a notice of lis pendens . (Emphasis in the original;
underscoring and words in bracket added.)
For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to
have been meant for him by his brother Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. .
I am trying my best to mold you the way I work so you can follow the pattern .
You will be the only one left with the company, among us brothers and I will ask
you to stay as I want you to run this office every time I am away. I want you to
run it the way I am trying to run it because I will be all alone and I will depend
entirely to you (sic). My sons will not be ready to help me yet until about maybe
15/20 years from now. Whatever is left in the corporation, I will make sure that
you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity,
whichever is greater. We two will gamble the whole thing of what I have and
what you are entitled to. . It will be you and me alone on this. If ever I pass
away, I want you to take care of all of this. You keep my share for my two sons
are ready take over but give them the chance to run the company which I have
built.
xxx xxx xxx
Because you will need a place to stay, I will arrange to give you first ONE
HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so
you can live better there. The rest I will give you in form of stocks which you can
keep. This stock I assure you is good and saleable. I will also gladly give you the

share of Wack-Wack and Valley Golf because you have been good. The rest
will be in stocks from all the corporations which I repeat, ten percent (10%)
equity. 6
On December 20, 2002, Eduardo and the corporate respondents, as
defendants a quo, filed a joint ANSWERWith Compulsory Counterclaim denying
under oath the material allegations of the complaint, more particularly that
portion thereof depicting petitioner and Eduardo as having entered into a
contract of partnership. As affirmative defenses, Eduardo, et al., apart from
raising a jurisdictional matter, alleged that the complaint states no cause of
action, since no cause of action may be derived from the actionable
document, i.e., Annex "A-1", being void under the terms of Article 1767 in
relation to Article 1773 of the Civil Code, infra. It is further alleged that whatever
undertaking Eduardo agreed to do, if any, under Annex "A-1", are unenforceable
under the provisions of the Statute of Frauds. 7
For his part, Yang - who was served with summons long after the other
defendants submitted their answer moved to dismiss on the ground, inter alia,
that, as to him, petitioner has no cause of action and the complaint does not
state any.8 Petitioner opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative
Defenses.9 To this motion, petitioner interposed an Opposition with ex-Parte
Motion to Set the Case for Pre-trial.10
Acting on the separate motions immediately adverted to above, the trial court, in
an Omnibus Order dated March 5, 2003, denied the affirmative defenses and,
except for Yang, set the case for pre-trial on April 10, 2003. 11
In another Omnibus Order of April 2, 2003, the same court denied the motion of
Eduardo, et al., for reconsideration12 and Yangs motion to dismiss. The following
then transpired insofar as Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to
seek reconsideration of the April 2, 2003 Omnibus Order and to pursue his failed
motion to dismiss13 to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April
2, 2003, but his motion was denied in an Order of July 4, 2003. 14
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition
for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No.
78774,15 to nullify the separate orders of the trial court, the first denying his
motion to dismiss the basic complaint and, the second, denying his motion for
reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention that grave
abuse of discretion and injudicious haste attended the issuance of the trial
courts aforementioned Omnibus Orders dated March 5, and April 2, 2003,
sought relief from the CA via similar recourse. Their petition for certiorari was
docketed as CA G.R. SP No. 76987.

Per its resolution dated October 2, 2003,16 the CAs 14th Division ordered the
consolidation of CA G.R. SP No. 78774 with CA G.R. SP No. 76987.
Following the submission by the parties of their respective Memoranda of
Authorities, the appellate court came out with the herein assailed Decision
dated March 31, 2004, finding for Eduardo and Yang, as lead petitioners
therein, disposing as follows:
WHEREFORE, judgment is hereby rendered granting the issuance of the writ of
certiorari in these consolidated cases annulling, reversing and setting aside the
assailed orders of the court a quo dated March 5, 2003, April 2, 2003 and July 4,
2003 and the complaint filed by private respondent [now petitioner Aurelio]
against all the petitioners [now herein respondents Eduardo, et al.] with the
court a quo is hereby dismissed.
SO ORDERED.17 (Emphasis in the original; words in bracket added.)
Explaining its case disposition, the appellate court stated, inter alia, that the
alleged partnership, as evidenced by the actionable documents,
Annex "A" and "A-1" attached to the complaint, and upon which petitioner
solely predicates his right/s allegedly violated by Eduardo, Yang and the
corporate defendants a quo is "void or legally inexistent".
In time, petitioner moved for reconsideration but his motion was denied by the
CA in its equally assailedResolution of December 7, 2004.18 .
Hence, petitioners present recourse, on the contention that the CA erred:
A. When it ruled that there was no partnership created by the actionable
document because this was not a public instrument and immovable properties
were contributed to the partnership.
B. When it ruled that the actionable document did not create a demandable right
in favor of petitioner.
C. When it ruled that the complaint stated no cause of action against
[respondent] Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal when all that
Petitioner had done was to support his pleaded cause of action by another legal
perspective/argument.
The petition lacks merit.
Petitioners demand, as defined in the petitory portion of his complaint in the
trial court, is for delivery or payment to him, as Eduardos and Yangs partner, of
his partnership/joint venture share, after an accounting has been duly conducted
of what he deems to be partnership/joint venture property. 19
A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the understanding
that there shall be a proportionate sharing of the profits and losses between
them.20 A contract of partnership is defined by the Civil Code as one where two

or more persons bound themselves to contribute money, property, or industry to

a common fund with the intention of dividing the profits among themselves. 21 A
joint venture, on the other hand, is hardly distinguishable from, and may be
likened to, a partnership since their elements are similar, i.e., community of
interests in the business and sharing of profits and losses. Being a form of
partnership, a joint venture is generally governed by the law on partnership. 22
The underlying issue that necessarily comes to mind in this proceedings is
whether or not petitioner and respondent Eduardo are partners in the theatre,
shipping and realty business, as one claims but which the other denies. And the
issue bearing on the first assigned error relates to the question of what legal
provision is applicable under the premises, petitioner seeking, as it were, to
enforce the actionable document - Annex "A-1" - which he depicts in his
complaint to be the contract of partnership/joint venture between himself and
Eduardo. Clearly, then, a look at the legal provisions determinative of the
existence, or defining the formal requisites, of a partnership is indicated.
Foremost of these are the following provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case a public
instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos
or more, in money or property, shall appear in a public instrument, which must
be recorded in the Office of the Securities and Exchange Commission.
Failure to comply with the requirement of the preceding paragraph shall not
affect the liability of the partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument.
Annex "A-1", on its face, contains typewritten entries, personal in tone, but is
unsigned and undated. As an unsigned document, there can be no quibbling that
Annex "A-1" does not meet the public instrumentation requirements exacted
under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless
referring to a partnership involving more than P3,000.00 in money or property,
Annex "A-1" cannot be presented for notarization, let alone registered with the
Securities and Exchange Commission (SEC), as called for under the Article 1772
of the Code. And inasmuch as the inventory requirement under the succeeding
Article 1773 goes into the matter of validity when immovable property is
contributed to the partnership, the next logical point of inquiry turns on the
nature of petitioners contribution, if any, to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that petitioners
contribution consisted of immovables and real rights. Wrote that court:
A further examination of the allegations in the complaint would show that
[petitioners] contribution to the so-called "partnership/joint venture" was his
supposed share in the family business that is consisting of movie theaters,
shipping and land development under paragraph 3.02 of the complaint. In other

words, his contribution as a partner in the alleged partnership/joint venture

consisted of immovable properties and real rights. . 23
Significantly enough, petitioner matter-of-factly concurred with the appellate
courts observation that, prescinding from what he himself alleged in his basic
complaint, his contribution to the partnership consisted of his share in the
Litonjua family businesses which owned variable immovable properties.
Petitioners assertion in his motion for reconsideration 24 of the CAs decision, that
"what was to be contributed to the business [of the partnership] was
[petitioners] industry and his share in the family [theatre and land development]
business" leaves no room for speculation as to what petitioner contributed to the
perceived partnership.
Lest it be overlooked, the contract-validating inventory requirement under Article
1773 of the Civil Code applies as long real property or real rights are initially
brought into the partnership. In short, it is really of no moment which of the
partners, or, in this case, who between petitioner and his brother Eduardo,
contributed immovables. In context, the more important consideration is that
real property was contributed, in which case an inventory of the contributed
property duly signed by the parties should be attached to the public instrument,
else there is legally no partnership to speak of.
Petitioner, in an obvious bid to evade the application of Article 1773, argues that
the immovables in question were not contributed, but were acquired after the
formation of the supposed partnership. Needless to stress, the Court cannot
accord cogency to this specious argument. For, as earlier stated, petitioner
himself admitted contributing his share in the supposed shipping, movie theatres
and realty development family businesses which already owned immovables
even before Annex "A-1" was allegedly executed.
Considering thus the value and nature of petitioners alleged contribution to the
purported partnership, the Court, even if so disposed, cannot plausibly extend
Annex "A-1" the legal effects that petitioner so desires and pleads to be given.
Annex "A-1", in fine, cannot support the existence of the partnership sued upon
and sought to be enforced. The legal and factual milieu of the case calls for this
disposition. A partnership may be constituted in any form, save when immovable
property or real rights are contributed thereto or when the partnership has a
capital of at least P3,000.00, in which case a public instrument shall be
necessary.25 And if only to stress what has repeatedly been articulated, an
inventory to be signed by the parties and attached to the public instrument is
alsoindispensable to the validity of the partnership whenever immovable
property is contributed to it.
Given the foregoing perspective, what the appellate court wrote in its assailed
Decision26 about the probative value and legal effect of Annex "A-1" commends
itself for concurrence:
Considering that the allegations in the complaint showed that [petitioner]
contributed immovable properties to the alleged partnership, the "Memorandum"
(Annex "A" of the complaint) which purports to establish the said
"partnership/joint venture" is NOT a public instrument and there was NO
inventory of the immovable property duly signed by the parties. As such, the said
"Memorandum" is null and void for purposes of establishing the existence of a

valid contract of partnership. Indeed, because of the failure to comply with the
essential formalities of a valid contract, the purported "partnership/joint venture"
is legally inexistent and it produces no effect whatsoever. Necessarily, a void or
legally inexistent contract cannot be the source of any contractual or legal right.
Accordingly, the allegations in the complaint, including the actionable document
attached thereto, clearly demonstrates that [petitioner] has NO valid contractual
or legal right which could be violated by the [individual respondents] herein. As a
consequence, [petitioners] complaint does NOT state a valid cause of action
because NOT all the essential elements of a cause of action are
present. (Underscoring and words in bracket added.)
Likewise well-taken are the following complementary excerpts from the CAs
equally assailed Resolution of December 7, 2004 27 denying petitioners motion
for reconsideration:
Further, We conclude that despite glaring defects in the allegations in the
complaint as well as the actionable document attached thereto (Rollo, p. 191),
the [trial] court did not appreciate and apply the legal provisions which were
brought to its attention by herein [respondents] in the their pleadings. In our
evaluation of [petitioners] complaint, the latter alleged inter alia to have
contributed immovable properties to the alleged partnership but the actionable
document is not a public document and there was no inventory of immovable
properties signed by the parties. Both the allegations in the complaint and the
actionable documents considered, it is crystal clear that [petitioner] has no valid
or legal right which could be violated by [respondents]. (Words in bracket added.)
Under the second assigned error, it is petitioners posture that Annex "A-1",
assuming its inefficacy or nullity as a partnership document, nevertheless
created demandable rights in his favor. As petitioner succinctly puts it in this
petition:
43. Contrariwise, this actionable document, especially its above-quoted
provisions, established an actionable contract even though it may not be a
partnership. This actionable contract is what is known as an innominate contract
(Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely the
contract does create rights and obligations of the parties and which rights and
obligations may be enforceable and demandable. Just because the relationship
created by the agreement cannot be specifically labeled or pigeonholed into a
category of nominate contract does not mean it is void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this Court and earlier on the CA after he experienced a reversal of fortune thereat - as an
afterthought. The appellate court, however, cannot really be faulted for not
yielding to petitioners dubious stratagem of altering his theory of joint
venture/partnership to an innominate contract. For, at bottom, the appellate
courts certiorari jurisdiction was circumscribed by what was alleged to have
been the order/s issued by the trial court in grave abuse of discretion. As
respondent Yang pointedly observed,28 since the parties basic position had been
well-defined, that of petitioner being that the actionable document established a
partnership/joint venture, it is on those positions that the appellate court
exercised its certiorari jurisdiction. Petitioners act of changing his original theory

is an impermissible practice and constitutes, as the CA aptly declared, an

admission of the untenability of such theory in the first place.
[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he
has now contended that the actionable instrument may be considered
an innominate contract. xxx Verily, this now changes [petitioners] theory of
the case which is not only prohibited by the Rules but also is an implied
admission that the very theory he himself has adopted, filed and prosecuted
before the respondent court is erroneous.
Be that as it may . . We hold that this new theory contravenes [petitioners]
theory of the actionable document being a partnership document. If anything, it
is so obvious we do have to test the sufficiency of the cause of action on the
basis of partnership law xxx.29 (Emphasis in the original; Words in bracket
added).
But even assuming in gratia argumenti that Annex "A-1" partakes of a perfected
innominate contract, petitioners complaint would still be dismissible as against
Eduardo and, more so, against Yang. It cannot be over-emphasized that
petitioner points to Eduardo as the author of Annex "A-1". Withal, even on this
consideration alone, petitioners claim against Yang is doomed from the very
start.
As it were, the only portion of Annex "A-1" which could perhaps be remotely
regarded as vesting petitioner with a right to demand from respondent Eduardo
the observance of a determinate conduct, reads:
xxx You will be the only one left with the company, among us brothers and I will
ask you to stay as I want you to run this office everytime I am away. I want you
to run it the way I am trying to run it because I will be alone and I will depend
entirely to you, My sons will not be ready to help me yet until about maybe 15/20
years from now.Whatever is left in the corporation, I will make sure that you get
ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is
greater. (Underscoring added)
It is at once apparent that what respondent Eduardo imposed upon himself under
the above passage, if he indeed wrote Annex "A-1", is a promise which is not to
be performed within one year from "contract" execution on June 22, 1973.
Accordingly, the agreement embodied in Annex "A-1" is covered by the Statute
of Frauds and ergounenforceable for non-compliance therewith. 30 By force of the
statute of frauds, an agreement that by its terms is not to be performed within a
year from the making thereof shall be unenforceable by action, unless the same,
or some note or memorandum thereof, be in writing and subscribed by the party
charged. Corollarily, no action can be proved unless the requirement exacted by
the statute of frauds is complied with.31
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or
10% equity of the family businesses supposedly promised by Eduardo to give in
the near future. Any suggestion that the stated amount or the equity component
of the promise was intended to go to a common fund would be to read
something not written in Annex"A-1". Thus, even this angle alone argues
against the very idea of a partnership, the creation of which requires two or more
contracting minds mutually agreeing to contribute money, property or

industry to a common fund with the intention of dividing the profits between or
among themselves.32
In sum then, the Court rules, as did the CA, that petitioners complaint for
specific performance anchored on an actionable document of partnership which
is legally inexistent or void or, at best, unenforceable does not state a cause of
action as against respondent Eduardo and the corporate defendants. And if no of
action can successfully be maintained against respondent Eduardo because no
valid partnership existed between him and petitioner, the Court cannot see its
way clear on how the same action could plausibly prosper against Yang. Surely,
Yang could not have become a partner in, or could not have had any form of
business relationship with, an inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the logical nexus
that would tie Yang to him as his partner. In fact, attendant circumstances would
indicate the contrary. Consider:
1. Petitioner asserted in his complaint that his so-called joint venture/partnership
with Eduardo was "for the continuation of their family business and common
family funds which were theretofore being mainly managed by Eduardo." 33 But
Yang denies kinship with the Litonjua family and petitioner has not disputed the
disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint
venture/partnership with Eduardo and what his share in the businesses will be.
No allegation is made whatsoever about what Yang contributed, if any, let alone
his proportional share in the profits. But such allegation cannot, however, be
made because, as aptly observed by the CA, the actionable document did not
contain such provision, let alone mention the name of Yang. How, indeed, could a
person be considered a partner when the document purporting to establish the
partnership contract did not even mention his name.
3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are
business partners in the [respondent] corporations," while "Bobby is his and
Eduardos partner in their Odeon Theater investment (par. 2.03). This means
that the partnership between petitioner and Eduardo came first; Yang became
their partner in their Odeon Theater investment thereafter. Several paragraphs
later, however, petitioner would contradict himself by alleging that his
"investment and that of Eduardo and Yang in the Odeon theater business has
expanded through a reinvestment of profit income and direct investments in
several corporation including but not limited to [six] corporate respondents" This
simply means that the "Odeon Theatre business" came before the corporate
respondents. Significantly enough, petitioner refers to the corporate respondents
as "progeny" of the Odeon Theatre business. 34
Needless to stress, petitioner has not sufficiently established in his complaint the
legal vinculum whence he sourced his right to drag Yang into the fray. The Court
of Appeals, in its assailed decision, captured and formulated the legal situation in
the following wise:
[Respondent] Yang, is impleaded because, as alleged in the complaint, he is a
"partner" of [Eduardo] and the [petitioner] in the Odeon Theater Investment

which expanded through reinvestments of profits and direct investments in

several corporations, thus:
xxx xxx xxx
Clearly, [petitioners] claim against Yang arose from his alleged partnership
with petitioner and the respondent. However, there was NO allegation in the
complaint which directly alleged how the supposed contractual relation was
created between [petitioner] and Yang. More importantly, however, the
foregoing ruling of this Court that the purported partnership between [Eduardo]
is void and legally inexistent directly affects said claim against Yang. Since
[petitioner] is trying to establish his claim against Yang by linking him to the
legally inexistent partnership . . . such attempt had become futile because there
was NOTHING that would contractually connect [petitioner] and Yang. To
establish a valid cause of action, the complaint should have a statement of fact
upon which to connect [respondent] Yang to the alleged partnership between
[petitioner] and respondent [Eduardo], including their alleged investment in the
Odeon Theater. A statement of facts on those matters is pivotal to the complaint
as they would constitute the ultimate facts necessary to establish the elements
of a cause of action against Yang. 35
Pressing its point, the CA later stated in its resolution denying petitioners motion
for reconsideration the following:
xxx Whatever the complaint calls it, it is the actionable document attached to
the complaint that is controlling. Suffice it to state, We have not ignored the
actionable document As a matter of fact, We emphasized in our decision
that insofar as [Yang] is concerned, he is not even mentioned in the said
actionable document. We are therefore puzzled how a person not mentioned in a
document purporting to establish a partnership could be considered a
partner.36 (Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he changed his
theory of the case, as peremptorily determined by the CA, has been discussed at
length earlier and need not detain us long. Suffice it to say that after the CA has
ruled that the alleged partnership is inexistent, petitioner took a different tack.
Thus, from a joint venture/partnership theory which he adopted and consistently
pursued in his complaint, petitioner embraced the innominate contract theory.
Illustrative of this shift is petitioners statement in par. #8 of his motion for
reconsideration of the CAs decision combined with what he said in par. # 43 of
this petition, as follows:
8. Whether or not the actionable document creates a partnership, joint venture,
or whatever, is a legal matter. What is determinative for purposes of sufficiency
of the complainants allegations, is whether the actionable document bears out
an actionable contract be it a partnership, a joint venture or whatever or some
innominate contract It may be noted that one kind of innominate contract is
what is known as du ut facias (I give that you may do).37
43. Contrariwise, this actionable document, especially its above-quoted
provisions, established an actionable contract even though it may not be a
partnership. This actionable contract is what is known as an innominate contract
(Civil Code, Article 1307).38

Springing surprises on the opposing party is offensive to the sporting idea of fair
play, justice and due process; hence, the proscription against a party shifting
from one theory at the trial court to a new and different theory in the appellate
court.39 On the same rationale, an issue which was neither averred in the
complaint cannot be raised for the first time on appeal. 40 It is not difficult,
therefore, to agree with the CA when it made short shrift of petitioners
innominate contract theory on the basis of the foregoing basic reasons.
Petitioners protestation that his act of introducing the concept of innominate
contract was not a case of changing theories but of supporting his pleaded cause
of action that of the existence of a partnership - by another legal
perspective/argument, strikes the Court as a strained attempt to rationalize an
untenable position. Paragraph 12 of his motion for reconsideration of the CAs
decision virtually relegates partnership as a fall-back theory. Two paragraphs
later, in the same notion, petitioner faults the appellate court for reading, with
myopic eyes, the actionable document solely as establishing a partnership/joint
venture. Verily, the cited paragraphs are a study of a party hedging on whether
or not to pursue the original cause of action or altogether abandoning the same,
thus:
12. Incidentally, assuming that the actionable document created a partnership
between [respondent] Eduardo, Sr. and [petitioner], no immovables were
contributed to this partnership. xxx
14. All told, the Decision takes off from a false premise that the actionable
document attached to the complaint does not establish a contractual relationship
between [petitioner] and Eduardo, Sr. and Roberto T Yang simply because his
document does not create a partnership or a joint venture. This is a myopic
reading of the actionable document.
Per the Courts own count, petitioner used in his complaint the mixed words
"joint venture/partnership" nineteen (19) times and the term "partner" four (4)
times. He made reference to the "law of joint venture/partnership [being
applicable] to the business relationship between [him], Eduardo and Bobby
[Yang]" and to his "rights in all specific properties of their joint
venture/partnership". Given this consideration, petitioners right of action against
respondents Eduardo and Yang doubtless pivots on the existence of the
partnership between the three of them, as purportedly evidenced by the undated
and unsigned Annex "A-1". A void Annex "A-1", as an actionable document of
partnership, would strip petitioner of a cause of action under the premises. A
complaint for delivery and accounting of partnership property based on such void
or legally non-existent actionable document is dismissible for failure to state of
action. So, in gist, said the Court of Appeals. The Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned Decision and
Resolution of the Court of AppealsAFFIRMED.
Cost against the petitioner.
SO ORDERED.
CANCIO C. GARCIA

Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Associate Justice
ANGELINA SANDOVAL-GUTIERREZ

RENATO C. CORONA

Associate Justice

Associate Justice

CONCHITA CARPIO MORALES

Associate Justice
ATTESTATION
I attest that the conclusions in the above decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, and the Division
Chairman's Attestation, it is hereby certified that the conclusions in the above
decision were reached in consultation before the case was assigned to the writer
of the opinion of the Court.
HILARIO G. DAVIDE, JR.
Chief Justice

Footnotes
1

Penned by Associate Justice Bienvenido L. Reyes, concurred in by

Associate Justices Conrado M. Vasquez, Jr. and Arsenio J. Magpale; Rollo,
pp. 27 et seq.
2

Rollo, pp. 58 et seq.

