AGENCY ACJUCO 2nd MEETING 1
G.R. No. 171460 July 24, 2007
LILLIAN N. MERCADO, CYNTHIA M.
FEKARIS, and JULIAN MERCADO, JR.,
represented by their Attorney-In-Fact,
ALFREDO M. PEREZ, Petitioners,
vs.
ALLIED BANKING
CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review
on Certiorari under Rule 45 of the Revised
Rules of Court, filed by petitioners Lillian N.
Mercado, Cynthia M. Fekaris and Julian
Mercado, Jr., represented by their Attorney-In-
Fact, Alfredo M. Perez, seeking to reverse and
set aside the Decision1 of the Court of Appeals
dated 12 October 2005, and its
2
Resolution dated 15 February 2006 in CA-G.R.
CV No. 82636. The Court of Appeals, in its
assailed Decision and Resolution, reversed the
Decision3 of the Regional Trial Court (RTC) of
Quezon City, Branch 220 dated 23 September
2003, declaring the deeds of real estate
mortgage constituted on TCT No. RT-18206
(106338) null and void. The dispositive portion
of the assailed Court of Appeals Decision thus
reads:
WHEREFORE, the appealed decision is
REVERSED and SET ASIDE, and a new
judgment is hereby entered dismissing the
[petitioners] complaint.4
Petitioners are heirs of Perla N. Mercado
(Perla). Perla, during her lifetime, owned several
pieces of real property situated in different
provinces of the Philippines.
Respondent, on the other hand, is a banking
institution duly authorized as such under the
Philippine laws.
On 28 May 1992, Perla executed a Special
Power of Attorney (SPA) in favor of her
husband, Julian D. Mercado (Julian) over
several pieces of real property registered under
her name, authorizing the latter to perform the
following acts:
1. To act in my behalf, to sell, alienate,
mortgage, lease and deal otherwise over the
different parcels of land described hereinafter,
to wit:
a) Calapan, Oriental Mindoro Properties
covered by Transfer Certificates of Title Nos. T-
53618 - 3,522 Square Meters, T-46810 – 3,953
Square Meters, T-53140 – 177 Square Meters,
T-21403 – 263 square Meters, T- 46807 – 39
Square Meters of the Registry of Deeds of
Oriental Mindoro;
b) Susana Heights, Muntinlupa covered by
Transfer Certificates of Title Nos. T-108954 –
600 Square Meters and RT-106338 – 805
Square Meters of the Registry of Deeds of Pasig
(now Makati);
c) Personal property – 1983 Car with Vehicle
Registration No. R-16381; Model 1983; Make –
Toyota; Engine No. T- 2464
2. To sign for and in my behalf any act of strict
dominion or ownership any sale, disposition,
mortgage, lease or any other transactions
including quit-claims, waiver and relinquishment
of rights in and over the parcels of land situated
in General Trias, Cavite, covered by Transfer
Certificates of Title Nos. T-112254 and T-
112255 of the Registry of Deeds of Cavite, in
conjunction with his co-owner and in the person
ATTY. AUGUSTO F. DEL ROSARIO;
3. To exercise any or all acts of strict dominion
or ownership over the above-mentioned
properties, rights and interest therein.
(Emphasis supplied.)
On the strength of the aforesaid SPA, Julian, on
12 December 1996, obtained a loan from the
respondent in the amount of ₱3,000,000.00,
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 of ₱5,000,000.00,
evidenced by a Promissory Note6 he executed
on 5 February 1997 as another real estate
mortgage (REM).

It appears, however, that there was no property
identified in the SPA as TCT No. RT – 18206
(106338) and registered with the Registry of
Deeds of Quezon City. What was identified in
the SPA instead was the property covered by
TCT No. RT-106338 registered with the
Registry of Deeds of Pasig.
Subsequently, Julian defaulted on the payment
of his loan obligations. Thus, respondent
initiated extra-judicial foreclosure proceedings
over the subject property which was
subsequently sold at public auction wherein the
respondent was declared as the highest bidder
as shown in the Sheriff’s Certificate of Sale
dated 15 January 1998.7
On 23 March 1999, petitioners initiated with the
RTC an action for the annulment of REM
constituted over the subject property on the
ground that the same was not covered by the
SPA and that the said SPA, at the time the loan
obligations were contracted, no longer had force
and effect since it was previously revoked by
Perla on 10 March 1993, as evidenced by the
Revocation of SPA signed by the latter.8
Petitioners likewise alleged that together with
the copy of the Revocation of SPA, Perla, in a
Letter dated 23 January 1996, notified the
Registry of Deeds of Quezon City that any
attempt to mortgage or sell the subject property
must be with her full consent documented in the
form of an SPA duly authenticated before the
Philippine Consulate General in New York. 9
In the absence of authority to do so, the REM
constituted by Julian over the subject property
was null and void; thus, petitioners likewise
prayed that the subsequent extra-judicial
foreclosure proceedings and the auction sale of
the subject property be also nullified.
In its Answer with Compulsory
Counterclaim,10 respondent averred that,
contrary to petitioner’s allegations, the SPA in
favor of Julian included the subject property,
covered by one of the titles specified in
paragraph 1(b) thereof, TCT No. RT- 106338
registered with the Registry of Deeds of Pasig
(now Makati). The subject property was
purportedly registered previously under TCT
No. T-106338, and was only subsequently
AGENCY ACJUCO 2nd MEETING 2
reconstituted as TCT RT-18206 (106338).
Moreover, TCT No. T-106338 was actually
registered with the Registry of Deeds of Quezon
City and not before the Registry of Deeds of
Pasig (now Makati). Respondent explained that
the discrepancy in the designation of the
Registry of Deeds in the SPA was merely an
error that must not prevail over the clear
intention of Perla to include the subject property
in the said SPA. In sum, the property referred to
in the SPA Perla executed in favor of Julian as
covered by TCT No. 106338 of the Registry of
Deeds of Pasig (now Makati) and the subject
property in the case at bar, covered by RT –
18206 (106338) of the Registry of Deeds of
Quezon City, are one and the same.
On 23 September 2003, the RTC rendered a
Decision declaring the REM constituted over the
subject property null and void, for Julian was not
authorized by the terms of the SPA to mortgage
the same. The court a quo likewise ordered that
the foreclosure proceedings and the auction
sale conducted pursuant to the void REM, be
nullified. The dispositive portion of the Decision
reads:
WHEREFORE, premises considered, judgment
is hereby rendered in favor of the [herein
petitioners] and against the [herein respondent]
Bank:
1. Declaring the Real Estate Mortgages
constituted and registered under Entry Nos. PE-
4543/RT-18206 and 2012/RT-18206 annotated
on TCT No. RT-18206 (106338) of the Registry
of Deeds of Quezon City as NULL and VOID;
2. Declaring the Sheriff’s Sale and Certificate of
Sale under FRE No. 2217 dated January 15,
1998 over the property covered by TCT No. RT-
18206 (106338) of the Registry of Deeds of
Quezon City as NULL and VOID;
3. Ordering the defendant Registry of Deeds of
Quezon City to cancel the annotation of Real
Estate Mortgages appearing on Entry Nos. PE-
4543/RT-18206 and 2012/RT-18206 on TCT
No. RT-18206 (106338) of the Registry of
Deeds of Quezon City;
4. Ordering the [respondent] Bank to
deliver/return to the [petitioners] represented by
their attorney-in-fact Alfredo M. Perez, the

original Owner’s Duplicate Copy of TCT No. RT-
18206 (106338) free from the encumbrances
referred to above; and
5. Ordering the [respondent] Bank to pay the
[petitioners] the amount of ₱100,000.00 as for
attorney’s fees plus cost of the suit.
The other claim for damages and counterclaim
are hereby DENIED for lack of merit.11
Aggrieved, respondent appealed the adverse
Decision before the Court of Appeals.
In a Decision dated 12 October 2005, the Court
of Appeals reversed the RTC Decision and
upheld the validity of the REM constituted over
the subject property on the strength of the SPA.
The appellate court declared that Perla intended
the subject property to be included in the SPA
she executed in favor of Julian, and that her
subsequent revocation of the said SPA, not
being contained in a public instrument, cannot
bind third persons.
The Motion for Reconsideration interposed by
the petitioners was denied by the Court of
Appeals in its Resolution dated 15 February
2006.
Petitioners are now before us assailing the
Decision and Resolution rendered by the Court
of Appeals raising several issues, which are
summarized as follows:
I WHETHER OR NOT THERE WAS A VALID
MORTGAGE CONSTITUTED OVER SUBJECT
PROPERTY.
II WHETHER OR NOT THERE WAS A VALID
REVOCATION OF THE SPA.
III WHETHER OR NOT THE RESPONDENT
WAS A MORTGAGEE-IN- GOOD FAITH.
For a mortgage to be valid, Article 2085 of the
Civil Code enumerates the following essential
requisites:
Art. 2085. The following requisites are essential
to the contracts of pledge and mortgage:
(1) That they be constituted to secure the
fulfillment of a principal obligation;
AGENCY ACJUCO 2nd MEETING 3
(2) That the pledgor or mortgagor be the
absolute owner of the thing pledged or
mortgaged;
(3) That the persons constituting the pledge or
mortgage have the free disposal of their
property, and in the absence thereof, that they
be legally authorized for the purpose.
Third persons who are not parties to the
principal obligation may secure the latter by
pledging or mortgaging their own property.
In the case at bar, it was Julian who obtained
the loan obligations from respondent which he
secured with the mortgage of the subject
property. The property mortgaged was owned
by his wife, Perla, considered a third party to the
loan obligations between Julian and
respondent. It was, thus, a situation recognized
by the last paragraph of Article 2085 of the Civil
Code afore-quoted. However, since it was not
Perla who personally mortgaged her own
property to secure Julian’s loan obligations with
respondent, we proceed to determining if she
duly authorized Julian to do so on her behalf.
Under Article 1878 of the Civil Code, a special
power of attorney is necessary in cases where
real rights over immovable property are created
or conveyed.12 In the SPA executed by Perla in
favor of Julian on 28 May 1992, the latter was
conferred with the authority to "sell,
alienate, mortgage, lease and deal otherwise"
the different pieces of real and personal
property registered in Perla’s name. The SPA
likewise authorized Julian "[t]o exercise any
or all acts of strict dominion or ownership"
over the identified properties, and rights and
interest therein. The existence and due
execution of this SPA by Perla was not denied
or challenged by petitioners.
There is no question therefore that Julian was
vested with the power to mortgage the pieces of
property identified in the SPA. However, as to
whether the subject property was among those
identified in the SPA, so as to render Julian’s
mortgage of the same valid, is a question we still
must resolve.
Petitioners insist that the subject property was
not included in the SPA, considering that it
contained an exclusive enumeration of the

pieces of property over which Julian had
authority, and these include only: (1) TCT No. T-
53618, with an area of 3,522 square meters,
located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental
Mindoro; (2) TCT No. T-46810, with an area of
3,953 square meters, located at Calapan,
Oriental Mindoro, and registered with the
Registry of Deeds of Oriental Mindoro; (3) TCT
No. T-53140, with an area of 177 square
meters, located at Calapan, Oriental Mindoro,
and registered with the Registry of Deeds of
Oriental Mindoro; (4) TCT No. T-21403, with an
area of 263 square meters, located at Calapan,
Oriental Mindoro, and registered with the
Registry of Deeds of Oriental Mindoro; (5) TCT
No. T- 46807, with an area of 39 square meters,
located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental
Mindoro; (6) TCT No. T-108954, with an area of
690 square meters and located at Susana
Heights, Muntinlupa; (7) RT-106338 – 805
Square Meters registered with the Registry of
Deeds of Pasig (now Makati); and (8) Personal
Property consisting of a 1983 Car with Vehicle
Registration No. R-16381, Model – 1983, Make
– Toyota, and Engine No. T- 2464. Nowhere is
it stated in the SPA that Julian’s authority
extends to the subject property covered by TCT
No. RT – 18206 (106338) registered with the
Registry of Deeds of Quezon City.
Consequently, the act of Julian of constituting a
mortgage over the subject property is
unenforceable for having been done without
authority.
Respondent, on the other hand, mainly hinges
its argument on the declarations made by the
Court of Appeals that there was no property
covered by TCT No. 106338 registered with the
Registry of Deeds of Pasig (now Makati); but
there exists a property, the subject property
herein, covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon
City. Further verification would reveal that TCT
No. RT-18206 is merely a reconstitution of TCT
No. 106338, and the property covered by both
certificates of title is actually situated in Quezon
City and not Pasig. From the foregoing
circumstances, respondent argues that Perla
intended to include the subject property in the
AGENCY ACJUCO 2nd MEETING 4
SPA, and the failure of the instrument to reflect
the recent TCT Number or the exact designation
of the Registry of Deeds, should not defeat
Perla’s clear intention.
After an examination of the literal terms of the
SPA, we find that the subject property was not
among those enumerated therein. There is no
obvious reference to the subject property
covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon
City.
There was also nothing in the language of the
SPA from which we could deduce the intention
of Perla to include the subject property therein.
We cannot attribute such alleged intention to
Perla who executed the SPA when the language
of the instrument is bare of any indication
suggestive of such intention. Contrariwise, to
adopt the intent theory advanced by the
respondent, in the absence of clear and
convincing evidence to that effect, would run
afoul of the express tenor of the SPA and thus
defeat Perla’s true intention.
In cases where the terms of the contract are
clear as to leave no room for interpretation,
resort to circumstantial evidence to ascertain
the true intent of the parties, is not
countenanced. As aptly stated in the case of
JMA House, Incorporated v. Sta. Monica
Industrial and Development Corporation,13 thus:
[T]he law is that if the terms of a contract are
clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its
stipulation shall control. When the language of
the contract is explicit, leaving no doubt as to the
intention of the drafters, the courts may not read
into it [in] any other intention that would
contradict its main import. The clear terms of the
contract should never be the subject matter of
interpretation. Neither abstract justice nor the
rule on liberal interpretation justifies the creation
of a contract for the parties which they did not
make themselves or the imposition upon one
party to a contract or obligation not assumed
simply or merely to avoid seeming hardships.
The true meaning must be enforced, as it is to
be presumed that the contracting parties know
their scope and effects.14

Equally relevant is the rule that a power of
attorney must be strictly construed and pursued.
The instrument will be held to grant only those
powers which are specified therein, and the
agent may neither go beyond nor deviate from
the power of attorney.15 Where powers and
duties are specified and defined in an
instrument, all such powers and duties are
limited and are confined to those which are
specified and defined, and all other powers and
duties are excluded.16 This is but in accord with
the disinclination of courts to enlarge the
authority granted beyond the powers expressly
given and those which incidentally flow or derive
therefrom as being usual and reasonably
necessary and proper for the performance of
such express powers.17
Even the commentaries of renowned Civilist
Manresa18 supports a strict and limited
construction of the terms of a power of attorney:
The law, which must look after the interests of
all, cannot permit a man to express himself in a
vague and general way with reference to the
right he confers upon another for the purpose of
alienation or hypothecation, whereby he might
be despoiled of all he possessed and be brought
to ruin, such excessive authority must be set
down in the most formal and explicit terms, and
when this is not done, the law reasonably
presumes that the principal did not mean to
confer it.
In this case, we are not convinced that the
property covered by TCT No. 106338 registered
with the Registry of Deeds of Pasig (now
Makati) is the same as the subject property
covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon
City. The records of the case are stripped of
supporting proofs to verify the respondent’s
claim that the two titles cover the same property.
It failed to present any certification from the
Registries of Deeds concerned to support its
assertion. Neither did respondent take the effort
of submitting and making part of the records of
this case copies of TCTs No. RT-106338 of the
Registry of Deeds of Pasig (now Makati) and
RT-18206 (106338) of the Registry of Deeds of
Quezon City, and closely comparing the
technical descriptions of the properties covered
AGENCY ACJUCO 2nd MEETING 5
by the said TCTs. The bare and sweeping
statement of respondent that the properties
covered by the two certificates of title are one
and the same contains nothing but empty
imputation of a fact that could hardly be given
any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was
not conferred by Perla with the authority to
mortgage the subject property under the terms
of the SPA, the real estate mortgages Julian
executed over the said property are therefore
unenforceable.
Assuming arguendo that the subject property
was indeed included in the SPA executed by
Perla in favor of Julian, the said SPA was
revoked by virtue of a public instrument
executed by Perla on 10 March 1993. To
address respondent’s assertion that the said
revocation was unenforceable against it as a
third party to the SPA and as one who relied on
the same in good faith, we quote with approval
the following ruling of the RTC on this matter:
Moreover, an agency is extinguished, among
others, by its revocation (Article 1999, New Civil
Code of the Philippines). The principal may
revoke the agency at will, and compel the agent
to return the document evidencing the agency.
Such revocation may be express or implied
(Article 1920, supra).
In this case, the revocation of the agency or
Special Power of Attorney is expressed and by
a public document executed on March 10, 1993.
The Register of Deeds of Quezon City was even
notified that any attempt to mortgage or sell the
property covered by TCT No. [RT-18206]
106338 located at No. 21 Hillside Drive, Blue
Ridge, Quezon City must have the full consent
documented in the form of a special power of
attorney duly authenticated at the Philippine
Consulate General, New York City, N.Y., U.S.A.
The non-annotation of the revocation of the
Special Power of Attorney on TCT No. RT-
18206 is of no consequence as far as the
revocation’s existence and legal effect is
concerned since actual notice is always superior
to constructive notice. The actual notice of the
revocation relayed to defendant Registry of
Deeds of Quezon City is not denied by either the