Ibid, pp. 63 et seq.

Presided by Hon. Santiago G. Estrella.

Par. 2.03 of the Complaint.

Rollo, p. 552.

Id., pp. 70 et seq.

Id., pp. 99 et seq.

Id., pp.87 et seq.

10

Id., pp. 93 et seq.

11

Id., pp. 97-98.

12

Id., pp. 135 et seq.

13

See Note No. 8, supra.

14

Rollo, p. 161.

15

Ibid, pp. 206 et seq.

16

Id., p. 253.

17

As corrected per CA Resolution dated July 14, 2004 to conform to the

actual dates of the assailed orders; Rollo, pp. 326 et seq. The correction
consisted of changing the dates "March 5, 2002, April 2, 2002 and July 2,
2003" appearing in the original CA decision to "March 5, 2003, April 2,
2003 and July 4, 2003", respectively.
18

See Note #2, supra.

19

Complaint, p. 6; Rollo, p. 68.

20

Blacks Law Dictionary, 6th ed., p. 1120.

21

Art. 1767.

22

Heirs of Tan Eng Kee vs. CA, 341 SCRA 740 [2000], citing Aurbach vs.
Sanitary Wares Manufacturing Corp. , 180 SCRA 130 [1989].
23

At. p. 6 of the Decision, Rollo, p. 42.

24

At p. 6 of the motion for reconsideration; Rollo, p. 55.

25

Vitug, COMPENDIUM of CIVIL LAW and JURISPRUDENCE, Rev. ed., (1993),

p. 712.
26

See Note #1, supra.

27

See Note #2, supra.

28

Page 26 of Yangs Memorandum; Rollo, p. 494.

29

Page 4 of the CAs assailed Resolution; Rollo, p. 61.

30

#2 (a) of Art. 1403 of the Civil Code.

31

Tolentino, CIVIL CODE OF THE PHILIPPINES, Vol. IV, 1991 ed., p. 617.

32

Heirs of Tan Eng Kee vs. CA, supra.

33

Par. 3.01 of the Complaint; Rollo, p. 64.

34

Petition, p. 18; Rollo, p. 20.

35

Rollo, p. 45.

36

Ibid, p. 61.

37

Rollo, p. 53; Citations omitted.

38

Ibid, p. 19.

39

San Agustin vs. Barrios, 68 Phil. 475 [1939] citing other cases.

40

Union Bank vs. CA, 359 SCRA 480 [2001].

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-21601

December 28, 1968

NIELSON & COMPANY, INC., plaintiff-appellant,

vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.
RESOLUTION
ZALDIVAR, J.:
Lepanto seeks the reconsideration of the decision rendered on December
17, 1966. The motion for reconsideration is based on two sets of grounds
the first set consisting of four principal grounds, and the second set
consisting of five alternative grounds, as follows:
Principal Grounds:

1. The court erred in overlooking and failing to apply the proper law
applicable to the agency or management contract in question, namely,
Article 1733 of the Old Civil Code (Article 1920 of the new), by virtue of
which said agency was effectively revoked and terminated in 1945 when,
as stated in paragraph 20 of the complaint, "defendant voluntarily ...
prevented plaintiff from resuming management and operation of said
mining properties."
2. The court erred in holding that paragraph II of the management
contract (Exhibit C) suspended the period of said contract.
3. The court erred in reversing the ruling of the trial judge, based on wellsettled jurisprudence of this Supreme Court, that the management
agreement was only suspended but not extended on account of the war.
4. The court erred in reversing the finding of the trial judge that Nielson's
action had prescribed, but considering only the first claim and ignoring the
prescriptibility of the other claims.
Alternative Grounds:
5. The court erred in holding that the period of suspension of the contract
on account of the war lasted from February 1942 to June 26, 1948.
6. Assuming arguendo that Nielson is entitled to any relief, the court erred
in awarding as damages (a) 10% of the cash dividends declared and paid
in December, 1941; (b) the management fee of P2,500.00 for the month
of January, 1942; and (c) the full contract price for the extended period of
sixty months, since these damages were neither demanded nor proved
and, in any case, not allowable under the general law of damages.
7. Assuming arguendo that appellant is entitled to any relief, the court
erred in ordering appellee to issue and deliver to appellant shares of stock
together with fruits thereof.
8. The court erred in awarding to appellant an undetermined amount of
shares of stock and/or cash, which award cannot be ascertained and
executed without further litigation.
9. The court erred in rendering judgment for attorney's fees.
We are going to dwell on these grounds in the order they are presented.
1. In its first principal ground Lepanto claims that its own counsel and this
Court had overlooked the real nature of the management contract entered
into by and between Lepanto and Nielson, and the law that is applicable
on said contract. Lepanto now asserts for the first time and this is done in
a motion for reconsideration - that the management contract in question
is a contract of agency such that it has the right to revoke and terminate

the said contract, as it did terminate the same, under the law of agency,
and particularly pursuant to Article 1733 of the Old Civil Code (Article
1920 of the New Civil Code).
We have taken note that Lepanto is advancing a new theory. We have
carefully examined the pleadings filed by Lepanto in the lower court, its
memorandum and its brief on appeal, and never did it assert the theory
that it has the right to terminate the management contract because that
contract is one of agency which it could terminate at will. While it is true
that in its ninth and tenth special affirmative defenses, in its answer in the
court below, Lepanto pleaded that it had the right to terminate the
management contract in question, that plea of its right to terminate was
not based upon the ground that the relation between Lepanto and Nielson
was that of principal and agent but upon the ground that Nielson had
allegedly not complied with certain terms of the management contract. If
Lepanto had thought of considering the management contract as one of
agency it could have amended its answer by stating exactly its position. It
could have asserted its theory of agency in its memorandum for the lower
court and in its brief on appeal. This, Lepanto did not do. It is the rule, and
the settled doctrine of this Court, that a party cannot change his theory on
appeal that is, that a party cannot raise in the appellate court any
question of law or of fact that was not raised in the court below or which
was not within the issue made by the parties in their pleadings (Section
19, Rule 49 of the old Rules of Court, and also Section 18 of the new Rules
of Court; Hautea vs. Magallon, L-20345, November 28, 1964; Northern
Motors, Inc. vs. Prince Line, L-13884, February 29, 1960; American Express
Co. vs. Natividad, 46 Phil. 207; Agoncillo vs. Javier, 38 Phil. 424 and Molina
vs. Somes, 24 Phil 49).
At any rate, even if we allow Lepanto to assert its new theory at this very
late stage of the proceedings, this Court cannot sustain the same.
Lepanto contends that the management contract in question (Exhibit C) is
one of agency because: (1) Nielson was to manage and operate the
mining properties and mill on behalf, and for the account, of Lepanto; and
(2) Nielson was authorized to represent Lepanto in entering, on Lepanto's
behalf, into contracts for the hiring of laborers, purchase of supplies, and
the sale and marketing of the ores mined. All these, Lepanto claims, show
that Nielson was, by the terms of the contract, destined to execute
juridical acts not on its own behalf but on behalf of Lepanto under the
control of the Board of Directors of Lepanto "at all times". Hence Lepanto
claims that the contract is one of agency. Lepanto then maintains that an
agency is revocable at the will of the principal (Article 1733 of the Old Civil
Code), regardless of any term or period stipulated in the contract, and it
was in pursuance of that right that Lepanto terminated the contract in
1945 when it took over and assumed exclusive management of the work
previously entrusted to Nielson under the contract. Lepanto finally
maintains that Nielson as an agent is not entitled to damages since the
law gives to the principal the right to terminate the agency at will.

Because of Lepanto's new theory We consider it necessary to determine

the nature of the management contract whether it is a contract of
agency or a contract of lease of services. Incidentally, we have noted that
the lower court, in the decision appealed from, considered the
management contract as a contract of lease of services.
Article 1709 of the Old Civil Code, defining contract of agency, provides:
By the contract of agency, one person binds himself to render some
service or do something for the account or at the request of another.
Article 1544, defining contract of lease of service, provides:
In a lease of work or services, one of the parties binds himself to make or
construct something or to render a service to the other for a price certain.
In both agency and lease of services one of the parties binds himself to
render some service to the other party. Agency, however, is distinguished
from lease of work or services in that the basis of agency is
representation, while in the lease of work or services the basis is
employment. The lessor of services does not represent his employer,
while the agent represents his principal. Manresa, in his "Commentarios al
Codigo Civil Espaol" (1931, Tomo IX, pp. 372-373), points out that the
element of representation distinguishes agency from lease of services, as
follows:
Nuestro art. 1.709 como el art. 1.984 del Codigo de Napoleon y cuantos
textos legales citamos en lasconcordancias, expresan claramente esta
idea de la representacion, "hacer alguna cosa por cuenta o encargo de
otra" dice nuestro Codigo; "poder de hacer alguna cosa para el mandante
o en su nombre" dice el Codigo de Napoleon, y en tales palabras aparece
vivo y luminoso el concepto y la teoria de la representacion, tan fecunda
en ensenanzas, que a su sola luz es como se explican las diferencias que
separan el mandato del arrendamiento de servicios, de los contratos
inominados, del consejo y de la gestion de negocios.
En efecto, en el arrendamiento de servicios al obligarse para su ejecucion,
se trabaja, en verdad, para el dueno que remunera la labor, pero ni se le
representa ni se obra en su nombre....
On the basis of the interpretation of Article 1709 of the old Civil Code,
Article 1868 of the new Civil Code has defined the contract of agency in
more explicit terms, as follows:
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.

There is another obvious distinction between agency and lease of

services. Agency is a preparatory contract, as agency "does not stop with
the agency because the purpose is to enter into other contracts." The
most characteristic feature of an agency relationship is the agent's power
to bring about business relations between his principal and third persons.
"The agent is destined to execute juridical acts (creation, modification or
extinction of relations with third parties). Lease of services contemplate
only material (non-juridical) acts." (Reyes and Puno, "An Outline of
Philippine Civil Law," Vol. V, p. 277).
In the light of the interpretations we have mentioned in the foregoing
paragraphs let us now determine the nature of the management contract
in question. Under the contract, Nielson had agreed, for a period of five
years, with the right to renew for a like period, to explore, develop and
operate the mining claims of Lepanto, and to mine, or mine and mill, such
pay ore as may be found therein and to market the metallic products
recovered therefrom which may prove to be marketable, as well as to
render for Lepanto other services specified in the contract. We gather
from the contract that the work undertaken by Nielson was to take
complete charge subject at all times to the general control of the Board of
Directors of Lepanto, of the exploration and development of the mining
claims, of the hiring of a sufficient and competent staff and of sufficient
and capable laborers, of the prospecting and development of the mine, of
the erection and operation of the mill, and of the benefication and
marketing of the minerals found on the mining properties; and in carrying
out said obligation Nielson should proceed diligently and in accordance
with the best mining practice. In connection with its work Nielson was to
submit reports, maps, plans and recommendations with respect to the
operation and development of the mining properties, make
recommendations and plans on the erection or enlargement of any
existing mill, dispatch mining engineers and technicians to the mining
properties as from time to time may reasonably be required to investigate
and make recommendations without cost or expense to Lepanto. Nielson
was also to "act as purchasing agent of supplies, equipment and other
necessary purchases by Lepanto, provided, however, that no purchase
shall be made without the prior approval of Lepanto; and provided further,
that no commission shall be claimed or retained by Nielson on such
purchase"; and "to submit all requisition for supplies, all constricts and
arrangement with engineers, and staff and all matters requiring the
expenditures of money, present or future, for prior approval by Lepanto;
and also to make contracts subject to the prior approve of Lepanto for the
sale and marketing of the minerals mined from said properties, when said
products are in a suitable condition for marketing."1
It thus appears that the principal and paramount undertaking of Nielson
under the management contract was the operation and development of
the mine and the operation of the mill. All the other undertakings
mentioned in the contract are necessary or incidental to the principal
undertaking these other undertakings being dependent upon the work

on the development of the mine and the operation of the mill. In the
performance of this principal undertaking Nielson was not in any way
executing juridical acts for Lepanto, destined to create, modify or
extinguish business relations between Lepanto and third persons. In other
words, in performing its principal undertaking Nielson was not acting as an
agent of Lepanto, in the sense that the term agent is interpreted under
the law of agency, but as one who was performing material acts for an
employer, for a compensation.
It is true that the management contract provides that Nielson would also
act as purchasing agent of supplies and enter into contracts regarding the
sale of mineral, but the contract also provides that Nielson could not make
any purchase, or sell the minerals, without the prior approval of Lepanto.
It is clear, therefore, that even in these cases Nielson could not execute
juridical acts which would bind Lepanto without first securing the approval
of Lepanto. Nielson, then, was to act only as an intermediary, not as an
agent.
Lepanto contends that the management contract in question being one of
agency it had the right to terminate the contract at will pursuant to the
provision of Article 1733 of the old Civil Code. We find, however, a proviso
in the management contract which militates against this stand of Lepanto.
Paragraph XI of the contract provides:
Both parties to this agreement fully recognize that the terms of this
Agreement are made possible only because of the faith or confidence that
the Officials of each company have in the other; therefore, in order to
assure that such confidence and faith shall abide and continue, NIELSON
agrees that LEPANTO may cancel this Agreement at any time upon ninety
(90) days written notice, in the event that NIELSON for any reason
whatsoever, except acts of God, strike and other causes beyond its
control, shall cease to prosecute the operation and development of the
properties herein described, in good faith and in accordance with
approved mining practice.
It is thus seen, from the above-quoted provision of paragraph XI of the
management contract, that Lepanto could not terminate the agreement at
will. Lepanto could terminate or cancel the agreement by giving notice of
termination ninety days in advance only in the event that Nielson should
prosecute in bad faith and not in accordance with approved mining
practice the operation and development of the mining properties of
Lepanto. Lepanto could not terminate the agreement if Nielson should
cease to prosecute the operation and development of the mining
properties by reason of acts of God, strike and other causes beyond the
control of Nielson.
The phrase "Both parties to this agreement fully recognize that the terms
of this agreement are made possible only because of the faith and
confidence of the officials of each company have in the other" in

paragraph XI of the management contract does not qualify the relation

between Lepanto and Nielson as that of principal and agent based on trust
and confidence, such that the contractual relation may be terminated by
the principal at any time that the principal loses trust and confidence in
the agent. Rather, that phrase simply implies the circumstance that
brought about the execution of the management contract. Thus, in the
annual report for 19362, submitted by Mr. C. A. Dewit, President of
Lepanto, to its stockholders, under date of March 15, 1937, we read the
following:
To the stockholders
xxx

xxx

xxx

The incorporation of our Company was effected as a result of negotiations

with Messrs. Nielson & Co., Inc., and an offer by these gentlemen to
Messrs. C. I. Cookes and V. L. Lednicky, dated August 11, 1936, reading as
follows:
Messrs. Cookes and Lednicky,
Present
Re: Mankayan Copper Mines
GENTLEMEN:
After an examination of your property by our engineers, we have decided
to offer as we hereby offer to underwrite the entire issue of stock of a
corporation to be formed for the purpose of taking over said properties,
said corporation to have an authorized capital of P1,750,000.00, of which
P700,000.00 will be issued in escrow to the claim-owners in exchange for
their claims, and the balance of P1,050,000.00 we will sell to the public at
par or take ourselves.
The arrangement will be under the following conditions:
1. The subscriptions for cash shall be payable 50% at time of subscription
and the balance subject to the call of the Board of Directors of the
proposed corporation.
2. We shall have an underwriting and brokerage commission of 10% of the
P1,050,000.00 to be sold for cash to the public, said commission to be
payable from the first payment of 50% on each subscription.
3. We will bear the cost of preparing and mailing any prospectus that may
be required, but no such prospectus will be sent out until the text thereof
has been first approved by the Board of Directors of the proposed
corporation.

4. That after the organization of the corporation, all operating contract be

entered into between ourselves and said corporation, under the terms
which the property will be developed and mined and a mill erected, under
our supervision, our compensation to be P2,000.00 per month until the
property is put on a profitable basis and P2,500.00 per month plus 10% of
the net profits for a period of five years thereafter.
5. That we shall have the option to renew said operating contract for an
additional period of five years, on the same basis as the original contract,
upon the expiration thereof.
It is understood that the development and mining operations on said
property, and the erection of the mill thereon, and the expenditures
therefor shall be subject to the general control of the Board of Directors of
the proposed corporation, and, in case you accept this proposition, that a
detailed operating contract will be entered into, covering the relationships
between the parties.
Yours very truly,
(Sgd.) L. R. Nielson
Pursuant to the provisions of paragraph 2 of this offer, Messrs. Nielson &
Co., took subscriptions for One Million Fifty Thousand Pesos
(P1,050,000.00) in shares of our Company and their underwriting and
brokerage commission has been paid. More than fifty per cent of these
subscriptions have been paid to the Company in cash. The claim owners
have transferred their claims to the Corporation, but the P700,000.00 in
stock which they are to receive therefor, is as yet held in escrow.
Immediately upon the formation of the Corporation Messrs. Nielson & Co.,
assumed the Management of the property under the control of the Board
of Directors. A modification in the Management Contract was made with
the consent of all the then stockholders, in virtue of which the
compensation of Messrs. Nielson & Co., was increased to P2,500.00 per
month when mill construction began. The formal Management Contract
was not entered into until January 30, 1937.
xxx

xxx

xxx
Manila, March 15, 1937
(Sgd.) C. A. DeWitt President

We can gather from the foregoing statements in the annual report for
1936, and from the provision of paragraph XI of the Management contract,
that the employment by Lepanto of Nielson to operate and manage its
mines was principally in consideration of the know-how and technical
services that Nielson offered Lepanto. The contract thus entered into
pursuant to the offer made by Nielson and accepted by Lepanto was a

"detailed operating contract". It was not a contract of agency. Nowhere in

the record is it shown that Lepanto considered Nielson as its agent and
that Lepanto terminated the management contract because it had lost its
trust and confidence in Nielson.
The contention of Lepanto that it had terminated the management
contract in 1945, following the liberation of the mines from Japanese
control, because the relation between it and Nielson was one of agency
and as such it could terminate the agency at will, is, therefore, untenable.
On the other hand, it can be said that, in asserting that it had terminated
or cancelled the management contract in 1945, Lepanto had thereby
violated the express terms of the management contract. The
management contract was renewed to last until January 31, 1947, so that
the contract had yet almost two years to go upon the liberation of the
mines in 1945. There is no showing that Nielson had ceased to prosecute
the operation and development of the mines in good faith and in
accordance with approved mining practice which would warrant the
termination of the contract upon ninety days written notice. In fact there
was no such written notice of termination. It is an admitted fact that
Nielson ceased to operate and develop the mines because of the war a
cause beyond the control of Nielson. Indeed, if the management contract
in question was intended to create a relationship of principal and agent
between Lepanto and Nielson, paragraph XI of the contract should not
have been inserted because, as provided in Article 1733 of the old Civil
Code, agency is essentially revocable at the will of the principal that
means, with or without cause. But precisely said paragraph XI was
inserted in the management contract to provide for the cause for its
revocation. The provision of paragraph XI must be given effect.
In the construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give
effect to all,3 and if some stipulation of any contract should admit of
several meanings, it shall be understood as bearing that import which is
most adequate to render it effectual.4
It is Our considered view that by express stipulation of the parties, the
management contract in question is not revocable at the will of Lepanto.
We rule that this management contract is not a contract of agency as
defined in Article 1709 of the old Civil Code, but a contract of lease of
services as defined in Article 1544 of the same Code. This contract can
not be unilaterally revoked by Lepanto.
The first ground of the motion for reconsideration should, therefore, be
brushed aside.
2. In the second, third and fifth grounds of its motion for reconsideration,
Lepanto maintains that this Court erred, in holding that paragraph 11 of
the management contract suspended the period of said contract, in
holding that the agreement was not only suspended but was extended on

account of the war, and in holding that the period of suspension on

account of the war lasted from February, 1942 to June 26, 1948. We are
going to discuss these three grounds together because they are
interrelated.
In our decision we have dwelt lengthily on the points that the
management contract was suspended because of the war, and that the
period of the contract was extended for a period equivalent to the time
when Nielson was unable to perform the work of mining and milling
because of the adverse effects of the war on the work of mining and
milling.
It is the contention of Lepanto that the happening of those events, and the
effects of those events, simply suspended the performance of the
obligations by either party in the contract, but did not suspend the period
of the contract, much less extended the period of the contract.
We have conscientiously considered the arguments of Lepanto in support
of these three grounds, but We are not persuaded to reconsider the
rulings that We made in Our decision.
We want to say a little more on these points, however. Paragraph II of the
management contract provides as follows:
In the event of inundation, flooding of the mine, typhoon, earthquake or
any other force majeure, war, insurrection, civil commotion, organized
strike, riot, fire, injury to the machinery or other event or cause
reasonably beyond the control of NIELSON and which adversely affects the
work of mining and milling; NIELSON shall report such fact to LEPANTO
and without liability or breach of the terms of this Agreement, the
same shall remain in suspense, wholly or partially during the terms of
such inability. (Emphasis supplied)
A reading of the above-quoted paragraph II cannot but convey the idea
that upon the happening of any of the events enumerated therein, which
adversely affects the work of mining and milling, the agreement is
deemed suspended for as long as Nielson is unable to perform its work of
mining and milling because of the adverse effects of the happening of the
event on the work of mining and milling. During the period when the
adverse effects on the work of mining and milling exist, neither party in
the contract would be held liable for non-compliance of its obligation
under the contract. In other words, the operation of the contract is
suspended for as long as the adverse effects of the happening of any of
those events had impeded or obstructed the work of mining and milling.
An analysis of the phraseology of the above-quoted paragraph II of the
management contract readily supports the conclusion that it is the
agreement, or the contract, that is suspended. The phrase "the same" can
refer to no other than the term "Agreement" which immediately precedes
it. The "Agreement" may be wholly or partially suspended, and this

situation will depend on whether the event wholly or partially affected

adversely the work of mining and milling. In the instant case, the war had
adversely affected and wholly at that the work of mining and milling.
We have clearly stated in Our decision the circumstances brought about
by the war which caused the whole or total suspension of the agreement
or of the management contract.
LEPANTO itself admits that the management contract was suspended. We
quote from the brief of LEPANTO:
Probably, what Nielson meant was, it was prevented by Lepanto to
assume again the management of the mine in 1945, at the precise time
when defendant was at the feverish phase of rehabilitation and although
the contract had already been suspended. (Lepanto's Brief, p. 9).
... it was impossible, as a result of the destruction of the mine, for the
plaintiff to manage and operate the same and because, as provided in the
agreement, the contract was suspended by reason of the war (Lepanto's
Brief, pp. 9-10).
Clause II, by its terms, is clear that the contract is suspended in case
fortuitous event or force majeure, such as war, adversely affects the work
of mining and milling. (Lepanto's Brief, p. 49).
Lepanto is correct when it said that the obligations under the contract
were suspended upon the happening of any of the events enumerated in
paragraph II of the management contract. Indeed, those obligations were
suspended because the contract itself was suspended. When we talk of a
contract that has been suspended we certainly mean that the contract
temporarily ceased to be operative, and the contract becomes operative
again upon the happening of a condition or when a situation obtains
which warrants the termination of the suspension of the contract.
In Our decision We pointed out that the agreement in the management
contract would be suspended when two conditions concur, namely: (1) the
happening of the event constituting a force majeure that was reasonably
beyond the control of Nielson, and (2) that the event constituting the force
majeure adversely affected the work of mining and milling. The
suspension, therefore, would last not only while the event constituting the
force majeure continued to occur but also for as long as the adverse
effects of the force majeure on the work of mining and milling had not
been eliminated. Under the management contract the happening alone of
the event constituting the force majeure which did not affect adversely
the work of mining and milling would not suspend the period of the
contract. It is only when the two conditions concur that the period of the
agreement is suspended.
It is not denied that because of the war, in February 1942, the mine, the
original mill, the original power plant, the supplies and equipment, and all

installations at the Mankayan mines of Lepanto, were destroyed upon

order of the United States Army, to prevent their utilization by the enemy.
It is not denied that for the duration of the war Nielson could not
undertake the work of mining and milling. When the mines were liberated
from the enemy in August, 1945, the condition of the mines, the mill, the
power plant and other installations, was not the same as in February 1942
when they were ordered destroyed by the US army. Certainly, upon the
liberation of the mines from the enemy, the work of mining and milling
could not be undertaken by Nielson under the same favorable
circumstances that obtained before February 1942. The work of mining
and milling, as undertaken by Nielson in January, 1942, could not be
resumed by Nielson soon after liberation because of the adverse effects of
the war, and this situation continued until June of 1948. Hence, the
suspension of the management contract did not end upon the liberation of
the mines in August, 1945. The mines and the mill and the installations,
laid waste by the ravages of war, had to be reconstructed and
rehabilitated, and it can be said that it was only on June 26, 1948 that the
adverse effects of the war on the work of mining and milling had ended,
because it was on that date that the operation of the mines and the mill
was resumed. The period of suspension should, therefore, be reckoned
from February 1942 until June 26, 1948, because it was during this period
that the war and the adverse effects of the war on the work of mining and
milling had lasted. The mines and the installations had to be rehabilitated
because of the adverse effects of the war. The work of rehabilitation
started soon after the liberation of the mines in August, 1945 and lasted
until June 26, 1948 when, as stated in Lepanto's annual report to its
stockholders for the year 1948, "June 28, 1948 marked the official return
to operation of this company at its properties at Mankayan, Mountain
Province, Philippines" (Exh. F-1).
Lepanto would argue that if the management contract was suspended at
all the suspension should cease in August of 1945, contending that the
effects of the war should cease upon the liberation of the mines from the
enemy. This contention cannot be sustained, because the period of
rehabilitation was still a period when the physical effects of the war the
destruction of the mines and of all the mining installations adversely
affected, and made impossible, the work of mining and milling. Hence, the
period of the reconstruction and rehabilitation of the mines and the
installations must be counted as part of the period of suspension of the
contract.
Lepanto claims that it would not be unfair to end the period of suspension
upon the liberation of the mines because soon after the liberation of the
mines Nielson insisted to resume the management work, and that Nielson
was under obligation to reconstruct the mill in the same way that it was
under obligation to construct the mill in 1937. This contention is
untenable. It is true that Nielson insisted to resume its management work
after liberation, but this was only for the purpose of restoring the mines,
the mill, and other installations to their operating and producing condition

as of February 1942 when they were ordered destroyed. It is not shown by

any evidence in the record, that Nielson had agreed, or would have
agreed, that the period of suspension of the contract would end upon the
liberation of the mines. This is so because, as found by this Court, the
intention of the parties in the management contract, and as understood
by them, the management contract was suspended for as long as the
adverse effects of the force majeure on the work of mining and milling had
not been removed, and the contract would be extended for as long as it
was suspended. Under the management contract Nielson had the
obligation to erect and operate the mill, but not to erect or reconstruct the
mill in case of its destruction by force majeure.
It is the considered view of this court that it would not be fair to Nielson to
consider the suspension of the contract as terminated upon the liberation
of the mines because then Nielson would be placed in a situation whereby
it would have to suffer the adverse effects of the war on the work of
mining and milling. The evidence shows that as of January 1942 the
operation of the mines under the management of Nielson was already
under beneficial conditions, so much so that dividends were already
declared by Lepanto for the years 1939, 1940 and 1941. To make the
management contract immediately operative after the liberation of the
mines from the Japanese, at the time when the mines and all its
installations were laid waste as a result of the war, would be to place
Nielson in a situation whereby it would lose all the benefits of what it had
accomplished in placing the Lepanto mines in profitable operation before
the outbreak of the war in December, 1941. The record shows that Nielson
started its management operation way back in 1936, even before the
management contract was entered into. As early as August 1936 Nielson
negotiated with Messrs. C. I. Cookes and V. L. Lednicky for the operation of
the Mankayan mines and it was the result of those negotiations that
Lepanto was incorporated; that it was Nielson that helped to capitalize
Lepanto, and that after the formation of the corporation (Lepanto) Nielson
immediately assumed the management of the mining properties of
Lepanto. It was not until January 30, 1937 when the management contract
in question was entered into between Lepanto and Nielson (Exhibit A).
A contract for the management and operation of mines calls for a
speculative and risky venture on the part of the manager-operator. The
manager-operator invests its technical know-how, undertakes backbreaking efforts and tremendous spade-work, so to say, in the first years
of its management and operation of the mines, in the expectation that the
investment and the efforts employed might be rewarded later with
success. This expected success may never come. This had happened in
the very case of the Mankayan mines where, as recounted by Mr. Lednicky
of Lepanto, various persons and entities of different nationalities,
including Lednicky himself, invested all their money and failed. The
manager-operator may not strike sufficient ore in the first, second, third,
or fourth year of the management contract, or he may not strike ore even
until the end of the fifth year. Unless the manager-operator strikes

sufficient quantity of ore he cannot expect profits or reward for his

investment and efforts. In the case of Nielson, its corps of competent
engineers, geologists, and technicians begun working on the Mankayan
mines of Lepanto since the latter part of 1936, and continued their work
without success and profit through 1937, 1938, and the earlier part of
1939. It was only in December of 1939 when the efforts of Nielson started
to be rewarded when Lepanto realized profits and the first dividends were
declared. From that time on Nielson could expect profit to come to it as
in fact Lepanto declared dividends for 1940 and 1941 if the
development and operation of the mines and the mill would continue
unhampered. The operation, and the expected profits, however, would still
be subject to hazards due to the occurrence of fortuitous events, fires,
earthquakes, strikes, war, etc., constituting force majeure, which would
result in the destruction of the mines and the mill. One of these diverse
causes, or one after the other, may consume the whole period of the
contract, and if it should happen that way the manager-operator would
reap no profit to compensate for the first years of spade-work and
investment of efforts and know-how. Hence, in fairness to the manageroperator, so that he may not be deprived of the benefits of the work he
had accomplished, the force majeure clause is incorporated as a standard
clause in contracts for the management and operation of mines.
The nature of the contract for the management and operation of mines
justifies the interpretation of the force majeure clause, that a period equal
to the period of suspension due to force majeure should be added to the
original term of the contract by way of an extension. We, therefore,
reiterate the ruling in Our decision that the management contract in the
instant case was suspended from February, 1942 to June 26, 1948, and
that from the latter date the contract had yet five years to go.
3. In the fourth ground of its motion for reconsideration, Lepanto
maintains that this Court erred in reversing the finding of the trial court
that Nielson's action has prescribed, by considering only the first claim
and ignoring the prescriptibility of the other claims.
This ground of the motion for reconsideration has no merit.
In Our decision We stated that the claims of Nielson are based on a
written document, and, as such, the cause of action prescribes in ten
years.5 Inasmuch as there are different claims which accrued on different
dates the prescriptive periods for all the claims are not the same. The
claims of Nielson that have been awarded by this Court are itemized in the
dispositive part of the decision.
The first item of the awards in Our decision refers to Nielson's
compensation in the sum of P17,500.00, which is equivalent to 10% of the
cash dividends declared by Lepanto in December, 1941. As we have
stated in Our decision, this claim accrued on December 31, 1941, and the
right to commence an action thereon started on January 1, 1942. We

declared that the action on this claim did not prescribe although the
complaint was filed on February 6, 1958 or after a lapse of 16 years, 1
month and 5 days because of the operation of the moratorium law.
We declared that under the applicable decisions of this Court6 the
moratorium period of 8 years, 2 months and 8 days should be deducted
from the period that had elapsed since the accrual of the cause of action
to the date of the filing of the complaint, so that there is a period of less
than 8 years to be reckoned for the purpose of prescription.
This claim of Nielson is covered by Executive Order No. 32, issued on
March 10, 1945, which provides as follows:
Enforcement of payments of all debts and other monetary
obligations payable in the Philippines, except debts and other monetary
obligations entered into in any area after declaration by Presidential
Proclamation that such area has been freed from enemy occupation and
control, is temporarily suspended pending action by the Commonwealth
Government. (41 O.G. 56-57; Emphasis supplied)
Executive Order No. 32 covered all debts and monetary obligation
contracted before the war (or before December 8, 1941) and those
contracted subsequent to December 8, 1941 and during the Japanese
occupation. Republic Act No. 342, approved on July 26, 1948, lifted the
moratorium provided for in Executive Order No. 32 on pre-war (or preDecember 8, 1941) debts of debtors who had not filed war damage claims
with the United States War Damage Commission. In other words, after the
effectivity of Republic Act No. 342, the debt moratorium was limited: (1) to
debts and other monetary obligations which were contracted after
December 8, 1941 and during the Japanese occupation, and (2) to those
pre-war (or pre-December 8, 1941) debts and other monetary obligations
where the debtors filed war damage claims. That was the situation up to
May 18, 1953 when this Court declared Republic Act No. 342
unconstitutional.7 It has been held by this Court, however, that from March
10, 1945 when Executive Order No. 32 was issued, to May 18, 1953 when
Republic Act No. 342 was declared unconstitutional or a period of 8
years, 2 months and 8 days the debt moratorium was in force, and had
the effect of suspending the period of prescription.8
Lepanto is wrong when in its motion for reconsideration it claims that the
moratorium provided for in Executive Order No. 32 was continued by
Republic Act No. 342 "only with respect to debtors of pre-war obligations
or those incurred prior to December 8, 1941," and that "the moratorium
was lifted and terminated with respect to obligations incurred after
December 8, 1941."9
This Court has held that Republic Act No. 342 does not apply to debts
contracted during the war and did not lift the moratorium in relations

thereto.10 In the case of Abraham, et al. vs. Intestate Estate of Juan C.

Ysmael, et al., L-16741, Jan. 31, 1962, this Court said:
Respondents, however, contend that Republic Act No. 342, which took
effect on July 26, 1948, lifted the moratorium on debts contracted during
the Japanese occupation. The court has already held that Republic Act No.
342 did not lift the moratorium on debts contracted during the war (Uy vs.
Kalaw Katigbak, G.R. No. L-1830, Dec. 31, 1949) but modified Executive
Order No. 32 as to pre-war debts, making the protection available only to
debtors who had war damage claims (Sison v. Mirasol, G.R. No. L-4711,
Oct. 3, 1952).
We therefore reiterate the ruling in Our decision that the claim involved in
the first item awarded to Nielson had not prescribed.
What we have stated herein regarding the non-prescription of the cause of
action of the claim involved in the first item in the award also holds true
with respect to the second item in the award, which refers to Nielson's
claim for management fee of P2,500.00 for January, 1942. Lepanto admits
that this second item, like the first, is a monetary obligation. The right of
action of Nielson regarding this claim accrued on January 31, 1942.
As regards items 3, 4, 5, 6 and 7 in the awards in the decision, the
moratorium law is not applicable. That is the reason why in Our decision
We did not discuss the question of prescription regarding these items. The
claims of Nielson involved in these items are based on the management
contract, and Nielson's cause of action regarding these claims prescribes
in ten years. Corollary to Our ruling that the management contract was
suspended from February, 1942 until June 26, 1948, and that the contract
was extended for five years from June 26, 1948, the right of action of
Nielson to claim for what is due to it during that period of extension
accrued during the period from June 26, 1948 till the end of the five-year
extension period or until June 26, 1953. And so, even if We reckon June 26,
1948 as the starting date of the ten-year period in connection with the
prescriptibility of the claims involved in items 3, 4, 5, 6 and 7 of the
awards in the decision, it is obvious that when the complaint was filed on
February 6, 1958 the ten-year prescriptive period had not yet lapsed.
In Our decision We have also ruled that the right of action of Nielson
against Lepanto had not prescribed because of the arbitration clause in
the Management contract. We are satisfied that there is evidence that
Nielson had asked for arbitration, and an arbitration committee had been
constituted. The arbitration committee, however, failed to bring about any
settlement of the differences between Nielson and Lepanto. On June 25,
1957 counsel for Lepanto definitely advised Nielson that they were not
entertaining any claim of Nielson. The complaint in this case was filed on
February 6, 1958.

4. In the sixth ground of its motion for reconsideration, Lepanto maintains

that this Court "erred in awarding as damages (a) 10% of the cash
dividends declared and paid in December, 1941; (b) the management fee
of P2,500.00 for the month of January 1942; and (c) the full contract price
for the extended period of 60 months, since the damages were never
demanded nor proved and, in any case, not allowable under the general
law on damages."
We have stated in Our decision that the original agreement in the
management contract regarding the compensation of Nielson was
modified, such that instead of receiving a monthly compensation of
P2,500.00 plus 10% of the net profits from the operation of the properties
for the preceding month,11 Nielson would receive a compensation of
P2,500.00 a month, plus (1) 10% of the dividends declared and paid, when
and as paid, during the period of the contract, and at the end of each
year, (2) 10% of any depletion reserve that may be set up, and (3) 10% of
any amount expended during the year out of surplus earnings for capital
account.
It is shown that in December, 1941, cash dividends amounting to
P175,000.00 was declared by Lepanto. 12 Nielson, therefore, should receive
the equivalent of 10% of this amount, or the sum of P17,500.00. We have
found that this amount was not paid to Nielson.
In its motion for reconsideration, Lepanto inserted a photographic copy of
page 127 of its cash disbursement book, allegedly for 1941, in an effort to
show that this amount of P17,500.00 had been paid to Nielson. It appears,
however, in this photographic copy of page 127 of the cash disbursement
book that the sum of P17,500.00 was entered on October 29 as "surplus
a/c Nielson & Co. Inc." The entry does not make any reference to
dividends or participation of Nielson in the profits. On the other hand, in
the photographic copy of page 89 of the 1941 cash disbursement book,
also attached to the motion for reconsideration, there is an entry for
P17,500.00 on April 23, 1941 which states "Accts. Pay. Particip. Nielson &
Co. Inc." This entry for April 23, 1941 may really be the participation of
Nielson in the profits based on dividends declared in April 1941 as shown
in Exhibit L. But in the same Exhibit L it is not stated that any dividend
was declared in October 1941. On the contrary it is stated in Exhibit L that
dividends were declared in December 1941. We cannot entertain this
piece of evidence for several reasons: (1) because this evidence was not
presented during the trial in the court below; (2) there is no showing that
this piece of evidence is newly discovered and that Lepanto was not in
possession of said evidence when this case was being tried in the court
below; and (3) according to Exhibit L cash dividends of P175,000.00 were
declared in December, 1941, and so the sum of P17,500.00 which appears
to have been paid to Nielson in October 1941 could not be payment of the
equivalent of 10% of the cash dividends that were later declared in
December, 1941.

As regards the management fee of Nielson corresponding to January,

1942, in the sum of P2,500.00, We have also found that Nielson is entitled
to be paid this amount, and that this amount was not paid by Lepanto to
Nielson. Whereas, Lepanto was able to prove that it had paid the
management fees of Nielson for November and December, 1941, 13 it was
not able to present any evidence to show that the management fee of
P2,500.00 for January, 1942 had been paid.
It having been declared in Our decision, as well as in this resolution, that
the management contract had been extended for 5 years, or sixty
months, from June 27, 1948 to June 26, 1953, and that the cause of action
of Nielson to claim for its compensation during that period of extension
had not prescribed, it follows that Nielson should be awarded the
management fees during the whole period of extension, plus the 10% of
the value of the dividends declared during the said period of extension,
the 10% of the depletion reserve that was set up, and the 10% of any
amount expended out of surplus earnings for capital account.
5. In the seventh ground of its motion for reconsideration, Lepanto
maintains that this Court erred in ordering Lepanto to issue and deliver to
Nielson shares of stock together with fruits thereof.
In Our decision, We declared that pursuant to the modified agreement
regarding the compensation of Nielson which provides, among others, that
Nielson would receive 10% of any dividends declared and paid, when and
as paid, Nielson should be paid 10% of the stock dividends declared by
Lepanto during the period of extension of the contract.
It is not denied that on November 28, 1949, Lepanto declared stock
dividends worth P1,000,000.00; and on August 22, 1950, it declared stock
dividends worth P2,000,000.00). In other words, during the period of
extension Lepanto had declared stock dividends worth P3,000,000.00. We
held in Our decision that Nielson is entitled to receive l0% of the stock
dividends declared, or shares of stock worth P300,000.00 at the par value
of P0.10 per share. We ordered Lepanto to issue and deliver to Nielson
those shares of stocks as well as all the fruits or dividends that accrued to
said shares.
In its motion for reconsideration, Lepanto contends that the payment to
Nielson of stock dividends as compensation for its services under the
management contract is a violation of the Corporation Law, and that it
was not, and it could not be, the intention of Lepanto and Nielson as
contracting parties that the services of Nielson should be paid in shares
of stock taken out of stock dividends declared by Lepanto. We have
assiduously considered the arguments adduced by Lepanto in support of
its contention, as well as the answer of Nielson in this connection, and We
have arrived at the conclusion that there is merit in the contention of
Lepanto.