Registry of Deeds of Quezon City or the
defendant Bank. In which case, there appears
no reason why Section 52 of the Property
Registration Decree (P.D. No. 1529) should not
apply to the situation. Said Section 52 of P.D.
No. 1529 provides:
"Section 52. Constructive notice upon
registration. – Every conveyance, mortgage,
lease, lien, attachment, order, judgment,
instrument or entry affecting registered land
shall, if registered, filed or entered in the Office
of the Register of Deeds for the province or city
where the land to which it relates lies, be
constructive notice to all persons from the time
of such registering, filing or entering. (Pres.
Decree No. 1529, Section 53) (emphasis ours)
It thus developed that at the time the first loan
transaction with defendant Bank was effected
on December 12, 1996, there was on record at
the Office of the Register of Deeds of Quezon
City that the special power of attorney granted
Julian, Sr. by Perla had been revoked. That
notice, works as constructive notice to third
parties of its being filed, effectively rendering
Julian, Sr. without authority to act for and in
behalf of Perla as of the date the revocation
letter was received by the Register of Deeds of
Quezon City on February 7, 1996.19
Given that Perla revoked the SPA as early as 10
March 1993, and that she informed the Registry
of Deeds of Quezon City of such revocation in a
letter dated 23 January 1996 and received by
the latter on 7 February 1996, then third parties
to the SPA are constructively notified that the
same had been revoked and Julian no longer
had any authority to mortgage the subject
property. Although the revocation may not be
annotated on TCT No. RT-18206 (106338), as
the RTC pointed out, neither the Registry of
Deeds of Quezon City nor respondent denied
that Perla’s 23 January 1996 letter was received
by and filed with the Registry of Deeds of
Quezon City. Respondent would have
undoubtedly come across said letter if it indeed
diligently investigated the subject property and
the circumstances surrounding its mortgage.
The final issue to be threshed out by this Court
is whether the respondent is a mortgagee-in-
good faith. Respondent fervently asserts that it
AGENCY ACJUCO 2nd MEETING 6
exercised reasonable diligence required of a
prudent man in dealing with the subject
property.
Elaborating, respondent claims to have carefully
verified Julian’s authority over the subject
property which was validly contained in the
SPA. It stresses that the SPA was annotated at
the back of the TCT of the subject property.
Finally, after conducting an investigation, it
found that the property covered by TCT No.
106338, registered with the Registry of Deeds of
Pasig (now Makati) referred to in the SPA, and
the subject property, covered by TCT No. 18206
(106338) registered with the Registry of Deeds
of Quezon City, are one and the same property.
From the foregoing, respondent concluded that
Julian was indeed authorized to constitute a
mortgage over the subject property.
We are unconvinced. The property listed in the
real estate mortgages Julian executed in favor
of PNB is the one covered by "TCT#RT-
18206(106338)." On the other hand, the Special
Power of Attorney referred to TCT No. "RT-
106338 – 805 Square Meters of the Registry of
Deeds of Pasig now Makati." The palpable
difference between the TCT numbers referred to
in the real estate mortgages and Julian’s SPA,
coupled with the fact that the said TCTs are
registered in the Registries of Deeds of different
cities, should have put respondent on guard.
Respondent’s claim of prudence is debunked by
the fact that it had conveniently or otherwise
overlooked the inconsistent details appearing
on the face of the documents, which it was
relying on for its rights as mortgagee, and which
significantly affected the identification of the
property being mortgaged. In Arrofo v.
Quiño,20 we have elucidated that:
[Settled is the rule that] a person dealing with
registered lands [is not required] to inquire
further than what the Torrens title on its face
indicates. This rule, however, is not absolute but
admits of exceptions. Thus, while its is true, x
x x that a person dealing with registered
lands need not go beyond the certificate of
title, it is likewise a well-settled rule that a
purchaser or mortgagee cannot close his
eyes to facts which should put a reasonable
man on his guard, and then claim that he

acted in good faith under the belief that there
was no defect in the title of the vendor or
mortgagor. His mere refusal to face up the fact
that such defect exists, or his willful closing of
his eyes to the possibility of the existence of a
defect in the vendor’s or mortgagor’s title, will
not make him an innocent purchaser for value,
if it afterwards develops that the title was in fact
defective, and it appears that he had such notice
of the defect as would have led to its discovery
had he acted with the measure of precaution
which may be required of a prudent man in a like
situation.
By putting blinders on its eyes, and by refusing
to see the patent defect in the scope of Julian’s
authority, easily discernable from the plain
terms of the SPA, respondent cannot now claim
to be an innocent mortgagee.
Further, in the case of Abad v. Guimba,21 we
laid down the principle that where the
mortgagee does not directly deal with the
registered owner of real property, the law
requires that a higher degree of prudence be
exercised by the mortgagee, thus:
While [the] one who buys from the registered
owner does not need to look behind the
certificate of title, one who buys from [the] one
who is not [the] registered owner is expected to
examine not only the certificate of title but all
factual circumstances necessary for [one] to
determine if there are any flaws in the title of the
transferor, or in [the] capacity to transfer the
land. Although the instant case does not involve
a sale but only a mortgage, the same rule
applies inasmuch as the law itself includes a
mortgagee in the term "purchaser."22
This principle is applied more strenuously when
the mortgagee is a 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
AGENCY ACJUCO 2nd MEETING 7
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 latter’s 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 respondent’s status to that of an
innocent mortgagee. As a banking institution,
jurisprudence stringently requires that
respondent should take more precautions than
an ordinary prudent man should, to ascertain
the status and condition of the properties offered
as collateral and to verify the scope of the
authority of the agents dealing with these. Had
respondent acted with the required degree of
diligence, it could have acquired knowledge of
the letter dated 23 January 1996 sent by Perla
to the Registry of Deeds of Quezon City which
recorded the same. The failure of the
respondent to investigate into the
circumstances surrounding the mortgage of the
subject property belies its contention of good
faith.
On a last note, we find that the real estate
mortgages constituted over the subject property
are unenforceable and not null and void, as
ruled by the RTC. It is best to reiterate that the
said mortgage was entered into by Julian on
behalf of Perla without the latter’s authority and
consequently, unenforceable under Article
1403(1) of the Civil Code. Unenforceable
contracts are those which cannot be enforced
by a proper action in court, unless they are
 AGENCY ACJUCO 2nd MEETING 8

ratified, because either they are entered into

without or in excess of authority or they do not
comply with the statute of frauds or both of the
contracting parties do not possess the required
legal capacity.26 An unenforceable contract may
be ratified, expressly or impliedly, by the person
in whose behalf it has been executed, before it
is revoked by the other contracting
party.27 Without Perla’s ratification of the same,
the real estate 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.

G.R. No. 82040 August 27, 1991
BA FINANCE CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS, Hon. Presiding
Judge of Regional Trial Court of Manila,
Branch 43, MANUEL CUADY and LILIA
CUADY, respondents.
Valera, Urmeneta & Associates for petitioner.
Pompeyo L. Bautista for private respondents.
PARAS, J.:
This is a petition for review on certiorari which
seeks to reverse and set aside (1) the decision
of the Court of Appeals dated July 21, 1987 in
CA-G.R. No. CV-06522 entitled "B.A. Finance
Corporation, Plaintiff-Appellant, vs. Manuel
Cuady and Lilia Cuady, Defendants-Appellees,"
affirming the decision of the Regional Trial Court
of Manila, Branch 43, which dismissed the
complaint in Civil Case No. 82-10478, and (2)
the resolution dated February 9, 1988 denying
petitioner's motion for reconsideration.
As gathered from the records, the facts are as
follows:
On July 15, 1977, private respondents Manuel
Cuady and Lilia Cuady obtained from
Supercars, Inc. a credit of P39,574.80, which
amount covered the cost of one unit of Ford
Escort 1300, four-door sedan. Said obligation
was evidenced by a promissory note executed
by private respondents in favor of Supercars,
Inc., obligating themselves to pay the latter or
order the sum of P39,574.80, inclusive of
interest at 14% per annum, payable on monthly
installments of P1,098.00 starting August 16,
1977, and on the 16th day of the next 35 months
from September 16, 1977 until full payment
thereof. There was also stipulated a penalty of
P10.00 for every month of late installment
payment. To secure the faithful and prompt
compliance of the obligation under the said
promissory note, the Cuady spouses constituted
a chattel mortage on the aforementioned motor
vehicle. On July 25, 1977, Supercars, Inc.
assigned the promissory note, together with the
chattel mortgage, to B.A. Finance Corporation.
AGENCY ACJUCO 2nd MEETING 9
The Cuadys paid a total of P36,730.15 to the
B.A. Finance Corporation, thus leaving an
unpaid balance of P2,344.65 as of July 18,
1980. In addition thereto, the Cuadys owe B.A.
Finance Corporation P460.00 representing
penalties or surcharges for tardy monthly
installments (Rollo, pp. 27-29).
Parenthetically, the B.A. Finance Corporation,
as the assignee of the mortgage lien obtained
the renewal of the insurance coverage over the
aforementioned motor vehicle for the year 1980
with Zenith Insurance Corporation, when the
Cuadys failed to renew said insurance coverage
themselves. Under the terms and conditions of
the said insurance coverage, any loss under the
policy shall be payable to the B.A. Finance
Corporation (Memorandum for Private
Respondents, pp. 3-4).
On April 18, 1980, the aforementioned motor
vehicle figured in an accident and was badly
damaged. The unfortunate happening was
reported to the B.A. Finance Corporation and to
the insurer, Zenith Insurance Corporation. The
Cuadys asked the B.A. Finance Corporation to
consider the same as a total loss, and to claim
from the insurer the face value of the car
insurance policy and apply the same to the
payment of their remaining account and give
them the surplus thereof, if any. But instead of
heeding the request of the Cuadys, B.A.
Finance Corporation prevailed upon the former
to just have the car repaired. Not long thereafter,
however, the car bogged down. The Cuadys
wrote B.A. Finance Corporation requesting the
latter to pursue their prior instruction of
enforcing the total loss provision in the
insurance coverage. When B.A. Finance
Corporation did not respond favorably to their
request, the Cuadys stopped paying their
monthly installments on the promissory note
(Ibid., pp. 45).
On June 29, 1982, in view of the failure of the
Cuadys to pay the remaining installments on the
note, B.A. Finance Corporation sued them in the
Regional Trial Court of Manila, Branch 43, for
the recovery of the said remaining installments
(Memorandum for the Petitioner, p. 1).
After the termination of the pre-trial conference,
the case was set for trial on the merits on April

25, 1984. B.A. Finance Corporation's evidence
was presented on even date and the
presentation of Cuady's evidence was set on
August 15, 1984. On August 7,1984, Atty. Noel
Ebarle, counsel for the petitioner, filed a motion
for postponement, the reason being that the
"handling" counsel, Atty. Ferdinand Macibay
was temporarily assigned in Cebu City and
would not be back until after August 15, 1984.
Said motion was, however, denied by the trial
court on August 10, 1984. On August 15, 1984,
the date of hearing, the trial court allowed
private respondents to adduce evidence ex-
parte in the form of an affidavit to be sworn to
before any authorized officer. B.A. Finance
Corporation filed a motion for reconsideration of
the order of the trial court denying its motion for
postponement. Said motion was granted in an
order dated September 26, 1984, thus:
The Court grants plaintiff's motion for
reconsideration dated August 22, 1984, in the
sense that plaintiff is allowed to adduce
evidence in the form of counter-affidavits of its
witnesses, to be sworn to before any person
authorized to administer oaths, within ten days
from notice hereof. (Ibid., pp. 1-2).
B.A. Finance Corporation, however, never
complied with the above-mentioned order,
paving the way for the trial court to render its
decision on January 18, 1985, the dispositive
portion of which reads as follows:
IN VIEW WHEREOF, the Court DISMISSES the
complaint without costs.
SO ORDERED. (Rollo, p. 143)
On appeal, the respondent appellate court *
affirmed the decision of the trial court. The
decretal portion of the said decision reads as
follows:
WHEREFORE, after consultation among the
undersigned members of this Division, in
compliance with the provision of Section 13,
Article VIII of the Constitution; and finding no
reversible error in the judgment appealed from,
the same is hereby AFFIRMED, without any
pronouncement as to costs. (Ibid., p. 33)
B.A. Finance Corporation moved for the
reconsideration of the above decision, but the
AGENCY ACJUCO 2nd MEETING 10
motion was denied by the respondent appellate
court in a resolution dated February 9, 1988
(Ibid., p. 38).
Hence, this present recourse.
On July 11, 1990, this Court gave due course to
the petition and required the parties to submit
their respective memoranda. The parties having
complied with the submission of their
memoranda, the case was submitted for
decision.
The real issue to be resolved in the case at bar
is whether or not B.A. Finance Corporation has
waived its right to collect the unpaid balance of
the Cuady spouses on the promissory note for
failure of the former to enforce the total loss
provision in the insurance coverage of the motor
vehicle subject of the chattel mortgage.
It is the contention of B.A. Finance Corporation
that even if it failed to enforce the total loss
provision in the insurance policy of the motor
vehicle subject of the chattel mortgage, said
failure does not operate to extinguish the unpaid
balance on the promissory note, considering
that the circumstances obtaining in the case at
bar do not fall under Article 1231 of the Civil
Code relative to the modes of extinguishment of
obligations (Memorandum for the Petitioner, p.
11).
On the other hand, the Cuadys insist that owing
to its failure to enforce the total loss provision in
the insurance policy, B.A. Finance Corporation
lost not only its opportunity to collect the
insurance proceeds on the mortgaged motor
vehicle in its capacity as the assignee of the said
insurance proceeds pursuant to the
memorandum in the insurance policy which
states that the "LOSS: IF ANY, under this policy
shall be payable to BA FINANCE CORP., as
their respective rights and interest may appear"
(Rollo, p. 91) but also the remaining balance on
the promissory note (Memorandum for the
Respondents, pp. 16-17).
The petition is devoid of merit.
B.A. Finance Corporation was deemed
subrogated to the rights and obligations of
Supercars, Inc. when the latter assigned the
promissory note, together with the chattel
 AGENCY ACJUCO 2nd MEETING 11

mortgage constituted on the motor vehicle in of their mortgage debt on the said car, the non-
question in favor of the former. Consequently, payment of which account was due to the
B.A. Finance Corporation is bound by the terms stubborn refusal and failure of appellant
and conditions of the chattel mortgage executed mortgagee to avail of the insurance money
between the Cuadys and Supercars, Inc. Under which became due and demandable after the
the deed of chattel mortgage, B.A. Finance insured motor vehicle was badly damaged in a
Corporation was constituted attorney-in-fact vehicular accident covered by the insurance
with full power and authority to file, follow-up, risk. ... (Ibid.)
prosecute, compromise or settle insurance
On the allegation that the respondent court's
claims; to sign execute and deliver the
findings that B.A. Finance Corporation failed to
corresponding papers, receipts and documents
claim for the damage to the car was not
to the Insurance Company as may be necessary
supported by evidence, the records show that
to prove the claim, and to collect from the latter
instead of acting on the instruction of the
the proceeds of insurance to the extent of its
Cuadys to enforce the total loss provision in the
interests, in the event that the mortgaged car
insurance policy, the petitioner insisted on just
suffers any loss or damage (Rollo, p. 89). In
having the motor vehicle repaired, to which
granting B.A. Finance Corporation the
private respondents reluctantly acceded. As
aforementioned powers and prerogatives, the
heretofore mentioned, the repair shop chosen
Cuady spouses created in the former's favor an
was not able to restore the aforementioned
agency. Thus, under Article 1884 of the Civil
motor vehicle to its condition prior to the
Code of the Philippines, B.A. Finance
accident. Thus, the said vehicle bogged down
Corporation is bound by its acceptance to carry
shortly thereafter. The subsequent request of
out the agency, and is liable for damages which,
the Cuadys for the B.A. Finance Corporation to
through its non-performance, the Cuadys, the
file a claim for total loss with the insurer fell on
principal in the case at bar, may suffer.
deaf ears, prompting the Cuadys to stop paying
Unquestionably, the Cuadys suffered pecuniary the remaining balance on the promissory note
loss in the form of salvage value of the motor (Memorandum for the Respondents, pp. 4-5).
vehicle in question, not to mention the amount
Moreover, B.A. Finance Corporation would have
equivalent to the unpaid balance on the
this Court review and reverse the factual
promissory note, when B.A. Finance
findings of the respondent appellate court. This,
Corporation steadfastly refused and refrained
of course, the Court cannot and will not
from proceeding against the insurer for the
generally do. It is axiomatic that the judgment of
payment of a clearly valid insurance claim, and
the Court of Appeals is conclusive as to the facts
continued to ignore the yearning of the Cuadys
and may not ordinarily be reviewed by the
to enforce the total loss provision in the
Supreme Court. The doctrine is, to be sure,
insurance policy, despite the undeniable fact
subject to certain specific exceptions none of
that Rea Auto Center, the auto repair shop
which, however, obtains in the instant case
chosen by the insurer itself to repair the
(Luzon Brokerage Corporation v. Court of
aforementioned motor vehicle, misrepaired and
Appeals, 176 SCRA 483 [1989]).
rendered it completely useless and
unserviceable (Ibid., p. 31). Finally, B.A. Finance Corporation contends that
respondent trial court committed grave abuses
Accordingly, there is no reason to depart from
of discretion in two instances: First, when it
the ruling set down by the respondent appellate
denied the petitioner's motion for
court. In this connection, the Court of Appeals
reconsideration praying that the counsel be
said:
allowed to cross-examine the affiant, and;
... Under the established facts and second, when it seriously considered the
circumstances, it is unjust, unfair and evidence adduced ex-parte by the Cuadys, and
inequitable to require the chattel mortgagors, heavily relied thereon, when in truth and in fact,
appellees herein, to still pay the unpaid balance the same was not formally admitted as part of
 AGENCY ACJUCO 2nd MEETING 12

the evidence for the private respondents

(Memorandum for the Petitioner, p. 10). This
Court does not have to unduly dwell on this
issue which was only raised by B.A. Finance
Corporation for the first time on appeal. A review
of the records of the case shows that B.A.
Finance Corporation failed to directly raise or
ventilate in the trial court nor in the respondent
appellate court the validity of the evidence
adduced ex-parte by private respondents. It
was only when the petitioner filed the instant
petition with this Court that it later raised the
aforementioned issue. As ruled by this Court in
a long line of cases, issues not raised and/or
ventilated in the trial court, let alone in the Court
of Appeals, cannot be raised for the first time on
appeal as it would be offensive to the basic rules
of fair play, justice and due process (Galicia v.
Polo, 179 SCRA 375 [1989]; Ramos v.
Intermediate Appellate Court, 175 SCRA 70
[1989]; Dulos Realty & Development
Corporation v. Court of Appeals, 157 SCRA 425
[1988]; Dihiansan, et al. v. Court of Appeals, et
al., 153 SCRA 712 [1987]; De la Santa v. Court
of Appeals, et al., 140 SCRA 44 [1985]).
PREMISES CONSIDERED, the instant petition
is DENIED, and the decision appealed from is
AFFIRMED.
SO ORDERED.