Section 16 of the Corporation Law, in part, provides as follows:

No corporation organized under this Act shall create or issue bills, notes or
other evidence of debt, for circulation as money, and no corporation shall
issue stock or bonds except in exchange for actual cash paid to the
corporation or for: (1) property actually received by it at a fair valuation
equal to the par or issued value of the stock or bonds so issued; and in
case of disagreement as to their value, the same shall be presumed to be
the assessed value or the value appearing in invoices or other commercial
documents, as the case may be; and the burden or proof that the real
present value of the property is greater than the assessed value or value
appearing in invoices or other commercial documents, as the case may
be, shall be upon the corporation, or for (2) profits earned by it but not
distributed among its stockholders or members; Provided, however, That
no stock or bond dividend shall be issued without the approval of
stockholders representing not less than two-thirds of all stock then
outstanding and entitled to vote at a general meeting of the corporation
or at a special meeting duly called for the purpose.
xxx

xxx

xxx

No corporation shall make or declare any dividend except from the

surplus profits arising from its business, or divide or distribute its capital
stock or property other than actual profits among its members or
stockholders until after the payment of its debts and the termination of its
existence by limitation or lawful dissolution:Provided, That banking,
savings and loan, and trust corporations may receive deposits and issue
certificates of deposit, checks, drafts, and bills of exchange, and the like in
the transaction of the ordinary business of banking, savings and loan, and
trust corporations. (As amended by Act No. 2792, and Act No. 3518;
Emphasis supplied.)
From the above-quoted provision of Section 16 of the Corporation Law, the
consideration for which shares of stock may be issued are: (1) cash; (2)
property; and (3) undistributed profits. Shares of stock are given the
special name "stock dividends" only if they are issued in lieu of
undistributed profits. If shares of stocks are issued in exchange of cash or
property then those shares do not fall under the category of "stock
dividends". A corporation may legally issue shares of stock in
consideration of services rendered to it by a person not a stockholder, or
in payment of its indebtedness. A share of stock issued to pay for services
rendered is equivalent to a stock issued in exchange of property, because
services is equivalent to property.14 Likewise a share of stock issued in
payment of indebtedness is equivalent to issuing a stock in exchange for
cash. But a share of stock thus issued should be part of the original capital
stock of the corporation upon its organization, or part of the stocks issued
when the increase of the capitalization of a corporation is properly
authorized. In other words, it is the shares of stock that are originally
issued by the corporation and forming part of the capital that can be

exchanged for cash or services rendered, or property; that is, if the

corporation has original shares of stock unsold or unsubscribed, either
coming from the original capitalization or from the increased
capitalization. Those shares of stock may be issued to a person who is not
a stockholder, or to a person already a stockholder in exchange for
services rendered or for cash or property. But a share of stock coming
from stock dividends declared cannot be issued to one who is not a
stockholder of a corporation.
A "stock dividend" is any dividend payable in shares of stock of the
corporation declaring or authorizing such dividend. It is, what the term
itself implies, a distribution of the shares of stock of the corporation
among the stockholders as dividends. A stock dividend of a corporation is
a dividend paid in shares of stock instead of cash, and is properly payable
only out of surplus profits.15 So, a stock dividend is actually two things: (1)
a dividend, and (2) the enforced use of the dividend money to purchase
additional shares of stock at par.16 When a corporation issues stock
dividends, it shows that the corporation's accumulated profits have been
capitalized instead of distributed to the stockholders or retained as
surplus available for distribution, in money or kind, should opportunity
offer. Far from being a realization of profits for the stockholder, it tends
rather to postpone said realization, in that the fund represented by the
new stock has been transferred from surplus to assets and no longer
available for actual distribution.17 Thus, it is apparent that stock dividends
are issued only to stockholders. This is so because only stockholders are
entitled to dividends. They are the only ones who have a right to a
proportional share in that part of the surplus which is declared as
dividends. A stock dividend really adds nothing to the interest of the
stockholder; the proportional interest of each stockholder remains the
same.18If a stockholder is deprived of his stock dividends - and this
happens if the shares of stock forming part of the stock dividends are
issued to a non-stockholder then the proportion of the stockholder's
interest changes radically. Stock dividends are civil fruits of the original
investment, and to the owners of the shares belong the civil fruits.19
The term "dividend" both in the technical sense and its ordinary
acceptation, is that part or portion of the profits of the enterprise which
the corporation, by its governing agents, sets apart for ratable division
among the holders of the capital stock. It means the fund actually set
aside, and declared by the directors of the corporation as dividends and
duly ordered by the director, or by the stockholders at a corporate
meeting, to be divided or distributed among the stockholders according to
their respective interests.20
It is Our considered view, therefore, that under Section 16 of the
Corporation Law stock dividends can not be issued to a person who is not
a stockholder in payment of services rendered. And so, in the case at bar
Nielson can not be paid in shares of stock which form part of the stock
dividends of Lepanto for services it rendered under the management

contract. We sustain the contention of Lepanto that the understanding

between Lepanto and Nielson was simply to make the cash value of the
stock dividends declared as the basis for determining the amount of
compensation that should be paid to Nielson, in the proportion of 10% of
the cash value of the stock dividends declared. And this conclusion of
Ours finds support in the record.
We had adverted to in Our decision that in 1940 there was some dispute
between Lepanto and Nielson regarding the application and interpretation
of certain provisions of the original contract particularly with regard to the
10% participation of Nielson in the net profits, so that some adjustments
had to be made. In the minutes of the meeting of the Board of Directors of
Lepanto on August 21, 1940, We read the following:
The Chairman stated that he believed that it would be better to tie the
computation of the 10% participation of Nielson & Company, Inc. to the
dividend, because Nielson will then be able to definitely compute its net
participation by the amount of the dividends declared. In addition to the
dividend, we have been setting up a depletion reserve and it does not
seem fair to burden the 10% participation of Nielson with the depletion
reserve, as the depletion reserve should not be considered as an
operating expense. After a prolonged discussion, upon motion duly made
and seconded, it was
RESOLVED, That the President, be, and he hereby is, authorized to enter
into an agreement with Nielson & Company, Inc., modifying Paragraph V
of management contract of January 30, 1937, effective January 1, 1940, in
such a way that Nielson & Company, Inc. shall receive 10% of any
dividends declared and paid, when and as paid during the period of the
contract and at the end of each year, 10% of any depletion reserve that
may be set up and 10% of any amount expended during the year out of
surplus earnings for capital account. (Emphasis supplied.)
From the sentence, "The Chairman stated that he believed that it would
be better to tie the computation of the 10% participation of Nielson &
Company, Inc., to the dividend, because Nielson will then be able to
definitely compute its net participation by the amount of the dividends
declared" the idea is conveyed that the intention of Lepanto, as expressed
by its Chairman C. A. DeWitt, was to make the value of the dividends
declared whether the dividends were in cash or in stock as the basis
for determining the amount of compensation that should be paid to
Nielson, in the proportion of 10% of the cash value of the dividends so
declared. It does not mean, however, that the compensation of Nielson
would be taken from the amount actually declared as cash dividend to be
distributed to the stockholder, nor from the shares of stocks to be issued
to the stockholders as stock dividends, but from the other assets or funds
of the corporation which are not burdened by the dividends thus declared.
In other words, if, for example, cash dividends of P300,000.00 are
declared, Nielson would be entitled to a compensation of P30,000.00, but

this P30,000.00 should not be taken from the P300,000.00 to be

distributed as cash dividends to the stockholders but from some other
funds or assets of the corporation which are not included in the amount to
answer for the cash dividends thus declared. This is so because if the
P30,000.00 would be taken out from the P300,000.00 declared as cash
dividends, then the stockholders would not be getting P300,000.00 as
dividends but only P270,000.00. There would be a dilution of the dividend
that corresponds to each share of stock held by the stockholders.
Similarly, if there were stock dividends worth one million pesos that were
declared, which means an issuance of ten million shares at the par value
of ten centavos per share, it does not mean that Nielson would be given
100,000 shares. It only means that Nielson should be given the equivalent
of 10% of the aggregate cash value of those shares issued as stock
dividends. That this was the understanding of Nielson itself is borne out by
the fact that in its appeal brief Nielson urged that it should be paid
"P300,000.00 being 10% of the P3,000,000.00 stock dividends declared on
November 28, 1949 and August 20, 1950...."21
We, therefore, reconsider that part of Our decision which declares that
Nielson is entitled to shares of stock worth P300,000.00 based on the
stock dividends declared on November 28, 1949 and on August 20, 1950,
together with all the fruits accruing thereto. Instead, We declare that
Nielson is entitled to payment by Lepanto of P300,000.00 in cash, which is
equivalent to 10% of the money value of the stock dividends worth
P3,000,000.00 which were declared on November 28, 1949 and on August
20, 1950, with interest thereon at the rate of 6% from February 6, 1958.
6. In the eighth ground of its motion for reconsideration Lepanto maintains
that this Court erred in awarding to Nielson an undetermined amount of
shares of stock and/or cash, which award can not be ascertained and
executed without further litigation.
In view of Our ruling in this resolution that Nielson is not entitled to
receive shares of stock as stock dividends in payment of its compensation
under the management contract, We do not consider it necessary to
discuss this ground of the motion for reconsideration. The awards in the
present case are all reduced to specific sums of money.
7. In the ninth ground of its motion for reconsideration Lepanto maintains
that this Court erred in rendering judgment or attorney's fees.
The matter of the award of attorney's fees is within the sound discretion of
this Court. In Our decision We have stated the reason why the award of
P50,000.00 for attorney's fees is considered by this Court as reasonable.
Accordingly, We resolve to modify the decision that We rendered on
December 17, 1966, in the sense that instead of awarding Nielson shares
of stock worth P300,000.00 at the par value of ten centavos (P0.10) per
share based on the stock dividends declared by Lepanto on November 28,

1949 and August 20, 1950, together with their fruits, Nielson should be
awarded the sum of P300,000.00 which is an amount equivalent to 10% of
the cash value of the stock dividends thus declared, as part of the
compensation due Nielson under the management contract. The
dispositive portion of the decision should, therefore, be amended, to read
as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the
decision of the court a quo and enter in lieu thereof another, ordering the
appellee Lepanto to pay the appellant Nielson the different amounts as
specified hereinbelow:
(1) Seventeen thousand five hundred pesos (P17,500.00), equivalent to
10% of the cash dividends of December, 1941, with legal interest thereon
from the date of the filing of the complaint;
(2) Two thousand five hundred pesos (P2,500.00) as management fee for
January 1942, with legal interest thereon from the date of the filing of the
complaint;
(3) One hundred fifty thousand pesos (P150,000.00), representing
management fees for the sixty-month period of extension of the
management contract, with legal interest thereon from the date of the
filing of the complaint;
(4) One million four hundred thousand pesos (P1,400,000.00), equivalent
to 10% of the cash dividends declared during the period of extension of
the management contract, with legal interest thereon from the date of the
filing of the complaint;
(5) Three hundred thousand pesos (P300,000.00), equivalent to 10% of
the cash value of the stock dividends declared on November 28, 1949 and
August 20, 1950, with legal interest thereon from the date of the filing of
the complaint;
(6) Fifty three thousand nine hundred twenty eight pesos and eighty eight
centavos (P53,928.88), equivalent to 10% of the depletion reserve set up
during the period of extension, with legal interest thereon from the date of
the filing of the complaint;
(7) Six hundred ninety four thousand three hundred sixty four pesos and
seventy six centavos (P694,364.76), equivalent to 10% of the expenses
for capital account during the period of extension, with legal interest
thereon from the date of the filing of the complaint;
(8) Fifty thousand pesos (P50,000.00) as attorney's fees; and
(9) The costs.

It is so ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez and Castro,
JJ., concur.
Fernando, Capistrano, Teehankee and Barredo, JJ., took no part.

Footnotes
1

Annex A to complaint, pp. 43-46, R.A.; Also Exhibit C.

2

Sec. 9, Rule 130 of the Rules of Court.

4

Article 1373 of the (new) Civil Code.

5

Section 43, par. 1, Act 190.

Tiosejo vs. Day, et al., L-9944, April 30, 1937; Levi Hermanos, Inc. vs.
Perez, L-14487, April 29, 1960.
7

Rutter vs. Esteban, 93 Phil. 68.

Tiosejo vs. Day, supra; Levi Hermanos, Inc. vs. Perez, supra.
9

10

Exhibit A.

Motion for reconsideration, p. 60.

Uy v. Kalaw Katigbak, G.R. No. L-1830, Dec. 31, 1949; Sison v. Mirasol, L4711, Oct. 31, 1962; Compania Maritima v. Court of Appeals, L-14949,
May 30, 1960.
11

Par. V of Management Contract, Exhibit C.

12

Page 3, Exhibit L, Report for 1954.

13

14

Exhibit 1.

Sec. 5187, 11 Fletcher, Cyclopedia of the Law on Private Corporations,

p. 422.
15

16

17

Sec. 16, Corporation Law .

Words and Phrases, p. 270.

Fisher vs. Trinidad, 43 Phil. 973..

18

19

20

Towns vs. Eisner, 62 L. Ed. 372.

Art. 441, Civil Code of the Philippines.

7 Thompson on Corporations 134-135.
21

. 115, Nielson's Appeal Brief.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-10918

March 4, 1916

WILLIAM FRESSEL, ET AL., plaintiffs-appellants,

vs.
MARIANO UY CHACO SONS & COMPANY, defendant-appellee.
Rohde and Wright for appellants.
Gilbert, Haussermann, Cohn and Fisher for appellee.
TRENT, J.:
This is an appeal from a judgment sustaining the demurrer on the ground that
the complaint does not state a cause of action, followed by an order dismissing
the case after the plaintiffs declined to amend.
The complaint, omitting the caption, etc., reads:
2. That during the latter part of the year 1913, the defendant entered into
a contract with one E. Merritt, whereby the said Merritt undertook and
agreed with the defendant to build for the defendant a costly edifice in the
city of Manila at the corner of Calle Rosario and Plaza del Padre Moraga. In
the contract it was agreed between the parties thereto, that the defendant
at any time, upon certain contingencies, before the completion of said
edifice could take possession of said edifice in the course of construction
and of all the materials in and about said premises acquired by Merritt for
the construction of said edifice.
3. That during the month of August land past, the plaintiffs delivered to
Merritt at the said edifice in the course of construction certain materials of
the value of P1,381.21, as per detailed list hereto attached and marked
Exhibit A, which price Merritt had agreed to pay on the 1st day of
September, 1914.
4. That on the 28th day of August, 1914, the defendant under and by
virtue of its contract with Merritt took possession of the incomplete edifice
in course of construction together with all the materials on said premises
including the materials delivered by plaintiffs and mentioned in Exhibit A
aforesaid.

5. That neither Merritt nor the defendant has paid for the materials
mentioned in Exhibit A, although payment has been demanded, and that
on the 2d day of September, 1914, the plaintiffs demanded of the
defendant the return or permission to enter upon said premises and retake
said materials at the time still unused which was refused by defendant.
6. That in pursuance of the contract between Merritt and the defendant,
Merritt acted as the agent for defendant in the acquisition of the materials
from plaintiffs.
The appellants insist that the above quoted allegations show that Merritt acted
as the agent of the defendant in purchasing the materials in question and that
the defendant, by taking over and using such materials, accepted and ratified
the purchase, thereby obligating itself to pay for the same. Or, viewed in another
light, if the defendant took over the unfinished building and all the materials on
the ground and then completed the structure according to the plans,
specifications, and building permit, it became in fact the successor or assignee of
the first builder, and as successor or assignee, it was as much bound legally to
pay for the materials used as was the original party. The vendor can enforce his
contract against the assignee as readily as against the assignor. While, on the
other hand, the appellee contends that Merritt, being "by the very terms of the
contract" an independent contractor, is the only person liable for the amount
claimed.
It is urged that, as the demurrer admits the truth of all the allegations of fact set
out in the complaint, the allegation in paragraph 6 to the effect that Merritt
"acted as the agent for defendant in the acquisition of the materials from
plaintiffs," must be, at this stage of the proceedings, considered as true. The
rule, as thus broadly stated, has many limitations and restrictions.
A more accurate statement of the rule is that a demurrer admits the truth
of all material and relevant facts which are well pleaded. . . . .The
admission of the truth of material and relevant facts well pleaded does not
extend to render a demurrer an admission of inferences or conclusions
drawn therefrom, even if alleged in the pleading; nor mere inferences or
conclusions from facts not stated; nor conclusions of law. (Alzua and
Arnalot vs. Johnson, 21 Phil. Rep., 308, 350.)
Upon the question of construction of pleadings, section 106 of the Code of Civil
Procedure provides that:
In the construction of a pleading, for the purpose of determining its
effects, its allegations shall be liberally construed, with a view of
substantial justice between the parties.
This section is essentially the same as section 452 of the California Code of Civil
Procedure. "Substantial justice," as used in the two sections, means substantial
justice to be ascertained and determined by fixed rules and positive statutes.
(Stevens vs. Ross, 1 Cal. 94, 95.) "Where the language of a pleading is
ambiguous, after giving to it a reasonable intendment, it should be resolved
against the pleader. This is especially true on appeal from a judgment rendered
after refusal to amend; where a general and special demurrer to a complaint has
been sustained, and the plaintiff had refused to amend, all ambiguities and

uncertainties must be construed against him." (Sutherland on Code Pleading, vol.

1, sec. 85, and cases cited.)
The allegations in paragraphs 1 to 5, inclusive, above set forth, do not even
intimate that the relation existing between Merritt and the defendant was that of
principal and agent, but, on the contrary, they demonstrate that Merritt was an
independent contractor and that the materials were purchased by him as such
contractor without the intervention of the defendant. The fact that "the
defendant entered into a contract with one E. Merritt, where by the said Merritt
undertook and agreed with the defendant to build for the defendant a costly
edifice" shows that Merritt was authorized to do the work according to his own
method and without being subject to the defendant's control, except as to the
result of the work. He could purchase his materials and supplies from whom he
pleased and at such prices as he desired to pay. Again, the allegations that the
"plaintiffs delivered the Merritt . . . . certain materials (the materials in question)
of the value of P1,381.21, . . . . which price Merritt agreed to pay," show that
there were no contractual relations whatever between the sellers and the
defendant. The mere fact that Merritt and the defendant had stipulated in their
building contract that the latter could, "upon certain contingencies," take
possession of the incompleted building and all materials on the ground, did not
change Merritt from an independent contractor to an agent. Suppose that, at the
time the building was taken over Merritt had actually used in the construction
thus far P100,000 worth of materials and supplies which he had purchased on a
credit, could those creditors maintain an action against the defendant for the
value of such supplies? Certainly not. The fact that the P100,000 worth of
supplies had been actually used in the building would place those creditors in no
worse position to recover than that of the plaintiffs, although the materials which
the plaintiffs sold to Merritt had not actually gone into the construction. To hold
that either group of creditors can recover would have the effect of compelling the
defendants to pay, as we have indicated, just such prices for materials as Merritt
and the sellers saw fit to fix. In the absence of a statute creating what is known
as mechanics' liens, the owner of a building is not liable for the value of
materials purchased by an independent contractor either as such owner or as the
assignee of the contractor.
The allegation in paragraph 6 that Merritt was the agent of the defendant
contradicts all the other allegations and is a mere conclusion drawn from them.
Such conclusion is not admitted, as we have said, by the demurrer.
The allegations in the complaint not being sufficient to constitute a cause of
action against the defendant, the judgment appealed from is affirmed, with costs
against the appellants. So ordered.
Arellano, C.J., Torres, Johnson and Araullo, JJ., concur.
Moreland, J., concurs in the result.
Carson, J., dissents.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-8169

January 29, 1957

THE SHELL COMPANY OF THE PHILIPPINES, LTD., petitioner,

vs.
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY
COMMERCIAL CASUALTY INSURANCE CO., SALVADOR SISON, PORFIRIO
DE LA FUENTE and THE COURT OF APPEALS (First Division),respondents.
Ross, Selph, Carrascoso & Janda for petitioner.
J. A. Wolfson and Manuel Y. Macias for respondents.
PADILLA, J.:
Appeal by certiorari under Rule 46 to review a judgment of the Court of Appeals
which reversed that of the Court of First Instance of Manila and sentenced ". . .
the defendants-appellees to pay, jointly and severally, the plaintiffs-appellants
the sum of P1,651.38, with legal interest from December 6, 1947
(Gutierrez vs. Gutierrez, 56 Phil., 177, 180), and the costs in both instances."
The Court of Appeals found the following:
Inasmuch as both the Plaintiffs-Appellants and the Defendant-Appellee,
the Shell Company of the Philippine Islands, Ltd. accept the statement of
facts made by the trial court in its decision and appearing on pages 23 to
37 of the Record on Appeal, we quote hereunder such statement:
This is an action for recovery of sum of money, based on alleged
negligence of the defendants.
It is a fact that a Plymounth car owned by Salvador R. Sison was brought,
on September 3, 1947 to the Shell Gasoline and Service Station, located at
the corner of Marques de Comillas and Isaac Peral Streets, Manila, for
washing, greasing and spraying. The operator of the station, having
agreed to do service upon payment of P8.00, the car was placed on a
hydraulic lifter under the direction of the personnel of the station.
What happened to the car is recounted by Perlito Sison, as follows:
Q. Will you please describe how they proceeded to do the work?
A. Yes, sir. The first thing that was done, as I saw, was to drive the
car over the lifter. Then by the aid of the two grease men they
raised up my car up to six feet high, and then washing was done.
After washing, the next step was greasing. Before greasing was
finished, there is a part near the shelf of the right fender, right front
fender, of my car to be greased, but the the grease men cannot
reached that part, so the next thing to be done was to loosen the
lifter just a few feet lower. Then upon releasing the valve to make
the car lower, a little bit lower . . .
Q. Who released the valve?

A. The greasemen, for the escape of the air. As the escape of the air
is too strong for my ear I faced backward. I faced toward Isaac Peral
Street, and covered my ear. After the escaped of the air has been
finished, the air coming out from the valve, I turned to face the car
and I saw the car swaying at that time, and just for a few second
the car fell., (t.s.n. pp. 22-23.)
The case was immediately reported to the Manila Adjustor Company, the
adjustor of the firemen's Insurance Company and the Commercial Casualty
Insurance Company, as the car was insured with these insurance companies.
After having been inspected by one Mr. Baylon, representative of the Manila
Adjustor Company, the damaged car was taken to the shops of the Philippine
Motors, Incorporated, for repair upon order of the Firemen's Insurance Company
and the Commercial Casualty Company, with the consent of Salvador R. Sison.
The car was restored to running condition after repairs amounting to P1,651.38,
and was delivered to Salvador R. Sison, who, in turn made assignments of his
rights to recover damages in favor of the Firemen's Insurance Company and the
Commercial Casualty Insurance Company.
On the other hand, the fall of the car from the hydraulic lifter has been
explained by Alfonso M. Adriano, a greaseman in the Shell Gasoline and
Service Station, as follows:
Q. Were you able to lift the car on the hydraulic lifter on the
occasion, September 3, 1947?
A. Yes, sir.
Q. To what height did you raise more or less?
A. More or less five feet, sir.
Q. After lifting that car that height, what did you do with the car?
A. I also washed it, sir.
Q. And after washing?
A. I greased it.
Q. On that occasion, have you been able to finish greasing and
washing the car?
A. There is one point which I could not reach.
Q. And what did you do then?
A. I lowered the lifter in order to reach that point.
Q. After lowering it a little, what did you do then?
A. I pushed and pressed the valve in its gradual pressure.

Q. Were you able to reach the portion which you were not able to
reach while it was lower?
A. No more, sir.
Q. Why?
A. Because when I was lowering the lifter I saw that the car was
swinging and it fell.
THE COURT. Why did the car swing and fall?
WITNESS: 'That is what I do not know, sir'. (t.s.n., p.67.)
The position of Defendant Porfirio de la Fuente is stated in his counter-statement
of facts which is hereunder also reproduced:
In the afternoon of September 3, 1947, an automobile belonging to the
plaintiff Salvador Sison was brought by his son, Perlito Sison, to the
gasoline and service station at the corner of Marques de Comillas and
Isaac Peral Streets, City of Manila, Philippines, owned by the defendant
The Shell Company of the Philippine Islands, Limited, but operated by the
defendant Porfirio de la Fuente, for the purpose of having said car washed
and greased for a consideration of P8.00 (t.s.n., pp. 19-20.) Said car was
insured against loss or damage by Firemen's Insurance Company of
Newark, New Jersey, and Commercial Casualty Insurance Company jointly
for the sum of P10,000 (Exhibits "A', "B", and "D").
The job of washing and greasing was undertaken by defendant Porfirio de
la Fuente through his two employees, Alfonso M. Adriano, as greaseman
and one surnamed de los Reyes, a helper and washer (t.s.n., pp. 65-67). To
perform the job the car was carefully and centrally placed on the platform
of the lifter in the gasoline and service station aforementioned before
raising up said platform to a height of about 5 feet and then the servicing
job was started. After more than one hour of washing and greasing, the job
was about to be completed except for an ungreased portion underneath
the vehicle which could not be reached by the greasemen. So, the lifter
was lowered a little by Alfonso M. Adriano and while doing so, the car for
unknown reason accidentally fell and suffered damage to the value of P1,
651.38 (t.s.n., pp. 65-67).
The insurance companies after paying the sum of P1,651.38 for the
damage and charging the balance of P100.00 to Salvador Sison in
accordance with the terms of the insurance contract, have filed this action
together with said Salvador Sison for the recovery of the total amount of
the damage from the defendants on the ground of negligence (Record on
Appeal, pp. 1-6).
The defendant Porfirio de la Fuente denied negligence in the operation of
the lifter in his separate answer and contended further that the accidental
fall of the car was caused by unforseen event (Record on Appeal, pp. 1719).

The owner of the car forthwith notified the insurers who ordered their adjustor,
the Manila Adjustor Company, to investigate the incident and after such
investigation the damaged car, upon order of the insures and with the consent of
the owner, was brought to the shop of the Philippine Motors, Inc. The car was
restored to running condition after thereon which amounted to P1,651.38 and
returned to the owner who assigned his right to collect the aforesaid amount to
the Firemen's Insurance Company and the Commercial Casualty Insurance
Company.
On 6 December 1947 the insures and the owner of the car brought an action in
the Court of First Instance of Manila against the Shell Company of the Philippines,
Ltd. and Porfirio de la Fuente to recover from them, jointly and severally, the sum
of P1,651.38, interest thereon at the legal rate from the filing of the complaint
until fully paid, the costs. After trial the Court dismissed the complaint. The
plaintiffs appealed. The Court of Appeals reversed the judgment and sentenced
the defendant to pay the amount sought to be recovered, legal interest and
costs, as stated at the beginning of this opinion.
In arriving at the conclusion that on 3 September 1947 when the car was brought
to the station for servicing Profirio de la Fuente, the operator of the gasoline and
service station, was an agent of the Shell Company of the Philippines, Ltd., the
Court of Appeals found that
. . . De la Fuente owned his position to the Shell Company which could
remove him terminate his services at any time from the said Company,
and he undertook to sell the Shell Company's products exculusively at the
said Station. For this purpose, De la Fuente was placed in possession of
the gasoline and service station under consideration, and was provided
with all the equipments needed to operate it, by the said Company, such
as the tools and articles listed on Exhibit 2 which the hydraulic lifter (hoist)
and accessories, from which Sison's automobile fell on the date in
question (Exhibit 1 and 2). These equipments were delivered to De la
Fuente on a so-called loan basis. The Shell Company took charge of its
care and maintenance and rendered to the public or its customers at that
station for the proper functioning of the equipment. Witness Antonio
Tiongson, who was sales superintendent of the Shell Company, and
witness Augusto Sawyer, foreman of the same Company, supervised the
operators and conducted periodic inspection of the Company's gasoline
and service station, the service station in question inclusive. Explaining his
duties and responsibilities and the reason for the loan, Tiongson said:
"mainly of the supervision of sales or (of) our dealers and rountinary
inspection of the equipment loaned by the Company" (t.s.n., 107); "we
merely inquire about how the equipments are, whether they have
complaints, and whether if said equipments are in proper order . . .",
(t.s.n., 110); station equipments are "loaned for the exclusive use of the
dealer on condition that all supplies to be sold by said dealer should be
exclusively Shell, so as a concession we loan equipments for their
use . . .," "for the proper functioning of the equipments, we answer and
see to it that the equipments are in good running order usable condition . .
.," "with respect to the public." (t.s.n., 111-112). De la Fuente, as operator,
was given special prices by the Company for the gasoline products sold
therein. Exhibit 1 Shell, which was a receipt by Antonio Tiongson and
signed by the De la Fuente, acknowledging the delivery of equipments of
the gasoline and service station in question was subsequently replaced by

Exhibit 2 Shell, an official from of the inventory of the equipment which

De la Fuente signed above the words: "Agent's signature" And the service
station in question had been marked "SHELL", and all advertisements
therein bore the same sign. . . .
. . . De la Fuente was the operator of the station "by grace" of the
Defendant Company which could and did remove him as it pleased; that
all the equipments needed to operate the station was owned by the
Defendant Company which took charge of their proper care and
maintenance, despite the fact that they were loaned to him; that the
Defendant company did not leave the fixing of price for gasoline to De la
Fuente; on the other hand, the Defendant company had complete control
thereof; and that Tiongson, the sales representative of the Defendant
Company, had supervision over De la Fuente in the operation of the
station, and in the sale of Defendant Company's products therein. . . .
Taking into consideration the fact that the operator owed his position to the
company and the latter could remove him or terminate his services at will; that
the service station belonged to the company and bore its tradename and the
operator sold only the products of the company; that the equipment used by the
operator belonged to the company and were just loaned to the operator and the
company took charge of their repair and maintenance; that an employee of the
company supervised the operator and conducted periodic inspection of the
company's gasoline and service station; that the price of the products sold by the
operator was fixed by the company and not by the operator; and that the receipt
signed by the operator indicated that he was a mere agent, the finding of the
Court of Appeals that the operator was an agent of the company and not an
independent contractor should not be disturbed.
To determine the nature of a contract courts do not have or are not bound to rely
upon the name or title given it by the contracting parties, should there be a
controversy as to what they really had intended to enter into, but the way the
contracting parties do or perform their respective obligation stipulated or agreed
upon may be shown and inquired into, and should such performance conflict with
the name or title given the contract by the parties, the former must prevail over
the latter.
It was admitted by the operator of the gasoline and service station that "the car
was carefully and centrally placed on the platform of the lifter . . ." and the Court
of Appeals found that
. . . the fall of Appellant Sison's car from the hydraulic lift and the damage
caused therefor, were the result of the jerking and swaying of the lift when
the valve was released, and that the jerking was due to some accident and
unforeseen shortcoming of the mechanism itself, which caused its faulty
or defective operation or functioning,
. . . the servicing job on Appellant Sison's automobile was accepted by De
la Fuente in the normal and ordinary conduct of his business as operator of
his co-appellee's service station, and that the jerking and swaying of the
hydraulic lift which caused the fall of the subject car were due to its
defective condition, resulting in its faulty operation. . . .

As the act of the agent or his employees acting within the scope of his authority
is the act of the principal, the breach of the undertaking by the agent is one for
which the principal is answerable. Moreover, the company undertook to "answer
and see to it that the equipments are in good running order and usable
condition;" and the Court of Appeals found that the Company's mechanic failed
to make a thorough check up of the hydraulic lifter and the check up made by its
mechanic was "merely routine" by raising "the lifter once or twice and after
observing that the operator was satisfactory, he (the mechanic) left the place."
The latter was negligent and the company must answer for the negligent act of
its mechanic which was the cause of the fall of the car from the hydraulic lifter.
The judgment under review is affirmed, with costs against the petitioner.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador,
Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11491

August 23, 1918

ANDRES QUIROGA, plaintiff-appellant,

vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.
AVANCEA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was
entered into by and between the plaintiff, as party of the first part, and J. Parsons
(to whose rights and obligations the present defendant later subrogated itself),
as party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.
PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds
in the Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the
latter's establishment in Iloilo, and shall invoice them at the same price he
has fixed for sales, in Manila, and, in the invoices, shall make and
allowance of a discount of 25 per cent of the invoiced prices, as
commission on the sale; and Mr. Parsons shall order the beds by the
dozen, whether of the same or of different styles.

(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received,
within a period of sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M.
Quiroga, and the freight, insurance, and cost of unloading from the vessel
at the point where the beds are received, shall be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its payment,
said payment when made shall be considered as a prompt payment, and
as such a deduction of 2 per cent shall be made from the amount of the
invoice.
The same discount shall be made on the amount of any invoice which Mr.
Parsons may deem convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before
hand of any alteration in price which he may plan to make in respect to his
beds, and agrees that if on the date when such alteration takes effect he
should have any order pending to be served to Mr. Parsons, such order
shall enjoy the advantage of the alteration if the price thereby be lowered,
but shall not be affected by said alteration if the price thereby be
increased, for, in this latter case, Mr. Quiroga assumed the obligation to
invoice the beds at the price at which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the
"Quiroga" beds.
ART. 2. In compensation for the expenses of advertisement which, for the
benefit of both contracting parties, Mr. Parsons may find himself obliged to
make, Mr. Quiroga assumes the obligation to offer and give the preference
to Mr. Parsons in case anyone should apply for the exclusive agency for
any island not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the
sale of "Quiroga" beds in all the towns of the Archipelago where there are
no exclusive agents, and shall immediately report such action to Mr.
Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be
terminated by either of the contracting parties on a previous notice of
ninety days to the other party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of
them constitute the subject matter of this appeal and both substantially amount
to the averment that the defendant violated the following obligations: not to sell
the beds at higher prices than those of the invoices; to have an open
establishment in Iloilo; itself to conduct the agency; to keep the beds on public
exhibition, and to pay for the advertisement expenses for the same; and to order
the beds by the dozen and in no other manner. As may be seen, with the
exception of the obligation on the part of the defendant to order the beds by the
dozen and in no other manner, none of the obligations imputed to the defendant
in the two causes of action are expressly set forth in the contract. But the
plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo,

and that said obligations are implied in a contract of commercial agency. The
whole question, therefore, reduced itself to a determination as to whether the
defendant, by reason of the contract hereinbefore transcribed, was a purchaser
or an agent of the plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses.
In the contract in question, what was essential, as constituting its cause and
subject matter, is that the plaintiff was to furnish the defendant with the beds
which the latter might order, at the price stipulated, and that the defendant was
to pay the price in the manner stipulated. The price agreed upon was the one
determined by the plaintiff for the sale of these beds in Manila, with a discount of
from 20 to 25 per cent, according to their class. Payment was to be made at the
end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant
so preferred, and in these last two cases an additional discount was to be
allowed for prompt payment. These are precisely the essential features of a
contract of purchase and sale. There was the obligation on the part of the
plaintiff to supply the beds, and, on the part of the defendant, to pay their price.
These features exclude the legal conception of an agency or order to sell
whereby the mandatory or agent received the thing to sell it, and does not pay
its price, but delivers to the principal the price he obtains from the sale of the
thing to a third person, and if he does not succeed in selling it, he returns it. By
virtue of the contract between the plaintiff and the defendant, the latter, on
receiving the beds, was necessarily obliged to pay their price within the term
fixed, without any other consideration and regardless as to whether he had or
had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the
defendant and the plaintiff is one of purchase and sale, in order to show that it
was not one made on the basis of a commission on sales, as the plaintiff claims it
was, for these contracts are incompatible with each other. But, besides,
examining the clauses of this contract, none of them is found that substantially
supports the plaintiff's contention. Not a single one of these clauses necessarily
conveys the idea of an agency. The words commission on sales used in clause (A)
of article 1 mean nothing else, as stated in the contract itself, than a mere
discount on the invoice price. The word agency, also used in articles 2 and 3,
only expresses that the defendant was the only one that could sell the plaintiff's
beds in the Visayan Islands. With regard to the remaining clauses, the least that
can be said is that they are not incompatible with the contract of purchase and
sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vicepresident of the defendant corporation and who established and managed the
latter's business in Iloilo. It appears that this witness, prior to the time of his
testimony, had serious trouble with the defendant, had maintained a civil suit
against it, and had even accused one of its partners, Guillermo Parsons, of
falsification. He testified that it was he who drafted the contract Exhibit A, and,
when questioned as to what was his purpose in contracting with the plaintiff,
replied that it was to be an agent for his beds and to collect a commission on
sales. However, according to the defendant's evidence, it was Mariano Lopez
Santos, a director of the corporation, who prepared Exhibit A. But, even
supposing that Ernesto Vidal has stated the truth, his statement as to what was
his idea in contracting with the plaintiff is of no importance, inasmuch as the
agreements contained in Exhibit A which he claims to have drafted, constitute,
as we have said, a contract of purchase and sale, and not one of commercial

agency. This only means that Ernesto Vidal was mistaken in his classification of
the contract. But it must be understood that a contract is what the law defines it
to be, and not what it is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned beds that
it could not sell; that, without previous notice, it forwarded to the defendant the
beds that it wanted; and that the defendant received its commission for the beds
sold by the plaintiff directly to persons in Iloilo. But all this, at the most only
shows that, on the part of both of them, there was mutual tolerance in the
performance of the contract in disregard of its terms; and it gives no right to
have the contract considered, not as the parties stipulated it, but as they
performed it. Only the acts of the contracting parties, subsequent to, and in
connection with, the execution of the contract, must be considered for the
purpose of interpreting the contract, when such interpretation is necessary, but
not when, as in the instant case, its essential agreements are clearly set forth
and plainly show that the contract belongs to a certain kind and not to another.
Furthermore, the return made was of certain brass beds, and was not effected in
exchange for the price paid for them, but was for other beds of another kind; and
for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to
said beds, which shows that it was not considered that the defendant had a right,
by virtue of the contract, to make this return. As regards the shipment of beds
without previous notice, it is insinuated in the record that these brass beds were
precisely the ones so shipped, and that, for this very reason, the plaintiff agreed
to their return. And with respect to the so-called commissions, we have said that
they merely constituted a discount on the invoice price, and the reason for
applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo
was because, as the defendant obligated itself in the contract to incur the
expenses of advertisement of the plaintiff's beds, such sales were to be
considered as a result of that advertisement.
In respect to the defendant's obligation to order by the dozen, the only one
expressly imposed by the contract, the effect of its breach would only entitle the
plaintiff to disregard the orders which the defendant might place under other
conditions; but if the plaintiff consents to fill them, he waives his right and
cannot complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between
the plaintiff and the defendant was one of purchase and sale, and that the
obligations the breach of which is alleged as a cause of action are not imposed
upon the defendant, either by agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So
ordered.
Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-25965 June 30, 1975

AMERICAN RUBBER COMPANY (Now American Rubber
Corporation), petitioner,
vs.
THE COLLECTOR OF INTERNAL REVENUE (Now the Commissioner of
Internal Revenue) and the COURT OF TAX APPEALS, respondents.
Ozaeta, Ozaeta, Romulo and De Leon for petitioner.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General
Felicisimo R. Rosete and Special Attorney Venancia M. Pangilinan for
respondents.

ESGUERRA, J.:
In Case No. 164, the Court of Tax Appeals in its decision dated July 31, 1965, held
the petitioner, American Rubber Company (now American Rubber Corporation),
liable for the payment of the sum of P47,374.38, representing deficiency sales
tax and surcharge on its sales of lumber during the years 1950, 1951, 1952 and
1953. Hence this appeal.
Petitioner, a domestic corporation organized under the laws of the Philippines, is
engaged in the business of producing logs and lumber for sale. It acquired its
logs from its forest concession in Basilan City duly licensed by the Bureau of
Forestry. (Exhibits "E-3", "E-4", t.s.n. pp. 15, 16, 95-96 Vol. 1 CTA rec.) It likewise
cut timber in the forest covered by the UP Land Grant which was operated by the
Santa Clara Lumber Co., Inc., hereinafter referred to as SCLCO, under Timber
License Agreement No. 1 executed between the UP and SCLCO wherein the latter
had an "exclusive license to cut, collect and remove timber of all groups from the
Grant, subject to certain conditions, including payment by SCLCO to the UP of
the corresponding forest charges on all timber cut and removed from the area in
accordance with Commonwealth Act No. 466 (National Internal Revenue Code)
and such other charges as may be required by other laws." (p. 7 Petitioner's
Brief) Apart from his, petitioner hereinafter referred to as ARCO was allowed to
cut timber and operated a portion of the southwestern corner of SCLCO's
concession in Basilan covered by Timber License No. 1425-V, which portion was
applied for by ARCO and finally included in its Ordinary Timber License No. 2175,
renewed May 31, 1947, and extended on July 6, 1948, to cover period ending
June 30, 1952. (p. 10 Petitioner's Brief)
The operation of the aforesaid areas was embodied in a "Letter Agreement"
executed between ARCO and SCLCO on January 13, 1948, which agreement is
quoted hereunder:
American Rubber Company
Isabela de Basilan, Zamboanga
Dear Sirs:

In connection with your request which was approved by the Board of

Directors of the Company in its last meeting, you are allowed to cut
timber in the Southwestern corner of our Concession at Isabela de
Basilan with an area of not over 400 hectares under the following
terms and conditions:
1. In the event that you will stop the operation of your
mill or sell and or transfer the ownership of your
present lumber business, the above portion of our
Concession will be reverted to us;
2. The Sta. Clara Lumber Co., will be allowed the free
use of your private roads;
3. The Sta. Clara Lumber Co., shall continue to take
charge of the disposal of your production that may be
sent to Manila in accordance with present
arrangements.
The Sta. Clara Lumber Co., will take up this matter with the proper
authorities for the proper execution of whatever requirements that
may be needed pursuant to its agreement.
If the above terms and conditions are agreeable to you, please sign
and indicate your conformity on the space provided for below.
Very truly
yours,
Sta. Clara
Lumber Co.,
Inc.
By T. M. Diaz
General
Manager
Agreed:
American Rubber Company
By J.W. Strong
From May, 1949, through February, 1952, Mr. Denoga, Administrator of the UP
Land Grant, prepared monthly scale reports of timber cut by petitioner from the
UP Land Grant, pursuant to which the UP billed forest charges against the SCLCO
which paid the bills, later reimbursed by ARCO. (p. 561 t.s.n. Vol. II CTA rec.)
As testified to by Mr. Roque de Leon, "No. 2 man" of American Rubber Co. (ARCO)
(t.s.n. 400-411 Vol. II CTA rec.), all the logs of petitioner in the lumber business
were disposed of in the following manner:
Timber were cut down from the UP Land Grant and/or the forest
concession of petitioner, then the same were hauled in petitioner's
trucks to its sawmills where they are sawn into lumber. The lumber
were then loaded in petitioner's truck and hauled to petitioner's
dock at Isabela, Basilan, where Jose Rubia, petitioner's checker,

checked the same and prepared a summary or recapitulation from

the tally sheets. Petitioner retained a copy of the recapitulation and
forwarded four copies to SCLCO's office at Isabela, Basilan. The tally
sheets and the corresponding recapitulations were marked Exhibits
"Y", "Y-11", to "Y-152a".
The lumber pieces belonging to petitioner which were deposited at petitioner's
dock at Isabela, Basilan, were sold thru contracts executed by SCLCO with
different buyers in Manila and the contracts recited among others that said
lumber was "the timber of American Rubber Company". (Exhs. "F-187", "G-137",
"10-H24-b")
SCLCO issued in behalf of petitioner sales invoices to said buyers. Petitioner
reimbursed SCLCO for transportation, handling and other expenses advanced by
the latter. After SCLCO had shipped to Manila buyers the lumber marked "ARCO",
bills of lading were issued in favor of SCLCO as shipper and consignee. In some
bills of lading, petitioner appears as shipper and SCLCO as consignee. (t.s.n. pp.
265-283)
SCLCO insured the lumber against marine risks of loss or damage occurring while
in transit from petitioner's dock at Basilan to Manila. The premiums were
allegedly paid by it although it is the contention of respondent that these
premium payments were reimbursed by ARCO.
After delivery of the lumber sold by SCLCO in behalf of petitioner, SCLCO sent to
petitioner's Manila office liquidation statements of said lumber shipped to Manila
(t.s.n. pp. 450-451) which papers consisted of statements of lumber costs, bank
deposit slips, bills of lading and lumber sales contracts. (t.s.n. 452458) SCLCO in
making the sales, charged and collected a 5% commission which was deducted
from the gross sales. Likewise it deducted freight, unloading and trucking
charges from the proceeds of sale and the balance was deposited by SCLCO with
petitioner's bank account at the National City Bank of New York. SCLCO
provided itself with the privilege tax receipt and paid percentage taxes as
commercial brokers during the period in question. (p. 331 CTA rec.)
On or about August 27, 1953, General Enterprises, Inc., a local business firm with
offices at Basilan City, entered into a contract with petitioner wherein it appears
that the General Enterprises Inc. agreed to ship to Japan, SS "Tamon Maru" under
B/L No. 1 voyage No. 6, 400,000 bd. ft. of round apitong logs for which General
Enterprises paid the sum of P32,000.00 to petitioner. The latter did not declare
this sale nor did it pay the sales tax therefor. (p. 37 Petitioner's Brief)
Jose Cabrera, agent of the Bureau of Internal Revenue, conducted the
investigation on petitioner company's business transactions for the years 1949 to
1953, and as a result of this investigation an assessment was recommended. On
February 11, 1955, petitioner was assessed for alleged deficiency sales tax and
surcharge in the sum of P66,022.77, itemized as follows:
Gross sales for
1949
P941,218.32
5% tax due

P47,060.