[G.R. No. 151319. November 22, 2004]
MANILA MEMORIAL PARK CEMETERY,
INC., petitioner, vs. PEDRO L.
LINSANGAN, respondent.
DECISION
TINGA, J.:
For resolution in this case is a classic and
interesting texbook question in the law on
agency.
This is a petition for review assailing
the Decision[1] of the Court of Appeals dated 22
June 2001, and its Resolution[2] 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]
AGENCY ACJUCO 2nd MEETING 13
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 Complaint[7] 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
[9]
arrearages. 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.
AGENCY ACJUCO 2nd MEETING 14
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 ATTORNEYS
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 courts 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.
Linsangans 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 Baluyots 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
formers obligation, as a party knowingly dealing
with an alleged agent, to determine the
limitations of such agents authority, particularly
when such alleged agents actions were patently
questionable. According to MMPCI, Atty.
Linsangan did not even bother to verify Baluyots
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 courts finding
that Baluyot was an agent of MMPCI at the time
the disputed contract was entered into, having
represented MMPCIs 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 Baluyots 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
[22]
misrepresentation. 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
AGENCY ACJUCO 2nd MEETING 15
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. Linsangans 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 MMPCIs 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.[35] However, 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
AGENCY ACJUCO 2nd MEETING 16
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 Baluyots authority. To repeat,
Baluyots 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 agents 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 latters 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 agents 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. Linsangans 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
AGENCY ACJUCO 2nd MEETING 17
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, MMPCIs 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 MMPCIs
acceptance of the benefits of Baluyots
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 principals 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
[45]
arise. Nevertheless, this principle does not
apply if the principals 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 Baluyots Answer[48] reveals that the
real arrangement between her and Atty.
Linsangan was for the latter to pay a monthly
installment of P1,800.00 whereas Baluyot was
to shoulder the counterpart amount
of P1,455.00 to meet the P3,255.00 monthly
installments as indicated in the contract. Thus,
every time an installment falls due, payment
was to be made through a check from Atty.
Linsangan for P1,800.00 and a cash component
of P1,455.00 from Baluyot.[49] However, it
appears that while Atty. Linsangan issued the
post-dated checks, Baluyot failed to come up
with her part of the bargain. This was supported
by Baluyots statements in her letter[50] to Mr.
Clyde Williams, Jr., Sales Manager of MMPCI,
two days after she received the copy of
the Complaint. In the letter, she admitted that
she was remiss in her duties when she
consented to Atty. Linsangans proposal that he
will pay the old price while the difference will be
AGENCY ACJUCO 2nd MEETING 18
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
MMPCIs 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
Baluyots 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 MMPCIs
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 latters 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
MMPCIs 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
Baluyots 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 MMPCIs
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
principals written contract. Estoppel must be
intentional and unequivocal, for when
misapplied, it can easily become a most
convenient and effective means of
[53]
injustice. 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 formers
AGENCY ACJUCO 2nd MEETING 19
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
principals 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 Baluyots 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 MMPCIs
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. Linsangans 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
 AGENCY ACJUCO 2nd MEETING 20

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 latters breach of
their separate agreement. To review, Baluyot
obligated herself to pay P1,455.00 in addition to
Atty. Linsangans 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 Baluyots failure to provide the balance,
Contract No. 28660 would not have been
cancelled. Thus, Atty. Linsangan has a cause of
action against Baluyot, which he can pursue in
another case.
WHEREFORE, the instant petition is
GRANTED. The Decision of the Court of
Appeals dated 22 June 2001 and
its Resolution dated 12 December 2001 in CA-
G.R. CV No. 49802, as well as the Decision in
Civil Case No. 88-1253 of the Regional Trial
Court, Makati City Branch 57, are hereby
REVERSED and SET ASIDE. The Complaint in
Civil Case No. 88-1253 is DISMISSED for lack
of cause of action. No pronouncement as to
costs.
SO ORDERED.

[G.R. No. 126751. March 28, 2001]
SAFIC ALCAN & CIE, petitioner,
vs. IMPERIAL VEGETABLE OIL CO.,
INC., respondent.
DECISION
YNARES-SANTIAGO, J.:
Petitioner Safic Alcan & Cie (hereinafter, Safic)
is a French corporation engaged in the
international purchase, sale and trading of
coconut oil. It filed with the Regional Trial Court
of Manila, Branch XXV, a complaint dated
February 26, 1987 against private respondent
Imperial Vegetable Oil Co., Inc. (hereinafter,
IVO), docketed as Civil Case No. 87-
39597. Petitioner Safic alleged that on July 1,
1986 and September 25, 1986, it placed
purchase orders with IVO for 2,000 long tons of
crude coconut oil, valued at US$222.50 per ton,
covered by Purchase Contract Nos. A601446
and A601655, respectively, to be delivered
within the month of January 1987. Private
respondent, however, failed to deliver the said
coconut oil and, instead, offered a wash out
settlement, whereby the coconut oil subject of
the purchase contracts were to be sold back to
IVO at the prevailing price in the international
market at the time of wash out. Thus, IVO bound
itself to pay to Safic the difference between the
said prevailing price and the contract price of the
2,000 long tons of crude coconut oil, which
amounted to US$293,500.00. IVO failed to pay
this amount despite repeated oral and written
demands.
Under its second cause of action, Safic alleged
that on eight occasions between April 24, 1986
and October 31, 1986, it placed purchase orders
with IVO for a total of 4,750 tons of crude
coconut oil, covered by Purchase Contract Nos.
A601297A/B, A601384, A601385, A601391,
A601415, A601681, A601683 and
A601770A/B/C/. When IVO failed to honor its
obligation under the wash out settlement
narrated above, Safic demanded that IVO make
marginal deposits within forty-eight hours on the
eight purchase contracts in amounts equivalent
to the difference between the contract price and
the market price of the coconut oil, to
AGENCY ACJUCO 2nd MEETING 21
compensate it for the damages it suffered when
it was forced to acquire coconut oil at a higher
price. IVO failed to make the prescribed
marginal deposits on the eight contracts, in the
aggregate amount of US$391,593.62, despite
written demand therefor.
The demand for marginal deposits was based
on the customs of the trade, as governed by the
provisions of the standard N.I.O.P. Contract and
the FOSFA Contract, to wit:
N.I.O.P. Contract, Rule 54 If the financial
condition of either party to a contract subject to
these rules becomes so impaired as to create a
reasonable doubt as to the ability of such party
to perform its obligations under the contract, the
other party may from time to time demand
marginal deposits to be made within forty-eight
(48) hours after receipt of such demand, such
deposits not to exceed the difference between
the contract price and the market price of the
goods covered by the contract on the day upon
which such demand is made, such deposit to
bear interest at the prime rate plus one percent
(1%) per annum. Failure to make such deposit
within the time specified shall constitute a
breach of contract by the party upon whom
demand for deposit is made, and all losses and
expenses resulting from such breach shall be
for the account of the party upon whom such
demand is made. (Underscoring ours.)[1]
FOSFA Contract, Rule 54
BANKRUPTCY/INSOLVENCY: If before the
fulfillment of this contract either party shall
suspend payment, commit an act of bankruptcy,
notify any of his creditors that he is unable to
meet his debts or that he has suspended
payment or that he is about to suspend payment
of his debts, convene, call or hold a meeting
either of his creditors or to pass a resolution to
go into liquidation (except for a voluntary
winding up of a solvent company for the purpose
of reconstruction or amalgamation) or shall
apply for an official moratorium, have a petition
presented for winding up or shall have a
Receiver appointed, the contract shall forthwith
be closed, either at the market price then current
for similar goods or, at the option of the other
party at a price to be ascertained by repurchase
or resale and the difference between the

contract price and such closing-out price shall
be the amount which the other party shall be
entitled to claim shall be liable to account for
under this contract (sic). Should either party be
dissatisfied with the price, the matter shall be
referred to arbitration. Where no such resale or
repurchase takes place, the closing-out price
shall be fixed by a Price Settlement Committee
appointed by the Federation. (Underscoring
ours.)[2]
Hence, Safic prayed that IVO be ordered to pay
the sums of US$293,500.00 and
US$391,593.62, plus attorneys fees and
litigation expenses. The complaint also included
an application for a writ of preliminary
attachment against the properties of IVO.
Upon Safics posting of the requisite bond, the
trial court issued a writ of preliminary
attachment. Subsequently, the trial court
ordered that the assets of IVO be placed under
receivership, in order to ensure the preservation
of the same.
In its answer, IVO raised the following special
affirmative defenses: Safic had no legal
capacity to sue because it was doing business
in the Philippines without the requisite license or
authority; the subject contracts were speculative
contracts entered into by IVOs then President,
Dominador Monteverde, in contravention of the
prohibition by the Board of Directors against
engaging in speculative paper trading, and
despite IVOs lack of the necessary license from
Central Bank to engage in such kind of trading
activity; and that under Article 2018 of the Civil
Code, if a contract which purports to be for the
delivery of goods, securities or shares of stock
is entered into with the intention that the
difference between the price stipulated and the
exchange or market price at the time of the
pretended delivery shall be paid by the loser to
the winner, the transaction is null and void.
IVO set up counterclaims anchored on
harassment, paralyzation of business, financial
losses, rumor-mongering and oppressive
action. Later, IVO filed a supplemental
counterclaim alleging that it was unable to
operate its business normally because of the
arrest of most of its physical assets; that its
suppliers were driven away; and that its major
AGENCY ACJUCO 2nd MEETING 22
creditors have inundated it with claims for
immediate payment of its debts, and China
Banking Corporation had foreclosed its chattel
and real estate mortgages.
During the trial, the lower court found that in
1985, prior to the date of the contracts sued
upon, the parties had entered into and
consummated a number of contracts for the sale
of crude coconut oil. In those transactions, Safic
placed several orders and IVO faithfully filled up
those orders by shipping out the required crude
coconut oil to Safic, totalling 3,500 metric
tons. Anent the 1986 contracts being sued
upon, the trial court refused to declare the same
as gambling transactions, as defined in Article
2018 of the Civil Code, although they involved
some degree of speculation. After all, the court
noted, every business enterprise carries with it
a certain measure of speculation or
risk. However, the contracts performed in 1985,
on one hand, and the 1986 contracts subject of
this case, on the other hand, differed in that
under the 1985 contracts, deliveries were to be
made within two months. This, as alleged by
Safic, was the time needed for milling and
building up oil inventory. Meanwhile, the 1986
contracts stipulated that the coconut oil were to
be delivered within period ranging from eight
months to eleven to twelve months after the
placing of orders. The coconuts that were
supposed to be milled were in all likelihood not
yet growing when Dominador Monteverde sold
the crude coconut oil. As such, the 1986
contracts constituted trading in futures or in
mere expectations.
The lower court further held that the subject
contracts were ultra vires and were entered into
by Dominador Monteverde without authority
from the Board of Directors. It distinguished
between the 1985 contracts, where Safic
likewise dealt with Dominador Monteverde, who
was presumably authorized to bind IVO, and the
1986 contracts, which were highly speculative in
character. Moreover, the 1985 contracts were
covered by letters of credit, while the 1986
contracts were payable by telegraphic transfers,
which were nothing more than mere promises to
pay once the shipments became ready. For
these reasons, the lower court held that Safic
cannot invoke the 1985 contracts as an implied

corporate sanction for the high-risk 1986
contracts, which were evidently entered into by
Monteverde for his personal benefit.
The trial court ruled that Safic failed to
substantiate its claim for actual
damages. Likewise, it rejected IVOs
counterclaim and supplemental counterclaim.
Thus, on August 28, 1992, the trial court
rendered judgment as follows:
WHEREFORE, judgment is hereby rendered
dismissing the complaint of plaintiff Safic Alcan
& Cie, without prejudice to any action it might
subsequently institute against Dominador
Monteverde, the former President of Imperial
Vegetable Oil Co., Inc., arising from the subject
matter of this case. The counterclaim and
supplemental counterclaim of the latter
defendant are likewise hereby dismissed for
lack of merit. No pronouncement as to costs.
The writ of preliminary attachment issued in this
case as well as the order placing Imperial
Vegetable Oil Co., Inc. under receivership are
hereby dissolved and set aside.[3]
Both IVO and Safic appealed to the Court of
Appeals, jointly docketed as CA-G.R. CV No.
40820.
IVO raised only one assignment of error, viz:
THE TRIAL COURT ERRED IN HOLDING
THAT THE ISSUANCE OF THE WRIT OF
PRELIMINARY ATTACHMENT WAS NOT THE
MAIN CAUSE OF THE DAMAGES SUFFERED
BY DEFENDANT AND IN NOT AWARDING
DEFENDANT-APPELLANT SUCH DAMAGES.
For its part, Safic argued that:
THE TRIAL COURT ERRED IN HOLDING
THAT IVOS PRESIDENT, DOMINADOR
MONTEVERDE, ENTERED INTO
CONTRACTS WHICH WERE ULTRA
VIRES AND WHICH DID NOT BIND OR MAKE
IVO LIABLE.
THE TRIAL COURT ERRED IN HOLDING
THAT SAFIC WAS UNABLE TO PROVE THE
DAMAGES SUFFERED BY IT AND IN NOT
AWARDING SUCH DAMAGES.
AGENCY ACJUCO 2nd MEETING 23
THE TRIAL COURT ERRED IN NOT HOLDING
THAT IVO IS LIABLE UNDER THE WASH OUT
CONTRACTS.
On September 12, 1996, the Court of Appeals
rendered the assailed Decision dismissing the
appeals and affirming the judgment appealed
from in toto.[4]
Hence, Safic filed the instant petition for review
with this Court, substantially reiterating the
errors it raised before the Court of Appeals and
maintaining that the Court of Appeals grievously
erred when:
a. it declared that the 1986 forward contracts
(i.e., Contracts Nos. A601446 and A60155 (sic)
involving 2,000 long tons of crude coconut oil,
and Contracts Nos. A601297A/B, A601385,
A601391, A601415, A601681. A601683 and
A601770A/B/C involving 4,500 tons of crude
coconut oil) were unauthorized acts of
Dominador Monteverde which do not bind IVO
in whose name they were entered into. In this
connection, the Court of Appeals erred when (i)
it ignored its own finding that (a) Dominador
Monteverde, as IVOs President, had an implied
authority to make any contract necessary or
appropriate to the contract of the ordinary
business of the company; and (b) Dominador
Monteverde had validly entered into similar
forward contracts for and on behalf of IVO in
1985; (ii) it distinguished between the 1986
forward contracts despite the fact that the
Manila RTC has struck down IVOs objection to
the 1986 forward contracts (i.e. that they were
highly speculative paper trading which the IVO
Board of Directors had prohibited Dominador
Monteverde from engaging in because it is a
form of gambling where the parties do not intend
actual delivery of the coconut oil sold) and
instead found that the 1986 forward contracts
were not gambling; (iii) it relied on the testimony
of Mr. Rodrigo Monteverde in concluding that
the IVO Board of Directors did not authorize its
President, Dominador Monteverde, to enter into
the 1986 forward contracts; and (iv) it did not
find IVO, in any case, estopped from denying
responsibility for, and liability under, the 1986
forward contracts because IVO had recognized
itself bound to similar forward contracts which
Dominador Monteverde entered into (for and on

behalf of IVO) with Safic in 1985
notwithstanding that Dominador Monteverde
was (like in the 1986 forward contracts) not
expressly authorized by the IVO Board of
Directors to enter into such forward contracts;
b. it declared that Safic was not able to prove
damages suffered by it, despite the fact that
Safic had presented not only testimonial, but
also documentary, evidence which proved the
higher amount it had to pay for crude coconut oil
(vis--vis the contract price it was to pay to IVO)
when IVO refused to deliver the crude coconut
oil bought by Safic under the 1986 forward
contracts; and
c. it failed to resolve the issue of whether or not
IVO is liable to Safic under the wash out
contracts involving Contracts Nos. A601446 and
A60155 (sic), despite the fact that Safic had
properly raised the issue on its appeal, and the
evidence and the law support Safics position
that IVO is so liable to Safic.
In fine, Safic insists that the appellate court
grievously erred when it did not declare that
IVOs President, Dominador Monteverde, validly
entered into the 1986 contracts for and on
behalf of IVO.
We disagree.
Article III, Section 3 [g] of the By-Laws[5] of IVO
provides, among others, that
Section 3. Powers and Duties of the President.
The President shall be elected by the Board of
Directors from their own number.
He shall have the following duties:
xxxxxxxxx
[g] Have direct and active management of the
business and operation of the corporation,
conducting the same according to the orders,
resolutions and instruction of the Board of
Directors and according to his own discretion
whenever and wherever the same is not
expressly limited by such orders, resolutions
and instructions.
It can be clearly seen from the foregoing
provision of IVOs By-laws that Monteverde had
no blanket authority to bind IVO to any
contract. He must act according to the
AGENCY ACJUCO 2nd MEETING 24
instructions of the Board of Directors. Even in
instances when he was authorized to act
according to his discretion, that discretion must
not conflict with prior Board orders, resolutions
and instructions. The evidence shows that the
IVO Board knew nothing of the 1986
contracts[6] and that it did not authorize
Monteverde to enter into speculative
[7]
contracts. In fact, Monteverde had earlier
proposed that the company engage in such
transactions but the IVO Board rejected his
proposal.[8] Since the 1986 contracts marked a
sharp departure from past IVO transactions,
Safic should have obtained from Monteverde
the prior authorization of the IVO Board. Safic
can not rely on the doctrine of implied agency
because before the controversial 1986
contracts, IVO did not enter into identical
contracts with Safic. The basis for agency is
representation and a person dealing with an
agent is put upon inquiry and must discover
upon his peril the authority of the agent.[9] In the
case of Bacaltos Coal Mines v. Court of
Appeals,[10] we elucidated the rule on dealing
with an agent thus:
Every person dealing with an agent is put upon
inquiry and must discover upon his peril the
authority of the agent. If he does not make such
inquiry, he is chargeable with knowledge of the
agents authority, and his ignorance of that
authority will not be any excuse. Persons
dealing with an assumed agent, whether the
assumed agency be a general or special one,
are bound at their peril, if they would hold the
principal, to ascertain not only the fact of the
agency but also the nature and extent of the
authority, and in case either is controverted, the
burden of proof is upon them to establish it.[11]
The most prudent thing petitioner should have
done was to ascertain the extent of the authority
of Dominador Monteverde. Being remiss in this
regard, petitioner can not seek relief on the
basis of a supposed agency.
Under Article 1898[12] of the Civil Code, the acts
of an agent beyond the scope of his authority do
not bind the principal unless the latter ratifies the
same expressly or impliedly. It also bears
emphasizing that when the third person knows
that the agent was acting beyond his power or