92
Less: Taxes
paid

36,509.5
4

Deficiency
sales tax

P10,551.
38

Gross sales for

1950
P1,700,308.59
5% tax due

P85,015.
43

Less: Taxes
paid

63,557.4
7

Deficiency
sales tax

P21,457.
96

Gross sales for

1951
P1,203,736.29
5% tax due

P60,186.
81

Less: Taxes
paid

47,309.7
4

Deficiency
sales tax

P12,877.
07

Gross sales for

1952
P164,294.94
5% tax due

P8,214.7
5

Less: Taxes
paid

6,250.28

Deficiency
sales tax

Gross sales for

1953

P1,964.4
7

P32,000.00
5% tax due

1,600.00

Total
deficiency
sales tax
brought
forward

P48,450.
88

25% surcharge

12,112.7
2

Add: Unpaid
25% surcharge
for the
4th quarter of
1952

Penalty for
failure to pay
on time
Penalty for
using general
journal

564.17
P61,127.
77

4,845.00

and ledger in
loose form
without
written
authority of
BIR

50.00

TOTAL

P66,022.
77

On July 25, 1955, petitioner filed a petition for review of the assessment with the
Court of Tax Appeals. On July 27, 1955, CTA ordered respondent Commissioner
(BIR) to file an answer to the petition for review. The Commissioner by way of
special defense pleaded that respondent CTA had no jurisdiction over the case.
After a preliminary hearing on the issue of jurisdiction and after the submission
by the parties of their respective memoranda, the CTA on August 25, 1956,
resolved that it has jurisdiction over the case. (pp. 72, 80 CTA rec.)
Respondent Commissioner sought a review by certiorari on the issue of
jurisdiction, G.R. No. L-11612. This Court sustained the jurisdiction of respondent

CTA which then proceeded with the trial of this case on the merits. On July 31,
1965, the respondent court handed down its decision modifying the assessment
of the Commissioner, the dispositive portion of which reads:
FOR THE FOREGOING CONSIDERATIONS, the decision appealed from
is hereby modified, and petitioner is hereby ordered to pay the sum
of P47,374.38, representing deficiency sales tax and surcharge on
its sales of lumber during the years 1950, 1951, 1952 and 1953,
within 30 days from the date this decision becomes final. Without
pronouncement as to costs.
On October 2, 1965, petitioner filed with the respondent court a motion for
reconsideration which was denied in its resolution dated April 20, 1966. On April
27, 1966, petitioner filed this petition for review, assigning the following errors:
1. Respondent court erroneously held that SCLCO was an agent of
petitioner in the questioned sales of lumber;
2. Assuming, arguendo, that SCLCO was an agent of the petitioner
in the questioned sales of lumber, respondent court erred:
(a) In not correctly computing the gross sales price of
the lumber to the extent of the "discounts" provided in
the contract of sale for broken pieces and short
deliveries;
(b) In not deducting petitioner's cost in acquiring title
to the logs cut from the UP Land Grant and the SCLCO
forest concession.
3. Assuming arguendo, that SCLCO was an agent of the petitioner in
the questioned sales of lumber, respondent court erred in assessing
petitioner for the years 1950 to 1952:
(a) On the basis of the first paragraph of Section 186 of
the National Internal Revenue Code instead of the
second paragraph of said provision after enactment of
R.A. 588 on September 22, 1950, as amended by R.A.
894 dated June 20, 1953, and the enactment of R.A.
No. 460 on June 8, 1950; and
(b) On the freight, handling and other expenses in the
transportation of the lumber and logs from Basilan to
Manila.
4. Assuming, arguendo, that SCLCO was an agent of petitioner in
the questioned sales of lumber, respondent court erred in relying
upon evidence pertaining to the sales of lumber in 1949 and in
overlooking or ignoring the evidence pertaining to the sales of
lumber during the years 1950-52 in deciding whether there are
sales taxes payable for said years.

5. Respondent court erred in finding as a fact that it was not

petitioner but the General Enterprises, Inc. that was the shipper of
the logs involved in the assessment for 1953.
Thrust upon Us, therefore, for resolution is the question of whether or not the
Court of Tax Appeals correctly affirmed the assessment of the Commissioner as
regards petitioner's alleged deficiency sales tax and surcharge.
I
Regarding the first assigned error, it is the contention of petitioner that based on
the "Letter Agreement" Exh. "X"supra, executed between SCLCO and ARCO, it is
clear and evident that there existed no contract of agency but rather a contract
of purchase and sale or a contract for a piece of work. We believe otherwise and
sustain respondent courts' theory of agency as the controlling relationship
between petitioner and SCLCO. As a general rule the essence of a contract
determines what law should apply to the relation between the parties and not
what the parties prefer to call that relationship. However, only the acts of the
contracting parties, subsequent to and in connection with the execution of the
contract, must be considered for the purpose of interpreting the same. A careful
review of the voluminous records of the CTA reveals these facts: (a) that after the
delivery of the logs of petitioner at Isabela, Basilan, SCLCO undertook the
transportation of lumber from Isabela, Basilan, to Manila and paid the freight
charges but which expenses were reimbursed by petitioner. (t.s.n. 581-583 Vol.
11 CTA rec.) The buyers in turn reimbursed the petitioner for the transportation,
handling and other expenses in the amount of P35.00 per 1,000 bd. ft. which
were advanced by the seller. (t.s.n. 581-583, 630-634, 643, 644-646, 725-735)
The bills of lading covering the shipments were either consigned to ARCO or to
SCLCO. Said bills of lading show that the purchase price includes not only the
cost but also the freight, trucking, unloading and other expenses. These facts
disproved the contention of petitioner that after delivery of its logs at Isabela,
Basilan, ownership passed to SCLCO and "there ends their business with the
lumber." (t.s.n. pp. 457458); (b) that SCLCO after selling petitioner's lumber
collected payment of the same and remitted the proceeds of the sale to
petitioner by depositing said proceeds with petitioner's bank. (t.s.n. p. 472 Vol. II
CTA rec.) In this connection too, a letter of transmittal dated June 7, 1949, was
shown, the contents of which are hereunder reproduced: (Exh. "F-111")
Dr. J. W. Strong
American Rubber Co.
Basilan City
Dear Dr. Strong.
Herewith please find the duplicate slip in the amount of P13,165.41
covering proceeds from sale of lumber you shipped to us on the
Northern Hawker on May 15, 1949.
Enclosed also are the statement of proceeds, bill to the customer
and the corresponding sales contract.

We believe that for the present and in the immediate future the
price of lumber in the Manila market is fixed at P135.00 per M bd. ft.
for White Lauan and Apitong and P155.00 for Red Lauan.
We hope that there will further be no slump in prices, the supply
and demand at this time being almost about right. We might be a
little too optimistic but it is our own belief that prices will no longer
go further down, notwithstanding the rainy season which has
already started to set in, because of the closing of some of the small
mills.
Ver
y
trul
y
yo
urs
,
Sta
.
Cla
ra
Lu
mb
er
Co.
,
Inc
.
By
(sg
d)
M.
Dia
z
Ge
ner
al
Ma
na
ger
On cross examination of Mr. Roque de Leon, representative of ARCO, regarding
the aforequoted transmittal letter, this witness who earlier qualified himself to be
the "No. 2 man" of ARCO, who has been employed with the firm for quite a long
time and is supposed to have been "in the know", was caught in a quagmire and
pleaded ignorance of the particular transaction and apologized 'that he was a
mere subordinate to Dr. Strong and the latter made orders'. (t.s.n. pp. 586-587
Vol. II CTA rec.); (c) In compensation for its services, SCLCO, charged 5%
commission on its sales of petitioner's lumber for which it provided itself with the
privilege tax receipt and paid percentage tax as commercial broker. (Exh. "16", p.
331 CTA rec.) Anent the "commission", petitioner claims that SCLCO was its
special customer entitled to a 5% commission and in support thereof petitioner
cited the cases of Quiroga vs. Parsons, 38 Phil. 501 and Puyat and Sons, Inc. vs.

ARCO Amusement Co., 72 Phil. 402. We have gone over said cases and We found
that they are not on all fours with the case at bar because in both a contract of
purchase and sale, clear on its face, existed between the parties; (d) SCLCO
billed 5% sales tax as a separate item in the invoice issued by it to the Manila
buyers. As found by the respondent court (Decision CTA, P. 484 CTA rec.): "For
instance, in Invoice No. 4586, dated August 29, 1949, covering a sale of lumber
to the New Manila Lumber Co. (Exh. "F-186" pp. 24-25 Memo for Petitioner), the
sales tax of 5% in the sum of P979.56 was billed as a separate item in the
invoice. If as alleged, the lumber was sold by petitioner to Sta Clara Lumber Co.,
the resale of said lumber by the latter to the New Manila Lumber Co. is not
subject to sales tax as it was not an original sale. The fact that the invoice shows
that the sales tax was billed to the purchaser (New Manila Lumber Co.)
conclusively shows that the sale was made by Sta. Clara Lumber Co. for
petitioner and not for its own account." This is a finding of fact which We do not
disturb as there is no showing of abuse on the part of respondent court which
would warrant a review thereof. We have likewise gone over the three volumes of
stenographic notes taken during the hearing before the respondent court and
noted the testimony of Mr. Roque de Leon of ARCO who stated that it has been
the practice of their company to issue sales invoices whenever a sale was made
as per requirement of the law. (t.s.n. p. 481 Vol. II, CTA rec.) However, with
regard to this particular transaction between SCLCO and ARCO involving lumber,
no sales invoice was issued but instead tally sheets were prepared. When
queried why, Mr. de Leon miserably failed to offer an explanation except for his
usual and trite excuse that "he did not know the reason for such procedure and
that he was a mere subordinate and could not question Dr. Strong's wishes." The
reason, We believe, why petitioner did not issue sales invoices is the fact that
SCLCO acted only as agent of petitioner as shown by the aforementioned
circumstances surrounding the transactions between the petitioner and SCLCO.
II
On, the second assigned error, We cannot see Our way clear to petitioner's
contention that the cost in acquiring title to the logs cut by petitioner from the
UP Land Grant and the Sta. Clara Lumber Co. Timber Concession should have
been deducted pursuant to Section 186 of the National Internal Revenue
Code. 1 Apart from the forest charges which the UP billed against SCLCO on
timber cut by petitioner and which charges petitioner paid back SCLCO, there is
no showing in the record that the logs were previously subjected to sales tax
paid by the UP or the SCLCO. Forest charges are different from sales tax as
provided for in the Tax Code.
As regards the alleged discounts granted by SCLCO to its Manila buyers, again
petitioner claims that the Court of Tax Appeals erred in computing deficiency
sales tax and 25% surcharge on the gross selling price of the lumber to the
extent of these discounts. While it is true however that there was a stipulation in
the sales contract executed by SCLCO 2 , on behalf of petitioner, with the Manila
buyers that a discount shall be given on short deliveries etc., yet from the
SCLCO's Lumber Bill charged against the Manila buyers, no such discount
appeared to have been given. This is evidenced by the sample document
reproduced by no less than Petitioner himself in its Brief (pp. 32-34).1wph1.t
III

Under the third assigned error, petitioner contends that the deficiency sales tax
for the years 1950 to 1952 should have been assessed on the basis of the
second paragraph of Section 186 which provides for a special treatment of
operators or proprietors of sawmills whose sales tax liability is computed on a
33-1/3% of the gross cost of logs purchased during any given month intended for
manufacture into lumber, instead of under the first paragraph thereof.
Petitioner's theory is tenable if he were a mere sawmill operator. Record shows,
however, that petitioner not only logged areas controlled by SCLCO during the
years 1950 through 1953 but it likewise logged from its own concession. As was
stated earlier (pp. 1 & 2 supra), petitioner was in the business of producing logs
and lumber for sale, which logs he acquired from the concession of SCLCO and
also from its own forest concession duly licensed by the Bureau of Forestry
(Ordinary Timber License No. 2175-Renewal issued on May 31, 1947, in favor of
petitioner and extended up to June 1952). Petitioner therefore, being a forest
concessionaire as well as a sawmill operator clearly falls under, and is subject to,
the first paragraph of Section 186 which provides:
A sawmill operator who is at the same time a holder of an ordinary
timber license is subject to the 7% sales tax on his gross sales of his
lumber produced by his sawmill.
It is also noteworthy that the second paragraph of Section 186 which provides for
a lesser tax was subsequently deleted by R.A. 6110 made effective in September
1969. By virtue of the deletion, the sales tax payable by this class of taxpayers
shall now be computed as provided for in the first and only remaining paragraph
of the section.
Likewise, petitioner's contention that the Court of Tax Appeals erred in assessing
it from 1950 to 1952 on the freight, handling and other expenses, is devoid of
merit. Section 186 of the Tax Code, explicitly provides that the freight charges
and expenses of trucking are considered part of the gross selling price. On the
term "actual selling price or gross value in money" on which Section 186 of the
Tax Code assesses the merchant's percentage or sales tax, Mr. Jose Araas, a tax
expert and former Commissioner of Internal Revenue, writes: 2
This signifies the sum stipulated as the equivalent of the thing sold and also
every incident taken into consideration for the fixing of the price, put to the debit
of the vendee and agreed to by him. In other words, the tax is based not only on
the actual cost of production of the goods and the profit added thereto by the
vendor to make up its mill or factory price of the merchandise, but also upon
each and every incident expense taken into account charged to and paid by the
vendee, whether or not the former makes additional profit on these incidental
items.
It is evident on the record that petitioner sold the lumber and that title to the
lumber it sold passed to the buyer in Manila and not in Basilan, contrary to the
terms of the sales contract executed by and between SCLCO and the buyers in
Manila. Petitioner paid sales tax only on the net selling price of the lumber, i.e.,
on the gross selling price, less freight, trucking, handling and other expenses
which formed part of said gross selling price. The deficiency sales tax in question
was on the freight charges and other expenses of trucking and unloading
advanced by SCLCO and billed to the buyer in Manila. If petitioner intended to

consummate the sale of lumber at the point of origin in Basilan, and not at the
point of destination in Manila, We see no reason why petitioner, thru its agent
SCLCO, assumed the payment of the handling, transportation and other
expenses from Basilan to Manila notwithstanding the "FOB" nature of the
transaction. In the case of Behn Meyer and Co. vs. Yangeo, 38 Phil. 602, 605,
606, the words "FOB" and "CIF" were clearly defined viz:
Determination of the place of delivery always resolves itself into a
question of fact. If the contract be silent as to the person or mode
by which the goods are to be sent, delivery by the vendor to a
common carrier, in the usual and ordinary course of business,
transfers the property to the vendee. A specification in a contract
relative to the payment of the freight can be taken to indicate the
intention of the parties in regard to the place of delivery. If the
buyer is to pay the freight, it is reasonable to suppose that he does
so because the goods become his at the point of shipment. On the
other hand, if the seller is to pay the freight the inference is equally
strong that the duty of the seller is to have the goods transported to
their ultimate destination and the title to property does not pass
until the goods have reached their destination.
CIF stand for costs, insurance and freight. They signify that the price
fixed covers not only the costs of the goods, but the expense of
freight and insurance to be paid by the seller.
FOB means that the seller shall bear all expenses until the goods
are delivered where they are to be FOB. According as to whether
the goods are to be delivered FOB at the point of shipment or at the
point of destination determines the time when property passes.
Both of the terms CIF and FOB merely make rules of presumption
which yield to proof of contrary intention. The question is one of
intent, to be ascertained by a consideration of all circumstances.
Under the sales contract between SCLCO and the Manila buyers, it is shown that
petitioner was the owner and seller of the lumber sold and that the
transportation, handling and other expenses from Basilan to Manila were paid by
the seller. Involving the same shipment covered by the sales contract, supra, is
the liquidation statement which We also quote hereunder, showing that
petitioner paid for transportation handling and other expenses from Basilan to
Manila.
Sta. Clara Lumber Co., Inc.
501 Tecson, Manila
October
15, 1950
Statement of Arcos Lumber
Per M/S Turks head Sept. 17, 1950

129506 Board Ft. White lauan at P160.00 P.M.

P20,720.95
2579 " " " " Strips 112.00 " 288.85
4586 " " " " Shorts 96.00 " 440.26
39453 " " Apitong 160.00 " 6,312.48
889 " " " Strips 112.00 " 99.57
1095 " " " Shorts 96.00 " 105.12
83715 " " Red Lauan 180.00 " 15,068.70
1429 " " " Strips 126.00 " 180.05
2407 " " " Shorts 108.00 " 295.96
265659 board feet P43,475.96
Less 1/2% discount on short delivery
and badly broken pieces 217.38
P43,258.51
5% commission 2,162.93
P41,095.64
Deduct expenses:
Freight charges on 265569 bd. ft.;
at P18.20 P.M. P4,834.99
Additional charges on 265659 bd. ft. 199.24
Unloading charges at 265659 bd. ft.
at P4.00 P.M. 1,062.64
Trucking charges on 265569 bd. ft.
at P8.00 P.M. 2,125.27
Total P8,222.14
Balance due ARCO P32,873.50
Certified
Correct:
(Sgd.) M.
Diaz
General
Manager
The balance of P32,873.50 due to petitioner was deposited with the
account of petitioner after deduction of expenses advanced by
SCLCO as its agent, showing that the lumber were sold by
petitioner. (Exhibit "G" and "10-H", Deposit slip p. 257; Exhibit "19B", Account Sales 1950 Vol. II.)
And since the freight charges, unloading, trucking and other incidental expenses
formed part of the selling price of the lumber sold by SCLCO on behalf of the
petitioner, the latter is liable for the payment of the deficiency sales tax. This is
amply explained as follows:
The sales tax is based on the gross and not on the selling price.
Such being the case, the sales tax necessarily reaches the cost of
manufacture and overhead expenses of the taxpayer, because in
determining his gross selling price the taxpayer takes into account

these items. Whatever maybe the theory behind the sales tax law is
immaterial in the enforcement of the law. The law is quite clear and
simply has to be enforced. (Araas, Annotation and Jurisprudence
on the National Internal Revenue Code, pp. 96 and 97, 1970 Ed.)
IV
Lastly, the petitioner claims that it shipped logs to Japan on the SS "TAMON
MARU" No. 16 on August 27, 1953, and, therefore, on this particular transaction,
being an export sale, no percentage tax should be collected.
It is to be noted that the particular provision of the Tax Code relative to this
matter, as provided for in Section 186 as amended by R.A. 894, and referred to
by the parties, was further amended by R.A. 6110. In the latter amendment, this
provision on export sale was deleted. We can, therefore, safely say that with the
deletion of this provision, the legislators intended to do away with this privilege.
Although Section 188 of the Tax Code enumerates transactions and persons not
subject to percentage tax, and letter (e) thereof provides:
(e) Articles shipped or exported abroad by the manufacturer or
producer, irrespective of any shipping arrangement that may be
agreed upon which may influence or determine the transfer or
ownership of the articles so exported."
it has not been shown that petitioner ARCO shipped the same to Japan on its own
account. Instead what We found on record are the invoice and purchase order
(Exhs. "10-B and 10-C"), showing that the purchaser did so, as follows:
Exh. "10-C"
GENERAL ENTERPRISES, INC.
xxx xxx xxx
PURCHASE VOUCHER NO. 160
AMERICAN RUBBER CO. SEPTEMBER 2, 1953
ZAMBOANGA CITY PER S/S TAMON MARU
We purchased from you:
440 pieces 400,000 bd. ft. Apitong logs at P60.00
per thousand bd. ft. P32,000.00
GENERAL
ENTERPRI
SES, INC.
(sgd)
Geza
Prieder
Exh. "10-E"

AMERICAN RUBBER CO.

Isabela, Basilan City
No.
Ex
por
t
1953
INVOICE
Sold to General Enterprises, Inc. Terms: Cash against
shipping papers
Address: 5th Floor State Bldg. Destination: Tokyo, Japan
Manila
Per SS Tamon Maru No. 16
Customers Order No.
Delivered to
Date Shipped August 27, 1953
Marks Qty. Particulars Unit Price Total
xxx xxx xxx
Cer
tifi
ed
Cor
rec
t
an
d
Pa
ym
ent
Not
yet
Re
cei
ve
d
AR
CO
by
(Sg
d)
Jos
e
Atil
an
o

Vic
ePre
sid
ent
an
d
Ge
n.
Ma
na
ger
The aforequoted documents clearly show a local sale which makes petitioner
liable for the sales tax assessed.
WHEREFORE PREMISES CONSIDERED, this Court finds the assessment made by
respondent court correct and hereby affirms its judgment in toto. Without costs.
Makalintal, C.J., Castro, Fernando, Barredo, Makasiar, Antonio, Aquino,
Concepcion, Jr. and Martin, JJ., concur.
Teehankee and Muoz Palma, JJ., are on leave.

Footnotes
1 "Section 186. Percentage Tax on Sales of Other Articles. ...
Provided, That where the articles subject to tax under this section
are manufactured out of materials likewise subject to tax under this
section and 189, the total cost of such materials, as duly
established, shall be deductible from the gross selling price or gross
value in money of such manufactured articles."
STA. CLARA LUMBER CO., INC.
501 Tecson, Manila
"SALES CONTRACT"
"SOLD" TO:
New Manila Lumber
Manila
The lumber of the American Rubber Company to be shipped on the
S/S "Turks Head" Sept. 17, 1950 to arrive in September 21st for
Manila on the following prices:
White Lauan at P125.00 M/bd, ft. FOB Basilan
Apitong at P125.00 m/bd. ft. FOB Basilan
Red Lauan at P145.00 m/bd. ft. FOB Basilan
TERMS AND CONDITIONS

I The buyer will reimburse the seller for transportation, handling and
other expenses in the amount of P35.00 per 1,000 bd. ft. which shall
be advanced by the seller.
II Payment shall be as follows:
50% upon receipt of the shipping papers (Bill of Lading and sawmill
invoices) the balance within 10 days thereafter.
III No discount on cracks will be allowed. Two broken pieces of 6 ft.
shall be considered as one piece; a broken piece of at least 10 ft.
shall be considered one piece.
IV A discount of 30% will be allowed on strips and 40% on shorts.
V A discount shall be given on short deliveries of lumber; on over
deliveries the average price per piece shall be charged accordingly.
AGREED:
(Sgd) NEW MANILA LUMBER CO.
2 Araas Annotations and Jurisprudence on the NLRC, 1970 ed., 186
(3) p. 219.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-20871 April 30, 1971

KER & CO., LTD., petitioner,
vs.
JOSE B. LINGAD, as Acting Commissioner of Internal
Revenue, respondent.
Ross, Selph and Carrascoso for petitioner.
Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and
Special Atty. Balbino Gatdula, Jr. for respondent.