authority, the principal can not be held liable for
the acts of the agent. If the said third person is
aware of such limits of authority, he is to blame,
and is not entitled to recover damages from the
agent, unless the latter undertook to secure the
principals ratification.[13]
There was no such ratification in this
case. When Monteverde entered into the
speculative contracts with Safic, he did not
secure the Boards approval.[14] He also did not
submit the contracts to the Board after their
consummation so there was, in fact, no
occasion at all for ratification. The contracts
were not reported in IVOs export sales book and
turn-out book.[15] Neither were they reflected in
other books and records of the corporation.[16] It
must be pointed out that the Board of Directors,
not Monteverde, exercises corporate
[17]
power. Clearly, Monteverdes speculative
contracts with Safic never bound IVO and Safic
can not therefore enforce those contracts
against IVO.
To bolster its cause, Safic raises the novel point
that the IVO Board of Directors did not set
limitations on the extent of Monteverdes
authority to sell coconut oil. It must be borne in
mind in this regard that a question that was
never raised in the courts below can not be
allowed to be raised for the first time on appeal
without offending basic rules of fair play, justice
and due process.[18] Such an issue was not
brought to the fore either in the trial court or the
appellate court, and would have been
disregarded by the latter tribunal for the reasons
previously stated. With more reason, the same
does not deserve consideration by this Court.
Be that as it may, Safics belated contention that
the IVO Board of Directors did not set limitations
on Monteverdes authority to sell coconut oil is
belied by what appears on the record. Rodrigo
Monteverde, who succeeded Dominador
Monteverde as IVO President, testified that the
IVO Board had set down the policy of engaging
in purely physical trading thus:
Q. Now you said that IVO is engaged in trading.
With whom does it usually trade its oil?
A. I am not too familiar with trading because as
of March 1987, I was not yet an officer of the
AGENCY ACJUCO 2nd MEETING 25
corporation, although I was at the time already
a stockholder, I think IVO is engaged in trading
oil.
Q. As far as you know, what kind of trading was
IVO engaged with?
A. It was purely on physical trading.
Q. How did you know this?
A. As a stockholder, rather as member of [the]
Board of Directors, I frequently visited the plant
and from my observation, as I have to supervise
and monitor purchases of copras and also the
sale of the same, I observed that the policy of
the corporation is for the company to engaged
(sic) or to purely engaged (sic)in physical
trading.
Q. What do you mean by physical trading?
A. Physical Trading means we buy and sell
copras that are only available to us. We only
have to sell the available stocks in our inventory.
Q. And what is the other form of trading?
Atty. Fernando
No basis, your Honor.
Atty. Abad
Well, the witness said they are engaged in
physical trading and what I am saying [is] if there
are any other kind or form of trading.
Court
Witness may answer if he knows.
Witness
A. Trading future[s] contracts wherein the trader
commits a price and to deliver coconut oil in the
future in which he is yet to acquire the stocks in
the future.
Atty. Abad
Q. Who established the so-called physical
trading in IVO?
A. The Board of Directors, sir.
Atty. Abad.
Q. How did you know that?

A. There was a meeting held in the office at the
factory and it was brought out and suggested by
our former president, Dominador Monteverde,
that the company should engaged (sic) in
future[s] contract[s] but it was rejected by the
Board of Directors. It was only Ador Monteverde
who then wanted to engaged (sic) in this
future[s] contract[s].
Q. Do you know where this meeting took place?
A. As far as I know it was sometime in 1985.
Q. Do you know why the Board of Directors
rejected the proposal of Dominador Monteverde
that the company should engaged (sic) in
future[s] contracts?
Atty. Fernando
Objection, your Honor, no basis.
Court
Why dont you lay the basis?
Atty. Abad
Q. Were you a member of the board at the time?
A. In 1975, I am already a stockholder and a
member.
Q. Then would [you] now answer my question?
Atty. Fernando
No basis, your Honor. What we are talking is
about 1985.
Atty. Abad
Q. When you mentioned about the meeting in
1985 wherein the Board of Directors rejected
the future[s] contract[s], were you already a
member of the Board of Directors at that time?
A. Yes, sir.
Q. Do you know the reason why the said
proposal of Mr. Dominador Monteverde to
engage in future[s] contract[s] was rejected by
the Board of Directors?
A. Because this future[s] contract is too risky
and it partakes of gambling.
Q. Do you keep records of the Board meetings
of the company?
AGENCY ACJUCO 2nd MEETING 26
A. Yes, sir.
Q. Do you have a copy of the minutes of your
meeting in 1985?
A. Incidentally our Secretary of the Board of
Directors, Mr. Elfren Sarte, died in 1987 or 1988,
and despite [the] request of our office for us to
be furnished a copy he was not able to furnish
us a copy.[19]
xxxxxxxxx
Atty. Abad
Q. You said the Board of Directors were against
the company engaging in future[s] contracts. As
far as you know, has this policy of the Board of
Directors been observed or followed?
Witness
A. Yes, sir.
Q. How far has this Dominador Monteverde
been using the name of I.V.O. in selling future
contracts without the proper authority and
consent of the companys Board of Directors?
A. Dominador Monteverde never records those
transactions he entered into in connection with
these future[s] contracts in the companys books
of accounts.
Atty. Abad
Q. What do you mean by that the future[s]
contracts were not entered into the books of
accounts of the company?
Witness
A. Those were not recorded at all in the books
of accounts of the company, sir.[20]
xxxxxxxxx
Q. What did you do when you discovered these
transactions?
A. There was again a meeting by the Board of
Directors of the corporation and that we agreed
to remove the president and then I was made to
replace him as president.
Q. What else?
A. And a resolution was passed disowning the
illegal activities of the former president.[21]

Petitioner next argues that there was actually no
difference between the 1985 physical contracts
and the 1986 futures contracts.
The contention is unpersuasive for, as aptly
pointed out by the trial court and sustained by
the appellate court
Rejecting IVOs position, SAFIC claims that
there is no distinction between the 1985 and
1986 contracts, both of which groups of
contracts were signed or authorized by IVOs
President, Dominador Monteverde. The 1986
contracts, SAFIC would bewail, were similarly
with their 1985 predecessors, forward sales
contracts in which IVO had undertaken to
deliver the crude coconut oil months after such
contracts were entered into. The lead time
between the closing of the deal and the delivery
of the oil supposedly allowed the seller to
accumulate enough copra to mill and to build up
its inventory and so meet its delivery
commitment to its foreign buyers. SAFIC
concludes that the 1986 contracts were equally
binding, as the 1985 contracts were, on IVO.
Subjecting the evidence on both sides to close
scrutiny, the Court has found some remarkable
distinctions between the 1985 and 1986
contracts. x x x
1. The 1985 contracts were performed within an
average of two months from the date of the
sale. On the other hand, the 1986 contracts
were to be performed within an average of eight
and a half months from the dates of the sale. All
the supposed performances fell in
1987. Indeed, the contract covered by Exhibit J
was to be performed 11 to 12 months from the
execution of the contract. These pattern (sic)
belies plaintiffs contention that the lead time
merely allowed for milling and building up of oil
inventory. It is evident that the 1986 contracts
constituted trading in futures or in mere
expectations. In all likelihood, the coconuts that
were supposed to be milled for oil were not yet
on their trees when Dominador Monteverde sold
the crude oil to SAFIC.
2. The mode of payment agreed on by the
parties in their 1985 contracts was uniformly
thru the opening of a letter of credit LC by SAFIC
in favor of IVO. Since the buyers letter of credit
AGENCY ACJUCO 2nd MEETING 27
guarantees payment to the seller as soon as the
latter is able to present the shipping documents
covering the cargo, its opening usually mark[s]
the fact that the transaction would be
consummated. On the other hand, seven out of
the ten 1986 contracts were to be paid by
telegraphic transfer upon presentation of the
shipping documents. Unlike the letter of credit,
a mere promise to pay by telegraphic transfer
gives no assurance of [the] buyers compliance
with its contracts. This fact lends an uncertain
element in the 1986 contracts.
3. Apart from the above, it is not disputed that
with respect to the 1985 contracts, IVO faithfully
complied with Central Bank Circular No. 151
dated April 1, 1963, requiring a coconut oil
exporter to submit a Report of Foreign Sales
within twenty-four (24) hours after the closing of
the relative sales contract with a foreign buyer
of coconut oil. But with respect to the disputed
1986 contracts, the parties stipulated during the
hearing that none of these contracts were ever
reported to the Central Bank, in violation of its
above requirement. (See Stipulation of Facts
dated June 13, 1990). The 1986 sales were,
therefore suspect.
4. It is not disputed that, unlike the 1985
contacts, the 1986 contracts were never
recorded either in the 1986 accounting books of
IVO or in its annual financial statement for 1986,
a document that was prepared prior to the
controversy. (Exhibits 6 to 6-0 and 7 to 7-
I). Emelita Ortega, formerly an assistant of
Dominador Monteverde, testified that they were
strange goings-on about the 1986
contract. They were neither recorded in the
books nor reported to the Central Bank. What is
more, in those unreported cases where profits
were made, such profits were ordered remitted
to unknown accounts in California, U.S.A., by
Dominador Monteverde.
xxxxxxxxx
Evidently, Dominador Monteverde made
business for himself, using the name of IVO but
concealing from it his speculative transactions.
Petitioner further contends that both the trial and
appellate courts erred in concluding that Safic
was not able to prove its claim for

damages. Petitioner first points out that its wash
out agreements with Monteverde where IVO
allegedly agreed to pay US$293,500.00 for
some of the failed contracts was proof enough
and, second, that it presented purchases of
coconut oil it made from others during the period
of IVOs default.
We remain unconvinced. The so-called wash
out agreements are clearly ultra vires and not
binding on IVO. Furthermore, such agreements
did not prove Safics actual losses in the
transactions in question. The fact is that Safic
did not pay for the coconut oil that it supposedly
ordered from IVO through Monteverede. Safic
only claims that, since it was ready to pay when
IVO was not ready to deliver, Safic suffered
damages to the extent that they had to buy the
same commodity from others at higher prices.
The foregoing claim of petitioner is not,
however, substantiated by the evidence and
only raises several questions, to wit: 1.] Did
Safic commit to deliver the quantity of oil
covered by the 1986 contracts to its own
buyers? Who were these buyers? What were
the terms of those contracts with respect to
quantity, price and date of delivery? 2.] Did Safic
pay damages to its buyers? Where were the
receipts? Did Safic have to procure the
equivalent oil from other sources? If so, who
were these sources? Where were their
contracts and what were the terms of these
contracts as to quantity, price and date of
delivery?
The records disclose that during the course of
the proceedings in the trial court, IVO filed an
amended motion[22] for production and
inspection of the following documents: a.]
contracts of resale of coconut oil that Safic
bought from IVO; b.] the records of the pooling
and sales contracts covering the oil from such
pooling, if the coconut oil has been pooled and
sold as general oil; c.] the contracts of the
purchase of oil that, according to Safic, it had to
resort to in order to fill up alleged undelivered
commitments of IVO; d.] all other contracts,
confirmations, invoices, wash out agreements
and other documents of sale related to (a), (b)
and (c). This amended motion was opposed by
AGENCY ACJUCO 2nd MEETING 28
Safic.[23] The trial court, however, in its
September 16, 1988 Order,[24]ruled that:
From the analysis of the parties respective
positions, conclusion can easily be drawn
therefrom that there is materiality in the
defendants move: firstly, plaintiff seeks to
recover damages from the defendant and these
are intimately related to plaintiffs alleged losses
which it attributes to the default of the defendant
in its contractual commitments; secondly, the
documents are specified in the amended
motion. As such, plaintiff would entertain no
confusion as to what, which documents to locate
and produce considering plaintiff to be (without
doubt) a reputable going concern in the
management of the affairs which is serviced by
competent, industrious, hardworking and
diligent personnel; thirdly, the desired
production and inspection of the documents was
precipitated by the testimony of plaintiffs witness
(Donald OMeara) who admitted, in open court,
that they are available. If the said witness
represented that the documents, as generally
described, are available, reason there would be
none for the same witness to say later that they
could not be produced, even after they have
been clearly described.
Besides, if the Court may additionally dwell on
the issue of damages, the production and
inspection of the desired documents would be of
tremendous help in the ultimate resolution
thereof. Plaintiff claims for the award of
liquidated or actual damages to the tune of
US$391,593.62 which, certainly, is a huge
amount in terms of pesos, and which defendant
disputes. As the defendant cannot be precluded
in taking exceptions to the correctness and
validity of such claim which plaintiffs witness
(Donald OMeara) testified to, and as, by this
nature of the plaintiffs claim for damages, proof
thereof is a must which can be better served, if
not amply ascertained by examining the records
of the related sales admitted to be in plaintiffs
possession, the amended motion for production
and inspection of the defendant is in order.
The interest of justice will be served best, if there
would be a full disclosure by the parties on both
sides of all documents related to the
transactions in litigation.
 AGENCY ACJUCO 2nd MEETING 29

Notwithstanding the foregoing ruling of the trial

court, Safic did not produce the required
documents, prompting the court a quo to
assume that if produced, the documents would
have been adverse to Safics cause. In its efforts
to bolster its claim for damages it purportedly
sustained, Safic suggests a substitute mode of
computing its damages by getting the average
price it paid for certain quantities of coconut oil
that it allegedly bought in 1987 and deducting
this from the average price of the 1986
contracts. But this mode of computation if
flawed because: 1.] it is conjectural since it rests
on average prices not on actual prices multiplied
by the actual volume of coconut oil per contract;
and 2.] it is based on the unproven assumption
that the 1987 contracts of purchase provided the
coconut oil needed to make up for the failed
1986 contracts. There is also no evidence that
Safic had contracted to supply third parties with
coconut oil from the 1986 contracts and that
Safic had to buy such oil from others to meet the
requirement.
Along the same vein, it is worthy to note that the
quantities of oil covered by its 1987 contracts
with third parties do not match the quantities of
oil provided under the 1986 contracts. Had Safic
produced the documents that the trial court
required, a substantially correct determination of
its actual damages would have been
possible. This, unfortunately, was not the
case. Suffice it to state in this regard that [T]he
power of the courts to grant damages and
attorneys fees demands factual, legal and
equitable justification; its basis cannot be left to
speculation and conjecture.[25]
WHEREFORE, in view of all the foregoing, the
petition is DENIED for lack of merit.
SO ORDERED.

G.R. No. 159489 February 4, 2008
FILIPINAS LIFE ASSURANCE COMPANY
(now AYALA LIFE ASSURANCE,
INC.), petitioner,
vs.
CLEMENTE N. PEDROSO, TERESITA O.
PEDROSO and JENNIFER N. PALACIO thru
her Attorney-in-Fact PONCIANO C.
MARQUEZ, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks the
reversal of the Decision1 and Resolution,2 dated
November 29, 2002 and August 5, 2003,
respectively, of the Court of Appeals in CA-G.R.
CV No. 33568. The appellate court had affirmed
the Decision3 dated October 10, 1989 of the
Regional Trial Court (RTC) of Manila, Branch 3,
finding petitioner as defendant and the co-
defendants below jointly and severally liable to
the plaintiffs, now herein respondents.
The antecedent facts are as follows:
Respondent Teresita O. Pedroso is a
policyholder of a 20-year endowment life
insurance issued by petitioner Filipinas Life
Assurance Company (Filipinas Life). Pedroso
claims Renato Valle was her insurance agent
since 1972 and Valle collected her monthly
premiums. In the first week of January 1977,
Valle told her that the Filipinas Life Escolta
Office was holding a promotional investment
program for policyholders. It was offering 8%
prepaid interest a month for certain amounts
deposited on a monthly basis. Enticed, she
initially invested and issued a post-dated check
dated January 7, 1977 for P10,000.4 In return,
Valle issued Pedroso his personal check
for P800 for the 8%5prepaid interest and a
Filipinas Life "Agent’s Receipt" No. 807838.6
Subsequently, she called the Escolta office and
talked to Francisco Alcantara, the administrative
assistant, who referred her to the branch
manager, Angel Apetrior. Pedroso inquired
about the promotional investment and Apetrior
confirmed that there was such a promotion. She
was even told she could "push through with the
check" she issued. From the records, the check,
AGENCY ACJUCO 2nd MEETING 30
with the endorsement of Alcantara at the back,
was deposited in the account of Filipinas Life
with the Commercial Bank and Trust Company
(CBTC), Escolta Branch.
Relying on the representations made by the
petitioner’s duly authorized representatives
Apetrior and Alcantara, as well as having known
agent Valle for quite some time, Pedroso waited
for the maturity of her initial investment. A month
after, her investment of P10,000 was returned to
her after she made a written request for its
refund. The formal written request, dated
February 3, 1977, was written on an inter-office
memorandum form of Filipinas Life prepared by
Alcantara.7 To collect the amount, Pedroso
personally went to the Escolta branch where
Alcantara gave her the P10,000 in cash. After a
second investment, she made 7 to 8 more
investments in varying amounts,
totaling P37,000 but at a lower rate of
5%8 prepaid interest a month. Upon maturity of
Pedroso’s subsequent investments, Valle would
take back from Pedroso the corresponding
yellow-colored agent’s receipt he issued to the
latter.
Pedroso told respondent Jennifer N. Palacio,
also a Filipinas Life insurance policyholder,
about the investment plan. Palacio made a total
investment of P49,5509 but at only 5% prepaid
interest. However, when Pedroso tried to
withdraw her investment, Valle did not want to
return some P17,000 worth of it. Palacio also
tried to withdraw hers, but Filipinas Life, despite
demands, refused to return her money. With the
assistance of their lawyer, they went to Filipinas
Life Escolta Office to collect their respective
investments, and to inquire why they had not
seen Valle for quite some time. But their
attempts were futile. Hence, respondents filed
an action for the recovery of a sum of money.
After trial, the RTC, Branch 3, Manila, held
Filipinas Life and its co-defendants Valle,
Apetrior and Alcantara jointly and solidarily
liable to the respondents.
On appeal, the Court of Appeals affirmed the
trial court’s ruling and subsequently denied the
motion for reconsideration.