FERNANDO, J.:
Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax
Appeals, holding it liable as a commercial broker under Section 194 (t) of the
National Internal Revenue Code. Its plea, notwithstanding the vigorous effort of

its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable

stands in the way. The decision under review conforms to and is in accordance
with the controlling doctrine announced in the recent case of Commissioner of
Internal Revenue v. Constantino. 1 The decisive test, as therein set forth, is the
retention of the ownership of the goods delivered to the possession of the dealer,
like herein petitioner, for resale to customers, the price and terms remaining
subject to the control of the firm consigning such goods. The facts, as found by
respondent Court, to which we defer, unmistakably indicate that such a situation
does exist. The juridical consequences must inevitably follow. We affirm.
It was shown that petitioner was assessed by the then Commissioner of Internal
Revenue Melecio R. Domingo the sum of P20,272.33 as the commercial broker's
percentage tax, surcharge, and compromise penalty for the period from July 1,
1949 to December 31, 1953. There was a request on the part of petitioner for the
cancellation of such assessment, which request was turned down. As a result, it
filed a petition for review with the Court of Tax Appeals. In its answer, the then
Commissioner Domingo maintained his stand that petitioner should be taxed in
such amount as a commercial broker. In the decision now under review,
promulgated on October 19, 1962, the Court of Tax Appeals held petitioner
taxable except as to the compromise penalty of P500.00, the amount due from it
being fixed at P19,772.33.
Such liability arose from a contract of petitioner with the United States Rubber
International, the former being referred to as the Distributor and the latter
specifically designated as the Company. The contract was to apply to
transactions between the former and petitioner, as Distributor, from July 1, 1948
to continue in force until terminated by either party giving to the other sixty
days' notice. 2 The shipments would cover products "for consumption in Cebu,
Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province
of Davao", petitioner, as Distributor, being precluded from disposing such
products elsewhere than in the above places unless written consent would first
be obtained from the Company. 3 Petitioner, as Distributor, is required to exert
every effort to have the shipment of the products in the maximum quantity and
to promote in every way the sale thereof. 4 The prices, discounts, terms of
payment, terms of delivery and other conditions of sale were subject to change
in the discretion of the Company. 5
Then came this crucial stipulation: "The Company shall from time to time consign
to the Distributor and the Distributor will receive, accept and/or hold upon
consignment the products specified under the terms of this agreement in such
quantities as in the judgment of the Company may be necessary for the
successful solicitation and maintenance of business in the territory, and the
Distributor agrees that responsibility for the final sole of all goods delivered shall
rest with him. All goods on consignment shall remain the property of the
Company until sold by the Distributor to the purchaser or purchasers, but all
sales made by the Distributor shall be in his name, in which the sale price of all
goods sold less the discount given to the Distributor by the Company in
accordance with the provision of paragraph 13 of this agreement, whether or not
such sale price shall have been collected by the Distributor from the purchaser or
purchasers, shall immediately be paid and remitted by the Distributor to the
Company. It is further agreed that this agreement does not constitute Distributor
the agent or legal representative 4 of the Company for any purpose whatsoever.
Distributor is not granted any right or authority to assume or to create any

obligation or responsibility, express or implied, in behalf of or in the name of the

Company, or to bind the Company in any manner or thing whatsoever." 6
All specifications for the goods ordered were subject to acceptance by the
Company with petitioner, as Distributor, required to accept such goods shipped
as well as to clear the same through customs and to arrange for delivery in its
warehouse in Cebu City. Moreover, orders are to be filled in whole or in part from
the stocks carried by the Company's neighboring branches, subsidiaries or other
sources of Company's brands. 7 Shipments were to be invoiced at prices to be
agreed upon, with the customs duties being paid by petitioner, as Distributor, for
account of the Company. 8 Moreover, all resale prices, lists, discounts and general
terms and conditions of local resale were to be subject to the approval of the
Company and to change from time to time in its discretion. 9 The dealer, as
Distributor, is allowed a discount of ten percent on the net amount of sales of
merchandise made under such agreement. 10 On a date to be determined by the
Company, the petitioner, as Distributor, was required to report to it data showing
in detail all sales during the month immediately preceding, specifying therein the
quantities, sizes and types together with such information as may be required for
accounting purposes, with the Company rendering an invoice on sales as
described to be dated as of the date of inventory and sales report. As Distributor,
petitioner had to make payment on such invoice or invoices on due date with the
Company being privileged at its option to terminate and cancel the agreement
forthwith upon the failure to comply with this obligation. 11 The Company, at its
own expense, was to keep the consigned stock fully insured against loss or
damage by fire or as a result of fire, the policy of such insurance to be payable to
it in the event of loss. Petitioner, as Distributor, assumed full responsibility with
reference to the stock and its safety at all times; and upon request of the
Company at any time, it was to render inventory of the existing stock which
could be subject to change. 12 There was furthermore this equally tell-tale
covenant: "Upon the termination or any cancellation of this agreement all goods
held on consignment shall be held by the Distributor for the account of the
Company, without expense to the Company, until such time as provision can be
made by the Company for disposition." 13
The issue with the Court of Tax Appeals, as with us now, is whether the
relationship thus created is one of vendor and vendee or of broker and principal.
Not that there would have been the slightest doubt were it not for the categorical
denial in the contract that petitioner was not constituted as "the agent or legal
representative of the Company for any purpose whatsoever." It would be,
however, to impart to such an express disclaimer a meaning it should not
possess to ignore what is manifestly the role assigned to petitioner considering
the instrument as a whole. That would be to lose sight altogether of what has
been agreed upon. The Court of Tax Appeals was not misled in the language of
the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual
stipulation, an agent of U.S. Rubber International is borne out by the facts that
petitioner can dispose of the products of the Company only to certain persons or
entities and within stipulated limits, unless excepted by the contract or by the
Rubber Company (Par. 2); that it merely receives, accepts and/or holds upon
consignment the products, which remain properties of the latter company (Par.
8); that every effort shall be made by petitioner to promote in every way the sale
of the products (Par. 3); that sales made by petitioner are subject to approval by
the company (Par. 12); that on dates determined by the rubber company,
petitioner shall render a detailed report showing sales during the month (Par.
14); that the rubber company shall invoice the sales as of the dates of inventory

and sales report (Par. 14); that the rubber company agrees to keep the consigned
goods fully insured under insurance policies payable to it in case of loss (Par. 15);
that upon request of the rubber company at any time, petitioner shall render an
inventory of the existing stock which may be checked by an authorized
representative of the former (Par. 15); and that upon termination or cancellation
of the Agreement, all goods held on consignment shall be held by petitioner for
the account of the rubber company until their disposition is provided for by the
latter (Par. 19). All these circumstances are irreconcilably antagonistic to the idea
of an independent merchant." 14 Hence its conclusion: "However, upon analysis
of the contract, as a whole, together with the actual conduct of the parties in
respect thereto, we have arrived at the conclusion that the relationship between
them is one of brokerage or agency." 15 We find ourselves in agreement,
notwithstanding the able brief filed on behalf of petitioner by its counsel. As
noted at the outset, we cannot heed petitioner's plea for reversal.
1. According to the National Internal Revenue Code, a commercial broker
"includes all persons, other than importers, manufacturers, producers, or bona
fide employees, who, for compensation or profit, sell or bring about sales or
purchases of merchandise for other persons or bring proposed buyers and sellers
together, or negotiate freights or other business for owners of vessels or other
means of transportation, or for the shippers, or consignors or consignees of
freight carried by vessels or other means of transportation. The term includes
commission merchants." 16 The controlling decision as to the test to be followed
as to who falls within the above definition of a commercial broker is that
of Commissioner of Internal Revenue v. Constantino. 17 In the language of Justice
J. B. L. Reyes, who penned the opinion: "Since the company retained ownership
of the goods, even as it delivered possession unto the dealer for resale to
customers, the price and terms of which were subject to the company's control,
the relationship between the company and the dealer is one of agency, ... ." 18 An
excerpt from Salisbury v. Brooks 19 cited in support of such a view follows: " 'The
difficulty in distinguishing between contracts of sale and the creation of an
agency to sell has led to the establishment of rules by the application of which
this difficulty may be solved. The decisions say the transfer of title or agreement
to transfer it for a price paid or promised is the essence of sale. If such transfer
puts the transferee in the attitude or position of an owner and makes him liable
to the transferor as a debtor for the agreed price, and not merely as an agent
who must account for the proceeds of a resale, the transaction is a sale; while
the essence of an agency to sell is the delivery to an agent, not as his property,
but as the property of the principal, who remains the owner and has the right to
control sales, fix the price, and terms, demand and receive the proceeds less the
agent's commission upon sales made.' "20 The opinion relied on the work of
Mechem on Sales as well as Mechem on Agency. Williston and Tiedman both of
whom wrote treatises on Sales, were likewise referred to.
Equally relevant is this portion of the Salisbury opinion: "It is difficult to
understand or appreciate the necessity or presence of these mutual
requirements and obligations on any theory other than that of a contract of
agency. Salisbury was to furnish the mill and put the timber owned by him into a
marketable condition in the form of lumber; Brooks was to furnish the funds
necessary for that purpose, sell the manufactured product, and account therefor
to Salisbury upon the specific terms of the agreement, less the compensation
fixed by the parties in lieu of interest on the money advanced and for services as
agent. These requirements and stipulations are in tent with any other conception
of the contract. If it constitutes an agreement to sell, they are meaningless. But

they cannot be ignored. They were placed there for some purpose, doubtless as
the result of definite antecedent negotiations therefore, consummated by the
final written expression of the agreement." 21 Hence the Constantino opinion
could categorically affirm that the mere disclaimer in a contract that an entity
like petitioner is not "the agent or legal representative for any purpose
whatsoever" does not suffice to yield the conclusion that it is an independent
merchant if the control over the goods for resale of the goods consigned is
pervasive in character. The Court of Tax Appeals decision now under review pays
fealty to such an applicable doctrine.
2. No merit therefore attaches to the first error imputed by petitioner to the
Court of Tax Appeals. Neither did such Court fail to appreciate in its true
significance the act and conduct pursued in the implementation of the contract
by both the United States Rubber International and petitioner, as was contended
in the second assignment of error. Petitioner ought to have been aware that
there was no need for such an inquiry. The terms of the contract, as noted, speak
quite clearly. There is lacking that degree of ambiguity sufficient to give rise to
serious doubt as to what was contemplated by the parties. A reading thereof
discloses that the relationship arising therefrom was not one of seller and
purchaser. If it were thus intended, then it would not have included covenants
which in their totality would negate the concept of a firm acquiring as vendee
goods from another. Instead, the stipulations were so worded as to lead to no
other conclusion than that the control by the United States Rubber International
over the goods in question is, in the language of the Constantino opinion,
"pervasive". The insistence on a relationship opposed to that apparent from the
language employed might even yield the impression that such a mode of
construction was resorted to in order that the applicability of a taxing statute
might be rendered nugatory. Certainly, such a result is to be avoided.
Nor is it to be lost sight of that on a matter left to the discretion of the Court of
Tax Appeals which has developed an expertise in view of its function being
limited solely to the interpretation of revenue laws, this Court is not prepared to
substitute its own judgment unless a grave abuse of discretion is manifest. It
would be to frustrate the objective for which administrative tribunals are created
if the judiciary, absent such a showing, is to ignore their appraisal on a matter
that forms the staple of their specialized competence. While it is to be admitted
that counsel for petitioner did scrutinize with care the decision under review with
a view to exposing what was considered its flaws, it cannot be said that there
was such a failure to apply what the law commands as to call for its reversal.
Instead, what cannot be denied is that the Court of Tax Appeals reached a result
to which the Court in the recent Constantino decision gave the imprimatur of its
approval.
WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed.
With costs against petitioner.
Concepcion C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Teehankee,
Barredo, Villamor and Makasiar, JJ., concur.

Footnotes

1 L-25926, February 27, 1970, 31 SCRA 779.

2 Contract between the United States Rubber International and
petitioner, par. 1 quoted in the Decision of the Court of Tax Appeals,
Annex A to Petition, p. 2.
3 Ibid., par. 2, p. 2.
4 Ibid., par. 3, p. 2.
5 Ibid., par. 7, p. 3.
6 Ibid., par. 8, pp. 3 and 4.
7 Ibid., par. 9, to 4.
8 Ibid., par. 10, p. 4.
9 Ibid., par. 12, p. 4.
10 Ibid., par. 13, p. 4.
11 Ibid., par. 14, p. 5.
12 Ibid., par. 15, p. 5.
13 Ibid., par. 19, p. 6.
14 Decision, Annex A to the Petition, pp. 10-11.
15 Ibid., p. 10.
16 Section 194(t).
17 L-25926, February 27, 1970, 31 SCRA 779.
18 Ibid., p. 785.
19 94 SE 117 (1917).
20 L-25926, February 27, 1970, 31 SCRA 779, 796.
21 94 SE 117, 118 (1917).
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-47538

June 20, 1941

GONZALO PUYAT & SONS, INC., petitioner,

vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro
Arco), respondent.
Feria & Lao for petitioner.
J. W. Ferrier and Daniel Me. Gomez for respondent.
LAUREL, J.:
This is a petition for the issuance of a writ of certiorari to the Court of Appeals for
the purpose of reviewing its Amusement Company (formerly known as Teatro
Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc., defendant-appellee."
It appears that the respondent herein brought an action against the herein
petitioner in the Court of First Instance of Manila to secure a reimbursement of
certain amounts allegedly overpaid by it on account of the purchase price of
sound reproducing equipment and machinery ordered by the petitioner from the
Starr Piano Company of Richmond, Indiana, U.S.A. The facts of the case as found
by the trial court and confirmed by the appellate court, which are admitted by
the respondent, are as follows:
In the year 1929, the "Teatro Arco", a corporation duly organized under the
laws of the Philippine Islands, with its office in Manila, was engaged in the
business of operating cinematographs. In 1930, its name was changed to
Arco Amusement Company. C. S. Salmon was the president, while A. B.
Coulette was the business manager. About the same time, Gonzalo Puyat
& Sons, Inc., another corporation doing business in the Philippine Islands,
with office in Manila, in addition to its other business, was acting as
exclusive agents in the Philippines for the Starr Piano Company of
Richmond, Indiana, U.S. A. It would seem that this last company dealt in
cinematographer equipment and machinery, and the Arco Amusement
Company desiring to equipt its cinematograph with sound reproducing
devices, approached Gonzalo Puyat & Sons, Inc., thru its then president
and acting manager, Gil Puyat, and an employee named Santos. After
some negotiations, it was agreed between the parties, that is to say,
Salmon and Coulette on one side, representing the plaintiff, and Gil Puyat
on the other, representing the defendant, that the latter would, on behalf
of the plaintiff, order sound reproducing equipment from the Starr Piano
Company and that the plaintiff would pay the defendant, in addition to the
price of the equipment, a 10 per cent commission, plus all expenses, such
as, freight, insurance, banking charges, cables, etc. At the expense of the
plaintiff, the defendant sent a cable, Exhibit "3", to the Starr Piano
Company, inquiring about the equipment desired and making the said
company to quote its price without discount. A reply was received by
Gonzalo Puyat & Sons, Inc., with the price, evidently the list price of
$1,700 f.o.b. factory Richmond, Indiana. The defendant did not show the
plaintiff the cable of inquiry nor the reply but merely informed the plaintiff
of the price of $1,700. Being agreeable to this price, the plaintiff, by
means of Exhibit "1", which is a letter signed by C. S. Salmon dated
November 19, 1929, formally authorized the order. The equipment arrived
about the end of the year 1929, and upon delivery of the same to the
plaintiff and the presentation of necessary papers, the price of $1.700,

plus the 10 per cent commission agreed upon and plus all the expenses
and charges, was duly paid by the plaintiff to the defendant.
Sometime the following year, and after some negotiations between the
same parties, plaintiff and defendants, another order for sound
reproducing equipment was placed by the plaintiff with the defendant, on
the same terms as the first order. This agreement or order was confirmed
by the plaintiff by its letter Exhibit "2", without date, that is to say, that
the plaintiff would pay for the equipment the amount of $1,600, which was
supposed to be the price quoted by the Starr Piano Company, plus 10 per
cent commission, plus all expenses incurred. The equipment under the
second order arrived in due time, and the defendant was duly paid the
price of $1,600 with its 10 per cent commission, and $160, for all
expenses and charges. This amount of $160 does not represent actual outof-pocket expenses paid by the defendant, but a mere flat charge and
rough estimate made by the defendant equivalent to 10 per cent of the
price of $1,600 of the equipment.
About three years later, in connection with a civil case in Vigan, filed by
one Fidel Reyes against the defendant herein Gonzalo Puyat & Sons, Inc.,
the officials of the Arco Amusement Company discovered that the price
quoted to them by the defendant with regard to their two orders
mentioned was not the net price but rather the list price, and that the
defendants had obtained a discount from the Starr Piano Company.
Moreover, by reading reviews and literature on prices of machinery and
cinematograph equipment, said officials of the plaintiff were convinced
that the prices charged them by the defendant were much too high
including the charges for out-of-pocket expense. For these reasons, they
sought to obtain a reduction from the defendant or rather a
reimbursement, and failing in this they brought the present action.
The trial court held that the contract between the petitioner and the respondent
was one of outright purchase and sale, and absolved that petitioner from the
complaint. The appellate court, however, by a division of four, with one justice
dissenting held that the relation between petitioner and respondent was that
of agent and principal, the petitioner acting as agent of the respondent in the
purchase of the equipment in question, and sentenced the petitioner to pay the
respondent alleged overpayments in the total sum of $1,335.52 or P2,671.04,
together with legal interest thereon from the date of the filing of the complaint
until said amount is fully paid, as well as to pay the costs of the suit in both
instances. The appellate court further argued that even if the contract between
the petitioner and the respondent was one of purchase and sale, the petitioner
was guilty of fraud in concealing the true price and hence would still be liable to
reimburse the respondent for the overpayments made by the latter.
The petitioner now claims that the following errors have been incurred by the
appellate court:
I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que,
segun hechos, entre la recurrente y la recurrida existia una relacion
implicita de mandataria a mandante en la transaccion de que se trata, en
vez de la de vendedora a compradora como ha declarado el Juzgado de
Primera Instncia de Manila, presidido entonces por el hoy Magistrado
Honorable Marcelino Montemayor.

II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que,

suponiendo que dicha relacion fuerra de vendedora a compradora, la
recurrente obtuvo, mediante dolo, el consentimiento de la recurrida en
cuanto al precio de $1,700 y $1,600 de las maquinarias y equipos en
cuestion, y condenar a la recurrente ha obtenido de la Starr Piano
Company of Richmond, Indiana.
We sustain the theory of the trial court that the contract between the petitioner
and the respondent was one of purchase and sale, and not one of agency, for the
reasons now to be stated.
In the first place, the contract is the law between the parties and should include
all the things they are supposed to have been agreed upon. What does not
appear on the face of the contract should be regarded merely as "dealer's" or
"trader's talk", which can not bind either party. (Nolbrook v. Conner, 56 So., 576,
11 Am. Rep., 212; Bank v. Brosscell, 120 III., 161; Bank v. Palmer, 47 III., 92;
Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters,
Exhibits 1 and 2, by which the respondent accepted the prices of $1,700 and
$1,600, respectively, for the sound reproducing equipment subject of its contract
with the petitioner, are clear in their terms and admit no other interpretation that
the respondent in question at the prices indicated which are fixed and
determinate. The respondent admitted in its complaint filed with the Court of
First Instance of Manila that the petitioner agreed to sell to it the first sound
reproducing equipment and machinery. The third paragraph of the respondent's
cause of action states:
3. That on or about November 19, 1929, the herein plaintiff (respondent)
and defendant (petitioner) entered into an agreement, under and by virtue
of which the herein defendant was to secure from the United States,
and sell and deliver to the herein plaintiff, certain sound reproducing
equipment and machinery, for which the said defendant, under and by
virtue of said agreement, was to receive the actual cost price plus ten per
cent (10%), and was also to be reimbursed for all out of pocket expenses
in connection with the purchase and delivery of such equipment, such as
costs of telegrams, freight, and similar expenses. (Emphasis ours.)
We agree with the trial judge that "whatever unforseen events might have taken
place unfavorable to the defendant (petitioner), such as change in prices,
mistake in their quotation, loss of the goods not covered by insurance or failure
of the Starr Piano Company to properly fill the orders as per specifications, the
plaintiff (respondent) might still legally hold the defendant (petitioner) to the
prices fixed of $1,700 and $1,600." This is incompatible with the pretended
relation of agency between the petitioner and the respondent, because in
agency, the agent is exempted from all liability in the discharge of his
commission provided he acts in accordance with the instructions received from
his principal (section 254, Code of Commerce), and the principal must indemnify
the agent for all damages which the latter may incur in carrying out the agency
without fault or imprudence on his part (article 1729, Civil Code).
While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten
per cent (10%) commission, this does not necessarily make the petitioner an
agent of the respondent, as this provision is only an additional price which the
respondent bound itself to pay, and which stipulation is not incompatible with the

contract of purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil.,
501.)
In the second place, to hold the petitioner an agent of the respondent in the
purchase of equipment and machinery from the Starr Piano Company of
Richmond, Indiana, is incompatible with the admitted fact that the petitioner is
the exclusive agent of the same company in the Philippines. It is out of the
ordinary for one to be the agent of both the vendor and the purchaser. The facts
and circumstances indicated do not point to anything but plain ordinary
transaction where the respondent enters into a contract of purchase and sale
with the petitioner, the latter as exclusive agent of the Starr Piano Company in
the United States.
It follows that the petitioner as vendor is not bound to reimburse the respondent
as vendee for any difference between the cost price and the sales price which
represents the profit realized by the vendor out of the transaction. This is the
very essence of commerce without which merchants or middleman would not
exist.
The respondents contends that it merely agreed to pay the cost price as
distinguished from the list price, plus ten per cent (10%) commission and all outof-pocket expenses incurred by the petitioner. The distinction which the
respondents seeks to draw between the cost price and the list price we consider
to be spacious. It is to be observed that the twenty-five per cent (25%) discount
granted by the Starr piano Company to the petitioner is available only to the
latter as the former's exclusive agent in the Philippines. The respondent could
not have secured this discount from the Starr Piano Company and neither was
the petitioner willing to waive that discount in favor of the respondent. As a
matter of fact, no reason is advanced by the respondent why the petitioner
should waive the 25 per cent discount granted it by the Starr Piano Company in
exchange for the 10 percent commission offered by the respondent. Moreover,
the petitioner was not duty bound to reveal the private arrangement it had with
the Starr Piano Company relative to such discount to its prospective customers,
and the respondent was not even aware of such an arrangement. The
respondent, therefore, could not have offered to pay a 10 per cent commission to
the petitioner provided it was given the benefit of the 25 per cent discount
enjoyed by the petitioner. It is well known that local dealers acting as agents of
foreign manufacturers, aside from obtaining a discount from the home office,
sometimes add to the list price when they resell to local purchasers. It was
apparently to guard against an exhorbitant additional price that the respondent
sought to limit it to 10 per cent, and the respondent is estopped from
questioning that additional price. If the respondent later on discovers itself at the
short end of a bad bargain, it alone must bear the blame, and it cannot rescind
the contract, much less compel a reimbursement of the excess price, on that
ground alone. The respondent could not secure equipment and machinery
manufactured by the Starr Piano Company except from the petitioner alone; it
willingly paid the price quoted; it received the equipment and machinery as
represented; and that was the end of the matter as far as the respondent was
concerned. The fact that the petitioner obtained more or less profit than the
respondent calculated before entering into the contract or reducing the price
agreed upon between the petitioner and the respondent. Not every concealment
is fraud; and short of fraud, it were better that, within certain limits, business
acumen permit of the loosening of the sleeves and of the sharpening of the
intellect of men and women in the business world.