Petitioner now comes before us raising a single
issue:
WHETHER OR NOT THE COURT OF
APPEALS COMMITTED A REVERSIBLE
ERROR AND GRAVELY ABUSED ITS
DISCRETION IN AFFIRMING THE DECISION
OF THE LOWER COURT HOLDING FLAC
[FILIPINAS LIFE] TO BE JOINTLY AND
SEVERALLY LIABLE WITH ITS CO-
DEFENDANTS ON THE CLAIM OF
RESPONDENTS INSTEAD OF HOLDING ITS
AGENT, RENATO VALLE, SOLELY LIABLE TO
THE RESPONDENTS.10
Simply put, did the Court of Appeals err in
holding petitioner and its co-defendants jointly
and severally liable to the herein respondents?
Filipinas Life does not dispute that Valle was its
agent, but claims that it was only a life insurance
company and was not engaged in the business
of collecting investment money. It contends that
the investment scheme offered to respondents
by Valle, Apetrior and Alcantara was outside the
scope of their authority as agents of Filipinas
Life such that, it cannot be held liable to the
respondents.11
On the other hand, respondents contend that
Filipinas Life authorized Valle to solicit
investments from them. In fact, Filipinas Life’s
official documents and facilities were used in
consummating the transactions. These
transactions, according to respondents, were
confirmed by its officers Apetrior and Alcantara.
Respondents assert they exercised all the
diligence required of them in ascertaining the
authority of petitioner’s agents; and it is Filipinas
Life that failed in its duty to ensure that its agents
act within the scope of their authority.
Considering the issue raised in the light of the
submissions of the parties, we find that the
petition lacks merit. The Court of Appeals
committed no reversible error nor abused
gravely its discretion in rendering the assailed
decision and resolution.
It appears indisputable that respondents
Pedroso and Palacio had invested P47,000
and P49,550, respectively. These were
received by Valle and remitted to Filipinas Life,
using Filipinas Life’s official receipts, whose
AGENCY ACJUCO 2nd MEETING 31
authenticity were not disputed. Valle’s authority
to solicit and receive investments was also
established by the parties. When respondents
sought confirmation, Alcantara, holding a
supervisory position, and Apetrior, the branch
manager, confirmed that Valle had authority.
While it is true that a person dealing with an
agent is put upon inquiry and must discover at
his own peril the agent’s authority, in this case,
respondents did exercise due diligence in
removing all doubts and in confirming the
validity of the representations made by Valle.
Filipinas Life, as the principal, is liable for
obligations contracted by its agent Valle. By the
contract of agency, a person binds himself to
render some service or to do something in
representation or on behalf of another, with the
consent or authority of the latter.12 The general
rule is that the principal is responsible for the
acts of its agent done within the scope of its
authority, and should bear the damage caused
to third persons.13 When the agent exceeds his
authority, the agent becomes personally liable
for the damage.14 But even when the agent
exceeds his authority, the principal is still
solidarily liable together with the agent if the
principal allowed the agent to act as though the
agent had full powers.15 In other words, the acts
of an agent beyond the scope of his authority do
not bind the principal, unless the principal
ratifies them, expressly or
16
impliedly. Ratification in agency is the
adoption or confirmation by one person of an act
performed on his behalf by another without
authority.17
Filipinas Life cannot profess ignorance of Valle’s
acts. Even if Valle’s representations were
beyond his authority as a debit/insurance agent,
Filipinas Life thru Alcantara and Apetrior
expressly and knowingly ratified Valle’s acts. It
cannot even be denied that Filipinas Life
benefited from the investments deposited by
Valle in the account of Filipinas Life. In our
considered view, Filipinas Life had clothed Valle
with apparent authority; hence, it is now
estopped to deny said authority. Innocent third
persons should not be prejudiced if the principal
failed to adopt the needed measures to prevent
misrepresentation, much more so if the principal
ratified his agent’s acts beyond the latter’s
 AGENCY ACJUCO 2nd MEETING 32

authority. The act of the agent is considered that

of the principal itself. Qui per alium facit per
seipsum facere videtur. "He who does a thing by
an agent is considered as doing it himself."18
WHEREFORE, the petition is DENIED for lack
of merit. The Decision and Resolution, dated
November 29, 2002 and August 5, 2003,
respectively, of the Court of Appeals in CA-G.R.
CV No. 33568 are AFFIRMED.
Costs against the petitioner.
SO ORDERED.

G.R. No. 137162 January 24, 2007
CORAZON L. ESCUETA, assisted by her
husband EDGAR ESCUETA, IGNACIO E.
RUBIO, THE HEIRS OF LUZ R. BALOLOY,
namely, ALEJANDRINO R. BALOLOY and
BAYANI R. BALOLOY, Petitioners,
vs.
RUFINA LIM, Respondent.
DECISION
AZCUNA, J.:
This is an appeal by certiorari1 to annul and set
aside the Decision and Resolution of the Court
of Appeals (CA) dated October 26, 1998 and
January 11, 1999, respectively, in CA-G.R. CV
No. 48282, entitled "Rufina Lim v. Corazon L.
Escueta, etc., et. al."
The facts2 appear as follows:
Respondent Rufina Lim filed an action to
remove cloud on, or quiet title to, real property,
with preliminary injunction and issuance of [a
hold-departure order] from the Philippines
against Ignacio E. Rubio. Respondent amended
her complaint to include specific performance
and damages.
In her amended complaint, respondent averred
inter alia that she bought the hereditary shares
(consisting of 10 lots) of Ignacio Rubio [and] the
heirs of Luz Baloloy, namely: Alejandrino,
Bayani, and other co-heirs; that said vendors
executed a contract of sale dated April 10, 1990
in her favor; that Ignacio Rubio and the heirs of
Luz Baloloy received [a down payment] or
earnest money in the amount of P102,169.86
and P450,000, respectively; that it was agreed
in the contract of sale that the vendors would
secure certificates of title covering their
respective hereditary shares; that the balance of
the purchase price would be paid to each heir
upon presentation of their individual
certificate[s] of [title]; that Ignacio Rubio refused
to receive the other half of the down payment
which is P[100,000]; that Ignacio Rubio refused
and still refuses to deliver to [respondent] the
certificates of title covering his share on the two
lots; that with respect to the heirs of Luz Baloloy,
they also refused and still refuse to perform the
delivery of the two certificates of title covering
AGENCY ACJUCO 2nd MEETING 33
their share in the disputed lots; that respondent
was and is ready and willing to pay Ignacio
Rubio and the heirs of Luz Baloloy upon
presentation of their individual certificates of
title, free from whatever lien and encumbrance;
As to petitioner Corazon Escueta, in spite of her
knowledge that the disputed lots have already
been sold by Ignacio Rubio to respondent, it is
alleged that a simulated deed of sale involving
said lots was effected by Ignacio Rubio in her
favor; and that the simulated deed of sale by
Rubio to Escueta has raised doubts and clouds
over respondent’s title.
In their separate amended answers, petitioners
denied the material allegations of the complaint
and alleged inter alia the following:
For the heirs of Luz Baloloy (Baloloys for
brevity):
Respondent has no cause of action, because
the subject contract of sale has no more force
and effect as far as the Baloloys are concerned,
since they have withdrawn their offer to sell for
the reason that respondent failed to pay the
balance of the purchase price as orally
promised on or before May 1, 1990.
For petitioners Ignacio Rubio (Rubio for brevity)
and Corazon Escueta (Escueta for brevity):
Respondent has no cause of action, because
Rubio has not entered into a contract of sale
with her; that he has appointed his daughter
Patricia Llamas to be his attorney-in-fact and not
in favor of Virginia Rubio Laygo Lim (Lim for
brevity) who was the one who represented him
in the sale of the disputed lots in favor of
respondent; that the P100,000 respondent
claimed he received as down payment for the
lots is a simple transaction by way of a loan with
Lim.
The Baloloys failed to appear at the pre-trial.
Upon motion of respondent, the trial court
declared the Baloloys in default. They then filed
a motion to lift the order declaring them in
default, which was denied by the trial court in an
order dated November 27, 1991. Consequently,
respondent was allowed to adduce evidence ex
parte. Thereafter, the trial court rendered a
partial decision dated July 23, 1993 against the

Baloloys, the dispositive portion of which reads
as follows:
IN VIEW OF THE FOREGOING, judgment is
hereby rendered in favor of [respondent] and
against [petitioners, heirs] of Luz R. Balolo[y],
namely: Alejandrino Baloloy and Bayani
Baloloy. The [petitioners] Alejandrino Baloloy
and Bayani Baloloy are ordered to immediately
execute an [Absolute] Deed of Sale over their
hereditary share in the properties covered by
TCT No. 74392 and TCT No. 74394, after
payment to them by [respondent] the amount
of P[1,050,000] or consignation of said amount
in Court. [For] failure of [petitioners] Alejandrino
Baloloy and Bayani Baloloy to execute the
Absolute Deed of Sale over their hereditary
share in the property covered by TCT No. T-
74392 and TCT No. T-74394 in favor of
[respondent], the Clerk of Court is ordered to
execute the necessary Absolute Deed of Sale in
behalf of the Baloloys in favor of [respondent,]
with a consideration of P[1,500,000]. Further[,]
[petitioners] Alejandrino Baloloy and Bayani
Baloloy are ordered to jointly and severally pay
[respondent] moral damages in the amount
of P[50,000] and P[20,000] for attorney’s fees.
The adverse claim annotated at the back of TCT
No. T-74392 and TCT No. T-74394[,] insofar as
the shares of Alejandrino Baloloy and Bayani
Baloloy are concerned[,] [is] ordered cancelled.
With costs against [petitioners] Alejandrino
Baloloy and Bayani Baloloy.
SO ORDERED.3
The Baloloys filed a petition for relief from
judgment and order dated July 4, 1994 and
supplemental petition dated July 7, 1994. This
was denied by the trial court in an order dated
September 16, 1994. Hence, appeal to the
Court of Appeals was taken challenging the
order denying the petition for relief.
Trial on the merits ensued between respondent
and Rubio and Escueta. After trial, the trial court
rendered its assailed Decision, as follows:
IN VIEW OF THE FOREGOING, the complaint
[and] amended complaint are dismissed against
[petitioners] Corazon L. Escueta, Ignacio E.
Rubio[,] and the Register of Deeds. The
counterclaim of [petitioners] [is] also dismissed.
AGENCY ACJUCO 2nd MEETING 34
However, [petitioner] Ignacio E. Rubio is
ordered to return to the [respondent], Rufina
Lim[,] the amount of P102,169.80[,] with interest
at the rate of six percent (6%) per annum from
April 10, [1990] until the same is fully paid.
Without pronouncement as to costs.
SO ORDERED.4
On appeal, the CA affirmed the trial court’s order
and partial decision, but reversed the later
decision. The dispositive portion of its assailed
Decision reads:
WHEREFORE, upon all the foregoing premises
considered, this Court rules:
1. the appeal of the Baloloys from the Order
denying the Petition for Relief from Judgment
and Orders dated July 4, 1994 and
Supplemental Petition dated July 7, 1994 is
DISMISSED. The Order appealed from is
AFFIRMED.
2. the Decision dismissing [respondent’s]
complaint is REVERSED and SET ASIDE and a
new one is entered. Accordingly,
a. the validity of the subject contract of sale in
favor of [respondent] is upheld.
b. Rubio is directed to execute a Deed of
Absolute Sale conditioned upon the payment of
the balance of the purchase price by
[respondent] within 30 days from the receipt of
the entry of judgment of this Decision.
c. the contracts of sale between Rubio and
Escueta involving Rubio’s share in the disputed
properties is declared NULL and VOID.
d. Rubio and Escueta are ordered to pay jointly
and severally the [respondent] the amount
of P[20,000] as moral damages and P[20,000]
as attorney’s fees.
3. the appeal of Rubio and Escueta on the
denial of their counterclaim is DISMISSED.
SO ORDERED.5
Petitioners’ Motion for Reconsideration of the
CA Decision was denied. Hence, this petition.
The issues are:
I

THE HONORABLE COURT OF APPEALS
ERRED IN DENYING THE PETITION FOR
RELIEF FROM JUDGMENT FILED BY THE
BALOLOYS.
II
THE HONORABLE COURT OF APPEALS
ERRED IN REINSTATING THE COMPLAINT
AND IN AWARDING MORAL DAMAGES AND
ATTORNEY’S FEES IN FAVOR OF
RESPONDENT RUFINA L. LIM
CONSIDERING THAT:
A. IGNACIO E. RUBIO IS NOT BOUND BY THE
CONTRACT OF SALE BETWEEN VIRGINIA
LAYGO-LIM AND RUFINA LIM.
B. THE CONTRACT ENTERED INTO
BETWEEN RUFINA LIM AND VIRGINIA
LAYGO-LIM IS A CONTRACT TO SELL AND
NOT A CONTRACT OF SALE.
C. RUFINA LIM FAILED TO FAITHFULLY
COMPLY WITH HER OBLIGATIONS UNDER
THE CONTRACT TO SELL THEREBY
WARRANTING THE CANCELLATION
THEREOF.
D. CORAZON L. ESCUETA ACTED IN
UTMOST GOOD FAITH IN ENTERING INTO
THE CONTRACT OF SALE WITH IGNACIO E.
RUBIO.
III
THE CONTRACT OF SALE EXECUTED
BETWEEN IGNACIO E. RUBIO AND
CORAZON L. ESCUETA IS VALID.
IV
THE HONORABLE COURT OF APPEALS
ERRED IN DISMISSING PETITIONERS’
COUNTERCLAIMS.
Briefly, the issue is whether the contract of sale
between petitioners and respondent is valid.
Petitioners argue, as follows:
First, the CA did not consider the circumstances
surrounding petitioners’ failure to appear at the
pre-trial and to file the petition for relief on time.
As to the failure to appear at the pre-trial, there
was fraud, accident and/or excusable neglect,
AGENCY ACJUCO 2nd MEETING 35
because petitioner Bayani was in the United
States. There was no service of the notice of
pre-trial or order. Neither did the former counsel
of record inform him. Consequently, the order
declaring him in default is void, and all
subsequent proceedings, orders, or decision
are void.
Furthermore, petitioner Alejandrino was not
clothed with a power of attorney to appear on
behalf of Bayani at the pre-trial conference.
Second, the sale by Virginia to respondent is not
binding. Petitioner Rubio did not authorize
Virginia to transact business in his behalf
pertaining to the property. The Special Power of
Attorney was constituted in favor of Llamas, and
the latter was not empowered to designate a
substitute attorney-in-fact. Llamas even
disowned her signature appearing on the "Joint
Special Power of Attorney," which constituted
Virginia as her true and lawful attorney-in-fact in
selling Rubio’s properties.
Dealing with an assumed agent, respondent
should ascertain not only the fact of agency, but
also the nature and extent of the former’s
authority. Besides, Virginia exceeded the
authority for failing to comply with her
obligations under the "Joint Special Power of
Attorney."
The amount encashed by Rubio represented
not the down payment, but the payment of
respondent’s debt. His acceptance and
encashment of the check was not a ratification
of the contract of sale.
Third, the contract between respondent and
Virginia is a contract to sell, not a contract of
sale. The real character of the contract is not the
title given, but the intention of the parties. They
intended to reserve ownership of the property to
petitioners pending full payment of the purchase
price. Together with taxes and other fees due on
the properties, these are conditions precedent
for the perfection of the sale. Even assuming
that the contract is ambiguous, the same must
be resolved against respondent, the party who
caused the same.
Fourth, Respondent failed to faithfully fulfill her
part of the obligation. Thus, Rubio had the right
to sell his properties to Escueta who exercised