The writ of certiorari should be, as it is hereby, granted. The decision of the
appellate court is accordingly reversed and the petitioner is absolved from the
respondent's complaint in G. R. No. 1023, entitled "Arco Amusement Company
(formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons,
Inc., defendants-appellee," without pronouncement regarding costs. So ordered.
Avancea, C.J., Diaz, Moran and Horrilleno, JJ., concur.
epublic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 113074 January 22, 1997

ALFRED HAHN, petitioner,
vs.
COURT OF APPEALS and BAYERSCHE MOTOREN WERKE
AKTIENGSELLSCHAFT (BMW), respondents.

MENDOZA, J.:
This is a petition for review of the decision 1 of the Court of Appeals dismissing a
complaint for specific performance which petitioner had filed against private
respondent on the ground that the Regional Trial Court of Quezon City did not
acquire jurisdiction over private respondent, a nonresident foreign corporation,
and of the appellate court's order denying petitioner's motion for
reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and
style "Hahn-Manila." On the other hand, private respondent Bayerische Motoren
Werke Aktiengesellschaft (BMW) is a nonresident foreign corporation existing
under the laws of the former Federal Republic of Germany, with principal office at
Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a "Deed of
Assignment with Special Power of Attorney," which reads in full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW
trademark and device in the Philippines which ASSIGNOR uses and has
been using on the products manufactured by ASSIGNEE, and for which
ASSIGNOR is the authorized exclusive Dealer of the ASSIGNEE in the
Philippines, the same being evidenced by certificate of registration issued
by the Director of Patents on 12 December 1963 and is referred to as
Trademark No. 10625;

WHEREAS, the ASSIGNOR has agreed to transfer and consequently record

said transfer of the said BMW trademark and device in favor of the
ASSIGNEE herein with the Philippines Patent Office;
NOW THEREFORE, in view of the foregoing and in consideration of the
stipulations hereunder stated, the ASSIGNOR hereby affirms the said
assignment and transfer in favor of the ASSIGNEE under the following
terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user other than
ASSIGNOR or infringer of the BMW trademark in the Philippines; for such
purpose, the ASSIGNOR shall inform the ASSIGNEE immediately of any
such use or infringement of the said trademark which comes to his
knowledge and upon such information the ASSIGNOR shall automatically
act as Attorney-In-Fact of the ASSIGNEE for such case, with full power,
authority and responsibility to prosecute unilaterally or in concert with
ASSIGNEE, any such infringer of the subject mark and for purposes hereof
the ASSIGNOR is hereby named and constituted as ASSIGNEE's AttorneyIn-Fact, but any such suit without ASSIGNEE's consent will exclusively be
the responsibility and for the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business relations
as has been usual in the past without a formal contract, and for that
purpose, the dealership of ASSIGNOR shall cover the ASSIGNEE's complete
production program with the only limitation that, for the present, in view of
ASSIGNEE's limited production, the latter shall not be able to supply
automobiles to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has been usual
in the past without a formal contract." But on February 16, 1993, in a meeting
with a BMW representative and the president of Columbia Motors Corporation
(CMC), Jose Alvarez, petitioner was informed that BMW was arranging to grant
the exclusive dealership of BMW cars and products to CMC, which had expressed
interest in acquiring the same. On February 24, 1993, petitioner received
confirmation of the information from BMW which, in a letter, expressed
dissatisfaction with various aspects of petitioner's business, mentioning among
other things, decline in sales, deteriorating services, and inadequate showroom
and warehouse facilities, and petitioner's alleged failure to comply with the
standards for an exclusive BMW dealer. 2 Nonetheless, BMW expressed
willingness to continue business relations with the petitioner on the basis of a
"standard BMW importer" contract, otherwise, it said, if this was not acceptable
to petitioner, BMW would have no alternative but to terminate petitioner's
exclusive dealership effective June 30, 1993.
Petitioner protested, claiming that the termination of his exclusive dealership
would be a breach of the Deed of Assignment. 3 Hahn insisted that as long as the
assignment of its trademark and device subsisted, he remained BMW's exclusive
dealer in the Philippines because the assignment was made in consideration of
the exclusive dealership. In the same letter petitioner explained that the decline
in sales was due to lower prices offered for BMW cars in the United States and
the fact that few customers returned for repairs and servicing because of the
durability of BMW parts and the efficiency of petitioner's service.

Because of Hahn's insistence on the former business relation, BMW withdrew on

March 26, 1993 its offer of a "standard importer contract" and terminated the
exclusive dealer relationship effective June 30, 1993. 4 At a conference of BMW
Regional Importers held on April 26, 1993 in Singapore, Hahn was surprised to
find Alvarez among those invited from the Asian region. On April 29, 1993, BMW
proposed that Hahn and CMC jointly import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for
specific performance and damages against BMW to compel it to continue the
exclusive dealership. Later he filed an amended complaint to include an
application for temporary restraining order and for writs of preliminary,
mandatory and prohibitory injunction to enjoin BMW from terminating his
exclusive dealership. Hahn's amended complaint alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the
Philippines with principal offices at Munich, Germany. It may be served
with summons and other court processes through the Secretary of the
Department of Trade and Industry of the Philippines. . . .
xxx xxx xxx
5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed
of Assignment with Special Power of Attorney covering the trademark and
in consideration thereof, under its first whereas clause, Plaintiff was duly
acknowledged as the "exclusive Dealer of the Assignee in the Philippines. .
..
xxx xxx xxx
8. From the time the trademark "BMW & DEVICE" was first used by the
Plaintiff in the Philippines up to the present, Plaintiff, through its firm name
"HAHN MANILA" and without any monetary contribution from defendant
BMW, established BMW's goodwill and market presence in the Philippines.
Pursuant thereto, Plaintiff has invested a lot of money and resources in
order to single-handedly compete against other motorcycle and car
companies. . . . Moreover, Plaintiff has built buildings and other
infrastructures such as service centers and showrooms to maintain and
promote the car and products of defendant BMW.
xxx xxx xxx
10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff
that it was willing to maintain with Plaintiff a relationship but only "on the
basis of a standard BMW importer contract as adjusted to reflect the
particular situation in the Philippines" subject to certain conditions,
otherwise, defendant BMW would terminate Plaintiffs exclusive dealership
and any relationship for cause effective June 30, 1993. . . .
xxx xxx xxx
15. The actuations of defendant BMW are in breach of the assignment
agreement between itself and plaintiff since the consideration for the
assignment of the BMW trademark is the continuance of the exclusive

dealership agreement. It thus, follows that the exclusive dealership should

continue for so long as defendant BMW enjoys the use and ownership of
the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104
of the Quezon City Regional Trial Court, which on June 14, 1993 issued a
temporary restraining order. Summons and copies of the complaint and amended
complaint were thereafter served on the private respondent through the
Department of Trade and Industry, pursuant to Rule 14, 14 of the Rules of Court.
The order, summons and copies of the complaint and amended complaint were
later sent by the DTI to BMW via registered mail on June 15, 1993 5 and received
by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the
application for the writ of preliminary injunction proceeded ex parte, with
petitioner Hahn testifying. On June 30, 1993, the trial court issued an order
granting the writ of preliminary injunction upon the filing of a bond of
P100,000.00. On July 13, 1993, following the posting of the required bond, a writ
of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial court
did not acquire jurisdiction over it through the service of summons on the
Department of Trade and Industry, because it (BMW) was a foreign corporation
and it was not doing business in the Philippines. It contended that the execution
of the Deed of Assignment was an isolated transaction; that Hahn was not its
agent because the latter undertook to assemble and sell BMW cars and products
without the participation of BMW and sold other products; and that Hahn was an
indentor or middleman transacting business in his own name and for his own
account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing
business in the Philippines through him as its agent, as shown by the fact that
BMW invoices and order forms were used to document his transactions; that he
gave warranties as exclusive BMW dealer; that BMW officials periodically
inspected standards of service rendered by him; and that he was described in
service booklets and international publications of BMW as a "BMW Importer" or
"BMW Trading Company" in the Philippines.
The trial court 6 deferred resolution of the motion to dismiss until after trial on the
merits for the reason that the grounds advanced by BMW in its motion did not
seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed a
petition for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE
INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE
WRIT OF PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE TERMS FOR
THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING RESOLUTION
OF THE MOTION TO DISMISS ON THE GROUND OF LACK OF JURISDICTION,
AND THEREBY FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.

BMW asked for the immediate issuance of a temporary restraining order and,
after hearing, for a writ of preliminary injunction, to enjoin the trial court from
proceeding further in Civil Case No. Q-93-15933. Private respondent pointed out
that, unless the trial court's order was set aside, it would be forced to submit to
the jurisdiction of the court by filing its answer or to accept judgment in default,
when the very question was whether the court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's complaint.
On December 20, 1993, it rendered judgment finding the trial court guilty of
grave abuse of discretion in deferring resolution of the motion to dismiss. It
stated:
Going by the pleadings already filed with the respondent court before it
came out with its questioned order of July 26, 1993, we rule and so hold
that petitioner's (BMW) motion to dismiss could be resolved then and
there, and that the respondent judge's deferment of his action thereon
until after trial on the merit constitutes, to our mind, grave abuse of
discretion.
xxx xxx xxx
. . . [T]here is not much appreciable disagreement as regards the factual
matters relating to the motion to dismiss. What truly divide (sic) the
parties and to which they greatly differ is the legal conclusions they
respectively draw from such facts, (sic) with Hahn maintaining that on the
basis thereof, BMW is doing business in the Philippines while the latter
asserts that it is not.
Then, after stating that any ruling which the trial court might make on the motion
to dismiss would anyway be elevated to it on appeal, the Court of Appeals itself
resolved the motion. It ruled that BMW was not doing business in the country
and, therefore, jurisdiction over it could not be acquired through service of
summons on the DTI pursuant to Rule 14, 14. 'The court upheld private
respondent's contention that Hahn acted in his own name and for his own
account and independently of BMW, based on Alfred Hahn's allegations that he
had invested his own money and resources in establishing BMW's goodwill in the
Philippines and on BMW's claim that Hahn sold products other than those of
BMW. It held that petitioner was a mere indentor or broker and not an agent
through whom private respondent BMW transacted business in the Philippines.
Consequently, the Court of Appeals dismissed petitioner's complaint against
BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in
finding that the trial court gravely abused its discretion in deferring action on the
motion to dismiss and (2) in finding that private respondent BMW is not doing
business in the Philippines and, for this reason, dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon private foreign corporations. If the defendant is a
foreign corporation, or a nonresident joint stock company or association,
doing business in the Philippines, service may be made on its resident
agent designated in accordance with law for that purpose, or, if there be

no such agent, on the government official designated by law to that effect,

or on any of its officers or agents within the Philippines. (Emphasis added).
What acts are considered "doing business in the Philippines" are enumerated in
3(d) of the Foreign Investments Act of 1991 (R.A. No. 7042) as follows: 7
d) the phrase "doing business" shall include soliciting orders, service
contracts, opening offices, whether called "liaison" offices or
branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a period or
periods totalling one hundred eighty (180) days or more; participating in
the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines; and any other act or acts that
imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the
business organization: Provided, however, That the phrase "doing
business" shall not be deemed to include mere investment as a
shareholder by a foreign entity in domestic corporations duly registered to
do business, and/or the exercise of rights as such investor; nor having a
nominee director or officer to represent its interests in such
corporation; nor appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its own
account. (Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors in the
Philippines" but not when the representative or distributor "transacts business in
its name and for its own account." In addition, 1(f)(1) of the Rules and
Regulations implementing (IRR) the Omnibus Investment Code of 1987 (E.O. No.
226) provided:
(f) "Doing business" shall be any act or combination of acts, enumerated
in Article 44 of the Code. In particular, "doing business" includes:
(1) . . . A foreign firm which does business through middlemen acting in
their own names, such as indentors, commercial brokers or commission
merchants, shall not be deemed doing business in the Philippines. But
such indentors, commercial brokers or commission merchants shall be the
ones deemed to be doing business in the Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor in the
Philippines of private respondent BMW. If he is, BMW may be considered doing
business in the Philippines and the trial court acquired jurisdiction over it (BMW)
by virtue of the service of summons on the Department of Trade and Industry.
Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of
BMW cars and products, BMW, a foreign corporation, is not considered doing
business in the Philippines within the meaning of the Foreign Investments Act of
1991 and the IRR, and the trial court did not acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own name and
for his own account and not as agent or distributor in the Philippines of BMW on
the ground that "he alone had contacts with individuals or entities interested in

acquiring BMW vehicles. Independence characterizes Hahn's undertakings, for

which reason he is to be considered, under governing statutes, as doing
business." (p. 13) In support of this conclusion, the appellate court cited the
following allegations in Hahn's amended complaint:
8. From the time the trademark "BMW & DEVICE" was first used by the
Plaintiff in the Philippines up to the present, Plaintiff, through its firm name
"HAHN MANILA" and without any monetary contributions from defendant
BMW, established BMW's goodwill and market presence in the Philippines.
Pursuant thereto, Plaintiff invested a lot of money and resources in order
to single-handedly compete against other motorcycle and car companies. .
. . Moreover, Plaintiff has built buildings and other infrastructures such as
service centers and showrooms to maintain and promote the car and
products of defendant BMW.
As the above quoted allegations of the amended complaint show, however, there
is nothing to support the appellate court's finding that Hahn solicited orders
alone and for his own account and without "interference from, let alone direction
of, BMW." (p. 13) To the contrary, Hahn claimed he took orders for BMW cars and
transmitted them to BMW. Upon receipt of the orders, BMW fixed the
downpayment and pricing charges, notified Hahn of the scheduled production
month for the orders, and reconfirmed the orders by signing and returning to
Hahn the acceptance sheets. Payment was made by the buyer directly to BMW.
Title to cars purchased passed directly to the buyer and Hahn never paid for the
purchase price of BMW cars sold in the Philippines. Hahn was credited with a
commission equal to 14% of the purchase price upon the invoicing of a vehicle
order by BMW. Upon confirmation in writing that the vehicles had been registered
in the Philippines and serviced by him, Hahn received an additional 3% of the full
purchase price. Hahn performed after-sale services, including warranty services,
for which he received reimbursement from BMW. All orders were on invoices and
forms of BMW. 8
These allegations were substantially admitted by BMW which, in its petition
for certiorari before the Court of Appeals, stated: 9
9.4. As soon as the vehicles are fully manufactured and full payment of
the purchase prices are made, the vehicles are shipped to the Philippines.
(The payments may be made by the purchasers or third-persons or even
by Hahn.) The bills of lading are made up in the name of the purchasers,
but Hahn-Manila is therein indicated as the person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for
purposes of conducting pre-delivery inspections. Thereafter, he delivers
the vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a
commission of fourteen percent (14%) of the full purchase price thereof,
and as soon as he confirms in writing that the vehicles have been
registered in the Philippines and have been serviced by him, he will
receive an additional three percent (3%) of the full purchase prices as
commission.

Contrary to the appellate court's conclusion, this arrangement shows an agency.

An agent receives a commission upon the successful conclusion of a sale. On the
other hand, a broker earns his pay merely by bringing the buyer and the seller
together, even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at his own
expense, Hahn said that he had to follow BMW specifications as exclusive dealer
of BMW in the Philippines. According to Hahn, BMW periodically inspected the
service centers to see to it that BMW standards were maintained. Indeed, it
would seem from BMW's letter to Hahn that it was for Hahn's alleged failure to
maintain BMW standards that BMW was terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service centers and
showrooms does not necessarily prove that he is not an agent of BMW. For as
already noted, there are facts in the record which suggest that BMW exercised
control over Hahn's activities as a dealer and made regular inspections of Hahn's
premises to enforce compliance with BMW standards and specifications. 10 For
example, in its letter to Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions and
letters that we have to tackle the Philippine market more professionally
and that we are through your present activities not adequately prepared to
cope with the forthcoming challenges. 11
In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of
Appeals, 12 in which the foreign corporation entered into a "Representative
Agreement" and a "Licensing Agreement" with a domestic corporation, by virtue
of which the latter was appointed "exclusive representative" in the Philippines for
a stipulated commission. Pursuant to these contracts, the domestic corporation
sold products exported by the foreign corporation and put up a service center for
the products sold locally. This Court held that these acts constituted doing
business in the Philippines. The arrangement showed that the foreign
corporation's purpose was to penetrate the Philippine market and establish its
presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive distributor in
the Philippines, even as it announced in the Asian region that Hahn was the
"official BMW agent" in the Philippines. 13
The Court of Appeals also found that petitioner Alfred Hahn dealt in other
products, and not exclusively in BMW products, and, on this basis, ruled that
Hahn was not an agent of BMW. (p. 14) This finding is based entirely on
allegations of BMW in its motion to dismiss filed in the trial court and in its
petition for certiorari before the Court of Appeals. 14 But this allegation was
denied by Hahn 15 and therefore the Court of Appeals should not have cited it as
if it were the fact.
Indeed this is not the only factual issue raised, which should have indicated to
the Court of Appeals the necessity of affirming the trial court's order deferring
resolution of BMW's motion to dismiss. Petitioner alleged that whether or not he
is considered an agent of BMW, the fact is that BMW did business in the

Philippines because it sold cars directly to Philippine buyers. 16 This was denied
by BMW, which claimed that Hahn was not its agent and that, while it was true
that it had sold cars to Philippine buyers, this was done without solicitation on its
part. 17
It is not true then that the question whether BMW is doing business could have
been resolved simply by considering the parties' pleadings. There are genuine
issues of facts which can only be determined on the basis of evidence duly
presented. BMW cannot short circuit the process on the plea that to compel it to
go to trial would be to deny its right not to submit to the jurisdiction of the trial
court which precisely it denies. Rule 16, 3 authorizes courts to defer the
resolution of a motion to dismiss until after the trial if the ground on which the
motion is based does not appear to be indubitable. Here the record of the case
bristles with factual issues and it is not at all clear whether some allegations
correspond to the proof.
Anyway, private respondent need not apprehend that by responding to the
summons it would be waiving its objection to the trial court's jurisdiction. It is
now settled that, for purposes of having summons served on a foreign
corporation in accordance with Rule 14, 14, it is sufficient that it be alleged in
the complaint that the foreign corporation is doing business in the Philippines.
The court need not go beyond the allegations of the complaint in order to
determine whether it has Jurisdiction. 18 A determination that the foreign
corporation is doing business is only tentative and is made only for the purpose
of enabling the local court to acquire jurisdiction over the foreign corporation
through service of summons pursuant to Rule 14, 14. Such determination does
not foreclose a contrary finding should evidence later show that it is not
transacting business in the country. As this Court has explained:
This is not to say, however, that the petitioner's right to question the
jurisdiction of the court over its person is now to be deemed a foreclosed
matter. If it is true, as Signetics claims, that its only involvement in the
Philippines was through a passive investment in Sigfil, which it even later
disposed of, and that TEAM Pacific is not its agent, then it cannot really be
said to be doing business in the Philippines. It is a defense, however, that
requires the contravention of the allegations of the complaint, as well as a
full ventilation, in effect, of the main merits of the case, which should not
thus be within the province of a mere motion to dismiss. So, also, the issue
posed by the petitioner as to whether a foreign corporation which has
done business in the country, but which has ceased to do business at the
time of the filing of a complaint, can still be made to answer for a cause of
action which accrued while it was doing business, is another matter that
would yet have to await the reception and admission of evidence. Since
these points have seasonably been raised by the petitioner, there should
be no real cause for what may understandably be its apprehension, i.e.,
that by its participation during the trial on the merits, it may, absent an
invocation of separate or independent reliefs of its own, be considered to
have voluntarily submitted itself to the court's jurisdiction. 19
Far from committing an abuse of discretion, the trial court properly deferred
resolution of the motion to dismiss and thus avoided prematurely deciding a
question which requires a factual basis, with the same result if it had denied the
motion and conditionally assumed jurisdiction. It is the Court of Appeals which,
by ruling that BMW is not doing business on the basis merely of uncertain

allegations in the pleadings, disposed of the whole case with finality and thereby
deprived petitioner of his right to be heard on his cause of action. Nor was there
justification for nullifying the writ of preliminary injunction issued by the trial
court. Although the injunction was issued ex parte, the fact is that BMW was
subsequently heard on its defense by filing a motion to dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is
REMANDED to the trial court for further proceedings.
SO ORDERED.
Regalado, Romero, Puno and Torres, Jr., JJ., concur.
Footnotes
1 Per Justice Cancio C. Garcia and concurred in by Justice Ramon U.
Mabutas and Antonio M. Martinez, chairman.
2 Rollo, pp. 75-78.
3 Rollo, pp. 79-82.
4 Rollo, pp. 83-84.
5 Rollo, p. 593.
6 Per Judge Maximiano Asuncion.
7 The Foreign Investments Act of 1991 superseded Arts. 44-56 of
the Omnibus Investments Code.
8 Rollo, pp. 96, 140-141.
9 Id., p. 141.
10 Wang Laboratories, Inc. v. Mendoza, 156 SCRA 44 (1987).
11 Rollo, p. 75.
12 G.R. No. 102223, Aug. 22, 1996.
13 Rollo, p. 213.
14 Rollo, pp. 91, 163.
15 Rollo, p. 124.
16 Rollo, pp. 245; 292.
17 Rollo, pp. 177, 284, 600.

18 Litton Mills, Inc. v. Court of Appeals, G.R. No. 94980, May 15,
1996; Signetics Corp. v. Court of Appeals, 225 SCRA 737 (1993).
19 Signetics Corp. v. Court of Appeals, 225 SCRA at 746.