due diligence in ascertaining ownership of the
properties sold to her. Besides, a purchaser
need not inquire beyond what appears in a
Torrens title.
The petition lacks merit. The contract of sale
between petitioners and respondent is
valid.lawphil.net
Bayani Baloloy was represented by his attorney-
in-fact, Alejandrino Baloloy. In the Baloloys’
answer to the original complaint and amended
complaint, the allegations relating to the
personal circumstances of the Baloloys are
clearly admitted.
"An admission, verbal or written, made by a
party in the course of the proceedings in the
same case, does not require proof."6 The
"factual admission in the pleadings on record
[dispenses] with the need x x x to present
evidence to prove the admitted fact."7 It cannot,
therefore, "be controverted by the party making
such admission, and [is] conclusive"8 as to
them. All proofs submitted by them "contrary
thereto or inconsistent therewith should be
ignored whether objection is interposed by a
party or not."9 Besides, there is no showing that
a palpable mistake has been committed in their
admission or that no admission has been made
by them.
Pre-trial is mandatory.10 The notices of pre-trial
had been sent to both the Baloloys and their
former counsel of record. Being served with
notice, he is "charged with the duty of notifying
the party represented by him."11 He must "see
to it that his client receives such notice and
attends the pre-trial."12 What the Baloloys and
their former counsel have alleged instead in
their Motion to Lift Order of As In Default dated
December 11, 1991 is the belated receipt of
Bayani Baloloy’s special power of attorney in
favor of their former counsel, not that they have
not received the notice or been informed of the
scheduled pre-trial. Not having raised the
ground of lack of a special power of attorney in
their motion, they are now deemed to have
waived it. Certainly, they cannot raise it at this
late stage of the proceedings. For lack of
representation, Bayani Baloloy was properly
declared in default.
AGENCY ACJUCO 2nd MEETING 36
Section 3 of Rule 38 of the Rules of Court states:
SEC. 3. Time for filing petition; contents and
verification. – A petition provided for in either of
the preceding sections of this Rule must be
verified, filed within sixty (60) days after the
petitioner learns of the judgment, final order, or
other proceeding to be set aside, and not more
than six (6) months after such judgment or final
order was entered, or such proceeding was
taken; and must be accompanied with affidavits
showing the fraud, accident, mistake, or
excusable negligence relied upon, and the facts
constituting the petitioner’s good and
substantial cause of action or defense, as the
case may be.
There is no reason for the Baloloys to ignore the
effects of the above-cited rule. "The 60-day
period is reckoned from the time the party
acquired knowledge of the order, judgment or
proceedings and not from the date he actually
read the same."13 As aptly put by the appellate
court:
The evidence on record as far as this issue is
concerned shows that Atty. Arsenio Villalon, Jr.,
the former counsel of record of the Baloloys
received a copy of the partial decision dated
June 23, 1993 on April 5, 1994. At that time, said
former counsel is still their counsel of record.
The reckoning of the 60 day period therefore is
the date when the said counsel of record
received a copy of the partial decision which
was on April 5, 1994. The petition for relief was
filed by the new counsel on July 4, 1994 which
means that 90 days have already lapsed or 30
days beyond the 60 day period. Moreover, the
records further show that the Baloloys received
the partial decision on September 13, 1993 as
evidenced by Registry return cards which bear
the numbers 02597 and 02598 signed by Mr.
Alejandrino Baloloy.
The Baloloys[,] apparently in an attempt to cure
the lapse of the aforesaid reglementary period
to file a petition for relief from judgment[,]
included in its petition the two Orders dated May
6, 1994 and June 29, 1994. The first Order
denied Baloloys’ motion to fix the period within
which plaintiffs-appellants pay the balance of
the purchase price. The second Order refers to
the grant of partial execution, i.e. on the aspect

of damages. These Orders are only
consequences of the partial decision subject of
the petition for relief, and thus, cannot be
considered in the determination of the
reglementary period within which to file the said
petition for relief.
Furthermore, no fraud, accident, mistake, or
excusable negligence exists in order that the
petition for relief may be granted.14 There is no
proof of extrinsic fraud that "prevents a party
from having a trial x x x or from presenting all of
his case to the court"15 or an "accident x x x
which ordinary prudence could not have
guarded against, and by reason of which the
party applying has probably been impaired in his
rights."16 There is also no proof of either a
"mistake x x x of law"17 or an excusable
negligence "caused by failure to receive notice
of x x x the trial x x x that it would not be
necessary for him to take an active part in the
case x x x by relying on another person to attend
to the case for him, when such other person x x
x was chargeable with that duty x x x, or by other
circumstances not involving fault of the moving
party."18
Article 1892 of the Civil Code provides:
Art. 1892. The agent may appoint a substitute if
the principal has not prohibited him from doing
so; but he shall be responsible for the acts of the
substitute:
(1) When he was not given the power to appoint
one x x x.
Applying the above-quoted provision to the
special power of attorney executed by Ignacio
Rubio in favor of his daughter Patricia Llamas, it
is clear that she is not prohibited from appointing
a substitute. By authorizing Virginia Lim to sell
the subject properties, Patricia merely acted
within the limits of the authority given by her
father, but she will have to be "responsible for
the acts of the sub-agent,"19 among which is
precisely the sale of the subject properties in
favor of respondent.
Even assuming that Virginia Lim has no
authority to sell the subject properties, the
contract she executed in favor of respondent is
not void, but simply unenforceable, under the
AGENCY ACJUCO 2nd MEETING 37
second paragraph of Article 1317 of the Civil
Code which reads:
Art. 1317. x x x
A contract entered into in the name of another
by one who has no authority or legal
representation, or who has acted beyond his
powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is
revoked by the other contracting party.
Ignacio Rubio merely denies the contract of
sale. He claims, without substantiation, that
what he received was a loan, not the down
payment for the sale of the subject properties.
His acceptance and encashment of the check,
however, constitute ratification of the contract of
sale and "produce the effects of an express
power of agency."20 "[H]is action necessarily
implies that he waived his right of action to avoid
the contract, and, consequently, it also implies
the tacit, if not express, confirmation of the said
sale effected" by Virginia Lim in favor of
respondent.
Similarly, the Baloloys have ratified the contract
of sale when they accepted and enjoyed its
benefits. "The doctrine of estoppel applicable to
petitioners here is not only that which prohibits
a party from assuming inconsistent positions,
based on the principle of election, but that which
precludes him from repudiating an obligation
voluntarily assumed after having accepted
benefits therefrom. To countenance such
repudiation would be contrary to equity, and
would put a premium on fraud or
misrepresentation."21
Indeed, Virginia Lim and respondent have
entered into a contract of sale. Not only has the
title to the subject properties passed to the latter
upon delivery of the thing sold, but there is also
no stipulation in the contract that states the
ownership is to be reserved in or "retained by
the vendor until full payment of the price."22
Applying Article 1544 of the Civil Code, a
second buyer of the property who may have had
actual or constructive knowledge of such defect
in the seller’s title, or at least was charged with
the obligation to discover such defect, cannot be
a registrant in good faith. Such second buyer
 AGENCY ACJUCO 2nd MEETING 38

cannot defeat the first buyer’s title. In case a title Consequently, Ignacio Rubio could no longer
is issued to the second buyer, the first buyer sell the subject properties to Corazon Escueta,
may seek reconveyance of the property subject after having sold them to respondent. "[I]n a
of the sale.23 Even the argument that a contract of sale, the vendor loses ownership
purchaser need not inquire beyond what over the property and cannot recover it until and
appears in a Torrens title does not hold water. A unless the contract is resolved or rescinded x x
perusal of the certificates of title alone will reveal x."31 The records do not show that Ignacio
that the subject properties are registered in Rubio asked for a rescission of the contract.
common, not in the individual names of the What he adduced was a belated revocation of
heirs. the special power of attorney he executed in
favor of Patricia Llamas. "In the sale of
Nothing in the contract "prevents the obligation
immovable property, even though it may have
of the vendor to convey title from becoming
been stipulated that upon failure to pay the price
effective"24 or gives "the vendor the right to
at the time agreed upon the rescission of the
unilaterally resolve the contract the moment the
contract shall of right take place, the vendee
buyer fails to pay within a fixed
25
may pay, even after the expiration of the period,
period." Petitioners themselves have failed to
as long as no demand for rescission of the
deliver their individual certificates of title, for
contract has been made upon him either
which reason it is obvious that respondent
judicially or by a notarial act."32
cannot be expected to pay the stipulated taxes,
fees, and expenses. WHEREFORE, the petition is DENIED. The
Decision and Resolution of the Court of Appeals
"[A]ll the elements of a valid contract of sale
in CA-G.R. CV No. 48282, dated
under Article 1458 of the Civil Code are present,
such as: (1) consent or meeting of the minds; (2) October 26, 1998 and January 11, 1999,
determinate subject matter; and (3) price certain respectively, are hereby AFFIRMED. Costs
in money or its equivalent."26 Ignacio Rubio, the against petitioners.
Baloloys, and their co-heirs sold their hereditary
SO ORDERED.
shares for a price certain to which respondent
agreed to buy and pay for the subject properties.
"The offer and the acceptance are concurrent,
since the minds of the contracting parties meet
in the terms of the agreement."27
In fact, earnest money has been given by
respondent. "[I]t shall be considered as part of
the price and as proof of the perfection of the
contract.28 It constitutes an advance payment to
"be deducted from the total price."29
Article 1477 of the same Code also states that
"[t]he ownership of the thing sold shall be
transferred to the vendee upon actual or
constructive delivery thereof."30 In the present
case, there is actual delivery as manifested by
acts simultaneous with and subsequent to the
contract of sale when respondent not only took
possession of the subject properties but also
allowed their use as parking terminal for
jeepneys and buses. Moreover, the execution
itself of the contract of sale is constructive
delivery.

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 Order3 of the
Office of the Special Prosecutor (OSP) in OMB-
1-94-3425 duly approved by then Ombudsman
Aniano Desierto on August 21, 1998, which
recommended the dismissal of the
4
Information 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 Memorandum5of the OSP duly
approved by the Ombudsman on November 27,
1998 which denied petitioner's Motion for
Reconsideration.6 Previously, the filing of the
Information against said respondents was
authorized by the May 10, 1996 Resolution7 and
October 3, 1996 Order8 of the Ombudsman
which found probable cause that they granted
unwarranted benefits, advantage, and
preference to respondent Salenga in violation of
Section 3 (e) of RA 3019.9
The Facts
Paciencia Regala owns a seven (7)-hectare
fishpond located at Sasmuan, Pampanga. Her
Attorney-in-Fact Faustino R. Mercado leased
the fishpond for PhP 230,000.00 to Eduardo
Lapid for a three (3)-year period, that is, from
August 7, 1990 to August 7, 1993.10 Lessee
Eduardo Lapid in turn sub-leased the fishpond
to Rafael Lopez for PhP 50,000.00 during the
AGENCY ACJUCO 2nd MEETING 39
last seven (7) months of the original lease, that
is, from January 10, 1993 to August 7,
1993.11 Respondent Ernesto Salenga was hired
by Eduardo Lapid as fishpond watchman
(bante-encargado). In the sub-lease, Rafael
Lopez rehired respondent Salenga.
Meanwhile, on March 11, 1993, respondent
Salenga, through a certain Francis Lagman,
sent his January 28, 1993 demand letter12 to
Rafael Lopez and Lourdes Lapid for unpaid
salaries and non-payment of the 10% share in
the harvest.
On June 5, 1993, sub-lessee Rafael Lopez
wrote a letter to respondent Salenga informing
the latter that for the last two (2) months of the
sub-lease, he had given the rights over the
fishpond to Mario Palad and Ambit Perez for
PhP 20,000.00.13 This prompted respondent
Salenga to file a Complaint14 before the
Provincial Agrarian Reform Adjudication Board
(PARAB), Region III, San Fernando, Pampanga
docketed as DARAB Case No. 552-P’93
entitled Ernesto R. Salenga v. Rafael L. Lopez
and Lourdes L. Lapid for Maintenance of
Peaceful Possession, Collection of Sum of
Money and Supervision of Harvest. The
Complaint was signed by respondent Jose D.
Jimenez, Jr., Legal Officer of the Department of
Agrarian Reform (DAR) Region III Office in San
Fernando, Pampanga, as counsel for
respondent Salenga; whereas respondent
Eulogio M. Mariano was the Chief Legal Officer
of DAR Region III. The case was assigned to
respondent Toribio E. Ilao, Jr., Provincial
Adjudicator of DARAB, Pampanga.
On May 10, 1993, respondent Salenga
amended his complaint.15 The amendments
included a prayer for the issuance of a
temporary restraining order (TRO) and
preliminary injunction. However, before the
prayer for the issuance of a TRO could be acted
upon, on June 16, 1993, respondent Salenga
filed a Motion to Maintain Status Quo and to
Issue Restraining Order16 which was set for
hearing on June 22, 1993. In the hearing,
however, only respondent Salenga with his
counsel appeared despite notice to the other
parties. Consequently, the ex-partepresentation
of respondent Salenga’s evidence in support of

the prayer for the issuance of a restraining order
was allowed, since the motion was unopposed,
and on July 21, 1993, respondent Ilao, Jr.
issued a TRO.17
Thereafter, respondent Salenga asked for
supervision of the harvest, which the board
sheriff did. Accordingly, defendants Lopez and
Lapid received their respective shares while
respondent Salenga was given his share under
protest. In the subsequent hearing for the
issuance of a preliminary injunction, again, only
respondent Salenga appeared and presented
his evidence for the issuance of the writ.
Pending resolution of the case, Faustino
Mercado, as Attorney-in-Fact of the fishpond
owner Paciencia Regala, filed a motion to
intervene which was granted by respondent
Ilao, Jr. through the November 15, 1993 Order.
After the trial, respondent Ilao, Jr. rendered a
Decision on May 29, 1995 dismissing the
Complaint for lack of merit; but losing plaintiff,
respondent Salenga, appealed the decision
before the DARAB Appellate Board.
Complaint Before the Ombudsman
On November 24, 1994, pending resolution of
the agrarian case, the instant case was
instituted by petitioner Antonio Baltazar, an
alleged nephew of Faustino Mercado, through a
Complaint-Affidavit18 against private
respondents before the Office of the
Ombudsman which was docketed as OMB-1-
94-3425 entitled Antonio B. Baltazar v. Eulogio
Mariano, Jose Jimenez, Jr., Toribio Ilao, Jr. and
Ernesto Salenga for violation of RA 3019.
Petitioner charged private respondents of
conspiracy through the issuance of the TRO in
allowing respondent Salenga to retain
possession of the fishpond, operate it, harvest
the produce, and keep the sales under the
safekeeping of other private respondents.
Moreover, petitioner maintains that respondent
Ilao, Jr. had no jurisdiction to hear and act on
DARAB Case No. 552-P’93 filed by respondent
Salenga as there was no tenancy relation
between respondent Salenga and Rafael L.
Lopez, and thus, the complaint was dismissible
on its face.
AGENCY ACJUCO 2nd MEETING 40
Through the December 14, 1994 Order,19 the
Ombudsman required private respondents to
file their counter-affidavits, affidavits of their
witnesses, and other controverting evidence.
While the other respondents submitted their
counter-affidavits, respondent Ilao, Jr. instead
filed his February 9, 1995 motion to dismiss,
February 21, 1995 Reply, and March 24, 1995
Rejoinder.
Ombudsman’s Determination of Probable
Cause
On May 10, 1996, the Ombudsman issued a
Resolution20 finding cause to bring respondents
to court, denying the motion to dismiss of
respondent Ilao, Jr., and recommending the
filing of an Information for violation of Section 3
(e) of RA 3019. Subsequently, respondent Ilao,
Jr. filed his September 16, 1996 Motion for
Reconsideration and/or Re-
21
investigation which was denied through the
October 3, 1996 Order.22 Consequently, the
March 17, 1997 Information23 was filed against
all the private respondents before the
Sandiganbayan which was docketed as
Criminal Case No. 23661.
Before the graft court, respondent Ilao, Jr. filed
his May 19, 1997 Motion for Reconsideration
and/or Re-investigation which was granted
through the August 29, 1997 Order.24 On
September 8, 1997, respondent Ilao, Jr.
subsequently filed his Counter-Affidavit25 with
attachments while petitioner did not file any
reply-affidavit despite notice to him. The OSP of
the Ombudsman conducted the re-
investigation; and the result of the re-
investigation was embodied in the assailed
November 26, 1997 Order26 which
recommended the dismissal of the complaint in
OMB-1-94-3425 against all private
respondents. Upon review, the Ombudsman
approved the OSP’s recommendation on
August 21, 1998.
Petitioner’s Motion for Reconsideration27 was
likewise denied by the OSP through the October
30, 1998 Memorandum28 which was approved
by the Ombudsman on November 27, 1998.
Consequently, the trial prosecutor moved orally
before the Sandiganbayan for the dismissal of

Criminal Case No. 23661 which was granted
through the December 11, 1998 Order.29
Thus, the instant petition is before us.
The Issues
Petitioner raises two assignments of errors, to
wit:
THE HONORABLE OMBUDSMAN ERRED IN
GIVING DUE COURSE A MISPLACED
COUNTER-AFFIDAVIT FILED AFTER THE
TERMINATION OF THE PRELIMINARY
INVESTIGATION AND/OR THE CASE WAS
ALREADY FILED BEFORE THE
SANDIGANBAYAN.
ASSUMING OTHERWISE, THE HONORABLE
OMBUDSMAN LIKEWISE ERRED IN
REVERSING HIS OWN RESOLUTION
WHERE IT WAS RESOLVED THAT ACCUSED
AS PROVINCIAL AGRARIAN ADJUDICATOR
HAS NO JURISDICTION OVER A COMPLAINT
WHERE THERE EXIST [sic] NO TENANCY
RELATIONSHIP CONSIDERING [sic]
COMPLAINANT IS NOT A TENANT BUT A
"BANTE-ENCARGADO" OR WATCHMAN-
OVERSEER HIRED FOR A SALARY OF
P3,000.00 PER MONTH AS ALLEGED IN HIS
OWN COMPLAINT.30
Before delving into the errors raised by
petitioner, we first address the preliminary
procedural issue of the authority and locus
standi of petitioner to pursue the instant petition.
Preliminary Issue: Legal Standing
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.
AGENCY ACJUCO 2nd MEETING 41
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.34Thus, 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 his appearance 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-P’93 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-P’93.
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 Attorney35 (SPA)
from Faustino Mercado. However, such SPA is
unavailing for petitioner. For one, petitioner’s
principal, Faustino Mercado, is an agent himself
and as such cannot further delegate his agency
to another. Otherwise put, an agent cannot
delegate to another the same agency. The legal
maxim potestas delegata non delegare potest;
a power once delegated cannot be re-
delegated, while applied primarily in political law
to the exercise of legislative power, is a principle
of agency.36 For another, a re-delegation of the
agency would be detrimental to the principal as
the second agent has no privity of contract with
the former. In the instant case, petitioner has no
privity of contract with Paciencia Regala, owner
of the fishpond and principal of Faustino
Mercado.
Moreover, while the Civil Code under Article
189237 allows the agent to appoint a substitute,
such is not the situation in the instant case. The
SPA clearly delegates the agency to petitioner
to pursue the case and not merely as a
substitute. Besides, it is clear in the aforecited
AGENCY ACJUCO 2nd MEETING 42
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. The prosecution is ordered to conduct
a reinvestigation within a period of thirty (30)
days.38 (Emphases supplied.)
As it is, public respondent Ombudsman through
the OSP did not exercise any discretion in
allowing respondent Ilao, Jr. to submit his
Counter-Affidavit. The OSP simply followed the
graft court’s directive to conduct the re-
investigation after the Counter-Affidavit of
respondent Ilao, Jr. was filed. Indeed, petitioner
did not contest nor question the August 29, 1997
Order of the graft court. Moreover, petitioner did
not file any reply-affidavit in the re-investigation
despite notice.
Re-investigation upon sound discretion of
graft court
AGENCY ACJUCO 2nd MEETING 43
Furthermore, neither can we fault the graft court
in granting the prayed for re-investigation as it
can readily be seen from the antecedent facts
that respondent Ilao, Jr. was not given the
opportunity to file his Counter-Affidavit.
Respondent Ilao, Jr. filed a motion to dismiss
with the Ombudsman but such was not resolved
before the Resolution—finding cause to bring
respondents to trial—was issued. In fact,
respondent Ilao, Jr.’s motion to dismiss was
resolved only through the May 10, 1996
Resolution which recommended the filing of an
Information. Respondent Ilao, Jr.’s Motion for
Reconsideration and/or Re-investigation was
denied and the Information was filed with the
graft court.
Verily, courts are given wide latitude to accord
the accused ample opportunity to present
controverting evidence even before trial as
demanded by due process. Thus, we held
in Villaflor v. Vivar that "[a] component part of
due process in criminal justice, preliminary
investigation is a statutory and substantive right
accorded to the accused before trial. To deny
their claim to a preliminary investigation would
be to deprive them of the full measure of their
right to due process."39
Second Issue: Agrarian Dispute
Anent the second assignment of error, petitioner
contends that DARAB Case No. 552-P’93 is not
an agrarian dispute and therefore outside the
jurisdiction of the DARAB. He maintains that
respondent Salenga is not an agricultural tenant
but a mere watchman of the fishpond owned by
Paciencia Regala. Moreover, petitioner further
argues that Rafael Lopez and Lourdes Lapid,
the respondents in the DARAB case, are not the
owners of the fishpond.
Nature of the case determined by allegations
in the complaint
This argument is likewise bereft of merit.
Indeed, as aptly pointed out by respondents and
as borne out by the antecedent facts,
respondent Ilao, Jr. could not have acted
otherwise. It is a settled rule that jurisdiction
over the subject matter is determined by the
allegations of the complaint.40 The nature of an
action is determined by the material averments
 AGENCY ACJUCO 2nd MEETING 44

in the complaint and the character of the relief probable cause or cause to bring respondents
sought,41 not by the defenses asserted in the to trial. Firstly, petitioner has not shown that the
answer or motion to dismiss.42 Given that Ombudsman committed grave abuse of
respondent Salenga’s complaint and its discretion in rendering such reversal. Secondly,
attachment clearly spells out the jurisdictional it is clear from the records that the initial finding
allegations that he is an agricultural tenant in embodied in the May 10, 1996 Resolution was
possession of the fishpond and is about to be arrived at before the filing of respondent Ilao,
ejected from it, clearly, respondent Ilao, Jr. Jr.’s Counter-Affidavit. Thirdly, it is the
could not be faulted in assuming jurisdiction as responsibility of the public prosecutor, in this
said allegations characterize an agricultural case the Ombudsman, to uphold the law, to
dispute. Besides, whatever defense asserted in prosecute the guilty, and to protect the innocent.
an answer or motion to dismiss is not to be Lastly, the function of determining the existence
considered in resolving the issue on jurisdiction of probable cause is proper for the Ombudsman
as it cannot be made dependent upon the in this case and we will not tread on the realm of
allegations of the defendant. this executive function to examine and assess
evidence supplied by the parties, which is
Issuance of TRO upon the sound discretion
supposed to be exercised at the start of criminal
of hearing officer
proceedings. In Perez v. Hagonoy Rural Bank,
As regards the issuance of the TRO, Inc.,46 as cited in Longos Rural Waterworks and
considering the proper assumption of Sanitation Association, Inc. v. Hon.
47
Desierto, we had occasion to rule that we
jurisdiction by respondent Ilao, Jr., it can be
readily culled from the antecedent facts that his cannot pass upon the sufficiency or insufficiency
issuance of the TRO was a proper exercise of of evidence to determine the existence of
discretion. Firstly, the averments with evidence probable cause.48
as to the existence of the need for the issuance
WHEREFORE, the instant petition
of the restraining order were manifest in
is DENIED for lack of merit, and the November
respondent Salenga’s Motion to Maintain Status
26, 1997 Order and the October 30, 1998
Quo and to Issue Restraining Order,43 the
Memorandum of the Office of the Special
attached Police Investigation Report,44 and
Prosecutor in Criminal Case No. 23661 (OMB-
Medical Certificate.45 Secondly, only
1-94-3425) are hereby AFFIRMED IN TOTO,
respondent Salenga attended the June 22, 1993
with costs against petitioner.
hearing despite notice to parties. Hence,
Salenga’s motion was not only unopposed but SO ORDERED.
his evidence adduced ex-parte also adequately
supported the issuance of the restraining order.
Premises considered, respondent Ilao, Jr. has
correctly assumed jurisdiction and properly
exercised his discretion in issuing the TRO—as
respondent Ilao, Jr. aptly maintained that giving
due course to the complaint and issuing the
TRO do not reflect the final determination of the
merits of the case. Indeed, after hearing the
case, respondent Ilao, Jr. rendered a Decision
on May 29, 1995 dismissing DARAB Case No.
552-P’93 for lack of merit.
Court will not review prosecutor’s
determination of probable cause
Finally, we will not delve into the merits of the
Ombudsman’s reversal of its initial finding of

G.R. No. 130423 November 18, 2002
VIRGIE SERONA, petitioner,
vs.
HON. COURT OF APPEALS and THE
PEOPLE OF THE PHILIPPINES, respondents.
DECISION
YNARES-SANTIAGO, J.:
During the period from July 1992 to September
1992, Leonida Quilatan delivered pieces of
jewelry to petitioner Virgie Serona to be sold on
commission basis. By oral agreement of the
parties, petitioner shall remit payment or return
the pieces of jewelry if not sold to Quilatan, both
within 30 days from receipt of the items.
Upon petitioner’s failure to pay on September
24, 1992, Quilatan required her to execute an
acknowledgment receipt (Exhibit B) indicating
their agreement and the total amount due, to wit:
Ako, si Virginia Serona, nakatira sa Mother
Earth Subd., Las Pinas, ay kumuha ng mga
alahas kay Gng. Leonida Quilatan na may
kabuohang halaga na P567,750.00 para ipagbili
para ako magkakomisyon at ibibigay ang benta
kung mabibili o ibabalik sa kanya ang mga
nasabing alahas kung hindi mabibili sa loob ng
30 araw.
Las Pinas, September 24, 1992.1
The receipt was signed by petitioner and a
witness, Rufina G. Navarette.
Unknown to Quilatan, petitioner had earlier
entrusted the jewelry to one Marichu Labrador
for the latter to sell on commission basis.
Petitioner was not able to collect payment from
Labrador, which caused her to likewise fail to
pay her obligation to Quilatan.
Subsequently, Quilatan, through counsel, sent a
formal letter of demand2 to petitioner for failure
to settle her obligation. Quilatan executed a
complaint affidavit3 against petitioner before the
Office of the Assistant Provincial Prosecutor.
Thereafter, an information for estafa under
Article 315, paragraph 1(b)4 of the Revised
Penal Code was filed against petitioner, which
was raffled to Branch 255 of the Regional Trial
Court of Las Pinas. The information alleged:
AGENCY ACJUCO 2nd MEETING 45
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
12
acknowledgment receipt (Exhibit 3) 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
AGENCY ACJUCO 2nd MEETING 46
minimum to Twenty (20) Years of Reclusion
Temporal.
SO ORDERED.15
Upon denial of her motion for
16
reconsideration, petitioner filed the instant
petition under Rule 45, alleging that:
I
RESPONDENT COURT OF APPEALS
SERIOUSLY ERRED IN CONCLUDING THAT
THERE WAS AN ABUSE OF CONFIDENCE
ON THE PART OF PETITIONER IN
ENTRUSTING THE SUBJECT JEWELRIES
(sic) TO HER SUB-AGENT FOR SALE ON
COMMISSION TO PROSPECTIVE BUYERS.
II
RESPONDENT COURT OF APPEALS
SERIOUSLY ERRED IN CONCLUDING THAT
THERE WAS MISAPPROPRIATION OR
CONVERSION ON THE PART OF
PETITIONER WHEN SHE FAILED TO
RETURN THE SUBJECT JEWELRIES (sic) TO
PRIVATE COMPLAINANT.17
Petitioner argues that the prosecution failed to
establish the elements of estafa as penalized
under Article 315, par. 1(b) of the Revised Penal
Code. In particular, she submits that she neither
abused the confidence reposed upon her by
Quilatan nor converted or misappropriated the
subject jewelry; that her giving the pieces of
jewelry to a sub-agent for sale on commission
basis did not violate her undertaking with
Quilatan. Moreover, petitioner delivered the
jewelry to Labrador under the same terms upon
which it was originally entrusted to her. It was
established that petitioner had not derived any
personal benefit from the loss of the jewelry.
Consequently, it cannot be said that she
misappropriated or converted the same.
We find merit in the petition.
The elements of estafa through
misappropriation or conversion as defined in
Article 315, par. 1(b) of the Revised Penal Code
are: (1) that the money, good or other personal
property is received by the offender in trust, or
on commission, or for administration, or under
any other obligation involving the duty to make

delivery of, or to return, the same; (2) that there
be misappropriation or conversion of such
money or property by the offender or denial on
his part of such receipt; (3) that such
misappropriation or conversion or denial is to
the prejudice of another; and (4) that there is a
demand made by the offended party on the
offender.18 While the first, third and fourth
elements are concededly present, we find the
second element of misappropriation or
conversion to be lacking in the case at bar.
Petitioner did not ipso facto commit the crime of
estafa through conversion or misappropriation
by delivering the jewelry to a sub-agent for sale
on commission basis. We are unable to agree
with the lower courts’ conclusion that this fact
alone is sufficient ground for holding that
petitioner disposed of the jewelry "as if it were
hers, thereby committing conversion and a clear
breach of trust."19
It must be pointed out that the law on agency in
our jurisdiction allows the appointment by an
agent of a substitute or sub-agent in the
absence of an express agreement to the
contrary between the agent and the
principal.20 In the case at bar, the appointment
of Labrador as petitioner’s sub-agent was not
expressly prohibited by Quilatan, as the
acknowledgment receipt, Exhibit B, does not
contain any such limitation. Neither does it
appear that petitioner was verbally forbidden by
Quilatan from passing on the jewelry to another
person before the acknowledgment receipt was
executed or at any other time. Thus, it cannot be
said that petitioner’s act of entrusting the jewelry
to Labrador is characterized by abuse of
confidence because such an act was not
proscribed and is, in fact, legally sanctioned.
The essence of estafa under Article 315, par.
1(b) is the appropriation or conversion of money
or property received to the prejudice of the
owner. The words "convert" and
"misappropriated" connote an act of using or
disposing of another’s property as if it were
one’s own, or of devoting it to a purpose or use
different from that agreed upon. To
misappropriate for one’s own use includes not
only conversion to one’s personal advantage,
AGENCY ACJUCO 2nd MEETING 47
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
 AGENCY ACJUCO 2nd MEETING 48

being no prohibition to do so and the chattel personal benefit from or conspired with
being delivered to the subagent before the Labrador to deprive Quilatan of the jewelry or its
owner demands its return or before such return value. Consequently, there is no estafa within
becomes due, we hold that the first agent can contemplation of the law.
not be held guilty of estafa by either
Notwithstanding the above, however, petitioner
misappropriation or conversion. The abuse of
is not entirely free from any liability towards
confidence that is characteristic of this offense
Quilatan. The rule is that an accused acquitted
is missing under the circumstances.23
of estafa may nevertheless be held civilly liable
Accordingly, petitioner herein must be acquitted. where the facts established by the evidence so
The lower courts’ reliance on People v. warrant. Then too, an agent who is not
Flores24 and U.S. v. Panes25 to justify prohibited from appointing a sub-agent but does
petitioner’s conviction is misplaced, considering so without express authority is responsible for
that the factual background of the cited cases the acts of the sub-agent.29 Considering that the
differ from those which obtain in the case at bar. civil action for the recovery of civil liability arising
In Flores, the accused received a ring to sell from the offense is deemed instituted with the
under the condition that she would return it the criminal action,30 petitioner is liable to pay
following day if not sold and without authority to complainant Quilatan the value of the unpaid
retain the ring or to give it to a sub-agent. The pieces of jewelry.
accused in Panes, meanwhile, was obliged to
WHEREFORE, the petition is GRANTED. The
return the jewelry he received upon demand, but
decision of the Court of Appeals in CA-G.R. CR
passed on the same to a sub-agent even after
No. 17222 dated April 30,1997 and its resolution
demand for its return had already been made. In
dated August 28, 1997 are REVERSED and
the foregoing cases, it was held that there was
SET ASIDE. Petitioner Virgie Serona is
conversion or misappropriation.
ACQUITTED of the crime charged, but is held
Furthermore, in Lim v. Court of Appeals,26 the civilly liable in the amount of P424,750.00 as
Court, citing Nepomuceno and the case of actual damages, plus legal interest, without
People v. Trinidad,27 held that: subsidiary imprisonment in case of insolvency.
In cases of estafa the profit or gain must be SO ORDERED.
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-agent’s 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

G.R. No. L-55630 March 6, 1990
IMPERIAL INSURANCE, INC. represented by
the IMPERIAL INSURANCE, INC., Cagayan
de Oro Branch Office Manager
BERNARDITO R. PULVERA, petitioner,
vs.
THE HONORABLE EULALIO D. ROSETE,
Judge of the Court of First Instance of
Misamis Oriental, Branch V, and CHIU ENG
HUA respondents.
Ariston M. Magallanes and Jesus Ma. Jajalla for
petitioner.
Quimpo, Willkom , Dadole & Mutia for private
respondent.
GANCAYCO, J.:
Section 2, Rule 1 of the Rules of Court provides
for the basic rule of thumb that said "rules shall
be liberally construed in order to promote its
objective and to assist the parties in obtaining
just, speedy, and inexpensive determination of
every action and proceeding." Its application is
put into test in the present case.
The antecedent facts are undisputed. Private
respondent filed a complaint for specific
performance and damages against petitioner
dated April 11, 1980 in the Court of First
Instance of Misamis Oriental, docketed as Civil
Case No. 7072. After receipt of service of
summons petitioner filed an answer with
counterclaim within the reglementary period.
The case was set for pre-trial conference on
August 5, 1980 of which the parties and their
counsel were duly notified. At said pre-trial
conference petitioner was represented by Atty.
Arturo A. Magallanes who presented a special
power of attorney executed by Bernardito R.
Pulvera, regional branch manager of petitioner
for Mindanao and Visayas, authorizing said
counsel to represent petitioner at the pre-trial
conference, to enter into any amicable
settlement and to do such other acts as may be
necessary to implement the authority. The
presiding judge refused to honor the same and
AGENCY ACJUCO 2nd MEETING 49
observed that it is only the Board of Directors of
the petitioner who may authorize the
appearance of the regional manager in behalf of
petitioner and that he cannot delegate his
functions. Counsel for private respondent stated
he was willing to give petitioner a chance to
produce the appropriate authority.
Nevertheless, the respondent judge declared
the petitioner in default in an order dated August
5, 1980 and set the reception of the evidence for
the private respondent on August 12, 1980. 1
A motion to set aside the said order of default
was filed by petitioner, stating therein that the
rules of court should be liberally construed, that
the special power of attorney was submitted in
good faith and that there are meritorious and
good defenses as shown in the attached
affidavit showing that as early as June 1980
Pulvera had asked for such a special power of
attorney from the main office in Manila but the
same had not yet arrived and will be submitted
upon receipt. The motion was denied in an order
dated August 27, 1980.
A motion for reconsideration of the denial was
filed by the petitioner alleging that it is within the
implied powers and duties of the regional
branch manager of petitioner to represent the
petitioner and in the process to settle claims
against petitioner as this has been done in a
similar case that was amicably settled before
the same court docketed as Civil Case No.
6316; and that the special power of attorney of
Atty. Arturo Magallanes to represent the
petitioner was executed in good faith. The
motion for reconsideration was likewise denied
for lack of merit on October 17, 1982.
Hence, the herein petition
for certiorari and/or mandamus wherein
petitioner alleges that the respondent judge
acted without or in excess of jurisdiction and in
grave abuse of discretion in declaring petitioner
in default and in denying the motion for
reconsideration of the order of default.
The petition is impressed with merit.
In Civil Case No. 6316 entitled "Heirs of Ruiz
Dosdos, et al. vs. Andres Tan; and Andres Tan
as third party plaintiff vs. Imperial Insurance,
third party defendant", filed in the Court of First
 AGENCY ACJUCO 2nd MEETING 50

Instance of Misamis Oriental, Cagayan de Oro There can be no doubt therefore that regional
City, presided by the respondent Judge, a branch manager Pulvera, as regional manager
special power of attorney was presented dated for Visayas and Mindanao of petitioner, was
June 20, 1979 executed by the same regional authorized to represent petitioner in any
manager of petitioner in favor of Carmelito litigation and in the process to enter into a
Gaburno, production manager of sales of compromise agreement or settlement thereof.
petitioner, to appear in behalf of petitioner in all As such agent of petitioner he may appoint a
stages of the case and to enter into any substitute as he was not prohibited from doing
stipulation of facts. 2 A compromise agreement so by his principal. 7
was entered into by the parties assisted by their
Moreover, even assuming for the sake of
respective counsel and the same was submitted
argument that the observations of the
for approval of the court wherein Carmelito
respondent judge is correct in that a board
Gaburno signed for and in behalf of petitioner.
resolution of the petitioner is required for the
In an order dated November 27, 1979 the
purposes of authorizing Pulvera and/or
respondent judge approved the compromise
Magallanes to bind the petitioner, the counsel
agreement by rendering judgment in
3 for the private respondent manifested to the
accordance therewith.
respondent judge his willingness to give the
Thus, when at the pre-trial conference of Civil petitioner an opportunity to comply with the
Case No. 7072 before the same respondent requirement of the court. Just the same, the
judge a special power of attorney executed by respondent judge declared petitioner to be in
Pulvera on July 31, 1980 in favor of Atty. default. No doubt, the respondent judge was
Magallanes to appear in behalf of petitioner and unnecessarily harsh when the Rules call for
to enter into any amicable settlement 4 was liberality in such cases.
presented, the court finds no cogent reason why
This is a case where petitioner filed an answer
the respondent judge refused to honor the said
with counterclaim and advanced apparently a
special power of attorney for purposes of the
meritorious and valid defense. It should be given
pre-trial and instead declared the petitioner to
its day in court and the opportunity to prove its
be in default.
assertions. This is the situation contemplated by
Obviously in the earlier case, Civil Case No. the Rules. The courts must lean in favor of
6316, the respondent judge accepted and/or affording substantial justice as against a
acknowledged the authority of Pulvera as technical requirement.
regional branch manager of the petitioner to
WHEREFORE, the questioned orders of the
represent the petitioner, to enter into a
respondent judge dated August 6, 1980, August
compromise agreement and as such to execute
27, 1980 and October 17, 1980 are hereby
a special power of attorney in favor of another
REVERSED AND SET ASIDE and the record of
person to act in his place and to represent the
this case is remanded to the trial court for further
petitioner in the litigation.
proceedings. No costs in this instance.
Indeed, in another case docketed as Civil Case
SO ORDERED.
No. 2899 entitled Gil Ecleo vs. Lydia Sacal and
Imperial Insurance, Inc., in the Court of First
Instance of Surigao del Norte, Surigao City a
similar special power of attorney for purposes of
pre-trial was executed by regional branch
manager Pulvera in favor of Atty. Magallanes
dated December 9, 1980. 5 A compromise
agreement was entered into by Magallanes in
behalf of petitioner which was duly approved by
the trial court on January 13, 1981. 6

[G.R. No. 82978. November 22, 1990.]
THE MANILA REMNANT CO.,
INC., Petitioner, v. THE HONORABLE
COURT OF APPEALS and OSCAR
VENTANILLA, JR. and CARMEN GLORIA
DIAZ, Respondents.
Bede S. Talingcos, for Petitioners.
Augusto Gatmaytan for Private Respondent.
SYLLABUS
1. CIVIL LAW; AGENCY; FAILURE OF THE
PRINCIPAL TO CORRECT AN
IRREGULARITY DESPITE KOWLEDGE
THEREOF, DEEMED A RATIFICATION OF
THE ACT OF THE AGENT. — In the case at
bar, the Valencia realty firm had clearly
overstepped the bounds of its authority as agent
— and for that matter, even the law — when it
undertook the double sale of the disputed lots.
Such being the case, the principal, Manila
Remnant, would have been in the clear
pursuant to Article 1897 of the Civil Code which
states that" (t)he agent who acts as such is not
personally liable to that party with whom he
contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving
such party sufficient notice of his powers."
However, the unique relationship existing
between the principal and the agent at the time
of the dual sale must be underscored. Bear in
mind that the president then of both firms was
Artemio U. Valencia, the individual directly
responsible for the sale scam. Hence, despite
the fact that the double sale was beyond the
power of the agent, Manila Remnant as principal
was chargeable with the knowledge or
constructive notice of that fact and not having
done anything to correct such an irregularity
was deemed to have ratified the same. (See Art.
1910, Civil Code.)
2. ID.; ID.; PRINCIPLE OF ESTOPPEL;
REASON AND EFFECT THEREOF; CASE AT
AGENCY ACJUCO 2nd MEETING 51
BAR. — 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 is solidarily
liable with the agent if the former allowed the
latter to act as though he had full powers." The
above-quoted article is new. It is intended to
protect the rights of innocent persons. In such a
situation, both the principal and the agent may
be considered as joint feasors whose liability is
joint and solidary (Verzosa v. Lim, 45 Phil. 416).
Authority by estoppel has arisen in the instant
case because by its negligence, the principal,
Manila Remnant, has permitted its agent, A.U.
Valencia and Co., to exercise powers not
granted to it. That the principal might not have
had actual knowledge of the agent’s misdeed is
of no moment.
DECISION
FERNAN, J.:
Like any other couple, Oscar Ventanilla and his
wife Carmen, both faculty members of the
University of the Philippines and renting a
faculty unit, dreamed of someday owning a
house and lot. Instead of attaining this dream,
they became innocent victims of deceit and
found themselves in the midst of an ensuing
squabble between a subdivision owner and its
real estate agent.
The facts as found by the trial court and adopted
by the Appellate Court are as follows:
Petitioner Manila Remnant Co., Inc. is the owner
of the parcels of land situated in Quezon City
covered by Transfer Certificates of Title Nos.
26400, 26401, 30783 and 31986 and
constituting the subdivision known as Capital
Homes Subdivision Nos. I and II. On July 25,
1972, Manila Remnant and A.U. Valencia & Co.
Inc. entered into a written agreement entitled
"Confirmation of Land Development and Sales
Contract" to formalize an earlier verbal
agreement whereby for a consideration of 17
and 1/2% fee, including sales commission and
management fee, A.U. Valencia and Co., Inc.
was to develop the aforesaid subdivision with

authority to manage the sales thereof, execute
contracts to sell to lot buyers and issue official
receipts. 1 confirmations received from lot buyers. 4 As a
At that time the President of both A.U. Valencia
and Co. Inc. and Manila Remnant Co., Inc. was
Artemio U. Valencia.
On March 3, 1970, Manila Remnant thru A.U.
Valencia and Co. executed two "contracts to
sell" covering Lots 1 and 2 of Block 17 in favor
of Oscar C. Ventanilla and Carmen Gloria Diaz
for the combined contract price of P66,571.00
payable monthly for ten years. 2 As thus agreed
in the contracts to sell, the Ventanillas paid the
down payments on the two lots even before the
formal contract was signed on March 3, 1970.
Ten (10) days after the signing of the contracts
with the Ventanillas or on March 13, 1970,
Artemio U. Valencia, as President of Manila
Remnant, and without the knowledge of the
Ventanilla couple, sold Lots 1 and 2 of Block 17
again, this time in favor of Carlos Crisostomo,
one of his sales agents without any
consideration. 3 Artemio Valencia then
transmitted the fictitious Crisostomo contracts to
Manila Remnant while he kept in his files the
contracts to sell in favor of the Ventanillas. All
the amounts paid by the Ventanillas were
deposited in Valencia’s bank account.
Beginning March 13, 1970, upon orders of
Artemio Valencia, the monthly payments of the
Ventanillas were remitted to Manila Remnant as
payments of Crisostomo for which the former
issued receipts in favor of Crisostomo. Since
Valencia kept the receipts in his files and never
transmitted the same to Crisostomo, the latter
and the Ventanillas remained ignorant of
Valencia’s scheme. Thus, the Ventanillas
continued paying their monthly installments.
Subsequently, the harmonious business
relationship between Artemio Valencia and
Manila Remnant ended. On May 30, 1973,
Manila Remnant, through its General Manager
Karl Landahl, wrote Artemio Valencia informing
him that Manila Remnant was terminating its
existing collection agreement with his firm on
account of the considerable amount of
AGENCY ACJUCO 2nd MEETING 52
discrepancies and irregularities discovered in its
collections and remittances by virtue of
consequence, on June 6, 1973, Artemio
Valencia was removed as President by the
Board of Directors of Manila Remnant.
Therefore, from May of 1973, Valencia stopped
transmitting Ventanilla’s monthly installments
which at that time had already amounted to
P17,925.40 for Lot 1 and P18,141.95 for Lot 2,
(which appeared in Manila Remnant’s record as
credited in the name of Crisostomo). 5
On June 8, 1973, A.U. Valencia and Co. sued
Manila Remnant before Branch 19 of the then
Court of First Instance of Manila 6 to impugn the
abrogation of their agency agreement. On June
10 and July 10, 1973, said court ordered all lot
buyers to deposit their monthly amortizations
with the court. 7 But on July 17, 1973, A.U.
Valencia and Co. wrote the Ventanillas that it
was still authorized by the court to collect the
monthly amortizations and requested them to
continue remitting their amortizations with the
assurance that said payments would be
deposited later in court. 8 On May 22, 1974, the
trial court issued an order prohibiting A.U.
Valencia and Co. from collecting the monthly
installments. 9 On July 22, 1974 and February
6, 1976 the same court ordered the Valencia
firm to furnish the court with a complete list of all
lot buyers who had already made down
payments to Manila Remnant before December
1972. 10 Valencia complied with the court’s
order on August 6, 1974 by submitting a list
which excluded the name of the Ventanillas. 11
Since A.U. Valencia and Co. failed to forward its
collections after May 1973, Manila Remnant
caused on August 20, 1976 the publication in
the Times Journal of a notice cancelling the
contracts to sell of some lot buyers including
that of Carlos Crisostomo in whose name the
payments of the Ventanillas had been credited.
12
To prevent the effective cancellation of their
contracts, Artemio Valencia instigated on
September 22, 1976 the filing by Carlos
Crisostomo and seventeen (17) other lot
vendees of a complaint for specific performance

with damages against Manila Remnant before
the Court of First Instance of Quezon City. The
complaint alleged that Crisostomo had already
paid a total of P17,922.40 and P18,136.85 on
Lots 1 and 2, respectively. 13
It was not until March 1978 when the
Ventanillas, after learning of the termination of
the agency agreement between Manila
Remnant and A.U. Valencia & Co., decided to
stop paying their amortizations to the latter. The
Ventanillas, believing that they had already
remitted P37,007.00 for Lot 1 and P36,911.00
for Lot 2 or a grand total, inclusive of interest, of
P73,122.35 for the two lots, thereby leaving a
balance of P13,531.58 for Lot 1 and P13,540.22
for Lot 2, went directly to Manila Remnant and
offered to pay the entire outstanding balance of
the purchase price. 14 To their shock and utter
consternation, they discovered from Gloria
Caballes, an accountant of Manila Remnant,
that their names did not appear in the records of
A.U. Valencia and Co. as lot buyers. Caballes
showed the Ventanillas copies of the contracts
to sell in favor of Carlos Crisostomo, duly signed
by Artemio U. Valencia as President of Manila
Remnant. 15 Whereupon, Manila Remnant
refused the offer of the Ventanillas to pay for the
remainder of the contract price because they did
not have the personality to do so. Furthermore,
they were shown the published Notice of
Cancellation in the January 29, 1978 issue of
the Times Journal rescinding the contracts of
delinquent buyers including Crisostomo.
Thus, on November 21, 1978, the Ventanillas
commenced an action for specific performance,
annulment of deeds and damages against
Manila Remnant, A.U. Valencia and Co. and
Carlos Crisostomo before the Court of First
Instance of Quezon City, Branch 17-B. 16
Crisostomo was declared in default for failure to
file an answer.
On November 17, 1980, the trial court rendered
a decision 1) declaring the contracts to sell
issued in favor of the Ventanillas valid and
subsisting and annulling the contracts to sell in
Crisostomo’s favor; 2) ordering Manila Remnant
to execute in favor of the Ventanillas an
Absolute Deed of Sale free from all liens and
AGENCY ACJUCO 2nd MEETING 53
encumbrances; and 3) condemning defendants
A.U. Valencia and Co. Inc., Manila Remnant
and Carlos Crisostomo jointly and severally to
pay the Ventanillas the amount of P100,000.00
as moral damages, P100,000.00 as exemplary
damages, and P100,000.00 as attorney’s fees.
The lower court also added that if, for any legal
reason, the transfer of the lots could no longer
be effected, the defendants should reimburse
jointly and severally to the Ventanillas the total
amount of P73,122.35 representing the total
amount paid for the two lots plus legal interest
thereon from March 1970 plus damages as
aforestated. With regard to the cross claim of
Manila Remnant against Valencia, the court
found that Manila Remnant could have not been
dragged into this suit without the fraudulent
manipulations of Valencia. Hence, it adjudged
A.U. Valencia and Co. to pay the Manila
Remnant P5,000.00 as moral damages and
exemplary damages and P5,000.00 as
attorney’s fees. 17
Subsequently, Manila Remnant and A.U.
Valencia and Co. elevated the lower court’s
decision to the Court of Appeals through
separate appeals. On October 13, 1987, the
Appellate Court affirmed in toto the decision of
the lower court. Reconsideration sought by
petitioner Manila Remnant was denied, hence
the instant petition.
There is no question that the contracts to sell in
favor of the Ventanilla spouses are valid and
subsisting. The only issue remaining is whether
or not petitioner Manila Remnant should be held
solidarily liable together with A.U. Valencia and
Co. and Carlos Crisostomo for the payment of
moral, exemplary damages and attorney’s fees
in favor of the Ventanillas. 18
While petitioner Manila Remnant has not refuted
the legality of the award of damages per se, it
believes that it cannot be made jointly and
severally liable with its agent A.U. Valencia and
Co. since it was not aware of the illegal acts
perpetrated nor did it consent or ratify said acts
of its agent.
The argument is devoid of merit.

In the case at bar, the Valencia realty firm had
clearly overstepped the bounds of its authority
as agent — and for that matter, even the law —
when it undertook the double sale of the
disputed lots. Such being the case, the principal,
Manila Remnant, would have been in the clear
pursuant to Article 1897 of the Civil Code which
states that" (t)he agent who acts as such is not
personally liable to that party with whom he
contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving
such party sufficient notice of his
powers." chanrobles.com.ph : virtual law library
However, the unique relationship existing
between the principal and the agent at the time
of the dual sale must be underscored. Bear in
mind that the president then of both firms was
Artemio U. Valencia, the individual directly
responsible for the sale scam. Hence, despite
the fact that the double sale was beyond the
power of the agent, Manila Remnant as principal
was chargeable with the knowledge or
constructive notice of that fact and not having
done anything to correct such an irregularity
was deemed to have ratified the same. 19
More in point, we find that by the principle of
estoppel, Manila Remnant is deemed to have
allowed its agent to act as though it had plenary
powers. Article 1911 of the Civil Code provides:
"Even when the agent has exceeded his
authority, the principal is solidarily liable with the
agent if the former allowed the latter to act as
though he had full powers." (Emphasis
supplied)
The above-quoted article is new. It is intended
to protect the rights of innocent persons. In such
a situation, both the principal and the agent may
be considered as joint feasors whose liability is
joint and solidary. 20
Authority by estoppel has arisen in the instant
case because by its negligence, the principal,
Manila Remnant, has permitted its agent, A.U.
Valencia and Co., to exercise powers not
granted to it. That the principal might not have
had actual knowledge of the agent’s misdeed is
of no moment. Consider the following
AGENCY ACJUCO 2nd MEETING 54
circumstances:
Firstly, Manila Remnant literally gave carte
blanche to its agent A.U. Valencia and Co. in the
sale and disposition of the subdivision lots. As a
disclosed principal in the contracts to sell in
favor of the Ventanilla couple, there was no
doubt that they were in fact contracting with the
principal. Section 7 of the Ventanillas’ contracts
to sell states:
"7. That all payments whether deposits, down
payment and monthly installment agreed to be
made by the vendee shall be payable to A.U.
Valencia and Co., Inc. It is hereby expressly
understood that unauthorized payments made
to real estate brokers or agents shall be the sole
and exclusive responsibility and at the risk of the
vendee and any and all such payments shall not
be recognized by the vendors unless the official
receipts therefor shall have been duly signed by
the vendors’ duly authorized agent, A.U.
Valencia and Co., Inc." (Emphasis supplied)
Indeed, once Manila Remnant had been
furnished with the usual copies of the contracts
to sell, its only participation then was to accept
the collections and pay the commissions to the
agent. The latter had complete control of the
business arrangement. 21
Secondly, it is evident from the records that
Manila Remnant was less than prudent in the
conduct of its business as a subdivision owner.
For instance, Manila Remnant failed to take
immediate steps to avert any damage that might
be incurred by the lot buyers as a result of its
unilateral abrogation of the agency contract.
The publication of the cancelled contracts to sell
in the Times Journal came three years after
Manila Remnant had revoked its agreement
with A.U. Valencia and Co.
Moreover, Manila Remnant also failed to check
the records of its agent immediately after the
revocation of the agency contract despite the
fact that such revocation was due to reported
anomalies in Valencia’s collections. Altogether,
as pointed out by the counsel for the
Ventanillas, Manila Remnant could and should
have devised a system whereby it could monitor
 AGENCY ACJUCO 2nd MEETING 55

and require a regular accounting from A.U.

Valencia and Co., its agent. Not having done so,
Manila Remnant has made itself liable to those
who have relied on its agent and the
representation that such agent was clothed with
sufficient powers to act on behalf of the
principal.

Even assuming that Manila Remnant was as

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

In essence, therefore, the basis for Manila

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

A final word. The Court cannot help but be

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

WHEREFORE, in view of the foregoing, the

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

SO ORDERED.